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.

There have been a large number of ideas thrown out for sustaining workers and the economy through the downturn. To my mind, the Danish model is the best. It provides hard hit companies with 75 percent of workers’ ordinary pay up to a cap. The company is required to pay the other 25 percent. Workers have to give up five of their paid vacation days (seriously).

This is a good model both because it ensures that most people will have an income through the crisis and it also keeps workers attached to their companies. At some point we will be through this crisis. We don’t want companies to then have to rush out to hire and train a workforce. This policy will mean that most businesses will be able to resume operations fairly quickly, once the health risk is diminished.

We also have somewhat of an infrastructure in place. Twenty nine states, including some of the largest, like California, Texas, and New York, have work sharing programs as part of their unemployment insurance systems. These can in principle be exploited to allow payments to be quickly made to companies that don’t have use for workers in this crisis.

The rules would have to be modified substantially. For example, the current programs limit what portion of a workers’ hours can be replaced by the program, usually capping it at 50 or 60 percent. We will need it to go to 100 percent. Most programs also require employers file very detailed plans, specifying which workers will see hours cut, by how much, and for how long. In this case, the hour cuts would have to be fairly open-ended, with verification done after the fact. 

We will have to decide what portion of pay should be replaced and what the employer would have to contribute. The formula may end up being somewhat less than Denmark’s 100 percent, but the basic path should be similar.

Anyhow, this seems the best path forward. The states that don’t have work sharing can try to move quickly to set up a similar structure. In the mean time, businesses can be made eligible for no interest loans to cover their payroll.

There are of course many other concerns that we have to address in this crisis, starting with ensuring adequate staff and equipment to deal with the people getting sick. We also need provisions for people who might fall through the cracks, such as the self-employed and gig workers, but this sort of work sharing system, which keeps workers attached to their employers, should be the centerpiece of any economic rescue package.

There have been a large number of ideas thrown out for sustaining workers and the economy through the downturn. To my mind, the Danish model is the best. It provides hard hit companies with 75 percent of workers’ ordinary pay up to a cap. The company is required to pay the other 25 percent. Workers have to give up five of their paid vacation days (seriously).

This is a good model both because it ensures that most people will have an income through the crisis and it also keeps workers attached to their companies. At some point we will be through this crisis. We don’t want companies to then have to rush out to hire and train a workforce. This policy will mean that most businesses will be able to resume operations fairly quickly, once the health risk is diminished.

We also have somewhat of an infrastructure in place. Twenty nine states, including some of the largest, like California, Texas, and New York, have work sharing programs as part of their unemployment insurance systems. These can in principle be exploited to allow payments to be quickly made to companies that don’t have use for workers in this crisis.

The rules would have to be modified substantially. For example, the current programs limit what portion of a workers’ hours can be replaced by the program, usually capping it at 50 or 60 percent. We will need it to go to 100 percent. Most programs also require employers file very detailed plans, specifying which workers will see hours cut, by how much, and for how long. In this case, the hour cuts would have to be fairly open-ended, with verification done after the fact. 

We will have to decide what portion of pay should be replaced and what the employer would have to contribute. The formula may end up being somewhat less than Denmark’s 100 percent, but the basic path should be similar.

Anyhow, this seems the best path forward. The states that don’t have work sharing can try to move quickly to set up a similar structure. In the mean time, businesses can be made eligible for no interest loans to cover their payroll.

There are of course many other concerns that we have to address in this crisis, starting with ensuring adequate staff and equipment to deal with the people getting sick. We also need provisions for people who might fall through the cracks, such as the self-employed and gig workers, but this sort of work sharing system, which keeps workers attached to their employers, should be the centerpiece of any economic rescue package.

I would have blogged on this last week if not for the small distraction of a pandemic. Anyhow, we now have full year data on profits and income, and it turns out there was an increase in the labor share of roughly 0.7 percentage points in 2019. That took us to 64.2 percent of national income. That is still down from 66.2 percent in 2000 and 66.9 percent in 1979, before the period of upward redistribution began, but it is up from a low of 61.7 percent in 2014.

Source: Bureau of Economic Analysis.

This means that we were seeing workers gain back some of the income share that they lost in the Great Recession, and to a lesser extent before that. Of course, it would have taken several more years to get back to the former labor shares. If we assume a gain of 0.7 pp a year, we could have back to the 2000 share in another three years or the 1979 share in four years.

However, with the economic collapse we are now seeing, all bets on wage and profit shares are off. It is very hard to know how the pie will be divided up when this over, clearly the policies we pursue now will make a big difference.

It is worth noting that the shift from wages to profits has not been the major cause of wage stagnation for the typical worker over the last four decades. If we were back at the 1979 wage share, and distribution of wages was unchanged, the pay of the median worker would be 4.2 percent higher. That is not trivial, but that is only around 10 percent of the gap between productivity growth and wage growth over this period. Most of the upward redistribution went to CEOs, Wall Street types, and other high end workers.

 

 

 

I would have blogged on this last week if not for the small distraction of a pandemic. Anyhow, we now have full year data on profits and income, and it turns out there was an increase in the labor share of roughly 0.7 percentage points in 2019. That took us to 64.2 percent of national income. That is still down from 66.2 percent in 2000 and 66.9 percent in 1979, before the period of upward redistribution began, but it is up from a low of 61.7 percent in 2014.

Source: Bureau of Economic Analysis.

This means that we were seeing workers gain back some of the income share that they lost in the Great Recession, and to a lesser extent before that. Of course, it would have taken several more years to get back to the former labor shares. If we assume a gain of 0.7 pp a year, we could have back to the 2000 share in another three years or the 1979 share in four years.

However, with the economic collapse we are now seeing, all bets on wage and profit shares are off. It is very hard to know how the pie will be divided up when this over, clearly the policies we pursue now will make a big difference.

It is worth noting that the shift from wages to profits has not been the major cause of wage stagnation for the typical worker over the last four decades. If we were back at the 1979 wage share, and distribution of wages was unchanged, the pay of the median worker would be 4.2 percent higher. That is not trivial, but that is only around 10 percent of the gap between productivity growth and wage growth over this period. Most of the upward redistribution went to CEOs, Wall Street types, and other high end workers.

