The NYT had a seriously confused column by Lan Cao on U.S. trade policy. The piece touts the dollar’s role as the world’s leading currency, highlighting the fact that most oil is traded in dollars.
In reality, the need for countries to get dollars to buy oil is trivial. If a country does not otherwise want to hold dollars, it can hold its assets in any major currency. Since there are massive currency markets in which trillions of dollars worth of currency change hands every day, it can sell whatever currency it chooses to hold half a second before it needs the dollars to pay for oil. It would then be the oil seller’s decision as to whether to keep the dollars or to change to a preferred currency.
The half-second demand for dollars created by the purchase of oil has a trivial impact in currency markets. If 60 million barrels of oil a day are traded and the price of oil is $70 a barrel, this comes to $4.2 billion a day. If this were done all the same half-second, it would be a minor blip in the currency market. Over the course of a day, it would not even be noticeable.
The piece also refers to China’s massive accumulation of dollars in the last decade as a positive for the US economy. China did not accumulate dollars because it in any way needed dollars. It accumulated dollars to keep down the value of its currency. This allowed it to run a massive trade surplus that peaked at more than 10 percent of GDP in 2007. (Fast-growing developing countries are expected to run trade deficits, as capital flows in.)
China’s trade surplus was associated with an explosion of the trade deficit in the United States. This led to the massive job loss in manufacturing in places like Pennsylvania, Ohio, and Michigan. It is difficult to see how this is a good story for the United States.
The gap in demand in the economy that resulted from the trade deficit was filled by the housing bubble. The collapse of the bubble gave us the Great Recession, from which we are just now recovering.
If this is “winning” the trade war, as the piece claims, it is difficult to imagine what losing would be like.
The NYT had a seriously confused column by Lan Cao on U.S. trade policy. The piece touts the dollar’s role as the world’s leading currency, highlighting the fact that most oil is traded in dollars.
In reality, the need for countries to get dollars to buy oil is trivial. If a country does not otherwise want to hold dollars, it can hold its assets in any major currency. Since there are massive currency markets in which trillions of dollars worth of currency change hands every day, it can sell whatever currency it chooses to hold half a second before it needs the dollars to pay for oil. It would then be the oil seller’s decision as to whether to keep the dollars or to change to a preferred currency.
The half-second demand for dollars created by the purchase of oil has a trivial impact in currency markets. If 60 million barrels of oil a day are traded and the price of oil is $70 a barrel, this comes to $4.2 billion a day. If this were done all the same half-second, it would be a minor blip in the currency market. Over the course of a day, it would not even be noticeable.
The piece also refers to China’s massive accumulation of dollars in the last decade as a positive for the US economy. China did not accumulate dollars because it in any way needed dollars. It accumulated dollars to keep down the value of its currency. This allowed it to run a massive trade surplus that peaked at more than 10 percent of GDP in 2007. (Fast-growing developing countries are expected to run trade deficits, as capital flows in.)
China’s trade surplus was associated with an explosion of the trade deficit in the United States. This led to the massive job loss in manufacturing in places like Pennsylvania, Ohio, and Michigan. It is difficult to see how this is a good story for the United States.
The gap in demand in the economy that resulted from the trade deficit was filled by the housing bubble. The collapse of the bubble gave us the Great Recession, from which we are just now recovering.
If this is “winning” the trade war, as the piece claims, it is difficult to imagine what losing would be like.
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Many progressives, including this one, have worked to come up with ways around the Republican tax laws limits on the deduction for state and local taxes (SALT). The reason is that we worry that the increased cost of these taxes will reduce the ability of states like New York and California to maintain and expand relatively generous social safety nets and support for education, health care, and child care.
When these taxes were fully deductible, the federal government effectively picked up 40 cents of each dollar of taxes on these states higher income residents. With the cap, these taxes will be borne 100 percent by the states’ residents. This is likely to make them more resistant to taxes. (This is the hypothesis that rich people are more resistant to higher taxes than to lower taxes.) It may also cause some to leave the state or find ways to avoid/evade their taxes.
