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.

Democrats in Congress have been pushing for a large amount of assistance for state and local governments in the next pandemic aid package. The finances of these governments have been devastated by the pandemic, with all of them seeing massive shortfalls in revenue due to the shutdowns and the weak economy that is projected for the months ahead. At the same time, they have had enormous demands for public services as a result of the pandemic, largely due to the need for additional health care spending. The demand for services has been further increased as a result of state and local government efforts to deal with the protests following the police killing of George Floyd.

The Republicans have thus far balked on providing aid to state and local governments. Senate Majority Leader Mitch McConnell has openly said that states should declare bankruptcy, which would allow them to default on their pension obligations.

Defaulting on the pensions of state and local employees would be a huge hit to African American workers and retirees. They are substantially over-represented among current and retired public sector employees. This is due to the fact that they faced less discrimination in employment opportunities in public sector employment than in private sector employment.

Currently, the African American share of the state and local workforce is almost 25 percent higher than its share of the private sector workforce. In the 1990s, the African American share of state and local employment was almost 40 percent higher than its share of private sector employment. State and local governments provided millions of African Americans middle class jobs that they were denied in the private sector.

Part of the compensation for a middle class job has historically been a pension. These pensions are not a gift from the government, workers sacrifice pay during their working years in exchange for this pension in retirement. Mitch McConnell’s plan to have states declare bankruptcy, and thereby renege on pensions promised to workers, is in effect an effort to take away pay that workers have already worked for. And, the victims of Senator McConnell’s scheme would disproportionately be African American workers.

And Republicans wonder why so many black people are angry.

Democrats in Congress have been pushing for a large amount of assistance for state and local governments in the next pandemic aid package. The finances of these governments have been devastated by the pandemic, with all of them seeing massive shortfalls in revenue due to the shutdowns and the weak economy that is projected for the months ahead. At the same time, they have had enormous demands for public services as a result of the pandemic, largely due to the need for additional health care spending. The demand for services has been further increased as a result of state and local government efforts to deal with the protests following the police killing of George Floyd.

The Republicans have thus far balked on providing aid to state and local governments. Senate Majority Leader Mitch McConnell has openly said that states should declare bankruptcy, which would allow them to default on their pension obligations.

Defaulting on the pensions of state and local employees would be a huge hit to African American workers and retirees. They are substantially over-represented among current and retired public sector employees. This is due to the fact that they faced less discrimination in employment opportunities in public sector employment than in private sector employment.

Currently, the African American share of the state and local workforce is almost 25 percent higher than its share of the private sector workforce. In the 1990s, the African American share of state and local employment was almost 40 percent higher than its share of private sector employment. State and local governments provided millions of African Americans middle class jobs that they were denied in the private sector.

Part of the compensation for a middle class job has historically been a pension. These pensions are not a gift from the government, workers sacrifice pay during their working years in exchange for this pension in retirement. Mitch McConnell’s plan to have states declare bankruptcy, and thereby renege on pensions promised to workers, is in effect an effort to take away pay that workers have already worked for. And, the victims of Senator McConnell’s scheme would disproportionately be African American workers.

And Republicans wonder why so many black people are angry.

Yesterday Donald Trump vetoed a resolution passed by Congress, which would have left in place rules making it easier for students to default on debt owed to for-profit colleges that had engaged in deceptive marketing practices. The Washington Post told readers that this veto is expected to save the government $11 billion over the next decade.

Most readers may not have a good sense of how much money $11 billion over the next decade is. The government is projected to spend 60,700 billion over this period. That means the savings from this veto will be a bit less than 0.02 percent of projected spending.

Yesterday Donald Trump vetoed a resolution passed by Congress, which would have left in place rules making it easier for students to default on debt owed to for-profit colleges that had engaged in deceptive marketing practices. The Washington Post told readers that this veto is expected to save the government $11 billion over the next decade.

Most readers may not have a good sense of how much money $11 billion over the next decade is. The government is projected to spend 60,700 billion over this period. That means the savings from this veto will be a bit less than 0.02 percent of projected spending.

Thankfully, it is not a nuclear war. Apparently the Washington Post thinks plans considered by Trump to delist Chinese companies from U.S. stock exchanges and to make it more difficult for the country to trade in dollars will pose an “existential” threat to the country.

While these plans, which put into practice, will almost certainly sink the stock market and further alienate the United States from its traditional allies, it is very hard to understand how this could be an existential threat to China. Chinese companies that are already listed on U.S. stock exchanges are not currently raising capital. If they are delisted, the price of their shares will fall sharply, but that does not directly affect their ongoing operations. Other Chinese companies will presumably be blocked from being listed on the U.S. exchanges, but this was not a major source of investment capital for these companies in any case.

The piece also implies that China’s trade will be seriously impaired if they are unable to conduct it in dollars. It tells readers:

“China’s years-long ambition of internationalizing the yuan has progressed slowly, with only 2 percent of all global transactions conducted in the Chinese currency.”

The piece implies that this amount is small. However, China’s trade is only a bit more than 12 percent of the world’s total. That means that close to 20 percent of China’s trade is already conducted in its own currency (assuming that the bulk of the trade conducted in yuan has China as a trading partner). That is a pretty good jumping-off point. Furthermore, it is unlikely that most of the rest of the world will go along with Trump’s schemes against China. This means that China would have little problem trading with the euro, the yen, or other major currencies.

As a sidebar, these moves should also mean that China should be able to get use of all U.S. patents and copyrights for free, since why on earth would they pay Pfizer and Microsoft for their intellectual property claims in this context. That should be a good boost to its economy and a major victory for free trade.

Anyhow, given the relative strength of China’s economy and the U.S. economy, and their relative standing in the world, this sounds like a great plan to do lots of damage to the U.S. economy and its standing in the world. The impact on China is likely to be relatively limited.