 

 

 

It looks like we are seeing an effort to do a replay of 2008 where we were told that we had to give all the money to the banks or the world would end. Today the story is that we have to bail out the airline, cruise, hotel, and restaurant industries or tens of millions of workers will lose their jobs. Well, the disaster threats were not true in 2008 and they deserve even less credence today.

The story in 2008 was that all our major banks had effectively made themselves insolvent through their own greed and bad judgement. They had made hundreds of billions of dollars worth of mortgage and mortgage related loans that suddenly went bad when the housing bubble burst. If we let the market work its magic, they would have all gone bankrupt.

The banks got the government to lend the money they needed to stay in business, at way below market interest rates, by telling everyone that if they went under, we would be looking at a second Great Depression. There was literally no one who could explain why we would be prevented from doing the same thing that got us out of the first Great Depression (spend lots of money) if the banks went under.

Our payment system would have surely been disrupted in the immediate wake of a wave of bankruptcies, but unlike in the 1930s, we have the FDIC to insure most of our deposits and keep the wheels turning. The initial downturn surely would have been somewhat worse had we gone the no bailout route, but there is no economic reason we could not have quickly lifted the economy out of a downturn with a massive stimulus following a collapse of the major banks. We held the cards and could have dictated the terms of any bailout for the banks.

Unfortunately, this argument was not heard at the time. I remember I wrote a column for the Guardian with the headline “the banks have a gun pointed to their heads and are threatening to pull the trigger.” The paper flipped the headline so that the guns were pointed to our heads.

Anyhow, we can’t let the same mistake happen twice. Congress can dictate terms of any bailout. I would suggest following the auto industry model — wipe out shareholders first. And, bailout recipients have to commit to keeping workers on the payroll with current pay and benefits.
 
There also should be strict caps on executive compensation. Let’s make it $2 million in total compensation. (That includes insurance policies, health care, pensions, etc.)  And to ensure that there are no silly mistakes, jail time for board members who sign contracts exceeding this figure. If the airlines, cruise ships etc. don’t like it, let them go elsewhere for money.
 
This sort of restriction on CEO compensation is important because it can help to counteract the crazy upward trend in CEO pay we have seen in the last four decades. There really is no countervailing downward pressure. CEOs ask their friends on corporate boards for big pay increases year after year, and the board has no reason not to give them more of the company’s money. If major corporations can be effectively run by CEOs getting one tenth the going rate, it would set a valuable precedent.
 
This is not just a question of envy. More money for those at the top means less for everyone else. And to be clear, it is not just the CEO who is vastly overpaid. If the CEO is getting $20 million, the chief financial officer and other top execs might be getting $10 million, and the third tier could be getting $2 or $3 million. The world would look very different if the CEO was getting $2 million, which would be the case if we had the same ratios of CEO to worker pay as fifty years ago.
 
One more item; we should also require a full financial disclosure from Trump and family as a condition of any bailout so we know how much money we are giving him.
 
Anyhow, we have major corporations desperately in need of government support to stay afloat. Nancy Pelosi is in a position to dictate terms and tell these companies, as well as Donald Trump and the Republican Senate, to take it or leave it.
 

It looks like we are seeing an effort to do a replay of 2008 where we were told that we had to give all the money to the banks or the world would end. Today the story is that we have to bail out the airline, cruise, hotel, and restaurant industries or tens of millions of workers will lose their jobs. Well, the disaster threats were not true in 2008 and they deserve even less credence today.

The story in 2008 was that all our major banks had effectively made themselves insolvent through their own greed and bad judgement. They had made hundreds of billions of dollars worth of mortgage and mortgage related loans that suddenly went bad when the housing bubble burst. If we let the market work its magic, they would have all gone bankrupt.

The banks got the government to lend the money they needed to stay in business, at way below market interest rates, by telling everyone that if they went under, we would be looking at a second Great Depression. There was literally no one who could explain why we would be prevented from doing the same thing that got us out of the first Great Depression (spend lots of money) if the banks went under.

Our payment system would have surely been disrupted in the immediate wake of a wave of bankruptcies, but unlike in the 1930s, we have the FDIC to insure most of our deposits and keep the wheels turning. The initial downturn surely would have been somewhat worse had we gone the no bailout route, but there is no economic reason we could not have quickly lifted the economy out of a downturn with a massive stimulus following a collapse of the major banks. We held the cards and could have dictated the terms of any bailout for the banks.

Unfortunately, this argument was not heard at the time. I remember I wrote a column for the Guardian with the headline “the banks have a gun pointed to their heads and are threatening to pull the trigger.” The paper flipped the headline so that the guns were pointed to our heads.

Anyhow, we can’t let the same mistake happen twice. Congress can dictate terms of any bailout. I would suggest following the auto industry model — wipe out shareholders first. And, bailout recipients have to commit to keeping workers on the payroll with current pay and benefits.
 
There also should be strict caps on executive compensation. Let’s make it $2 million in total compensation. (That includes insurance policies, health care, pensions, etc.)  And to ensure that there are no silly mistakes, jail time for board members who sign contracts exceeding this figure. If the airlines, cruise ships etc. don’t like it, let them go elsewhere for money.
 
This sort of restriction on CEO compensation is important because it can help to counteract the crazy upward trend in CEO pay we have seen in the last four decades. There really is no countervailing downward pressure. CEOs ask their friends on corporate boards for big pay increases year after year, and the board has no reason not to give them more of the company’s money. If major corporations can be effectively run by CEOs getting one tenth the going rate, it would set a valuable precedent.
 
This is not just a question of envy. More money for those at the top means less for everyone else. And to be clear, it is not just the CEO who is vastly overpaid. If the CEO is getting $20 million, the chief financial officer and other top execs might be getting $10 million, and the third tier could be getting $2 or $3 million. The world would look very different if the CEO was getting $2 million, which would be the case if we had the same ratios of CEO to worker pay as fifty years ago.
 
One more item; we should also require a full financial disclosure from Trump and family as a condition of any bailout so we know how much money we are giving him.
 
Anyhow, we have major corporations desperately in need of government support to stay afloat. Nancy Pelosi is in a position to dictate terms and tell these companies, as well as Donald Trump and the Republican Senate, to take it or leave it.
 

