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.

You might think that, after a year in which have seen millions of deaths and tens of millions of infections, and trillions of dollars in economic losses, our leaders would take the pandemic seriously. But apparently, that is too much to ask.

To my view, taking the pandemic seriously means doing everything we can to get the whole world vaccinated as quickly as possible. This is not just an issue of being concerned for the poor people in the developing world, who are being left behind in the vaccination race, it is a recognition of the reality that viruses mutate.

We already know about several mutations that are more contagious than the original coronavirus and are at least somewhat more resistant to some of the vaccines that have been developed. If the pandemic is allowed to spread largely unchecked through the developing world for another year or two, then it is virtually certain that we will see many more mutations. Some of these may be even more contagious and deadly, and most importantly, more vaccine-resistant.

The developers of the mRNA vaccines are confident that if this happens, they can quickly tweak their vaccines to make them effective against whatever new mutations develop. This should give us little comfort. Do we want to go through another round of infections, deaths, and lockdowns as we wait for hundreds of millions of the new vaccines to be manufactured and distributed?

Getting the world vaccinated is not about some feel-good gestures, like a few billion dollars for COVAX, the Bill Gates inspired initiative to make vaccines available in developing countries. It means pulling out all the stops to produce and distribute billions of vaccines as quickly as possible.

To do this, we need the cooperation of the whole world and the elimination of all the barriers to the production and distribution of vaccines. My model here is the bad science fiction movies of the 1950s. When the world was facing an alien invasion, the president of the United States would always call his counterpart in the Soviet Union and agree to a common effort to save humanity. We need to do the same now.

To my view, this means a vaccine summit, which would include Russia and China. We need to produce and distribute vaccines around the world as quickly as possible. That means using every vaccine that has been shown to be safe and effective. Russia has at least one at this point and China has four. Both countries are working on developing more vaccines, as are India, Iran, and Cuba. As soon as a vaccine is shown to meet world standards, we should be producing as much of it as possible and distributing it as quickly as possible.

This will require more transparency of clinical trial results, an area where China’s vaccine manufacturers have failed badly and even U.S.-European manufacturers have been far from perfect.  We need to know how effective each vaccine is against each variant and have a clear understanding of possible side effects.

I’ve heard people assert that China will never be open about its results. That could be true, but why not test the claim? There is a lot at stake here.

We also need transparency about production processes so that the technology to manufacture vaccines is freely available for anyone who can use it. The pharmaceutical industry group has been anxious to assert that there is no possible way to increase the production of their vaccines because of inherent limitations in productive capacities. This claim is contradicted by the fact that Pfizer announced the discovery of production efficiencies in early February, that will allow it to nearly double its output. Unless we believe that Pfizer’s engineers are the only people in the world who can develop ways to improve its production process, making the knowledge open will lead to further innovations that will allow for more vaccines to be manufactured.

This would mean suspending intellectual property claims over these vaccines. From a moral standpoint, this should not be a tough call since governments paid for so much of the development costs. In the United States, Section 1498 of the commercial code provides legal authority.

We also have the issue that much of the manufacturing expertise is held as an industrial secret by Pfizer, Moderna, and other drug companies. We can buy this expertise, but if these companies choose not to be willing sellers, we can simply go around them. Large payments to their engineers (e.g. $1 million a month) should be able to convince most of them to share their knowledge with the world. The government can also commit to covering their legal liability from lawsuits by their former employers.

These may sound like extreme measures, but what are we going to do if a new and more deadly vaccine-resistant strain develops in Zambia or Burma? I don’t want to hear another chorus of “who could have known?” from our intellectuals who missed another huge one.

Let’s get it right this time, even if it means having to do things a little differently. Our leaders are not forced to take a vow of incompetence.

You might think that, after a year in which have seen millions of deaths and tens of millions of infections, and trillions of dollars in economic losses, our leaders would take the pandemic seriously. But apparently, that is too much to ask.

To my view, taking the pandemic seriously means doing everything we can to get the whole world vaccinated as quickly as possible. This is not just an issue of being concerned for the poor people in the developing world, who are being left behind in the vaccination race, it is a recognition of the reality that viruses mutate.

We already know about several mutations that are more contagious than the original coronavirus and are at least somewhat more resistant to some of the vaccines that have been developed. If the pandemic is allowed to spread largely unchecked through the developing world for another year or two, then it is virtually certain that we will see many more mutations. Some of these may be even more contagious and deadly, and most importantly, more vaccine-resistant.

The developers of the mRNA vaccines are confident that if this happens, they can quickly tweak their vaccines to make them effective against whatever new mutations develop. This should give us little comfort. Do we want to go through another round of infections, deaths, and lockdowns as we wait for hundreds of millions of the new vaccines to be manufactured and distributed?

Getting the world vaccinated is not about some feel-good gestures, like a few billion dollars for COVAX, the Bill Gates inspired initiative to make vaccines available in developing countries. It means pulling out all the stops to produce and distribute billions of vaccines as quickly as possible.

To do this, we need the cooperation of the whole world and the elimination of all the barriers to the production and distribution of vaccines. My model here is the bad science fiction movies of the 1950s. When the world was facing an alien invasion, the president of the United States would always call his counterpart in the Soviet Union and agree to a common effort to save humanity. We need to do the same now.

To my view, this means a vaccine summit, which would include Russia and China. We need to produce and distribute vaccines around the world as quickly as possible. That means using every vaccine that has been shown to be safe and effective. Russia has at least one at this point and China has four. Both countries are working on developing more vaccines, as are India, Iran, and Cuba. As soon as a vaccine is shown to meet world standards, we should be producing as much of it as possible and distributing it as quickly as possible.

This will require more transparency of clinical trial results, an area where China’s vaccine manufacturers have failed badly and even U.S.-European manufacturers have been far from perfect.  We need to know how effective each vaccine is against each variant and have a clear understanding of possible side effects.

I’ve heard people assert that China will never be open about its results. That could be true, but why not test the claim? There is a lot at stake here.

We also need transparency about production processes so that the technology to manufacture vaccines is freely available for anyone who can use it. The pharmaceutical industry group has been anxious to assert that there is no possible way to increase the production of their vaccines because of inherent limitations in productive capacities. This claim is contradicted by the fact that Pfizer announced the discovery of production efficiencies in early February, that will allow it to nearly double its output. Unless we believe that Pfizer’s engineers are the only people in the world who can develop ways to improve its production process, making the knowledge open will lead to further innovations that will allow for more vaccines to be manufactured.

This would mean suspending intellectual property claims over these vaccines. From a moral standpoint, this should not be a tough call since governments paid for so much of the development costs. In the United States, Section 1498 of the commercial code provides legal authority.

We also have the issue that much of the manufacturing expertise is held as an industrial secret by Pfizer, Moderna, and other drug companies. We can buy this expertise, but if these companies choose not to be willing sellers, we can simply go around them. Large payments to their engineers (e.g. $1 million a month) should be able to convince most of them to share their knowledge with the world. The government can also commit to covering their legal liability from lawsuits by their former employers.

These may sound like extreme measures, but what are we going to do if a new and more deadly vaccine-resistant strain develops in Zambia or Burma? I don’t want to hear another chorus of “who could have known?” from our intellectuals who missed another huge one.

Let’s get it right this time, even if it means having to do things a little differently. Our leaders are not forced to take a vow of incompetence.

Yes, you can read it right there on the front page. Of course, the Post didn’t say 0.001 percent of the budget, its headline said $60 million a week. Since it is likely a safe bet that almost none of the Post’s readers has any idea how much $60 million is to the federal government, it might have been useful if the paper put the number in some context that would make its meaning clearer. But, it didn’t.

Yes, you can read it right there on the front page. Of course, the Post didn’t say 0.001 percent of the budget, its headline said $60 million a week. Since it is likely a safe bet that almost none of the Post’s readers has any idea how much $60 million is to the federal government, it might have been useful if the paper put the number in some context that would make its meaning clearer. But, it didn’t.

I was going to let pass this column by Margaret Sullivan, warning us not to applaud Dominion’s lawsuit against Fox News. I’m generally a big fan of Sullivan’s columns and was willing to look the other way on what I see as a very poorly argued piece. But when a friend sent it to me and asked my opinion, I decided it was worth chiming in.

To remind people of the issue, Dominion is a voting machine manufacturer. Fox has had numerous guests appear on its network who have made outlandish accusations about how Dominion rigged its machines so as to undercount Donald Trump’s votes and/or inflate Joe Biden’s totals.

Needless to say, none of them have an iota of evidence to support these claims and many are absurd on their face. For example, Hugo Chavez, the former president of Venezuela who has been dead for eight years, figures prominently in many of the stories. Nonetheless, many Fox News viewers believe them.

For a voting machine manufacturer, the claim that your machines are rigged is pretty much a textbook definition of a damaging statement. Therefore, Dominion should have a pretty solid case.

Sullivan doesn’t dispute any of this, instead, she points out that libel or defamation suits can also be used against news outlets doing serious reporting. She highlights the case of Reveal, a nonprofit news outfit that is dedicated to investigative reporting. Reveal was nearly forced out of business due to the cost of defending itself against a charity that it exposed as being run by a cult. Sullivan’s takeaway is that defamation lawsuits can be used as a weapon against legitimate news organizations doing serious reporting.

Sullivan is right on this point, but wrong in understanding the implications. Every civil course of action can be abused by those with money to harm people without substantial resources. There are tens of thousands of frivolous tort cases filed every year, but would anyone argue that we should deny people the right to sue a contractor that mistakenly sets their customer’s house on fire? The same applies to suits for breach of contract. If I pay someone $10,000 in advance to paint my house and they don’t do it, should I not be able to sue to get my money back?

