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.

The approach of the end of the year seems a good time to sum up thoughts. My comments here will not be news to regular readers, but may be to others. Also, this exercise is helpful for me to keep my thoughts clear. (I also expect to take next week off, so you won’t be hearing from me for a while.)

Most of my work for the last several years has been focused on ways to reduce before tax inequality by reducing the amount of before-tax income that goes to those at the top of the income distribution. For better or worse, there don’t seem to be a lot of progressives that share this beat. There are a few points that are worth making.

First, my focus on reducing income at the top doesn’t mean for a second that I don’t see efforts at raising income for those at the bottom (and middle) as being important. I have long been involved with or worked alongside people trying to raise minimum wages, protect or increase Social Security benefits, and increase unionization rates.

These are very important efforts, but at the end of the day, our ability to raise incomes at the middle and bottom will depend on reducing incomes at the top. This gets to the old pie-cutting story. If we want those at the middle and bottom to have much bigger slices of the pie, the folks at the top will have to get by with smaller slices.

To see how skewed the pie eating has gotten, if the federal minimum wage had kept pace with productivity growth since 1968, as it did from its establishment in 1938 until 1968, it would be $24 an hour today. That means a single full-time minimum wage earner would have an income of $48,000 a year. A two-earner couple getting the minimum wage would have an income of $96,000 a year.

This is a striking counter-factual, but we can’t just go from here to there. In order for the economy to allow for this sort income and consumption by those at the middle and bottom, we have to reduce income and consumption at the top.

We can talk about expanding the pie, but I don’t think that I, or anyone else, has a magical formula to hugely expand the size of the pie.  There are areas where better policy can lead to a more productive economy, but we are more likely talking about one to two percent rather than ten to twenty percent, and even these gains are likely to be a long-term story, not gains we can see in two or three years.

It is also worth focusing on what pie-eating among the top means. There are many progressives who have made a sport of highlighting the enormous wealth that Jeff Bezos, Mark Zuckerberg, and other super-rich types have accrued from recent stock market gains. While the wealth of the super-rich is obscene, reducing these fortunes will actually not free up much room for more income lower down the ladder.

As a practical matter, Jeff Bezos and Mark Zuckerberg probably don’t consume much more in a given year than your average single-digit billionaire. This means that if we took away $100 billion from each of them, it would not free up much consumption for those at the bottom. If we want to create the economic space to substantially expand incomes at the middle and the bottom, we will have to substantially reduce the consumption of not just some tiny segment of super-rich people, but also the rest of the top one percent and even the top five percent. (That gets us a cutoff in household income of around $300,000.) We might even have to knock down the income a bit of the next five percent (cutoff of household income around $200,000).   

There is the political issue of the enormous influence that the super-rich can buy with their wealth. This is a huge problem, but it is best addressed in the near-term by increasing the opportunities for ordinary people to have a voice.

I know many on the left want to use taxes to reduce the income, and therefore consumption, of those at the top. While we can and should make our tax system more progressive, there are real limits on how far we can push progressive taxation. Rich people don’t like to pay taxes. They can and do find ways to avoid and evade taxes. Insofar as they are successful in these efforts, we fail to reduce their income in the way intended, we create a huge tax-gaming industry, which is a source of economic waste and itself a generator of inequality, and we undermine faith in the system.

It is far better if we change economic structures in ways that don’t allow people to get so rich in the first place. As a political matter, it is hard to defend an institutional structure that is both inefficient and a large generator inequality. As a practical matter, it is much easier to design systems that don’t give rich people billions of dollars in the first place, than to try to impose taxes that pull most of their billions back after the fact.

This is the basis of my thinking in much of my work. I lay out the case most completely in Rigged (it’s free), but I am constantly looking for new areas where altering rules can lead to less inequality, without jeopardizing efficiency.   

 

 

Patent and Copyright Monopolies

I like to begin with patent and copyright monopolies both because this is the clearest case, and also because the most money is at stake. The basic point is painfully simple: patent and copyright monopolies are not intrinsic to the market, they are government policies designed to promote innovation and creative work.

As policies, they can be altered as we choose. They can be shorter or longer, stronger or weaker. We also can use other mechanisms to promote innovation and creative work.

These policies transfer an enormous amount of income from the bulk of the population to those in a position to benefit from patent and copyright monopolies. I calculated that these policies may transfer over $1 trillion a year from the rest of us to the beneficiaries of patent and copyright monopolies. This is an amount that is larger than the military budget, it is close to half of all before-tax corporate profits. In other words, it is real money.

Prescription drugs are the largest single chunk of this sum. Drugs are important, not only because of the money involved, but also because people’s lives and health are at stake. The drugs that sell for tens, or even hundreds, of thousands of dollars would almost invariably be cheap in a world without patent monopolies and related protections. While any price is expensive for the poor, for most people, paying for drugs would not be a big problem if they sold for ten or fifteen dollars per prescription. Doctors could freely prescribe what they view as the best drug for their patients, without regard to price. (We need to make sure that government programs pick up the tab for the poor.)

There is also the issue of the perverse incentives created by patent monopolies. Drug companies routinely misrepresent the safety and effectiveness of their drugs to maximize their sales and therefore the benefit of monopoly pricing. The most extreme case (which no one ever talks about) is the opioid crisis, which was worsened as a result of drug companies widely pushing drugs that they knew to be more addictive than claimed.

The inequality story is also straightforward. Dishwashers and custodians don’t benefit from patent monopolies. A very limited group of workers are in a position to get big gains from these policies. Bill Gates would likely still be working for a living if not for the patent and copyright monopolies on Microsoft software. When economists say that “technology” has increased the returns to education and inequality, they actually mean that patent and copyright monopolies have increased the returns to education and inequality, but it sounds much better to blame inequality on an abstract force than government policy.

 

The Corruption of Corporate Governance

There is a simple point here that seems to largely escape people on the left. CEOs are not worth their $20 million paychecks. That is not a moral assessment of the value of their work, that is a dollar and cents calculation about their value to the companies that employ them.

At this point there is a considerable body of research that shows the pay of CEOs is not closely related to the returns they provide to shareholders. Bebchek and Fried have a somewhat dated collection of research on the topic. I reference some more recent material in chapter 6 of Rigged. A couple of years ago, Jessica Schieder and I also contributed a piece to this literature.

The fact that CEOs are not worth their pay matters because it means that they are effectively ripping off the companies for which they work. There is a widely held view, that in recent decades, companies have been run to maximize returns to shareholders. However, if CEOs have been earning huge paychecks at the expense of the companies they work for, then it is not the case that companies are being run to maximize returns to shareholders.

The fact that returns to shareholders have not been high by historical standards over the last two decades supports the view that CEOs are not maximizing returns to shareholders. It is also worth noting that the shift of income from labor to capital only explains about 10 percent of the upward redistribution of the last four decades.

The fact that CEOs might be gaining at the expense of shareholders is not just a question of which group of rich people get the money. At the most basic level, there is reason to prefer the marginal dollar goes to shareholders, since even with the enormous skewing stock ownership, a substantial portion of shares are owned by middle class people in their 401(k)s and pension funds. By contrast, every dollar going to a CEO is going to someone in the top 0.001 percent of the income distribution.

But more importantly, the bloated pay of CEOs has a huge impact on pays scales throughout the economy. If the CEO is getting $20 million then it is likely the chief financial officer and other top tier executives are getting close to $10 million. And the third tier can be getting $2 or $3 million. By contrast, if we had the pay scales of forty years ago, the CEO would be getting $2 to $3 million. The second tier would be correspondingly lower, and the third tier may not even crack $1 million. The excess pay at the top in the corporate sector also leads to bloated pay for top executives in universities and private charities. And, with all this money going to the top, there is less for everyone else.  

Anyhow, it should be apparent both that lowering the pay for CEOs will be a huge step in reducing income inequality, and that shareholders should be allies in this battle. Changing the rules of corporate governance (these are set by the government) to give shareholders more control over CEO pay can lead to lower pay at the top and therefore less inequality.

 

Globalization is a Policy, not an Exogenous Event

A popular story among elite types is that we can’t have good-paying factory jobs that can support a family because of globalization. The deal is that workers earning $30 an hour, plus benefits, can’t compete with workers in places like Mexico and China, who can do the same work for less than one-tenth as much. 

This is true. But the fact that our factory workers were put in direct competition with low paid workers in the developing world was not just something that happened, it was the result of deliberate policy. Our trade deals were designed to make it as easy as possible for U.S. corporations to outsource work to developing countries and bring manufactured goods back into the United States. The massive loss of manufacturing jobs in the years from 2000 to 2007 (pre-Great Recession) was not an accident, that was the point of our trade deals.

We could have constructed our trade deals differently. Instead of putting manufacturing workers in competition with their counterparts in the developing world, we could have designed our trade deals to put doctors, dentists and other highly paid professionals in direct competition with their counterparts in the developing world. This would have meant standardizing licensing requirements in ways that ensured safety standards, while making it as easy as possible for foreign professionals to train to meet these standards and then practice freely in the United States.

While doctors are not among the super-rich, their average pay is close to $280,000 a year, putting them in the top two percent of wage earners.  They also earn roughly $100,000 more annually than their counterparts in other wealthy countries. If we got doctors’ pay down to the levels in Germany or France, it would save us close to $100 billion a year. That comes to $700 per year per household.

When I have raised this issue with other progressives, many first dispute the idea that we could get foreign doctors that meet our standards. When I convince them of the absurdity of this position (there are plenty of very smart people in places like Mexico and India who would be happy to train to our standards for the opportunity to practice medicine here), they often respond with comments like people like their doctors or that they personally like their doctor.

I get that, but there is some serious logic missing. I like the person who cuts my hair; she doesn’t earn $280,000 a year. Essentially, these progressive types are expressing class solidarity with very highly paid professionals. They are welcome to do so, although it is an odd position for people who consider themselves progressive, but there is a more fundamental and simple point at stake.

The fact that autoworkers have to compete with low-paid workers in the developing world, and doctors don’t, is a political choice. This was not the result of an exorable process of globalization, it was the result of how policy types chose to structure globalization. No one should be surprised if manufacturing workers, and workers without college degrees more generally, who have been hurt by the loss of good-paying manufacturing jobs, are resentful of this decision. 

 

The Financial Sector: Economic Bloat and the Bloated

The financial sector is the source of many of the country’s great fortunes, it is also a source of enormous waste. Finance is an intermediate good, like trucking. It is very important to the economy; we need an industry that allocates capital and makes payments. But just as we want as few resources as possible involved in shipping our goods from Point A to Point B, we also want as few resources as possible tied up in the financial sector. 