For some reason, the Post was unable to find anyone to make these points until most of the way through its piece on efforts to work around the tax. It also misrepresented these efforts by implying that only very high-income people would benefit from them.
The first workaround to be passed into law was an optional 5.0 percent employer-side payroll tax in New York, which could apply to wages above $40,000. This would be a substitute for the state income tax.
A person who earns $100,000 a year (apparently now a high-income person in Washington Post land) would pay $3,000 in state employer-side taxes under this plan. That would be expected to come out of their wages, meaning that their taxable income for federal tax purposes would now be $97,000 instead of $100,000. Since this person (assuming a single individual) is in the 22 percent tax bracket, this switch would save them $660 dollars on their federal income taxes. This is the case whether or not they itemize.
Since their pay is $3,000 less, they would also save their Social Security and Medicare taxes as well. This is a 7.65 percent on the employee’s side, which gets them another $230 in savings, bringing their total savings to $890 a year.
It is obvious that the Post doesn’t like this sort of workaround but usually, pieces like this are reserved for the opinion pages and also try to be more accurate.
Many progressives, including this one, have worked to come up with ways around the Republican tax laws limits on the deduction for state and local taxes (SALT). The reason is that we worry that the increased cost of these taxes will reduce the ability of states like New York and California to maintain and expand relatively generous social safety nets and support for education, health care, and child care.
When these taxes were fully deductible, the federal government effectively picked up 40 cents of each dollar of taxes on these states higher income residents. With the cap, these taxes will be borne 100 percent by the states’ residents. This is likely to make them more resistant to taxes. (This is the hypothesis that rich people are more resistant to higher taxes than to lower taxes.) It may also cause some to leave the state or find ways to avoid/evade their taxes.
For some reason, the Post was unable to find anyone to make these points until most of the way through its piece on efforts to work around the tax. It also misrepresented these efforts by implying that only very high-income people would benefit from them.
The first workaround to be passed into law was an optional 5.0 percent employer-side payroll tax in New York, which could apply to wages above $40,000. This would be a substitute for the state income tax.
A person who earns $100,000 a year (apparently now a high-income person in Washington Post land) would pay $3,000 in state employer-side taxes under this plan. That would be expected to come out of their wages, meaning that their taxable income for federal tax purposes would now be $97,000 instead of $100,000. Since this person (assuming a single individual) is in the 22 percent tax bracket, this switch would save them $660 dollars on their federal income taxes. This is the case whether or not they itemize.
Since their pay is $3,000 less, they would also save their Social Security and Medicare taxes as well. This is a 7.65 percent on the employee’s side, which gets them another $230 in savings, bringing their total savings to $890 a year.
It is obvious that the Post doesn’t like this sort of workaround but usually, pieces like this are reserved for the opinion pages and also try to be more accurate.
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The NYT had an interesting column on the impact that the location of Amazon’s new headquarters would have on rents in the finalist cities. The column reports projections from Zillow on how much more the median rents would rise over the next decade due to the presence of Amazon.
Topping the list is Los Angeles, where Zillow projected that the median monthly rent will be $740 higher in 2028 if Amazon puts its second headquarters there. This means that the median renter in the city will be paying an Amazon tax, in the form of higher rents, of almost $9,000 a year for the privilege of having Jeff Bezos company located in her city.
If Bezos chooses Denver, the median tenant will be paying an extra $720 a month, or $8,600 a year to enjoy Amazon’s presence. Bostonians would have to pay $485 a month or $5,800 a year to have Amazon as a neighbor.
While this analysis is very speculative, it shows how many residents of the city “winning” the Amazon location game show could be big losers. This is especially true if the city’s secret concession package costs large amounts of future tax revenue and/or commits the city to large Amazon-specific subsidies.