Even stalking injunctions can be misused. Typically, a no stalking order is obtained by a woman to protect her and/or her children from an abusive ex-spouse or former boyfriend. However, in my little town in Utah, a powerful political figure managed to get a no stalking order against a protestor who had never touched him, threatened to touch him, or come anywhere near his house. Should we take away the right to have no stalking injunctions?

The reality is that our legal system can be abused by the powerful to harm those with less power. That is the result of the enormous disparities of income and power in this country, and the inadequate shields against abuse in the legal system. It would be great to have more shields to protect against abuse, but Sullivan’s reservations about Dominion’s suit could be equally well applied to any effort to seek justice through the legal system.

I will add that I was totally applauding Dominion’s suit and the earlier one by Smartmatic, which makes voting software. Fox and a range of Trump cronies made outlandish charges against both. They should be forced to pay a price for these lies.

The alternative is a lot of tut-tutting and hand-wringing, saying it is unfortunate that a major news outlet and prominent political figures would resort to outright lies to advance their political agenda. Perhaps this tut-tutting and hand-wringing makes some people feel good, but it does absolutely zero to stop the lies.

On the other hand, if Fox and Trump’s cronies have to pay tens or hundreds of millions of dollars in damages as a result of their lies, they will be more reluctant to make up such lies in the future. The threat of defamation suits is also very helpful in preventing lies from being pushed in the first place.

We see this clearly with Donald Trump. Even though he endlessly claims the election was stolen with millions of fake votes for Biden, he will literally never make any specific allegation. This is because he knows that if he named anyone who supposedly played a role in producing these fake votes, he will be sued for whatever is left of his father’s fortune.

This also allows the rest of us to play on Trump’s lie, pointing out that even though he claims millions of votes were fraudulently cast, he cannot identify a single person involved in this effort. For anyone not completely lost in outer space, this should be a decisive slam dunk.

Anyhow, telling us that libel law can be abused is telling us nothing. Most of us know that those with money and power can use the legal system against the less powerful. This is true with libel law just as with any other area of law.    

I was going to let pass this column by Margaret Sullivan, warning us not to applaud Dominion’s lawsuit against Fox News. I’m generally a big fan of Sullivan’s columns and was willing to look the other way on what I see as a very poorly argued piece. But when a friend sent it to me and asked my opinion, I decided it was worth chiming in.

To remind people of the issue, Dominion is a voting machine manufacturer. Fox has had numerous guests appear on its network who have made outlandish accusations about how Dominion rigged its machines so as to undercount Donald Trump’s votes and/or inflate Joe Biden’s totals.

Needless to say, none of them have an iota of evidence to support these claims and many are absurd on their face. For example, Hugo Chavez, the former president of Venezuela who has been dead for eight years, figures prominently in many of the stories. Nonetheless, many Fox News viewers believe them.

For a voting machine manufacturer, the claim that your machines are rigged is pretty much a textbook definition of a damaging statement. Therefore, Dominion should have a pretty solid case.

Sullivan doesn’t dispute any of this, instead, she points out that libel or defamation suits can also be used against news outlets doing serious reporting. She highlights the case of Reveal, a nonprofit news outfit that is dedicated to investigative reporting. Reveal was nearly forced out of business due to the cost of defending itself against a charity that it exposed as being run by a cult. Sullivan’s takeaway is that defamation lawsuits can be used as a weapon against legitimate news organizations doing serious reporting.

Sullivan is right on this point, but wrong in understanding the implications. Every civil course of action can be abused by those with money to harm people without substantial resources. There are tens of thousands of frivolous tort cases filed every year, but would anyone argue that we should deny people the right to sue a contractor that mistakenly sets their customer’s house on fire? The same applies to suits for breach of contract. If I pay someone $10,000 in advance to paint my house and they don’t do it, should I not be able to sue to get my money back?

Even stalking injunctions can be misused. Typically, a no stalking order is obtained by a woman to protect her and/or her children from an abusive ex-spouse or former boyfriend. However, in my little town in Utah, a powerful political figure managed to get a no stalking order against a protestor who had never touched him, threatened to touch him, or come anywhere near his house. Should we take away the right to have no stalking injunctions?

The reality is that our legal system can be abused by the powerful to harm those with less power. That is the result of the enormous disparities of income and power in this country, and the inadequate shields against abuse in the legal system. It would be great to have more shields to protect against abuse, but Sullivan’s reservations about Dominion’s suit could be equally well applied to any effort to seek justice through the legal system.

I will add that I was totally applauding Dominion’s suit and the earlier one by Smartmatic, which makes voting software. Fox and a range of Trump cronies made outlandish charges against both. They should be forced to pay a price for these lies.

The alternative is a lot of tut-tutting and hand-wringing, saying it is unfortunate that a major news outlet and prominent political figures would resort to outright lies to advance their political agenda. Perhaps this tut-tutting and hand-wringing makes some people feel good, but it does absolutely zero to stop the lies.

On the other hand, if Fox and Trump’s cronies have to pay tens or hundreds of millions of dollars in damages as a result of their lies, they will be more reluctant to make up such lies in the future. The threat of defamation suits is also very helpful in preventing lies from being pushed in the first place.

We see this clearly with Donald Trump. Even though he endlessly claims the election was stolen with millions of fake votes for Biden, he will literally never make any specific allegation. This is because he knows that if he named anyone who supposedly played a role in producing these fake votes, he will be sued for whatever is left of his father’s fortune.

This also allows the rest of us to play on Trump’s lie, pointing out that even though he claims millions of votes were fraudulently cast, he cannot identify a single person involved in this effort. For anyone not completely lost in outer space, this should be a decisive slam dunk.

Anyhow, telling us that libel law can be abused is telling us nothing. Most of us know that those with money and power can use the legal system against the less powerful. This is true with libel law just as with any other area of law.    

I can remember few jobs reports that were as unambiguously positive as the data released last Friday. Just about everything in the report was moving in the right direction, and for the most part, at a rapid pace.

Most obviously, the economy created 914,000 jobs in March. In addition, the January and February numbers were revised up by a total of 156,000. There was a decline of 0.1 percentage points in the overall unemployment rate, with the employment to population ratio rising by the same amount. The improvements were pretty much across the board. The unemployment rate for Blacks fell by 0.3 percentage points, the unemployment rate for Hispanics dropped by 0.6 percentage points, and the unemployment rate for workers with just a high school degree fell by 0.5 percentage points.

But to say things are moving in the right direction does not mean that they are good. We are still down 8.4 million jobs from last February, and if we add in the jobs that should have been created over this period, we are missing more than 10 million jobs. Six percent unemployment means 9.7 million people are looking for work and can’t find it. In addition, another 4.7 million have dropped out of the labor force, either because they have given up hope of finding a job or because family responsibilities in the pandemic are keeping them from working.

It also continues to be striking how concentrated the unemployment is. The share of long-term unemployed (more than 26 weeks) rose to 43.4 percent in March, a level exceeded by only a few months in the Great Recession and never reached before the Great Recession. Typically, unemployment is spread more widely, with many workers experiencing stretches of two or three months. This percentage of long-term unemployment indicates that many people lost their jobs near the start of the pandemic and have not been rehired.

Grounds for Optimism

With all appropriate cautions, it is still hard not to see things looking pretty bright for the immediate future and even better if Biden’s infrastructure package is approved. Just to start, while we certainly should not be happy about a 6.0 percent unemployment rate, in the recovery following the Great Recession, the unemployment rate did not fall below 6.0 percent until September of 2014, so we are way ahead of that recovery.

But more importantly, we are likely to continue to see very rapid job growth in the immediate future. With the vaccination campaign moving along very rapidly, people will feel more comfortable going to restaurants and other public places. And, we know that state and local governments are removing pandemic restrictions (possibly too rapidly).

OpenTable reports that restaurant reservations were down by an average of just over 21 percent in the last seven days compared with 2019 levels. If we go back two months, the drop compared to 2019 was more than 53 percent. The restaurant industry added 176,000 jobs in March. It can easily add twice this many in April.

The state and local government sectors are also almost certain to be big job gainers in April. Biden’s recovery plan gave them the money needed to make up their budget shortfalls and rehire workers who were laid off. Also, with most schools returning to in-person instruction, many more teachers will be back to work. This sector added 129,000 jobs in March, and it will add far more in April.

Other sectors that have been badly depressed, like hotels, live entertainment, health care, and even air transportation will surely add large numbers of jobs in April. It will be several more months until these sectors are near their pre-pandemic employment levels, but we are seeing very rapid progress towards that point.

In short, April is likely to look a lot like March in terms of job growth, and we likely will continue to see strong job growth through the rest of the year. We will probably not approach our pre-pandemic employment path until some time in 2022, but the economy is getting better quickly.

Another very encouraging part of the picture is that wage growth has held up remarkably well through the recession. The average hourly wage for production and non-supervisory workers rose at a 3.4 percent annual rate, comparing the last three months (January, February, March) with the prior three months (October, November, December).

This is essentially the same as the pre-pandemic pace. This is a major departure from the pattern we saw in the Great Recession, where wage growth slowed sharply due to the weakness in the labor market. (The changing composition of the workforce would not have a major effect on wage growth over this period. To the extent it did, it would have slowed growth slightly.)

If wage growth continues at this pace it would mean that workers are seeing modest gains in real wages, with inflation still under 2.0 percent. There is the risk that inflation will rise, limiting real wage gains. To some extent, a rise in inflation is a virtual certainty as sharp price drops in sectors like hotels, airfares, and car insurance are reversed.

But these would be just one-time increases. The concern that Larry Summers and others have raised is that we get a cycle of price increases, driven by wage increases, as we saw in the 1970s. If this sort of wage-price spiral develops, it is difficult to say what will happen with real wages.