 

Thankfully, it is not a nuclear war. Apparently the Washington Post thinks plans considered by Trump to delist Chinese companies from U.S. stock exchanges and to make it more difficult for the country to trade in dollars will pose an “existential” threat to the country.

While these plans, which put into practice, will almost certainly sink the stock market and further alienate the United States from its traditional allies, it is very hard to understand how this could be an existential threat to China. Chinese companies that are already listed on U.S. stock exchanges are not currently raising capital. If they are delisted, the price of their shares will fall sharply, but that does not directly affect their ongoing operations. Other Chinese companies will presumably be blocked from being listed on the U.S. exchanges, but this was not a major source of investment capital for these companies in any case.

The piece also implies that China’s trade will be seriously impaired if they are unable to conduct it in dollars. It tells readers:

“China’s years-long ambition of internationalizing the yuan has progressed slowly, with only 2 percent of all global transactions conducted in the Chinese currency.”

The piece implies that this amount is small. However, China’s trade is only a bit more than 12 percent of the world’s total. That means that close to 20 percent of China’s trade is already conducted in its own currency (assuming that the bulk of the trade conducted in yuan has China as a trading partner). That is a pretty good jumping-off point. Furthermore, it is unlikely that most of the rest of the world will go along with Trump’s schemes against China. This means that China would have little problem trading with the euro, the yen, or other major currencies.

As a sidebar, these moves should also mean that China should be able to get use of all U.S. patents and copyrights for free, since why on earth would they pay Pfizer and Microsoft for their intellectual property claims in this context. That should be a good boost to its economy and a major victory for free trade.

Anyhow, given the relative strength of China’s economy and the U.S. economy, and their relative standing in the world, this sounds like a great plan to do lots of damage to the U.S. economy and its standing in the world. The impact on China is likely to be relatively limited.

 

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The Washington Post had an excellent piece documenting how the government put up most of the money for developing remdesivir, a drug that now offers the hope of being the first effective treatment for the coronavirus. As the piece explains, in spite of the substantial contribution of public funds, Gilead Sciences holds a patent monopoly on remdesivir, which will allow it to charge whatever it wants without facing competition from other manufacturers.

There is a simple and obvious solution to this problem. The government should simply take possession of the patent, putting it in the public domain so that anyone can manufacture the drug and also conduct further research, subject to the requirement that any subsequent developments are also in the public domain. (This would be analogous to the rules for free software.)

To ensure that Gilead is fairly compensated, we can pay the company an amount that is 10 percent above any research costs it incurred that exceeded the government payments for development. Gilead would just have to submit its records, with the payment coming after they are fully audited. (There would be a return applied to past payments, of say 5 percent real, so that a payment made in 2015 would get a 25 percent real return [ignoring compounding], in addition to the ten percent markup.)

See, it’s simple, fun, and easy. We get the drug. Gilead gets a respectable profit, and remdesivir is cheap. Is everybody happy?

The Washington Post had an excellent piece documenting how the government put up most of the money for developing remdesivir, a drug that now offers the hope of being the first effective treatment for the coronavirus. As the piece explains, in spite of the substantial contribution of public funds, Gilead Sciences holds a patent monopoly on remdesivir, which will allow it to charge whatever it wants without facing competition from other manufacturers.

There is a simple and obvious solution to this problem. The government should simply take possession of the patent, putting it in the public domain so that anyone can manufacture the drug and also conduct further research, subject to the requirement that any subsequent developments are also in the public domain. (This would be analogous to the rules for free software.)

To ensure that Gilead is fairly compensated, we can pay the company an amount that is 10 percent above any research costs it incurred that exceeded the government payments for development. Gilead would just have to submit its records, with the payment coming after they are fully audited. (There would be a return applied to past payments, of say 5 percent real, so that a payment made in 2015 would get a 25 percent real return [ignoring compounding], in addition to the ten percent markup.)

See, it’s simple, fun, and easy. We get the drug. Gilead gets a respectable profit, and remdesivir is cheap. Is everybody happy?

The NYT ran a column by a bar-restaurant owner telling of the horrible circumstances facing restaurants during and after the shutdown period. While the restaurant industry is among the hardest-hit sectors, and many will not survive, a few of the complaints in the piece need some qualification.

For example, it tells readers:

“Rent is obviously one of our biggest expenses, especially in larger cities. Rent easements are not voluntarily coming from landlords afraid that they will not be able to pay their taxes and other expenses. For commercial rent forgiveness to become a given, it would have to be mandated by the state government, and for that to work, the landlords would in turn have to be granted easements of property taxes. That might mean drawing a straight percentage line, cutting rents by law to 50 percent, say, or pegging easements to monthly gains against former revenue as shown by tax records.”

While we could look to legislate rent reductions, that would be hard to do in an equitable matter. As a practical matter, landlords would be very foolish not to agree to lower rents for restaurants and other struggling businesses, given that the alternative will be a vacant building from which they will collect zero rent. We know from watching Donald Trump and his son-in-law chief adviser that big landlords often don’t know much economics, but most of them probably do understand that some rent is better than no rent.

As far as the landlords’ obligations, most importantly their mortgages, banks will also likely recognize that it is better to get some payment on a loan than no payment. They can force properties into foreclosure, which they will then be looking to sell in the middle of the worst economic slump since the Great Depression.  Again, the housing bubble taught us that bankers are also not very good at economics, but presumably most of them can be made to understand that it doesn’t help their bottom line to foreclose on commercial property owners who cannot pay their full mortgage.

The piece also includes a complaint about payroll taxes that does not make any sense:

“When we pay out $16,000 of payroll to the staff, I’m adding another $8,500 in payroll taxes.”

It is hard to understand how payroll taxes can be 53 percent of wages. Perhaps a digit was dropped in the size of the payroll, but nowhere in the country has taxes anywhere near that rate.

