Beat the Press

Beat the press por Dean Baker

Beat the Press is Dean Baker's commentary on economic reporting. He is a Senior Economist at the Center for Economic and Policy Research (CEPR). To never miss a post, subscribe to a weekly email roundup of Beat the Press. Please also consider supporting the blog on Patreon.

When the unemployment rate goes up, a standard theme in the media is that workers don’t have the right skills. We saw that yesterday in the New York Times when an article told us “The Pandemic Has Accelerated Demands for a More Skilled Workforce.” It tells us how the growth of telecommuting in response to the pandemic has led to more demand for skilled labor and less demand for less-skilled workers.

The key point in this sort of argument is that the problem is the workers, who don’t have the right skills, not an economy that doesn’t create enough demand for labor. Of course, we get this skills shortage argument every time the unemployment rate soars. In the summer of 2010, when the Great Recession was still near its trough, the NYT ran a piece telling us about the skills shortage in manufacturing. Over the next nine and a half years the sector added almost 1.3 million jobs (11.3 percent), without any notable improvement in the skills of the U.S. workforce. The overall unemployment rate fell to 3.5 percent, again without any major gains in skills in the U.S. workforce.

The focus on the skills gap is even more infuriating since even if there were an issue with demand for skills that would be the result of policy, not technology, as the piece implies. We have lots of jobs in areas like computers and biotech because the government gives out patent and copyright monopolies in these areas. If we are worried that we are creating too much demand for people with advanced skills and not enough demand for people with less education, we can make these monopolies shorter and weaker, or perhaps not even have them at all.

The latter possibility should be a major topic of debate in the context of the pandemic. The government is paying billions of dollars to drug companies for research and testing of various treatments and vaccines to combat the coronavirus. Incredibly, after putting billions of dollars upfront, and taking the big risks, the government is giving the companies patent monopolies which will allow them to charge whatever they want for what was developed on the government’s nickel.

This will likely mean redistributing tens of billions from everyone else to the shareholders, top executives, and key employees in these companies. If we don’t want to see this upward redistribution (also from Black to white, since the beneficiaries in this story are almost certainly overwhelmingly white) the key is not more skills for our workers, the key is for the government not to be giving out patent monopolies for work it has paid for.

To be clear, this is not an argument against education and training. It would be good for workers and the economy if we had a better-trained workforce. But the reason we have high unemployment today, and may have high unemployment for some time into the future, is not a lack of skills, it is a failure of economic policy.

When the unemployment rate goes up, a standard theme in the media is that workers don’t have the right skills. We saw that yesterday in the New York Times when an article told us “The Pandemic Has Accelerated Demands for a More Skilled Workforce.” It tells us how the growth of telecommuting in response to the pandemic has led to more demand for skilled labor and less demand for less-skilled workers.

The key point in this sort of argument is that the problem is the workers, who don’t have the right skills, not an economy that doesn’t create enough demand for labor. Of course, we get this skills shortage argument every time the unemployment rate soars. In the summer of 2010, when the Great Recession was still near its trough, the NYT ran a piece telling us about the skills shortage in manufacturing. Over the next nine and a half years the sector added almost 1.3 million jobs (11.3 percent), without any notable improvement in the skills of the U.S. workforce. The overall unemployment rate fell to 3.5 percent, again without any major gains in skills in the U.S. workforce.

The focus on the skills gap is even more infuriating since even if there were an issue with demand for skills that would be the result of policy, not technology, as the piece implies. We have lots of jobs in areas like computers and biotech because the government gives out patent and copyright monopolies in these areas. If we are worried that we are creating too much demand for people with advanced skills and not enough demand for people with less education, we can make these monopolies shorter and weaker, or perhaps not even have them at all.

The latter possibility should be a major topic of debate in the context of the pandemic. The government is paying billions of dollars to drug companies for research and testing of various treatments and vaccines to combat the coronavirus. Incredibly, after putting billions of dollars upfront, and taking the big risks, the government is giving the companies patent monopolies which will allow them to charge whatever they want for what was developed on the government’s nickel.

This will likely mean redistributing tens of billions from everyone else to the shareholders, top executives, and key employees in these companies. If we don’t want to see this upward redistribution (also from Black to white, since the beneficiaries in this story are almost certainly overwhelmingly white) the key is not more skills for our workers, the key is for the government not to be giving out patent monopolies for work it has paid for.

To be clear, this is not an argument against education and training. It would be good for workers and the economy if we had a better-trained workforce. But the reason we have high unemployment today, and may have high unemployment for some time into the future, is not a lack of skills, it is a failure of economic policy.

Ross Douthat has good news for folks who don’t like China. His NYT column yesterday told us that China’s economy will run out of steam in a decade and that the U.S. will again be able to reclaim world leadership after 2030. The problem is that the piece presents nothing to support this claim.

After telling readers that China is passing the U.S. for world leadership due to the inept presidency of Donald Trump, Douthat gets to the meat of his piece:

“It’s possible that we’re nearing a peak of U.S.-China tension not because China is poised to permanently overtake the United States as a global power, but because China itself is peaking — with a slowing growth rate that may leave it short of the prosperity achieved by its Pacific neighbors, a swiftly aging population, and a combination of self-limiting soft power and maxed-out hard power that’s likely to diminish, relative to the U.S. and India and others, in the 2040s and beyond.

“Instead of a Chinese Century, in other words, the coronavirus might be ushering in a Chinese Decade, in which Xi Jinping’s government behaves with maximal aggression because it sees an opportunity that won’t come again.”

The problem is that the cited piece for “China’s slowing growth rate” still has China growing close to 4.0 percent annually. That is almost 2.0 percentage points faster than the 2.1 percent growth rate projected for the U.S. in the last five years of the decade.

Furthermore, the U.S. economy is starting from a much lower base. In 2019 China’s economy was already more than 25 percent larger than the U.S. economy, while the U.S. economy is projected to shrink by 5.5 percent this year, China’s is expected to grow by 1.8 percent. It is hard to see how an economy that is starting from a lower level and growing at a slower pace, will pass a larger economy that is growing more rapidly. I guess it takes an NYT columnist to figure that one out.

One final point, there seems to be an obsession in the media with China’s lower birth rate and likely declining population. While the idea that this is a big problem for China is repeated endlessly, it really lead to the obvious question, why?

So the country will have fewer people. This will likely mean fewer people working in very low productivity jobs in agriculture and the service sector. And why exactly would this be a problem for China?

Ross Douthat has good news for folks who don’t like China. His NYT column yesterday told us that China’s economy will run out of steam in a decade and that the U.S. will again be able to reclaim world leadership after 2030. The problem is that the piece presents nothing to support this claim.

After telling readers that China is passing the U.S. for world leadership due to the inept presidency of Donald Trump, Douthat gets to the meat of his piece:

“It’s possible that we’re nearing a peak of U.S.-China tension not because China is poised to permanently overtake the United States as a global power, but because China itself is peaking — with a slowing growth rate that may leave it short of the prosperity achieved by its Pacific neighbors, a swiftly aging population, and a combination of self-limiting soft power and maxed-out hard power that’s likely to diminish, relative to the U.S. and India and others, in the 2040s and beyond.