In the past, I have argued that we are not likely to see this sort of wage-price spiral, first and foremost because the economy is far more internationalized than in the 1970s. I also pointed out that unions are far weaker, which means that if we did start to see a serious uptick in inflation, it is not clear that workers would be able to secure wage gains to offset higher prices.   

But the March jobs report also gives us good news on the other key factor in the inflation story: productivity growth. There was a sharp uptick in productivity growth in 2020, with productivity rising 2.5 percent from the fourth quarter of 2019 to the fourth quarter of 2020. This compares to an annual growth rate of just 1.0 percent over the prior decade.

With the March data indicating that hours worked grew at around a 2.5 percent annual rate in the first quarter and with GDP growth projected to be in the range of 5.0 to 6.0 percent for the quarter, it is likely that productivity growth will be at least 2.5 percent for the first quarter. This means the more rapid productivity growth of 2020 is continuing for the moment.

Productivity data are erratic, and it is far too soon to assume a new trend of faster growth. (Economists are horrible at predicting productivity growth or even understanding changes in trends after the fact.) However, if we are in fact on a path of faster productivity growth, it is a huge deal. It means both that we have far less reason to be concerned about inflation and that workers can enjoy more rapid gains in living standards if they share in the benefits of more rapid productivity growth.

The simple arithmetic is that if we sustain a 2.5 percent rate of productivity growth, nominal wages can rise at a rate of 4.5 percent annually, with inflation remaining stable at 2.0 percent. There will always be factors, such as rising or falling import prices, which complicate this picture, but there is much less reason to fear inflation if productivity rises rapidly.

It’s still way too early to start the celebrations. First, we certainly don’t know that the more rapid pace of productivity growth will continue. Second, we know the Republicans will do everything in their power to try to sabotage the recovery, so they can blame Biden and the Democrats in 2022 and 2024. Many people are still suffering from the effects of the recession, and, of course, many people are still getting sick and dying from Covid.

And, the biggest risk to this happy picture remains the threat of a new vaccine-resistant strain developing and spreading around the world. This points again to the urgency of not only getting people in the United States vaccinated as quickly as possible but also getting the whole world vaccinated in order to contain the pandemic.

If a new vaccine-resistant strain develops anywhere, it is almost certain to spread. And then we will be back at ground zero with more deaths and shutdowns until we can again develop vaccines to protect us. Biden, as well as the leaders of other major countries, must take this risk very seriously and do everything possible to ensure that the battle against the pandemic does not go into extra innings.  

I can remember few jobs reports that were as unambiguously positive as the data released last Friday. Just about everything in the report was moving in the right direction, and for the most part, at a rapid pace.

Most obviously, the economy created 914,000 jobs in March. In addition, the January and February numbers were revised up by a total of 156,000. There was a decline of 0.1 percentage points in the overall unemployment rate, with the employment to population ratio rising by the same amount. The improvements were pretty much across the board. The unemployment rate for Blacks fell by 0.3 percentage points, the unemployment rate for Hispanics dropped by 0.6 percentage points, and the unemployment rate for workers with just a high school degree fell by 0.5 percentage points.

But to say things are moving in the right direction does not mean that they are good. We are still down 8.4 million jobs from last February, and if we add in the jobs that should have been created over this period, we are missing more than 10 million jobs. Six percent unemployment means 9.7 million people are looking for work and can’t find it. In addition, another 4.7 million have dropped out of the labor force, either because they have given up hope of finding a job or because family responsibilities in the pandemic are keeping them from working.

It also continues to be striking how concentrated the unemployment is. The share of long-term unemployed (more than 26 weeks) rose to 43.4 percent in March, a level exceeded by only a few months in the Great Recession and never reached before the Great Recession. Typically, unemployment is spread more widely, with many workers experiencing stretches of two or three months. This percentage of long-term unemployment indicates that many people lost their jobs near the start of the pandemic and have not been rehired.

Grounds for Optimism

With all appropriate cautions, it is still hard not to see things looking pretty bright for the immediate future and even better if Biden’s infrastructure package is approved. Just to start, while we certainly should not be happy about a 6.0 percent unemployment rate, in the recovery following the Great Recession, the unemployment rate did not fall below 6.0 percent until September of 2014, so we are way ahead of that recovery.

But more importantly, we are likely to continue to see very rapid job growth in the immediate future. With the vaccination campaign moving along very rapidly, people will feel more comfortable going to restaurants and other public places. And, we know that state and local governments are removing pandemic restrictions (possibly too rapidly).

OpenTable reports that restaurant reservations were down by an average of just over 21 percent in the last seven days compared with 2019 levels. If we go back two months, the drop compared to 2019 was more than 53 percent. The restaurant industry added 176,000 jobs in March. It can easily add twice this many in April.

The state and local government sectors are also almost certain to be big job gainers in April. Biden’s recovery plan gave them the money needed to make up their budget shortfalls and rehire workers who were laid off. Also, with most schools returning to in-person instruction, many more teachers will be back to work. This sector added 129,000 jobs in March, and it will add far more in April.

Other sectors that have been badly depressed, like hotels, live entertainment, health care, and even air transportation will surely add large numbers of jobs in April. It will be several more months until these sectors are near their pre-pandemic employment levels, but we are seeing very rapid progress towards that point.

In short, April is likely to look a lot like March in terms of job growth, and we likely will continue to see strong job growth through the rest of the year. We will probably not approach our pre-pandemic employment path until some time in 2022, but the economy is getting better quickly.

Another very encouraging part of the picture is that wage growth has held up remarkably well through the recession. The average hourly wage for production and non-supervisory workers rose at a 3.4 percent annual rate, comparing the last three months (January, February, March) with the prior three months (October, November, December).

This is essentially the same as the pre-pandemic pace. This is a major departure from the pattern we saw in the Great Recession, where wage growth slowed sharply due to the weakness in the labor market. (The changing composition of the workforce would not have a major effect on wage growth over this period. To the extent it did, it would have slowed growth slightly.)

If wage growth continues at this pace it would mean that workers are seeing modest gains in real wages, with inflation still under 2.0 percent. There is the risk that inflation will rise, limiting real wage gains. To some extent, a rise in inflation is a virtual certainty as sharp price drops in sectors like hotels, airfares, and car insurance are reversed.

But these would be just one-time increases. The concern that Larry Summers and others have raised is that we get a cycle of price increases, driven by wage increases, as we saw in the 1970s. If this sort of wage-price spiral develops, it is difficult to say what will happen with real wages.

In the past, I have argued that we are not likely to see this sort of wage-price spiral, first and foremost because the economy is far more internationalized than in the 1970s. I also pointed out that unions are far weaker, which means that if we did start to see a serious uptick in inflation, it is not clear that workers would be able to secure wage gains to offset higher prices.   

But the March jobs report also gives us good news on the other key factor in the inflation story: productivity growth. There was a sharp uptick in productivity growth in 2020, with productivity rising 2.5 percent from the fourth quarter of 2019 to the fourth quarter of 2020. This compares to an annual growth rate of just 1.0 percent over the prior decade.

With the March data indicating that hours worked grew at around a 2.5 percent annual rate in the first quarter and with GDP growth projected to be in the range of 5.0 to 6.0 percent for the quarter, it is likely that productivity growth will be at least 2.5 percent for the first quarter. This means the more rapid productivity growth of 2020 is continuing for the moment.

Productivity data are erratic, and it is far too soon to assume a new trend of faster growth. (Economists are horrible at predicting productivity growth or even understanding changes in trends after the fact.) However, if we are in fact on a path of faster productivity growth, it is a huge deal. It means both that we have far less reason to be concerned about inflation and that workers can enjoy more rapid gains in living standards if they share in the benefits of more rapid productivity growth.

The simple arithmetic is that if we sustain a 2.5 percent rate of productivity growth, nominal wages can rise at a rate of 4.5 percent annually, with inflation remaining stable at 2.0 percent. There will always be factors, such as rising or falling import prices, which complicate this picture, but there is much less reason to fear inflation if productivity rises rapidly.

It’s still way too early to start the celebrations. First, we certainly don’t know that the more rapid pace of productivity growth will continue. Second, we know the Republicans will do everything in their power to try to sabotage the recovery, so they can blame Biden and the Democrats in 2022 and 2024. Many people are still suffering from the effects of the recession, and, of course, many people are still getting sick and dying from Covid.

And, the biggest risk to this happy picture remains the threat of a new vaccine-resistant strain developing and spreading around the world. This points again to the urgency of not only getting people in the United States vaccinated as quickly as possible but also getting the whole world vaccinated in order to contain the pandemic.

If a new vaccine-resistant strain develops anywhere, it is almost certain to spread. And then we will be back at ground zero with more deaths and shutdowns until we can again develop vaccines to protect us. Biden, as well as the leaders of other major countries, must take this risk very seriously and do everything possible to ensure that the battle against the pandemic does not go into extra innings.  

As I noted with Round I, this is stupid since there are so many things for which the president is not responsible. But, as we all know, the Trump crew would be pushing this graph everywhere if the situation were reversed, so here it is.

As we can see, after two months, Biden has created  1,384,000 jobs. In four years, Trump lost 2,876,000 jobs.

As I noted with Round I, this is stupid since there are so many things for which the president is not responsible. But, as we all know, the Trump crew would be pushing this graph everywhere if the situation were reversed, so here it is.

As we can see, after two months, Biden has created  1,384,000 jobs. In four years, Trump lost 2,876,000 jobs.

Okay, it is more money than even Bill Gates, Elon Musk, and Jeff Bezos have, put together. That probably still doesn’t give people too much information since most people don’t have much familiarity with these folks’ fortunes. But it might be helpful if the media made some effort to put the proposed spending in President Biden’s infrastructure package in a context that would make it meaningful.

