Donald Trump has proved the skeptics wrong, it seems that the American people stand to be big winners as a result of his trade war. The Chinese government announced a major initiative to promote the manufacture and use of generic drugs.
The reason this is potentially a big deal for the United States is that it could mean that China intends to push the envelope in replacing drugs protected by government-granted patent monopolies with drugs sold at free market prices. While the TRIPS provisions of the WTO do require members to respect patents and copyrights, there are flexibilities, such as compulsory licensing, to allow far more competition that what we see in the United States market.
Countries also have varying rules on what items can be patented. For example, India has far more stringent patent rules than the United States so that many drugs that are protected by patents in the US are sold in a free market in India.
This can matter hugely for people in the United States, since if China joins India as a mass producer of high-quality generic drugs, it will become increasingly difficult for the US drug companies to maintain an island of protected prices in the United States. The gap between the patent-protected price for drugs like the Hepatitis C drug Solvaldi and new cancer drugs is often more than 100 to 1 (equivalent to a 10,000 percent tariff) and can be as much as 1000 to 1.
There is an enormous amount of money at stake (in addition to people’s health) if we can get drugs at their free market price. We will spend more than $450 billion this year on prescription drugs that would likely sell for less than $80 billion in a free market. The difference of $370 billion is almost 2.0 percent of GDP. It is more than five times the entire food stamp budget.
We will need to have alternative mechanisms for financing the research and development of new drugs and having these costs shared internationally. But it is not difficult to develop mechanisms that are more efficient than the anachronistic patent monopoly system. If Trump’s trade war ends pushing us in this direction, the whole world will have won.
Donald Trump has proved the skeptics wrong, it seems that the American people stand to be big winners as a result of his trade war. The Chinese government announced a major initiative to promote the manufacture and use of generic drugs.
The reason this is potentially a big deal for the United States is that it could mean that China intends to push the envelope in replacing drugs protected by government-granted patent monopolies with drugs sold at free market prices. While the TRIPS provisions of the WTO do require members to respect patents and copyrights, there are flexibilities, such as compulsory licensing, to allow far more competition that what we see in the United States market.
Countries also have varying rules on what items can be patented. For example, India has far more stringent patent rules than the United States so that many drugs that are protected by patents in the US are sold in a free market in India.
This can matter hugely for people in the United States, since if China joins India as a mass producer of high-quality generic drugs, it will become increasingly difficult for the US drug companies to maintain an island of protected prices in the United States. The gap between the patent-protected price for drugs like the Hepatitis C drug Solvaldi and new cancer drugs is often more than 100 to 1 (equivalent to a 10,000 percent tariff) and can be as much as 1000 to 1.
There is an enormous amount of money at stake (in addition to people’s health) if we can get drugs at their free market price. We will spend more than $450 billion this year on prescription drugs that would likely sell for less than $80 billion in a free market. The difference of $370 billion is almost 2.0 percent of GDP. It is more than five times the entire food stamp budget.
We will need to have alternative mechanisms for financing the research and development of new drugs and having these costs shared internationally. But it is not difficult to develop mechanisms that are more efficient than the anachronistic patent monopoly system. If Trump’s trade war ends pushing us in this direction, the whole world will have won.
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As a long-term columnist at the NYT, Thomas Friedman apparently never feels the need to know anything about the topics on which he writes. This explains his sarcastic speculation that Putin could be a CIA agent since he has done so much to hurt Russia.
For all his authoritarian tendencies, it is likely that most Russians think primarily about Putin’s impact on the economy, just as is typically the case among voters in the United States. On that front, Putin has a very good record.
According to data from the I.M.F. Russia’s economy had plunged in the 1990s under the Yeltsin presidency. When Putin took over in 1998, per capita income in the country had shrunk by more than 40 percent from its 1990 level. This is a far sharper downturn than the United States saw in the Great Depression. Since Putin took power its per capita income has risen by more than 115 percent, an average annual growth rate of more than 3.9 percent.