“Instead of a Chinese Century, in other words, the coronavirus might be ushering in a Chinese Decade, in which Xi Jinping’s government behaves with maximal aggression because it sees an opportunity that won’t come again.”

The problem is that the cited piece for “China’s slowing growth rate” still has China growing close to 4.0 percent annually. That is almost 2.0 percentage points faster than the 2.1 percent growth rate projected for the U.S. in the last five years of the decade.

Furthermore, the U.S. economy is starting from a much lower base. In 2019 China’s economy was already more than 25 percent larger than the U.S. economy, while the U.S. economy is projected to shrink by 5.5 percent this year, China’s is expected to grow by 1.8 percent. It is hard to see how an economy that is starting from a lower level and growing at a slower pace, will pass a larger economy that is growing more rapidly. I guess it takes an NYT columnist to figure that one out.

One final point, there seems to be an obsession in the media with China’s lower birth rate and likely declining population. While the idea that this is a big problem for China is repeated endlessly, it really lead to the obvious question, why?

So the country will have fewer people. This will likely mean fewer people working in very low productivity jobs in agriculture and the service sector. And why exactly would this be a problem for China?

It really gets annoying how all discussions of inequality in the media take the White Savior route, where we need the government to act to reduce inequality created by the natural workings of the market. David Leonhardt gave us another dose of this one today when he speculated about the state of the post-pandemic world.

While much of his speculation is interesting, he hypothesizes that we will see greater corporate consolidation in the post-pandemic world. He then says that this can lead to greater inequality, however, he holds out the hope that under a Biden administration, the government might take action to counter this trend.

First, it is important to note that increased corporate profits have been a relatively small factor in the rise of inequality over the last four decades. The vast majority of the upward redistribution was within the wage structure, with CEOs, Wall Street traders, doctors, and other highly paid professionals gaining at the expense of ordinary workers. Only about 10 percent of the gap between productivity and wage growth could be attributed to the shift to profits. Furthermore, the labor share had been rising in the tight labor market of the last few years, so this shift could well have been reversed completely if the pandemic had not hit.

This point is important not only because Leonhardt’s concerns about the impact of concentration on inequality may be misplaced, but because he ignores the real sources of inequality. In particular, government-granted patent and copyright monopolies have been a huge factor in the rise of inequality over the last four decades. Reducing their impact on the upward redistribution of income requires less government action, not more.

This point should be especially obvious to people paying attention to efforts to develop a vaccine to protect against the coronavirus. The government is paying companies billions of dollars to research and test a vaccine. Incredibly, it is also giving these companies patent monopolies, which will then let them charge whatever they want for a successful vaccine.

These monopolies are likely to be worth tens or even hundreds of billions of dollars to their holders. If the government instead went the route where it said that if it paid for the research, then it would be fully open and all vaccines developed can then be sold as cheap generics, it would both save the public an enormous sum in paying for the vaccine and mean that the shareholders and top researchers at these drug companies would not get so rich.

This issue of course comes up more generally. We will spend more than $500 billion this year on prescription drugs that would cost us less than $100 billion in a free market. The gap of $400 billion is roughly 20 percent of all before-tax corporate profits. There are similar stories in medical equipment, computer software, and many other major sectors of the economy.

If the government had alternative mechanisms to finance research and development it would redistribute less income upward, which would mean that we would have less inequality. The government also promotes inequality through its regulation of the financial sector, rules of corporate governance, and protection for highly paid professionals. (It’s all in Rigged [it’s free].)

Anyhow, it is apparently satisfying for policy types to say that we need good government to address the inequality that the bad market is giving to us, but this view has little to do with reality. First and foremost we need the government to stop structuring the market in ways that give us ever more inequality.

It really gets annoying how all discussions of inequality in the media take the White Savior route, where we need the government to act to reduce inequality created by the natural workings of the market. David Leonhardt gave us another dose of this one today when he speculated about the state of the post-pandemic world.

While much of his speculation is interesting, he hypothesizes that we will see greater corporate consolidation in the post-pandemic world. He then says that this can lead to greater inequality, however, he holds out the hope that under a Biden administration, the government might take action to counter this trend.

First, it is important to note that increased corporate profits have been a relatively small factor in the rise of inequality over the last four decades. The vast majority of the upward redistribution was within the wage structure, with CEOs, Wall Street traders, doctors, and other highly paid professionals gaining at the expense of ordinary workers. Only about 10 percent of the gap between productivity and wage growth could be attributed to the shift to profits. Furthermore, the labor share had been rising in the tight labor market of the last few years, so this shift could well have been reversed completely if the pandemic had not hit.

This point is important not only because Leonhardt’s concerns about the impact of concentration on inequality may be misplaced, but because he ignores the real sources of inequality. In particular, government-granted patent and copyright monopolies have been a huge factor in the rise of inequality over the last four decades. Reducing their impact on the upward redistribution of income requires less government action, not more.

This point should be especially obvious to people paying attention to efforts to develop a vaccine to protect against the coronavirus. The government is paying companies billions of dollars to research and test a vaccine. Incredibly, it is also giving these companies patent monopolies, which will then let them charge whatever they want for a successful vaccine.

These monopolies are likely to be worth tens or even hundreds of billions of dollars to their holders. If the government instead went the route where it said that if it paid for the research, then it would be fully open and all vaccines developed can then be sold as cheap generics, it would both save the public an enormous sum in paying for the vaccine and mean that the shareholders and top researchers at these drug companies would not get so rich.

This issue of course comes up more generally. We will spend more than $500 billion this year on prescription drugs that would cost us less than $100 billion in a free market. The gap of $400 billion is roughly 20 percent of all before-tax corporate profits. There are similar stories in medical equipment, computer software, and many other major sectors of the economy.

If the government had alternative mechanisms to finance research and development it would redistribute less income upward, which would mean that we would have less inequality. The government also promotes inequality through its regulation of the financial sector, rules of corporate governance, and protection for highly paid professionals. (It’s all in Rigged [it’s free].)

Anyhow, it is apparently satisfying for policy types to say that we need good government to address the inequality that the bad market is giving to us, but this view has little to do with reality. First and foremost we need the government to stop structuring the market in ways that give us ever more inequality.

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I have written many times that I thought the focus on wealth inequality, as opposed to income inequality, was misplaced. There are many practical, political, and legal problems associated with taxing wealth that are considerably smaller when we talk about altering the economic structures that redistribute so much income upward.

But beyond the issue of whether inequalities of income or wealth are more easily tackled, there is also a very strange argument for focusing on wealth that is based on its impact on political power. The argument is that people like the Koch brothers or Mark Zuckerberg can gain enormous political power as a result of their immense wealth. Therefore, if we believe in democracy, we have to bring such outsized fortunes down to earth.

It is certainly true that the rich and very rich enjoy enormous political power under our current system, but it does not follow that attacking their wealth is the most effective way to restore a more functional democracy. To see this point, just imagine the most optimistic plausible scenario.