The spending is supposed to take place over eight years which means that it would be equal to just over 0.8 percent of projected GDP over this period. At $250 billion a year, it comes to about $750 per person each year over this period. It is less than 40 percent of what we are projected to spend on prescription drugs over this period and less than half of the higher prices that we will be paying as a result of government-granted patent and related monopolies. (For some reason, the money transferred to the drug companies and other beneficiaries of these government-granted monopolies never gets called “big government.”)

Anyhow, instead of reporting $2 trillion as some big scary number, often not even telling people the time period involved, it would be helpful if news outlets tried to put the number in contexts that would make it meaningful to their readers. We get that reporting big numbers is a cool fraternity ritual among budget reporters, but making these numbers meaningful is actually supposed to be their job.

Okay, it is more money than even Bill Gates, Elon Musk, and Jeff Bezos have, put together. That probably still doesn’t give people too much information since most people don’t have much familiarity with these folks’ fortunes. But it might be helpful if the media made some effort to put the proposed spending in President Biden’s infrastructure package in a context that would make it meaningful.

The spending is supposed to take place over eight years which means that it would be equal to just over 0.8 percent of projected GDP over this period. At $250 billion a year, it comes to about $750 per person each year over this period. It is less than 40 percent of what we are projected to spend on prescription drugs over this period and less than half of the higher prices that we will be paying as a result of government-granted patent and related monopolies. (For some reason, the money transferred to the drug companies and other beneficiaries of these government-granted monopolies never gets called “big government.”)

Anyhow, instead of reporting $2 trillion as some big scary number, often not even telling people the time period involved, it would be helpful if news outlets tried to put the number in contexts that would make it meaningful to their readers. We get that reporting big numbers is a cool fraternity ritual among budget reporters, but making these numbers meaningful is actually supposed to be their job.

Since I came to Washington in 1992, I have been working alongside friends in the policy community, labor movement, and community organizations in fighting against a series of trade pacts. NAFTA was the immediate issue in 1992, but a couple of years later we had the Uruguay Round of the GATT that created the WTO. At the end of the Clinton administration, we had China’s admission to the WTO and then various other smaller pacts.

Those of us who opposed these deals (which were not really about free trade), argued that they would put downward pressure on the wages of manufacturing workers, by putting these workers in direct competition with low-paid workers in the developing world. This mattered in a big way because manufacturing had historically been a source of comparatively good-paying jobs for workers without college degrees. Therefore, using trade to depress the wages of manufacturing workers would lead to downward pressure on the pay of non-college educated workers more generally, thereby increasing inequality.

We also raised other objections, most notably that the stronger and longer patent and copyright monopolies (the opposite of free trade) in these pacts would raise the price of prescription drugs and other items subject to these protections. The most recent deals, like the Trans-Pacific Partnership, also included rules that locked in the current regulatory structure of the Internet which, for example, obstruct efforts to regulate Facebook and Google.

Of course, these deals did in fact lower the pay of manufacturing workers, as millions of manufacturing jobs were lost due to trade following the opening to China. In the last decade we have gotten an acknowledgement from many in the economics profession that trade did have a large impact on the manufacturing economy and the regions that depended on these jobs. This was due in large part to the work of M.I.T. labor economist, David Autor and his colleagues.    

While it was great to see Autor’s work and the impact it has had on the policy debate, there was nothing really surprising about his findings. It shouldn’t really be surprising that when workers are subject to competition from workers in other countries who get much lower pay, their pay drops. (Just ask doctors how they feel about opening the door to more foreign-trained doctors.) This was even a well-established result in economic theory, with a key article co-authored by no less than Paul Samuelson, the first American winner of the Nobel Prize in economics.

Anyhow, the point is that we had a trade policy that was really bad news for large segments of the country’s population, yet it managed to get overwhelming support in the policy community. Leading news outlets overwhelming featured both opinion and news pieces that favored these trade pacts. Opponents of these pacts were treated as ignorant know-nothings and/or tools of special interest groups that might lose from these deals.

The news outlets were reflecting the consensus within intellectual circles. My friends arguing against these trade deals were largely treated with contempt. New York Times columnist Thomas Friedman reflected the elite attitude perfectly when he said on a talk show:

“I was speaking out in Minnesota — my hometown, in fact — and a guy stood up in the audience, said, ‘Mr. Friedman, is there any free trade agreement you’d oppose?’ I said, ‘No, absolutely not.’ I said, ‘You know what, sir? I wrote a column supporting the CAFTA, the Caribbean Free Trade initiative. I didn’t even know what was in it. I just knew two words: free trade.’”

Friedman may have been more explicit in his views than most, but there can be little doubt that his comments reflect elite opinion. He has been a columnist at the New York Times for more than two decades, is a regular commentator on CNN, and his books consistently make the best seller list. Whatever one thinks of the quality of his work, Friedman is very much at the center of establishment thinking on the issues where he voices an opinion.

The point was probably best stated by Meg Greenfield, who was the Washington Post’s editorial page editor during the NAFTA debate. Responding to complaints that the paper’s opinion pages had been entirely one-sided in supporting NAFTA, she said:

“On this rare occasion when columnists of the left, right and middle are all in agreement . . . I don’t believe it is right to create an artificial balance where none exists.”

In short, intellectual types were overwhelmingly on board with the trade policy of the last three decades. This mattered because it created a political atmosphere in which it was possible to override the groups that would lose from these trade deals, in this case, the majority of the country’s workers as well as some domestic manufacturers who were devastated by foreign competition.

It is interesting that it was possible to get this sort of elite consensus around U.S. trade agreements, both since the policy was obviously disadvantageous to a large group of people and the basic argument was wrong. The idea that increasing trade along the lines prescribed by these deals would lead to large economic gains without substantial costs to some groups was absurd on its face, but our elites were totally prepared to embrace this line.

 

Free Taxes

When progressives propose various policies ranging from Medicare for All (M4A) or financial transactions taxes (FTT), a standard response from policy types is that these proposals might be good in principle, but the power of various interest groups (e.g., the insurance industry or the financial industry) will make them impossible to get through Congress. To date, this assessment has largely proved correct.

Any progress in extending health care coverage has come largely with the cooperation of the insurance industry. They are making money selling policies in the health care exchanges created by the Affordable Care Act. Efforts to have a publicly run alternative, or simply opening up Medicare, were beaten back. Similarly, a FTT faces an enormous uphill battle because the revenue from the tax would come almost entirely out of the pockets of the financial industry. The fact that a powerful lobby stands opposed to these policies is generally taken as a basis for throwing up hands and acknowledging the impossibility of change, not a doubling down to rally the troops, as was the case with trade policy.

While both M4A and a FTT are policies that, to my view, would provide large benefits to the vast majority of people in the country, there are arguments against them (more with M4A than with FTTs) that can at least be a reasonable basis for caution. Let me throw out another policy where there is no other side: government preparation of tax returns.

The idea here is a simple one. Instead of having taxpayers struggle with their returns every year, the I.R.S. would fill out a return for them, based on the data it already has on file about the person’s income and family size. The form would be sent out each year for review. People could accept the information as correct and get whatever refund was indicated, or pay the additional taxes for which they were billed. Alternatively, they could contest the I.R.S. calculation by providing documentation that showing that it was incorrect.

Currently people pay over $27 billion a year to have their tax returns prepared, most of which could be saved if the I.R.S. prepared tax returns for people.[1] This comes to about $200 per household, or around 0.13 percent of GDP. If the latter figure sounds trivial, it is very much in the ballpark for the projected gains from trade deals like NAFTA, CAFTA, and the TPP. (A 10-year figure would put the savings over $300 billion.) Also, the direct savings might be the smaller part of the benefit. People spend hours working over their returns and many have anxiety about filling them out incorrectly and the potential consequences. Almost all of this would instantly vanish if the I.R.S. did the forms for people.

The notion of the I.R.S. filling out returns should not sound far-fetched. Several European countries have been doing this for decades, and they are not that much smarter than we are. In short, we have an entirely doable reform that would save tens of billions of dollars a year and save people a huge amount of time and anxiety. So why doesn’t it happen?

The obvious reason is the political power of the tax preparation industry. NPR’s Planet Money had a fascinating piece a few years ago about an effort to have California’s revenue service prepare people’s state income tax for them under a program called “ReadyReturn.” The tax preparation industry fought the proposal with all guns blazing. They were undoubtedly concerned about not only losing the market for preparing California’s state taxes but also the precedent this could set for the country as a whole. As it turned out, in spite of widespread bipartisan support, the legislature ended up passing a very watered-down version which would only benefit people too poor to use tax services anyhow.

This story is not surprising for those of who have followed U.S. politics over the last four decades, but it does raise the free trade question. Why were our elites silent on this issue? Measures like ReadyReturn could help a huge swath of the population while only hurting a relatively small industry that provides no inherent benefit to society. Where were the denunciations of politicians who would sacrifice the greater good for this special interest?

It seems that sort of denunciation is only there for opponents of recent trade pacts. If we look for the differences between what is involved, the class aspect is front and center. The winners from our trade deals were overwhelmingly those in the top 10 percent of the income distribution. It’s good for doctors, lawyers, professors, and other workers who have college and advanced degrees to pay less for cars and clothes. The losers were directly the people who make these things and indirectly all the workers in the service sector who have to compete with workers displaced from manufacturing.

In short, from the standpoint of the top ten percent, the trade deals of the last three decades really were no-brainers.  That is why Thomas Friedman can proudly boast that when he sees the words “free trade,” he doesn’t have to read any further. He knows that he is looking at a pact that will benefit him and his friends. The opponents are to be treated with contempt or simply ignored.

That’s not a pretty story about the state of policy and academic debate in the United States, but it is important that we recognize reality. The class bias in these debates are immense. If we ever hope to counteract them, acknowledging them is the first step.  