In fact, the financial sector has exploded in size relative to the rest of the economy over the last five decades. We have seen a massive increase in financial transactions, as new financial assets are being constantly created and the existing ones are being traded more frequently. It is difficult to see much gain to the real economy from this explosion in the size and complexity of the financial sector, even if it has meant big fortunes for many people in the sector.

My favorite remedy is a financial transactions tax, which can be thought of as equivalent to the sales tax we impose on most of the goods we buy. A modest tax could easily raise $100 billion a year (0.5 percent of GDP), which would come almost entirely at the expense of the industry.

I find that many people have difficulty understanding how the tax would come at the expense of the industry and not investors. They insist that that banks and brokerage houses will just pass on the tax to investors. This is largely true but it misses the point.

There is considerable research showing that the volume of trading falls roughly in proportion to the increase in the cost of trading. This means that if the cost of trading rises by 40 percent, then the number of shares bought and sold will fall by roughly 40 percent. This means that, for a typical investor, the increase in the cost per trade due to the tax will be offset by the reduction in the number of trades they or their fund manager make.

This means that the total amount that they spend on trading will be little changed, but money they used to pay to the industry for carrying through trades will instead be paid to the government in taxes. Since trades are on net a wash (every trade has a winner and loser, this averages out for all but the most astute investors), investors will not be hurt by a reduction in trading volume.

This one often leaves people baffled, since if they aren’t gaining from trading now, they could reduce their volume of trading and save money. That view is correct, they could save money with fewer trades, but nonetheless many people choose to bet that they, or a fund manager will be able to beat the market.

Anyhow, the point here is that if we just applied similar tax treatment to the financial sector as we apply to most goods and services we buy, we would have a radically downsized sector and many fewer great fortunes being earned there.

The other simple quick fix would be to crack down on private equity funds, which are a source of great fortunes for fund partners. My colleague Eileen Appelbaum, along with Rose Batt, has documented many of the abuses the industry has developed to maximize their returns.

In addition to cracking down on abuses, which can get complicated, a simpler issue is that private equity is no longer giving above market returns. In the 1980s and 1990s private equity companies were able to find many underpriced companies, turn them around and make large profits reselling them when they took the company public. This no longer seems to be the case as their returns have largely followed the market since 2006. This means that there is no reason for pension funds, the major source of private equity funding, to be tying up their assets with them.

Even though pension funds may not be gaining by investing with private equity, many of their managers are convinced that they do. There is an easy remedy here. Just require the terms of all contracts of public pension funds with investment managers, including private equity, be posted on the fund’s website, showing in clear terms what the managers get paid and the return on the investment. It is likely that the mediocre returns on private equity funds, coupled with the large payments to the private equity managers, would soon discourage pensions from continuing to turn over large amounts of money to these funds.

There are other areas where we can both make the economy more efficient and reduce the opportunities for large fortunes in the financial sector. The most obvious is cleaning up the room for abusive credit practices that the Consumer Financial Protection Bureau was designed to target. There is no economic reason to give clever lawyers and accountants incentives to design ways to rip-off their customers. If these practices are blocked, by regulation or law, it a pure gain for the economy.

As a general rule when it comes to the financial sector, we want it small and we want it simple. If we see lots of resources being devoted to the sector, it is clear indication we have a problem.

 

Fixing Facebook and Social Media: Treat Them Like Other Media

The battle over Section 230 of the 1996 Communications Decency Act has taken a bizarre turn in recent months because Donald Trump seems to have been convinced that repealing it would mean that Twitter and Facebook couldn’t comment on or take down his posts. Actually, the opposite is true. In their current form, without Section 230 protection, Twitter and Facebook would probably be more likely to remove material posted by Donald Trump because it could be libelous and make them subject to legal actions.

But ignoring the Trump confusion, the issue with Section 230 protection is why should Internet outlets be protected from damages, when the exact same material in a traditional print or broadcast outlet could lead to a lawsuit costing millions? Just to be clear, the issue is not directly posted material. If Facebook itself were to post libelous material it would face the same legal liability as the New York Times or CNN. The issue is third party content, where social media companies are completely protected.

If we applied the same rules to Facebook, Twitter, and other social media companies as we do to traditional news outlets (I describe how this could be done in more detail here), we would likely see a radically downsized Facebook and Twitter. There would still be considerable opportunities to make money in this sector, but likely much less than Mark Zuckerberg has made to date.

Even more important than downsizing Mark Zuckerberg’s fortune is the issue of democratic control. In both the 2016 and 2020 elections, the public was in the position of begging Mark Zuckerberg to be responsible in the material he was allowing to be spread across his network. We should never be in the position of hoping some billionaire media mogul acts responsibly, with enormous consequences for democracy if they don’t. This is a very good argument for breaking up Facebook, so that Mr. Zuckerberg’s decisions do not have so much impact on our political process, but repealing Section 230 may get us to the same place through a much simpler mechanism.

 

Wishing You a Happy and More Egalitarian New Year

 

Well, that’s the list for now. I have other schemes, as my regular readers know, but these are the big ones. The point is that we should never take market outcomes as simple givens. We can structure the market in an infinite number of different ways. Any political strategy that doesn’t acknowledge this basic point is doomed to failure.

The approach of the end of the year seems a good time to sum up thoughts. My comments here will not be news to regular readers, but may be to others. Also, this exercise is helpful for me to keep my thoughts clear. (I also expect to take next week off, so you won’t be hearing from me for a while.)

Most of my work for the last several years has been focused on ways to reduce before tax inequality by reducing the amount of before-tax income that goes to those at the top of the income distribution. For better or worse, there don’t seem to be a lot of progressives that share this beat. There are a few points that are worth making.

First, my focus on reducing income at the top doesn’t mean for a second that I don’t see efforts at raising income for those at the bottom (and middle) as being important. I have long been involved with or worked alongside people trying to raise minimum wages, protect or increase Social Security benefits, and increase unionization rates.

These are very important efforts, but at the end of the day, our ability to raise incomes at the middle and bottom will depend on reducing incomes at the top. This gets to the old pie-cutting story. If we want those at the middle and bottom to have much bigger slices of the pie, the folks at the top will have to get by with smaller slices.

To see how skewed the pie eating has gotten, if the federal minimum wage had kept pace with productivity growth since 1968, as it did from its establishment in 1938 until 1968, it would be $24 an hour today. That means a single full-time minimum wage earner would have an income of $48,000 a year. A two-earner couple getting the minimum wage would have an income of $96,000 a year.

This is a striking counter-factual, but we can’t just go from here to there. In order for the economy to allow for this sort income and consumption by those at the middle and bottom, we have to reduce income and consumption at the top.

We can talk about expanding the pie, but I don’t think that I, or anyone else, has a magical formula to hugely expand the size of the pie.  There are areas where better policy can lead to a more productive economy, but we are more likely talking about one to two percent rather than ten to twenty percent, and even these gains are likely to be a long-term story, not gains we can see in two or three years.

It is also worth focusing on what pie-eating among the top means. There are many progressives who have made a sport of highlighting the enormous wealth that Jeff Bezos, Mark Zuckerberg, and other super-rich types have accrued from recent stock market gains. While the wealth of the super-rich is obscene, reducing these fortunes will actually not free up much room for more income lower down the ladder.

As a practical matter, Jeff Bezos and Mark Zuckerberg probably don’t consume much more in a given year than your average single-digit billionaire. This means that if we took away $100 billion from each of them, it would not free up much consumption for those at the bottom. If we want to create the economic space to substantially expand incomes at the middle and the bottom, we will have to substantially reduce the consumption of not just some tiny segment of super-rich people, but also the rest of the top one percent and even the top five percent. (That gets us a cutoff in household income of around $300,000.) We might even have to knock down the income a bit of the next five percent (cutoff of household income around $200,000).   

There is the political issue of the enormous influence that the super-rich can buy with their wealth. This is a huge problem, but it is best addressed in the near-term by increasing the opportunities for ordinary people to have a voice.

I know many on the left want to use taxes to reduce the income, and therefore consumption, of those at the top. While we can and should make our tax system more progressive, there are real limits on how far we can push progressive taxation. Rich people don’t like to pay taxes. They can and do find ways to avoid and evade taxes. Insofar as they are successful in these efforts, we fail to reduce their income in the way intended, we create a huge tax-gaming industry, which is a source of economic waste and itself a generator of inequality, and we undermine faith in the system.

It is far better if we change economic structures in ways that don’t allow people to get so rich in the first place. As a political matter, it is hard to defend an institutional structure that is both inefficient and a large generator inequality. As a practical matter, it is much easier to design systems that don’t give rich people billions of dollars in the first place, than to try to impose taxes that pull most of their billions back after the fact.

This is the basis of my thinking in much of my work. I lay out the case most completely in Rigged (it’s free), but I am constantly looking for new areas where altering rules can lead to less inequality, without jeopardizing efficiency.   

 

 

Patent and Copyright Monopolies

I like to begin with patent and copyright monopolies both because this is the clearest case, and also because the most money is at stake. The basic point is painfully simple: patent and copyright monopolies are not intrinsic to the market, they are government policies designed to promote innovation and creative work.

As policies, they can be altered as we choose. They can be shorter or longer, stronger or weaker. We also can use other mechanisms to promote innovation and creative work.

These policies transfer an enormous amount of income from the bulk of the population to those in a position to benefit from patent and copyright monopolies. I calculated that these policies may transfer over $1 trillion a year from the rest of us to the beneficiaries of patent and copyright monopolies. This is an amount that is larger than the military budget, it is close to half of all before-tax corporate profits. In other words, it is real money.

Prescription drugs are the largest single chunk of this sum. Drugs are important, not only because of the money involved, but also because people’s lives and health are at stake. The drugs that sell for tens, or even hundreds, of thousands of dollars would almost invariably be cheap in a world without patent monopolies and related protections. While any price is expensive for the poor, for most people, paying for drugs would not be a big problem if they sold for ten or fifteen dollars per prescription. Doctors could freely prescribe what they view as the best drug for their patients, without regard to price. (We need to make sure that government programs pick up the tab for the poor.)

There is also the issue of the perverse incentives created by patent monopolies. Drug companies routinely misrepresent the safety and effectiveness of their drugs to maximize their sales and therefore the benefit of monopoly pricing. The most extreme case (which no one ever talks about) is the opioid crisis, which was worsened as a result of drug companies widely pushing drugs that they knew to be more addictive than claimed.