Let’s say that we get progressives in the presidency, a progressive majority in Congress, and can either get a sympathetic Supreme Court or find a workaround with a hostile court. Maybe in that scenario, we can get a wealth tax in place in eight to ten years. Then let’s say the tax has been in operation for ten years. Again, being optimistic but at least somewhat realistic, perhaps after ten years, we will have downsized the big fortunes, like those held by Koch and Zuckerberg, by 50 percent.

So, in this optimistic scenario, twenty years from now, Jeff Bezos will still have $80 billion, Bill Gates will have $50 billion, and Mark Zuckerberg will have $40 billion. Will the United States then have a functioning democracy, with everyone getting a more or less equal voice?

The point here is that the rich do have a hugely disproportionate amount of political power, and we should be upset about this, but the fact is that we cannot plausibly hope to balance the scales by reducing their wealth, or at least not any time in the foreseeable future. There is an alternative route, which is both simple and already in practice: the Seattle Democracy Voucher program.

This program gives Seattle residents four vouchers, worth $25 each, to be given to the candidate(s) of their choice. To be eligible to receive a voucher, a candidate must accept limits on both overall spending and the amount of money that they can get from any individual donor. This system has allowed many candidates to run competitive campaigns, without relying at all on getting the support of rich people.[1]   

This sort of system of campaign finance focused on giving low and middle-income people a voice, will not necessarily be able to the match the millions or tens of millions that the very rich can shower on their favored candidates, but it is adequate to ensure that candidates appealing to the non-rich can get their arguments out. And, there is sufficient research to show that, while candidates need a certain amount of money to be competitive, the biggest spending candidate does not always win.

This raising of the voice of the bottom approach can be applied elsewhere, including to the media and creative work more generally. A major problem for those of us concerned about the future of democracy is the collapse of traditional newspapers and other print media. The Internet, and the rise of Facebook and Google, have deprived them of the advertising revenue they depended upon to survive. As a result, hundreds of newspapers have gone out of business in the last quarter-century, and even most of those that survive have hugely cut back on their staff of reporters.

The few outlets that still maintain a large staff of reporters, such as the New York Times and Washington Post, depend on the goodwill of rich people who are prepared to lose money or at least get well below market returns on the money they have invested in their papers. While it is great that some of the very rich are committed to helping maintain a vibrant press, this is not a viable long-term mechanism.

We can pick up on the Seattle democracy voucher approach to support the media as well. Suppose that every adult had a $100 a year fully refundable tax credit to be used to support the creative worker or organization of their choice. This could include individual reporters, writers, musicians, singers, or any type of creative worker, or alternatively they could support an organization, such as a newspaper, a publisher, a movie production company, or any other organization that supports creative work.

There are two reasons for including creative workers more generally and not just journalists and news outlets in the list of potential beneficiaries. The first is that they have also seen plunges in revenue as a result of the Internet. The amount of spending on recorded music, in particular, has dropped by close to 90 percent over the last two decades. It is important to set up a new source of revenue to support creative workers.

The other reason for extending eligibility beyond news media is that we don’t want the government to be in the business of deciding what qualifies as news. If a news outlet were to include opinion pieces or satire on political events, would the government allow it to get money designated for news reporting? If we draw the lines broadly, this should not be an issue. There will always be issues of outright fraud, which must be policed, but these should be far removed from anything resembling judgments about what constitutes proper news reporting and commentary.

The $100 figure is arbitrary, but even this modest sum could provide more than $20 billion a year to support creative work.[2] At a pay rate of $80,000 a year, this could support 250,000 journalists and other creative workers. It is also important to realize that this system does not preclude other mechanisms for raising revenue.

For example, newspapers can still sell print copies and get ads, as they do today. The big difference would be that this would not be their primary mode of raising revenue. Musicians, writers, and creative workers could still earn money from other sources, such as live performances or conducting workshops. So, the money they receive through this tax credit system would not be the sole support for newspapers and other creative work, but it would provide an enormously important supplement that could maintain a vibrant news media and creative sector that did not depend on the goodwill of a small number of very wealthy people.

Going Local

Another tremendously important aspect of this tax credit route is that it can be implemented at the state or even local level, as demonstrated by the Seattle democracy voucher program. The ability to start a measure like this at the state or local level is tremendously important given the improbability of major action addressing the unequal distribution of political power at the national level.

As a practical matter, it would be a relatively simple thing for a state or city to give each of its adult residents a voucher of $100 to support journalism and other creative work. To avoid freeloading by residents of other states or cities, it can even put up paywalls, as most newspapers do now. That way, if people in Chicago, or the state of Illinois, were prepared to use their vouchers to support a high-quality newspaper like the New York Times, they would be able to get free access themselves, but people elsewhere in the United States would have to pay, just as they do now for the New York Times.   

On the creative worker side, a state or city going this route could set itself up as an artistic mecca with this sort of system. It could just include a requirement that to be eligible to receive money through the voucher system, a person had to be physically present for at least nine months a year. This would attract musicians, singers, writers, and other creative workers since they would want to be eligible for this pool of money. Furthermore, to make additional money and to increase the likelihood that residents would support them, they would want to perform their music, or offer workshops, or engage in other activities that would make them known to the community. These activities would also attract tourists from around the country.

The key point here is of course to establish an alternative mechanism for supporting independent media. If this can be done successfully in a city or state, it is likely to be emulated by others. Ideally, it would be adopted nationally, but even if just a small number of cities and states went this route it can provide a substantial measure of support that does not currently exist.

In any case, even a single city would be a big step forward. We can sit around and wait for the gods to make things work out to our liking so that there is a radical downward redistribution from the very rich to everyone else or we can take simple steps that will actually have an impact. We know liberal funders much prefer the former route, but anyone who actually gives a damn about inequality better be looking for things we can do now.

[1] There are comparable systems that amplify the voice of people with less money, such as the “super-match” system that New York City has in place for local elections. Under this system, small donations can be matched up to eight to one for candidates that limit their spending and large contributions and meet other criteria. The advantage of the Seattle system is that the vouchers can give a voice even to people who may find a small contribution to be a substantial burden.

[2] I would require a trade-off to be eligible for this money that the recipients could not also get copyright protection for their work. The government supports you once, not twice. If you take the money, then your work is in the public domain and can be freely reproduced and transferred. We want people to have access to the material that the government has paid for. I discuss the mechanics of this sort of system in more detail in chapter 5 of Rigged [it’s free].

I have written many times that I thought the focus on wealth inequality, as opposed to income inequality, was misplaced. There are many practical, political, and legal problems associated with taxing wealth that are considerably smaller when we talk about altering the economic structures that redistribute so much income upward.

But beyond the issue of whether inequalities of income or wealth are more easily tackled, there is also a very strange argument for focusing on wealth that is based on its impact on political power. The argument is that people like the Koch brothers or Mark Zuckerberg can gain enormous political power as a result of their immense wealth. Therefore, if we believe in democracy, we have to bring such outsized fortunes down to earth.

It is certainly true that the rich and very rich enjoy enormous political power under our current system, but it does not follow that attacking their wealth is the most effective way to restore a more functional democracy. To see this point, just imagine the most optimistic plausible scenario.