[1] This can be found in the National Income and Product Accounts, Table 2.4.5U, Line 297. (I used the 2019 number since 2020 is likely atypical due to the pandemic.)

Since I came to Washington in 1992, I have been working alongside friends in the policy community, labor movement, and community organizations in fighting against a series of trade pacts. NAFTA was the immediate issue in 1992, but a couple of years later we had the Uruguay Round of the GATT that created the WTO. At the end of the Clinton administration, we had China’s admission to the WTO and then various other smaller pacts.

Those of us who opposed these deals (which were not really about free trade), argued that they would put downward pressure on the wages of manufacturing workers, by putting these workers in direct competition with low-paid workers in the developing world. This mattered in a big way because manufacturing had historically been a source of comparatively good-paying jobs for workers without college degrees. Therefore, using trade to depress the wages of manufacturing workers would lead to downward pressure on the pay of non-college educated workers more generally, thereby increasing inequality.

We also raised other objections, most notably that the stronger and longer patent and copyright monopolies (the opposite of free trade) in these pacts would raise the price of prescription drugs and other items subject to these protections. The most recent deals, like the Trans-Pacific Partnership, also included rules that locked in the current regulatory structure of the Internet which, for example, obstruct efforts to regulate Facebook and Google.

Of course, these deals did in fact lower the pay of manufacturing workers, as millions of manufacturing jobs were lost due to trade following the opening to China. In the last decade we have gotten an acknowledgement from many in the economics profession that trade did have a large impact on the manufacturing economy and the regions that depended on these jobs. This was due in large part to the work of M.I.T. labor economist, David Autor and his colleagues.    

While it was great to see Autor’s work and the impact it has had on the policy debate, there was nothing really surprising about his findings. It shouldn’t really be surprising that when workers are subject to competition from workers in other countries who get much lower pay, their pay drops. (Just ask doctors how they feel about opening the door to more foreign-trained doctors.) This was even a well-established result in economic theory, with a key article co-authored by no less than Paul Samuelson, the first American winner of the Nobel Prize in economics.

Anyhow, the point is that we had a trade policy that was really bad news for large segments of the country’s population, yet it managed to get overwhelming support in the policy community. Leading news outlets overwhelming featured both opinion and news pieces that favored these trade pacts. Opponents of these pacts were treated as ignorant know-nothings and/or tools of special interest groups that might lose from these deals.

The news outlets were reflecting the consensus within intellectual circles. My friends arguing against these trade deals were largely treated with contempt. New York Times columnist Thomas Friedman reflected the elite attitude perfectly when he said on a talk show:

“I was speaking out in Minnesota — my hometown, in fact — and a guy stood up in the audience, said, ‘Mr. Friedman, is there any free trade agreement you’d oppose?’ I said, ‘No, absolutely not.’ I said, ‘You know what, sir? I wrote a column supporting the CAFTA, the Caribbean Free Trade initiative. I didn’t even know what was in it. I just knew two words: free trade.’”

Friedman may have been more explicit in his views than most, but there can be little doubt that his comments reflect elite opinion. He has been a columnist at the New York Times for more than two decades, is a regular commentator on CNN, and his books consistently make the best seller list. Whatever one thinks of the quality of his work, Friedman is very much at the center of establishment thinking on the issues where he voices an opinion.

The point was probably best stated by Meg Greenfield, who was the Washington Post’s editorial page editor during the NAFTA debate. Responding to complaints that the paper’s opinion pages had been entirely one-sided in supporting NAFTA, she said:

“On this rare occasion when columnists of the left, right and middle are all in agreement . . . I don’t believe it is right to create an artificial balance where none exists.”

In short, intellectual types were overwhelmingly on board with the trade policy of the last three decades. This mattered because it created a political atmosphere in which it was possible to override the groups that would lose from these trade deals, in this case, the majority of the country’s workers as well as some domestic manufacturers who were devastated by foreign competition.

It is interesting that it was possible to get this sort of elite consensus around U.S. trade agreements, both since the policy was obviously disadvantageous to a large group of people and the basic argument was wrong. The idea that increasing trade along the lines prescribed by these deals would lead to large economic gains without substantial costs to some groups was absurd on its face, but our elites were totally prepared to embrace this line.

 

Free Taxes

When progressives propose various policies ranging from Medicare for All (M4A) or financial transactions taxes (FTT), a standard response from policy types is that these proposals might be good in principle, but the power of various interest groups (e.g., the insurance industry or the financial industry) will make them impossible to get through Congress. To date, this assessment has largely proved correct.

Any progress in extending health care coverage has come largely with the cooperation of the insurance industry. They are making money selling policies in the health care exchanges created by the Affordable Care Act. Efforts to have a publicly run alternative, or simply opening up Medicare, were beaten back. Similarly, a FTT faces an enormous uphill battle because the revenue from the tax would come almost entirely out of the pockets of the financial industry. The fact that a powerful lobby stands opposed to these policies is generally taken as a basis for throwing up hands and acknowledging the impossibility of change, not a doubling down to rally the troops, as was the case with trade policy.

While both M4A and a FTT are policies that, to my view, would provide large benefits to the vast majority of people in the country, there are arguments against them (more with M4A than with FTTs) that can at least be a reasonable basis for caution. Let me throw out another policy where there is no other side: government preparation of tax returns.

The idea here is a simple one. Instead of having taxpayers struggle with their returns every year, the I.R.S. would fill out a return for them, based on the data it already has on file about the person’s income and family size. The form would be sent out each year for review. People could accept the information as correct and get whatever refund was indicated, or pay the additional taxes for which they were billed. Alternatively, they could contest the I.R.S. calculation by providing documentation that showing that it was incorrect.

Currently people pay over $27 billion a year to have their tax returns prepared, most of which could be saved if the I.R.S. prepared tax returns for people.[1] This comes to about $200 per household, or around 0.13 percent of GDP. If the latter figure sounds trivial, it is very much in the ballpark for the projected gains from trade deals like NAFTA, CAFTA, and the TPP. (A 10-year figure would put the savings over $300 billion.) Also, the direct savings might be the smaller part of the benefit. People spend hours working over their returns and many have anxiety about filling them out incorrectly and the potential consequences. Almost all of this would instantly vanish if the I.R.S. did the forms for people.

The notion of the I.R.S. filling out returns should not sound far-fetched. Several European countries have been doing this for decades, and they are not that much smarter than we are. In short, we have an entirely doable reform that would save tens of billions of dollars a year and save people a huge amount of time and anxiety. So why doesn’t it happen?

The obvious reason is the political power of the tax preparation industry. NPR’s Planet Money had a fascinating piece a few years ago about an effort to have California’s revenue service prepare people’s state income tax for them under a program called “ReadyReturn.” The tax preparation industry fought the proposal with all guns blazing. They were undoubtedly concerned about not only losing the market for preparing California’s state taxes but also the precedent this could set for the country as a whole. As it turned out, in spite of widespread bipartisan support, the legislature ended up passing a very watered-down version which would only benefit people too poor to use tax services anyhow.

This story is not surprising for those of who have followed U.S. politics over the last four decades, but it does raise the free trade question. Why were our elites silent on this issue? Measures like ReadyReturn could help a huge swath of the population while only hurting a relatively small industry that provides no inherent benefit to society. Where were the denunciations of politicians who would sacrifice the greater good for this special interest?

It seems that sort of denunciation is only there for opponents of recent trade pacts. If we look for the differences between what is involved, the class aspect is front and center. The winners from our trade deals were overwhelmingly those in the top 10 percent of the income distribution. It’s good for doctors, lawyers, professors, and other workers who have college and advanced degrees to pay less for cars and clothes. The losers were directly the people who make these things and indirectly all the workers in the service sector who have to compete with workers displaced from manufacturing.

In short, from the standpoint of the top ten percent, the trade deals of the last three decades really were no-brainers.  That is why Thomas Friedman can proudly boast that when he sees the words “free trade,” he doesn’t have to read any further. He knows that he is looking at a pact that will benefit him and his friends. The opponents are to be treated with contempt or simply ignored.

That’s not a pretty story about the state of policy and academic debate in the United States, but it is important that we recognize reality. The class bias in these debates are immense. If we ever hope to counteract them, acknowledging them is the first step.  

[1] This can be found in the National Income and Product Accounts, Table 2.4.5U, Line 297. (I used the 2019 number since 2020 is likely atypical due to the pandemic.)

It is often said that intellectuals have a hard time dealing with new ideas. Unfortunately, for purposes of public debate, open-source government funding of drug development is a new idea, and people in policy positions seem to be having a very hard time understanding it. So, I will try to write this post in a way that even a policy wonk can figure it out.

The basic idea of government-funded research should not be hard to grasp since the government already funds a large share of biomedical research. The National Institutes of Health gets over $40 billion a year in federal funding, with the Biomedical Advanced Research and Development Agency (BARDA) and other government agencies getting several billion more. This puts the government’s total spending in the $45 to $50 billion range, compared to a bit over $90 billion from the industry.[1] So the idea that the government would fund research really should not be that strange.

Most of the public funding does go to more basic research, but there are plenty of instances where the government has actually funded the development of new drugs and also done clinical testing. But under the current system, most of the later stage funding does come from the industry and is funded through patent monopoly pricing. Relying on open-source government-funded research for later-stage development and testing would be a major change.

 

The Outlines of a System of Government-Funded Research

To my view, the best way for the government to support the development of new drugs is through long-term contracts (10-12 years), which would be awarded through competitive bids for research in specific areas, like cancer or heart disease. The plan would be that the contracts would be relatively large, with the idea that the winners would be comparable to prime contractors for the military. (I describe this system in somewhat more detail in chapter 5 of Rigged [it’s free].)

