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.

It would be hard to imagine a much better jobs report than what we got Friday. The economy generated 187,000 jobs for the month, somewhat fewer than the consensus. The jobs numbers for the prior two months were also revised down by 90,000. At the same time, the unemployment rate edged down to 3.5 percent, just 0.1 percentage point above the half-century low reached in April. We have now have had below 4.0 percent unemployment for the last 18 months. The last time we had a streak this long was in
It would be hard to imagine a much better jobs report than what we got Friday. The economy generated 187,000 jobs for the month, somewhat fewer than the consensus. The jobs numbers for the prior two months were also revised down by 90,000. At the same time, the unemployment rate edged down to 3.5 percent, just 0.1 percentage point above the half-century low reached in April. We have now have had below 4.0 percent unemployment for the last 18 months. The last time we had a streak this long was in
The first decade of this century was pretty awful for manufacturing workers. In December of 1999, we had 17.3 million manufacturing jobs. This number had fallen to 11.5 million by December of 2009. This amounted to a loss of 5.8 million jobs, or one-third of all the manufacturing jobs that had existed at the start of the decade. That looks like a pretty big deal.
The first decade of this century was pretty awful for manufacturing workers. In December of 1999, we had 17.3 million manufacturing jobs. This number had fallen to 11.5 million by December of 2009. This amounted to a loss of 5.8 million jobs, or one-third of all the manufacturing jobs that had existed at the start of the decade. That looks like a pretty big deal.
GDP growth in the United States is always reported as an annual rate. This means that if the economy grew 0.5 percent from the first quarter to the second quarter, it would be universally reported as 2.0 percent growth, with reporters always giving the annual rate. This is basically four times the quarterly rate. (It's actually the first quarter's growth rate taken to the fourth power, but this will be the same for small numbers.)
GDP growth in the United States is always reported as an annual rate. This means that if the economy grew 0.5 percent from the first quarter to the second quarter, it would be universally reported as 2.0 percent growth, with reporters always giving the annual rate. This is basically four times the quarterly rate. (It's actually the first quarter's growth rate taken to the fourth power, but this will be the same for small numbers.)
The full title of this book is The Myth that Made Us, How False Beliefs About Racism and Meritocracy Broke Our Economy and How to Fix It. The book is a direct attack on how economists, and probably most people, are inclined to see the economy and society, arguing against the idea that outcomes reflect merit and effort.
The full title of this book is The Myth that Made Us, How False Beliefs About Racism and Meritocracy Broke Our Economy and How to Fix It. The book is a direct attack on how economists, and probably most people, are inclined to see the economy and society, arguing against the idea that outcomes reflect merit and effort.
Along with everyone else (okay, not Republicans), I have been celebrating the great economic news we’ve been getting the last few weeks. Inflation is clearly slowing, the unemployment rate remains low, real wages are rising, investment is growing rapidly, and the green conversion is going faster than any of us could have imagined, even if it’s nowhere near fast enough.
Along with everyone else (okay, not Republicans), I have been celebrating the great economic news we’ve been getting the last few weeks. Inflation is clearly slowing, the unemployment rate remains low, real wages are rising, investment is growing rapidly, and the green conversion is going faster than any of us could have imagined, even if it’s nowhere near fast enough.
Mark Paul has done a useful public service in etching out the goals of progressive economic policy. Many of us get bogged down in debate over things like whether the Average Hourly Earnings series is more accurate than the Employment Cost Index, or whether Section 230 protection is giving Facebook, Twitter and other Internet giants a subsidy compared to competitors in print and broadcast media.
Mark Paul has done a useful public service in etching out the goals of progressive economic policy. Many of us get bogged down in debate over things like whether the Average Hourly Earnings series is more accurate than the Employment Cost Index, or whether Section 230 protection is giving Facebook, Twitter and other Internet giants a subsidy compared to competitors in print and broadcast media.
The New York Times ran a piece this morning claiming that Gilead delayed the introduction of a new drug for treating HIV because it wanted to take full advantage of the patent life for its drug Truvada, which was a huge blockbuster for the company. The new drug has a patent life that runs to 2031. Truvada’s patent expired in 2017.
The New York Times ran a piece this morning claiming that Gilead delayed the introduction of a new drug for treating HIV because it wanted to take full advantage of the patent life for its drug Truvada, which was a huge blockbuster for the company. The new drug has a patent life that runs to 2031. Truvada’s patent expired in 2017.

I’m serious, you just have to carry through with a little bit of logic. (I know Governor DeSantis is opposed to logic, but this is for the rest of the country.)

Governor DeSantis is on the warpath against whatever he decides is “woke.” DeSantis decided that it was woke when Anheuser-Busch signed a contract with Dylan Mulvaney, a transgender influencer, to promote Bud Light, one of the beers it markets. DeSantis joined with other right-wingers to push a boycott of Bud Light.

The boycott was effective in that it had a measurable impact on the sales of Bud Light. Now, DeSantis is calling for the Florida State Board of Administration to sue Anheuser-Busch because its decision to contract with a transgender influencer lowered its stock price and thereby hurt Florida’s public employee pension fund. (Never mind that Governor DeSantis played a big role in pushing the boycott that hurt sales.)

