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.

Not sure if that one will make it as a fast-food ad, and then a campaign slogan, but it is a line we should be using. The media made a big deal of the run-up in beef prices last year, which actually began in 2020. (Beef prices were 6.4 percent higher in January of 2021 than in January of 2020.)

However, it seems that beef prices have turned the corner. At the consumer level, they fell 2.0 percent in December. More importantly, they have fallen sharply at the producer level, with the wholesale price falling sharply in October and again last month. The wholesale price of beef in December was 18.6 percent below its September level.

Beef prices are highly erratic, so it’s possible that these declines will be reversed, but if they are not, and they show up at the consumer level, the media should be giving the drop in beef prices the same sort of attention they gave to the rise in beef prices.

Not sure if that one will make it as a fast-food ad, and then a campaign slogan, but it is a line we should be using. The media made a big deal of the run-up in beef prices last year, which actually began in 2020. (Beef prices were 6.4 percent higher in January of 2021 than in January of 2020.)

However, it seems that beef prices have turned the corner. At the consumer level, they fell 2.0 percent in December. More importantly, they have fallen sharply at the producer level, with the wholesale price falling sharply in October and again last month. The wholesale price of beef in December was 18.6 percent below its September level.

Beef prices are highly erratic, so it’s possible that these declines will be reversed, but if they are not, and they show up at the consumer level, the media should be giving the drop in beef prices the same sort of attention they gave to the rise in beef prices.

Earlier this month, Dr. Peter Hotez announced that his team of researchers at Texas Children’s Hospital and Baylor University had developed an effective vaccine against the coronavirus. In limited clinical trials, it showed effectiveness comparable to the mRNA vaccines produced by Pfizer and Moderna and better than the Johnson and Johnson and widely used AstraZeneca vaccines.

What makes this development so important is that Hotez is making his vaccine freely available to the world. Anyone who has the necessary expertise to produce it is free to do so without worrying about patent monopolies or other intellectual property claims. They are also freely sharing the technology, not claiming industrial secrets like Pfizer and Moderna.

The production process is also fairly simple. An Indian manufacturer is already producing 100 million doses a month. Many other facilities can likely be quickly configured to produce the vaccine. With no patent rights, the vaccine is cheap. Hotez estimated that it can be produced for $1.00 to $1.50 a shot. That compares to prices around $20 a shot for the mRNA vaccines. At these prices, purchasing 2-4 billion vaccine doses to immunize the unvaccinated in the developing world should be a very small lift compared to the trillions of dollars and millions of lives the pandemic has cost the world.

At the moment, it is not clear that the Hotez vaccine figures prominently in the plans of the international aid organizations providing vaccines to the developing world or to the governments of the United States and other wealthy countries funding these efforts. Part of the hesitance can be justified by the fact that the vaccine has not undergone a large-scale clinical trial to more precisely determine its safety and efficacy.

However, this objection should be soon overcome. India has given the vaccine an emergency use authorization. With the vaccine’s widespread use in India, it should be possible to compile enough data to assess its safety and effectiveness in the not distant future.

The other issue is a more serious one. The fact that the vaccine is cheap and the technology is being open-sourced is likely a strike against its widespread adoption by major international organizations. The United States and other rich countries are worried about the threat of a good example.

Open-Source Versus Patent Monopolies

The United States, along with other wealthy countries, has long relied on government-granted patent monopolies to finance most of the costs of developing new drugs, vaccines, tests, and other medical devices. The logic is that corporations will be willing to spend large amounts of money, in often risky research, if they have the prospect of large profits when they have a successful product.

While everyone acknowledges the value of government-funded research through the National Institutes of Health (NIH) and other agencies, most of this funding goes to more basic research. The idea is that somehow, if the government was involved in the later phases of the development and clinical testing process the money would be mostly wasted. (Operation Warp Speed is a useful counter-example to this view. The government essentially picked up all of Moderna’s development costs, as well as the cost of its clinical trials.)

There are many problems with relying on patent monopolies to finance medical innovation. The most obvious is the price of drugs and other products enjoying patent monopoly protection. Drugs are almost invariably cheap to produce and distribute. However, the patent monopoly allows drug companies to charge markups, that are many thousand percent above the free market price, for drugs that may be essential for people’s health or even their life. In a patent-free world, drug affordability would be a non-issue, except for the very poor. In a world where patent monopolies can allow drug companies to charge tens, or even hundreds, of thousands of dollars for their drugs, affordability is a huge issue.

But the problem goes beyond just dealing with high prices. As every economist knows, when the government interferes in a market to keep the price up (by granting a patent monopoly), it creates perverse incentives. The most obvious is the incentive to promote drugs as widely as possible, even if it means misrepresenting their safety and effectiveness.

To be clear, companies always want to sell more of their products; that is how they make money. But they have far more incentive to bend the rules or break the law when selling drugs with markups of several thousand percent than when they are selling plastic forks or paper plates at markups of 20 or 30 percent.

This is a substantial part of the story of the opioid crisis, where several major drug companies paid billions of dollars in settlements based on allegations that they misrepresented the addictiveness of the new generation of opioid drugs. More recently, we have the case of Aduhelm, an Alzheimer’s drug of questionable safety and effectiveness. Biogen, the drug’s manufacturer, was hoping to sell it for $54,000 for a year’s dosage. The drug was approved by the FDA, reversing the decision of its advisory panel. The biggest problem in assessing the drug’s usefulness is that so many of the experts in the area have received money from Biogen, so it’s not clear whose opinions can be trusted.  

To protect their patent monopolies, drug companies will spend tens of millions of dollars on legal fees to harass potential competitors. This can mean, for example, pushing dubious patent claims that a less-established or generic company lacks the resources to contest.[1]

Patent holders can also effectively pay off potential generic competitors to stay out of the market. While an explicit payoff is illegal, a drug company can certainly make a deal with a potential generic competitor to manufacture one of its drugs. If the generic company decides to drop plans to introduce a generic competitor to the brand company’s patented drug, it would be difficult to prove in court that this was not just a coincidence.

The corruption from patent monopolies gets into all areas of health care policy. The pharmaceutical industry always ranks near the top in lobbying expenses and campaign contributions. Huge amounts of money are at stake with the government’s decisions on patent and pricing policy, as well as decisions on approving and buying drugs in programs like Medicare and Medicaid.

Perhaps the worst part of the story is that patent monopolies are likely to impede the research progress. Its impact takes different forms. First, the existence of large patent rents for a particular drug is likely to lead competitors to try to find ways to innovate around the patent to get a share of the rents. While it is generally desirable to have multiple drugs for a condition (some patients may react poorly to a particular drug), resources will generally be better spent attempting to find drugs for conditions where effective treatments do not already exist rather than developing the fourth, fifth, or sixth drug in an area, with the hope that a company’s marketing division can get them a large cut of the profits.

The desire to protect intellectual property claims can also prevent potentially productive collaborations. It doesn’t do a pharmaceutical company any good if it has a great breakthrough with a partner, but the partner is able to claim patent rights. The New York Times just ran a lengthy piece on the decades of research that allowed for the rapid development of the mRNA vaccines. At one point, it noted how the leading researchers in the field were unable to arrange a collaboration because of disputes over ownership of patents.

This problem is likely common. The point of the research being done by pharmaceutical companies after all is to get a patentable product. Developing drugs or vaccines that may save lives and improve public health is secondary.

The Open-Source Alternative

There are many different ways to fund open-source research. My preferred route would be long-term government contracts, with large grants going to prime contractors, who would then be expected to subcontract with smaller firms where appropriate. (I outline this system in chapter 5 of Rigged [it’s free].)

Military contracting provides a loose model for this approach. While there is much waste and fraud in the system of military contracting, this system for biomedical research has the huge advantage that while much military research is secret (often for good reason), everything would be fully open in this system.

If a major contractor with a large grant didn’t seem to be producing anything, it would quickly be apparent to researchers around the world. If Pfizer or Merck got $5 billion over a decade to research diabetes drugs, and had nothing to post after a year or two, it would be apparent to researchers around the world that something was wrong. If the story proved to be outright fraud (e.g., the top executives of the company had all bought themselves huge vacation homes), then the contract would be canceled, and the people responsible would be prosecuted. If it turned out that they were just incompetent, then the company would surely never get another research contract.[2]  

The big advantage of going this route is that all research findings would quickly be available to researchers everywhere. They could build on successes and learn from failures. We would not be seeing the problem noted in the NYT piece on developing mRNA vaccines, where cutting-edge research was not shared because of disputes over ownership of patents.

And, since all research findings were fully public, no one would have the incentive or the ability to mislead other researchers or clinicians about the safety and effectiveness of drugs, as happened with opioids. With everything on the table for all to see, it would be difficult to perpetuate a lie of any consequence.  

The other huge advantage of going this route is that drugs, vaccines, tests, and everything else developed through this system would be cheap. This would make providing access to the best technology in developing countries a far more doable task. It would even make a huge difference in rich countries like the United States. Instead of spending $500 billion a year on prescription drugs, we would be spending closer to $100 billion.