While this growth has been very unequal, that was also the case even as Russia’s economy was collapsing under Yeltsin. The typical Russian has done hugely better in the last two decades under Putin than they did in the period when Yeltsin was in power.
For this reason, there are probably few Russians who would have sympathy for Friedman’s speculation about Putin’s ties to the CIA. The same would not be the case for Boris Yeltsin.
As a long-term columnist at the NYT, Thomas Friedman apparently never feels the need to know anything about the topics on which he writes. This explains his sarcastic speculation that Putin could be a CIA agent since he has done so much to hurt Russia.
For all his authoritarian tendencies, it is likely that most Russians think primarily about Putin’s impact on the economy, just as is typically the case among voters in the United States. On that front, Putin has a very good record.
According to data from the I.M.F. Russia’s economy had plunged in the 1990s under the Yeltsin presidency. When Putin took over in 1998, per capita income in the country had shrunk by more than 40 percent from its 1990 level. This is a far sharper downturn than the United States saw in the Great Depression. Since Putin took power its per capita income has risen by more than 115 percent, an average annual growth rate of more than 3.9 percent.
While this growth has been very unequal, that was also the case even as Russia’s economy was collapsing under Yeltsin. The typical Russian has done hugely better in the last two decades under Putin than they did in the period when Yeltsin was in power.
For this reason, there are probably few Russians who would have sympathy for Friedman’s speculation about Putin’s ties to the CIA. The same would not be the case for Boris Yeltsin.
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Jeff Stein’s Wonkblog piece might have misled readers about the complexity of New York’s new employer-side payroll tax as a workaround for Republican tax bill’s limit on the deduction for state and local taxes. The piece told readers:
“‘Employers can’t just slash salaries willy-nilly, even if there’s a good argument for it being to the employees’ benefit,’ wrote Jared Walczak of the Tax Foundation, a right-leaning think tank. ‘It might be an option for small groups of highly-compensated employees — think hedge funds and consultancies — but it’s a tough sell for a larger operation with a more diverse workforce.'”
While the logic is that an employer-side payroll tax reduces wages by a roughly equal amount, the one put forward by Governor Cuomo is unlikely to result in anyone getting a pay cut. The tax is phased in at a rate of 1 percent in 2018, and then 2 percent in both 2019 and 2020. Wages are rising an average of 2.5 percent annually. This is an average for all workers, the pay for workers who stay at the same employer is rising by more than 3.0 percent annually.
This means that workers at employers paying the tax are likely to see smaller wage gains rather than actual cuts. The Cuomo administration was quite conscious of this issue in designing the tax. (I had some discussions with Cuomo’s staff on the tax plan.)
While this plan has been described as too complicated it is much simpler than the Flexible Savings Account (FSA), which have proven very popular with employees. These accounts require lots of bookkeeping and also put workers at risk of losing unspent money. By contrast, the employer-side payroll tax is simply a one-time adjustment to workers’ pay.
It also allows for much larger potential savings than an FSA. A person earning $200,000 a year can save more than $3,000 a year on their taxes if their employer takes advantage of the employer-side payroll tax option. This is about four times as much as the maximum they can save on an FSA.
Jeff Stein’s Wonkblog piece might have misled readers about the complexity of New York’s new employer-side payroll tax as a workaround for Republican tax bill’s limit on the deduction for state and local taxes. The piece told readers:
“‘Employers can’t just slash salaries willy-nilly, even if there’s a good argument for it being to the employees’ benefit,’ wrote Jared Walczak of the Tax Foundation, a right-leaning think tank. ‘It might be an option for small groups of highly-compensated employees — think hedge funds and consultancies — but it’s a tough sell for a larger operation with a more diverse workforce.'”
While the logic is that an employer-side payroll tax reduces wages by a roughly equal amount, the one put forward by Governor Cuomo is unlikely to result in anyone getting a pay cut. The tax is phased in at a rate of 1 percent in 2018, and then 2 percent in both 2019 and 2020. Wages are rising an average of 2.5 percent annually. This is an average for all workers, the pay for workers who stay at the same employer is rising by more than 3.0 percent annually.