But the piece’s first and main complaint is about social distancing requirements:

“Protocols already being readied in most states will limit indoor business to 50 percent of prior capacity — even down to 25 percent in some states — and restrict seating to safe distances of six feet.  …   That is quite effectively a death sentence. It would result in revenues of 25 percent or less of our normal operation, which in this business, even given a popular spot doing quite well, yielded razor-thin margins to begin with. There is, quite simply, no possible way for anyone to make those numbers work.”

There are two problems with this argument. First, it is not clear that many people would want to patronize a restaurant if they did not feel that it was taking reasonable precautions to ensure customers’ safety. That has been the experience in many places that have allowed openings with lax standards.

The other major problem is the assertion that the industry has “razor-thin margins.” That was the case before the crisis. There is no reason it would be the case now.

As the column complains, restaurants will only have 50 percent or possibly even 25 percent of prior capacity. This means that they will be able to serve many fewer customers. Also, many restaurants are going out of business. This means there is far less competition.

In that context, what would prevent a restaurant from substantially increasing their prices? Even if price hikes cost them half of their former customers they will still have all the business they can handle. The idea that everything in the world changes, but somehow a law of nature mandates that restaurants operate on low-profit margins, makes zero sense.

In reality, we should expect that in most cases the restaurants that reopen will do so with sharply higher prices. This will be needed to cover their higher per-customer costs. That is not good news for people going out to restaurants, but it is likely to be the world we face until the pandemic is controlled or we develop more effective treatments.

The NYT ran a column by a bar-restaurant owner telling of the horrible circumstances facing restaurants during and after the shutdown period. While the restaurant industry is among the hardest-hit sectors, and many will not survive, a few of the complaints in the piece need some qualification.

For example, it tells readers:

“Rent is obviously one of our biggest expenses, especially in larger cities. Rent easements are not voluntarily coming from landlords afraid that they will not be able to pay their taxes and other expenses. For commercial rent forgiveness to become a given, it would have to be mandated by the state government, and for that to work, the landlords would in turn have to be granted easements of property taxes. That might mean drawing a straight percentage line, cutting rents by law to 50 percent, say, or pegging easements to monthly gains against former revenue as shown by tax records.”

While we could look to legislate rent reductions, that would be hard to do in an equitable matter. As a practical matter, landlords would be very foolish not to agree to lower rents for restaurants and other struggling businesses, given that the alternative will be a vacant building from which they will collect zero rent. We know from watching Donald Trump and his son-in-law chief adviser that big landlords often don’t know much economics, but most of them probably do understand that some rent is better than no rent.

As far as the landlords’ obligations, most importantly their mortgages, banks will also likely recognize that it is better to get some payment on a loan than no payment. They can force properties into foreclosure, which they will then be looking to sell in the middle of the worst economic slump since the Great Depression.  Again, the housing bubble taught us that bankers are also not very good at economics, but presumably most of them can be made to understand that it doesn’t help their bottom line to foreclose on commercial property owners who cannot pay their full mortgage.

The piece also includes a complaint about payroll taxes that does not make any sense:

“When we pay out $16,000 of payroll to the staff, I’m adding another $8,500 in payroll taxes.”

It is hard to understand how payroll taxes can be 53 percent of wages. Perhaps a digit was dropped in the size of the payroll, but nowhere in the country has taxes anywhere near that rate.

But the piece’s first and main complaint is about social distancing requirements:

“Protocols already being readied in most states will limit indoor business to 50 percent of prior capacity — even down to 25 percent in some states — and restrict seating to safe distances of six feet.  …   That is quite effectively a death sentence. It would result in revenues of 25 percent or less of our normal operation, which in this business, even given a popular spot doing quite well, yielded razor-thin margins to begin with. There is, quite simply, no possible way for anyone to make those numbers work.”

There are two problems with this argument. First, it is not clear that many people would want to patronize a restaurant if they did not feel that it was taking reasonable precautions to ensure customers’ safety. That has been the experience in many places that have allowed openings with lax standards.

The other major problem is the assertion that the industry has “razor-thin margins.” That was the case before the crisis. There is no reason it would be the case now.

As the column complains, restaurants will only have 50 percent or possibly even 25 percent of prior capacity. This means that they will be able to serve many fewer customers. Also, many restaurants are going out of business. This means there is far less competition.

In that context, what would prevent a restaurant from substantially increasing their prices? Even if price hikes cost them half of their former customers they will still have all the business they can handle. The idea that everything in the world changes, but somehow a law of nature mandates that restaurants operate on low-profit margins, makes zero sense.

In reality, we should expect that in most cases the restaurants that reopen will do so with sharply higher prices. This will be needed to cover their higher per-customer costs. That is not good news for people going out to restaurants, but it is likely to be the world we face until the pandemic is controlled or we develop more effective treatments.

In the last couple of weeks both the New York Times and National Public Radio have warned that China could steal a vaccine against the coronavirus, or at least steal work in the U.S. done towards developing a vaccine. Both outlets obviously thought their audiences should view this as a serious concern.

As I wrote previously, it is not clear why those of us who don’t either own large amounts of stock in drug companies or give a damn about Donald Trump’s ego, should be upset about the prospect of China “stealing” a vaccine. Concretely, if China gained knowledge from labs in the United States that allowed it to develop and produce a vaccine more quickly, this would mean that hundreds of millions of people might be protected against a deadly disease more quickly than would otherwise be the case. If China made this vaccine available to people in the developing world, then the numbers could be in the billions.

Sounds pretty scary, right?

It is amazing that neither the reporters writing these stories nor their editors apparently gave much thought to the implications of China “stealing” a vaccine. Or perhaps, even worse, maybe they did. Anyhow, I suspect that most of the audiences of these outlets would not consider it a terrible thing if people in China or other countries could get vaccinated more quickly against the coronavirus.

But the issue of this potential theft is just the beginning of the story. If China can in principle develop a vaccine more quickly if it has access to data from labs in the United States then it must also be the case that researchers in the United States could develop a vaccine more quickly if they had data from labs in China and elsewhere. This raises the question of why we are not researching a vaccine collectively, with researchers all over the world posting their findings as quickly as practical so that teams of researchers everywhere can benefit from them?