DeSantis’ basis for the lawsuit is the claim that by concerning itself with something other than profits, the management of Anheuser-Busch hurt its stockholders. He says that companies should only be concerned about maximizing profit, not doing “woke” things like making deals with transgender influencers.

Okay, we’ll ignore the fact that Anheuser-Busch’s management may actually have thought they were maximizing profits when they signed the deal with Mulvaney. After all, there are a significant number of people who are transgender, have friends or family members who are transgender, or just think that transgender people should be able to be accepted as normal, and think it’s cool that Anheuser-Busch agrees.

Maybe it’s not fair to blame Anheuser-Busch’s management for not recognizing the fact that an ambitious Florida governor thinks that his path to the presidency depends on convincing Republican primary voters that he is more right-wing than Donald Trump. But, we’ll leave that issue aside.

DeSantis made it clear that he thinks companies should only maximize profit and be subject to shareholder lawsuits if they do anything other than maximizing profits. So how does this get us to suing Gilead?

According to a New York Times article today, Gilead may have delayed bringing an HIV drug onto the market, because it didn’t want to jeopardize the sales of its blockbuster HIV drug Truvada. It wanted to delay bringing the new drug on the market because it wanted Truvada to get the full benefit of its patent monopoly and to only introduce the new drug as Truvada’s patent was about to expire. This would then allow it to benefit from the full length of patent protection for its new drug.

The newer drug would have been safer for patients, since it posed less risk of kidney and bone damage. Gilead is now being sued, based on this allegation, by patients who were harmed by Truvada.

Gilead denies it was motivated by profit considerations in the timing of its introduction of the Truvada replacement. The article tells readers:

“Gilead’s top lawyer, Deborah Telman said in a statement that the company’s ‘research and development decisions have always been, and continue to be, guided by our focus on delivering safe and effective medicines for the people who prescribe and use them.’”

Okay, so now we have Gilead’s top lawyer asserting that the company is not being run to maximize profit, but rather is “guided by our focus on delivering safe and effective medicines for the people who prescribe and use them.”

That sounds dangerously woke. Seems like Gilead is crying out for a lawsuit from Mr. DeSantis. Their top lawyer is openly claiming that the company might be jeopardizing profits, and thereby giving lower returns to shareholders, because it is concerned with people’s health.

Presumably, Mr. DeSantis will be pushing his lawsuit against Gilead any day now.

I’m serious, you just have to carry through with a little bit of logic. (I know Governor DeSantis is opposed to logic, but this is for the rest of the country.)

Governor DeSantis is on the warpath against whatever he decides is “woke.” DeSantis decided that it was woke when Anheuser-Busch signed a contract with Dylan Mulvaney, a transgender influencer, to promote Bud Light, one of the beers it markets. DeSantis joined with other right-wingers to push a boycott of Bud Light.

The boycott was effective in that it had a measurable impact on the sales of Bud Light. Now, DeSantis is calling for the Florida State Board of Administration to sue Anheuser-Busch because its decision to contract with a transgender influencer lowered its stock price and thereby hurt Florida’s public employee pension fund. (Never mind that Governor DeSantis played a big role in pushing the boycott that hurt sales.)

DeSantis’ basis for the lawsuit is the claim that by concerning itself with something other than profits, the management of Anheuser-Busch hurt its stockholders. He says that companies should only be concerned about maximizing profit, not doing “woke” things like making deals with transgender influencers.

Okay, we’ll ignore the fact that Anheuser-Busch’s management may actually have thought they were maximizing profits when they signed the deal with Mulvaney. After all, there are a significant number of people who are transgender, have friends or family members who are transgender, or just think that transgender people should be able to be accepted as normal, and think it’s cool that Anheuser-Busch agrees.

Maybe it’s not fair to blame Anheuser-Busch’s management for not recognizing the fact that an ambitious Florida governor thinks that his path to the presidency depends on convincing Republican primary voters that he is more right-wing than Donald Trump. But, we’ll leave that issue aside.

DeSantis made it clear that he thinks companies should only maximize profit and be subject to shareholder lawsuits if they do anything other than maximizing profits. So how does this get us to suing Gilead?

According to a New York Times article today, Gilead may have delayed bringing an HIV drug onto the market, because it didn’t want to jeopardize the sales of its blockbuster HIV drug Truvada. It wanted to delay bringing the new drug on the market because it wanted Truvada to get the full benefit of its patent monopoly and to only introduce the new drug as Truvada’s patent was about to expire. This would then allow it to benefit from the full length of patent protection for its new drug.

The newer drug would have been safer for patients, since it posed less risk of kidney and bone damage. Gilead is now being sued, based on this allegation, by patients who were harmed by Truvada.

Gilead denies it was motivated by profit considerations in the timing of its introduction of the Truvada replacement. The article tells readers:

“Gilead’s top lawyer, Deborah Telman said in a statement that the company’s ‘research and development decisions have always been, and continue to be, guided by our focus on delivering safe and effective medicines for the people who prescribe and use them.’”

Okay, so now we have Gilead’s top lawyer asserting that the company is not being run to maximize profit, but rather is “guided by our focus on delivering safe and effective medicines for the people who prescribe and use them.”

That sounds dangerously woke. Seems like Gilead is crying out for a lawsuit from Mr. DeSantis. Their top lawyer is openly claiming that the company might be jeopardizing profits, and thereby giving lower returns to shareholders, because it is concerned with people’s health.