The inequality story is also straightforward. Dishwashers and custodians don’t benefit from patent monopolies. A very limited group of workers are in a position to get big gains from these policies. Bill Gates would likely still be working for a living if not for the patent and copyright monopolies on Microsoft software. When economists say that “technology” has increased the returns to education and inequality, they actually mean that patent and copyright monopolies have increased the returns to education and inequality, but it sounds much better to blame inequality on an abstract force than government policy.

 

The Corruption of Corporate Governance

There is a simple point here that seems to largely escape people on the left. CEOs are not worth their $20 million paychecks. That is not a moral assessment of the value of their work, that is a dollar and cents calculation about their value to the companies that employ them.

At this point there is a considerable body of research that shows the pay of CEOs is not closely related to the returns they provide to shareholders. Bebchek and Fried have a somewhat dated collection of research on the topic. I reference some more recent material in chapter 6 of Rigged. A couple of years ago, Jessica Schieder and I also contributed a piece to this literature.

The fact that CEOs are not worth their pay matters because it means that they are effectively ripping off the companies for which they work. There is a widely held view, that in recent decades, companies have been run to maximize returns to shareholders. However, if CEOs have been earning huge paychecks at the expense of the companies they work for, then it is not the case that companies are being run to maximize returns to shareholders.

The fact that returns to shareholders have not been high by historical standards over the last two decades supports the view that CEOs are not maximizing returns to shareholders. It is also worth noting that the shift of income from labor to capital only explains about 10 percent of the upward redistribution of the last four decades.

The fact that CEOs might be gaining at the expense of shareholders is not just a question of which group of rich people get the money. At the most basic level, there is reason to prefer the marginal dollar goes to shareholders, since even with the enormous skewing stock ownership, a substantial portion of shares are owned by middle class people in their 401(k)s and pension funds. By contrast, every dollar going to a CEO is going to someone in the top 0.001 percent of the income distribution.

But more importantly, the bloated pay of CEOs has a huge impact on pays scales throughout the economy. If the CEO is getting $20 million then it is likely the chief financial officer and other top tier executives are getting close to $10 million. And the third tier can be getting $2 or $3 million. By contrast, if we had the pay scales of forty years ago, the CEO would be getting $2 to $3 million. The second tier would be correspondingly lower, and the third tier may not even crack $1 million. The excess pay at the top in the corporate sector also leads to bloated pay for top executives in universities and private charities. And, with all this money going to the top, there is less for everyone else.  

Anyhow, it should be apparent both that lowering the pay for CEOs will be a huge step in reducing income inequality, and that shareholders should be allies in this battle. Changing the rules of corporate governance (these are set by the government) to give shareholders more control over CEO pay can lead to lower pay at the top and therefore less inequality.

 

Globalization is a Policy, not an Exogenous Event

A popular story among elite types is that we can’t have good-paying factory jobs that can support a family because of globalization. The deal is that workers earning $30 an hour, plus benefits, can’t compete with workers in places like Mexico and China, who can do the same work for less than one-tenth as much. 

This is true. But the fact that our factory workers were put in direct competition with low paid workers in the developing world was not just something that happened, it was the result of deliberate policy. Our trade deals were designed to make it as easy as possible for U.S. corporations to outsource work to developing countries and bring manufactured goods back into the United States. The massive loss of manufacturing jobs in the years from 2000 to 2007 (pre-Great Recession) was not an accident, that was the point of our trade deals.

We could have constructed our trade deals differently. Instead of putting manufacturing workers in competition with their counterparts in the developing world, we could have designed our trade deals to put doctors, dentists and other highly paid professionals in direct competition with their counterparts in the developing world. This would have meant standardizing licensing requirements in ways that ensured safety standards, while making it as easy as possible for foreign professionals to train to meet these standards and then practice freely in the United States.

While doctors are not among the super-rich, their average pay is close to $280,000 a year, putting them in the top two percent of wage earners.  They also earn roughly $100,000 more annually than their counterparts in other wealthy countries. If we got doctors’ pay down to the levels in Germany or France, it would save us close to $100 billion a year. That comes to $700 per year per household.

When I have raised this issue with other progressives, many first dispute the idea that we could get foreign doctors that meet our standards. When I convince them of the absurdity of this position (there are plenty of very smart people in places like Mexico and India who would be happy to train to our standards for the opportunity to practice medicine here), they often respond with comments like people like their doctors or that they personally like their doctor.

I get that, but there is some serious logic missing. I like the person who cuts my hair; she doesn’t earn $280,000 a year. Essentially, these progressive types are expressing class solidarity with very highly paid professionals. They are welcome to do so, although it is an odd position for people who consider themselves progressive, but there is a more fundamental and simple point at stake.

The fact that autoworkers have to compete with low-paid workers in the developing world, and doctors don’t, is a political choice. This was not the result of an exorable process of globalization, it was the result of how policy types chose to structure globalization. No one should be surprised if manufacturing workers, and workers without college degrees more generally, who have been hurt by the loss of good-paying manufacturing jobs, are resentful of this decision. 

 

The Financial Sector: Economic Bloat and the Bloated

The financial sector is the source of many of the country’s great fortunes, it is also a source of enormous waste. Finance is an intermediate good, like trucking. It is very important to the economy; we need an industry that allocates capital and makes payments. But just as we want as few resources as possible involved in shipping our goods from Point A to Point B, we also want as few resources as possible tied up in the financial sector. 

In fact, the financial sector has exploded in size relative to the rest of the economy over the last five decades. We have seen a massive increase in financial transactions, as new financial assets are being constantly created and the existing ones are being traded more frequently. It is difficult to see much gain to the real economy from this explosion in the size and complexity of the financial sector, even if it has meant big fortunes for many people in the sector.

My favorite remedy is a financial transactions tax, which can be thought of as equivalent to the sales tax we impose on most of the goods we buy. A modest tax could easily raise $100 billion a year (0.5 percent of GDP), which would come almost entirely at the expense of the industry.

I find that many people have difficulty understanding how the tax would come at the expense of the industry and not investors. They insist that that banks and brokerage houses will just pass on the tax to investors. This is largely true but it misses the point.

There is considerable research showing that the volume of trading falls roughly in proportion to the increase in the cost of trading. This means that if the cost of trading rises by 40 percent, then the number of shares bought and sold will fall by roughly 40 percent. This means that, for a typical investor, the increase in the cost per trade due to the tax will be offset by the reduction in the number of trades they or their fund manager make.

This means that the total amount that they spend on trading will be little changed, but money they used to pay to the industry for carrying through trades will instead be paid to the government in taxes. Since trades are on net a wash (every trade has a winner and loser, this averages out for all but the most astute investors), investors will not be hurt by a reduction in trading volume.

This one often leaves people baffled, since if they aren’t gaining from trading now, they could reduce their volume of trading and save money. That view is correct, they could save money with fewer trades, but nonetheless many people choose to bet that they, or a fund manager will be able to beat the market.

Anyhow, the point here is that if we just applied similar tax treatment to the financial sector as we apply to most goods and services we buy, we would have a radically downsized sector and many fewer great fortunes being earned there.

The other simple quick fix would be to crack down on private equity funds, which are a source of great fortunes for fund partners. My colleague Eileen Appelbaum, along with Rose Batt, has documented many of the abuses the industry has developed to maximize their returns.

In addition to cracking down on abuses, which can get complicated, a simpler issue is that private equity is no longer giving above market returns. In the 1980s and 1990s private equity companies were able to find many underpriced companies, turn them around and make large profits reselling them when they took the company public. This no longer seems to be the case as their returns have largely followed the market since 2006. This means that there is no reason for pension funds, the major source of private equity funding, to be tying up their assets with them.

Even though pension funds may not be gaining by investing with private equity, many of their managers are convinced that they do. There is an easy remedy here. Just require the terms of all contracts of public pension funds with investment managers, including private equity, be posted on the fund’s website, showing in clear terms what the managers get paid and the return on the investment. It is likely that the mediocre returns on private equity funds, coupled with the large payments to the private equity managers, would soon discourage pensions from continuing to turn over large amounts of money to these funds.

There are other areas where we can both make the economy more efficient and reduce the opportunities for large fortunes in the financial sector. The most obvious is cleaning up the room for abusive credit practices that the Consumer Financial Protection Bureau was designed to target. There is no economic reason to give clever lawyers and accountants incentives to design ways to rip-off their customers. If these practices are blocked, by regulation or law, it a pure gain for the economy.

As a general rule when it comes to the financial sector, we want it small and we want it simple. If we see lots of resources being devoted to the sector, it is clear indication we have a problem.

 

Fixing Facebook and Social Media: Treat Them Like Other Media

The battle over Section 230 of the 1996 Communications Decency Act has taken a bizarre turn in recent months because Donald Trump seems to have been convinced that repealing it would mean that Twitter and Facebook couldn’t comment on or take down his posts. Actually, the opposite is true. In their current form, without Section 230 protection, Twitter and Facebook would probably be more likely to remove material posted by Donald Trump because it could be libelous and make them subject to legal actions.

But ignoring the Trump confusion, the issue with Section 230 protection is why should Internet outlets be protected from damages, when the exact same material in a traditional print or broadcast outlet could lead to a lawsuit costing millions? Just to be clear, the issue is not directly posted material. If Facebook itself were to post libelous material it would face the same legal liability as the New York Times or CNN. The issue is third party content, where social media companies are completely protected.

If we applied the same rules to Facebook, Twitter, and other social media companies as we do to traditional news outlets (I describe how this could be done in more detail here), we would likely see a radically downsized Facebook and Twitter. There would still be considerable opportunities to make money in this sector, but likely much less than Mark Zuckerberg has made to date.

Even more important than downsizing Mark Zuckerberg’s fortune is the issue of democratic control. In both the 2016 and 2020 elections, the public was in the position of begging Mark Zuckerberg to be responsible in the material he was allowing to be spread across his network. We should never be in the position of hoping some billionaire media mogul acts responsibly, with enormous consequences for democracy if they don’t. This is a very good argument for breaking up Facebook, so that Mr. Zuckerberg’s decisions do not have so much impact on our political process, but repealing Section 230 may get us to the same place through a much simpler mechanism.

 

Wishing You a Happy and More Egalitarian New Year

 

Well, that’s the list for now. I have other schemes, as my regular readers know, but these are the big ones. The point is that we should never take market outcomes as simple givens. We can structure the market in an infinite number of different ways. Any political strategy that doesn’t acknowledge this basic point is doomed to failure.

The Washington Post tells us that 7.7 million first doses of vaccines have been shipped to date (two million shots have been given), with a target of 16 million by the end of the year. This is warp speed?