Let’s say that we get progressives in the presidency, a progressive majority in Congress, and can either get a sympathetic Supreme Court or find a workaround with a hostile court. Maybe in that scenario, we can get a wealth tax in place in eight to ten years. Then let’s say the tax has been in operation for ten years. Again, being optimistic but at least somewhat realistic, perhaps after ten years, we will have downsized the big fortunes, like those held by Koch and Zuckerberg, by 50 percent.

So, in this optimistic scenario, twenty years from now, Jeff Bezos will still have $80 billion, Bill Gates will have $50 billion, and Mark Zuckerberg will have $40 billion. Will the United States then have a functioning democracy, with everyone getting a more or less equal voice?

The point here is that the rich do have a hugely disproportionate amount of political power, and we should be upset about this, but the fact is that we cannot plausibly hope to balance the scales by reducing their wealth, or at least not any time in the foreseeable future. There is an alternative route, which is both simple and already in practice: the Seattle Democracy Voucher program.

This program gives Seattle residents four vouchers, worth $25 each, to be given to the candidate(s) of their choice. To be eligible to receive a voucher, a candidate must accept limits on both overall spending and the amount of money that they can get from any individual donor. This system has allowed many candidates to run competitive campaigns, without relying at all on getting the support of rich people.[1]   

This sort of system of campaign finance focused on giving low and middle-income people a voice, will not necessarily be able to the match the millions or tens of millions that the very rich can shower on their favored candidates, but it is adequate to ensure that candidates appealing to the non-rich can get their arguments out. And, there is sufficient research to show that, while candidates need a certain amount of money to be competitive, the biggest spending candidate does not always win.

This raising of the voice of the bottom approach can be applied elsewhere, including to the media and creative work more generally. A major problem for those of us concerned about the future of democracy is the collapse of traditional newspapers and other print media. The Internet, and the rise of Facebook and Google, have deprived them of the advertising revenue they depended upon to survive. As a result, hundreds of newspapers have gone out of business in the last quarter-century, and even most of those that survive have hugely cut back on their staff of reporters.

The few outlets that still maintain a large staff of reporters, such as the New York Times and Washington Post, depend on the goodwill of rich people who are prepared to lose money or at least get well below market returns on the money they have invested in their papers. While it is great that some of the very rich are committed to helping maintain a vibrant press, this is not a viable long-term mechanism.

We can pick up on the Seattle democracy voucher approach to support the media as well. Suppose that every adult had a $100 a year fully refundable tax credit to be used to support the creative worker or organization of their choice. This could include individual reporters, writers, musicians, singers, or any type of creative worker, or alternatively they could support an organization, such as a newspaper, a publisher, a movie production company, or any other organization that supports creative work.

There are two reasons for including creative workers more generally and not just journalists and news outlets in the list of potential beneficiaries. The first is that they have also seen plunges in revenue as a result of the Internet. The amount of spending on recorded music, in particular, has dropped by close to 90 percent over the last two decades. It is important to set up a new source of revenue to support creative workers.

The other reason for extending eligibility beyond news media is that we don’t want the government to be in the business of deciding what qualifies as news. If a news outlet were to include opinion pieces or satire on political events, would the government allow it to get money designated for news reporting? If we draw the lines broadly, this should not be an issue. There will always be issues of outright fraud, which must be policed, but these should be far removed from anything resembling judgments about what constitutes proper news reporting and commentary.

The $100 figure is arbitrary, but even this modest sum could provide more than $20 billion a year to support creative work.[2] At a pay rate of $80,000 a year, this could support 250,000 journalists and other creative workers. It is also important to realize that this system does not preclude other mechanisms for raising revenue.

For example, newspapers can still sell print copies and get ads, as they do today. The big difference would be that this would not be their primary mode of raising revenue. Musicians, writers, and creative workers could still earn money from other sources, such as live performances or conducting workshops. So, the money they receive through this tax credit system would not be the sole support for newspapers and other creative work, but it would provide an enormously important supplement that could maintain a vibrant news media and creative sector that did not depend on the goodwill of a small number of very wealthy people.

Going Local

Another tremendously important aspect of this tax credit route is that it can be implemented at the state or even local level, as demonstrated by the Seattle democracy voucher program. The ability to start a measure like this at the state or local level is tremendously important given the improbability of major action addressing the unequal distribution of political power at the national level.

As a practical matter, it would be a relatively simple thing for a state or city to give each of its adult residents a voucher of $100 to support journalism and other creative work. To avoid freeloading by residents of other states or cities, it can even put up paywalls, as most newspapers do now. That way, if people in Chicago, or the state of Illinois, were prepared to use their vouchers to support a high-quality newspaper like the New York Times, they would be able to get free access themselves, but people elsewhere in the United States would have to pay, just as they do now for the New York Times.   

On the creative worker side, a state or city going this route could set itself up as an artistic mecca with this sort of system. It could just include a requirement that to be eligible to receive money through the voucher system, a person had to be physically present for at least nine months a year. This would attract musicians, singers, writers, and other creative workers since they would want to be eligible for this pool of money. Furthermore, to make additional money and to increase the likelihood that residents would support them, they would want to perform their music, or offer workshops, or engage in other activities that would make them known to the community. These activities would also attract tourists from around the country.

The key point here is of course to establish an alternative mechanism for supporting independent media. If this can be done successfully in a city or state, it is likely to be emulated by others. Ideally, it would be adopted nationally, but even if just a small number of cities and states went this route it can provide a substantial measure of support that does not currently exist.

In any case, even a single city would be a big step forward. We can sit around and wait for the gods to make things work out to our liking so that there is a radical downward redistribution from the very rich to everyone else or we can take simple steps that will actually have an impact. We know liberal funders much prefer the former route, but anyone who actually gives a damn about inequality better be looking for things we can do now.

[1] There are comparable systems that amplify the voice of people with less money, such as the “super-match” system that New York City has in place for local elections. Under this system, small donations can be matched up to eight to one for candidates that limit their spending and large contributions and meet other criteria. The advantage of the Seattle system is that the vouchers can give a voice even to people who may find a small contribution to be a substantial burden.

[2] I would require a trade-off to be eligible for this money that the recipients could not also get copyright protection for their work. The government supports you once, not twice. If you take the money, then your work is in the public domain and can be freely reproduced and transferred. We want people to have access to the material that the government has paid for. I discuss the mechanics of this sort of system in more detail in chapter 5 of Rigged [it’s free].

Apparently, at the New York Times, the answer is yes. Elisabeth Rosenthal, who is a very insightful writer on health care issues, had a column this morning warning that we may face very high prices for a coronavirus vaccine. She points out that this is in spite of the fact that the government is paying for much of the cost of the research. Rosenthal then argues we should adopt a system of price controls or negotiations, as is done in every other wealthy country.  

While her points are all well-taken, the amazing part is that she never considers the simplest solution, just don’t give the companies patent monopolies in the first place. The story here is the government is paying for most of the research upfront. While it has to pay for it a second time by giving the companies patent monopolies.