Presumably, Mr. DeSantis will be pushing his lawsuit against Gilead any day now.

That line is effectively the conventional wisdom among people in policy circles. If that seems absurd, then you need to think more about the way many politicians and intellectual types are approaching climate change.

Just this week, John Kerry, President Biden’s climate envoy, was in China. He was asking the Chinese government to move more quickly in reducing its greenhouse gas emissions. President Xi told Kerry that China was not going to move its current target forward,  which is to start reducing emissions by 2030.   

I know from Twitter that many people think that Kerry’s request was reasonable and that Xi is jeopardizing the planet with his refusal to move forward China’s schedule for emission reductions. This is in spite of the fact that China is by far the world leader in wind energy, solar energy, and electric cars and that all three are growing at double-digit annual rates.

The basic complaint is that China must start reducing its emissions now because of the crisis facing the planet. To my Twitter friends, the problem is that China is the world’s biggest emitter of greenhouse gas. It doesn’t matter that it has four times the population of the U.S. and emits less than half as much on a per-person basis. Nor does it matter that its economy is growing rapidly as it tries to catch up to the living standards enjoyed in the United States and other wealthy countries.

This complaint against China hinges on two sorts of arguments that would be dismissed as nonsense if they were used against the United States.

  • Population size doesn’t matter. We care about how much China is emitting on the whole, not per person.
  • Levels don’t matter, we only care about rates of change.

Taking these in turn, a line I heard endlessly (maybe it came from Chatgpt) is that the climate doesn’t care about per capita emissions, it only cares about total emissions. I have no idea what people were thinking when they wrote this.

Would it be okay if Djibouti, with a population of just over 1 million had fifty times the emissions it has now because the climate only cares about total emissions, not per capita? After all, even with fifty times its current emissions, Djibouti would only be admitting a small fraction of what the U.S. emits.

If we said this about every country with a relatively small population, we would have enormously more emissions than is now the case. I assume anyone who actually cares about the future of the planet would not say that it’s okay for small countries to have per capita emissions that are many times larger than the U.S.

Measured in per capita terms, the United States is among the worst emitters on the planet. We only have a prayer of preventing a horrible climate disaster because just about every other country emits far less per capita.

The second argument raises the question of whether historic emissions somehow entitle a country to future emissions. Just writing that sentence seems close to crazy, but that is in fact what many of my Twitter friends seem to believe.

If we only care about changes and not levels, we are effectively saying that high levels of past emissions allow us to have high levels of future emissions. This line becomes even more absurd when we consider that, in general, higher GDP has been associated with higher levels of emissions. In other words, at least historically, as countries have gotten richer, they have emitted more greenhouse gases.

In the context of China, which is no longer poor, but still a rapidly growing developing country, limiting its future emissions growth would effectively be saying that the country doesn’t have the right to reach U.S. standards of living. This sort of restriction applied to poorer countries would be even more onerous. It would mean that poor countries in Sub-Saharan Africa, Latin America, and South Asia should be denied the opportunity to improve the living standards of their populations because they had not had high emissions in prior years.

The story gets even worse when we consider that the only reason that the planet now faces a climate crisis is that the United States and other wealthy countries have been spewing vast amounts of greenhouse gases into the atmosphere for decades. If we all still had 19th or 18thcentury living standards, global warming would not pose an imminent crisis.

Our China critics are effectively saying that China, and implicitly other developing countries, must be denied the opportunity to improve the living standards of their people because we messed up the planet so badly. That might make sense in intellectual circles here, but that is not an argument that is likely to impress people in China or anywhere outside those circles.

Fortunately for the planet, China actually is moving ahead rapidly in promoting clean energy and electric cars. It is now projected to have its emissions peak in 2025, after which the emissions will be headed downward. This is the result of aggressive policies that it has undertaken to control its emissions, policies that are far more aggressive than anything we have put in place here.

The Chinese government apparently has far more concern for the future of the planet than its critics in the United States. If we did want an opportunity to put our money where our mouth is, the United States could adopt a policy of making all the technology that it develops fully open-source, so that everyone in the world could take advantage of it, without concerns about patent monopolies or other protections.

That would help to speed the process of diffusion so that clean technologies could be adopted more quickly around the world. But doing this could actually mean money out of the pocket of intellectual types here. For that reason, don’t expect to see any discussion of open-sourcing clean technologies in any reputable publication here. Hurting poor people in the developing world might be a fair topic for debate, not taking away money from relatively affluent people here.

That line is effectively the conventional wisdom among people in policy circles. If that seems absurd, then you need to think more about the way many politicians and intellectual types are approaching climate change.

Just this week, John Kerry, President Biden’s climate envoy, was in China. He was asking the Chinese government to move more quickly in reducing its greenhouse gas emissions. President Xi told Kerry that China was not going to move its current target forward,  which is to start reducing emissions by 2030.   

I know from Twitter that many people think that Kerry’s request was reasonable and that Xi is jeopardizing the planet with his refusal to move forward China’s schedule for emission reductions. This is in spite of the fact that China is by far the world leader in wind energy, solar energy, and electric cars and that all three are growing at double-digit annual rates.