By comparison, we manage to get over 170 million flu shots in people’s arms every year, without any heroic efforts by the government and the military. Most of those doses are given over roughly a four-month period, which means a bit less than 1.5 million a day. That puts our flu shot delivery system ahead of Donald Trump’s warp speed. What the f**k?

Last week I wrote a piece asking why we didn’t have 400 million doses of vaccines on hand by the start of December. Of course production takes time, and we didn’t know back in the summer which vaccines would prove effective, but so what?

We could have started mass production of every vaccine that entered Phase 3 trials. If some of them proved to be ineffective, we would have wasted some money, but the cost would be trivial. The per shot cost of a vaccine is in the range of $2-$4. This means if we had to throw 200 million vaccines in the toilet, we would have wasted $800 million dollars, using the higher end estimate. That is less than 20 percent of the two-year cost of Donald Trump’s three martini lunch tax break and less than 1 percent of the size of the double-dip tax break, allowing companies to write off expenses that were reimbursed under the paycheck protection program.

Along with massive production of vaccines, they should have been pre-positioned to allow for faster distribution. We should have had major warehouses located around the country so that as soon as the FDA  green-lighted a vaccine, it could quickly be delivered to hospitals and clinics in every corner of the country.

The basic point here is that we have two distinct processes. One is the manufacture and distribution of the vaccines. The other is the determination that they are safe and effective. These can go on simultaneously.

We should have been prepared to start inoculating millions of people the day a vaccine was approved. This is a massive policy failure, or as Donald Trump would say, #MAGA!    

The Washington Post tells us that 7.7 million first doses of vaccines have been shipped to date (two million shots have been given), with a target of 16 million by the end of the year. This is warp speed?

By comparison, we manage to get over 170 million flu shots in people’s arms every year, without any heroic efforts by the government and the military. Most of those doses are given over roughly a four-month period, which means a bit less than 1.5 million a day. That puts our flu shot delivery system ahead of Donald Trump’s warp speed. What the f**k?

Last week I wrote a piece asking why we didn’t have 400 million doses of vaccines on hand by the start of December. Of course production takes time, and we didn’t know back in the summer which vaccines would prove effective, but so what?

We could have started mass production of every vaccine that entered Phase 3 trials. If some of them proved to be ineffective, we would have wasted some money, but the cost would be trivial. The per shot cost of a vaccine is in the range of $2-$4. This means if we had to throw 200 million vaccines in the toilet, we would have wasted $800 million dollars, using the higher end estimate. That is less than 20 percent of the two-year cost of Donald Trump’s three martini lunch tax break and less than 1 percent of the size of the double-dip tax break, allowing companies to write off expenses that were reimbursed under the paycheck protection program.

Along with massive production of vaccines, they should have been pre-positioned to allow for faster distribution. We should have had major warehouses located around the country so that as soon as the FDA  green-lighted a vaccine, it could quickly be delivered to hospitals and clinics in every corner of the country.

The basic point here is that we have two distinct processes. One is the manufacture and distribution of the vaccines. The other is the determination that they are safe and effective. These can go on simultaneously.

We should have been prepared to start inoculating millions of people the day a vaccine was approved. This is a massive policy failure, or as Donald Trump would say, #MAGA!    

That is the implication of a major piece on how the coronavirus vaccines are leading to greater worldwide inequality since rich countries have reserved the vast majority of the 2021 supplies of the leading U.S.-European vaccines. While this is, in fact, a serious problem, as my co-authors and I have noted, China also has produced several effective vaccines and is distributing them to developing countries.

China has already made commitments to supply hundreds of millions of doses to Brazil, Morocco, Indonesia, and other developing countries. While it would be best if every country with manufacturing capacity could produce any vaccine, without regard to intellectual property rules, it is bizarre that a piece on access to vaccines in the developing world would fail to mention the vaccines developed by China.

That is the implication of a major piece on how the coronavirus vaccines are leading to greater worldwide inequality since rich countries have reserved the vast majority of the 2021 supplies of the leading U.S.-European vaccines. While this is, in fact, a serious problem, as my co-authors and I have noted, China also has produced several effective vaccines and is distributing them to developing countries.

China has already made commitments to supply hundreds of millions of doses to Brazil, Morocco, Indonesia, and other developing countries. While it would be best if every country with manufacturing capacity could produce any vaccine, without regard to intellectual property rules, it is bizarre that a piece on access to vaccines in the developing world would fail to mention the vaccines developed by China.

It is more than a bit annoying to hear reporters endlessly refer to China as the world’s second largest economy. It isn’t. It’s the world’s largest economy and has been since 2017. Here are the data from the International Monetary Fund.

Source: International Monetary Fund.

As the chart shows, China’s economy first passed the U.S. in 2017. It is projected to be more than 16 percent larger this year, and by 2025 is projected to be almost 40 percent larger by 2025. 

Purchasing power parity (PPP) measures of GDP are based on applying a common set of prices for all goods and services produced across countries. While it is difficult to measure accurately, most economists view PPP as being the better way to calculate GDP, since it reflects living standards and does not fluctuate with currency values. China does have four times the population of the United States, so it is still much poorer on a per capita basis.

The fact that China has a larger GDP than the United States is important for policy debates since many people seem to hold illusions about the ability of the U.S. to influence China. While the United States can take steps that will damage China’s economy, even the harshest measures will only have limited impact, and China will be able to take steps to overcome them through time. This is important background for debates on China policy.  

It is more than a bit annoying to hear reporters endlessly refer to China as the world’s second largest economy. It isn’t. It’s the world’s largest economy and has been since 2017. Here are the data from the International Monetary Fund.

Source: International Monetary Fund.

As the chart shows, China’s economy first passed the U.S. in 2017. It is projected to be more than 16 percent larger this year, and by 2025 is projected to be almost 40 percent larger by 2025. 

Purchasing power parity (PPP) measures of GDP are based on applying a common set of prices for all goods and services produced across countries. While it is difficult to measure accurately, most economists view PPP as being the better way to calculate GDP, since it reflects living standards and does not fluctuate with currency values. China does have four times the population of the United States, so it is still much poorer on a per capita basis.

The fact that China has a larger GDP than the United States is important for policy debates since many people seem to hold illusions about the ability of the U.S. to influence China. While the United States can take steps that will damage China’s economy, even the harshest measures will only have limited impact, and China will be able to take steps to overcome them through time. This is important background for debates on China policy.  

When Pennsylvania Senator Pat Toomey, at the last minute, insisted on adding language to the pandemic rescue package, stripping the Fed of emergency powers, I was among those screaming “No Deal.”  I have not always been a huge fan of the Fed, but I felt this plan was a deliberate effort to sabotage an effective response to any financial/economic crises that may arise in a Biden administration.

Just for background, we know that the Republicans are perfectly fine with sabotaging the economy in order to hurt the political prospects of a Democrat in the White House. This is exactly what they did under President Obama, as they demanded recovery killing austerity as they feigned concern about deficits. Republican Senate Leader Mitch McConnell openly said that his job was to make Obama a one-term president.

With this recent history, there can be little doubt that Republicans in Congress will do everything they can to sabotage the economy under President Biden. In this context, it is especially important that the Fed have the ability to take the steps necessary to counteract crises that could arise.

The specific power at issue with Senator Toomey’s proposal was whether the Fed could establish special lending facilities to help a market facing a crisis. This could be the situation if, for example, there is a sudden fear of widespread bankruptcies in the municipal bond market, if a major city defaults on its debt.

Without emergency powers, the only thing the Fed could do is to push down Treasury bond rates (they are already very low) and buy some short-term municipal debt. It could not engage in purchases of long-term debt and commit to support the market. Many, perhaps most, Republicans in Congress would then be celebrating as “Democrat” cities lost their ability to borrow and suddenly were unable to pay their bills.

Fed critics (I have often been one myself), have argued that we should not view the Fed as an ally of progressives. It certainly has a very mixed record, so there are plenty of grounds for suspicion. Under Paul Volcker and Alan Greenspan, the Fed repeatedly raised interest rates in an explicit effort to weaken workers’ bargaining power and thereby reduce wages. This was done ostensibly to prevent inflation.

More recently, the Fed, beginning under Janet Yellen and continuing under Jerome Powell, the current chair, has acknowledged the role of monetary policy in inequality and especially racial inequality. Chair Powell has committed to keeping interest rates low until we are seeing a full employment economy that is creating serious inflationary pressures

This change in approach stems at least in part from the Fed Up Campaign, organized by the Center for Popular Democracy. (Ady Barkan was lead organizer in getting this campaign going.) This group brought labor and community organizers together to press the Fed for more pro-worker policies. (I was one of the economists who worked with Fed Up.) Chair Yellen and other members of the Fed’s leadership took the effort seriously and listened to the arguments. This was a big victory.

As far as the Fed’s conduct in the pandemic recession, I would mostly be supportive. They lowered interest rates as much as possible and acted to stabilize markets. This did help businesses and the stock market, but it also led to a housing boom that created hundreds of thousands of jobs. In addition, lower interest rates allowed millions of middle class homeowners to refinance, putting thousands of dollars in interest savings in their pocket every year going forward. I have a hard time seeing the world being in a better place if the Fed had sat on its hands.

By contrast, I was one of few economists to criticize the bailouts in the Great Recession. The banks and financial institutions were in a crisis of their own creation, they had made hundreds of billions of dollars of bad loans due to their own greed and stupidity. Being a good capitalist, I thought it was important to let these companies enjoy the fruits of their labor. (We also would have gotten instant financial reform, as the financial sector would have been quickly downsized, eliminating an enormous source of economic waste.) 

The Fed was 100 percent complicit in covering the tracks of the industry, including pushing end of the world stories to force Congress to approve the TARP. By far the best argument for the TARP was that the commercial paper market was shutting down. This meant that even healthy non-financial companies, like Verizon and Boeing, could not get the money they needed to meet their payroll and other regular bills. This really would have been an economic catastrophe.

However, the dirty little secret here was that the Fed always had the power to sustain the commercial paper market on its own, without any assist from Congress. We found this out the weekend after the TARP passed when the Fed announced the creation of a commercial paper lending facility.

The long and short, is yes, we absolutely have to view the Fed with suspicion, but it can play a positive role, and has so far in this crisis. It would be foolish to let Republicans take away its ability to do so in a future crisis.

 

 

When Pennsylvania Senator Pat Toomey, at the last minute, insisted on adding language to the pandemic rescue package, stripping the Fed of emergency powers, I was among those screaming “No Deal.”  I have not always been a huge fan of the Fed, but I felt this plan was a deliberate effort to sabotage an effective response to any financial/economic crises that may arise in a Biden administration.