The Danger of the Hotez Vaccine

I have argued for years for the benefits of an open-source funding system along the lines discussed here and in Rigged. But, even if this is really a great idea, as I believe, no one would envision throwing out a functioning system, however wasteful and corrupt, for an unproven idea. The obvious route for going from the current system to an open-source system would be to take small steps with little downside risk.

This is exactly what Peter Hotez and his team of researchers did with developing their coronavirus vaccine. They were able to arrange enough funding from various sources to cover the research costs. They are now prepared to make it available to the world without conditions. If further research supports their initial findings, the world will have a cheap, effective vaccine that can quickly be produced in sufficient quantities to vaccinate the world.

That would be a huge deal and a great success for the open-source model. It would likely lead to demands for more public funding of open-source research. It may also help to pressure philanthropies—that claim to be concerned about public health—to fund research on an open-source model. Needless to say, it would also be very bad news for the profits of Pfizer and Moderna, and other drug companies that hoped to make billions off of COVID-19 vaccines.   

Given the widely recognized value of government-funded basic research through NIH and other agencies, it would require a very strange view of scientific progress to think that government funding of downstream research would be just throwing money in the toilet. But the best way to disprove this view is to produce results for an open-source model. Dr. Hotez has done that, and the whole world needs to know.

[1] There is an important asymmetry in legal battles between a patent holder and a generic competitor. The patent holder is fighting for the right to be able to sell a drug at patent monopoly prices, meaning markups of many thousand percent. The generic company is fighting for the right to sell the drug in a free market, with markups that may be less than one-tenth as large.

[2] To answer an obvious question, we would need some international agreement to share research costs worldwide. There would be problems negotiating such a deal. However, anyone who has followed recent trade negotiations knows that we have had enormous problems negotiating and enforcing international rules on protecting patents and other forms of intellectual property.  

Earlier this month, Dr. Peter Hotez announced that his team of researchers at Texas Children’s Hospital and Baylor University had developed an effective vaccine against the coronavirus. In limited clinical trials, it showed effectiveness comparable to the mRNA vaccines produced by Pfizer and Moderna and better than the Johnson and Johnson and widely used AstraZeneca vaccines.

What makes this development so important is that Hotez is making his vaccine freely available to the world. Anyone who has the necessary expertise to produce it is free to do so without worrying about patent monopolies or other intellectual property claims. They are also freely sharing the technology, not claiming industrial secrets like Pfizer and Moderna.

The production process is also fairly simple. An Indian manufacturer is already producing 100 million doses a month. Many other facilities can likely be quickly configured to produce the vaccine. With no patent rights, the vaccine is cheap. Hotez estimated that it can be produced for $1.00 to $1.50 a shot. That compares to prices around $20 a shot for the mRNA vaccines. At these prices, purchasing 2-4 billion vaccine doses to immunize the unvaccinated in the developing world should be a very small lift compared to the trillions of dollars and millions of lives the pandemic has cost the world.

At the moment, it is not clear that the Hotez vaccine figures prominently in the plans of the international aid organizations providing vaccines to the developing world or to the governments of the United States and other wealthy countries funding these efforts. Part of the hesitance can be justified by the fact that the vaccine has not undergone a large-scale clinical trial to more precisely determine its safety and efficacy.

However, this objection should be soon overcome. India has given the vaccine an emergency use authorization. With the vaccine’s widespread use in India, it should be possible to compile enough data to assess its safety and effectiveness in the not distant future.

The other issue is a more serious one. The fact that the vaccine is cheap and the technology is being open-sourced is likely a strike against its widespread adoption by major international organizations. The United States and other rich countries are worried about the threat of a good example.

Open-Source Versus Patent Monopolies

The United States, along with other wealthy countries, has long relied on government-granted patent monopolies to finance most of the costs of developing new drugs, vaccines, tests, and other medical devices. The logic is that corporations will be willing to spend large amounts of money, in often risky research, if they have the prospect of large profits when they have a successful product.

While everyone acknowledges the value of government-funded research through the National Institutes of Health (NIH) and other agencies, most of this funding goes to more basic research. The idea is that somehow, if the government was involved in the later phases of the development and clinical testing process the money would be mostly wasted. (Operation Warp Speed is a useful counter-example to this view. The government essentially picked up all of Moderna’s development costs, as well as the cost of its clinical trials.)

There are many problems with relying on patent monopolies to finance medical innovation. The most obvious is the price of drugs and other products enjoying patent monopoly protection. Drugs are almost invariably cheap to produce and distribute. However, the patent monopoly allows drug companies to charge markups, that are many thousand percent above the free market price, for drugs that may be essential for people’s health or even their life. In a patent-free world, drug affordability would be a non-issue, except for the very poor. In a world where patent monopolies can allow drug companies to charge tens, or even hundreds, of thousands of dollars for their drugs, affordability is a huge issue.

But the problem goes beyond just dealing with high prices. As every economist knows, when the government interferes in a market to keep the price up (by granting a patent monopoly), it creates perverse incentives. The most obvious is the incentive to promote drugs as widely as possible, even if it means misrepresenting their safety and effectiveness.

To be clear, companies always want to sell more of their products; that is how they make money. But they have far more incentive to bend the rules or break the law when selling drugs with markups of several thousand percent than when they are selling plastic forks or paper plates at markups of 20 or 30 percent.

This is a substantial part of the story of the opioid crisis, where several major drug companies paid billions of dollars in settlements based on allegations that they misrepresented the addictiveness of the new generation of opioid drugs. More recently, we have the case of Aduhelm, an Alzheimer’s drug of questionable safety and effectiveness. Biogen, the drug’s manufacturer, was hoping to sell it for $54,000 for a year’s dosage. The drug was approved by the FDA, reversing the decision of its advisory panel. The biggest problem in assessing the drug’s usefulness is that so many of the experts in the area have received money from Biogen, so it’s not clear whose opinions can be trusted.  

To protect their patent monopolies, drug companies will spend tens of millions of dollars on legal fees to harass potential competitors. This can mean, for example, pushing dubious patent claims that a less-established or generic company lacks the resources to contest.[1]

Patent holders can also effectively pay off potential generic competitors to stay out of the market. While an explicit payoff is illegal, a drug company can certainly make a deal with a potential generic competitor to manufacture one of its drugs. If the generic company decides to drop plans to introduce a generic competitor to the brand company’s patented drug, it would be difficult to prove in court that this was not just a coincidence.

The corruption from patent monopolies gets into all areas of health care policy. The pharmaceutical industry always ranks near the top in lobbying expenses and campaign contributions. Huge amounts of money are at stake with the government’s decisions on patent and pricing policy, as well as decisions on approving and buying drugs in programs like Medicare and Medicaid.

Perhaps the worst part of the story is that patent monopolies are likely to impede the research progress. Its impact takes different forms. First, the existence of large patent rents for a particular drug is likely to lead competitors to try to find ways to innovate around the patent to get a share of the rents. While it is generally desirable to have multiple drugs for a condition (some patients may react poorly to a particular drug), resources will generally be better spent attempting to find drugs for conditions where effective treatments do not already exist rather than developing the fourth, fifth, or sixth drug in an area, with the hope that a company’s marketing division can get them a large cut of the profits.

The desire to protect intellectual property claims can also prevent potentially productive collaborations. It doesn’t do a pharmaceutical company any good if it has a great breakthrough with a partner, but the partner is able to claim patent rights. The New York Times just ran a lengthy piece on the decades of research that allowed for the rapid development of the mRNA vaccines. At one point, it noted how the leading researchers in the field were unable to arrange a collaboration because of disputes over ownership of patents.

This problem is likely common. The point of the research being done by pharmaceutical companies after all is to get a patentable product. Developing drugs or vaccines that may save lives and improve public health is secondary.

The Open-Source Alternative

There are many different ways to fund open-source research. My preferred route would be long-term government contracts, with large grants going to prime contractors, who would then be expected to subcontract with smaller firms where appropriate. (I outline this system in chapter 5 of Rigged [it’s free].)

Military contracting provides a loose model for this approach. While there is much waste and fraud in the system of military contracting, this system for biomedical research has the huge advantage that while much military research is secret (often for good reason), everything would be fully open in this system.

If a major contractor with a large grant didn’t seem to be producing anything, it would quickly be apparent to researchers around the world. If Pfizer or Merck got $5 billion over a decade to research diabetes drugs, and had nothing to post after a year or two, it would be apparent to researchers around the world that something was wrong. If the story proved to be outright fraud (e.g., the top executives of the company had all bought themselves huge vacation homes), then the contract would be canceled, and the people responsible would be prosecuted. If it turned out that they were just incompetent, then the company would surely never get another research contract.[2]  

The big advantage of going this route is that all research findings would quickly be available to researchers everywhere. They could build on successes and learn from failures. We would not be seeing the problem noted in the NYT piece on developing mRNA vaccines, where cutting-edge research was not shared because of disputes over ownership of patents.

And, since all research findings were fully public, no one would have the incentive or the ability to mislead other researchers or clinicians about the safety and effectiveness of drugs, as happened with opioids. With everything on the table for all to see, it would be difficult to perpetuate a lie of any consequence.  

The other huge advantage of going this route is that drugs, vaccines, tests, and everything else developed through this system would be cheap. This would make providing access to the best technology in developing countries a far more doable task. It would even make a huge difference in rich countries like the United States. Instead of spending $500 billion a year on prescription drugs, we would be spending closer to $100 billion.