The basic complaint is that China must start reducing its emissions now because of the crisis facing the planet. To my Twitter friends, the problem is that China is the world’s biggest emitter of greenhouse gas. It doesn’t matter that it has four times the population of the U.S. and emits less than half as much on a per-person basis. Nor does it matter that its economy is growing rapidly as it tries to catch up to the living standards enjoyed in the United States and other wealthy countries.

This complaint against China hinges on two sorts of arguments that would be dismissed as nonsense if they were used against the United States.

  • Population size doesn’t matter. We care about how much China is emitting on the whole, not per person.
  • Levels don’t matter, we only care about rates of change.

Taking these in turn, a line I heard endlessly (maybe it came from Chatgpt) is that the climate doesn’t care about per capita emissions, it only cares about total emissions. I have no idea what people were thinking when they wrote this.

Would it be okay if Djibouti, with a population of just over 1 million had fifty times the emissions it has now because the climate only cares about total emissions, not per capita? After all, even with fifty times its current emissions, Djibouti would only be admitting a small fraction of what the U.S. emits.

If we said this about every country with a relatively small population, we would have enormously more emissions than is now the case. I assume anyone who actually cares about the future of the planet would not say that it’s okay for small countries to have per capita emissions that are many times larger than the U.S.

Measured in per capita terms, the United States is among the worst emitters on the planet. We only have a prayer of preventing a horrible climate disaster because just about every other country emits far less per capita.

The second argument raises the question of whether historic emissions somehow entitle a country to future emissions. Just writing that sentence seems close to crazy, but that is in fact what many of my Twitter friends seem to believe.

If we only care about changes and not levels, we are effectively saying that high levels of past emissions allow us to have high levels of future emissions. This line becomes even more absurd when we consider that, in general, higher GDP has been associated with higher levels of emissions. In other words, at least historically, as countries have gotten richer, they have emitted more greenhouse gases.

In the context of China, which is no longer poor, but still a rapidly growing developing country, limiting its future emissions growth would effectively be saying that the country doesn’t have the right to reach U.S. standards of living. This sort of restriction applied to poorer countries would be even more onerous. It would mean that poor countries in Sub-Saharan Africa, Latin America, and South Asia should be denied the opportunity to improve the living standards of their populations because they had not had high emissions in prior years.

The story gets even worse when we consider that the only reason that the planet now faces a climate crisis is that the United States and other wealthy countries have been spewing vast amounts of greenhouse gases into the atmosphere for decades. If we all still had 19th or 18thcentury living standards, global warming would not pose an imminent crisis.

Our China critics are effectively saying that China, and implicitly other developing countries, must be denied the opportunity to improve the living standards of their people because we messed up the planet so badly. That might make sense in intellectual circles here, but that is not an argument that is likely to impress people in China or anywhere outside those circles.

Fortunately for the planet, China actually is moving ahead rapidly in promoting clean energy and electric cars. It is now projected to have its emissions peak in 2025, after which the emissions will be headed downward. This is the result of aggressive policies that it has undertaken to control its emissions, policies that are far more aggressive than anything we have put in place here.

The Chinese government apparently has far more concern for the future of the planet than its critics in the United States. If we did want an opportunity to put our money where our mouth is, the United States could adopt a policy of making all the technology that it develops fully open-source, so that everyone in the world could take advantage of it, without concerns about patent monopolies or other protections.

That would help to speed the process of diffusion so that clean technologies could be adopted more quickly around the world. But doing this could actually mean money out of the pocket of intellectual types here. For that reason, don’t expect to see any discussion of open-sourcing clean technologies in any reputable publication here. Hurting poor people in the developing world might be a fair topic for debate, not taking away money from relatively affluent people here.

In some really big news that is likely to get almost no media attention, Senator Bernie Sanders, the chair of the Senate HELP Committee, negotiated a deal with Bill Cassidy, the ranking Republican, on a package of amendments to the reauthorization of the nation’s pandemic preparedness law. While there are a number of items in the deal, a really big one is funding for a study to be done by the National Academies of Sciences, Engineering, and Medicine (NASEM) to consider alternatives to patent monopoly financing of the development of prescription drugs.

This is potentially huge, since our current system is a disaster. No one ever said it was a great idea to finance research by charging tens of thousands of dollars for life-saving drugs, when these drugs would sell for a few hundred dollars in a free market without patent protection. We just ended up here. The study outlined in this bill should mean that we will get a serious evaluation of the current route for financing research relative to alternatives.

As I have argued endlessly, the current patent monopoly system is just an incredibly bad way to finance the development of new drugs, vaccines, and other health-related products. There are many different reasons for this view.

Lower prices

Without patent monopolies and related protections, such as test data exclusivity or non-disclosure agreements, drugs would almost invariably be cheap. It is rare that it is expensive to manufacture and distribute a drug. In this free market world, most drugs would sell for a few dollars a prescription, or in some cases, ten or twenty dollars. We would not have drugs selling for hundreds or even thousands of dollars per prescription.

Most people have some type of insurance, either from the government or private insurance, which picks up much of the tab for drugs. Even if this may make the price affordable for patients, this is not the end of the story.

Insurers are not happy about paying hundreds of dollars for a prescription. When a patient is prescribed an expensive drug, insurers will typically make patients jump through hoops, like getting special letters from their doctor, or first trying a cheaper alternative. These bureaucratic hoops would be an annoyance for anyone, but they are especially bad in this context.