Just for background, we know that the Republicans are perfectly fine with sabotaging the economy in order to hurt the political prospects of a Democrat in the White House. This is exactly what they did under President Obama, as they demanded recovery killing austerity as they feigned concern about deficits. Republican Senate Leader Mitch McConnell openly said that his job was to make Obama a one-term president.

With this recent history, there can be little doubt that Republicans in Congress will do everything they can to sabotage the economy under President Biden. In this context, it is especially important that the Fed have the ability to take the steps necessary to counteract crises that could arise.

The specific power at issue with Senator Toomey’s proposal was whether the Fed could establish special lending facilities to help a market facing a crisis. This could be the situation if, for example, there is a sudden fear of widespread bankruptcies in the municipal bond market, if a major city defaults on its debt.

Without emergency powers, the only thing the Fed could do is to push down Treasury bond rates (they are already very low) and buy some short-term municipal debt. It could not engage in purchases of long-term debt and commit to support the market. Many, perhaps most, Republicans in Congress would then be celebrating as “Democrat” cities lost their ability to borrow and suddenly were unable to pay their bills.

Fed critics (I have often been one myself), have argued that we should not view the Fed as an ally of progressives. It certainly has a very mixed record, so there are plenty of grounds for suspicion. Under Paul Volcker and Alan Greenspan, the Fed repeatedly raised interest rates in an explicit effort to weaken workers’ bargaining power and thereby reduce wages. This was done ostensibly to prevent inflation.

More recently, the Fed, beginning under Janet Yellen and continuing under Jerome Powell, the current chair, has acknowledged the role of monetary policy in inequality and especially racial inequality. Chair Powell has committed to keeping interest rates low until we are seeing a full employment economy that is creating serious inflationary pressures

This change in approach stems at least in part from the Fed Up Campaign, organized by the Center for Popular Democracy. (Ady Barkan was lead organizer in getting this campaign going.) This group brought labor and community organizers together to press the Fed for more pro-worker policies. (I was one of the economists who worked with Fed Up.) Chair Yellen and other members of the Fed’s leadership took the effort seriously and listened to the arguments. This was a big victory.

As far as the Fed’s conduct in the pandemic recession, I would mostly be supportive. They lowered interest rates as much as possible and acted to stabilize markets. This did help businesses and the stock market, but it also led to a housing boom that created hundreds of thousands of jobs. In addition, lower interest rates allowed millions of middle class homeowners to refinance, putting thousands of dollars in interest savings in their pocket every year going forward. I have a hard time seeing the world being in a better place if the Fed had sat on its hands.

By contrast, I was one of few economists to criticize the bailouts in the Great Recession. The banks and financial institutions were in a crisis of their own creation, they had made hundreds of billions of dollars of bad loans due to their own greed and stupidity. Being a good capitalist, I thought it was important to let these companies enjoy the fruits of their labor. (We also would have gotten instant financial reform, as the financial sector would have been quickly downsized, eliminating an enormous source of economic waste.) 

The Fed was 100 percent complicit in covering the tracks of the industry, including pushing end of the world stories to force Congress to approve the TARP. By far the best argument for the TARP was that the commercial paper market was shutting down. This meant that even healthy non-financial companies, like Verizon and Boeing, could not get the money they needed to meet their payroll and other regular bills. This really would have been an economic catastrophe.

However, the dirty little secret here was that the Fed always had the power to sustain the commercial paper market on its own, without any assist from Congress. We found this out the weekend after the TARP passed when the Fed announced the creation of a commercial paper lending facility.

The long and short, is yes, we absolutely have to view the Fed with suspicion, but it can play a positive role, and has so far in this crisis. It would be foolish to let Republicans take away its ability to do so in a future crisis.

 

 

David Dayen, at The American Prospect, raises the question of why we didn’t do more planning, five, or six months, ago to ensure that when we had safe and effective vaccines, they could quickly be produced in huge quantities. Now we are being told that it won’t be until the summer or even fall until most people have been inoculated.  

If it’s not obvious, every day we delay mass availability of a vaccine comes with an enormous cost. We are seeing over two hundred thousand infections a day and close to three thousand deaths. Large sectors of the economy are being shut down to slow the spread. Disseminating a vaccine would take some time even if we had four hundred million doses sitting in a warehouse today (that’s two hundred million people, since they need two doses), but surely in that case we could be looking at getting most people vaccinated by the end of the winter, or early spring at the latest.

By comparison, close to 200 million people get a flu shot every year, without any herculean effort by the military and health authorities. Distributing the coronavirus vaccines is more complicated, especially with the Pfizer vaccine that has be stored at a temperature of -94 degrees, but we should still be able to do better than six to eight months. So, the question is, why don’t we have four hundred million vaccines sitting in warehouses right now?

The answer most immediately is that manufacturing these vaccines is a complex manufacturing process; manufacturing facilities can’t be quickly converted to producing these vaccines. But that begs the question, why weren’t we constructing facilities to build capacity six months ago as the first vaccines were entering the Phase 3 testing process. It’s true that we didn’t know at the time which vaccines would prove successful, but so what?

Suppose we wasted ten or fifteen billion dollars building factories designed to produce vaccines that were either not useful or not needed? We just spent another $900 billion on a pandemic rescue package, if we could bring the pandemic to an end two months sooner by having vaccines widely available immediately on their approval by the FDA, we would come out way ahead in monetary terms, and conceivably be saving more than one hundred thousand lives. That sounds like a pretty good trade-off. (Also, the money spent building unneeded factories would not be entirely wasted. Presumably, these factories could be repurposed to build other things.)

The obvious reason we were not prepared was that we had Donald Trump calling the shots. Trump seemed to view the pandemic an annoyance, not a crisis that it was his job to tackle. His administration clearly never gave much thought as to how to ensure that a vaccine would be widely available once it had been approved by the FDA, and the people who were in the CDC and elsewhere who may have given the issue thought obviously were not in policy making positions. Of course, we didn’t hear much from members of Congress raising this question either.

But we can’t change the past. The question is what can be done now to accelerate the process of manufacturing and distributing vaccines as widely as possible as quickly as possible. Part of that story should be suspending intellectual property rights for vaccines and pandemic related treatments for the duration of the crisis, as Achal Prabhala, Arjun Jayadev, and I argued in a column a couple of weeks ago.

Some defenders of the pharmaceutical industry have argued that the complex manufacturing process means that few facilities will have the expertise to produce these vaccines. They also say that the companies are already entering licensing agreements, so intellectual property rights are not an obstacle.

It’s great that these companies are entering licensing agreements, but it would be better if no one had to waste any time on negotiations. If there were no intellectual property rights, there would be nothing to haggle over. As far as the complexity, there are sophisticated manufacturing facilities in both rich countries and developing countries, like India and Brazil. Surely some of these can be converted to producing these vaccines relatively quickly. Also, I suspect some of the engineers with expertise in producing the Pfizer or Moderna vaccines could be persuaded to share their knowledge for payments of ten or fifteen million dollars, making reverse engineering unnecessary.

The China Vaccines

There is also the issue that we seem to have other successful vaccines, most notably three Chinese vaccines that are finishing Phase 3 testing. According to the health authority in Bahrain, one of these vaccines was found to be 86 percent effective, with no major side effects. That is slightly below the 94-95 percent effectiveness rate found for the Pfizer and Moderna vaccines, but still very high by any standard.

The Chinese manufacturers have not been very open and transparent about their trial results so far. However, we should be looking to get the Chinese companies to make full disclosures and share their data with our FDA so that it can make a determination as to whether their vaccines meet our standards of safety and effectiveness.

This would be the sort of thing that would have to be negotiated. Ideally, we would have negotiated such arrangements with China and any country developing vaccines many months ago, but Donald Trump’s “America First!” agenda made this sort of cooperation impossible. Any cooperation in this area will likely to be blocked until Trump leaves office, as he will be too busy crying about his election defeat.

It would be great if Biden included such cooperation as part of his Day One agenda. We have many areas of difference with China, but getting people inoculated against the pandemic should not be one of them. I realize that many people in the United States will be reluctant to get a Chinese vaccine even if it is approved by the FDA, either due to a lack of confidence in the country’s technology or straight out racism. That shouldn’t matter, since many of us will be happy to take the racists’ place in line and let them have our slots with the Pfizer or Moderna vaccine, when they become available.

In addition to getting people inoculated here, the Chinese vaccines also hold out more hope for the rest of the world. As old-fashioned dead virus vaccines they are likely easier to manufacture and certainly much easier to store and distribute, since they don’t require super-cold storage. China already has substantial manufacturing capacity for its vaccines, possibly over 1 billion a year, but it is likely that the U.S. and other countries could add to this capacity relatively quickly, making it possible for people all over the world to get vaccinated in 2021 or early 2022.

Correcting a Really Horrible Mistake

Last week, General Gustave Perna, the head of Operation Warp Speed’s distribution system, took responsibility for a glitch that left hundreds of thousands of doses of the Pfizer vaccine sitting in a warehouse rather than being shipped to their planned destinations. This admission of an error and taking responsibility was a welcome change of practice in an administration that makes many errors and never takes responsibility. As we move into the Biden administration, it would be nice if it was acknowledged that the failure to have hundreds of millions of doses on hand by the time of the FDA approval was a very serious error. And more importantly, it will be important that it takes every possible step to correct this mistake.

David Dayen, at The American Prospect, raises the question of why we didn’t do more planning, five, or six months, ago to ensure that when we had safe and effective vaccines, they could quickly be produced in huge quantities. Now we are being told that it won’t be until the summer or even fall until most people have been inoculated.  

If it’s not obvious, every day we delay mass availability of a vaccine comes with an enormous cost. We are seeing over two hundred thousand infections a day and close to three thousand deaths. Large sectors of the economy are being shut down to slow the spread. Disseminating a vaccine would take some time even if we had four hundred million doses sitting in a warehouse today (that’s two hundred million people, since they need two doses), but surely in that case we could be looking at getting most people vaccinated by the end of the winter, or early spring at the latest.

By comparison, close to 200 million people get a flu shot every year, without any herculean effort by the military and health authorities. Distributing the coronavirus vaccines is more complicated, especially with the Pfizer vaccine that has be stored at a temperature of -94 degrees, but we should still be able to do better than six to eight months. So, the question is, why don’t we have four hundred million vaccines sitting in warehouses right now?

The answer most immediately is that manufacturing these vaccines is a complex manufacturing process; manufacturing facilities can’t be quickly converted to producing these vaccines. But that begs the question, why weren’t we constructing facilities to build capacity six months ago as the first vaccines were entering the Phase 3 testing process. It’s true that we didn’t know at the time which vaccines would prove successful, but so what?