There is a bad answer and a somewhat less bad answer to this question. The bad answer is that the goal of the researchers is to get a government-granted patent monopoly so that they can charge lots of money for a vaccine and get very rich. The less bad answer is that we rely on grants of patent monopolies to finance research. If companies didn’t have the hope of getting a patent monopoly, they would have no way to recoup the costs they are incurring paying researchers and undertaking the trials necessary to establish the safety and effectiveness of a vaccine.

The reason why the less bad answer is still a pretty damn bad answer is that it assumes that we have no other way to pay for the research and testing of a vaccine, except with patent monopolies. It should be pretty obvious that this is not the case since much of the funding for the research now taking place comes from the government.[1] However, for some reason, the idea that the government would take up the slack and pick up the full tab for developing a vaccine, including testing and going through the FDA approval, is difficult for people to conceive.

The failure of imagination here is more than a little bizarre. This is in part because the government already pays for many clinical trials through the National Institutes of Health and other agencies. However, there is also an obvious model for large-scale funding for research and development, the Defense Department.

The Defense Department will sign large multi-year contracts with major military suppliers, like Lockheed or Boeing. The contractors will typically subcontract much of the work to smaller and newer companies, but the decision on what to do in-house and what to do under contract is largely left up to the prime contractors.

There are many grounds for complaints about the military, but the fact is that we do get good weapons systems. And, we have a huge advantage with medical research over military research. There are legitimate reasons for keeping military research secret, we would not want ISIS to be able to download the plans for our latest weapons systems off the web. By contrast, there is no good reason for wanting to keep medical research secret. There could be nothing better than to have a team of researchers in another country, learn from findings here, and then build on them to develop a successful vaccine or treatment for the coronavirus. (I discuss this issue in more detail in chapter 5 of Rigged [it’s free.])

Ideally, we would have some system of international coordination where the costs of research were shared. This would require some negotiations but our current system of patent monopolies also involves difficult negotiations. Provisions on patents and related protections were a major part of every trade deal for the last three decades. These provisions have often been especially contentious. In fact, the final version of the Trans-Pacific Partnership was delayed for several years over the terms on patent-related protections demanded by the U.S. pharmaceutical industry. So, while it is true that we would like a mechanism to ensure fair sharing of research costs, it is likely that negotiating this sharing will be no more difficult than it has been under the patent monopoly system.

However, in a context where the whole world is struggling to deal with a pandemic that is killing hundreds of thousands of people, it might be reasonable to just do the research and worry about the cost-sharing later. It would make sense for governments to fund their own research to the extent practical and require that everything be fully public as soon as possible.

If we went this route, our leading news outlets could put aside their fears that China would steal the vaccine. If they take advantage of U.S. research and rush ahead and develop an effective vaccine before our own researchers, then the whole world will benefit from having a vaccine sooner than would otherwise be the case.

If China somehow decides to break commitments and keep its vaccine secret, surely we will be able to secure a dose and reverse engineer it. This should still leave us hugely better off than if our researchers are struggling to overcome obstacles that China’s researchers have already managed to surmount. In any case, China certainly does not have a poor record of adhering to international agreements, at least not compared to the United States under Donald Trump.

We have a huge amount of potential gain from going the route of open research and very little to lose. And our leading news outlets would be able to stop worrying about China stealing our vaccine.

[1] It is worth noting on this topic that remdesivir, currently the most promising drug for treating the coronavirus, was developed to a large extent with public money, even though Gilead owns a patent on it.

In the last couple of weeks both the New York Times and National Public Radio have warned that China could steal a vaccine against the coronavirus, or at least steal work in the U.S. done towards developing a vaccine. Both outlets obviously thought their audiences should view this as a serious concern.

As I wrote previously, it is not clear why those of us who don’t either own large amounts of stock in drug companies or give a damn about Donald Trump’s ego, should be upset about the prospect of China “stealing” a vaccine. Concretely, if China gained knowledge from labs in the United States that allowed it to develop and produce a vaccine more quickly, this would mean that hundreds of millions of people might be protected against a deadly disease more quickly than would otherwise be the case. If China made this vaccine available to people in the developing world, then the numbers could be in the billions.

Sounds pretty scary, right?

It is amazing that neither the reporters writing these stories nor their editors apparently gave much thought to the implications of China “stealing” a vaccine. Or perhaps, even worse, maybe they did. Anyhow, I suspect that most of the audiences of these outlets would not consider it a terrible thing if people in China or other countries could get vaccinated more quickly against the coronavirus.

But the issue of this potential theft is just the beginning of the story. If China can in principle develop a vaccine more quickly if it has access to data from labs in the United States then it must also be the case that researchers in the United States could develop a vaccine more quickly if they had data from labs in China and elsewhere. This raises the question of why we are not researching a vaccine collectively, with researchers all over the world posting their findings as quickly as practical so that teams of researchers everywhere can benefit from them?

There is a bad answer and a somewhat less bad answer to this question. The bad answer is that the goal of the researchers is to get a government-granted patent monopoly so that they can charge lots of money for a vaccine and get very rich. The less bad answer is that we rely on grants of patent monopolies to finance research. If companies didn’t have the hope of getting a patent monopoly, they would have no way to recoup the costs they are incurring paying researchers and undertaking the trials necessary to establish the safety and effectiveness of a vaccine.

The reason why the less bad answer is still a pretty damn bad answer is that it assumes that we have no other way to pay for the research and testing of a vaccine, except with patent monopolies. It should be pretty obvious that this is not the case since much of the funding for the research now taking place comes from the government.[1] However, for some reason, the idea that the government would take up the slack and pick up the full tab for developing a vaccine, including testing and going through the FDA approval, is difficult for people to conceive.