Major military contractors, like Lockheed or Boeing, typically contract out to many smaller companies in specific areas. This is a good model. Most of the major innovations in the development of new drugs have come from start-ups, who are often bought out by major pharmaceutical companies like Pfizer or Merck. The winners of prime contracts under this system would be foolish not to look to award contracts to innovative start-ups, to ensure that they have something to show for their work.

One condition that would apply to both prime contractors and any subcontractors is that all research findings would have to be fully open, meaning that they are posted on the Internet as soon as practical. This would apply both to pre-clinical research and the results of clinical trials. The posting of trial results would mean that researchers around the world would be able to independently analyze the data and assess the effectiveness and risks of drugs and vaccines for different populations.

I have had many people ask me what would be the incentive for the companies that win contracts to actually innovate as opposed to just spinning their wheels. Since they presumably would want to renew their contracts when they expire, that should provide substantial incentive for them to have something to show.

Also, the researchers would presumably want to actually do something with their time rather than just looking to collect a paycheck. I have also suggested having a large pot of money (e.g. $200 million a year) to pay out as prizes, similar to a Nobel Prize. If a researcher, or group of researchers, have a major breakthrough that will radically improve the treatment of heart attack victims, why not give them $10 million? But this prize would be on top of their ordinary pay, not a replacement.

People have often raised the problem of political influence determining the awarding of contracts. There is always a risk of political interference, which of course arises under the current system as well. One advantage of this system is that the full public posting of results should at the least make blatantly political decisions difficult, if not impossible. If a company had received $30 billion to research lung cancer over a ten-year period and had nothing to show in terms of new drugs or major innovations, it would be hard to justify another long-term contract to the same company.    

All of the drugs developed through this system (the funding would include carrying new drugs through the FDA approval process) would be available as generics from the day they are approved. This would mean that new drugs that may sell for thousands of dollars, or even tens of thousands of dollars, under the patent monopoly system, are likely to sell for ten or twenty dollars. Drugs are rarely expensive to manufacture and distribute, under a system of government-financed open-source research they would also be cheap to buy.

 

Government Funding in the Pandemic

The pandemic provided a great opportunity to experiment with open-source government funding. While we did the government funding part, with the U.S. government alone putting up $10 billion through Operation Warp Speed, we did not get the open-source part.  The government effectively paid for much or all of the research, but still gave private companies patent monopolies.

Ideally, we would have negotiated an international pact, where all countries would contribute to research, based on their size and relative wealth, and all findings would be fully open to researchers around the world. I’ve heard people object that it’s difficult to negotiate these sorts of deals, and we needed to act in a hurry. Some people have also insisted that China and Russia never would have agreed to such a deal.

On the first point, it really should not have taken very long to negotiate a pact. We are throwing money around all over the place. No one thinks that we are getting things exactly right. Some industries and individuals are getting compensated in ways that they probably don’t need/deserve and undoubtedly some people are being left behind. If the United States or some other country chips in 20 percent too much or too little, it would be chump change relative to the costs of the pandemics and various rescue packages being put forward.

As far as including China and Russia in a deal, I have no idea whether they would be anxious to join if given the opportunity. They have joined in many other international agreements, so there would be no prima facie reason to assume that they would not want to be parties to this sort of arrangement. We also can’t know for certain that they could be counted on to contribute their agreed-upon share and to make results fully open, but as a practical matter, both countries have been reasonably good about adhering to other agreements to which they are a party.

It would have been enormously advantageous if China and Russia would have been included in a pact with open-source research. Ideally, if all the successful vaccines were fully open, including their production processes, manufacturers anywhere in the world that had the ability to produce these vaccines could have done so.

And, they could have begun to ramp up production even before the vaccines had been determined to be safe and effective. The cost of manufacturing 1 billion vaccines that turned out not to be approved is trivial, in both lives and money, compared to the cost of waiting to have 1 billion vaccines become available so that they can be administered.

While we can never know how much quicker we could have learned about the effectiveness of vaccines, and arranged their distribution, in an open-source world, we can have some idea just from what we have learned over the last several months.

For example, Pfizer discovered that it is possible to get six shots out of a standard shipping vial, not the five they originally believed. This means getting 20 percent more vaccines. If this knowledge was available sooner, it might have meant hundreds of thousands or even millions of additional vaccines.

There is also evidence, based on data from Israel, that the Pfizer vaccine is highly effective after just one shot. It is possible that if all the clinical trial data was fully public that this result could have been discovered sooner. This would have allowed countries to adopt a one-shot strategy with the second shot coming after most people had received their initial shot.

Pfizer also discovered that its vaccine can be kept in a normal freezer for up to two weeks, instead of requiring super-cold storage. If this was known sooner, it would have greatly facilitated the storage and distribution of the vaccine.

And, Pfizer reported last month that it had discovered a way to alter its production process to nearly double its output of vaccines. It’s hard to believe that if engineers all over the world were familiar with Pfizer’s production process, not one would have been able to realize this potential improvement more quickly.

We also got an interesting lesson about incentives with reports that Astra Zeneca cherry-picked the data it presented to the Food and Drug Administration (FDA) to gain approval of its vaccines. While Astra Zeneca denies the charge, this problem would not exist in an open-source world.

First, the company that developed a vaccine or drug would have no special incentive to see it approved if it was not safe and effective. While it would like to have something to show when a contract came up, the risk of having a drug approved that later turned out not to be safe or effective would likely far exceed any potential benefit.

More importantly, the clinical trials would not be under its control. The data from these trials would be fully public so that any researcher anywhere in the world could analyze it independently. If the FDA or some other regulatory agency misread the data and made the wrong call, it is virtually certain that independent researchers would be able to recognize the mistake and call public attention to it.

We would not have stories like Purdue Pharma misleading physicians about the addictiveness of its opioids. Under a system of open-source research, they would have neither the incentive nor the opportunity.

If People Act the Way Economic Theory Predicts, We Should Want Open-Source Research

Economists always want to look at the incentive structures that we create with our policies. While patent monopolies do create incentives to develop drugs and vaccines, they also create incentives to keep as much research as possible secret, so as not to benefit competitors. The huge markups allowed by patent monopolies also create an enormous incentive for drug companies to lie about the safety and effectiveness of their products.

Open-source, publicly funded, research radically alters the structure of incentives. The incentive is to try to have research results spread as widely and quickly as possible in the hope that others can build on them. And, there is no incentive or opportunity to push drugs that are unsafe or ineffective. This is a big deal.

[1] The figure on private R&D spending comes from the National Income and Product Account, Table 5.6.5, Line 9.

It is often said that intellectuals have a hard time dealing with new ideas. Unfortunately, for purposes of public debate, open-source government funding of drug development is a new idea, and people in policy positions seem to be having a very hard time understanding it. So, I will try to write this post in a way that even a policy wonk can figure it out.

The basic idea of government-funded research should not be hard to grasp since the government already funds a large share of biomedical research. The National Institutes of Health gets over $40 billion a year in federal funding, with the Biomedical Advanced Research and Development Agency (BARDA) and other government agencies getting several billion more. This puts the government’s total spending in the $45 to $50 billion range, compared to a bit over $90 billion from the industry.[1] So the idea that the government would fund research really should not be that strange.

Most of the public funding does go to more basic research, but there are plenty of instances where the government has actually funded the development of new drugs and also done clinical testing. But under the current system, most of the later stage funding does come from the industry and is funded through patent monopoly pricing. Relying on open-source government-funded research for later-stage development and testing would be a major change.

 

The Outlines of a System of Government-Funded Research

To my view, the best way for the government to support the development of new drugs is through long-term contracts (10-12 years), which would be awarded through competitive bids for research in specific areas, like cancer or heart disease. The plan would be that the contracts would be relatively large, with the idea that the winners would be comparable to prime contractors for the military. (I describe this system in somewhat more detail in chapter 5 of Rigged [it’s free].)

Major military contractors, like Lockheed or Boeing, typically contract out to many smaller companies in specific areas. This is a good model. Most of the major innovations in the development of new drugs have come from start-ups, who are often bought out by major pharmaceutical companies like Pfizer or Merck. The winners of prime contracts under this system would be foolish not to look to award contracts to innovative start-ups, to ensure that they have something to show for their work.

One condition that would apply to both prime contractors and any subcontractors is that all research findings would have to be fully open, meaning that they are posted on the Internet as soon as practical. This would apply both to pre-clinical research and the results of clinical trials. The posting of trial results would mean that researchers around the world would be able to independently analyze the data and assess the effectiveness and risks of drugs and vaccines for different populations.

I have had many people ask me what would be the incentive for the companies that win contracts to actually innovate as opposed to just spinning their wheels. Since they presumably would want to renew their contracts when they expire, that should provide substantial incentive for them to have something to show.

Also, the researchers would presumably want to actually do something with their time rather than just looking to collect a paycheck. I have also suggested having a large pot of money (e.g. $200 million a year) to pay out as prizes, similar to a Nobel Prize. If a researcher, or group of researchers, have a major breakthrough that will radically improve the treatment of heart attack victims, why not give them $10 million? But this prize would be on top of their ordinary pay, not a replacement.

People have often raised the problem of political influence determining the awarding of contracts. There is always a risk of political interference, which of course arises under the current system as well. One advantage of this system is that the full public posting of results should at the least make blatantly political decisions difficult, if not impossible. If a company had received $30 billion to research lung cancer over a ten-year period and had nothing to show in terms of new drugs or major innovations, it would be hard to justify another long-term contract to the same company.    

All of the drugs developed through this system (the funding would include carrying new drugs through the FDA approval process) would be available as generics from the day they are approved. This would mean that new drugs that may sell for thousands of dollars, or even tens of thousands of dollars, under the patent monopoly system, are likely to sell for ten or twenty dollars. Drugs are rarely expensive to manufacture and distribute, under a system of government-financed open-source research they would also be cheap to buy.