This means that workers at employers paying the tax are likely to see smaller wage gains rather than actual cuts. The Cuomo administration was quite conscious of this issue in designing the tax. (I had some discussions with Cuomo’s staff on the tax plan.)
While this plan has been described as too complicated it is much simpler than the Flexible Savings Account (FSA), which have proven very popular with employees. These accounts require lots of bookkeeping and also put workers at risk of losing unspent money. By contrast, the employer-side payroll tax is simply a one-time adjustment to workers’ pay.
It also allows for much larger potential savings than an FSA. A person earning $200,000 a year can save more than $3,000 a year on their taxes if their employer takes advantage of the employer-side payroll tax option. This is about four times as much as the maximum they can save on an FSA.
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A Washington Post article on the possibility that Donald Trump will have to disclose his finances may have misled readers. The piece told readers:
“Company officials argue it would have been impractical to untangle and sell all of Trump’s real estate holdings, and that doing so might have created additional conflicts of interest.”
It neglected to point out that this assertion by Trump’s employees is a lie. It is easy to design schemes under which Trump could disassociate himself from his business without creating conflicts of interest.
As I pointed out shortly after the election, this could be accomplished through a three-step process.
1) Donald Trump arranges to hire three auditors from an independent accounting firm. Each one does an independent assessment of Trump’s holdings and assigns it a value.
2) The middle assessment becomes a benchmark. Donald Trump buys an insurance policy that will guarantee him that he will get this amount of money when all assets are sold. If the total take is less than the benchmark, he collects on the insurance policy. Any money received in excess of the benchmark goes to a charity of Trump’s choosing (not the Trump Foundation).
3) All the proceeds from the sales are placed in a blind trust.
This would be a very straightforward process. We know that Trump has a hard time finding competent people to work for him, but the rest of us would have little difficulty solving his conflict of interest problem.
A Washington Post article on the possibility that Donald Trump will have to disclose his finances may have misled readers. The piece told readers:
“Company officials argue it would have been impractical to untangle and sell all of Trump’s real estate holdings, and that doing so might have created additional conflicts of interest.”
It neglected to point out that this assertion by Trump’s employees is a lie. It is easy to design schemes under which Trump could disassociate himself from his business without creating conflicts of interest.
As I pointed out shortly after the election, this could be accomplished through a three-step process.
1) Donald Trump arranges to hire three auditors from an independent accounting firm. Each one does an independent assessment of Trump’s holdings and assigns it a value.
2) The middle assessment becomes a benchmark. Donald Trump buys an insurance policy that will guarantee him that he will get this amount of money when all assets are sold. If the total take is less than the benchmark, he collects on the insurance policy. Any money received in excess of the benchmark goes to a charity of Trump’s choosing (not the Trump Foundation).
3) All the proceeds from the sales are placed in a blind trust.
This would be a very straightforward process. We know that Trump has a hard time finding competent people to work for him, but the rest of us would have little difficulty solving his conflict of interest problem.
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After all, the economy generates 200,000 jobs a month on net (more than five million gross), so what difference could it make if one million doctors and dentists were displaced through trade. If the idea that losing one million very high paying jobs wouldn’t be any big deal seems strange to you, then you don’t really understand how economists talk about trade.
Of course, the actual column, by Donald Boudreaux, an economics professor at George Mason University, wasn’t talking about doctors and dentists. These occupations are highly protected. It is very difficult for foreign-trained professionals, even those in countries with comparable standards, to practice in the United States. Unlike steelworkers and textile workers, doctors and dentists have enough political power to get politicians to support their protection and to get the “free trade” media outlets to pretend they don’t notice.
But the best part of the story is the economists. Folks like Boudreaux would argue that doctors and dentists are just being silly and don’t understand trade if they think it could hurt them. This is the argument that he and other economists make about the massive loss of manufacturing jobs due to trade in the last two decades. The issue, of course, goes beyond even the job loss, since reduced demand leads to downward pressure on the wages of those who still have jobs. This has been a major source of increased inequality, as manufacturing has historically been a source of relatively high-paying jobs for workers without college degrees. (To be clear, I want free trade in doctors and dentists, but it would reduce their pay and our health care costs.)