The failure of imagination here is more than a little bizarre. This is in part because the government already pays for many clinical trials through the National Institutes of Health and other agencies. However, there is also an obvious model for large-scale funding for research and development, the Defense Department.

The Defense Department will sign large multi-year contracts with major military suppliers, like Lockheed or Boeing. The contractors will typically subcontract much of the work to smaller and newer companies, but the decision on what to do in-house and what to do under contract is largely left up to the prime contractors.

There are many grounds for complaints about the military, but the fact is that we do get good weapons systems. And, we have a huge advantage with medical research over military research. There are legitimate reasons for keeping military research secret, we would not want ISIS to be able to download the plans for our latest weapons systems off the web. By contrast, there is no good reason for wanting to keep medical research secret. There could be nothing better than to have a team of researchers in another country, learn from findings here, and then build on them to develop a successful vaccine or treatment for the coronavirus. (I discuss this issue in more detail in chapter 5 of Rigged [it’s free.])

Ideally, we would have some system of international coordination where the costs of research were shared. This would require some negotiations but our current system of patent monopolies also involves difficult negotiations. Provisions on patents and related protections were a major part of every trade deal for the last three decades. These provisions have often been especially contentious. In fact, the final version of the Trans-Pacific Partnership was delayed for several years over the terms on patent-related protections demanded by the U.S. pharmaceutical industry. So, while it is true that we would like a mechanism to ensure fair sharing of research costs, it is likely that negotiating this sharing will be no more difficult than it has been under the patent monopoly system.

However, in a context where the whole world is struggling to deal with a pandemic that is killing hundreds of thousands of people, it might be reasonable to just do the research and worry about the cost-sharing later. It would make sense for governments to fund their own research to the extent practical and require that everything be fully public as soon as possible.

If we went this route, our leading news outlets could put aside their fears that China would steal the vaccine. If they take advantage of U.S. research and rush ahead and develop an effective vaccine before our own researchers, then the whole world will benefit from having a vaccine sooner than would otherwise be the case.

If China somehow decides to break commitments and keep its vaccine secret, surely we will be able to secure a dose and reverse engineer it. This should still leave us hugely better off than if our researchers are struggling to overcome obstacles that China’s researchers have already managed to surmount. In any case, China certainly does not have a poor record of adhering to international agreements, at least not compared to the United States under Donald Trump.

We have a huge amount of potential gain from going the route of open research and very little to lose. And our leading news outlets would be able to stop worrying about China stealing our vaccine.

[1] It is worth noting on this topic that remdesivir, currently the most promising drug for treating the coronavirus, was developed to a large extent with public money, even though Gilead owns a patent on it.

There is an endless market for pieces that tell us that the typical worker is doing quite well, in spite of all the gloom and talk we hear constantly. Michael Strain, who is actually a pretty good economist, took on the job in a column in the NYT yesterday.

The gist of Strain’s piece is that we shouldn’t be upset about inequality because the great fortunes at the top are really helping to make us all richer. He contrasts the 1990s, when inequality grew a lot, with the period from 2007 to 2017, when there was little rise in inequality. Strain notes the much slower income growth in the second period and tells us:

“I would argue that part of the answer must be that inflation-adjusted wages for typical workers grew 44 percent more in the 1990s than in the 10 years beginning in 2007. “

That 44 percent difference sounds like a big deal, but not to folks familiar with the data. According to the Economic Policy Institute, the wage of the typical worker grew roughly 2 percent in the second period. So sure, wage growth of 2.88 percent over the course of a decade is better than 2.0 percent growth over a decade, but I don’t think I would make too much of that difference.

Some of the other tricks in this one include the focus on “post-tax-and-transfer income” which Strain tells us is “the most comprehensive measure of the flow of resources available to households.” I would disagree with this assessment. A very big chunk of post-tax-and-transfer income is government payments for Medicare and Medicaid. While these programs are enormously important, the government’s payments to drug companies, medical equipment suppliers, and doctors are not the same thing as cash in people’s pockets.

With these payments now getting close to $10,000 per person, it is easy to see how they distort calculations when we are looking at median family incomes of close to $60,000 and even more so with low-income families with income less than half this level. It is also worth noting that if we paid drug companies, medical equipment suppliers, and doctors the same amount they get in other wealthy countries, the payments would be roughly half this size and we would see similar outcomes.

The expensive health care story features prominently in this claim:

“From 1990 to 2016, Congressional Budget Office data show that the median household saw inflation-adjusted market income increase by 21 percent, while post-tax-and-transfer income grew by 44 percent. Households in the bottom 20 percent saw that measure of income grow by two-thirds during this period.”

The other trick is that much of the rise in market income for the median household over this period is the increase in two-earner households. This includes the period in which women were entering the labor market in large numbers. We would expect a two-earner household to have a larger income than a one-earner household. It also has increased costs associated with items like child care and transportation.

And then we are told:

“The American dream that our children will do better than ourselves is alive and well. Using the Panel Study of Income Dynamics, a data set that tracks families over time and across generations, I calculate that inflation-adjusted household income for three-quarters of people in their 40s today is higher than their parents’ income when their parents were of similar age. Eighty-six percent of people raised in the bottom 20 percent have higher household incomes than their parents did. Around eight in 10 men in their 40s today who were raised in the bottom 20 percent earn more money in the job market than their fathers did at a similar age.”

Having a higher income than your parents did at the same age is an incredibly low bar. If we go back to the old days 1947 to 1973, when inequality was not increasing, wages and incomes were rising by about 2.0 percent annually. If we assume 25-year generations, the wage of a typical worker would be roughly 64 percent higher than their parents’ pay at the same age. In that story, almost no one would be seeing a lower income than their parents had at the same age.

There clearly were other differences between the 1947 to 1973 Golden Age and the nearly half-century of inequality we have seen in the subsequent period. Perhaps we can’t blame all of our problems on rising inequality, but if Strain is trying to make the case that we are all better off as a result, he has a long way to go.