Suppose we wasted ten or fifteen billion dollars building factories designed to produce vaccines that were either not useful or not needed? We just spent another $900 billion on a pandemic rescue package, if we could bring the pandemic to an end two months sooner by having vaccines widely available immediately on their approval by the FDA, we would come out way ahead in monetary terms, and conceivably be saving more than one hundred thousand lives. That sounds like a pretty good trade-off. (Also, the money spent building unneeded factories would not be entirely wasted. Presumably, these factories could be repurposed to build other things.)

The obvious reason we were not prepared was that we had Donald Trump calling the shots. Trump seemed to view the pandemic an annoyance, not a crisis that it was his job to tackle. His administration clearly never gave much thought as to how to ensure that a vaccine would be widely available once it had been approved by the FDA, and the people who were in the CDC and elsewhere who may have given the issue thought obviously were not in policy making positions. Of course, we didn’t hear much from members of Congress raising this question either.

But we can’t change the past. The question is what can be done now to accelerate the process of manufacturing and distributing vaccines as widely as possible as quickly as possible. Part of that story should be suspending intellectual property rights for vaccines and pandemic related treatments for the duration of the crisis, as Achal Prabhala, Arjun Jayadev, and I argued in a column a couple of weeks ago.

Some defenders of the pharmaceutical industry have argued that the complex manufacturing process means that few facilities will have the expertise to produce these vaccines. They also say that the companies are already entering licensing agreements, so intellectual property rights are not an obstacle.

It’s great that these companies are entering licensing agreements, but it would be better if no one had to waste any time on negotiations. If there were no intellectual property rights, there would be nothing to haggle over. As far as the complexity, there are sophisticated manufacturing facilities in both rich countries and developing countries, like India and Brazil. Surely some of these can be converted to producing these vaccines relatively quickly. Also, I suspect some of the engineers with expertise in producing the Pfizer or Moderna vaccines could be persuaded to share their knowledge for payments of ten or fifteen million dollars, making reverse engineering unnecessary.

The China Vaccines

There is also the issue that we seem to have other successful vaccines, most notably three Chinese vaccines that are finishing Phase 3 testing. According to the health authority in Bahrain, one of these vaccines was found to be 86 percent effective, with no major side effects. That is slightly below the 94-95 percent effectiveness rate found for the Pfizer and Moderna vaccines, but still very high by any standard.

The Chinese manufacturers have not been very open and transparent about their trial results so far. However, we should be looking to get the Chinese companies to make full disclosures and share their data with our FDA so that it can make a determination as to whether their vaccines meet our standards of safety and effectiveness.

This would be the sort of thing that would have to be negotiated. Ideally, we would have negotiated such arrangements with China and any country developing vaccines many months ago, but Donald Trump’s “America First!” agenda made this sort of cooperation impossible. Any cooperation in this area will likely to be blocked until Trump leaves office, as he will be too busy crying about his election defeat.

It would be great if Biden included such cooperation as part of his Day One agenda. We have many areas of difference with China, but getting people inoculated against the pandemic should not be one of them. I realize that many people in the United States will be reluctant to get a Chinese vaccine even if it is approved by the FDA, either due to a lack of confidence in the country’s technology or straight out racism. That shouldn’t matter, since many of us will be happy to take the racists’ place in line and let them have our slots with the Pfizer or Moderna vaccine, when they become available.

In addition to getting people inoculated here, the Chinese vaccines also hold out more hope for the rest of the world. As old-fashioned dead virus vaccines they are likely easier to manufacture and certainly much easier to store and distribute, since they don’t require super-cold storage. China already has substantial manufacturing capacity for its vaccines, possibly over 1 billion a year, but it is likely that the U.S. and other countries could add to this capacity relatively quickly, making it possible for people all over the world to get vaccinated in 2021 or early 2022.

Correcting a Really Horrible Mistake

Last week, General Gustave Perna, the head of Operation Warp Speed’s distribution system, took responsibility for a glitch that left hundreds of thousands of doses of the Pfizer vaccine sitting in a warehouse rather than being shipped to their planned destinations. This admission of an error and taking responsibility was a welcome change of practice in an administration that makes many errors and never takes responsibility. As we move into the Biden administration, it would be nice if it was acknowledged that the failure to have hundreds of millions of doses on hand by the time of the FDA approval was a very serious error. And more importantly, it will be important that it takes every possible step to correct this mistake.

You don’t have to look far, it’s literally the first sentence in a Bloomberg piece on dollar policy under incoming Treasury Secretary Janet Yellen.

“Janet Yellen once touted the benefits of a weaker greenback for exports, but as the incoming Treasury secretary, she faces pressure to return the U.S. to a “strong-dollar” policy — and may cause trembles on Wall Street if she doesn’t.”

For folks who don’t know, the vast majority of U.S. stock is held by the richest 10 percent of households in the country, with the richest 1 percent holding close to 50 percent of all stock wealth. The run-up in the stock market over the last four decades has been the main factor behind the rise in the inequality of wealth over this period. A drop in the stock market would reduce wealth inequality, which is apparently a really bad outcome in the view of Bloomberg.

But getting beyond its promotion of wealth inequality it is worth looking at the substance of this piece pushing Janet Yellen to support a stronger dollar.

The piece gives us some dollar boosterism from Larry Summers, Treasury Secretary under President Clinton and the head of President Obama’s National Economic Council:

“’It would be unwise to appear actively devaluationist or indifferent to the dollar,’”

“Summers highlighted that the dollar’s dominant role in the global financial system puts the onus on the Treasury to manage its responsibilities carefully. Favoring a strong dollar is ‘prudent’ for the incoming secretary, in particular given Biden’s plans for ‘expansionary policy,’ said Summers, who is a paid contributor to Bloomberg.”

Yellen also got some advice from Hank Paulson, Treasury Secretary under President George W. Bush, and a former CEO at Goldman Sachs:

“’Interest rates are at historic lows, and the federal debt is larger as a share of the economy than at any time since the end of World War II,’ Paulson wrote. ‘It is critically important to bend down the steep trajectory of the rising national debt. Otherwise, the dollar will eventually be debased. Washington won’t be able to pay its bills.’”

It is hard to make sense of either of these comments, other than Summers and Paulson both want a stronger dollar.

Starting with the Paulson quotes, U.S. government debt is almost entirely denominated in dollars. How would a fall in the value of the dollar against the euro, yen, and other currencies make it harder to pay off our debt? There could be a problem if we had borrowed large amounts of money in euros, yen, and other currencies, but we didn’t, so what’s the issue?

Also, what does the dollar being “debased” mean? The value of the dollar measured against the currencies of our trading partners is more than 20 percent higher than it was at its low point in 2011. Was the dollar debased in 2011?

Summers warns that Yellen shouldn’t be “actively devaluationist or indifferent to the dollar,” expressing his desire for a strong dollar.

I have to say it’s somewhat funny to hear this concern from Larry Summers, one of the world’s most prominent economists, that the Treasury Secretary’s comments can have an influence on the value of the dollar. I remember arguing back in the 2000s that Treasury Secretaries could talk down the value of the dollar, and being ridiculed for the idea that their comments could have any impact on currency values. (Of course, I recommended other measures as well.) Anyhow, it’s good to see that respectable economists now believe that the Treasury Secretary’s words may affect the dollar’s value.

But getting to the substance, the value of the dollar against other currencies is the main factor determining the balance of trade. If the dollar were 20 percent lower against other currencies, as a first approximation, the price of imports would be 20 percent higher for people in the United States and our exports to other countries would cost them 20 percent less. The real world is more complicated, but the direction of change in prices is unambiguous.

This means that if we had a lower valued dollar, we would buy fewer imports and export more goods and services to other countries, thereby reducing our trade deficit. This is an especially important goal in a context where, as Larry Summers says, Biden has plans for “expansionary policy.”

Expansionary policy would typically mean large amounts of government spending to boost demand. While it would be great to see large increases in government spending on child care, health care, and clean energy, given the composition of Congress, that doesn’t look very likely right now. Also, with interest rates extraordinarily low, there is not much the Fed can do at this point to further boost spending.

That means a lower trade deficit is likely to be one of the few paths open to President Biden to boost demand and lower unemployment. A lower-valued dollar is central to that story.

Long and short, there is no reason for Chair Yellen to take the Summers-Paulson complaints about a lower-valued dollar seriously. A lowered value dollar is essential for reducing our trade deficit, and with other paths to expansion blocked by Republicans in Congress, a smaller trade deficit may be the only way for President Biden to restore the economy to full employment.

You don’t have to look far, it’s literally the first sentence in a Bloomberg piece on dollar policy under incoming Treasury Secretary Janet Yellen.

“Janet Yellen once touted the benefits of a weaker greenback for exports, but as the incoming Treasury secretary, she faces pressure to return the U.S. to a “strong-dollar” policy — and may cause trembles on Wall Street if she doesn’t.”

For folks who don’t know, the vast majority of U.S. stock is held by the richest 10 percent of households in the country, with the richest 1 percent holding close to 50 percent of all stock wealth. The run-up in the stock market over the last four decades has been the main factor behind the rise in the inequality of wealth over this period. A drop in the stock market would reduce wealth inequality, which is apparently a really bad outcome in the view of Bloomberg.

But getting beyond its promotion of wealth inequality it is worth looking at the substance of this piece pushing Janet Yellen to support a stronger dollar.

The piece gives us some dollar boosterism from Larry Summers, Treasury Secretary under President Clinton and the head of President Obama’s National Economic Council:

“’It would be unwise to appear actively devaluationist or indifferent to the dollar,’”

“Summers highlighted that the dollar’s dominant role in the global financial system puts the onus on the Treasury to manage its responsibilities carefully. Favoring a strong dollar is ‘prudent’ for the incoming secretary, in particular given Biden’s plans for ‘expansionary policy,’ said Summers, who is a paid contributor to Bloomberg.”

Yellen also got some advice from Hank Paulson, Treasury Secretary under President George W. Bush, and a former CEO at Goldman Sachs:

“’Interest rates are at historic lows, and the federal debt is larger as a share of the economy than at any time since the end of World War II,’ Paulson wrote. ‘It is critically important to bend down the steep trajectory of the rising national debt. Otherwise, the dollar will eventually be debased. Washington won’t be able to pay its bills.’”

It is hard to make sense of either of these comments, other than Summers and Paulson both want a stronger dollar.

Starting with the Paulson quotes, U.S. government debt is almost entirely denominated in dollars. How would a fall in the value of the dollar against the euro, yen, and other currencies make it harder to pay off our debt? There could be a problem if we had borrowed large amounts of money in euros, yen, and other currencies, but we didn’t, so what’s the issue?