The idea of a cash payment to all adults, in the neighborhood of $1,000, is gaining lots of support as a reaction to the crisis. This may not be an especially effective way to help people.

The reason is that, unlike in past recessions, it will not lead to much of boost in spending, and therefore have little impact on economic activity and employment. In past recessions, the reason most people did not spend is because they didn’t have money. If you gave them more money, they would likely spend most of it, creating demand in the economy, shoring up employment, and in that way having a second round spending effect from the workers who get or stay employed.

In this case, the main reason that spending is being cut back is because people are scared to spend. They don’t want to go out to restaurants, movies, or travel. Giving them $1,000 will not change this fact.

For people who are losing their jobs because they are in the most affected industries, the $1,000 will lead to a boost in spending, but it is likely to provide them little help if they lose their  jobs. For someone earning $20 an hour (a bit more than the median wage), this is enough to replace 50 hours of pay. These workers will need considerably more money if they are to get through a period of six or nine months before the economy starts to get back to normal.

Many of these workers will get unemployment benefits, but these benefits are typically just 40-55 percent of wages, meaning that laid off workers will see a substantial cut in income. Furthermore, many workers do not qualify for unemployment benefits, either because they do not have a long enough work history or because they were contract workers, like Uber drivers, not formal employees.

These laid off workers are the ones who will need the most help in a downturn. If we can’t find ways to keep them employed, for example as Denmark has done, we should look to ramp up benefits, say by 50 percent, and find ways to cover those not currently covered. One possibility would be to base unemployment benefits for contract workers on the 1099 tax forms that they got from their employers.

In any case, it makes sense to direct the money to people directly hit by the crisis. It will not provide much of a boost to the economy to send checks to people who have not seen their income fall as a result of the crisis.

btw, for those wondering how we are doing now helping the unemployed, last month there were 5.8 million people counted as unemployed. Fewer than 1.8 million people were receiving benefits. We are not doing a very good job of getting money to the unemployed.

The idea of a cash payment to all adults, in the neighborhood of $1,000, is gaining lots of support as a reaction to the crisis. This may not be an especially effective way to help people.

The reason is that, unlike in past recessions, it will not lead to much of boost in spending, and therefore have little impact on economic activity and employment. In past recessions, the reason most people did not spend is because they didn’t have money. If you gave them more money, they would likely spend most of it, creating demand in the economy, shoring up employment, and in that way having a second round spending effect from the workers who get or stay employed.

In this case, the main reason that spending is being cut back is because people are scared to spend. They don’t want to go out to restaurants, movies, or travel. Giving them $1,000 will not change this fact.

For people who are losing their jobs because they are in the most affected industries, the $1,000 will lead to a boost in spending, but it is likely to provide them little help if they lose their  jobs. For someone earning $20 an hour (a bit more than the median wage), this is enough to replace 50 hours of pay. These workers will need considerably more money if they are to get through a period of six or nine months before the economy starts to get back to normal.

Many of these workers will get unemployment benefits, but these benefits are typically just 40-55 percent of wages, meaning that laid off workers will see a substantial cut in income. Furthermore, many workers do not qualify for unemployment benefits, either because they do not have a long enough work history or because they were contract workers, like Uber drivers, not formal employees.

These laid off workers are the ones who will need the most help in a downturn. If we can’t find ways to keep them employed, for example as Denmark has done, we should look to ramp up benefits, say by 50 percent, and find ways to cover those not currently covered. One possibility would be to base unemployment benefits for contract workers on the 1099 tax forms that they got from their employers.

In any case, it makes sense to direct the money to people directly hit by the crisis. It will not provide much of a boost to the economy to send checks to people who have not seen their income fall as a result of the crisis.

btw, for those wondering how we are doing now helping the unemployed, last month there were 5.8 million people counted as unemployed. Fewer than 1.8 million people were receiving benefits. We are not doing a very good job of getting money to the unemployed.

Of course they wouldn’t say that directly about a Trump proposal, but that is effectively what they said to fans of arithmetic. The Post ran a news article on the anti-recession package negotiated between Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin. The piece referred to Pelosi’s original proposal to increase the federal share of the joint state-federal Medicaid program.

“A controversial provision in the bill as originally introduced by House Democrats would have increased the percentage of Medicaid spending borne by the federal government by eight percentage points through Sept. 30, 2021. That would be a welcome relief to states, which could see an influx of Medicaid enrollees in a time of economic crisis. But the price tag for the federal government could have been vast — stretching easily into the tens of billions of dollars. By Friday morning that 8 percentage point increase had been reduce to 6.2 percentage points, according to the draft legislation.”

Okay, so in Washington Post land, an increase in federal support of Medicaid of 8 percentage points  is a “vast” price tag. If we check current spending, we see that the Medicaid spending is projected to be a bit over $1 trillion over the year and half period. This means that it would cost the federal government approximately $80 billion to pick up an additional 8 percentage points of the Medicaid tab.

By contrast, Trump has proposed eliminating the payroll tax through the rest of the year. While it is not entirely clear what Trump is proposing, if he eliminates the tax completely for 2020 the cost would be roughly $950 billion, according to the Tax Foundation. That is more than ten times the cost of increased Medicaid funding that the Post described as “vast.”

Furthermore, this $950 billion revenue loss would take place over nine months. By contrast, the proposed increase in Medicaid spending would take place over eighteen months, a period that is twice as long.

In short, the proposal from Trump is more than an order of magnitude larger than the proposal put forward by the Democrats. For another comparison, the Democrats original proposal would have been a bit more than 1.0 percent of federal spending. Trump’s tax would be more than 20 percent of federal spending over the nine month period in question. 

Of course they wouldn’t say that directly about a Trump proposal, but that is effectively what they said to fans of arithmetic. The Post ran a news article on the anti-recession package negotiated between Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin. The piece referred to Pelosi’s original proposal to increase the federal share of the joint state-federal Medicaid program.

“A controversial provision in the bill as originally introduced by House Democrats would have increased the percentage of Medicaid spending borne by the federal government by eight percentage points through Sept. 30, 2021. That would be a welcome relief to states, which could see an influx of Medicaid enrollees in a time of economic crisis. But the price tag for the federal government could have been vast — stretching easily into the tens of billions of dollars. By Friday morning that 8 percentage point increase had been reduce to 6.2 percentage points, according to the draft legislation.”