The Danger of the Hotez Vaccine

I have argued for years for the benefits of an open-source funding system along the lines discussed here and in Rigged. But, even if this is really a great idea, as I believe, no one would envision throwing out a functioning system, however wasteful and corrupt, for an unproven idea. The obvious route for going from the current system to an open-source system would be to take small steps with little downside risk.

This is exactly what Peter Hotez and his team of researchers did with developing their coronavirus vaccine. They were able to arrange enough funding from various sources to cover the research costs. They are now prepared to make it available to the world without conditions. If further research supports their initial findings, the world will have a cheap, effective vaccine that can quickly be produced in sufficient quantities to vaccinate the world.

That would be a huge deal and a great success for the open-source model. It would likely lead to demands for more public funding of open-source research. It may also help to pressure philanthropies—that claim to be concerned about public health—to fund research on an open-source model. Needless to say, it would also be very bad news for the profits of Pfizer and Moderna, and other drug companies that hoped to make billions off of COVID-19 vaccines.   

Given the widely recognized value of government-funded basic research through NIH and other agencies, it would require a very strange view of scientific progress to think that government funding of downstream research would be just throwing money in the toilet. But the best way to disprove this view is to produce results for an open-source model. Dr. Hotez has done that, and the whole world needs to know.

[1] There is an important asymmetry in legal battles between a patent holder and a generic competitor. The patent holder is fighting for the right to be able to sell a drug at patent monopoly prices, meaning markups of many thousand percent. The generic company is fighting for the right to sell the drug in a free market, with markups that may be less than one-tenth as large.

[2] To answer an obvious question, we would need some international agreement to share research costs worldwide. There would be problems negotiating such a deal. However, anyone who has followed recent trade negotiations knows that we have had enormous problems negotiating and enforcing international rules on protecting patents and other forms of intellectual property.  

We would probably think it is, if we relied on CNN and other such sources, but in good old reality land, that’s a hard story to tell. Anyhow, as some of us tried to explain, inflation is a worldwide phenomenon associated with reopening after a worldwide pandemic, which is not yet over.

We got some interesting news on inflation elsewhere today in the Bureau of Labor Statistics (BLS) release of data on import prices. It turns out that the price of imports has been rising even faster than domestic prices, with inflation of 10.4 percent over the last year.

A big part of this increase is higher energy prices, but the data do allow for an important comparison. BLS has a category for imports of manufactured goods from industrialized countries. This would be a wide range of items like cars, car parts, electronics, and other things we would import from Europe, Japan, Canada, and other wealthy countries. In other words, this is a cross-section of goods from countries we think of as similar to the United States.

We can compare this index to the category the BLS has in the Consumer Price Index (CPI), for goods excluding energy and agriculture. I also pulled used cars out of the CPI measure since presumably, we are not importing many used cars. In effect, I’m restricting the index to newly-produced goods. The chart below shows the picture.

 

Source: Bureau of Labor Statistics.

The CPI goods index showed a rise in price of 5.5 percent over the last year. The price of imported manufactured goods rose by 6.3 percent. This is not quite apples to apples since the dollar rose in price against the currencies of our trading partners by 3.5 percent over the last year.[1] The rise in the value of the dollar implies that these goods rose by 6.5 percent measured in the currencies of our trading partners. (Note that these prices do not include shipping costs, which would make the implied rise in import prices even larger.)

Anyhow, the implication is that if we look at the inflation in a roughly comparable set of goods, in similar countries, it was actually greater than the inflation we see in the United States. This is hard to fit with the “it’s Joe Biden’s fault” story, but this is what the data tell us.

Reopening from a pandemic creates bottlenecks. That’s the story elsewhere in the world, as well the United States.

[1] The index used is not entirely accurate for this purpose since it is weighted by all trade, not just manufactured goods imported from industrialized countries.

We would probably think it is, if we relied on CNN and other such sources, but in good old reality land, that’s a hard story to tell. Anyhow, as some of us tried to explain, inflation is a worldwide phenomenon associated with reopening after a worldwide pandemic, which is not yet over.

We got some interesting news on inflation elsewhere today in the Bureau of Labor Statistics (BLS) release of data on import prices. It turns out that the price of imports has been rising even faster than domestic prices, with inflation of 10.4 percent over the last year.

A big part of this increase is higher energy prices, but the data do allow for an important comparison. BLS has a category for imports of manufactured goods from industrialized countries. This would be a wide range of items like cars, car parts, electronics, and other things we would import from Europe, Japan, Canada, and other wealthy countries. In other words, this is a cross-section of goods from countries we think of as similar to the United States.

We can compare this index to the category the BLS has in the Consumer Price Index (CPI), for goods excluding energy and agriculture. I also pulled used cars out of the CPI measure since presumably, we are not importing many used cars. In effect, I’m restricting the index to newly-produced goods. The chart below shows the picture.

 

Source: Bureau of Labor Statistics.

The CPI goods index showed a rise in price of 5.5 percent over the last year. The price of imported manufactured goods rose by 6.3 percent. This is not quite apples to apples since the dollar rose in price against the currencies of our trading partners by 3.5 percent over the last year.[1] The rise in the value of the dollar implies that these goods rose by 6.5 percent measured in the currencies of our trading partners. (Note that these prices do not include shipping costs, which would make the implied rise in import prices even larger.)

Anyhow, the implication is that if we look at the inflation in a roughly comparable set of goods, in similar countries, it was actually greater than the inflation we see in the United States. This is hard to fit with the “it’s Joe Biden’s fault” story, but this is what the data tell us.

Reopening from a pandemic creates bottlenecks. That’s the story elsewhere in the world, as well the United States.

[1] The index used is not entirely accurate for this purpose since it is weighted by all trade, not just manufactured goods imported from industrialized countries.

No, I don’t expect calculations by statisticians in the Commerce Department to alleviate a real world problem, but there is an important point that many of us economist types could miss. We always work with seasonally adjusted data for obvious reasons. There are normal seasonal patterns to sales and hiring that we want to remove from our data.

If we didn’t make this adjustment, our data would show us plunging into recession every fall as workers in the tourism and construction industry lose their jobs. It would look like a boom every spring as these workers began to get rehired.

So all our data tries to remove these normal seasonal developments. The adjustments still can’t account for unusual weather, like a huge snowstorm in December or severe floods in the summer, but the adjustments help us to distinguish the underlying strength of the economy from what happens every year due to the changing seasons.

This can matter with respect to the supply chain backlog, because we are not moving seasonally adjusted cargo through our ports. We are moving containers of actual items. Insofar as our ports are constrained in their ability to move shipments, the constraint is not likely to change much over the various seasons.

It turns out the seasonal adjustments in retail sales are actually a big deal. I calculated implicit seasonal adjustments by comparing the ratio of unadjusted retail sales to the adjusted figures for the last pre-pandemic months. (I assume the actual adjustments used by the Commerce Department are sector-specific, so the final adjustment would depend on the mix of goods being sold.)

Source: Census Bureau and author’s calculations.

 

As can be seen, the adjustments for November, and especially December, are downward, meaning that we expect these months to have more sales than average due to to the holiday shopping season. The adjustments for January and February are sharply upward, since sales fall off after the holiday shopping season. The adjustments imply that we expect sales in January and February to be roughly 80 percent of sales in December. This means that we should be trying to get far fewer goods through our ports right now than back in November and December. (We should already have been seeing this effect in December, since it takes some time to get goods from the ports to store shelves.)

Anyhow, this means that even if there is no reduction in demand as shown in our seasonally adjusted data, there should be some reduction in pressure on our supply chains. We’ll see how much of the backlog this will clear up.

 

No, I don’t expect calculations by statisticians in the Commerce Department to alleviate a real world problem, but there is an important point that many of us economist types could miss. We always work with seasonally adjusted data for obvious reasons. There are normal seasonal patterns to sales and hiring that we want to remove from our data.

If we didn’t make this adjustment, our data would show us plunging into recession every fall as workers in the tourism and construction industry lose their jobs. It would look like a boom every spring as these workers began to get rehired.

So all our data tries to remove these normal seasonal developments. The adjustments still can’t account for unusual weather, like a huge snowstorm in December or severe floods in the summer, but the adjustments help us to distinguish the underlying strength of the economy from what happens every year due to the changing seasons.

This can matter with respect to the supply chain backlog, because we are not moving seasonally adjusted cargo through our ports. We are moving containers of actual items. Insofar as our ports are constrained in their ability to move shipments, the constraint is not likely to change much over the various seasons.

It turns out the seasonal adjustments in retail sales are actually a big deal. I calculated implicit seasonal adjustments by comparing the ratio of unadjusted retail sales to the adjusted figures for the last pre-pandemic months. (I assume the actual adjustments used by the Commerce Department are sector-specific, so the final adjustment would depend on the mix of goods being sold.)

Source: Census Bureau and author’s calculations.

 

As can be seen, the adjustments for November, and especially December, are downward, meaning that we expect these months to have more sales than average due to to the holiday shopping season. The adjustments for January and February are sharply upward, since sales fall off after the holiday shopping season. The adjustments imply that we expect sales in January and February to be roughly 80 percent of sales in December. This means that we should be trying to get far fewer goods through our ports right now than back in November and December. (We should already have been seeing this effect in December, since it takes some time to get goods from the ports to store shelves.)