The people who need expensive drugs are often in poor health. That is why they need expensive drugs. So, we end up forcing people in bad health to spend their time chasing after doctors or other healthcare professionals, to get insurers to pay for a drug that would be cheap in a free market. That doesn’t make a lot of sense. Needless to say, many people don’t follow through with the necessary steps and end up not getting the drug their doctor prescribed.

Ending Corruption

Everyone who took Econ 101 can tell you how a 10 or 25 percent trade tariff leads to corruption. People play games mis-categorizing products to find ways around the tariff. The beneficiaries of the tariff use campaign contributions, and occasionally outright bribes, to get politicians to extend and expand the tariff.

These sorts of corruption are completely predictable outcomes from trade tariffs, and we routinely see them in the world. Patent monopolies on drugs raise the same sort of problems, but instead of a tariff that might raise the price of a product by 10-25 percent, we’re talking about raising the price of drugs by many thousand percent with patent monopolies.

The potential profits from selling a drug at a price that is several thousand percent above its production cost gives a very big incentive for corruption. Most immediately the corruption takes the form of misleading doctors and the public about the safety and effectiveness of a product.

This effort takes a variety of forms. The most visible are the endless television ads telling us about the merits of various drugs for treating arthritis, diabetes, or various other conditions. While these ads can provide some information, hearing a famous actor touting a drug they were paid to promote is probably not a good way to determine the best course of treatment for a medical condition.

In fact, this sort of direct-to-the-patient advertising had been banned for many decades, until the Supreme Court determined that this restriction violated free speech. Whether or not the Court’s decision was correct, it would become moot if we took away the patent monopolies. No one would be spending billions of dollars on ads pushing prescription drugs if they were sold in a free market like shovels and paper clips.

But this is only the beginning of the corruption story. Drug companies routinely pay doctors to promote their drugs through various channels. While there have been efforts in recent decades to crack down on the practice of having professional medical opinions for hire, medical journals still struggle to ensure that published articles were actually written by the named authors and were not paid for by drug companies. Researchers who get generous consulting fees from drug companies may be reluctant to criticize a drug marketed by that company, for fear of having this income stream cut off.

This is an especially big issue in health care, as opposed to other areas where companies push their products. This is partly because there are serious problems of asymmetric information; the drug companies know more about their drugs than patients or their doctors. And, also because the consequences are so huge. People may be unhappy if their latest smartphone didn’t live up to expectations, but this just means they wasted some money. If they take a heart medication that is ineffective, or possibly even harmful, it can seriously damage their health or even cost them their life.

The real dangers from mismarketing drugs are not hard to find. To take a couple of examples, the pharmaceutical giant Merck paid billions of dollars to settle suits alleging that it concealed evidence that its arthritis drug, Vioxx, posed serious dangers to people with heart conditions. The opioid crisis stemmed in large part from drug companies misleading doctors about the extent to which the new generation of opioids was addictive. More recently, Biogen lobbied the FDA to get it to approve its Alzheimer’s drug Adulhem, even though its expert panel felt that it was ineffective and potentially dangerous.

Some mistakes in research are inevitable, but the incentive to deliberately mislead doctors and the public about the safety and effectiveness of drugs will largely disappear without patent monopolies. This would be a huge victory for public health.

Ending Waste in the Patent System Itself

The costs of maintaining and enforcing the patent system are a large deadweight loss from the standpoint of the economy as a whole. The resources devoted to filing and enforcing patents do not add even a minute to anyone’s life or improve its quality in any way. The time of the people involved in this process could instead be employed in something productive.

This is getting to be a bigger deal over time. It is increasingly common for drug companies to file dozens of patents of dubious quality to extend the period of protection for their blockbuster drugs. This is a practice that can pay off big for the drug company, even if it is an incredible waste for society.

Patent monopolies are supposed to be an incentive for innovation, but a dubious patent, claiming a monopoly on a trivial innovation, is simply a way to block competition. Drug companies can benefit from this process because of the incredible asymmetry involved in any potential legal dispute. A drug company protecting its patent is fighting for the ability to continue to sell their drug at the patent monopoly-protected price. A generic company challenging the patent is seeking the right to sell the drug in a competitive market.

In addition to possibly securing a monopoly for a longer time than is warranted, millions of dollars of legal expenses can be incurred in these battles. These cases also present another opportunity for corruption, with drug companies sometimes making what are effectively payoffs, in the form of licensing agreements, to persuade generic manufacturers to drop lawsuits contesting patents.

Greater Progress with Open Research

The patent monopoly financing system encourages secrecy in research. Pfizer and Merck want to get as much as possible out of their research and avoid giving away information that could provide an advantage to competitors. This means they only disclose information that is necessary to get a patent. They will not publish research findings that could be useful to competitors. Also, their clinical trial results are proprietary, although in response to pressure, drug companies have been much better about making their full results available in recent years.

If we paid for research upfront, it could be a requirement that all findings be posted on the web as soon as practical. All patents would be in the public domain and any non-disclosure agreements on the research would not be enforceable.[1]

If this sort of system had been in place during the pandemic it would have meant that all the research being done on tests, treatments, and vaccines, everywhere in the world, would have been freely shared. This meant that anyone with the manufacturing capacity could have begun making not only the mRNA vaccines, but also the AstraZeneca vaccine, as well as the ones developed by China, India, and Cuba. The manufacturing could have been done even in advance of approval, since the benefits of having tens of millions of vaccines quickly available swamps the risk of having to throw them out if they don’t prove safe and effective. This would have allowed the world to get vaccinated far more quickly, slowing the spread of the pandemic. It quite likely would have prevented the development of the omicron strain and possibly even the delta strain, saving millions of lives and avoiding hundreds of millions of infections.

