Mortgage applications have been falling all through the fall, they are now down 22 percent from year-ago levels, with purchase applications down 3 percent. This matters because if people aren’t taking out mortgages they are not buying homes. Residential construction has been a drag on GDP in the last three quarters. Also, when people buy a new home they typically buy appliances and other items associated with moving. This means less consumption spending as well.
The decline in refinancing will also affect consumption. Typically people refinance a mortgage to get a lower interest rate, which frees up money for other spending. With interest rates up by a percentage point from pre-tax cut levels, few people can save money by refinancing.
This should be worth a bit of news coverage, but both the NYT and WaPo didn’t mention the new or recent data on mortgage applications. To be clear, this is not recession stuff, but with the stimulus from the tax cut fading, and our trading partners showing unexpected weakness, we are likely to see substantially weaker growth in the near future. That should warrant a bit of attention.
Mortgage applications have been falling all through the fall, they are now down 22 percent from year-ago levels, with purchase applications down 3 percent. This matters because if people aren’t taking out mortgages they are not buying homes. Residential construction has been a drag on GDP in the last three quarters. Also, when people buy a new home they typically buy appliances and other items associated with moving. This means less consumption spending as well.
The decline in refinancing will also affect consumption. Typically people refinance a mortgage to get a lower interest rate, which frees up money for other spending. With interest rates up by a percentage point from pre-tax cut levels, few people can save money by refinancing.
This should be worth a bit of news coverage, but both the NYT and WaPo didn’t mention the new or recent data on mortgage applications. To be clear, this is not recession stuff, but with the stimulus from the tax cut fading, and our trading partners showing unexpected weakness, we are likely to see substantially weaker growth in the near future. That should warrant a bit of attention.
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Austin Frakt had an interesting Upshot piece in the NYT saying that drug spending in the US began to sharply diverge from other countries in the 1990s. This actually is not very clear, since the comparison group dating back to the 1980s is small. I am actually more struck by the explosion in spending in the 1980s, with it nearly doubling as a share of GDP over the course of the decade. Note that drug spending had not been increasing at all as a share of GDP over the prior two decades.
The obvious villain here is the passage of the Bayh-Dole Act in 1980, which allowed private corporations to get patent rights to government-funded research. This undoubtedly led to more investment in research and development, but it also led to a huge increase in spending the difference between the current 2.2 percent of GDP that we spend on drugs and the 0.4 percent we spent in 1980 is equal to $360 billion a year, roughly five times annual spending on food stamps.
Austin Frakt had an interesting Upshot piece in the NYT saying that drug spending in the US began to sharply diverge from other countries in the 1990s. This actually is not very clear, since the comparison group dating back to the 1980s is small. I am actually more struck by the explosion in spending in the 1980s, with it nearly doubling as a share of GDP over the course of the decade. Note that drug spending had not been increasing at all as a share of GDP over the prior two decades.
The obvious villain here is the passage of the Bayh-Dole Act in 1980, which allowed private corporations to get patent rights to government-funded research. This undoubtedly led to more investment in research and development, but it also led to a huge increase in spending the difference between the current 2.2 percent of GDP that we spend on drugs and the 0.4 percent we spent in 1980 is equal to $360 billion a year, roughly five times annual spending on food stamps.
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The New York Times ran a very confusing piece on the difficulties that many people in China are facing in getting access to drugs. The piece does not clearly distinguish between the problem of drugs not being legally available because they have not been licensed by China’s drug safety agency and drugs being expensive in China due to patent monopolies.
These are very different issues. The first can be readily solved by making the licensing agency more efficient and possibly also relying on approvals by other agencies. (The piece indicates this has recently become the practice.)
The issue of drugs being expensive due to patent monopolies is more complicated. China has to make a decision as to whether it wants to rely on patent monopolies as a mechanism to finance research or whether it instead depends more on a pre-funding mechanism that would allow new drugs to be sold in a free market at generic prices.
This is a huge issue and China’s policy in this area will have enormous implications for the rest of the world. If it decides to make new drugs widely available at their free market price, it will be difficult for the US and European companies to charge prices that are often more than 100 times as much, both in their own markets and in the developing world.
The New York Times ran a very confusing piece on the difficulties that many people in China are facing in getting access to drugs. The piece does not clearly distinguish between the problem of drugs not being legally available because they have not been licensed by China’s drug safety agency and drugs being expensive in China due to patent monopolies.
These are very different issues. The first can be readily solved by making the licensing agency more efficient and possibly also relying on approvals by other agencies. (The piece indicates this has recently become the practice.)
The issue of drugs being expensive due to patent monopolies is more complicated. China has to make a decision as to whether it wants to rely on patent monopolies as a mechanism to finance research or whether it instead depends more on a pre-funding mechanism that would allow new drugs to be sold in a free market at generic prices.