Anyhow, this means that even if there is no reduction in demand as shown in our seasonally adjusted data, there should be some reduction in pressure on our supply chains. We’ll see how much of the backlog this will clear up.

 

The continuous drumbeat of inflation is louder than ever after the release of December’s data for the Consumer Price Index. This means it’s worth bringing a bit of sanity to the discussion.

First, as fans of reality like to point out, the jump in inflation over the last year is largely a worldwide phenomenon, not something that can be attributed to bad policies in the United States. Our year-over-year (December 2020 to December 2021) inflation figure was 7.0 percent, which is definitely high. But the figure for the U.K. was 4.6 percent, for Canada 4.7 percent, for Germany 5.2 percent, and for Spain 5.5 percent. (These are all inflation numbers from November 2020 to November 2021, since December data are not yet available.)  

The jumps in inflation in these countries cannot be blamed on the American Recovery Act (ARA) that Biden pushed through Congress back in February or Federal Reserve Board policy. Obviously, the US inflation rate is higher than in these other countries, but the point is that we would have seen a substantial jump in inflation even if Biden has not moved aggressively to restart the economy.

As a result of the ARA, we are the only country to have a level of output above the pre-pandemic level. The unemployment rate is down to a level rarely seen in the last half-century. And, workers at the lower tiers in the labor market have unprecedented freedom to leave jobs they don’t like and to look for better opportunities.

But the inflation data reported in December is definitely a cause for concern. There are a few points worth making here. First, the 0.5 percent inflation rate reported for the month of December itself is somewhat lower than the 0.9 percent rate for October and the 0.8 percent rate reported for November. The monthly data are always erratic, but still, this is going in the right direction.

Also, much of the inflation is not any mystery. We continue to see the supply chain crisis, aggravated by the shortage of semi-conductors, which has impeded car production. New car prices rose 1.0 percent in December and are up 11.8 percent over the last year. Used car prices rose 3.5 percent and have risen an incredible 37.3 percent over the last year. Together, these components accounted for almost 1.5 percentage points of the inflation we have seen over the last year.

The major auto manufacturers are getting around the chip shortage and ramping up production. Since the cost of producing cars has not hugely risen, we can expect most of the rise in new and used car prices to be reversed in the not distant future.

There is a similar story in the other components where supply chain issues have pushed up prices. Apparel prices, which have been trending downward for decades, rose 5.8 percent over the last year. The index for household supplies and furnishings, which includes everything from linen to major appliances, rose 7.4 percent over the last year.

This index has also been flat or moving downward in the decade prior to the pandemic. For this reason, it is likely that most of these price increases will also be reversed.

The big question that no one has a good answer to is, when will the supply chain problems be resolved? While I don’t have a good answer to this, the seasonal timing of purchases may provide some relief. The holiday season is peak demand for a wide variety of goods. The normal falloff in January and February sales is close to 20 percent. Our seasonal adjustments (correctly) hide this falloff, but the smaller flow of goods in these months should allow for shippers to catch up to some extent.

The spread of the omicron variant, which is preventing many people from working (in addition to filling hospitals), is a big factor going in the wrong direction. But there is some evidence that it is peaking in the Eastern part of the country, and we may be through this wave before too long.

One promising sign was a sharp drop in the inflation rate shown in the Producer Price Index Final Demand Index. (This is the last stage for goods and services before they reach retailers.) The overall index rose just 0.2 percent in December, while the goods index actually fell by 0.4 percent, driven by drops in food and energy prices.

The monthly data are highly erratic, so it would be foolish to make too much of the December report, but it is a promising sign. More importantly, there are good reasons to believe that much of the inflation that we have seen in the last year will be reversed in the months ahead, even if there is no easy way to predict the timing.

For what it’s worth, the financial markets seem to agree with this assessment. The interest rate on 10-year Treasury bonds is just over 1.7 percent. This is not consistent with an expectation that inflation will remain near 7.0 percent. The breakeven inflation rate between normal Treasury bonds and inflation-indexed bonds is less than 2.5 percent. Financial markets can be wrong (see stock and housing bubbles), but at the moment they don’t seem concerned about runaway inflation.

It would be incredibly irresponsible for the Fed to slam on the brakes, and throw millions of people out of work, to head off inflation associated with a clogged supply chain. We can unclog the supply chain by getting people to stop buying things, in the same way that we can cure cancer by draining a patient of blood. Neither is an especially effective way to accomplish the goal.

The continuous drumbeat of inflation is louder than ever after the release of December’s data for the Consumer Price Index. This means it’s worth bringing a bit of sanity to the discussion.

First, as fans of reality like to point out, the jump in inflation over the last year is largely a worldwide phenomenon, not something that can be attributed to bad policies in the United States. Our year-over-year (December 2020 to December 2021) inflation figure was 7.0 percent, which is definitely high. But the figure for the U.K. was 4.6 percent, for Canada 4.7 percent, for Germany 5.2 percent, and for Spain 5.5 percent. (These are all inflation numbers from November 2020 to November 2021, since December data are not yet available.)  

The jumps in inflation in these countries cannot be blamed on the American Recovery Act (ARA) that Biden pushed through Congress back in February or Federal Reserve Board policy. Obviously, the US inflation rate is higher than in these other countries, but the point is that we would have seen a substantial jump in inflation even if Biden has not moved aggressively to restart the economy.

As a result of the ARA, we are the only country to have a level of output above the pre-pandemic level. The unemployment rate is down to a level rarely seen in the last half-century. And, workers at the lower tiers in the labor market have unprecedented freedom to leave jobs they don’t like and to look for better opportunities.

But the inflation data reported in December is definitely a cause for concern. There are a few points worth making here. First, the 0.5 percent inflation rate reported for the month of December itself is somewhat lower than the 0.9 percent rate for October and the 0.8 percent rate reported for November. The monthly data are always erratic, but still, this is going in the right direction.

Also, much of the inflation is not any mystery. We continue to see the supply chain crisis, aggravated by the shortage of semi-conductors, which has impeded car production. New car prices rose 1.0 percent in December and are up 11.8 percent over the last year. Used car prices rose 3.5 percent and have risen an incredible 37.3 percent over the last year. Together, these components accounted for almost 1.5 percentage points of the inflation we have seen over the last year.

The major auto manufacturers are getting around the chip shortage and ramping up production. Since the cost of producing cars has not hugely risen, we can expect most of the rise in new and used car prices to be reversed in the not distant future.

There is a similar story in the other components where supply chain issues have pushed up prices. Apparel prices, which have been trending downward for decades, rose 5.8 percent over the last year. The index for household supplies and furnishings, which includes everything from linen to major appliances, rose 7.4 percent over the last year.

This index has also been flat or moving downward in the decade prior to the pandemic. For this reason, it is likely that most of these price increases will also be reversed.

The big question that no one has a good answer to is, when will the supply chain problems be resolved? While I don’t have a good answer to this, the seasonal timing of purchases may provide some relief. The holiday season is peak demand for a wide variety of goods. The normal falloff in January and February sales is close to 20 percent. Our seasonal adjustments (correctly) hide this falloff, but the smaller flow of goods in these months should allow for shippers to catch up to some extent.

The spread of the omicron variant, which is preventing many people from working (in addition to filling hospitals), is a big factor going in the wrong direction. But there is some evidence that it is peaking in the Eastern part of the country, and we may be through this wave before too long.

One promising sign was a sharp drop in the inflation rate shown in the Producer Price Index Final Demand Index. (This is the last stage for goods and services before they reach retailers.) The overall index rose just 0.2 percent in December, while the goods index actually fell by 0.4 percent, driven by drops in food and energy prices.

The monthly data are highly erratic, so it would be foolish to make too much of the December report, but it is a promising sign. More importantly, there are good reasons to believe that much of the inflation that we have seen in the last year will be reversed in the months ahead, even if there is no easy way to predict the timing.

For what it’s worth, the financial markets seem to agree with this assessment. The interest rate on 10-year Treasury bonds is just over 1.7 percent. This is not consistent with an expectation that inflation will remain near 7.0 percent. The breakeven inflation rate between normal Treasury bonds and inflation-indexed bonds is less than 2.5 percent. Financial markets can be wrong (see stock and housing bubbles), but at the moment they don’t seem concerned about runaway inflation.

It would be incredibly irresponsible for the Fed to slam on the brakes, and throw millions of people out of work, to head off inflation associated with a clogged supply chain. We can unclog the supply chain by getting people to stop buying things, in the same way that we can cure cancer by draining a patient of blood. Neither is an especially effective way to accomplish the goal.

The national debate on free trade is one where honesty has no place. The purpose of our trade agreements, which were not free trade, was to reduce the pay of manufacturing workers, and non-college educated workers more generally, to the benefit of more highly educated workers and corporations. This was the predicted (by standard economics) and actual result. 

We made our manufacturing workers compete with low-paid workers in China and elsewhere in the developing world. This led to a massive loss of manufacturing jobs as the trade deficit exploded. The hit to workers in manufacturing was so large that the historic wage premium in the industry has largely disappeared.