There is no reason that the government can’t simply make it a condition of the funding that all research findings are fully open and that any patents will be in the public domain so that any vaccines will be available as a cheap generic from the day it comes on the market. Not only does this ensure that a vaccine will be affordable, it will likely mean more rapid progress since all researchers will be able to immediately learn from the success or failures of other researchers.

It is amazing that this obvious route is not being considered in public debate. Government-granted patent and copyright monopolies are one of the main ways in which we generate inequality. Bill Gates would still be working for a living without them.

At a time when the country is newly focused on racial inequality, it is striking that reducing the importance of the factors that generate inequality in the first place is not even up for discussion. This is fitting with the good old “White Savior” theory of politics.

Rather than changing the government-created structures that generate inequality, they would rather have the beneficent government push policies that reverse some of the inequality government structures created in the first place. I suppose this route is more appealing to the liberal psyche, but it ignores economic reality, and also at the end of the day, is likely to be less effective politically.  

Apparently, at the New York Times, the answer is yes. Elisabeth Rosenthal, who is a very insightful writer on health care issues, had a column this morning warning that we may face very high prices for a coronavirus vaccine. She points out that this is in spite of the fact that the government is paying for much of the cost of the research. Rosenthal then argues we should adopt a system of price controls or negotiations, as is done in every other wealthy country.  

While her points are all well-taken, the amazing part is that she never considers the simplest solution, just don’t give the companies patent monopolies in the first place. The story here is the government is paying for most of the research upfront. While it has to pay for it a second time by giving the companies patent monopolies.

There is no reason that the government can’t simply make it a condition of the funding that all research findings are fully open and that any patents will be in the public domain so that any vaccines will be available as a cheap generic from the day it comes on the market. Not only does this ensure that a vaccine will be affordable, it will likely mean more rapid progress since all researchers will be able to immediately learn from the success or failures of other researchers.

It is amazing that this obvious route is not being considered in public debate. Government-granted patent and copyright monopolies are one of the main ways in which we generate inequality. Bill Gates would still be working for a living without them.

At a time when the country is newly focused on racial inequality, it is striking that reducing the importance of the factors that generate inequality in the first place is not even up for discussion. This is fitting with the good old “White Savior” theory of politics.

Rather than changing the government-created structures that generate inequality, they would rather have the beneficent government push policies that reverse some of the inequality government structures created in the first place. I suppose this route is more appealing to the liberal psyche, but it ignores economic reality, and also at the end of the day, is likely to be less effective politically.  

As Donald Trump tries to whip up anti-Chinese sentiment as part of his re-election campaign, many have joined in by complaining about our Chinese supply lines. The NYT joined this effort by highlighting the extent to which the U.S. and the rest of the world relies on China for medical supplies.

While it is arguable whether the reliance on China for medical supplies or anything else is a big problem, that was not the main issue when it came to shortfalls of protective gear and other medical supplies at the start of the pandemic. Those shortages stemmed from the government’s failure to maintain adequate stockpiles of essential equipment.

Even if all this equipment was produced in the United States, our factories could not immediately ramp up production by a factor of five to meet the demand the country was facing in March and April. The only way this demand could have been met quickly was if the stockpiles were already in place. This was the major failure in the crisis and it obscures the issue to complain about supply chains going through China.

As a practical matter, it is striking how little production has been disrupted in response to a once in a century pandemic and totally incompetent leadership at the national level. That would seem to imply that our supply chains are not a big problem.

As Donald Trump tries to whip up anti-Chinese sentiment as part of his re-election campaign, many have joined in by complaining about our Chinese supply lines. The NYT joined this effort by highlighting the extent to which the U.S. and the rest of the world relies on China for medical supplies.

While it is arguable whether the reliance on China for medical supplies or anything else is a big problem, that was not the main issue when it came to shortfalls of protective gear and other medical supplies at the start of the pandemic. Those shortages stemmed from the government’s failure to maintain adequate stockpiles of essential equipment.

Even if all this equipment was produced in the United States, our factories could not immediately ramp up production by a factor of five to meet the demand the country was facing in March and April. The only way this demand could have been met quickly was if the stockpiles were already in place. This was the major failure in the crisis and it obscures the issue to complain about supply chains going through China.

As a practical matter, it is striking how little production has been disrupted in response to a once in a century pandemic and totally incompetent leadership at the national level. That would seem to imply that our supply chains are not a big problem.

Apparently Steven Rattner, a regular columnist at the New York Times, is unable to get government data on corporate profits. That is what readers must conclude from his column on the strength of the stock market in spite of a plunging economy. While Rattner rightly points to the fact that interest rates on bonds are extremely low, which makes stocks seem like an attractive alternative, he never once mentions the likely shift from wages to profits that we can expect in a weak labor market.

The bulk of the widely touted shift from wages to profits occurred in the weak labor market following the Great Recession. (There was also a shift in the housing bubble years, but this was largely fake profits as banks and other financial institutions booked large profits on loans that subsequently went bad. This would be like recorded profits on fictitious sales.) Workers were regaining their share in the tight labor market of the last five years. 

With the coronavirus recession likely to lead to a weak labor market for years to come, especially if the Republicans and deficit hawks can dictate policy, the profit share is likely to rise back to post-Great Recession peaks. This would mean that profits will soar, even if the economy is very weak. 

Apparently Steven Rattner, a regular columnist at the New York Times, is unable to get government data on corporate profits. That is what readers must conclude from his column on the strength of the stock market in spite of a plunging economy. While Rattner rightly points to the fact that interest rates on bonds are extremely low, which makes stocks seem like an attractive alternative, he never once mentions the likely shift from wages to profits that we can expect in a weak labor market.

The bulk of the widely touted shift from wages to profits occurred in the weak labor market following the Great Recession. (There was also a shift in the housing bubble years, but this was largely fake profits as banks and other financial institutions booked large profits on loans that subsequently went bad. This would be like recorded profits on fictitious sales.) Workers were regaining their share in the tight labor market of the last five years. 

With the coronavirus recession likely to lead to a weak labor market for years to come, especially if the Republicans and deficit hawks can dictate policy, the profit share is likely to rise back to post-Great Recession peaks. This would mean that profits will soar, even if the economy is very weak. 

One of the recurring items in the news that infuriates progressives and fans of economic logic everywhere is discussions of the stock market that treat it as a measure of economic well-being. Donald Trump carries this to an extreme, with seemingly no understanding that there are other important economic measures, but he is hardly alone. In fact, many economic commentators seem hard-pressed to explain the continued strength of the stock market, when most projections show the unemployment rate remaining extraordinarily high for the foreseeable future.

The reason why this is infuriating is that there is no direct link between the growth in the stock market and the health of the economy. This is not a leftist criticism of the evils of capitalism, it is the Finance 101 explanation of stock prices.

The stock market is supposed to reflect the present value of future after-tax corporate profits. (“Present value” means that we apply a discount rate so that profits anticipated five or ten years out are considered to be of less value than profits expected next month.) This means that events in the world that are likely to lead to higher future profits should raise stock prices, regardless of whether or not they are good for the economy as a whole.

This could mean that the stock market will rise when the economy is strong, since other things equal, a stronger economy is likely to mean higher corporate profits. But, the stock market could rise simply because corporate profits are expected to increase at the expense of everyone else’s income.