This is a huge issue and China’s policy in this area will have enormous implications for the rest of the world. If it decides to make new drugs widely available at their free market price, it will be difficult for the US and European companies to charge prices that are often more than 100 times as much, both in their own markets and in the developing world.
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This is a fact that would have been worth mentioning in an NYT piece on how health care may be affected by last Tuesday’s elections. Near the end, the article referred to the Trump administration’s promotion of short-term insurance policies but only said that they, “do not have to cover pre-existing conditions or provide all the benefits required by the health law.”
The important feature of these short-term plans from the standpoint of the Affordable Care Act (ACA) is that they are designed to be appealing to relatively healthy people. By excluding people who are likely to suffer from costly health conditions, they can offer insurance at a lower price. This has the effect of pulling healthier people out of the ACA insurance pools.
This means that the people remaining in the ACA pools will be less healthy on average and therefore have higher costs. That will drive up the price of insurance in the ACA pools, likely pushing more relatively healthy people to buy short-term insurance plans. The end result in this story is that the ACA pools end up being extremely expensive, which makes the prohibition on discrimination over pre-existing conditions pointless.
This is the importance of short-term insurance policies. It should have been mentioned in the piece.
This is a fact that would have been worth mentioning in an NYT piece on how health care may be affected by last Tuesday’s elections. Near the end, the article referred to the Trump administration’s promotion of short-term insurance policies but only said that they, “do not have to cover pre-existing conditions or provide all the benefits required by the health law.”
The important feature of these short-term plans from the standpoint of the Affordable Care Act (ACA) is that they are designed to be appealing to relatively healthy people. By excluding people who are likely to suffer from costly health conditions, they can offer insurance at a lower price. This has the effect of pulling healthier people out of the ACA insurance pools.
This means that the people remaining in the ACA pools will be less healthy on average and therefore have higher costs. That will drive up the price of insurance in the ACA pools, likely pushing more relatively healthy people to buy short-term insurance plans. The end result in this story is that the ACA pools end up being extremely expensive, which makes the prohibition on discrimination over pre-existing conditions pointless.
This is the importance of short-term insurance policies. It should have been mentioned in the piece.
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That seems like an obvious question that went unanswered in this NYT piece. It did talk about how this would increase Amazon’s bargaining power if it could play off two cities (and Seattle) against each other, but it did not raise the question of the initial commitments. In many of these bidding wars, the winner ends up losing by giving away more in concessions than it could ever hope to get back from the investment generated. It will be surprising if this is not the case here.
That seems like an obvious question that went unanswered in this NYT piece. It did talk about how this would increase Amazon’s bargaining power if it could play off two cities (and Seattle) against each other, but it did not raise the question of the initial commitments. In many of these bidding wars, the winner ends up losing by giving away more in concessions than it could ever hope to get back from the investment generated. It will be surprising if this is not the case here.
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The Washington Post used its lead editorial to demand that the Trump administration do more to protect US intellectual property from China. The highlight of the piece is the accusation that a Chinese state-owned company hired a number of employees from Micron, who brought over files containing Micron’s latest DRAM technology.
Assuming this is true, this sort of theft is indeed a problem. The company has now been indicted and it will be interesting to see the response of the Chinese government. However, it is important to note that this sort of taking of technology is not restricted to Chinese companies.
Some people may have heard of a company called “Uber.” It hired one of the top people from Waymo, the self-driving car unit of Alphabet. The new hire brought along stolen files containing much of Waymo’s latest technology.
While the Post’s response to this problem is a call for greater protectionism to put tighter locks on technology, the free market solution would be to work to have more technology in the public domain. This can be done through greater public support for research and shorter patents (see chapter 5 of Rigged [it’s free]). If there is less money to be made by stealing other companies’ technology, then it is less likely to be done.
While the protectionists at the Post may not understand this point, we all benefit if technology is freely available and can be transferred around the globe at the lowest possible costs. If Chinese producers are then able to produce goods and services at lower costs, then US consumers will benefit, even if the Post’s friends may see lower profits.
The Washington Post used its lead editorial to demand that the Trump administration do more to protect US intellectual property from China. The highlight of the piece is the accusation that a Chinese state-owned company hired a number of employees from Micron, who brought over files containing Micron’s latest DRAM technology.
Assuming this is true, this sort of theft is indeed a problem. The company has now been indicted and it will be interesting to see the response of the Chinese government. However, it is important to note that this sort of taking of technology is not restricted to Chinese companies.
Some people may have heard of a company called “Uber.” It hired one of the top people from Waymo, the self-driving car unit of Alphabet. The new hire brought along stolen files containing much of Waymo’s latest technology.
While the Post’s response to this problem is a call for greater protectionism to put tighter locks on technology, the free market solution would be to work to have more technology in the public domain. This can be done through greater public support for research and shorter patents (see chapter 5 of Rigged [it’s free]). If there is less money to be made by stealing other companies’ technology, then it is less likely to be done.