While the massive upward redistribution of income from our trade deals was sold on the principle of “free trade,” it has nothing to do with actual free trade. Our trade deals did almost nothing to make it easier for foreign-trained professionals, like doctors and dentists, to work in the United States. As a result, our doctors and dentists earn roughly twice as much as their counterparts in other wealthy countries.

For some reason (please guess) this fact literally never enters in discussions of free trade. It seems that the advocates of free trade can’t get access to data on doctors’ pay. Just for beginners, if our doctors got paid the same amount as their counterparts in Germany or Canada, it would save us around $100 billion a year (about $700 per household). While that might seem like big money, our “free traders” can’t be bothered with it. They only want to save money by lowering the wages of autoworkers.

The other item that never enters into discussions of free trade is patent and copyright monopolies. These forms of protections raise the price of items like prescription drugs, medical equipment, and vaccines by many thousand percent above their free market price. In other words, they are equivalent to tariffs of many thousand percent. While “free trade” economists go nuts over tariffs of 10 or 20 percent on shoes and steel, they somehow can’t be bothered to pay attention to government-granted patent monopolies that raise the price of prescription drugs by 2000 percent. 

And, guess what, these monopolies redistribute an enormous amount of money from the rest of us to folks like the Moderna billionaires.  This really is not subtle. The overwhelming majority of “free trade” economists don’t give a flying f**k about free trade. They are interested in policies that redistribute income upward.

Let’s stop with the stupid games. We are not having arguments about free trade. We are having arguments over policies that are designed to redistribute even more income from the bulk of the population to those at the top.

 

The national debate on free trade is one where honesty has no place. The purpose of our trade agreements, which were not free trade, was to reduce the pay of manufacturing workers, and non-college educated workers more generally, to the benefit of more highly educated workers and corporations. This was the predicted (by standard economics) and actual result. 

We made our manufacturing workers compete with low-paid workers in China and elsewhere in the developing world. This led to a massive loss of manufacturing jobs as the trade deficit exploded. The hit to workers in manufacturing was so large that the historic wage premium in the industry has largely disappeared.

While the massive upward redistribution of income from our trade deals was sold on the principle of “free trade,” it has nothing to do with actual free trade. Our trade deals did almost nothing to make it easier for foreign-trained professionals, like doctors and dentists, to work in the United States. As a result, our doctors and dentists earn roughly twice as much as their counterparts in other wealthy countries.

For some reason (please guess) this fact literally never enters in discussions of free trade. It seems that the advocates of free trade can’t get access to data on doctors’ pay. Just for beginners, if our doctors got paid the same amount as their counterparts in Germany or Canada, it would save us around $100 billion a year (about $700 per household). While that might seem like big money, our “free traders” can’t be bothered with it. They only want to save money by lowering the wages of autoworkers.

The other item that never enters into discussions of free trade is patent and copyright monopolies. These forms of protections raise the price of items like prescription drugs, medical equipment, and vaccines by many thousand percent above their free market price. In other words, they are equivalent to tariffs of many thousand percent. While “free trade” economists go nuts over tariffs of 10 or 20 percent on shoes and steel, they somehow can’t be bothered to pay attention to government-granted patent monopolies that raise the price of prescription drugs by 2000 percent. 

And, guess what, these monopolies redistribute an enormous amount of money from the rest of us to folks like the Moderna billionaires.  This really is not subtle. The overwhelming majority of “free trade” economists don’t give a flying f**k about free trade. They are interested in policies that redistribute income upward.

Let’s stop with the stupid games. We are not having arguments about free trade. We are having arguments over policies that are designed to redistribute even more income from the bulk of the population to those at the top.

 

The December job report again showed an extraordinary divergence between the establishment survey and the household survey. The establishment survey showed the economy creating just 199,000 jobs, while the household survey showed a growth in employment of 651,000, pushing the unemployment rate down by 0.3 percentage points to 3.9 percent, a level achieved at few points in the last fifty years.

It’s not unusual for there to be substantial differences between the surveys, but these are extraordinary. In the last months, the household survey has shown an increase in employment of 1,741,000. By comparison, the increase in jobs in the establishment survey has been just 448,000.

While these divergences are striking, they largely disappear if we look over a longer period. Over the last year, the household survey shows employment is up by 6,092,000. The establishment survey shows a gain of 6,448,000 jobs.

Since the start of the pandemic, the household survey shows a drop in employment of 2,891,000. The establishment survey shows a loss of 3,572,000 jobs. Most of this gap can be explained by an increase in self-employment of more than 500,000, which would not be picked up in the establishment data.

Long and short, there is nothing obviously wrong in the household data, so we should feel free to celebrate the extraordinarily low unemployment rate we are now seeing. Also, as I pointed out last month, the establishment data has consistently been revised up in recent months. In yesterday’s report, the job numbers for the prior two months were revised up by a total of 141,000, so it is likely that we will see an upward revision to the December data in the next two reports.

The other point is that it is clear that the constraint on employment is largely on the supply side at this point. Many employers, particularly those in low-paying sectors, are having trouble attracting workers. We see evidence of this in both the increase in the length of the average workweek and also rapidly rising wages. Also, we know from the Job Openings and Labor Turnover Survey that job openings are at record highs. So this is clearly a very good labor market from the standpoint of workers.

Okay, but enough with the data. Let’s get to the Biden versus Trump comparison. I know that this comparison is silly since so many factors affect job growth that are beyond the president’s control. But, everyone knows that if the situation were reversed, Donald Trump and his crew would be all over Fox and everywhere else touting the comparison. I’m doing this for them. As it now stands, President Biden has created 6,215,000 jobs in his first eleven months in the White House, compared to a loss of 2,876,000 jobs in the four years of Donald Trump’s presidency.

 

 

 

 

 

Source: Bureau of Labor Statistics.

The December job report again showed an extraordinary divergence between the establishment survey and the household survey. The establishment survey showed the economy creating just 199,000 jobs, while the household survey showed a growth in employment of 651,000, pushing the unemployment rate down by 0.3 percentage points to 3.9 percent, a level achieved at few points in the last fifty years.

It’s not unusual for there to be substantial differences between the surveys, but these are extraordinary. In the last months, the household survey has shown an increase in employment of 1,741,000. By comparison, the increase in jobs in the establishment survey has been just 448,000.

While these divergences are striking, they largely disappear if we look over a longer period. Over the last year, the household survey shows employment is up by 6,092,000. The establishment survey shows a gain of 6,448,000 jobs.

Since the start of the pandemic, the household survey shows a drop in employment of 2,891,000. The establishment survey shows a loss of 3,572,000 jobs. Most of this gap can be explained by an increase in self-employment of more than 500,000, which would not be picked up in the establishment data.

Long and short, there is nothing obviously wrong in the household data, so we should feel free to celebrate the extraordinarily low unemployment rate we are now seeing. Also, as I pointed out last month, the establishment data has consistently been revised up in recent months. In yesterday’s report, the job numbers for the prior two months were revised up by a total of 141,000, so it is likely that we will see an upward revision to the December data in the next two reports.

The other point is that it is clear that the constraint on employment is largely on the supply side at this point. Many employers, particularly those in low-paying sectors, are having trouble attracting workers. We see evidence of this in both the increase in the length of the average workweek and also rapidly rising wages. Also, we know from the Job Openings and Labor Turnover Survey that job openings are at record highs. So this is clearly a very good labor market from the standpoint of workers.

Okay, but enough with the data. Let’s get to the Biden versus Trump comparison. I know that this comparison is silly since so many factors affect job growth that are beyond the president’s control. But, everyone knows that if the situation were reversed, Donald Trump and his crew would be all over Fox and everywhere else touting the comparison. I’m doing this for them. As it now stands, President Biden has created 6,215,000 jobs in his first eleven months in the White House, compared to a loss of 2,876,000 jobs in the four years of Donald Trump’s presidency.

 

 

 

 

 

Source: Bureau of Labor Statistics.

Okay, I’m a bit slow for a New Year’s piece, but what the hell, we can always use a bit of optimism. Anyhow, I thought I would spout a few things about what the world might look like if we didn’t rig the market to give all the money to rich people. Not much new here for regular readers, I just thought I would spell it on paper, since it is a nice backdrop for many of our battles.

Before I go through my favorite unriggings, let me start by making a general point, which some people may miss. I focus much of my writing on ways that we rig the market to give money to the Bill Gates and Moderna billionaires of the world.

The idea of restructuring the market, so that these people do not get so rich, is not just a question of punishing the wealthy. When we give these people more money, in excess of what they contribute to the economy (we have to pay people something to develop mRNA vaccines, just not as much as we did), then we are generating more demand in the economy. This has the same effect on the economy as an increase in government spending.

To take my favorite example, if because of patent and related monopolies, we pay drug companies $400 billion a year more than is needed to have the drugs manufactured and distributed, this has the same effect on the economy as if we wrote $400 billion in checks ($3,300 per household) and sent them around to everyone. This policy (the writing of large checks) would run the risk of creating inflation if the economy is near its capacity.

The same is true of sending all this money to drug companies. While many people in the pharmaceutical industry earn normal salaries, higher-up employees can earn millions of dollars, or even tens of millions of dollars, a year. And those lucky enough to be at the top of the big winners, like Moderna, can score billions.