 

Government Funding in the Pandemic

The pandemic provided a great opportunity to experiment with open-source government funding. While we did the government funding part, with the U.S. government alone putting up $10 billion through Operation Warp Speed, we did not get the open-source part.  The government effectively paid for much or all of the research, but still gave private companies patent monopolies.

Ideally, we would have negotiated an international pact, where all countries would contribute to research, based on their size and relative wealth, and all findings would be fully open to researchers around the world. I’ve heard people object that it’s difficult to negotiate these sorts of deals, and we needed to act in a hurry. Some people have also insisted that China and Russia never would have agreed to such a deal.

On the first point, it really should not have taken very long to negotiate a pact. We are throwing money around all over the place. No one thinks that we are getting things exactly right. Some industries and individuals are getting compensated in ways that they probably don’t need/deserve and undoubtedly some people are being left behind. If the United States or some other country chips in 20 percent too much or too little, it would be chump change relative to the costs of the pandemics and various rescue packages being put forward.

As far as including China and Russia in a deal, I have no idea whether they would be anxious to join if given the opportunity. They have joined in many other international agreements, so there would be no prima facie reason to assume that they would not want to be parties to this sort of arrangement. We also can’t know for certain that they could be counted on to contribute their agreed-upon share and to make results fully open, but as a practical matter, both countries have been reasonably good about adhering to other agreements to which they are a party.

It would have been enormously advantageous if China and Russia would have been included in a pact with open-source research. Ideally, if all the successful vaccines were fully open, including their production processes, manufacturers anywhere in the world that had the ability to produce these vaccines could have done so.

And, they could have begun to ramp up production even before the vaccines had been determined to be safe and effective. The cost of manufacturing 1 billion vaccines that turned out not to be approved is trivial, in both lives and money, compared to the cost of waiting to have 1 billion vaccines become available so that they can be administered.

While we can never know how much quicker we could have learned about the effectiveness of vaccines, and arranged their distribution, in an open-source world, we can have some idea just from what we have learned over the last several months.

For example, Pfizer discovered that it is possible to get six shots out of a standard shipping vial, not the five they originally believed. This means getting 20 percent more vaccines. If this knowledge was available sooner, it might have meant hundreds of thousands or even millions of additional vaccines.

There is also evidence, based on data from Israel, that the Pfizer vaccine is highly effective after just one shot. It is possible that if all the clinical trial data was fully public that this result could have been discovered sooner. This would have allowed countries to adopt a one-shot strategy with the second shot coming after most people had received their initial shot.

Pfizer also discovered that its vaccine can be kept in a normal freezer for up to two weeks, instead of requiring super-cold storage. If this was known sooner, it would have greatly facilitated the storage and distribution of the vaccine.

And, Pfizer reported last month that it had discovered a way to alter its production process to nearly double its output of vaccines. It’s hard to believe that if engineers all over the world were familiar with Pfizer’s production process, not one would have been able to realize this potential improvement more quickly.

We also got an interesting lesson about incentives with reports that Astra Zeneca cherry-picked the data it presented to the Food and Drug Administration (FDA) to gain approval of its vaccines. While Astra Zeneca denies the charge, this problem would not exist in an open-source world.

First, the company that developed a vaccine or drug would have no special incentive to see it approved if it was not safe and effective. While it would like to have something to show when a contract came up, the risk of having a drug approved that later turned out not to be safe or effective would likely far exceed any potential benefit.

More importantly, the clinical trials would not be under its control. The data from these trials would be fully public so that any researcher anywhere in the world could analyze it independently. If the FDA or some other regulatory agency misread the data and made the wrong call, it is virtually certain that independent researchers would be able to recognize the mistake and call public attention to it.

We would not have stories like Purdue Pharma misleading physicians about the addictiveness of its opioids. Under a system of open-source research, they would have neither the incentive nor the opportunity.

If People Act the Way Economic Theory Predicts, We Should Want Open-Source Research

Economists always want to look at the incentive structures that we create with our policies. While patent monopolies do create incentives to develop drugs and vaccines, they also create incentives to keep as much research as possible secret, so as not to benefit competitors. The huge markups allowed by patent monopolies also create an enormous incentive for drug companies to lie about the safety and effectiveness of their products.

Open-source, publicly funded, research radically alters the structure of incentives. The incentive is to try to have research results spread as widely and quickly as possible in the hope that others can build on them. And, there is no incentive or opportunity to push drugs that are unsafe or ineffective. This is a big deal.

[1] The figure on private R&D spending comes from the National Income and Product Account, Table 5.6.5, Line 9.

More About Me, for Anyone Who Feels the Need

You can get the story here.

You can get the story here.

I keep asking this question because whining over the government debt looks to be a huge growth sector in the next year or two, or perhaps until Republicans retake the White House. I regularly ridicule debt whining, because, unlike its cousin, deficit whining, it has no basis in economic reality.

Before again showing why the debt is a meaningless number, let me contrast it with the budget deficit, which can be a real cause for concern. The way in which deficits can pose a problem is that a large deficit can push the economy beyond its ability to produce goods and services.

This is a textbook story that happens to be accurate. The point at which the economy is being pushed too far by a budget deficit is not easy to determine and it varies hugely over the course of the business cycle.

When the economy is in a severe slump, there is plenty of excess capacity and unemployed workers, and therefore little basis for concern that a deficit is creating more demand than the economy can supply. However, near the peak of a business cycle, when the unemployment rate is already low, a large budget deficit can create demand that the economy is unable to meet.

The consequences of excessive demand are hard to know at this point. One possible consequence is that the Federal Reserve Board decides to raise interest rates. This will reduce demand by reducing housing construction and to a lesser extent lowering public and private investment. It also is likely to raise the value of the dollar, which leads to a larger trade deficit, which will also lower demand.

But suppose the Fed doesn’t raise the rate. Fed Chair Jay Powell indicated that he plans to keep short-term rates near zero for the immediate future. In the old days, we would have thought that would create serious problems with inflation, but that is less clear now.

First, the economy is far more internationalized, which means that is easier for excess demand in the United States to simply spill over to increased demand for imports, rather than driving up domestic prices. This is pretty much the story that we see if a single state has very strong demand.

If Ohio were to have a booming economy, it would mostly translate into higher demand for a wide range of goods and services from neighboring states, not an inflationary spiral in Ohio. This is likely to be the case with any excess demand that results from large budget deficits here.

The other major difference between the economy of today and the economy of the 1970s, the last time we saw an inflationary spiral, is that unions are much weaker today. This means workers have far less bargaining power.

While this is a big part of the story of the growth of wage inequality over the last four decades, it does mean that we are less likely to see the sort of wage-price spiral we saw in the 1970s. If we do see a rise in prices due to excess demand, it is unlikely that workers today will be able to respond by demanding higher wages.  

For these reasons, whether or not the large budget deficits that we are now seeing will lead to problems with inflation is an open question. I have argued that it is worth pressing the economy to try to get back to full employment quickly, as well as do many of the positive things included in the American Recovery Act, such as increasing the child tax credit and enhancing the subsidies in the health care exchanges. But there is a real basis for concern about inflation.

 

The Debt Is Not a Measure of Anything

While deficits are potentially a problem, the debt is not, first and foremost because it doesn’t really measure anything. The debt whiners are fond of telling stories about how the debt is a burden on our children, or how the debt can lead to financial crisis and other bad things, but these claims are inventions, not economic realities.[1]

Interest that we pay on the debt can be a burden, but it is dwarfed by other factors like productivity growth. (The impact of ten years of even modest productivity growth swamps an increment to debt service that we pass onto to our kids from higher deficits today.) Furthermore, debt service burdens at present and the near-term future will almost certainly be much smaller than what we saw in the 1990s.

But there is another aspect to this story that our debt whiners desperately do not want anyone to talk about. Direct spending is only one way in which the government pays for things. We also pay for things, like coronavirus vaccines, by giving out patents or copyright monopolies.

These monopolies can be very costly. In the case of the coronavirus vaccines, they mean that we are paying roughly ten times as much for each vaccine as we would in a free market. Vaccines that would likely cost around $2 a shot instead cost us $20. And, they may cost us even more in future years if we need boosters after the pandemic is over.

These government-granted monopolies are effectively a form of government debt. Incredibly, I have literally never seen any of the debt whiners ever mention the hundreds of billions of dollars in rents paid out each year to drug companies, medical equipment suppliers, software companies, or other beneficiaries of these monopolies as part of the burden of the debt. This in spite of the fact that the rents from these monopolies are several times larger than the debt service that we pay out on the official debt.

But let’s flip the story over in the hope of teaching something to the debt whiners. Suppose that we looked to replace much or all of the debt that troubles them with new patent monopolies. Imagine that we sold off trillions of dollars worth of patent monopolies to pay off a large chunk of the debt.

If this sounds strange it is important to step back for a second and think of the logic of a patent or a copyright monopoly. While we ostensibly link the award of these monopolies to innovation or creative work, there is no necessary link.

At the point where the rents are being collected, a patent or copyright monopoly is simply a monopoly on a particular item. It doesn’t matter one iota whether the monopoly was awarded due to some brilliant innovation or whether it was awarded due to a payoff to a Trump friend or family member. The monopoly means that the holder gets to charge a price far above the free market price.

With this in mind, suppose the government decided to auction off monopoly selling rights to a number of goods and services. (We can even call them “patents” to make people feel better.) We surely could raise enough to pay off the national debt.

Just to take my favorite example, patent rents on prescription drugs will be over $400 billion this year. (I explain how I get this figure here.)  Patents have a limited lifespan, but let’s imagine the ones we auction off to continue in perpetuity. The current interest rate on thirty-year Treasury bonds is roughly 3 percent. This means that to generate the $400 billion in rents earned on prescription drugs, we would need $12 trillion in Treasury bonds.