Okay, so in Washington Post land, an increase in federal support of Medicaid of 8 percentage points  is a “vast” price tag. If we check current spending, we see that the Medicaid spending is projected to be a bit over $1 trillion over the year and half period. This means that it would cost the federal government approximately $80 billion to pick up an additional 8 percentage points of the Medicaid tab.

By contrast, Trump has proposed eliminating the payroll tax through the rest of the year. While it is not entirely clear what Trump is proposing, if he eliminates the tax completely for 2020 the cost would be roughly $950 billion, according to the Tax Foundation. That is more than ten times the cost of increased Medicaid funding that the Post described as “vast.”

Furthermore, this $950 billion revenue loss would take place over nine months. By contrast, the proposed increase in Medicaid spending would take place over eighteen months, a period that is twice as long.

In short, the proposal from Trump is more than an order of magnitude larger than the proposal put forward by the Democrats. For another comparison, the Democrats original proposal would have been a bit more than 1.0 percent of federal spending. Trump’s tax would be more than 20 percent of federal spending over the nine month period in question. 

The Washington Post is again pushing crap about how we had to bail out the banks to prevent a second Great Depression and that we made a profit on it. And, it is attacking Bernie Sanders for not accepting this nonsense.

So let’s go through the story for the 74,567th time. Suppose we let the market work its magic on Goldman Sachs, Citigroup and the rest. All the Wall Street behemoths would have gone bankrupt. We would have instantly downsized our grossly bloated financial sector, eliminating a huge amount of waste in the economy (an efficient financial sector is a small financial sector). We also would have seen some of the richest people in the country lose their fortune due to own greed and incompetence.

As far as the second Great Depression story — yes, that is the mantra for the big money people — but try getting any of them to explain how that works out. We know the secret of getting out of a depression, it’s called “spending money.” The massive spending associated with World War II lifted us out of the first Great Depression in 1941, but if we had the political will, we could have had massive spending on things like housing and health care in 1931 and we never would have had the first Great Depression. 

To be clear, the initial downturn would have been worse, as it would take time to prepare an adequate response, but we’re talking months, not a decade. The second Great Depression is a sleazy myth pushed by Wall Street and it allies to justify saving their hides.

The we made a profit story is almost as misleading. We gave a huge amount of low interest loans to the Wall Street banks and coupled that with the “no more Lehman” guarantee, meaning that we would not allow them to fail no matter how badly they messed up. (This is in Timothy Geithner’s autobiography, he is apparently very proud of it.) Under these circumstances, it was pretty much inconceivable we would not get the money lent back. We allowed the big banks to profit at the expense of everyone else.

To understand the logic, suppose the government lent $400 billion to Dean Baker’s lemonade stand at very low interest rates, and also told the financial markets that my lemonade stand would not be allowed to fail. After two or three of years of having access to very low cost money in the middle of a financial crisis, I would have gotten very rich off my lemonade stand. (If I put my money in the stock market, I could made $200 billion.)

Anyhow, Sanders is 100 percent right on the bank bailout in 2008. It would be good if the Washington Post editorial page would stop lying about it.

The Washington Post is again pushing crap about how we had to bail out the banks to prevent a second Great Depression and that we made a profit on it. And, it is attacking Bernie Sanders for not accepting this nonsense.

So let’s go through the story for the 74,567th time. Suppose we let the market work its magic on Goldman Sachs, Citigroup and the rest. All the Wall Street behemoths would have gone bankrupt. We would have instantly downsized our grossly bloated financial sector, eliminating a huge amount of waste in the economy (an efficient financial sector is a small financial sector). We also would have seen some of the richest people in the country lose their fortune due to own greed and incompetence.

As far as the second Great Depression story — yes, that is the mantra for the big money people — but try getting any of them to explain how that works out. We know the secret of getting out of a depression, it’s called “spending money.” The massive spending associated with World War II lifted us out of the first Great Depression in 1941, but if we had the political will, we could have had massive spending on things like housing and health care in 1931 and we never would have had the first Great Depression. 

To be clear, the initial downturn would have been worse, as it would take time to prepare an adequate response, but we’re talking months, not a decade. The second Great Depression is a sleazy myth pushed by Wall Street and it allies to justify saving their hides.

The we made a profit story is almost as misleading. We gave a huge amount of low interest loans to the Wall Street banks and coupled that with the “no more Lehman” guarantee, meaning that we would not allow them to fail no matter how badly they messed up. (This is in Timothy Geithner’s autobiography, he is apparently very proud of it.) Under these circumstances, it was pretty much inconceivable we would not get the money lent back. We allowed the big banks to profit at the expense of everyone else.

To understand the logic, suppose the government lent $400 billion to Dean Baker’s lemonade stand at very low interest rates, and also told the financial markets that my lemonade stand would not be allowed to fail. After two or three of years of having access to very low cost money in the middle of a financial crisis, I would have gotten very rich off my lemonade stand. (If I put my money in the stock market, I could made $200 billion.)

Anyhow, Sanders is 100 percent right on the bank bailout in 2008. It would be good if the Washington Post editorial page would stop lying about it.

I had some family matters, so I couldn’t do my usual prices byte this morning, but now that I have had the chance to see the CPI report, I know the story would have been the usual. Inflation is well-contained pretty much everywhere, but health insurance costs are out of control.

The overall CPI rose just 0.1 percent for the second straight month, while the core rate rose 0.2 percent, also the same as the prior month. The increases for the last year in the overall CPI and the core are 2.4 percent and 2.3 percent, respectively.

Shelter continues to be an area of excessive inflation, with costs rising 0.3 percent in February and 3.3 percent over the last year. That is a problem, but not a new one. This has been the rate of inflation in shelter for the last four plus years. There has been some change in the distribution of increases, with rental inflation in some of the East coast cities slowing and inflation in the West increasing, but there has been remarkably little change in the national average over this period.

By contrast, the cost of health insurance is soaring out of control. The index went up another 1.4 percent in February, bringing its increase over the last year to 20.7 percent. Again, this is not the increase in premiums, the CPI index just measures the portion of insurance spending that goes to profits and administrative costs. These costs are clearly way out of control.