It is true that this would have required some sort of international agreement on sharing technology, but the patent system also requires agreement on rules and enforcement. And, anyone who has followed recent trade negotiations knows these agreements have not been easy to reach.

Fostering Research Beyond Patentable Products

When we are relying on patent monopolies to finance research, the only avenues that companies will pursue are ones that are likely to lead to a patentable product. If it seems that diet, exercise, or environmental factors might be important for addressing a specific condition, companies will have no incentive to pursue these paths.

In principle, we have the National Institutes of Health and other public agencies that can pursue these avenues, but there is no reason to assume that information will be freely transferred. After all, if a drug company has spent years researching a drug for diabetes, and it uncovers evidence that dietary issues can be very important in treatment, it has little incentive to share information that could undermine the market for its drug.

By contrast, if all research was fully open, and drug companies are being rewarded for doing research that advances public health, they would have every reason in the world to share findings that were not related to a patentable product. It is also worth noting that this problem also applies to researching new uses for old drugs. If a drug that is off-patent proves to be effective in treating a different condition than the one for which it had been approved, a company would have little incentive to pursue this research.

Inequality

People in policy debates like to blame the rise in inequality over the last four decades on technology. This is not true. It is our rules on technology, not the technology itself, that has led to the growth in inequality.

The case of the Moderna Covid vaccine provides a great case study to make this point. The government paid Moderna just under $1 billion to develop and test its vaccine. Rather than insisting that the vaccine be placed in the public domain, so that it could be produced as a cheap generic, we allowed Moderna to maintain control over its production and distribution. As a result we created at least five Moderna billionaires by the summer of 2021.  

There was nothing about the technology that required that a small number of people at Moderna would get incredibly rich. The problem was the rules we put in place for controlling the technology.

This issue applies to the patent monopoly system more broadly. If we had a system where drug companies contracted with the government to do research, there would undoubtedly be talented and hardworking researchers who would get substantial rewards. However, it is unlikely that this system would produce many billionaires.

And, we should all recognize that there is an enormous amount of money at stake. We will spend over $550 billion this year on prescription drugs. These drugs would likely cost less than $100 billion in a free market without patents and other protections. The difference of $450 billion (more than $5 trillion over a decade) comes to more than $3,000 a year per family. It is real money and it makes a really big difference whose pockets it ends up in.

The issue of inequality should not be a primary factor in designing the best mechanism for developing new drugs, however it is reasonable to consider the impact that the system has on inequality. It is more than a bit backward to design a system that produces an enormous amount of inequality and then to complain about inequality. It is much easier to avoid creating massive inequality in the first place, than to structure the system in a way that generates inequality and somehow expect to be able to tax it back.

As should be clear to everyone by now, money creates political power. If we allow people to get very rich, they will use their political power to ensure that they stay rich.

What Will the NASEM Study Find?

It is great that NASEM will do a study evaluating alternatives to patent monopoly financing for the development of prescription drugs. A serious investigation of this issue is long overdue. I am confident that an honest study would not conclude that the current system is the best system.

However, I have been around Washington long enough to realize that we cannot take an honest study for granted. There is no shortage of academics who are prepared to do the pharmaceutical industry’s bidding. If these people end up carrying out the study, we can assume that they will find that we live in the best of all possible worlds.

Anyhow, this study offers some hope. It would be nice if its existence got a little attention from the media, but I suppose the issue is too important for them to be concerned about. We will see where this goes, but Senator Sanders should be congratulated for moving the ball forward.

[1] In my ideal world, money would be parceled out in long-term contracts (10-15 years) to do research in specific areas, such as lung cancer or heart disease. The companies that got the money would be like prime contractors in the military, with the understanding that they would likely subcontract with smaller companies or start-ups. These subcontractors would also be bound by the openness requirements. Companies would have a strong incentive to produce results, since they presumably would want contracts renewed and expanded. (I discuss this plan in chapter 5 of Rigged [it’s free].) This openness requirement would not be feasible in a prize system, since companies would still have an incentive to keep their work secret until the point where the prize was awarded.

In some really big news that is likely to get almost no media attention, Senator Bernie Sanders, the chair of the Senate HELP Committee, negotiated a deal with Bill Cassidy, the ranking Republican, on a package of amendments to the reauthorization of the nation’s pandemic preparedness law. While there are a number of items in the deal, a really big one is funding for a study to be done by the National Academies of Sciences, Engineering, and Medicine (NASEM) to consider alternatives to patent monopoly financing of the development of prescription drugs.

This is potentially huge, since our current system is a disaster. No one ever said it was a great idea to finance research by charging tens of thousands of dollars for life-saving drugs, when these drugs would sell for a few hundred dollars in a free market without patent protection. We just ended up here. The study outlined in this bill should mean that we will get a serious evaluation of the current route for financing research relative to alternatives.

As I have argued endlessly, the current patent monopoly system is just an incredibly bad way to finance the development of new drugs, vaccines, and other health-related products. There are many different reasons for this view.