Also, what does the dollar being “debased” mean? The value of the dollar measured against the currencies of our trading partners is more than 20 percent higher than it was at its low point in 2011. Was the dollar debased in 2011?

Summers warns that Yellen shouldn’t be “actively devaluationist or indifferent to the dollar,” expressing his desire for a strong dollar.

I have to say it’s somewhat funny to hear this concern from Larry Summers, one of the world’s most prominent economists, that the Treasury Secretary’s comments can have an influence on the value of the dollar. I remember arguing back in the 2000s that Treasury Secretaries could talk down the value of the dollar, and being ridiculed for the idea that their comments could have any impact on currency values. (Of course, I recommended other measures as well.) Anyhow, it’s good to see that respectable economists now believe that the Treasury Secretary’s words may affect the dollar’s value.

But getting to the substance, the value of the dollar against other currencies is the main factor determining the balance of trade. If the dollar were 20 percent lower against other currencies, as a first approximation, the price of imports would be 20 percent higher for people in the United States and our exports to other countries would cost them 20 percent less. The real world is more complicated, but the direction of change in prices is unambiguous.

This means that if we had a lower valued dollar, we would buy fewer imports and export more goods and services to other countries, thereby reducing our trade deficit. This is an especially important goal in a context where, as Larry Summers says, Biden has plans for “expansionary policy.”

Expansionary policy would typically mean large amounts of government spending to boost demand. While it would be great to see large increases in government spending on child care, health care, and clean energy, given the composition of Congress, that doesn’t look very likely right now. Also, with interest rates extraordinarily low, there is not much the Fed can do at this point to further boost spending.

That means a lower trade deficit is likely to be one of the few paths open to President Biden to boost demand and lower unemployment. A lower-valued dollar is central to that story.

Long and short, there is no reason for Chair Yellen to take the Summers-Paulson complaints about a lower-valued dollar seriously. A lowered value dollar is essential for reducing our trade deficit, and with other paths to expansion blocked by Republicans in Congress, a smaller trade deficit may be the only way for President Biden to restore the economy to full employment.

The NYT had a very interesting piece on efforts by China’s government to conceal and downplay the threat posed by the coronavirus. The piece reports on a number of Chinese government documents and directives that sought to minimize the threat posed by the pandemic.

However the paper seriously misrepresents the meaning of its research, telling readers:

“It may never be clear whether a freer flow of information from China would have prevented the outbreak from morphing into a raging global health calamity. But the documents indicate that Chinese officials tried to steer the narrative not only to prevent panic and debunk damaging falsehoods domestically. They also wanted to make the virus look less severe — and the authorities more capable — as the rest of the world was watching.”

The pandemic had already spread to Europe before the end of December. There is nothing in the NYT’s piece indicating that the Chinese government had a clear understanding of the nature of the coronavirus before the beginning of January. The documents referred to in the piece were drafted in January or even February. This means that the spread of the pandemic to Europe preceded any efforts by China’s government’s to minimize the threat posed by the pandemic, therefore there is nothing here to suggest that a freer flow of information would have prevented the coronavirus from becoming a worldwide pandemic.   

The NYT had a very interesting piece on efforts by China’s government to conceal and downplay the threat posed by the coronavirus. The piece reports on a number of Chinese government documents and directives that sought to minimize the threat posed by the pandemic.

However the paper seriously misrepresents the meaning of its research, telling readers:

“It may never be clear whether a freer flow of information from China would have prevented the outbreak from morphing into a raging global health calamity. But the documents indicate that Chinese officials tried to steer the narrative not only to prevent panic and debunk damaging falsehoods domestically. They also wanted to make the virus look less severe — and the authorities more capable — as the rest of the world was watching.”

The pandemic had already spread to Europe before the end of December. There is nothing in the NYT’s piece indicating that the Chinese government had a clear understanding of the nature of the coronavirus before the beginning of January. The documents referred to in the piece were drafted in January or even February. This means that the spread of the pandemic to Europe preceded any efforts by China’s government’s to minimize the threat posed by the pandemic, therefore there is nothing here to suggest that a freer flow of information would have prevented the coronavirus from becoming a worldwide pandemic.   

Section 230 of the 1996 Communications Decency Act has been getting considerable attention lately for almost all the wrong reasons. Donald Trump has been yelling that he wants the provision repealed, and even threatened to veto the main military spending bill for next year if it does not include the repeal of Section 230. (It doesn’t.)

Trump apparently believes that repealing Section 230 would prevent Facebook from pulling down posts from Trump and his racist friends. He also is upset that Twitter labels his absurd lies as being subject to dispute. In fact, repealing Section 230 would in no way prevent Facebook from pulling down posts it found objectionable or stop Twitter from putting warning labels on Trump’s nonsense tweets.

There are others who seem to believe that repealing Section 230 would force Facebook, Twitter, and other social media networks to remove material that is racist, sexist, or in other ways offensive. There is nothing about Section 230 that facilitates the spread of such material and its repeal would not stop it.

The Real Reason for Repealing Section 230: Restructuring the Industry

I have been arguing for the repeal of Section 230 for entirely different reasons. I have argued that repeal would fundamentally change the structure of the industry, leading to a major downsizing of Facebook, Twitter, and other social media giants. It would also level the playing field between social media platforms and traditional media outlets. To my view, these are hugely important accomplishments, even if they do not square with the more common arguments on Section 230.   

I’ve had difficulty making this case, since the defenders of Section 230 seem determined to defend it on other grounds. In fact, I have a very hard time simply making my argument as defenders of Section 230 insist that repeal is a bad idea because people would still be able to be assholes on social media.

My favorite reply along these lines was when some jerk on Twitter sent me a link to his list of stock answers to advocates of repealing Section 230. I read through his list and then tweeted back that I didn’t see my argument addressed. Needless to say, he never responded.

Anyhow, the basic point here is simple. Repealing Section 230 means treating social media in the same way as print and broadcast media. When the New York Times or CNN are offered an ad, they have to review its content to ensure that it does not contain libelous material. If the ad defames someone, it is not only the party that took out the ad that could be sued, the New York Times and CNN can be sued.

Facebook doesn’t have this concern. Facebook gets tens of billions of dollars in advertising revenue from people who buy ads that no one at Facebook ever sees. They just go on-line, indicate a target audience, upload their ad, and send Facebook the money.    

The repeal of Section 230 would fundamentally change this process. If Facebook’s ad buyer had libeled someone, that person could not only sue the buyer, it could also sue Facebook.

This would force Facebook to restructure its ad selling process. If people were posting ads that could potentially cost it millions of dollars from losing a libel suit, it would almost certainly see a need to review ads before they are posted.

This is likely to mean hiring thousands, or even tens of thousands, of people to review ads for potentially libelous material. These additional hires will be a major expense to Facebook. Also, it will have to turn down many ads, because they do contain potentially libelous material. That means both considerably higher expenses and lower revenue from fewer ads. Also, many potential customers will undoubtedly be annoyed by having their ads reviewed and instead look to other alternatives.   

These changes go beyond just reducing Facebook’s profits, people should take the issue of Facebook circulating libelous material seriously. Imagine the perfectly altered image of your favorite progressive politician confessing to being a child rapist or whatever crime you might find most disgusting. Or, maybe it will be a prominent writer, actor, musician, or academic. Anyone who doesn’t think this will happen has not been paying attention to the last four years.

And, what is the recourse for this person under Section 230? Well, they can’t sue Facebook, that’s exactly what Section 230 prevents. They can instead sue whoever took out the ad. And that might be the XYZ Corporation, which is registered to a post office box in a small town in Iowa. The post office box is in turn registered to John Smith. In other words, there will be no real person who can be sued for this action, and even if there is a person, they almost certainly will not have any serious assets that will be at risk in such a suit.

However, without Section 230 protection, Facebook would be in the same position as the New York Times or CNN if they ran such an outrageous ad. In that world, you can be very certain that Facebook would make sure that this sort of garbage was never carried on its network.

There is a further issue with Facebook. The network has hundreds of millions of users who are constantly posting new items on their Facebook pages. Many of these surely contain libelous material. It would be a herculean task to review all of these items before they were posted.

But the standard need not be that Facebook prevents libelous material from being posted. Rather, Facebook can be required to remove libelous material after it has been called to its attention. This is similar to what is required of Internet sites with third party postings of copyrighted material under the Digital Millennium Copyright Act.

The host of the site has 48 hours to remove copyrighted material, after they have been notified, in order to be protected from an infringement suit. Furthermore, since Facebook’s system allows it to know exactly who has opened a post, it can be required to send a correction to anyone who originally received the libelous material.

This will further alter Facebook’s mode of operation. It is also likely to anger many Facebook users who have items removed from their pages, and have their friends notified that items they posted may be libelous. This is likely to further reduce Facebook traffic.

I realize people may value having a Facebook-like system, where they don’t have to worry about material pulled because Facebook is concerned it could be libelous. There is a simple way to allow these people to continue to have a Facebook-like page: leave in place Section 230 protections for genuine common carriers.

A common carrier is a system like a phone company or an Internet provider. It sells a service for a fixed fee, by the month or by the minute, it doesn’t have control over content. Nor does it profit from selling ads or personal information. If a common carrier were to host Facebook-type pages, it would not be liable for the material carried on its system, just as a phone company is not held liable for defamatory statements people make on a phone call. The option of turning to common carrier systems should further erode Facebook’s usage, making the company smaller and less profitable.

 

Leveling the Playing Field and Never Having to Give a Damn About Mark Zuckerberg Again

The collapse of traditional news outlets is a huge deal and has been widely noted, for obvious reasons. Part of the story is the Internet. Online advertising has not come close to replacing the revenue from print advertising. But a large part of the story is that much of the ad revenue that used to go to newspapers and television stations is now going to Facebook and other social media companies.

While we can’t do anything about the impact of the development of the Internet, we can do a lot about Section 230 which gives Facebook and other social media companies an unwarranted advantage in this competition. (I have outlined a system of individual tax credits, which could support newspapers and other forms of creative work in the Internet Age.)

This is not just nostalgia for the “good old days” of print journalism. It is very hard to see a rationale for allowing Facebook to run an ad with impunity, when the same ad would cost the New York Times or CNN tens of millions in damages from a defamation suit. If there is a logic in the differential treatment, I am not smart enough to see it. 

I should also add that the idea we would be in the position of begging Mark Zuckerberg, or any other social media titan, to govern their system in a way that allows for a fair election is absolutely obscene. The idea that the preservation of our democracy depends on the whims of a rich jerk, who was never elected to anything, is unacceptable. I can’t guarantee that repealing Section 230 will ensure that this situation never arises again, but it seems like a very good bet at the moment.  