The point about the location of businesses and the cost of housing is an issue that comes up in other contexts as well. For example, the explosion of the financial sector in New York has sent rents through the roof there. This likely means that New Yorkers who do not derive their income directly or indirectly from the industry lose from its presence. (That would not be the case for property owners.)
It is worth noting that the piece reports Amazon says it contributed $40 million to support affordable housing in Seattle. If a new unit costs on average $200,000, this means Amazon’s contribution was sufficient to build 200 units.
The NYT had an interesting column on the impact that the location of Amazon’s new headquarters would have on rents in the finalist cities. The column reports projections from Zillow on how much more the median rents would rise over the next decade due to the presence of Amazon.
Topping the list is Los Angeles, where Zillow projected that the median monthly rent will be $740 higher in 2028 if Amazon puts its second headquarters there. This means that the median renter in the city will be paying an Amazon tax, in the form of higher rents, of almost $9,000 a year for the privilege of having Jeff Bezos company located in her city.
If Bezos chooses Denver, the median tenant will be paying an extra $720 a month, or $8,600 a year to enjoy Amazon’s presence. Bostonians would have to pay $485 a month or $5,800 a year to have Amazon as a neighbor.
While this analysis is very speculative, it shows how many residents of the city “winning” the Amazon location game show could be big losers. This is especially true if the city’s secret concession package costs large amounts of future tax revenue and/or commits the city to large Amazon-specific subsidies.
The point about the location of businesses and the cost of housing is an issue that comes up in other contexts as well. For example, the explosion of the financial sector in New York has sent rents through the roof there. This likely means that New Yorkers who do not derive their income directly or indirectly from the industry lose from its presence. (That would not be the case for property owners.)
It is worth noting that the piece reports Amazon says it contributed $40 million to support affordable housing in Seattle. If a new unit costs on average $200,000, this means Amazon’s contribution was sufficient to build 200 units.
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A NYT article on Finland’s plan to end its experiment with a basic income for its citizens, noted its attraction, including to some rich people in Silicon Valley:
“In much of the world, the concept of basic income retains appeal as a potential way to more justly spread the bounty of global capitalism while cushioning workers against the threat of robots and artificial intelligence taking their jobs.”
There would be less need to be concerned about spreading the bounty if the government did not give out patent and copyright monopolies. These monopolies make robots and artificial intelligence expensive and allow people to collect billions of dollars in rents.
In the absence of these monopolies, the products of new technology would be cheap. We would all be able to get a robot for a few hundred dollars (the materials and energy required to assemble a robot would almost certainly not be expensive) that would mow our lawns, clean our houses, do our laundry, cook our dinner, and do all sorts of other things for us.
Robots can only make some of us poor and unemployed and others very rich because of a government policy that gives some people ownership of the technology. The inequality is the result of the policy, not the technology.
A NYT article on Finland’s plan to end its experiment with a basic income for its citizens, noted its attraction, including to some rich people in Silicon Valley:
“In much of the world, the concept of basic income retains appeal as a potential way to more justly spread the bounty of global capitalism while cushioning workers against the threat of robots and artificial intelligence taking their jobs.”
There would be less need to be concerned about spreading the bounty if the government did not give out patent and copyright monopolies. These monopolies make robots and artificial intelligence expensive and allow people to collect billions of dollars in rents.
In the absence of these monopolies, the products of new technology would be cheap. We would all be able to get a robot for a few hundred dollars (the materials and energy required to assemble a robot would almost certainly not be expensive) that would mow our lawns, clean our houses, do our laundry, cook our dinner, and do all sorts of other things for us.
Robots can only make some of us poor and unemployed and others very rich because of a government policy that gives some people ownership of the technology. The inequality is the result of the policy, not the technology.
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There seems to be a big market for analysis that argues upward redistribution did not play a role in the switch of many voters from Democrats to Donald Trump in 2016. The NYT wrote up the latest effort in a major article headlined, “Trump voters driven by fear of losing status, not economic anxiety, study finds.”