 

I had some family matters, so I couldn’t do my usual prices byte this morning, but now that I have had the chance to see the CPI report, I know the story would have been the usual. Inflation is well-contained pretty much everywhere, but health insurance costs are out of control.

The overall CPI rose just 0.1 percent for the second straight month, while the core rate rose 0.2 percent, also the same as the prior month. The increases for the last year in the overall CPI and the core are 2.4 percent and 2.3 percent, respectively.

Shelter continues to be an area of excessive inflation, with costs rising 0.3 percent in February and 3.3 percent over the last year. That is a problem, but not a new one. This has been the rate of inflation in shelter for the last four plus years. There has been some change in the distribution of increases, with rental inflation in some of the East coast cities slowing and inflation in the West increasing, but there has been remarkably little change in the national average over this period.

By contrast, the cost of health insurance is soaring out of control. The index went up another 1.4 percent in February, bringing its increase over the last year to 20.7 percent. Again, this is not the increase in premiums, the CPI index just measures the portion of insurance spending that goes to profits and administrative costs. These costs are clearly way out of control.

 

It will be hard to decide the most Trumpian moment in his dealing with the coronavirus pandemic, but my nomination is Trump’s meeting with executives from several pharmaceutical companies, where he discussed developing a vaccine. According to Trump, he asked them to “speed it up,” and they said that they would.

The idea that Trump’s admonition to hasten the development of a vaccine would have any impact on these companies’ efforts is too loony to envision for anyone outside of Trumpland. These companies have every incentive in the world to move as quickly as possible to develop a vaccine. It can be hugely profitable for them to be the first company with an effective vaccine and I’m sure at least some of them also care about public health.

In this context, Trump’s urging probably had about the same impact as the advice to “keep breathing.” It’s sound advice, but you don’t really need someone to tell you.

Anyhow, it is not just Donald Trump who has cloudy thinking about the development of vaccines, it’s pretty much the whole policy elite. In this situation we have a worldwide health crisis, with more than 100,000 people already affected and many tens of millions threatened. In this context, developing a vaccine as quickly as possible should be a top priority for the whole world.

While there are researchers all over the world working on developing a vaccine, they are to a large extent working in competition. Each team wants to be the first to develop a vaccine so that they can secure a patent and get immensely rich.

The prospect of a high-priced vaccine has already caught public attention, as Health and Human Services Secretary Alex Azar testified that he couldn’t guarantee that a vaccine would be affordable. As Azar said, drug companies will have to recover their research costs.

This is one of the great absurdities of our system of relying on patent monopolies to finance the development of new drugs and vaccines. (This argument is laid out in chapter 5 of Rigged [it’s free.]) These government-granted monopolies make something that would almost invariably be cheap, into items that are very expensive. We then hope the government will take steps, such as price controls, to make drugs and vaccines affordable. But if the government didn’t grant the monopoly in the first place then there would be no problem. Drugs would be cheap, like paper clips or plastic cups.

But making drugs expensive is only part of the problem with patent financed research. Science advances most quickly when it is open and widely shared. Rather than having teams in China, Korea, Europe, the United States and elsewhere competing to develop a vaccine first, why wouldn’t we want them cooperating so that they all learned from each other’s successes and failures?

There is actually a good model for this sort of cooperation. The scientists working on the Human Genome Project posted their results on the web nightly. This rule was the centerpiece of the Bermuda Principles. The idea was that the mapping of the genome was a common project that people worked on collectively.

There should be a similar logic to developing a vaccine against coronavirus. And, since much of the research funding is already coming from the government, there is no reason that anyone should effectively be paid twice with a patent monopoly.  You get paid once for the research: full stop. If any researchers have a problem with that, they should go into a different line of work.

In making this argument with policy types, I am usually confronted with the argument that we want to pay people for results, not just twiddling their thumbs. This has always struck me as an unbelievably bizarre argument. I have known many academics over my life. The vast majority take considerable pride in their work, they would not just twiddle their thumbs even if they had the option to do so and still collect a paycheck.

But stepping beyond the idea of researchers being intrinsically motivated, they are working for pharmaceutical companies who have an incentive to produce actual results. Suppose that Acme Pharmaceutical Company got a big chunk of the funding for developing a vaccine and it hired researchers who just twiddled their thumbs rather than produce anything of value. Sure, the Acme folks could have a big laugh, but would the company ever get another dime of public money? (Okay, if the execs were members of Mar a Lago, but probably not in a normal world.)

This is more or less the logic of military contractors. They are awarded contracts to do work developing weapons, they don’t get a patent on a weapon system and then try to convince the government it is a good product. There are plenty of abuses in military contracts, but at the end of the day, contractors do generally develop effective systems. (I am not endorsing how they are used.)

And, this sort of advance payment system in developing drugs and vaccines would have a huge advantage over military research in that there is no excuse for secrecy. While we don’t want ISIS to get all the details on the latest weapon system the Pentagon is developing, we do want every researcher in the world, as well as interested lay people, to be able to learn of the latest developments in drug or vaccine research. It would likely be clear very quickly if a company was just paying people to twiddle their thumbs.

This sort of cooperative approach has troubled many people who worry that someone responsible for a great innovation may not get properly rewarded. After all, if someone makes a major breakthrough in developing a drug or vaccine that could save millions of lives, shouldn’t that person get incredibly rich?

This one is hard for me to understand. First of all, this person is already being paid for their work. If they didn’t consider the pay adequate, they shouldn’t have taken the job.

Second, there is little reason to think that we could actually identify the person who was responsible for an important breakthrough. After all, under the patent system, the party that gets the patent is often not the party that made the key breakthrough. Furthermore, since it will typically be a pharmaceutical company that gets the patent, there is little reason to believe that the scientist responsible for the breakthrough is actually getting the big bucks out the deal.

But does the researcher in some sense “deserve” a huge reward? This is one that is better left to philosophers than economists. Many people do things that have enormous value and don’t get paid commensurately. The firefighter who rescues two young children from a burning building should perhaps be paid millions, but they aren’t. Does this bother us?