Lower prices

Without patent monopolies and related protections, such as test data exclusivity or non-disclosure agreements, drugs would almost invariably be cheap. It is rare that it is expensive to manufacture and distribute a drug. In this free market world, most drugs would sell for a few dollars a prescription, or in some cases, ten or twenty dollars. We would not have drugs selling for hundreds or even thousands of dollars per prescription.

Most people have some type of insurance, either from the government or private insurance, which picks up much of the tab for drugs. Even if this may make the price affordable for patients, this is not the end of the story.

Insurers are not happy about paying hundreds of dollars for a prescription. When a patient is prescribed an expensive drug, insurers will typically make patients jump through hoops, like getting special letters from their doctor, or first trying a cheaper alternative. These bureaucratic hoops would be an annoyance for anyone, but they are especially bad in this context.

The people who need expensive drugs are often in poor health. That is why they need expensive drugs. So, we end up forcing people in bad health to spend their time chasing after doctors or other healthcare professionals, to get insurers to pay for a drug that would be cheap in a free market. That doesn’t make a lot of sense. Needless to say, many people don’t follow through with the necessary steps and end up not getting the drug their doctor prescribed.

Ending Corruption

Everyone who took Econ 101 can tell you how a 10 or 25 percent trade tariff leads to corruption. People play games mis-categorizing products to find ways around the tariff. The beneficiaries of the tariff use campaign contributions, and occasionally outright bribes, to get politicians to extend and expand the tariff.

These sorts of corruption are completely predictable outcomes from trade tariffs, and we routinely see them in the world. Patent monopolies on drugs raise the same sort of problems, but instead of a tariff that might raise the price of a product by 10-25 percent, we’re talking about raising the price of drugs by many thousand percent with patent monopolies.

The potential profits from selling a drug at a price that is several thousand percent above its production cost gives a very big incentive for corruption. Most immediately the corruption takes the form of misleading doctors and the public about the safety and effectiveness of a product.

This effort takes a variety of forms. The most visible are the endless television ads telling us about the merits of various drugs for treating arthritis, diabetes, or various other conditions. While these ads can provide some information, hearing a famous actor touting a drug they were paid to promote is probably not a good way to determine the best course of treatment for a medical condition.

In fact, this sort of direct-to-the-patient advertising had been banned for many decades, until the Supreme Court determined that this restriction violated free speech. Whether or not the Court’s decision was correct, it would become moot if we took away the patent monopolies. No one would be spending billions of dollars on ads pushing prescription drugs if they were sold in a free market like shovels and paper clips.

But this is only the beginning of the corruption story. Drug companies routinely pay doctors to promote their drugs through various channels. While there have been efforts in recent decades to crack down on the practice of having professional medical opinions for hire, medical journals still struggle to ensure that published articles were actually written by the named authors and were not paid for by drug companies. Researchers who get generous consulting fees from drug companies may be reluctant to criticize a drug marketed by that company, for fear of having this income stream cut off.

This is an especially big issue in health care, as opposed to other areas where companies push their products. This is partly because there are serious problems of asymmetric information; the drug companies know more about their drugs than patients or their doctors. And, also because the consequences are so huge. People may be unhappy if their latest smartphone didn’t live up to expectations, but this just means they wasted some money. If they take a heart medication that is ineffective, or possibly even harmful, it can seriously damage their health or even cost them their life.

The real dangers from mismarketing drugs are not hard to find. To take a couple of examples, the pharmaceutical giant Merck paid billions of dollars to settle suits alleging that it concealed evidence that its arthritis drug, Vioxx, posed serious dangers to people with heart conditions. The opioid crisis stemmed in large part from drug companies misleading doctors about the extent to which the new generation of opioids was addictive. More recently, Biogen lobbied the FDA to get it to approve its Alzheimer’s drug Adulhem, even though its expert panel felt that it was ineffective and potentially dangerous.

Some mistakes in research are inevitable, but the incentive to deliberately mislead doctors and the public about the safety and effectiveness of drugs will largely disappear without patent monopolies. This would be a huge victory for public health.

Ending Waste in the Patent System Itself

The costs of maintaining and enforcing the patent system are a large deadweight loss from the standpoint of the economy as a whole. The resources devoted to filing and enforcing patents do not add even a minute to anyone’s life or improve its quality in any way. The time of the people involved in this process could instead be employed in something productive.

This is getting to be a bigger deal over time. It is increasingly common for drug companies to file dozens of patents of dubious quality to extend the period of protection for their blockbuster drugs. This is a practice that can pay off big for the drug company, even if it is an incredible waste for society.

Patent monopolies are supposed to be an incentive for innovation, but a dubious patent, claiming a monopoly on a trivial innovation, is simply a way to block competition. Drug companies can benefit from this process because of the incredible asymmetry involved in any potential legal dispute. A drug company protecting its patent is fighting for the ability to continue to sell their drug at the patent monopoly-protected price. A generic company challenging the patent is seeking the right to sell the drug in a competitive market.

In addition to possibly securing a monopoly for a longer time than is warranted, millions of dollars of legal expenses can be incurred in these battles. These cases also present another opportunity for corruption, with drug companies sometimes making what are effectively payoffs, in the form of licensing agreements, to persuade generic manufacturers to drop lawsuits contesting patents.