The study, by Diana C. Mutz, a professor of political science and communications at the University of Pennsylvania, focused on the change in people’s economic circumstances between 2012, when Obama comfortably won the election, and 2016 when Trump carried several states that had gone Democratic in the prior election. Mutz found no link between a deterioration in people’s economic circumstances and their switch to voting for Trump, arguing that this switch was instead driven by whites (mostly men) fearful about losing their status to blacks and immigrants.
It is worth noting that most analyses attributing this switch to economics look at a longer-term deterioration in economic well-being, not the change from 2012 to 2016. For example, a paper by David Autor, David Dorn, Gordon Hansen, and Kavah Majlesi found a strong link between the areas that lost jobs due to the explosion of imports from China in the period 2000 to 2008 and switching from voting Democratic to voting for Trump. If this explanation is correct, then the economic causation would be largely missed by Mutz’s analysis.
There seems to be a big market for analysis that argues upward redistribution did not play a role in the switch of many voters from Democrats to Donald Trump in 2016. The NYT wrote up the latest effort in a major article headlined, “Trump voters driven by fear of losing status, not economic anxiety, study finds.”
The study, by Diana C. Mutz, a professor of political science and communications at the University of Pennsylvania, focused on the change in people’s economic circumstances between 2012, when Obama comfortably won the election, and 2016 when Trump carried several states that had gone Democratic in the prior election. Mutz found no link between a deterioration in people’s economic circumstances and their switch to voting for Trump, arguing that this switch was instead driven by whites (mostly men) fearful about losing their status to blacks and immigrants.
It is worth noting that most analyses attributing this switch to economics look at a longer-term deterioration in economic well-being, not the change from 2012 to 2016. For example, a paper by David Autor, David Dorn, Gordon Hansen, and Kavah Majlesi found a strong link between the areas that lost jobs due to the explosion of imports from China in the period 2000 to 2008 and switching from voting Democratic to voting for Trump. If this explanation is correct, then the economic causation would be largely missed by Mutz’s analysis.
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Erik Loomis had an NYT column arguing for a government jobs guarantee by telling readers:
“Employment numbers may look solid now, but economists, physicists and industrial engineers all say that automation will, in the not-so-distant future, drive higher unemployment.”
This is not true. Productivity growth (a.k.a. “automation”) has been very weak for the last decade, averaging just over 1.0 percent annually. Most projections assume that productivity growth will remain slow, implying a relatively limited amount of displacement. (The Congressional Budget Office assumes growth of less than 1.8 percent annually over the next decade.)
Furthermore, if productivity growth did accelerate, there is no reason to believe that it will lead to large-scale unemployment. Productivity growth averaged 3.0 percent annually from 1947 to 1973. This period was one of low unemployment and rapid wage growth.
This doesn’t mean that Loomis is wrong to argue for a job guarantee, but the case should not rest on a massive surge in productivity growth leading to widespread unemployment. That is not a very plausible scenario.
Erik Loomis had an NYT column arguing for a government jobs guarantee by telling readers:
“Employment numbers may look solid now, but economists, physicists and industrial engineers all say that automation will, in the not-so-distant future, drive higher unemployment.”
This is not true. Productivity growth (a.k.a. “automation”) has been very weak for the last decade, averaging just over 1.0 percent annually. Most projections assume that productivity growth will remain slow, implying a relatively limited amount of displacement. (The Congressional Budget Office assumes growth of less than 1.8 percent annually over the next decade.)
Furthermore, if productivity growth did accelerate, there is no reason to believe that it will lead to large-scale unemployment. Productivity growth averaged 3.0 percent annually from 1947 to 1973. This period was one of low unemployment and rapid wage growth.
This doesn’t mean that Loomis is wrong to argue for a job guarantee, but the case should not rest on a massive surge in productivity growth leading to widespread unemployment. That is not a very plausible scenario.