Section 230 of the 1996 Communications Decency Act has been getting considerable attention lately for almost all the wrong reasons. Donald Trump has been yelling that he wants the provision repealed, and even threatened to veto the main military spending bill for next year if it does not include the repeal of Section 230. (It doesn’t.)

Trump apparently believes that repealing Section 230 would prevent Facebook from pulling down posts from Trump and his racist friends. He also is upset that Twitter labels his absurd lies as being subject to dispute. In fact, repealing Section 230 would in no way prevent Facebook from pulling down posts it found objectionable or stop Twitter from putting warning labels on Trump’s nonsense tweets.

There are others who seem to believe that repealing Section 230 would force Facebook, Twitter, and other social media networks to remove material that is racist, sexist, or in other ways offensive. There is nothing about Section 230 that facilitates the spread of such material and its repeal would not stop it.

The Real Reason for Repealing Section 230: Restructuring the Industry

I have been arguing for the repeal of Section 230 for entirely different reasons. I have argued that repeal would fundamentally change the structure of the industry, leading to a major downsizing of Facebook, Twitter, and other social media giants. It would also level the playing field between social media platforms and traditional media outlets. To my view, these are hugely important accomplishments, even if they do not square with the more common arguments on Section 230.   

I’ve had difficulty making this case, since the defenders of Section 230 seem determined to defend it on other grounds. In fact, I have a very hard time simply making my argument as defenders of Section 230 insist that repeal is a bad idea because people would still be able to be assholes on social media.

My favorite reply along these lines was when some jerk on Twitter sent me a link to his list of stock answers to advocates of repealing Section 230. I read through his list and then tweeted back that I didn’t see my argument addressed. Needless to say, he never responded.

Anyhow, the basic point here is simple. Repealing Section 230 means treating social media in the same way as print and broadcast media. When the New York Times or CNN are offered an ad, they have to review its content to ensure that it does not contain libelous material. If the ad defames someone, it is not only the party that took out the ad that could be sued, the New York Times and CNN can be sued.

Facebook doesn’t have this concern. Facebook gets tens of billions of dollars in advertising revenue from people who buy ads that no one at Facebook ever sees. They just go on-line, indicate a target audience, upload their ad, and send Facebook the money.    

The repeal of Section 230 would fundamentally change this process. If Facebook’s ad buyer had libeled someone, that person could not only sue the buyer, it could also sue Facebook.

This would force Facebook to restructure its ad selling process. If people were posting ads that could potentially cost it millions of dollars from losing a libel suit, it would almost certainly see a need to review ads before they are posted.

This is likely to mean hiring thousands, or even tens of thousands, of people to review ads for potentially libelous material. These additional hires will be a major expense to Facebook. Also, it will have to turn down many ads, because they do contain potentially libelous material. That means both considerably higher expenses and lower revenue from fewer ads. Also, many potential customers will undoubtedly be annoyed by having their ads reviewed and instead look to other alternatives.   

These changes go beyond just reducing Facebook’s profits, people should take the issue of Facebook circulating libelous material seriously. Imagine the perfectly altered image of your favorite progressive politician confessing to being a child rapist or whatever crime you might find most disgusting. Or, maybe it will be a prominent writer, actor, musician, or academic. Anyone who doesn’t think this will happen has not been paying attention to the last four years.

And, what is the recourse for this person under Section 230? Well, they can’t sue Facebook, that’s exactly what Section 230 prevents. They can instead sue whoever took out the ad. And that might be the XYZ Corporation, which is registered to a post office box in a small town in Iowa. The post office box is in turn registered to John Smith. In other words, there will be no real person who can be sued for this action, and even if there is a person, they almost certainly will not have any serious assets that will be at risk in such a suit.

However, without Section 230 protection, Facebook would be in the same position as the New York Times or CNN if they ran such an outrageous ad. In that world, you can be very certain that Facebook would make sure that this sort of garbage was never carried on its network.

There is a further issue with Facebook. The network has hundreds of millions of users who are constantly posting new items on their Facebook pages. Many of these surely contain libelous material. It would be a herculean task to review all of these items before they were posted.

But the standard need not be that Facebook prevents libelous material from being posted. Rather, Facebook can be required to remove libelous material after it has been called to its attention. This is similar to what is required of Internet sites with third party postings of copyrighted material under the Digital Millennium Copyright Act.

The host of the site has 48 hours to remove copyrighted material, after they have been notified, in order to be protected from an infringement suit. Furthermore, since Facebook’s system allows it to know exactly who has opened a post, it can be required to send a correction to anyone who originally received the libelous material.

This will further alter Facebook’s mode of operation. It is also likely to anger many Facebook users who have items removed from their pages, and have their friends notified that items they posted may be libelous. This is likely to further reduce Facebook traffic.

I realize people may value having a Facebook-like system, where they don’t have to worry about material pulled because Facebook is concerned it could be libelous. There is a simple way to allow these people to continue to have a Facebook-like page: leave in place Section 230 protections for genuine common carriers.

A common carrier is a system like a phone company or an Internet provider. It sells a service for a fixed fee, by the month or by the minute, it doesn’t have control over content. Nor does it profit from selling ads or personal information. If a common carrier were to host Facebook-type pages, it would not be liable for the material carried on its system, just as a phone company is not held liable for defamatory statements people make on a phone call. The option of turning to common carrier systems should further erode Facebook’s usage, making the company smaller and less profitable.

 

Leveling the Playing Field and Never Having to Give a Damn About Mark Zuckerberg Again

The collapse of traditional news outlets is a huge deal and has been widely noted, for obvious reasons. Part of the story is the Internet. Online advertising has not come close to replacing the revenue from print advertising. But a large part of the story is that much of the ad revenue that used to go to newspapers and television stations is now going to Facebook and other social media companies.

While we can’t do anything about the impact of the development of the Internet, we can do a lot about Section 230 which gives Facebook and other social media companies an unwarranted advantage in this competition. (I have outlined a system of individual tax credits, which could support newspapers and other forms of creative work in the Internet Age.)

This is not just nostalgia for the “good old days” of print journalism. It is very hard to see a rationale for allowing Facebook to run an ad with impunity, when the same ad would cost the New York Times or CNN tens of millions in damages from a defamation suit. If there is a logic in the differential treatment, I am not smart enough to see it. 

I should also add that the idea we would be in the position of begging Mark Zuckerberg, or any other social media titan, to govern their system in a way that allows for a fair election is absolutely obscene. The idea that the preservation of our democracy depends on the whims of a rich jerk, who was never elected to anything, is unacceptable. I can’t guarantee that repealing Section 230 will ensure that this situation never arises again, but it seems like a very good bet at the moment.  

As we hunker down this holiday season, waiting for our vaccines, or at least until the diffusion of the vaccines has slowed the spread of the pandemic, it’s worth thinking for a moment about an opportunity lost. Specifically, we lost an opportunity to have worldwide cooperation in the development of vaccines, bringing in not only Europe, but China.

While we now have two vaccines (counting Moderna’s) that have been approved by the FDA, China has one vaccine that has already been approved by the licensing agencies in the United Arab Emirates and Bahrain, and a second that is likely to soon be approved in several countries. Russia also has a vaccine to which it gave approval several months ago. It would be worth asking whether these vaccines could be saving lives here.

To be clear, no one would expect people in the United States to take a vaccine based on its approval in Bahrain or Russia. We would want our own Food and Drug Administration to evaluate the safety and effectiveness of a vaccine before it was distributed in the United States. But that would have been exactly what could have been accomplished with a cooperative approach.

If the U.S. and other countries had acted cooperatively in developing vaccines (as well as treatments) for the pandemic, we would have been freely sharing research findings as they were obtained. This would have meant, both that China and Russia would have had full access to the findings on the Pfizer and Moderna vaccines, and we would have full access to the data on their vaccines.

If it appeared to be the case that their vaccines were likely safe and effective enough to warrant approval here, we could have done whatever additional tests were needed to meet the FDA’s approval criteria. Also, since it is likely that the manufacturing process is simpler for China’s old-fashioned dead virus vaccines, we could have begun ramping up capacity for large-scale production several months ago.

This would likely have meant that we could much more quickly have adequate supplies of vaccines to rapidly inoculate everyone in the United States. Also, if we focused on getting manufacturing capacity for any vaccine that worked, we would likely have much more to supply the rest of the world, especially the poorest countries that have been outbid by the U.S. and Europe for the first supplies.

No one expected the Trump administration to show any foresight in the production and distribution of vaccines or to take a leadership role in international cooperation. But the rest of us should be clear on what was lost because of the path we chose to go.

As we hunker down this holiday season, waiting for our vaccines, or at least until the diffusion of the vaccines has slowed the spread of the pandemic, it’s worth thinking for a moment about an opportunity lost. Specifically, we lost an opportunity to have worldwide cooperation in the development of vaccines, bringing in not only Europe, but China.

While we now have two vaccines (counting Moderna’s) that have been approved by the FDA, China has one vaccine that has already been approved by the licensing agencies in the United Arab Emirates and Bahrain, and a second that is likely to soon be approved in several countries. Russia also has a vaccine to which it gave approval several months ago. It would be worth asking whether these vaccines could be saving lives here.

To be clear, no one would expect people in the United States to take a vaccine based on its approval in Bahrain or Russia. We would want our own Food and Drug Administration to evaluate the safety and effectiveness of a vaccine before it was distributed in the United States. But that would have been exactly what could have been accomplished with a cooperative approach.

If the U.S. and other countries had acted cooperatively in developing vaccines (as well as treatments) for the pandemic, we would have been freely sharing research findings as they were obtained. This would have meant, both that China and Russia would have had full access to the findings on the Pfizer and Moderna vaccines, and we would have full access to the data on their vaccines.

If it appeared to be the case that their vaccines were likely safe and effective enough to warrant approval here, we could have done whatever additional tests were needed to meet the FDA’s approval criteria. Also, since it is likely that the manufacturing process is simpler for China’s old-fashioned dead virus vaccines, we could have begun ramping up capacity for large-scale production several months ago.

This would likely have meant that we could much more quickly have adequate supplies of vaccines to rapidly inoculate everyone in the United States. Also, if we focused on getting manufacturing capacity for any vaccine that worked, we would likely have much more to supply the rest of the world, especially the poorest countries that have been outbid by the U.S. and Europe for the first supplies.

No one expected the Trump administration to show any foresight in the production and distribution of vaccines or to take a leadership role in international cooperation. But the rest of us should be clear on what was lost because of the path we chose to go.

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