How about the anti-smoking activists who led what must have often seemed like a quixotic campaign to restrict smoking in public places? As a result of their work, millions of people are living longer and healthier lives. How much did these people get paid? Does anyone even know their names?

Intellectual types seem really bothered by the idea that someone is not getting a reward that they think is due. I remember many years ago when I was teaching at a small college, we had a small award (I think it was $1,000 – which would be around $2,000 in today’s dollars) to give to the best senior economics major.

When our department voted we had a tie vote with four professors voting for one student and four voting for another. It seemed that none of us had both students so that they were in a position to make a direct comparison.

I suggested flipping a coin. Everyone then laughed. When I tried to get them to take the idea seriously they got angry at me, saying that they could not leave it to random chance. Instead, they had to pretend that they were really determining the best student, when they were actually engaged in a process whose outcome was going to depend on which side was more persistent in carrying through their argument.

Anyhow, we should just be prepared to accept that our system of rewards will not correspond perfectly to what people have contributed. If you have a problem with this, grow up.

There is one other point worth hammering home. People will invariably complain that it will be hard to work out appropriate mechanisms for sharing research costs internationally. That is correct, and anyone who has followed trade deals for the last quarter century knows that it is hard to work out mechanisms for sharing costs with the patent monopoly system as well.

Rules on intellectual property have been major sticking points in all our trade deals. In fact, the Trans—Pacific Partnership would almost certainly have been signed and approved under the Obama administration had it not been for the time it took to work out a deal on data exclusivity for biological drugs.

So yes, we would have to negotiate rules on the sharing of research costs. There will be conflicts and the rules will not be perfect, but so what?    

One final point, if someone is really a “globalizer” they should support open research freely shared across borders. This is not Alice in Wonderland where the pharmaceutical industry and their elite supporters get to change the language to suit their purposes.

Those folks who support longer and stronger patent and related protections are anti-globalizers, trying to lock down technology. They are welcome to hold that position, but they are liars if they call themselves “globalizers.”    

It will be hard to decide the most Trumpian moment in his dealing with the coronavirus pandemic, but my nomination is Trump’s meeting with executives from several pharmaceutical companies, where he discussed developing a vaccine. According to Trump, he asked them to “speed it up,” and they said that they would.

The idea that Trump’s admonition to hasten the development of a vaccine would have any impact on these companies’ efforts is too loony to envision for anyone outside of Trumpland. These companies have every incentive in the world to move as quickly as possible to develop a vaccine. It can be hugely profitable for them to be the first company with an effective vaccine and I’m sure at least some of them also care about public health.

In this context, Trump’s urging probably had about the same impact as the advice to “keep breathing.” It’s sound advice, but you don’t really need someone to tell you.

Anyhow, it is not just Donald Trump who has cloudy thinking about the development of vaccines, it’s pretty much the whole policy elite. In this situation we have a worldwide health crisis, with more than 100,000 people already affected and many tens of millions threatened. In this context, developing a vaccine as quickly as possible should be a top priority for the whole world.

While there are researchers all over the world working on developing a vaccine, they are to a large extent working in competition. Each team wants to be the first to develop a vaccine so that they can secure a patent and get immensely rich.

The prospect of a high-priced vaccine has already caught public attention, as Health and Human Services Secretary Alex Azar testified that he couldn’t guarantee that a vaccine would be affordable. As Azar said, drug companies will have to recover their research costs.

This is one of the great absurdities of our system of relying on patent monopolies to finance the development of new drugs and vaccines. (This argument is laid out in chapter 5 of Rigged [it’s free.]) These government-granted monopolies make something that would almost invariably be cheap, into items that are very expensive. We then hope the government will take steps, such as price controls, to make drugs and vaccines affordable. But if the government didn’t grant the monopoly in the first place then there would be no problem. Drugs would be cheap, like paper clips or plastic cups.

But making drugs expensive is only part of the problem with patent financed research. Science advances most quickly when it is open and widely shared. Rather than having teams in China, Korea, Europe, the United States and elsewhere competing to develop a vaccine first, why wouldn’t we want them cooperating so that they all learned from each other’s successes and failures?

There is actually a good model for this sort of cooperation. The scientists working on the Human Genome Project posted their results on the web nightly. This rule was the centerpiece of the Bermuda Principles. The idea was that the mapping of the genome was a common project that people worked on collectively.

There should be a similar logic to developing a vaccine against coronavirus. And, since much of the research funding is already coming from the government, there is no reason that anyone should effectively be paid twice with a patent monopoly.  You get paid once for the research: full stop. If any researchers have a problem with that, they should go into a different line of work.

In making this argument with policy types, I am usually confronted with the argument that we want to pay people for results, not just twiddling their thumbs. This has always struck me as an unbelievably bizarre argument. I have known many academics over my life. The vast majority take considerable pride in their work, they would not just twiddle their thumbs even if they had the option to do so and still collect a paycheck.

But stepping beyond the idea of researchers being intrinsically motivated, they are working for pharmaceutical companies who have an incentive to produce actual results. Suppose that Acme Pharmaceutical Company got a big chunk of the funding for developing a vaccine and it hired researchers who just twiddled their thumbs rather than produce anything of value. Sure, the Acme folks could have a big laugh, but would the company ever get another dime of public money? (Okay, if the execs were members of Mar a Lago, but probably not in a normal world.)

This is more or less the logic of military contractors. They are awarded contracts to do work developing weapons, they don’t get a patent on a weapon system and then try to convince the government it is a good product. There are plenty of abuses in military contracts, but at the end of the day, contractors do generally develop effective systems. (I am not endorsing how they are used.)

And, this sort of advance payment system in developing drugs and vaccines would have a huge advantage over military research in that there is no excuse for secrecy. While we don’t want ISIS to get all the details on the latest weapon system the Pentagon is developing, we do want every researcher in the world, as well as interested lay people, to be able to learn of the latest developments in drug or vaccine research. It would likely be clear very quickly if a company was just paying people to twiddle their thumbs.

This sort of cooperative approach has troubled many people who worry that someone responsible for a great innovation may not get properly rewarded. After all, if someone makes a major breakthrough in developing a drug or vaccine that could save millions of lives, shouldn’t that person get incredibly rich?

This one is hard for me to understand. First of all, this person is already being paid for their work. If they didn’t consider the pay adequate, they shouldn’t have taken the job.