There is an endless market for pieces that tell us that the typical worker is doing quite well, in spite of all the gloom and talk we hear constantly. Michael Strain, who is actually a pretty good economist, took on the job in a column in the NYT yesterday.

The gist of Strain’s piece is that we shouldn’t be upset about inequality because the great fortunes at the top are really helping to make us all richer. He contrasts the 1990s, when inequality grew a lot, with the period from 2007 to 2017, when there was little rise in inequality. Strain notes the much slower income growth in the second period and tells us:

“I would argue that part of the answer must be that inflation-adjusted wages for typical workers grew 44 percent more in the 1990s than in the 10 years beginning in 2007. “

That 44 percent difference sounds like a big deal, but not to folks familiar with the data. According to the Economic Policy Institute, the wage of the typical worker grew roughly 2 percent in the second period. So sure, wage growth of 2.88 percent over the course of a decade is better than 2.0 percent growth over a decade, but I don’t think I would make too much of that difference.

Some of the other tricks in this one include the focus on “post-tax-and-transfer income” which Strain tells us is “the most comprehensive measure of the flow of resources available to households.” I would disagree with this assessment. A very big chunk of post-tax-and-transfer income is government payments for Medicare and Medicaid. While these programs are enormously important, the government’s payments to drug companies, medical equipment suppliers, and doctors are not the same thing as cash in people’s pockets.

With these payments now getting close to $10,000 per person, it is easy to see how they distort calculations when we are looking at median family incomes of close to $60,000 and even more so with low-income families with income less than half this level. It is also worth noting that if we paid drug companies, medical equipment suppliers, and doctors the same amount they get in other wealthy countries, the payments would be roughly half this size and we would see similar outcomes.

The expensive health care story features prominently in this claim:

“From 1990 to 2016, Congressional Budget Office data show that the median household saw inflation-adjusted market income increase by 21 percent, while post-tax-and-transfer income grew by 44 percent. Households in the bottom 20 percent saw that measure of income grow by two-thirds during this period.”

The other trick is that much of the rise in market income for the median household over this period is the increase in two-earner households. This includes the period in which women were entering the labor market in large numbers. We would expect a two-earner household to have a larger income than a one-earner household. It also has increased costs associated with items like child care and transportation.

And then we are told:

“The American dream that our children will do better than ourselves is alive and well. Using the Panel Study of Income Dynamics, a data set that tracks families over time and across generations, I calculate that inflation-adjusted household income for three-quarters of people in their 40s today is higher than their parents’ income when their parents were of similar age. Eighty-six percent of people raised in the bottom 20 percent have higher household incomes than their parents did. Around eight in 10 men in their 40s today who were raised in the bottom 20 percent earn more money in the job market than their fathers did at a similar age.”

Having a higher income than your parents did at the same age is an incredibly low bar. If we go back to the old days 1947 to 1973, when inequality was not increasing, wages and incomes were rising by about 2.0 percent annually. If we assume 25-year generations, the wage of a typical worker would be roughly 64 percent higher than their parents’ pay at the same age. In that story, almost no one would be seeing a lower income than their parents had at the same age.

There clearly were other differences between the 1947 to 1973 Golden Age and the nearly half-century of inequality we have seen in the subsequent period. Perhaps we can’t blame all of our problems on rising inequality, but if Strain is trying to make the case that we are all better off as a result, he has a long way to go.

The piece tells readers that small businesses in cities with high rents face a serious risk of bankruptcy. The point is very clear in the headline, “small businesses in high-rent cities face disaster. If they go under, urban life will change.”

The obvious problem with this story is that if large numbers of businesses go under, then it is hard to see how rents stay high. Landlords may not be the smartest folks in the world, but it doesn’t take a genius to realize that you get more money from a rent that is 20 or 30 percent lower than from a vacant building. If rents drop sharply, the high-rent cities would no longer be high-rent cities.

Of course, the Post could be right and landlords may not be able to figure out that they are better off with a tenant paying lower rent than not getting any rent at all, but that should really be the story. We have seen many stories in the Post and elsewhere about workers don’t have the right skills for the jobs that are available. This would be a clear case in which landlords lacked the skills needed to run their business profitably.

The piece tells readers that small businesses in cities with high rents face a serious risk of bankruptcy. The point is very clear in the headline, “small businesses in high-rent cities face disaster. If they go under, urban life will change.”

The obvious problem with this story is that if large numbers of businesses go under, then it is hard to see how rents stay high. Landlords may not be the smartest folks in the world, but it doesn’t take a genius to realize that you get more money from a rent that is 20 or 30 percent lower than from a vacant building. If rents drop sharply, the high-rent cities would no longer be high-rent cities.

Of course, the Post could be right and landlords may not be able to figure out that they are better off with a tenant paying lower rent than not getting any rent at all, but that should really be the story. We have seen many stories in the Post and elsewhere about workers don’t have the right skills for the jobs that are available. This would be a clear case in which landlords lacked the skills needed to run their business profitably.

Opinion columns are always given more leeway than news articles, but it would be reasonable to expect that an opinion column in a major newspaper have some connection to reality. That does not appear to be the case with this one that tells us “I live in Sweden. I’m not panicking.”

The piece is a defense of Sweden’s decision to not have a shutdown period in which most businesses are closed and people are restricted from traveling for non-essential purposes. This has resulted in far higher infection rates in Sweden and most importantly far higher death rates. 

The only acknowledgment of this failure is when it tells readers:

“Sweden’s approach differs even from that of our Scandinavian neighbors, where society swiftly closed and many fewer deaths have been reported. Critics argue that our government and the Public Health Agency acted too late and that the strategy has failed, citing the number of dead in relation to the population of just over 10 million.”

It then continues:

“Officials counter that though many hospitals are under unprecedented stress, the health care system, which is tax-funded and heavily subsidized, still has capacity to care for the sick.