Just to take an example from recent policy changes, a big cut in the corporate income tax should lead to higher stock prices, since it should mean higher after-tax profits. There is little reason to believe that a cut in corporate income taxes would have a substantial effect in boosting growth (it didn’t), but since after-tax profits will be higher as a result of the tax cut, the stock market should also be higher.

The stock market does generally track the economy for the simple reason that stronger growth will usually mean higher profits, but this is hardly a tight connection. The price of corn will generally track the overall economy too since stronger growth will be mean more demand for corn, but no one in their right mind would treat the price of corn as an indicator of economic well-being.

So why do people insist on treating the stock market as a measure of economic well-being when it clearly is not?  That probably is attributable to the people who benefit from a rising stock market. That would be the people who own lots of stock, in other words, rich people. Rich people are also the ones who own and control major news outlets. For this reason, they are not bothered when people writing news stories or columns say that the stock market is a measure of economic well-being, as opposed to being a measure of how much money rich people have.

To be clear, I doubt anyone in an ownership position at a newspaper or broadcast or Internet outlet ever told a reporter or columnist to write a piece saying that the stock market is a measure of economic well-being. Rather, this is one of those wrong things that a reporter or columnist can say over and over again and never be called on the carpet for it. By contrast, if a reporter tried to tell their audience that the price of corn is a measure of economic well-being, they would probably have some serious explaining to do to their editor and other higher-ups. If they continued to assert that the price of corn was a measure of economic well-being, they would probably be looking for a new job.

The point here is that power has a large influence on what arguments appear in news outlets. Because people with money benefit from higher stock prices, we are likely to continue to see the claim that stock prices are a measure of economic well-being long into the future, even though it is not true.

 

Power and Government-Granted Patent Monopolies

The story of the stock market as a measure of economic well-being is important to keep in mind when we consider the media’s decision to almost completely ignore the issue of patent and copyright monopolies as government policies that redistribute income upward.  Just as the myth of the stock market metric of well-being is perpetuated because of who it benefits, the analysis of patents and copyrights as policies leading to upward redistribution is not ever mentioned because of who would potentially be harmed.

In the case of patent and copyright monopolies, the beneficiaries go beyond the relatively small group of people who own large amounts of stock in pharmaceutical companies, medical equipment manufacturers, or software developers. It includes the bulk of the highly educated workforce, including the people who edit, write, and report for major news outlets. Even if many of these people are not especially highly paid, they almost certainly have friends and relatives who benefit from patent and copyright monopolies. 

There is a very widespread belief that trends in technology and globalization are major factors in the upward redistribution of income over the last four decades. The basic story is that developments in computers, biotechnology, and other areas have hugely increased the value of education (especially in the STEM fields) and reduce the value of unskilled (their term) manual labor. Many people who consider themselves quite progressive hold this view. They just feel that they should give back some of their good fortune by paying higher taxes to benefit the less fortunate.

However, if it is acknowledged that it is government policy, specifically patent and copyright monopolies, that is behind this upward redistribution, and not technology or globalization, then it means inequality was the result of deliberate policy, not the natural workings of the market.[1] This is a much less flattering view, both for those who want to keep the benefits from this upward redistribution and even for those progressives who would willingly pay higher taxes.

For this reason, the argument that upward redistribution was the result of deliberate policy, is not one that is welcome in most media outlets, including progressive ones. The idea that patents and copyrights are simply facts of nature persists, even though it is obviously absurd on its face.

It is unfortunate that power relations preclude serious debate on an issue that is so central to reducing inequality. But it is important to recognize the obstacles to having this debate if we are ever to overcome them.

[1] I have made this argument in a number of different places, for example here, here, and here. But to illustrate the issue as simply as possible, consider a world where there are no patent or copyright monopolies. How many people would be paid to research new drugs and develop new medical equipment in a context where any manufacturers could immediately copy anything developed and sell it at a price that would recoup manufacturing costs and a normal profit? How many people would be paid to design software for computers, smartphones, and other products if anyone could immediately copy the software without sending the developer a dime? While these are valuable services, how many people are employed doing them, and how much they get paid are quite clearly the result of policy decisions, not the technology itself.  

One of the recurring items in the news that infuriates progressives and fans of economic logic everywhere is discussions of the stock market that treat it as a measure of economic well-being. Donald Trump carries this to an extreme, with seemingly no understanding that there are other important economic measures, but he is hardly alone. In fact, many economic commentators seem hard-pressed to explain the continued strength of the stock market, when most projections show the unemployment rate remaining extraordinarily high for the foreseeable future.

The reason why this is infuriating is that there is no direct link between the growth in the stock market and the health of the economy. This is not a leftist criticism of the evils of capitalism, it is the Finance 101 explanation of stock prices.

The stock market is supposed to reflect the present value of future after-tax corporate profits. (“Present value” means that we apply a discount rate so that profits anticipated five or ten years out are considered to be of less value than profits expected next month.) This means that events in the world that are likely to lead to higher future profits should raise stock prices, regardless of whether or not they are good for the economy as a whole.

This could mean that the stock market will rise when the economy is strong, since other things equal, a stronger economy is likely to mean higher corporate profits. But, the stock market could rise simply because corporate profits are expected to increase at the expense of everyone else’s income.

Just to take an example from recent policy changes, a big cut in the corporate income tax should lead to higher stock prices, since it should mean higher after-tax profits. There is little reason to believe that a cut in corporate income taxes would have a substantial effect in boosting growth (it didn’t), but since after-tax profits will be higher as a result of the tax cut, the stock market should also be higher.

The stock market does generally track the economy for the simple reason that stronger growth will usually mean higher profits, but this is hardly a tight connection. The price of corn will generally track the overall economy too since stronger growth will be mean more demand for corn, but no one in their right mind would treat the price of corn as an indicator of economic well-being.

So why do people insist on treating the stock market as a measure of economic well-being when it clearly is not?  That probably is attributable to the people who benefit from a rising stock market. That would be the people who own lots of stock, in other words, rich people. Rich people are also the ones who own and control major news outlets. For this reason, they are not bothered when people writing news stories or columns say that the stock market is a measure of economic well-being, as opposed to being a measure of how much money rich people have.

To be clear, I doubt anyone in an ownership position at a newspaper or broadcast or Internet outlet ever told a reporter or columnist to write a piece saying that the stock market is a measure of economic well-being. Rather, this is one of those wrong things that a reporter or columnist can say over and over again and never be called on the carpet for it. By contrast, if a reporter tried to tell their audience that the price of corn is a measure of economic well-being, they would probably have some serious explaining to do to their editor and other higher-ups. If they continued to assert that the price of corn was a measure of economic well-being, they would probably be looking for a new job.

The point here is that power has a large influence on what arguments appear in news outlets. Because people with money benefit from higher stock prices, we are likely to continue to see the claim that stock prices are a measure of economic well-being long into the future, even though it is not true.