While the protectionists at the Post may not understand this point, we all benefit if technology is freely available and can be transferred around the globe at the lowest possible costs. If Chinese producers are then able to produce goods and services at lower costs, then US consumers will benefit, even if the Post’s friends may see lower profits.
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In an otherwise useful and important piece on how the Trump administration has backtracked from the Obama administration in enforcing laws and regulations on corporate conduct, the NYT asserted:
“…political appointees under Mr. Trump have led a philosophical shift in governing that favors big business and prioritizes the interests of individual investors.”
How does the NYT know that this shift is explained by “philosophy?” This sentence could have with equal plausibility have been written:
“…political appointees under Mr. Trump, with close ties to the industries they regulate, have adopted policies that favor big business and prioritizes the interests of individual investors.”
There is no more reason to believe that pro-business regulatory enforcement is explained by philosophical beliefs than good old-fashioned corruption. The NYT should not be asserting the former.
The piece also mischaracterizes the views of Jay Clayton, Trump’s pick to head the Securities and Exchange Commission (SEC):
“But Mr. Clayton’s remarks that day about job creation — something not directly under the purview of the commission — signaled a new emphasis on bolstering the economy rather than policing Wall Street.”
If Wall Street engages in abusive business practices it hurts rather than helps job creation. The financial industry does not directly create wealth. It is an intermediate industry, like trucking, as opposed to an industry like health care or food that directly produces goods and services of value to people.
As an intermediate industry, it best promotes jobs and growth if it does its work at the lowest possible cost. In the same way that we would not be benefited by a trucking industry that is four times as large but delivers the milk no quicker, we are not benefited by a large financial sector that no more effectively allocates capital.
For this reason, cracking down on abusive practices, that may enrich the industry but do nothing to promote the economy, is a job creation strategy. Hopefully, the head of the SEC knows this, even if the NYT doesn’t.
In an otherwise useful and important piece on how the Trump administration has backtracked from the Obama administration in enforcing laws and regulations on corporate conduct, the NYT asserted:
“…political appointees under Mr. Trump have led a philosophical shift in governing that favors big business and prioritizes the interests of individual investors.”
How does the NYT know that this shift is explained by “philosophy?” This sentence could have with equal plausibility have been written:
“…political appointees under Mr. Trump, with close ties to the industries they regulate, have adopted policies that favor big business and prioritizes the interests of individual investors.”
There is no more reason to believe that pro-business regulatory enforcement is explained by philosophical beliefs than good old-fashioned corruption. The NYT should not be asserting the former.
The piece also mischaracterizes the views of Jay Clayton, Trump’s pick to head the Securities and Exchange Commission (SEC):
“But Mr. Clayton’s remarks that day about job creation — something not directly under the purview of the commission — signaled a new emphasis on bolstering the economy rather than policing Wall Street.”
If Wall Street engages in abusive business practices it hurts rather than helps job creation. The financial industry does not directly create wealth. It is an intermediate industry, like trucking, as opposed to an industry like health care or food that directly produces goods and services of value to people.
As an intermediate industry, it best promotes jobs and growth if it does its work at the lowest possible cost. In the same way that we would not be benefited by a trucking industry that is four times as large but delivers the milk no quicker, we are not benefited by a large financial sector that no more effectively allocates capital.
For this reason, cracking down on abusive practices, that may enrich the industry but do nothing to promote the economy, is a job creation strategy. Hopefully, the head of the SEC knows this, even if the NYT doesn’t.
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When it comes to the budget deficit and programs like Social Security and Medicare, the Washington Post has had difficulty keeping its editorial views out of the news section. We see this again today in an article on the October jobs numbers that told readers:
“A growing number of Wall Street analysts and economists say that the tax cuts and additional spending caused a temporary boost that will fade and leave future generations with a substantially larger debt burden.”
The piece actually doesn’t cite a single economist who complains about the debt burden on future generations. The extent the debt imposes a burden is questionable since the interest is overwhelmingly paid to people in the United States. This means there could be a distributional issue within generations (from the group who pays taxes to the group getting interest), but not a generational issue.
There can be an issue that the deficits now being run will crowd out investment by raising interest rates. Less investment will mean the economy is less productive in the future. But this story is offset by the fact that more rapid growth tends to lead to more investment. In fact, the failure to run larger deficits earlier in the recovery slowed growth and investment, thereby imposing a huge burden on future generations in the form of a weaker economy. The Washington Post has literally never run a news story calling attention to the cost of austerity policies (which it supported) on future generations.
If the Post were to seriously discuss burdens on future generations it would also have to talk about government-granted patent and copyright monopolies. These monopolies are ways in which the government pays for research and creative work. In effect, the monopolies allow companies to impose large taxes on consumers. If a patent monopoly allows Pfizer or Merck to sell a drug for $30,000 that would sell for $300 in a free market, it imposes the same burden on future generations as a tax of 10,000 percent on the drug.