“The vast majority of those who have died in Sweden were over the age of 70. Many of them were people living within the elder-care system, even though visits to nursing homes have been banned. Friends whose loved ones have succumbed to the virus are understandably inconsolable.”

First, the elderly have been disproportionately victims of the virus everywhere, so it is not clear that this story is different in Sweden than elsewhere. But the more important point is that we are not talking about small differences in mortality rates, the differences are huge. As of today, Sweden has a death rate of 350 per million. Denmark’s rate is less than 30 percent as high at 93 per million. Finland’s rate is a bit more than one-seventh of Sweden’s at 52 per million and Norway’s rate is less than 15 percent of Sweden’s at 42 per million.

In other words, we are not talking about marginal differences, Sweden is seeing far more deaths relative to the size of its population than its neighbors because of the route it has taken in dealing with the virus. It would be reasonable to expect a piece defending this route to confront this point clearly rather than hiding the issue from readers who mostly will not know the actual numbers.

Opinion columns are always given more leeway than news articles, but it would be reasonable to expect that an opinion column in a major newspaper have some connection to reality. That does not appear to be the case with this one that tells us “I live in Sweden. I’m not panicking.”

The piece is a defense of Sweden’s decision to not have a shutdown period in which most businesses are closed and people are restricted from traveling for non-essential purposes. This has resulted in far higher infection rates in Sweden and most importantly far higher death rates. 

The only acknowledgment of this failure is when it tells readers:

“Sweden’s approach differs even from that of our Scandinavian neighbors, where society swiftly closed and many fewer deaths have been reported. Critics argue that our government and the Public Health Agency acted too late and that the strategy has failed, citing the number of dead in relation to the population of just over 10 million.”

It then continues:

“Officials counter that though many hospitals are under unprecedented stress, the health care system, which is tax-funded and heavily subsidized, still has capacity to care for the sick.

“The vast majority of those who have died in Sweden were over the age of 70. Many of them were people living within the elder-care system, even though visits to nursing homes have been banned. Friends whose loved ones have succumbed to the virus are understandably inconsolable.”

First, the elderly have been disproportionately victims of the virus everywhere, so it is not clear that this story is different in Sweden than elsewhere. But the more important point is that we are not talking about small differences in mortality rates, the differences are huge. As of today, Sweden has a death rate of 350 per million. Denmark’s rate is less than 30 percent as high at 93 per million. Finland’s rate is a bit more than one-seventh of Sweden’s at 52 per million and Norway’s rate is less than 15 percent of Sweden’s at 42 per million.

In other words, we are not talking about marginal differences, Sweden is seeing far more deaths relative to the size of its population than its neighbors because of the route it has taken in dealing with the virus. It would be reasonable to expect a piece defending this route to confront this point clearly rather than hiding the issue from readers who mostly will not know the actual numbers.

(This piece was originally posted on my Patreon page.)

Neil Irwin had an interesting New York Times piece on how concerns about moral hazard in the bailout may damage the recovery. The gist of the article is that the fear that bad actors will be wrongly rewarded will prevent us from spending enough money to get the economy back on its feet. Irwin’s point is very important, but it does require some further examination.

We might agree for example, that it is silly to oppose an airline bailout because it will help shareholders if the bailout will also save tens of thousands of jobs. The priority should be to preserve jobs and, as much as possible, keep viable corporations intact through this crisis. This is not only to keep employment as high as possible during the crisis but also to preserve the basis for a strong recovery. 

But let’s put some meat on the bones here. If we stay with the case of an airline bailout (which actually had some pretty good terms for workers, that were imposed as a result of pressure from industry unions), let’s imagine that the airlines planned to use much of their bailout money to pay out dividends to shareholders. Suppose that they plan to continue to pay CEOs salaries in the neighborhood of $20 million a year. And, they have plans to lay off a large portion of their workforce. 

Do we still think it’s a good idea to bail out the airlines? I’m slightly caricaturing the story here, but the basic problem arises in all sectors. We absolutely should place a priority on sustaining the economy through this crisis, but we also have to ask the question of who is benefiting and how much?

That is unfortunate, but we live in a society where, for the last four decades, those on top have taken every opportunity to game the system to enrich themselves at the expense of everyone else. We see this with CEOs who take advantage of the corruption of the corporate governance process to get paychecks that are two to three hundred times the pay of ordinary workers. We have drug companies that constantly game the patent system to extend monopolies that allow them to charge prices that can be tens of thousands of percent above the free market price.

We have a financial industry that makes tens of billions of dollars annually by sneaking fees and penalties into contracts with their customers. And, we have a whole industry, private equity, that has made many of its partners incredibly rich by financial gaming at the expense of the creditors and workers at the companies it buys.

This is the world we lived in when the pandemic hit. In this context is there any reason to trust that the bailout money will serve the overall good of the economy and society? 

The fact that Donald Trump has explicitly resisted Congressional efforts at oversight of the bailout hardly helps to promote trust. In fact, given his past behavior and the behavior of top officials in the Trump administration, it is reasonable to assume Trump’s family, friends, and political supporters will disproportionately be the beneficiaries of this bailout. 

Furthermore, the punitive steps towards ordinary workers taken by Trump and other Republican officials also undermine any idea that we share a common interest in a bailout that keeps the economy moving. Trump has effectively required tens of thousands of workers in meatpacking plants to return to work in facilities that are unsafe, and without receiving any hazard pay. 

Senate Majority Leader Mitch McConnell explicitly said that he wants to force states to declare bankruptcy so that they can default on the pensions that were part of their workers’ pay. McConnell has indicated that he also would like to see cuts to pay of current union workers, but he apparently is mostly anxious to take back the pay for work already done. Trump seems about to pull the same trick with the postal workers, who somehow got left out of the rescue packages approved by Congress. In the same vein, several Republican governors have told employers that they want to be notified of any workers who do not return to work when businesses reopen so that they can cut off their unemployment benefits. 