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The NYT had a very good article on the deterioration of the quality of public sector jobs over the last two decades. The piece notes the decline in pay and benefits for teachers, prison guards, and a wide variety of other public sector workers. As a result, many workers are leaving the public sector and vacancies are often left unfilled.
At one point the piece comments:
“Short of money, many states have also privatized services like managing public water systems, road repair, emergency services or prisons, transferring jobs from the public sector to private companies that have reduced salaries and benefits to increase their profits.”
While saving money is usually given as a motive for privatization, it often does not result in savings. The politicians who push privatization often receive campaign contributions from the companies that stand to profit. In such cases, it is at least as likely that they are acting out of a desire to pay back political benefactors as a desire to save money.
The NYT had a very good article on the deterioration of the quality of public sector jobs over the last two decades. The piece notes the decline in pay and benefits for teachers, prison guards, and a wide variety of other public sector workers. As a result, many workers are leaving the public sector and vacancies are often left unfilled.
At one point the piece comments:
“Short of money, many states have also privatized services like managing public water systems, road repair, emergency services or prisons, transferring jobs from the public sector to private companies that have reduced salaries and benefits to increase their profits.”
While saving money is usually given as a motive for privatization, it often does not result in savings. The politicians who push privatization often receive campaign contributions from the companies that stand to profit. In such cases, it is at least as likely that they are acting out of a desire to pay back political benefactors as a desire to save money.
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Those of us pushing the Federal Reserve Board to hold off on raising interest rates have pointed out that the members of the Fed’s Open Market Committee, like other economists, have repeatedly over-estimated the non-accelerating inflation rate of unemployment (NAIRU), the unemployment rate at which inflation would start spiraling upward. In 2014, they had put it at 5.4 percent. Today the unemployment rate stands at 4.1 percent, with no evidence of acceleration in the inflation rate.
If the Fed’s inflation hawks had their way, there would have been sharper increases in interest rates over the last four years. These would have slowed growth and prevented millions of workers from getting jobs and tens of millions from getting pay hikes. For this reason, we have argued for caution in raising rates until there is clear evidence that inflation is becoming a problem.
It turns out that the United States is not the only place where economists have trouble projecting floors to the unemployment rate. The figure below shows the IMF’s projection of unemployment rates from April of 2014 for the calendar year 2018. It also shows the most recent measure from the OECD.
In the vast majority of cases, the most recent month’s unemployment measure is well below the 2014 projection. For example, Belgium would have an unemployment rate of 8.3 percent in 2018. The most recent month’s data put the unemployment rate at 5.2 percent. For Germany, the projection was 5.2 percent unemployment; the most recent number was 3.5 percent. For the UK it projected 5.7 percent; the most recent number is 4.2 percent.
In some cases, the gaps are dramatic. The IMF projected an unemployment rate for of 5.5 percent for the Czech Republic; the actual rate is 2.4 percent. For the Slovak Republic, the projection was 12.2 percent; the actual figure is 7.5 percent. In the case of Spain, the projection was 22.6 percent; the most recent figure is 16.1 percent. On the whole, the average projected rate was 8.0 percent, the average current rate is 6.6 percent.
There are six countries in which the actual rate is worse than the projected rate. The actual rate in Finland is 0.9 percentage points higher than the 2014 projection. The rate in Italy is 1.2 percentage points higher. But, Greece is the big winner in this category. Its 20.8 percent unemployment rate is 4.5 percentage points higher than the 16.5 percent rate projected four years ago.
The moral of this story is that economists have a very bad track record in projecting unemployment rates. If a central bank wants to raise interest rates to head off inflation, it would be well-advised to look at what is happening to prices rather than relying on projections of NAIRUs. (The 2014 projections can be seen as NAIRU projections since the IMF assumed that the cyclical component of unemployment would be largely gone by that point.)
Those of us pushing the Federal Reserve Board to hold off on raising interest rates have pointed out that the members of the Fed’s Open Market Committee, like other economists, have repeatedly over-estimated the non-accelerating inflation rate of unemployment (NAIRU), the unemployment rate at which inflation would start spiraling upward. In 2014, they had put it at 5.4 percent. Today the unemployment rate stands at 4.1 percent, with no evidence of acceleration in the inflation rate.