When these people spend this money on their second, third, or fourth homes, on their yachts, or their space trips, it pulls resources away from other areas. We, therefore, have fewer people to build homes for ordinary families (and less land), and fewer people to provide medical care or child care because the pharmaceutical industry folks have hired them.   

Restructuring the market so that less income flows upward has the same impact as taxing the income away. Of course, it has the huge benefit over taxation in that it is done through the market. This is enormously more efficient than handing rich people money and then trying to take it away with taxes. It also is likely to be far more feasible politically.

With that backdrop, it’s time for a bit of fun, thinking about what the world might look like if we unrigged the economy.

 

Free Market Drugs and Vaccines

There is probably no sector where the impact of government-granted patents and copyrights is more pernicious than in healthcare. Drugs are almost invariably cheap to produce and distribute. The reason that some can cost thousands, or even tens of thousands of dollars for a year’s treatment is because the government grants drug companies patent monopolies. When they are producing a drug that is essential for people’s health, or possibly even their lives, the patent monopoly allows companies to charge prices completely out of line with costs.[1]

This is a case where every good progressive should be a huge proponent of the free market.  If we didn’t have any patent or related protections for vaccines, we could have had manufacturers all around the world producing and stockpiling vaccines even before they were approved. (It costs around $2 to manufacture a vaccine dose, if we had stockpiled 400 million vaccines that proved ineffective and then had to throw them out, so what? The wasted $800 million is a bit more than 0.01 percent of what the U.S. government has spent on pandemic-related measures.) This would likely have meant that we could have had most of the world vaccinated by the spring, likely preventing the omicron variant and possibly even stopping the delta variant.

Also, to cut off a standard line from our friends in the pharmaceutical industry, it’s true that much of the technology of the industry is protected by industrial secrets rather than government-granted patent monopolies. This one is easily dealt with; we just make their non-disclosure agreements unenforceable. That would allow the top engineers at Pfizer, Moderna, and elsewhere to freely share their expertise with everyone in the world.

We do have to pay for research, but the patent monopoly system is a very inefficient mechanism. In addition to making drugs and vaccines very expensive, it also gives companies an incentive to carry on their research in secret, rather than sharing important findings with potential competitors.

Science advances most rapidly when it is open. If we pay for the research upfront as we did with Operation Warp Speed, we can make openness a condition of the research, with all results posted on the web as quickly as practical. This would allow researchers everywhere to build on each other’s successes and learn from their failures, preventing much needless duplication. Also, all patentable results would be placed in the public domain so that generic manufacturers anywhere in the world could produce them.  (In chapter 5 of Rigged [it’s free], I describe a mechanism involving long-term contracts that the government could use to dish out the money.) 

We would need some system of international sharing of research costs, which would have to be negotiated. But, this sort of open research system offers enormous potential gains for the whole world. And, it’s worth noting that our current system, requiring patent enforcement internationally, has hardly been problem-free in both negotiation and implementation. In a positive turn of events, the European Union is actively considering expanding public investment in biomedical research, including an open research option. 

Open research would also eliminate the incentives for misrepresenting research findings or outright fraud, like the Elizabeth Holmes-Theranos case. If research is fully open for the community of researchers to evaluate, it would be almost impossible for someone to perpetuate a Theranos-type fraud. Also, there would be very little incentive, since no one would stand to make millions or billions by pushing false claims.

In this context, it is worth noting that, while Theranos is an extreme case, the problem of companies hyping their drugs to maximize the profits from their patent monopolies, is pervasive. This is a huge part of the story of the opioid crisis. More recently the question of biased research has come up with reference to the high-priced Alzheimer’s drug Aduhelm. Without patent monopolies, not only would we get cheap drugs, but we would get honest assessments of their benefits and risks.

The idea that for some reason we can’t have successful innovation without patent monopolies is frankly bizarre. The pathbreaking research in developing mRNA technology was done almost entirely on the government’s dime, as was the work by Moderna to develop a Covid-specific vaccine. We also have the example of a Covid vaccine developed on a shoe-string by Texas Children’s Hospital and Baylor University. We need to pay researchers for their work, but the idea that we can’t have successful innovation without the lure of earning hundreds of millions or even billions from a patent monopoly is absurd on its face.

Imagine a world where most drugs, including the latest breakthrough drugs, were selling for $10 or $20 a prescription. That would be the case without patent monopolies or related protections. The same would be true of medical equipment. The latest blood tests and scans would also almost all be cheap.

In this world, doctors could without hesitation prescribe the course of treatment that they considered to be best for their patient. We would not have moral dilemmas, like whether an otherwise healthy 80-year-old should be prescribed a cancer drug that costs $150,000 a year. Since the drug would likely only cost a few hundred dollars, or at most a few thousand, this would be a no-brainer. Of course you would prescribe the drug that might save their life.   

The savings would be enormous. By my calculations, we would save around $400 billion a year ($3,000 per household) on prescription drugs if they all were sold in a free market without patent monopolies. We would need roughly $100 billion in additional spending to replace the research now supported by patent monopolies, but that would still leave us with savings of around $300 billion a year. That is more than one and half times the cost of the latest version of Build Back Better. If we are also covering the cost of developing medical equipment and tests, that would likely save us an additional $100 billion a year or so. In short, this is real money.

With these sorts of savings, we would be much of the way towards being able to pay for a universal Medicare system, like the one in Canada. Cutting out the insurance industry as a middleman would save us more than $300 billion a year. Also, getting doctors’ pay more in line with their pay in other wealthy countries could net us another $100 billion annually.[2]

Downsizing Patents and Copyrights More Generally

In addition to raising the price of everything from computers and software to video games and movies, patent and copyrights create a morass of legal issues that both raises costs for everyone and impedes the development of technology. It seems reasonable to minimize the role of these government-granted monopolies everywhere, as I describe in chapter 5 of Rigged. This means more public funding of research, with the cost of access for companies being that they have to accept much shorter patents (e.g. four to five years rather than twenty), with their patents being added to the public pool for the rest of the duration of the patent.

One major exception is innovations related to slowing climate change. Here it makes sense to have the same approach as with biomedical research, where we attempt to pool technology worldwide and have it available at no cost to whoever wants it. If China invests a huge amount to further increase its lead in clean energy and electric cars, that is not a threat to the United States, it is doing us and the world a favor.

The same story holds with every other country in the world. We want them to use the technology to lower their emissions. We shouldn’t be trying to keep it away from them with patent monopolies or related protections. This is just simple economics. If solar panels or batteries cost 20 to 30 percent less, because there is no charge for using patents, then businesses, governments, and households will be quicker to switch to clean energy. 

The other area where it would be desirable to largely replace the patent/copyright system is with the funding of journalism and creative work more generally. The amount of money going to support newspapers under the current system has plummeted due to both the Internet and the growth of Facebook and Google. The same is true for recorded music, where current spending is a small fraction of what we saw two decades ago.

I have argued for a system of individual tax credits, modeled on the charitable contribution tax deduction, to support creative work. Under this system, every adult would get a modest sum (e.g. $150 a year) to support the creative worker(s) or creative organization (newspaper, blues music promoter etc.) of their choice. Any work produced through this system would be in the public domain and therefore not subject to copyright protection. A neat aspect of this proposal, in my view, is that enterprising politicians could experiment with it at the state and local levels.

Anyhow, if fully implemented, it could produce a vast amount of creative work that would be available at no cost to anyone with Internet access. It could also revitalize news organizations at the state and local level, which have been hugely downsized in the last quarter-century, or put out of business altogether.[3]

Applying Market Forces to CEO Pay: Getting Corporate Boards that Do Their Job

There has been considerable research in the last two decades showing that CEO pay bears little relationship to their performance in terms of producing returns for shareholders. A recent study surveyed corporate directors and found that the vast majority did not even see it as their job to contain CEO pay. Instead, they saw their role as supporting top management.

In that context, it’s not surprising that even mediocre CEOs can get paychecks in the tens of millions of dollars. After all, if you’re a director sitting on a huge pot of money in the form of the company’s annual revenue, why wouldn’t you dish out tens of millions to your friend, the CEO? This attitude might explain how boards can give out lavish pay packages even when it’s against the explicit wishes of shareholders.

It is important to recognize that the issue with bloated CEO pay is not just one person getting $20 or $30 million (and sometimes considerably more), it is a whole pay structure that follows from the outsized pay for the CEO. If the CEO is earning $20 million, then it’s likely the chief financial officer and other top-tier executives are earning in the range of $8 to $12 million. The third-tier executives can easily be making $2 or $3 million.

This sort of pay structure also has an impact outside of the corporate sector. It is common for presidents of large foundations and charities or major universities to get paid well over $1 million a year. And, the next echelon at these institutions often get paid in the high six figures.  

If we go back to the sixties and seventies, the CEO of a major company would typically get paid twenty or thirty times as much as an ordinary worker. That would translate into $2 million to $3 million a year today. If CEOs were currently getting pay in this neighborhood, we would see correspondingly lower pay for other top management in the corporate sector and elsewhere.