Second, there is little reason to think that we could actually identify the person who was responsible for an important breakthrough. After all, under the patent system, the party that gets the patent is often not the party that made the key breakthrough. Furthermore, since it will typically be a pharmaceutical company that gets the patent, there is little reason to believe that the scientist responsible for the breakthrough is actually getting the big bucks out the deal.

But does the researcher in some sense “deserve” a huge reward? This is one that is better left to philosophers than economists. Many people do things that have enormous value and don’t get paid commensurately. The firefighter who rescues two young children from a burning building should perhaps be paid millions, but they aren’t. Does this bother us?

How about the anti-smoking activists who led what must have often seemed like a quixotic campaign to restrict smoking in public places? As a result of their work, millions of people are living longer and healthier lives. How much did these people get paid? Does anyone even know their names?

Intellectual types seem really bothered by the idea that someone is not getting a reward that they think is due. I remember many years ago when I was teaching at a small college, we had a small award (I think it was $1,000 – which would be around $2,000 in today’s dollars) to give to the best senior economics major.

When our department voted we had a tie vote with four professors voting for one student and four voting for another. It seemed that none of us had both students so that they were in a position to make a direct comparison.

I suggested flipping a coin. Everyone then laughed. When I tried to get them to take the idea seriously they got angry at me, saying that they could not leave it to random chance. Instead, they had to pretend that they were really determining the best student, when they were actually engaged in a process whose outcome was going to depend on which side was more persistent in carrying through their argument.

Anyhow, we should just be prepared to accept that our system of rewards will not correspond perfectly to what people have contributed. If you have a problem with this, grow up.

There is one other point worth hammering home. People will invariably complain that it will be hard to work out appropriate mechanisms for sharing research costs internationally. That is correct, and anyone who has followed trade deals for the last quarter century knows that it is hard to work out mechanisms for sharing costs with the patent monopoly system as well.

Rules on intellectual property have been major sticking points in all our trade deals. In fact, the Trans—Pacific Partnership would almost certainly have been signed and approved under the Obama administration had it not been for the time it took to work out a deal on data exclusivity for biological drugs.

So yes, we would have to negotiate rules on the sharing of research costs. There will be conflicts and the rules will not be perfect, but so what?    

One final point, if someone is really a “globalizer” they should support open research freely shared across borders. This is not Alice in Wonderland where the pharmaceutical industry and their elite supporters get to change the language to suit their purposes.

Those folks who support longer and stronger patent and related protections are anti-globalizers, trying to lock down technology. They are welcome to hold that position, but they are liars if they call themselves “globalizers.”    

When the present looks bleak, it’s a good time to think about the future, which we can hope will be brighter. It is hard to see a story where the coronavirus won’t spread widely in the U.S. and elsewhere, leading to tens of millions contracting the disease and hundreds of thousands or even millions of deaths that could have been prevented. But we, or least most of us, will likely make it through to a post-Coronavirus world. And, that world may be better in important ways because of the pandemic.

At the most immediate level, we may see the rules likely to be put in place now, mandating paid sick days, become a permanent part of the social safety net. The coronavirus has driven home a simple point. Not only do we want workers to be able to take off sick days for their own good and the good of their families, we don’t want sick people going to work and spreading disease. This is especially true for many low paid workers, currently lacking paid sick days, in the restaurant and retail sectors.

There are also efforts to apply these rules to people who are currently treated as independent contractors, like Uber and Lyft drivers. This is a great precedent and may help build momentum for treating these people as employees with the rights guaranteed to employees under the law. California has already gone this route, other states and the country as a whole need to follow.  

Securing universal paid sick leave and reducing the miss-classification of workers as independent contractors would both be really big deals, but the potential gains go much further. Contrary to what Andrew Yang and many pundits frequently assert, the robots are not taking all the jobs. In fact, job loss due to productivity growth has been extraordinarily low in the last 14 years. Productivity growth has averaged less than 1.4 percent annually over this period. This compares to 3.0 percent annual rates in the long Golden Age from 1947 to 1973 and again in the decade from 1995 to 2005.

The changes in the workplace required to adjust to the spread of the coronavirus, and most importantly adjusting to increased telecommuting, is likely to lead to large increases in productivity as workplaces figure out how to maintain operations with fewer worker hours. After the worst of the pandemic has passed, workers will again be working at factories, stores, and offices, but some of the restructuring that occurred during the crisis is likely to remain in place.

Most importantly, there are likely to be increased opportunities for telecommuting. This would be great news for several reasons. First, it will allow many workers more time with their families or to do other things, since they won’t have to waste time commuting. It is also a good thing from the standpoint of reducing greenhouse gas emissions, not only by reducing trips, but also by reducing the fuel wasted in traffic congestion. And, increased telecommuting could mean that more people have the opportunity to live far away from metro areas with high priced housing, like San Francisco and New York. That not only will save these people money on housing, but reduced demand pressure can help to bring down prices for the people who stay in the area.

While it will generally be more educated workers who have the opportunity to telecommute, there will be office workers in lower paying positions who are also likely to have this option. In any case, reducing congestion and lower housing prices will be benefits that are widely shared. In addition, more rapid productivity growth will provide room for larger wage gains.

There are other changes, the effects of which are likely to be less clear. For example, the cruise ship industry may never recover from the stories of mass infections and involuntary cruise ship detentions. The rest of the travel industry may also see enduring changes. Donald Trump’s arbitrary decision to bar Europeans from coming to the United States is likely to have a lasting effect on tourism here. Many Europeans are likely to decide that it is not worth a gamble in making big plans for a trip here, which can be blocked on a whim. They will also go to alternative destinations, which they may like, and return to in future years. In this respect, it is worth noting that the United States has enjoyed large trade surpluses in travel until this year.   

The universal support for free coronavirus testing, and some support for free treatment (if people without insurance or with bad insurance can’t get free treatment, they won’t get tested) may be a foot in the door for extending universal health care more broadly. The opposition is not about to disappear, but if we can have free care in a pandemic, is there a reason we can’t have free care more generally?