The “we’re all in this together” spirit that might make a sprawling free-flowing bailout seem reasonable does not exist. The rich are not only acting to preserve their wealth in this crisis, but they are also using every opportunity to stuff their pockets as full as possible. In addition to all their standard scams, they are even ripping off the relief effort, charging exorbitant prices for needed drugs, medical equipment, and protective gear.  

The idea that the distribution of income was simply the result of the free workings of the market was always a fairy tale, believed only by children and liberal policy wonks. But it is especially absurd as we see the pandemic wreck its havoc and the government choosing which groups will survive more or less in tack or even prosper from the disaster. 

In effect, the pandemic has thrown the whole deck of cards up in the air. If we just let the market work its magic in this environment, it will ruin almost any industry or company – in addition to the airline industry, aircraft makers (i.e. Boeing), hotel chains, restaurant chains, hospitals losing payments for elective procedures, health insurance companies, department stores, and retail chains, and many others – would all be going belly up. 

We will save most of the companies in hard-hit sectors as a political decision. We will let millions of workers and their families flounder, losing homes and apartments, retirement savings, health care insurance, and other basics as a separate political decision. The idea that this has anything to do with the market is crap. The people with political power are using it to protect and enhance their wealth. And, they are using that power to kick ordinary workers in the face. 

Yeah, there are very good reasons for people not to like the current bailout. They are not being irrational.  

(This piece was originally posted on my Patreon page.)

Neil Irwin had an interesting New York Times piece on how concerns about moral hazard in the bailout may damage the recovery. The gist of the article is that the fear that bad actors will be wrongly rewarded will prevent us from spending enough money to get the economy back on its feet. Irwin’s point is very important, but it does require some further examination.

We might agree for example, that it is silly to oppose an airline bailout because it will help shareholders if the bailout will also save tens of thousands of jobs. The priority should be to preserve jobs and, as much as possible, keep viable corporations intact through this crisis. This is not only to keep employment as high as possible during the crisis but also to preserve the basis for a strong recovery. 

But let’s put some meat on the bones here. If we stay with the case of an airline bailout (which actually had some pretty good terms for workers, that were imposed as a result of pressure from industry unions), let’s imagine that the airlines planned to use much of their bailout money to pay out dividends to shareholders. Suppose that they plan to continue to pay CEOs salaries in the neighborhood of $20 million a year. And, they have plans to lay off a large portion of their workforce. 

Do we still think it’s a good idea to bail out the airlines? I’m slightly caricaturing the story here, but the basic problem arises in all sectors. We absolutely should place a priority on sustaining the economy through this crisis, but we also have to ask the question of who is benefiting and how much?

That is unfortunate, but we live in a society where, for the last four decades, those on top have taken every opportunity to game the system to enrich themselves at the expense of everyone else. We see this with CEOs who take advantage of the corruption of the corporate governance process to get paychecks that are two to three hundred times the pay of ordinary workers. We have drug companies that constantly game the patent system to extend monopolies that allow them to charge prices that can be tens of thousands of percent above the free market price.

We have a financial industry that makes tens of billions of dollars annually by sneaking fees and penalties into contracts with their customers. And, we have a whole industry, private equity, that has made many of its partners incredibly rich by financial gaming at the expense of the creditors and workers at the companies it buys.

This is the world we lived in when the pandemic hit. In this context is there any reason to trust that the bailout money will serve the overall good of the economy and society? 

The fact that Donald Trump has explicitly resisted Congressional efforts at oversight of the bailout hardly helps to promote trust. In fact, given his past behavior and the behavior of top officials in the Trump administration, it is reasonable to assume Trump’s family, friends, and political supporters will disproportionately be the beneficiaries of this bailout. 

Furthermore, the punitive steps towards ordinary workers taken by Trump and other Republican officials also undermine any idea that we share a common interest in a bailout that keeps the economy moving. Trump has effectively required tens of thousands of workers in meatpacking plants to return to work in facilities that are unsafe, and without receiving any hazard pay. 

Senate Majority Leader Mitch McConnell explicitly said that he wants to force states to declare bankruptcy so that they can default on the pensions that were part of their workers’ pay. McConnell has indicated that he also would like to see cuts to pay of current union workers, but he apparently is mostly anxious to take back the pay for work already done. Trump seems about to pull the same trick with the postal workers, who somehow got left out of the rescue packages approved by Congress. In the same vein, several Republican governors have told employers that they want to be notified of any workers who do not return to work when businesses reopen so that they can cut off their unemployment benefits. 

The “we’re all in this together” spirit that might make a sprawling free-flowing bailout seem reasonable does not exist. The rich are not only acting to preserve their wealth in this crisis, but they are also using every opportunity to stuff their pockets as full as possible. In addition to all their standard scams, they are even ripping off the relief effort, charging exorbitant prices for needed drugs, medical equipment, and protective gear.  

The idea that the distribution of income was simply the result of the free workings of the market was always a fairy tale, believed only by children and liberal policy wonks. But it is especially absurd as we see the pandemic wreck its havoc and the government choosing which groups will survive more or less in tack or even prosper from the disaster. 

In effect, the pandemic has thrown the whole deck of cards up in the air. If we just let the market work its magic in this environment, it will ruin almost any industry or company – in addition to the airline industry, aircraft makers (i.e. Boeing), hotel chains, restaurant chains, hospitals losing payments for elective procedures, health insurance companies, department stores, and retail chains, and many others – would all be going belly up. 

We will save most of the companies in hard-hit sectors as a political decision. We will let millions of workers and their families flounder, losing homes and apartments, retirement savings, health care insurance, and other basics as a separate political decision. The idea that this has anything to do with the market is crap. The people with political power are using it to protect and enhance their wealth. And, they are using that power to kick ordinary workers in the face. 

Yeah, there are very good reasons for people not to like the current bailout. They are not being irrational.  

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