 

Power and Government-Granted Patent Monopolies

The story of the stock market as a measure of economic well-being is important to keep in mind when we consider the media’s decision to almost completely ignore the issue of patent and copyright monopolies as government policies that redistribute income upward.  Just as the myth of the stock market metric of well-being is perpetuated because of who it benefits, the analysis of patents and copyrights as policies leading to upward redistribution is not ever mentioned because of who would potentially be harmed.

In the case of patent and copyright monopolies, the beneficiaries go beyond the relatively small group of people who own large amounts of stock in pharmaceutical companies, medical equipment manufacturers, or software developers. It includes the bulk of the highly educated workforce, including the people who edit, write, and report for major news outlets. Even if many of these people are not especially highly paid, they almost certainly have friends and relatives who benefit from patent and copyright monopolies. 

There is a very widespread belief that trends in technology and globalization are major factors in the upward redistribution of income over the last four decades. The basic story is that developments in computers, biotechnology, and other areas have hugely increased the value of education (especially in the STEM fields) and reduce the value of unskilled (their term) manual labor. Many people who consider themselves quite progressive hold this view. They just feel that they should give back some of their good fortune by paying higher taxes to benefit the less fortunate.

However, if it is acknowledged that it is government policy, specifically patent and copyright monopolies, that is behind this upward redistribution, and not technology or globalization, then it means inequality was the result of deliberate policy, not the natural workings of the market.[1] This is a much less flattering view, both for those who want to keep the benefits from this upward redistribution and even for those progressives who would willingly pay higher taxes.

For this reason, the argument that upward redistribution was the result of deliberate policy, is not one that is welcome in most media outlets, including progressive ones. The idea that patents and copyrights are simply facts of nature persists, even though it is obviously absurd on its face.

It is unfortunate that power relations preclude serious debate on an issue that is so central to reducing inequality. But it is important to recognize the obstacles to having this debate if we are ever to overcome them.

[1] I have made this argument in a number of different places, for example here, here, and here. But to illustrate the issue as simply as possible, consider a world where there are no patent or copyright monopolies. How many people would be paid to research new drugs and develop new medical equipment in a context where any manufacturers could immediately copy anything developed and sell it at a price that would recoup manufacturing costs and a normal profit? How many people would be paid to design software for computers, smartphones, and other products if anyone could immediately copy the software without sending the developer a dime? While these are valuable services, how many people are employed doing them, and how much they get paid are quite clearly the result of policy decisions, not the technology itself.  

The Washington Post ran a piece on how patterns of globalization may be changed due to the pandemic. It is more than a bit confused in not distinguishing short-term effects from long-term effects and its inability to distinguish between problems caused by fiscal policy and policies caused by the fallout from the pandemic.

The headline for the piece on the Post’s homepage is “Covid-19 is erasing decades of economic gains achieved through globalization.” The subhead is “The way we travel, work, consume, invest, interact, migrate, cooperate on global problems and pursue prosperity has likely been changed for years to come.”

Literally nothing in the piece supports the claim in the headline and insofar as items in the piece support the subhead it is at least as likely to be positive as negative. The gist of the piece is that we have seen a massive reduction in trade and travel as a result of the pandemic. While some of this may prove to be permanent, the piece gives us no reason to believe that the bulk of trade will not return to normal once the pandemic has been brought under control, either with effective treatments or with a vaccine.

In terms of travel, any enduring effect is likely to be largely positive. An enormous amount of resources is now wasted on business travel and conventions that can be just as effectively performed on-line. This realization will free up a large number of resources for more productive uses, such as health care, child care, and stopping global warming. Of course, less travel by itself will be a big help in reducing worldwide greenhouse gas emissions.

In addition, the increased use of telecommuting will allow tens of millions of people to avoid unnecessary trips to their offices, leading to both an enormous saving of both time and energy. This will also free up resources for more productive purposes. This change should also help reduce inequality since so much wealth and income that had been concentrated in major cities like New York and San Francisco will now be dispersed more widely across the country. There will undoubtedly be similar patterns in other countries. 

At one point the piece warns of restrictions on foreign investment being considered in Italy and then offers the warning:

“The new restrictions have raised an alarm among Italian industrialists, who say their country’s long-stagnant economy will need more foreign capital, not less, to emerge from this crisis.”

While Italy does need more investment, the problem is that European leaders have chosen to limit the ability of eurozone countries like Italy to finance investment by running budget deficits. The problem here is that Europe’s leaders, most importantly the government of Germany, have insisted on policies to slow investment and growth, not an inherent lack of investment capital in Italy.

Incredibly, while the piece complains repeatedly about protectionism, it does not mention the most important forms of protectionism of all, patent and copyright monopolies. This is especially bizarre in the context of the pandemic since one of the big questions is whether any treatments or vaccines that are developed will be widely available or whether companies will use government-granted patent monopolies to charge high prices.

If China paves the way in developing a vaccine (it has as many vaccines in Phase III testing as the rest of the world combined) and carries through with its commitment to making any vaccine freely available to the whole world, then this will both be enormously important in and of itself, but also an incredibly valuable precedent. If a vaccine against the coronavirus can be distributed in a free market as a cheap generic, it is reasonable to ask why this should not be the case with all new drugs.

If this were to lead to new mechanisms for financing pharmaceutical research and a worldwide free market in prescription drugs, it would imply a huge increase in globalization and an enormous gain for developing countries. The gains would be even larger if we moved beyond patent monopoly financing of research in areas like medical equipment, pesticides and fertilizers, and software.

This sort of globalization would be bad news for many U.S. corporations and many highly paid employees of these corporations, which is perhaps why the Washington Post never talks about it. But if we want to seriously discuss prospects for the future in a post-pandemic world, moving beyond patent and copyright monopolies has to be on the agenda.

 

The Washington Post ran a piece on how patterns of globalization may be changed due to the pandemic. It is more than a bit confused in not distinguishing short-term effects from long-term effects and its inability to distinguish between problems caused by fiscal policy and policies caused by the fallout from the pandemic.

The headline for the piece on the Post’s homepage is “Covid-19 is erasing decades of economic gains achieved through globalization.” The subhead is “The way we travel, work, consume, invest, interact, migrate, cooperate on global problems and pursue prosperity has likely been changed for years to come.”

Literally nothing in the piece supports the claim in the headline and insofar as items in the piece support the subhead it is at least as likely to be positive as negative. The gist of the piece is that we have seen a massive reduction in trade and travel as a result of the pandemic. While some of this may prove to be permanent, the piece gives us no reason to believe that the bulk of trade will not return to normal once the pandemic has been brought under control, either with effective treatments or with a vaccine.

In terms of travel, any enduring effect is likely to be largely positive. An enormous amount of resources is now wasted on business travel and conventions that can be just as effectively performed on-line. This realization will free up a large number of resources for more productive uses, such as health care, child care, and stopping global warming. Of course, less travel by itself will be a big help in reducing worldwide greenhouse gas emissions.

In addition, the increased use of telecommuting will allow tens of millions of people to avoid unnecessary trips to their offices, leading to both an enormous saving of both time and energy. This will also free up resources for more productive purposes. This change should also help reduce inequality since so much wealth and income that had been concentrated in major cities like New York and San Francisco will now be dispersed more widely across the country. There will undoubtedly be similar patterns in other countries. 