Also, if we can get some clear thinking, we will have any vaccine produced with public funding in the public domain from Day 1. If the taxpayers paid for the research, there is no reason that a private company should have a patent monopoly on the vaccine. This is not a question of begging drug companies to make it affordable, if the vaccine is in the public domain it will be a cheap generic. This should be the case with a coronavirus vaccine and it should be the case with all future drugs.

And, just to remind people, there is an enormous amount of money at stake. If all drugs were sold as generics in a free market, we would likely save $400 billion a year. This is about 1.8 percent of GDP, $3,000 per year per family, or more than five times the entire budget for food stamps. In other words, it is huge money. People should be paying attention.

Anyhow, we don’t know all the ways the world will be different in a post-coronavirus world, but there is good reason to believe that things will change. We have to try to make sure the changes are for the better.

When the present looks bleak, it’s a good time to think about the future, which we can hope will be brighter. It is hard to see a story where the coronavirus won’t spread widely in the U.S. and elsewhere, leading to tens of millions contracting the disease and hundreds of thousands or even millions of deaths that could have been prevented. But we, or least most of us, will likely make it through to a post-Coronavirus world. And, that world may be better in important ways because of the pandemic.

At the most immediate level, we may see the rules likely to be put in place now, mandating paid sick days, become a permanent part of the social safety net. The coronavirus has driven home a simple point. Not only do we want workers to be able to take off sick days for their own good and the good of their families, we don’t want sick people going to work and spreading disease. This is especially true for many low paid workers, currently lacking paid sick days, in the restaurant and retail sectors.

There are also efforts to apply these rules to people who are currently treated as independent contractors, like Uber and Lyft drivers. This is a great precedent and may help build momentum for treating these people as employees with the rights guaranteed to employees under the law. California has already gone this route, other states and the country as a whole need to follow.  

Securing universal paid sick leave and reducing the miss-classification of workers as independent contractors would both be really big deals, but the potential gains go much further. Contrary to what Andrew Yang and many pundits frequently assert, the robots are not taking all the jobs. In fact, job loss due to productivity growth has been extraordinarily low in the last 14 years. Productivity growth has averaged less than 1.4 percent annually over this period. This compares to 3.0 percent annual rates in the long Golden Age from 1947 to 1973 and again in the decade from 1995 to 2005.

The changes in the workplace required to adjust to the spread of the coronavirus, and most importantly adjusting to increased telecommuting, is likely to lead to large increases in productivity as workplaces figure out how to maintain operations with fewer worker hours. After the worst of the pandemic has passed, workers will again be working at factories, stores, and offices, but some of the restructuring that occurred during the crisis is likely to remain in place.

Most importantly, there are likely to be increased opportunities for telecommuting. This would be great news for several reasons. First, it will allow many workers more time with their families or to do other things, since they won’t have to waste time commuting. It is also a good thing from the standpoint of reducing greenhouse gas emissions, not only by reducing trips, but also by reducing the fuel wasted in traffic congestion. And, increased telecommuting could mean that more people have the opportunity to live far away from metro areas with high priced housing, like San Francisco and New York. That not only will save these people money on housing, but reduced demand pressure can help to bring down prices for the people who stay in the area.

While it will generally be more educated workers who have the opportunity to telecommute, there will be office workers in lower paying positions who are also likely to have this option. In any case, reducing congestion and lower housing prices will be benefits that are widely shared. In addition, more rapid productivity growth will provide room for larger wage gains.

There are other changes, the effects of which are likely to be less clear. For example, the cruise ship industry may never recover from the stories of mass infections and involuntary cruise ship detentions. The rest of the travel industry may also see enduring changes. Donald Trump’s arbitrary decision to bar Europeans from coming to the United States is likely to have a lasting effect on tourism here. Many Europeans are likely to decide that it is not worth a gamble in making big plans for a trip here, which can be blocked on a whim. They will also go to alternative destinations, which they may like, and return to in future years. In this respect, it is worth noting that the United States has enjoyed large trade surpluses in travel until this year.   

The universal support for free coronavirus testing, and some support for free treatment (if people without insurance or with bad insurance can’t get free treatment, they won’t get tested) may be a foot in the door for extending universal health care more broadly. The opposition is not about to disappear, but if we can have free care in a pandemic, is there a reason we can’t have free care more generally?

Also, if we can get some clear thinking, we will have any vaccine produced with public funding in the public domain from Day 1. If the taxpayers paid for the research, there is no reason that a private company should have a patent monopoly on the vaccine. This is not a question of begging drug companies to make it affordable, if the vaccine is in the public domain it will be a cheap generic. This should be the case with a coronavirus vaccine and it should be the case with all future drugs.

And, just to remind people, there is an enormous amount of money at stake. If all drugs were sold as generics in a free market, we would likely save $400 billion a year. This is about 1.8 percent of GDP, $3,000 per year per family, or more than five times the entire budget for food stamps. In other words, it is huge money. People should be paying attention.

Anyhow, we don’t know all the ways the world will be different in a post-coronavirus world, but there is good reason to believe that things will change. We have to try to make sure the changes are for the better.

That’s what readers of this Politico piece on efforts to restrict patent monopoly pricing of a coronavirus vaccine as a quid pro quo for government funding must be wondering. One might think that if the taxpayers put up money for the research then they have already paid for it, and therefore no patent monopolies would be involved. The vaccine would sell as a cheap generic and drug companies would make profits from it in the same way that manufacturers of paper clips and plastic cups make profits.

But, that is far too simple for our Washington policy types. Even though the government puts up the research money, the government still has to grant the drug companies patent monopolies, and then beg them not to charge us too much money for the vaccines they developed with our money.

Too bad no one in Washington policy debates believes in the free market.

That’s what readers of this Politico piece on efforts to restrict patent monopoly pricing of a coronavirus vaccine as a quid pro quo for government funding must be wondering. One might think that if the taxpayers put up money for the research then they have already paid for it, and therefore no patent monopolies would be involved. The vaccine would sell as a cheap generic and drug companies would make profits from it in the same way that manufacturers of paper clips and plastic cups make profits.

But, that is far too simple for our Washington policy types. Even though the government puts up the research money, the government still has to grant the drug companies patent monopolies, and then beg them not to charge us too much money for the vaccines they developed with our money.

Too bad no one in Washington policy debates believes in the free market.

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