Instead of getting well over $1 million a year, maybe the president of a major university would draw pay in the high hundreds of thousands. And the provost and deans would be in the middle six figures. That would mean a radically different pattern of income distribution with a lot more money available to those lower down the pay ladder.

It is common for policy types to accept the outlandish pay of CEOs and other top-level executives as simply market outcomes. But this view is hard to justify when we recognize that there is no one placing downward pressure on the pay of these people in the same way that these top-level people put downward pressure on the pay of ordinary workers.

It is a standard for economists to put lots of faith in the “invisible hand” of the market, but in the case of restraining the pay of CEOs and others at the top of the pay ladder, that hand really is invisible.

Pay for Performance in the Financial Industry?

The list of the country’s top earners is heavily populated with hedge fund and private equity partners, who typically pocket millions of dollars a year, and can sometimes earn tens of millions or even hundreds of millions. The rationale for these huge paychecks is that they are providing outsized returns for investors, which both makes money for investors and steers capital to its best uses. 

There are lots of bad stories about what hedge funds and especially private equity funds do with their money. They are notorious for downsizing and often bankrupting firms, laying off workers, stealing pensions, and leaving creditors empty-handed. In this story, creditors include not only knowing lenders like banks and bondholders, but also unintentional creditors like suppliers and landlords. They also are notorious for gaming the tax code.

But even apart from their dubious business practices, there is an even more basic issue with hedge funds and private equity funds: they don’t produce returns for shareholders. In prior decades, investors in these funds could count on beating a stock index fund, often by a large margin. The margin is appropriate since these are highly illiquid investments (money is typically locked in for a decade) and there is considerably more risk than with a stock index fund.

However, this is no longer true. In recent years, returns to investors on the typical hedge fund and private equity fund trailed a stock market index. This means that pension funds actually lost money by investing a portion of their assets with private equity funds rather than a stock market index. Similarly, many universities lost money by having a large portion of their endowment managed by hedge funds.

It shouldn’t be a radical demand to the presidents of Harvard and other schools with huge endowments that they not pay big bucks to investment managers to lose them money. For some reason, it doesn’t seem like anyone has taken up that cause.   

It is possible to structure contracts so that these managers only do get big payouts if they actually produce above-normal returns to pensions or universities. Contracts differ across institutions, but a standard pattern in years past was to pay fund managers 2 percent of the money being managed each year, and then 20 percent of returns over some target, such as the S&P 500. In this story, if a hedge fund was managing $1 billion of Harvard’s endowment, they would get paid $20 million a year, even if their investments trailed the S&P 500. That is a lot of money to pay to lose money.

Pension funds and universities can structure their contracts so that the entire payment is dependent on beating a threshold. In that case, if a fund trailed the S&P 500, they would get nothing. (There can be a clause that ensures everyone who worked for the fund gets the minimum wage for the time they put in. We wouldn’t want to undermine labor laws.) Some private equity and hedge funds would balk at this sort of arrangement, but if these fund managers don’t have confidence in their own ability to beat the market, why should institutions risk money with them?

There are many other areas where we have large amounts of economic waste in finance, which persists because rich people are pocketing this waste. For example, we could have the Fed give every person and business a digital account from which they could conduct normal business transactions, such as getting their paycheck and paying their bills. This would save us tens of billions of dollars annually in banking fees. But, that would mean less money for people in the financial industry.

There is a similar story with retirement accounts. It is common for the financial industry to charge people with 401(k)s or IRAs 1-2 percent of the money in their accounts each year as an administration fee. This means that if you have $100,000 in a 401(k), the bank, brokerage house, or insurance company that manages it could be charging you $1,000 to $2,000 a year. This can be in addition to the fees charged by specific funds, which also can be as high as 1 percent.

These fees can be radically reduced if the government offered a public option similar to the Federal Employees Thrift Saving Plan. The fee for that fund is around 0.1 percent annually. Many states have already taken the initiative to begin to allow workers in the private sector to have money invested by their public worker pension fund managers.  

We can also do a lot to downsize the financial industry with a modest financial transactions tax. A fee of 0.1 percent would eliminate a huge amount of wasteful transactions while having virtually no impact on productive investment. It would also radically reduce the money going to high-frequency traders and others engaged in speculative trading.

Making the World Safe and Good for Ordinary Workers

The sort of restructuring of the market described here would mean much less money going to the rich and very rich. That means they will be pulling away fewer resources for lavish lifestyles since their lifestyles would have to be somewhat less lavish. That leaves more money for everyone else.

I wrote a piece last year pointing out that in the three decades from 1938 to 1968, the minimum wage not only kept pace with prices, it also rose in step with productivity. This means that as the country got richer, so did the workers at the bottom rungs of the wage ladder.

In the years since 1968, the minimum wage has not even kept pace with prices, so that a worker getting $7.25 an hour in 2022 can buy far less than a worker earning the minimum wage in 1968. However, if the minimum wage had continued to keep pace with productivity growth, it would have been more than $23 an hour in 2021.

Imagine a country where the lowest-paid full-time worker was pocketing more than $46,000 a year and a two-earner couple would have more than $92,000 a year, even if both were just getting the minimum wage. This is not possible in our world, where the economy has been deliberately structured to send so much income to those at the top, but we should never forget that this is a policy choice.

We have implemented a set of policies that give large amounts of money to people in a position to benefit from patent and copyright monopolies, to CEOs and other top management, and to a favored few in the financial industry. These groups will fight like crazy to prevent these policies from being reversed.

But, the first step in the battle is recognizing they rigged the deck. Don’t let them ever get away with saying that it was just the natural workings of the market.

[1] It also helps that it is typically a deep-pocketed third-party payer, like an insurance company or the government, so drug companies don’t have to convince patients of the value of their drugs.

[2] I calculate the savings and costs involved in getting to a universal Medicare program here.

[3] I have also proposed radically restructuring Section 230 protection, taking it away from sites that sell personal information or accept advertising. This should have the effect of downsizing Facebook and other sites that operate along similar lines.

Okay, I’m a bit slow for a New Year’s piece, but what the hell, we can always use a bit of optimism. Anyhow, I thought I would spout a few things about what the world might look like if we didn’t rig the market to give all the money to rich people. Not much new here for regular readers, I just thought I would spell it on paper, since it is a nice backdrop for many of our battles.

Before I go through my favorite unriggings, let me start by making a general point, which some people may miss. I focus much of my writing on ways that we rig the market to give money to the Bill Gates and Moderna billionaires of the world.

The idea of restructuring the market, so that these people do not get so rich, is not just a question of punishing the wealthy. When we give these people more money, in excess of what they contribute to the economy (we have to pay people something to develop mRNA vaccines, just not as much as we did), then we are generating more demand in the economy. This has the same effect on the economy as an increase in government spending.

To take my favorite example, if because of patent and related monopolies, we pay drug companies $400 billion a year more than is needed to have the drugs manufactured and distributed, this has the same effect on the economy as if we wrote $400 billion in checks ($3,300 per household) and sent them around to everyone. This policy (the writing of large checks) would run the risk of creating inflation if the economy is near its capacity.

The same is true of sending all this money to drug companies. While many people in the pharmaceutical industry earn normal salaries, higher-up employees can earn millions of dollars, or even tens of millions of dollars, a year. And those lucky enough to be at the top of the big winners, like Moderna, can score billions.

When these people spend this money on their second, third, or fourth homes, on their yachts, or their space trips, it pulls resources away from other areas. We, therefore, have fewer people to build homes for ordinary families (and less land), and fewer people to provide medical care or child care because the pharmaceutical industry folks have hired them.   

Restructuring the market so that less income flows upward has the same impact as taxing the income away. Of course, it has the huge benefit over taxation in that it is done through the market. This is enormously more efficient than handing rich people money and then trying to take it away with taxes. It also is likely to be far more feasible politically.

With that backdrop, it’s time for a bit of fun, thinking about what the world might look like if we unrigged the economy.

 

Free Market Drugs and Vaccines

There is probably no sector where the impact of government-granted patents and copyrights is more pernicious than in healthcare. Drugs are almost invariably cheap to produce and distribute. The reason that some can cost thousands, or even tens of thousands of dollars for a year’s treatment is because the government grants drug companies patent monopolies. When they are producing a drug that is essential for people’s health, or possibly even their lives, the patent monopoly allows companies to charge prices completely out of line with costs.[1]

This is a case where every good progressive should be a huge proponent of the free market.  If we didn’t have any patent or related protections for vaccines, we could have had manufacturers all around the world producing and stockpiling vaccines even before they were approved. (It costs around $2 to manufacture a vaccine dose, if we had stockpiled 400 million vaccines that proved ineffective and then had to throw them out, so what? The wasted $800 million is a bit more than 0.01 percent of what the U.S. government has spent on pandemic-related measures.) This would likely have meant that we could have had most of the world vaccinated by the spring, likely preventing the omicron variant and possibly even stopping the delta variant.

Also, to cut off a standard line from our friends in the pharmaceutical industry, it’s true that much of the technology of the industry is protected by industrial secrets rather than government-granted patent monopolies. This one is easily dealt with; we just make their non-disclosure agreements unenforceable. That would allow the top engineers at Pfizer, Moderna, and elsewhere to freely share their expertise with everyone in the world.