Trade can also lead to a major shortfall in demand when we get large trade deficits, as was the case in the last decade. This was a major source of the famed “secular stagnation” that even many mainstream economists acknowledged during the Great Recession. If we had a trade deficit of 1.0 percent of GDP instead of the deficit of 3.0 percent of GDP we had during most of the recession and recovery (or 6.0 percent in 2005–2006), then the economy would have been much closer to full employment. But hey, that was no big deal, only silly people worry about trade.
And yes, free traders should be furious about government granted patent and copyright monopolies. Making them longer and stronger is a central goal of current trade deals. These are extremely costly forms of protectionism, equivalent to tariffs of many thousand percent.
But you don’t hear much about patents and copyrights as protectionism because Pfizer and Microsoft have lots of power. Also, the people who write about trade and control major news outlets are far more likely to have family and friends who benefit from these forms of protection than to be close to the steelworkers and textile workers who lost jobs and/or pay due to international competition.
After all, the economy generates 200,000 jobs a month on net (more than five million gross), so what difference could it make if one million doctors and dentists were displaced through trade. If the idea that losing one million very high paying jobs wouldn’t be any big deal seems strange to you, then you don’t really understand how economists talk about trade.
Of course, the actual column, by Donald Boudreaux, an economics professor at George Mason University, wasn’t talking about doctors and dentists. These occupations are highly protected. It is very difficult for foreign-trained professionals, even those in countries with comparable standards, to practice in the United States. Unlike steelworkers and textile workers, doctors and dentists have enough political power to get politicians to support their protection and to get the “free trade” media outlets to pretend they don’t notice.
But the best part of the story is the economists. Folks like Boudreaux would argue that doctors and dentists are just being silly and don’t understand trade if they think it could hurt them. This is the argument that he and other economists make about the massive loss of manufacturing jobs due to trade in the last two decades. The issue, of course, goes beyond even the job loss, since reduced demand leads to downward pressure on the wages of those who still have jobs. This has been a major source of increased inequality, as manufacturing has historically been a source of relatively high-paying jobs for workers without college degrees. (To be clear, I want free trade in doctors and dentists, but it would reduce their pay and our health care costs.)
Trade can also lead to a major shortfall in demand when we get large trade deficits, as was the case in the last decade. This was a major source of the famed “secular stagnation” that even many mainstream economists acknowledged during the Great Recession. If we had a trade deficit of 1.0 percent of GDP instead of the deficit of 3.0 percent of GDP we had during most of the recession and recovery (or 6.0 percent in 2005–2006), then the economy would have been much closer to full employment. But hey, that was no big deal, only silly people worry about trade.
And yes, free traders should be furious about government granted patent and copyright monopolies. Making them longer and stronger is a central goal of current trade deals. These are extremely costly forms of protectionism, equivalent to tariffs of many thousand percent.
But you don’t hear much about patents and copyrights as protectionism because Pfizer and Microsoft have lots of power. Also, the people who write about trade and control major news outlets are far more likely to have family and friends who benefit from these forms of protection than to be close to the steelworkers and textile workers who lost jobs and/or pay due to international competition.
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The NYT had a strange column today carrying the headline, “The orphans of China’s economic miracle.” The piece talks about the tens of millions of children who were left behind in the countryside when their parents left to find better-paying jobs elsewhere in the country.
The reason why the column is strange is that it might leave readers with the impression that China is an exception among developing countries in having large numbers of migrant workers who leave their children behind in the care of friends or relatives. In fact, China is actually quite typical this way.
For decades, millions of people have left Mexico, El Salvador, and other Latin American countries to come to the United States in search of better job opportunities. Often these people left family members behind.
What distinguishes the situation in China from the situation in these countries is that the rapid improvement in living standards in China makes it less likely the next generation of Chinese workers will find themselves in the same situation. While there were already large numbers of immigrants from Mexico in the 1940s, there would still be large numbers today, if the US government were not taking strong measures to block immigration. By contrast, the flow of workers from the countryside to the cities in China is likely to slow markedly in the next two decades.