If the Fed’s inflation hawks had their way, there would have been sharper increases in interest rates over the last four years. These would have slowed growth and prevented millions of workers from getting jobs and tens of millions from getting pay hikes. For this reason, we have argued for caution in raising rates until there is clear evidence that inflation is becoming a problem.
It turns out that the United States is not the only place where economists have trouble projecting floors to the unemployment rate. The figure below shows the IMF’s projection of unemployment rates from April of 2014 for the calendar year 2018. It also shows the most recent measure from the OECD.
In the vast majority of cases, the most recent month’s unemployment measure is well below the 2014 projection. For example, Belgium would have an unemployment rate of 8.3 percent in 2018. The most recent month’s data put the unemployment rate at 5.2 percent. For Germany, the projection was 5.2 percent unemployment; the most recent number was 3.5 percent. For the UK it projected 5.7 percent; the most recent number is 4.2 percent.
In some cases, the gaps are dramatic. The IMF projected an unemployment rate for of 5.5 percent for the Czech Republic; the actual rate is 2.4 percent. For the Slovak Republic, the projection was 12.2 percent; the actual figure is 7.5 percent. In the case of Spain, the projection was 22.6 percent; the most recent figure is 16.1 percent. On the whole, the average projected rate was 8.0 percent, the average current rate is 6.6 percent.
There are six countries in which the actual rate is worse than the projected rate. The actual rate in Finland is 0.9 percentage points higher than the 2014 projection. The rate in Italy is 1.2 percentage points higher. But, Greece is the big winner in this category. Its 20.8 percent unemployment rate is 4.5 percentage points higher than the 16.5 percent rate projected four years ago.
The moral of this story is that economists have a very bad track record in projecting unemployment rates. If a central bank wants to raise interest rates to head off inflation, it would be well-advised to look at what is happening to prices rather than relying on projections of NAIRUs. (The 2014 projections can be seen as NAIRU projections since the IMF assumed that the cyclical component of unemployment would be largely gone by that point.)
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The NYT ran a piece about a revised trade pact between the European Union and Mexico with the headline, “In a message to Trump, Europe and Mexico announce trade pact.” The piece tells readers:
“…it sends a message to Mr. Trump that some of America’s closest trading partners are moving ahead with deals of their own — potentially leaving American exporters on the losing end in foreign markets.”
This is not how this treaty would be viewed in standard economics. While some US exporters may lose markets in Mexico’s relatively small market, as a result of better treatment for EU exporters, other exporters would gain markets due to expanded growth in both regions. In addition, the US should benefit insofar as increased trade between the EU and Mexico could lead to lower prices for items that we import from these countries.
This is how the same logic by which the United States gained from the formation of the European Common Market and later the EU. By making the region stronger economically, it became a more valuable trading partner. It is striking that the NYT apparently is so unfamiliar with basic economics.
It is also worth pointing out that the paper wrongly referred to the pact as a “free trade” agreement. Politicians like to call their deals “free trade” agreements because intellectual-types then think they have to support them. In reality, this pact includes the imposition of a number of regulatory measures that have nothing directly to do with free trade and enhanced patent, copyright, and related protections, which are explicitly protectionist.
The paper should not see it as its responsibility to help politicians promote their agenda by adopting their language. It would be more accurate and save space simply to refer to the pact as a “trade agreement.”
The NYT ran a piece about a revised trade pact between the European Union and Mexico with the headline, “In a message to Trump, Europe and Mexico announce trade pact.” The piece tells readers:
“…it sends a message to Mr. Trump that some of America’s closest trading partners are moving ahead with deals of their own — potentially leaving American exporters on the losing end in foreign markets.”