Again, the Post literally never mentions the burdens imposed by patent and copyright monopolies, even though these come to close to $1 trillion a year, swamping the size of the interest burden on the debt. It is probably worth noting in this context that pharmaceutical companies are major advertisers for the paper.
When it comes to the budget deficit and programs like Social Security and Medicare, the Washington Post has had difficulty keeping its editorial views out of the news section. We see this again today in an article on the October jobs numbers that told readers:
“A growing number of Wall Street analysts and economists say that the tax cuts and additional spending caused a temporary boost that will fade and leave future generations with a substantially larger debt burden.”
The piece actually doesn’t cite a single economist who complains about the debt burden on future generations. The extent the debt imposes a burden is questionable since the interest is overwhelmingly paid to people in the United States. This means there could be a distributional issue within generations (from the group who pays taxes to the group getting interest), but not a generational issue.
There can be an issue that the deficits now being run will crowd out investment by raising interest rates. Less investment will mean the economy is less productive in the future. But this story is offset by the fact that more rapid growth tends to lead to more investment. In fact, the failure to run larger deficits earlier in the recovery slowed growth and investment, thereby imposing a huge burden on future generations in the form of a weaker economy. The Washington Post has literally never run a news story calling attention to the cost of austerity policies (which it supported) on future generations.
If the Post were to seriously discuss burdens on future generations it would also have to talk about government-granted patent and copyright monopolies. These monopolies are ways in which the government pays for research and creative work. In effect, the monopolies allow companies to impose large taxes on consumers. If a patent monopoly allows Pfizer or Merck to sell a drug for $30,000 that would sell for $300 in a free market, it imposes the same burden on future generations as a tax of 10,000 percent on the drug.
Again, the Post literally never mentions the burdens imposed by patent and copyright monopolies, even though these come to close to $1 trillion a year, swamping the size of the interest burden on the debt. It is probably worth noting in this context that pharmaceutical companies are major advertisers for the paper.
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The NYT published an oped last week by Jochen Bittner, a political editor for a major German newspaper, asking what is wrong with German’s Social Democrats. The focus of the piece is the collapse of popular support for the party as shown by its poor performance in several recent elections.
Bittner attributes this drop in support to its unwillingness to push an agenda that combats Germany’s rising inequality. As one example, he comments:
“Nor did the SPD [the German Social Democratic Party] seem to mind that the chief executive of Deutsche Post earns 239 times the salary of his average employee.”
Deutsche Post is the privatized German postal and delivery company. A state-owned bank still has a 20 percent share of the company.
While Bittner’s piece raises good questions (there is nothing in the rules of a market economy that says a CEO should be allowed to rip off the company they work for), he alludes at one point to the German unemployment rate. He notes that it has fallen by more than 50 percent to “around 5 percent.”
In fact, Germany’s unemployment rate according to the OECD’s harmonized measure, which essentially uses the US methodology, is just 3.4 percent. Bittner’s 5 percent figure refers to the official German measure of unemployment, which includes workers who are employed part-time as being unemployed.
The NYT should have adjusted the unemployment number in Bittner’s piece to the OECD measure to avoid giving readers a misleading picture of Germany’s economy. Unfortunately, this is a common problem in the NYT and elsewhere. If the point is to convey information to readers, then the terms should be adjusted to measures readers would understand.
The NYT published an oped last week by Jochen Bittner, a political editor for a major German newspaper, asking what is wrong with German’s Social Democrats. The focus of the piece is the collapse of popular support for the party as shown by its poor performance in several recent elections.
Bittner attributes this drop in support to its unwillingness to push an agenda that combats Germany’s rising inequality. As one example, he comments:
“Nor did the SPD [the German Social Democratic Party] seem to mind that the chief executive of Deutsche Post earns 239 times the salary of his average employee.”
Deutsche Post is the privatized German postal and delivery company. A state-owned bank still has a 20 percent share of the company.
While Bittner’s piece raises good questions (there is nothing in the rules of a market economy that says a CEO should be allowed to rip off the company they work for), he alludes at one point to the German unemployment rate. He notes that it has fallen by more than 50 percent to “around 5 percent.”
In fact, Germany’s unemployment rate according to the OECD’s harmonized measure, which essentially uses the US methodology, is just 3.4 percent. Bittner’s 5 percent figure refers to the official German measure of unemployment, which includes workers who are employed part-time as being unemployed.
The NYT should have adjusted the unemployment number in Bittner’s piece to the OECD measure to avoid giving readers a misleading picture of Germany’s economy. Unfortunately, this is a common problem in the NYT and elsewhere. If the point is to convey information to readers, then the terms should be adjusted to measures readers would understand.
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