Therefore, the claim to patent right on prescription drugs lasting in perpetuity should be worth roughly $12 trillion. If we had this auction and got $12 trillion, we could reduce our national debt by an amount equal to 60 percent of GDP. That should make the debt whiners very happy.

In fact, we can go further. I calculated that total patent rents in the economy come to over $1 trillion a year. If we auctioned off these rights (again being carried on in perpetuity) it should raise more than $30 trillion, more than enough to eliminate the national debt altogether.

And, we aren’t limited to just auctioning off patent rents on the items where companies currently get them. We can auction off monopoly rights on anything, on selling cars, computers, bread, haircuts, anything. We can raise vast amounts of money through this route and make the debt whiners very happy.

Of course, these rents do have real economic costs. They create large economic distortions (think of tariffs of many thousand percent) and they create perverse incentives. We see this with the patent rents we currently have. For example, pharmaceutical companies misled physicians about the addictiveness of the new generation of opioids to maximize their sales. As economic theory predicts, patent monopolies give drug companies incentives to push their products as widely as possible, even if it means misleading doctors and the public about their safety and effectiveness.

But the debt whiners only care about the debt issued by the national government, they don’t care at all about the burden of patent and copyright monopolies. So, we can answer their concerns simply by issuing enough of these monopolies to bring the debt down to a level that makes them happy.

 

The National Debt is a Meaningless Number

Perhaps some folks will read the prior section and decide that we need to auction off a large number of monopolies to reduce the national debt. The sane ones will instead recognize that the debt is a largely meaningless number. It can imply larger debt service burdens, and that can be a problem, but this is a very small part of the economic picture, especially compared to items like patent rents that get almost no attention at all from economists. What really matters is the underlying strength of the economy and society that we pass on to future generations.

I have no idea if the debt whiners understand this point and try to obfuscate reality, or are just confused. As the old saying goes, “economists are not very good at economics.”  But anyhow, the rest of the country need not take their debt whining seriously.  

[1] One famous instance of debt mongering turned out to be literally an invention. The claim promoted by Carmen Reinhart and Ken Rogoff, that growth slowed when the debt-to-GDP ratio crossed 90 percent, turned out to based on an Excel spreadsheet error.

I keep asking this question because whining over the government debt looks to be a huge growth sector in the next year or two, or perhaps until Republicans retake the White House. I regularly ridicule debt whining, because, unlike its cousin, deficit whining, it has no basis in economic reality.

Before again showing why the debt is a meaningless number, let me contrast it with the budget deficit, which can be a real cause for concern. The way in which deficits can pose a problem is that a large deficit can push the economy beyond its ability to produce goods and services.

This is a textbook story that happens to be accurate. The point at which the economy is being pushed too far by a budget deficit is not easy to determine and it varies hugely over the course of the business cycle.

When the economy is in a severe slump, there is plenty of excess capacity and unemployed workers, and therefore little basis for concern that a deficit is creating more demand than the economy can supply. However, near the peak of a business cycle, when the unemployment rate is already low, a large budget deficit can create demand that the economy is unable to meet.

The consequences of excessive demand are hard to know at this point. One possible consequence is that the Federal Reserve Board decides to raise interest rates. This will reduce demand by reducing housing construction and to a lesser extent lowering public and private investment. It also is likely to raise the value of the dollar, which leads to a larger trade deficit, which will also lower demand.

But suppose the Fed doesn’t raise the rate. Fed Chair Jay Powell indicated that he plans to keep short-term rates near zero for the immediate future. In the old days, we would have thought that would create serious problems with inflation, but that is less clear now.

First, the economy is far more internationalized, which means that is easier for excess demand in the United States to simply spill over to increased demand for imports, rather than driving up domestic prices. This is pretty much the story that we see if a single state has very strong demand.

If Ohio were to have a booming economy, it would mostly translate into higher demand for a wide range of goods and services from neighboring states, not an inflationary spiral in Ohio. This is likely to be the case with any excess demand that results from large budget deficits here.

The other major difference between the economy of today and the economy of the 1970s, the last time we saw an inflationary spiral, is that unions are much weaker today. This means workers have far less bargaining power.

While this is a big part of the story of the growth of wage inequality over the last four decades, it does mean that we are less likely to see the sort of wage-price spiral we saw in the 1970s. If we do see a rise in prices due to excess demand, it is unlikely that workers today will be able to respond by demanding higher wages.  

For these reasons, whether or not the large budget deficits that we are now seeing will lead to problems with inflation is an open question. I have argued that it is worth pressing the economy to try to get back to full employment quickly, as well as do many of the positive things included in the American Recovery Act, such as increasing the child tax credit and enhancing the subsidies in the health care exchanges. But there is a real basis for concern about inflation.

 

The Debt Is Not a Measure of Anything

While deficits are potentially a problem, the debt is not, first and foremost because it doesn’t really measure anything. The debt whiners are fond of telling stories about how the debt is a burden on our children, or how the debt can lead to financial crisis and other bad things, but these claims are inventions, not economic realities.[1]

Interest that we pay on the debt can be a burden, but it is dwarfed by other factors like productivity growth. (The impact of ten years of even modest productivity growth swamps an increment to debt service that we pass onto to our kids from higher deficits today.) Furthermore, debt service burdens at present and the near-term future will almost certainly be much smaller than what we saw in the 1990s.

But there is another aspect to this story that our debt whiners desperately do not want anyone to talk about. Direct spending is only one way in which the government pays for things. We also pay for things, like coronavirus vaccines, by giving out patents or copyright monopolies.

These monopolies can be very costly. In the case of the coronavirus vaccines, they mean that we are paying roughly ten times as much for each vaccine as we would in a free market. Vaccines that would likely cost around $2 a shot instead cost us $20. And, they may cost us even more in future years if we need boosters after the pandemic is over.

These government-granted monopolies are effectively a form of government debt. Incredibly, I have literally never seen any of the debt whiners ever mention the hundreds of billions of dollars in rents paid out each year to drug companies, medical equipment suppliers, software companies, or other beneficiaries of these monopolies as part of the burden of the debt. This in spite of the fact that the rents from these monopolies are several times larger than the debt service that we pay out on the official debt.

But let’s flip the story over in the hope of teaching something to the debt whiners. Suppose that we looked to replace much or all of the debt that troubles them with new patent monopolies. Imagine that we sold off trillions of dollars worth of patent monopolies to pay off a large chunk of the debt.

If this sounds strange it is important to step back for a second and think of the logic of a patent or a copyright monopoly. While we ostensibly link the award of these monopolies to innovation or creative work, there is no necessary link.

At the point where the rents are being collected, a patent or copyright monopoly is simply a monopoly on a particular item. It doesn’t matter one iota whether the monopoly was awarded due to some brilliant innovation or whether it was awarded due to a payoff to a Trump friend or family member. The monopoly means that the holder gets to charge a price far above the free market price.

With this in mind, suppose the government decided to auction off monopoly selling rights to a number of goods and services. (We can even call them “patents” to make people feel better.) We surely could raise enough to pay off the national debt.

Just to take my favorite example, patent rents on prescription drugs will be over $400 billion this year. (I explain how I get this figure here.)  Patents have a limited lifespan, but let’s imagine the ones we auction off to continue in perpetuity. The current interest rate on thirty-year Treasury bonds is roughly 3 percent. This means that to generate the $400 billion in rents earned on prescription drugs, we would need $12 trillion in Treasury bonds.

Therefore, the claim to patent right on prescription drugs lasting in perpetuity should be worth roughly $12 trillion. If we had this auction and got $12 trillion, we could reduce our national debt by an amount equal to 60 percent of GDP. That should make the debt whiners very happy.

In fact, we can go further. I calculated that total patent rents in the economy come to over $1 trillion a year. If we auctioned off these rights (again being carried on in perpetuity) it should raise more than $30 trillion, more than enough to eliminate the national debt altogether.

And, we aren’t limited to just auctioning off patent rents on the items where companies currently get them. We can auction off monopoly rights on anything, on selling cars, computers, bread, haircuts, anything. We can raise vast amounts of money through this route and make the debt whiners very happy.

Of course, these rents do have real economic costs. They create large economic distortions (think of tariffs of many thousand percent) and they create perverse incentives. We see this with the patent rents we currently have. For example, pharmaceutical companies misled physicians about the addictiveness of the new generation of opioids to maximize their sales. As economic theory predicts, patent monopolies give drug companies incentives to push their products as widely as possible, even if it means misleading doctors and the public about their safety and effectiveness.

But the debt whiners only care about the debt issued by the national government, they don’t care at all about the burden of patent and copyright monopolies. So, we can answer their concerns simply by issuing enough of these monopolies to bring the debt down to a level that makes them happy.

 

The National Debt is a Meaningless Number

Perhaps some folks will read the prior section and decide that we need to auction off a large number of monopolies to reduce the national debt. The sane ones will instead recognize that the debt is a largely meaningless number. It can imply larger debt service burdens, and that can be a problem, but this is a very small part of the economic picture, especially compared to items like patent rents that get almost no attention at all from economists. What really matters is the underlying strength of the economy and society that we pass on to future generations.

I have no idea if the debt whiners understand this point and try to obfuscate reality, or are just confused. As the old saying goes, “economists are not very good at economics.”  But anyhow, the rest of the country need not take their debt whining seriously.  

[1] One famous instance of debt mongering turned out to be literally an invention. The claim promoted by Carmen Reinhart and Ken Rogoff, that growth slowed when the debt-to-GDP ratio crossed 90 percent, turned out to based on an Excel spreadsheet error.

Want to search in the archives?

¿Quieres buscar en los archivos?

Click Here Haga clic aquí