Greater Progress with Open Research

The patent monopoly financing system encourages secrecy in research. Pfizer and Merck want to get as much as possible out of their research and avoid giving away information that could provide an advantage to competitors. This means they only disclose information that is necessary to get a patent. They will not publish research findings that could be useful to competitors. Also, their clinical trial results are proprietary, although in response to pressure, drug companies have been much better about making their full results available in recent years.

If we paid for research upfront, it could be a requirement that all findings be posted on the web as soon as practical. All patents would be in the public domain and any non-disclosure agreements on the research would not be enforceable.[1]

If this sort of system had been in place during the pandemic it would have meant that all the research being done on tests, treatments, and vaccines, everywhere in the world, would have been freely shared. This meant that anyone with the manufacturing capacity could have begun making not only the mRNA vaccines, but also the AstraZeneca vaccine, as well as the ones developed by China, India, and Cuba. The manufacturing could have been done even in advance of approval, since the benefits of having tens of millions of vaccines quickly available swamps the risk of having to throw them out if they don’t prove safe and effective. This would have allowed the world to get vaccinated far more quickly, slowing the spread of the pandemic. It quite likely would have prevented the development of the omicron strain and possibly even the delta strain, saving millions of lives and avoiding hundreds of millions of infections.

It is true that this would have required some sort of international agreement on sharing technology, but the patent system also requires agreement on rules and enforcement. And, anyone who has followed recent trade negotiations knows these agreements have not been easy to reach.

Fostering Research Beyond Patentable Products

When we are relying on patent monopolies to finance research, the only avenues that companies will pursue are ones that are likely to lead to a patentable product. If it seems that diet, exercise, or environmental factors might be important for addressing a specific condition, companies will have no incentive to pursue these paths.

In principle, we have the National Institutes of Health and other public agencies that can pursue these avenues, but there is no reason to assume that information will be freely transferred. After all, if a drug company has spent years researching a drug for diabetes, and it uncovers evidence that dietary issues can be very important in treatment, it has little incentive to share information that could undermine the market for its drug.

By contrast, if all research was fully open, and drug companies are being rewarded for doing research that advances public health, they would have every reason in the world to share findings that were not related to a patentable product. It is also worth noting that this problem also applies to researching new uses for old drugs. If a drug that is off-patent proves to be effective in treating a different condition than the one for which it had been approved, a company would have little incentive to pursue this research.

Inequality

People in policy debates like to blame the rise in inequality over the last four decades on technology. This is not true. It is our rules on technology, not the technology itself, that has led to the growth in inequality.

The case of the Moderna Covid vaccine provides a great case study to make this point. The government paid Moderna just under $1 billion to develop and test its vaccine. Rather than insisting that the vaccine be placed in the public domain, so that it could be produced as a cheap generic, we allowed Moderna to maintain control over its production and distribution. As a result we created at least five Moderna billionaires by the summer of 2021.  

There was nothing about the technology that required that a small number of people at Moderna would get incredibly rich. The problem was the rules we put in place for controlling the technology.

This issue applies to the patent monopoly system more broadly. If we had a system where drug companies contracted with the government to do research, there would undoubtedly be talented and hardworking researchers who would get substantial rewards. However, it is unlikely that this system would produce many billionaires.

And, we should all recognize that there is an enormous amount of money at stake. We will spend over $550 billion this year on prescription drugs. These drugs would likely cost less than $100 billion in a free market without patents and other protections. The difference of $450 billion (more than $5 trillion over a decade) comes to more than $3,000 a year per family. It is real money and it makes a really big difference whose pockets it ends up in.

The issue of inequality should not be a primary factor in designing the best mechanism for developing new drugs, however it is reasonable to consider the impact that the system has on inequality. It is more than a bit backward to design a system that produces an enormous amount of inequality and then to complain about inequality. It is much easier to avoid creating massive inequality in the first place, than to structure the system in a way that generates inequality and somehow expect to be able to tax it back.

As should be clear to everyone by now, money creates political power. If we allow people to get very rich, they will use their political power to ensure that they stay rich.

What Will the NASEM Study Find?

It is great that NASEM will do a study evaluating alternatives to patent monopoly financing for the development of prescription drugs. A serious investigation of this issue is long overdue. I am confident that an honest study would not conclude that the current system is the best system.

However, I have been around Washington long enough to realize that we cannot take an honest study for granted. There is no shortage of academics who are prepared to do the pharmaceutical industry’s bidding. If these people end up carrying out the study, we can assume that they will find that we live in the best of all possible worlds.

Anyhow, this study offers some hope. It would be nice if its existence got a little attention from the media, but I suppose the issue is too important for them to be concerned about. We will see where this goes, but Senator Sanders should be congratulated for moving the ball forward.

[1] In my ideal world, money would be parceled out in long-term contracts (10-15 years) to do research in specific areas, such as lung cancer or heart disease. The companies that got the money would be like prime contractors in the military, with the understanding that they would likely subcontract with smaller companies or start-ups. These subcontractors would also be bound by the openness requirements. Companies would have a strong incentive to produce results, since they presumably would want contracts renewed and expanded. (I discuss this plan in chapter 5 of Rigged [it’s free].) This openness requirement would not be feasible in a prize system, since companies would still have an incentive to keep their work secret until the point where the prize was awarded.

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