At one point the piece warns of restrictions on foreign investment being considered in Italy and then offers the warning:

“The new restrictions have raised an alarm among Italian industrialists, who say their country’s long-stagnant economy will need more foreign capital, not less, to emerge from this crisis.”

While Italy does need more investment, the problem is that European leaders have chosen to limit the ability of eurozone countries like Italy to finance investment by running budget deficits. The problem here is that Europe’s leaders, most importantly the government of Germany, have insisted on policies to slow investment and growth, not an inherent lack of investment capital in Italy.

Incredibly, while the piece complains repeatedly about protectionism, it does not mention the most important forms of protectionism of all, patent and copyright monopolies. This is especially bizarre in the context of the pandemic since one of the big questions is whether any treatments or vaccines that are developed will be widely available or whether companies will use government-granted patent monopolies to charge high prices.

If China paves the way in developing a vaccine (it has as many vaccines in Phase III testing as the rest of the world combined) and carries through with its commitment to making any vaccine freely available to the whole world, then this will both be enormously important in and of itself, but also an incredibly valuable precedent. If a vaccine against the coronavirus can be distributed in a free market as a cheap generic, it is reasonable to ask why this should not be the case with all new drugs.

If this were to lead to new mechanisms for financing pharmaceutical research and a worldwide free market in prescription drugs, it would imply a huge increase in globalization and an enormous gain for developing countries. The gains would be even larger if we moved beyond patent monopoly financing of research in areas like medical equipment, pesticides and fertilizers, and software.

This sort of globalization would be bad news for many U.S. corporations and many highly paid employees of these corporations, which is perhaps why the Washington Post never talks about it. But if we want to seriously discuss prospects for the future in a post-pandemic world, moving beyond patent and copyright monopolies has to be on the agenda.

 

I hate to be nitpicky when the NYT writes a very strong editorial arguing that we need more money going to ordinary workers and less to the rich, but it is important to get the story right. Unfortunately, the editorial misses much of it.

First and foremost, there has not been a major shift from wages to profits during the period of wage stagnation. Most of the shift from wages to profits took place in the weak labor market following the Great Recession. It was being reversed in the last five years until the recession hit. If we use the data from 2019, the median wage would have been 4.2 percent higher than it actually was if the wage share was back at its 1979 level. This is a bit more than 10 percent of the gap between productivity growth and wage growth over the last four decades.

Rather than going to profits, the upward redistribution went to high-end workers like CEOs and other top executives, Wall Street traders and other high flyers in the financial sector, and doctors and other highly paid professionals. If we want to reverse this upward redistribution, these should be the focus of efforts at redistribution.

The piece also implies that stock returns have been extraordinarily high through the last four decades. This is clearly wrong. While returns were very high in the 1980s and 1990s, they actually have been well below long-term averages for the last two decades.

In this vein, the piece also proposes banning share buybacks as a way to reduce returns to shareholders. It is not clear what it hopes this would accomplish. It is hardly better for workers or anyone else if companies pay out money to shareholders through dividends rather than share buybacks. (There are tax issues, that make buybacks preferable for shareholders, but since shares turn over frequently, the tax consequences are limited.) For some reason, share buybacks have become a big cause in some circles, but it is difficult to see why the form of payments to shareholders would be a big deal. 

The piece also is very modest in suggesting that the minimum wage should be raised to $15 an hour. While this is a good near-term target, if the minimum wage had kept pace with productivity growth since 1968, it would be over $24 an hour today. The country would look very different if the lowest-paid worker was getting $24 an hour today. This comes to $48,000 a year for a full-time, full-year worker. A couple with two full-time minimum wage earners would have an income of $96,000 a year.

In order to be able to raise the minimum wage back to its productivity-adjusted level from 1968, and not see excessive inflation, we would have to take steps to reduce high-end wages. This would mean things like fixing the corporate governance structures so CEOs could not ripoff the companies for which they work. This would mean they might get $2 million to $3 million a year, instead of $20 million. We would have to eliminate the waste in the financial sector, thereby ending the exorbitant pay in this sector. We would also have to weaken the importance of patent and copyright monopolies, making it less likely that Bill Gates types could get $100 billion. And, we would have to subject doctors and other highly paid professionals to competition, bringing their pay in line with their counterparts in other wealthy countries.

Anyhow, this is a big agenda, but if we want to bring about real change we have to understand the nature of the problem, and for the most part, it is not high corporate profits. Yeah, this is the story in Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer (it’s free).

I hate to be nitpicky when the NYT writes a very strong editorial arguing that we need more money going to ordinary workers and less to the rich, but it is important to get the story right. Unfortunately, the editorial misses much of it.

First and foremost, there has not been a major shift from wages to profits during the period of wage stagnation. Most of the shift from wages to profits took place in the weak labor market following the Great Recession. It was being reversed in the last five years until the recession hit. If we use the data from 2019, the median wage would have been 4.2 percent higher than it actually was if the wage share was back at its 1979 level. This is a bit more than 10 percent of the gap between productivity growth and wage growth over the last four decades.

Rather than going to profits, the upward redistribution went to high-end workers like CEOs and other top executives, Wall Street traders and other high flyers in the financial sector, and doctors and other highly paid professionals. If we want to reverse this upward redistribution, these should be the focus of efforts at redistribution.

The piece also implies that stock returns have been extraordinarily high through the last four decades. This is clearly wrong. While returns were very high in the 1980s and 1990s, they actually have been well below long-term averages for the last two decades.

In this vein, the piece also proposes banning share buybacks as a way to reduce returns to shareholders. It is not clear what it hopes this would accomplish. It is hardly better for workers or anyone else if companies pay out money to shareholders through dividends rather than share buybacks. (There are tax issues, that make buybacks preferable for shareholders, but since shares turn over frequently, the tax consequences are limited.) For some reason, share buybacks have become a big cause in some circles, but it is difficult to see why the form of payments to shareholders would be a big deal. 

The piece also is very modest in suggesting that the minimum wage should be raised to $15 an hour. While this is a good near-term target, if the minimum wage had kept pace with productivity growth since 1968, it would be over $24 an hour today. The country would look very different if the lowest-paid worker was getting $24 an hour today. This comes to $48,000 a year for a full-time, full-year worker. A couple with two full-time minimum wage earners would have an income of $96,000 a year.

In order to be able to raise the minimum wage back to its productivity-adjusted level from 1968, and not see excessive inflation, we would have to take steps to reduce high-end wages. This would mean things like fixing the corporate governance structures so CEOs could not ripoff the companies for which they work. This would mean they might get $2 million to $3 million a year, instead of $20 million. We would have to eliminate the waste in the financial sector, thereby ending the exorbitant pay in this sector. We would also have to weaken the importance of patent and copyright monopolies, making it less likely that Bill Gates types could get $100 billion. And, we would have to subject doctors and other highly paid professionals to competition, bringing their pay in line with their counterparts in other wealthy countries.

Anyhow, this is a big agenda, but if we want to bring about real change we have to understand the nature of the problem, and for the most part, it is not high corporate profits. Yeah, this is the story in Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer (it’s free).

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