The NYT had a strange column today carrying the headline, “The orphans of China’s economic miracle.” The piece talks about the tens of millions of children who were left behind in the countryside when their parents left to find better-paying jobs elsewhere in the country.
The reason why the column is strange is that it might leave readers with the impression that China is an exception among developing countries in having large numbers of migrant workers who leave their children behind in the care of friends or relatives. In fact, China is actually quite typical this way.
For decades, millions of people have left Mexico, El Salvador, and other Latin American countries to come to the United States in search of better job opportunities. Often these people left family members behind.
What distinguishes the situation in China from the situation in these countries is that the rapid improvement in living standards in China makes it less likely the next generation of Chinese workers will find themselves in the same situation. While there were already large numbers of immigrants from Mexico in the 1940s, there would still be large numbers today, if the US government were not taking strong measures to block immigration. By contrast, the flow of workers from the countryside to the cities in China is likely to slow markedly in the next two decades.
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That was not a typo. The Justice Department and Federal Trade Commission intervened on Uber’s side in a case involving a regulation passed by Seattle’s city council which would allow Uber drivers to negotiate collectively. The issue is that Uber insists its drivers are independent contractors, not employees. This means that they don’t have the rights guaranteed by employees under the National Labor Relations Act to bargain collectively with their employer.
Seattle’s city council sought to work around this problem by effectively acting as an intermediary between Uber and its “independent contractors” in the city. The city argued that as a municipal government, it would be exempt from the anti-trust laws that prevent businesses from coordinating prices.
The position of the Trump administration is very interesting in this case because it is arguing that Seattle is in fact illegally coordinating prices among independent contractors. Uber quite explicitly coordinates the prices charged by its “independent contractors,” not just setting overall fee schedules, but adjusting fares by the minute in response to changes in collective demand.
This seems like a yet another instance where the government has felt it necessary to intervene in the market to defend the rich. As we all know, the rich can’t be expected to survive in a free market without help from the government.
That was not a typo. The Justice Department and Federal Trade Commission intervened on Uber’s side in a case involving a regulation passed by Seattle’s city council which would allow Uber drivers to negotiate collectively. The issue is that Uber insists its drivers are independent contractors, not employees. This means that they don’t have the rights guaranteed by employees under the National Labor Relations Act to bargain collectively with their employer.
Seattle’s city council sought to work around this problem by effectively acting as an intermediary between Uber and its “independent contractors” in the city. The city argued that as a municipal government, it would be exempt from the anti-trust laws that prevent businesses from coordinating prices.
The position of the Trump administration is very interesting in this case because it is arguing that Seattle is in fact illegally coordinating prices among independent contractors. Uber quite explicitly coordinates the prices charged by its “independent contractors,” not just setting overall fee schedules, but adjusting fares by the minute in response to changes in collective demand.
This seems like a yet another instance where the government has felt it necessary to intervene in the market to defend the rich. As we all know, the rich can’t be expected to survive in a free market without help from the government.
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This theme appears endlessly in news articles and columns criticizing Donald Trump’s tariffs. It really makes zero sense. It is easy to see that Pfizer and Microsoft benefit from having China honor their patents and copyrights, but how exactly are the rest of us supposed to benefit from paying more money for prescription drugs and software?
It would be nice if the people writing this stuff could take a moment to think about what they are writing. Some of us don’t think it is a good idea for all the money to go to Bill Gates and the people that Bill Gates and others like him pay to worry about inequality.
This theme appears endlessly in news articles and columns criticizing Donald Trump’s tariffs. It really makes zero sense. It is easy to see that Pfizer and Microsoft benefit from having China honor their patents and copyrights, but how exactly are the rest of us supposed to benefit from paying more money for prescription drugs and software?
It would be nice if the people writing this stuff could take a moment to think about what they are writing. Some of us don’t think it is a good idea for all the money to go to Bill Gates and the people that Bill Gates and others like him pay to worry about inequality.
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