This is not how this treaty would be viewed in standard economics. While some US exporters may lose markets in Mexico’s relatively small market, as a result of better treatment for EU exporters, other exporters would gain markets due to expanded growth in both regions. In addition, the US should benefit insofar as increased trade between the EU and Mexico could lead to lower prices for items that we import from these countries.
This is how the same logic by which the United States gained from the formation of the European Common Market and later the EU. By making the region stronger economically, it became a more valuable trading partner. It is striking that the NYT apparently is so unfamiliar with basic economics.
It is also worth pointing out that the paper wrongly referred to the pact as a “free trade” agreement. Politicians like to call their deals “free trade” agreements because intellectual-types then think they have to support them. In reality, this pact includes the imposition of a number of regulatory measures that have nothing directly to do with free trade and enhanced patent, copyright, and related protections, which are explicitly protectionist.
The paper should not see it as its responsibility to help politicians promote their agenda by adopting their language. It would be more accurate and save space simply to refer to the pact as a “trade agreement.”
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The papers are full of pieces deploring the debt the US government is accumulating under the Trump administration. However, we can know that these people are not serious because they never take into account the implicit debt created by the granting of patent and copyright monopolies.
The story here is a simple one. The government grants these monopolies as a way of paying for research and creative work. What is at issue here is a simple logical point that cannot be disputed by honest people.
Suppose the government were to spend another $400 billion this year on biomedical and other research and creative work. This means that the deficit and debt would be $400 billion larger because it paid out more money to corporations and individuals for this work. That’s very straightforward and all our deficit hawk friends are running around yelling and screaming over this additional debt burden.
Now suppose it grants patents and copyrights this year that will add an average of $50 billion a year over the next decade to the price of prescription drugs, software, and other protected items. Ignoring interest and discounting, how is that different from adding $500 billion to the debt?
In the case of the debt, we are obligating the government to make payments to the bondholders. In the case of patents and copyrights, we are requiring taxpayers to pay more money to drug companies and software makers. That is in effect a privately collected tax.
Perhaps people feel better about being taxed by Pfizer and Microsoft than by the government, but if we care about the impact on living standards as conventionally calculated, the two are the same. (To head off one excuse, no, the patent/copyright rents are not optional in any way, as taxes, in general, are not optional. After all, the government could have excise taxes on drugs and software. No one would say that changes the debt story at all.)
Anyhow, any deficit/debt monger who doesn’t talk about the cost of patent and copyright monopolies is just being a political hack. They are not making serious economic arguments.
The papers are full of pieces deploring the debt the US government is accumulating under the Trump administration. However, we can know that these people are not serious because they never take into account the implicit debt created by the granting of patent and copyright monopolies.
The story here is a simple one. The government grants these monopolies as a way of paying for research and creative work. What is at issue here is a simple logical point that cannot be disputed by honest people.
Suppose the government were to spend another $400 billion this year on biomedical and other research and creative work. This means that the deficit and debt would be $400 billion larger because it paid out more money to corporations and individuals for this work. That’s very straightforward and all our deficit hawk friends are running around yelling and screaming over this additional debt burden.
Now suppose it grants patents and copyrights this year that will add an average of $50 billion a year over the next decade to the price of prescription drugs, software, and other protected items. Ignoring interest and discounting, how is that different from adding $500 billion to the debt?
In the case of the debt, we are obligating the government to make payments to the bondholders. In the case of patents and copyrights, we are requiring taxpayers to pay more money to drug companies and software makers. That is in effect a privately collected tax.
Perhaps people feel better about being taxed by Pfizer and Microsoft than by the government, but if we care about the impact on living standards as conventionally calculated, the two are the same. (To head off one excuse, no, the patent/copyright rents are not optional in any way, as taxes, in general, are not optional. After all, the government could have excise taxes on drugs and software. No one would say that changes the debt story at all.)
Anyhow, any deficit/debt monger who doesn’t talk about the cost of patent and copyright monopolies is just being a political hack. They are not making serious economic arguments.
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