We do have to pay for research, but the patent monopoly system is a very inefficient mechanism. In addition to making drugs and vaccines very expensive, it also gives companies an incentive to carry on their research in secret, rather than sharing important findings with potential competitors.

Science advances most rapidly when it is open. If we pay for the research upfront as we did with Operation Warp Speed, we can make openness a condition of the research, with all results posted on the web as quickly as practical. This would allow researchers everywhere to build on each other’s successes and learn from their failures, preventing much needless duplication. Also, all patentable results would be placed in the public domain so that generic manufacturers anywhere in the world could produce them.  (In chapter 5 of Rigged [it’s free], I describe a mechanism involving long-term contracts that the government could use to dish out the money.) 

We would need some system of international sharing of research costs, which would have to be negotiated. But, this sort of open research system offers enormous potential gains for the whole world. And, it’s worth noting that our current system, requiring patent enforcement internationally, has hardly been problem-free in both negotiation and implementation. In a positive turn of events, the European Union is actively considering expanding public investment in biomedical research, including an open research option. 

Open research would also eliminate the incentives for misrepresenting research findings or outright fraud, like the Elizabeth Holmes-Theranos case. If research is fully open for the community of researchers to evaluate, it would be almost impossible for someone to perpetuate a Theranos-type fraud. Also, there would be very little incentive, since no one would stand to make millions or billions by pushing false claims.

In this context, it is worth noting that, while Theranos is an extreme case, the problem of companies hyping their drugs to maximize the profits from their patent monopolies, is pervasive. This is a huge part of the story of the opioid crisis. More recently the question of biased research has come up with reference to the high-priced Alzheimer’s drug Aduhelm. Without patent monopolies, not only would we get cheap drugs, but we would get honest assessments of their benefits and risks.

The idea that for some reason we can’t have successful innovation without patent monopolies is frankly bizarre. The pathbreaking research in developing mRNA technology was done almost entirely on the government’s dime, as was the work by Moderna to develop a Covid-specific vaccine. We also have the example of a Covid vaccine developed on a shoe-string by Texas Children’s Hospital and Baylor University. We need to pay researchers for their work, but the idea that we can’t have successful innovation without the lure of earning hundreds of millions or even billions from a patent monopoly is absurd on its face.

Imagine a world where most drugs, including the latest breakthrough drugs, were selling for $10 or $20 a prescription. That would be the case without patent monopolies or related protections. The same would be true of medical equipment. The latest blood tests and scans would also almost all be cheap.

In this world, doctors could without hesitation prescribe the course of treatment that they considered to be best for their patient. We would not have moral dilemmas, like whether an otherwise healthy 80-year-old should be prescribed a cancer drug that costs $150,000 a year. Since the drug would likely only cost a few hundred dollars, or at most a few thousand, this would be a no-brainer. Of course you would prescribe the drug that might save their life.   

The savings would be enormous. By my calculations, we would save around $400 billion a year ($3,000 per household) on prescription drugs if they all were sold in a free market without patent monopolies. We would need roughly $100 billion in additional spending to replace the research now supported by patent monopolies, but that would still leave us with savings of around $300 billion a year. That is more than one and half times the cost of the latest version of Build Back Better. If we are also covering the cost of developing medical equipment and tests, that would likely save us an additional $100 billion a year or so. In short, this is real money.

With these sorts of savings, we would be much of the way towards being able to pay for a universal Medicare system, like the one in Canada. Cutting out the insurance industry as a middleman would save us more than $300 billion a year. Also, getting doctors’ pay more in line with their pay in other wealthy countries could net us another $100 billion annually.[2]

Downsizing Patents and Copyrights More Generally

In addition to raising the price of everything from computers and software to video games and movies, patent and copyrights create a morass of legal issues that both raises costs for everyone and impedes the development of technology. It seems reasonable to minimize the role of these government-granted monopolies everywhere, as I describe in chapter 5 of Rigged. This means more public funding of research, with the cost of access for companies being that they have to accept much shorter patents (e.g. four to five years rather than twenty), with their patents being added to the public pool for the rest of the duration of the patent.

One major exception is innovations related to slowing climate change. Here it makes sense to have the same approach as with biomedical research, where we attempt to pool technology worldwide and have it available at no cost to whoever wants it. If China invests a huge amount to further increase its lead in clean energy and electric cars, that is not a threat to the United States, it is doing us and the world a favor.

The same story holds with every other country in the world. We want them to use the technology to lower their emissions. We shouldn’t be trying to keep it away from them with patent monopolies or related protections. This is just simple economics. If solar panels or batteries cost 20 to 30 percent less, because there is no charge for using patents, then businesses, governments, and households will be quicker to switch to clean energy. 

The other area where it would be desirable to largely replace the patent/copyright system is with the funding of journalism and creative work more generally. The amount of money going to support newspapers under the current system has plummeted due to both the Internet and the growth of Facebook and Google. The same is true for recorded music, where current spending is a small fraction of what we saw two decades ago.

I have argued for a system of individual tax credits, modeled on the charitable contribution tax deduction, to support creative work. Under this system, every adult would get a modest sum (e.g. $150 a year) to support the creative worker(s) or creative organization (newspaper, blues music promoter etc.) of their choice. Any work produced through this system would be in the public domain and therefore not subject to copyright protection. A neat aspect of this proposal, in my view, is that enterprising politicians could experiment with it at the state and local levels.

Anyhow, if fully implemented, it could produce a vast amount of creative work that would be available at no cost to anyone with Internet access. It could also revitalize news organizations at the state and local level, which have been hugely downsized in the last quarter-century, or put out of business altogether.[3]

Applying Market Forces to CEO Pay: Getting Corporate Boards that Do Their Job

There has been considerable research in the last two decades showing that CEO pay bears little relationship to their performance in terms of producing returns for shareholders. A recent study surveyed corporate directors and found that the vast majority did not even see it as their job to contain CEO pay. Instead, they saw their role as supporting top management.

In that context, it’s not surprising that even mediocre CEOs can get paychecks in the tens of millions of dollars. After all, if you’re a director sitting on a huge pot of money in the form of the company’s annual revenue, why wouldn’t you dish out tens of millions to your friend, the CEO? This attitude might explain how boards can give out lavish pay packages even when it’s against the explicit wishes of shareholders.

It is important to recognize that the issue with bloated CEO pay is not just one person getting $20 or $30 million (and sometimes considerably more), it is a whole pay structure that follows from the outsized pay for the CEO. If the CEO is earning $20 million, then it’s likely the chief financial officer and other top-tier executives are earning in the range of $8 to $12 million. The third-tier executives can easily be making $2 or $3 million.

This sort of pay structure also has an impact outside of the corporate sector. It is common for presidents of large foundations and charities or major universities to get paid well over $1 million a year. And, the next echelon at these institutions often get paid in the high six figures.  

If we go back to the sixties and seventies, the CEO of a major company would typically get paid twenty or thirty times as much as an ordinary worker. That would translate into $2 million to $3 million a year today. If CEOs were currently getting pay in this neighborhood, we would see correspondingly lower pay for other top management in the corporate sector and elsewhere.

Instead of getting well over $1 million a year, maybe the president of a major university would draw pay in the high hundreds of thousands. And the provost and deans would be in the middle six figures. That would mean a radically different pattern of income distribution with a lot more money available to those lower down the pay ladder.

It is common for policy types to accept the outlandish pay of CEOs and other top-level executives as simply market outcomes. But this view is hard to justify when we recognize that there is no one placing downward pressure on the pay of these people in the same way that these top-level people put downward pressure on the pay of ordinary workers.

It is a standard for economists to put lots of faith in the “invisible hand” of the market, but in the case of restraining the pay of CEOs and others at the top of the pay ladder, that hand really is invisible.

Pay for Performance in the Financial Industry?

The list of the country’s top earners is heavily populated with hedge fund and private equity partners, who typically pocket millions of dollars a year, and can sometimes earn tens of millions or even hundreds of millions. The rationale for these huge paychecks is that they are providing outsized returns for investors, which both makes money for investors and steers capital to its best uses. 

There are lots of bad stories about what hedge funds and especially private equity funds do with their money. They are notorious for downsizing and often bankrupting firms, laying off workers, stealing pensions, and leaving creditors empty-handed. In this story, creditors include not only knowing lenders like banks and bondholders, but also unintentional creditors like suppliers and landlords. They also are notorious for gaming the tax code.

But even apart from their dubious business practices, there is an even more basic issue with hedge funds and private equity funds: they don’t produce returns for shareholders. In prior decades, investors in these funds could count on beating a stock index fund, often by a large margin. The margin is appropriate since these are highly illiquid investments (money is typically locked in for a decade) and there is considerably more risk than with a stock index fund.

However, this is no longer true. In recent years, returns to investors on the typical hedge fund and private equity fund trailed a stock market index. This means that pension funds actually lost money by investing a portion of their assets with private equity funds rather than a stock market index. Similarly, many universities lost money by having a large portion of their endowment managed by hedge funds.

It shouldn’t be a radical demand to the presidents of Harvard and other schools with huge endowments that they not pay big bucks to investment managers to lose them money. For some reason, it doesn’t seem like anyone has taken up that cause.   

It is possible to structure contracts so that these managers only do get big payouts if they actually produce above-normal returns to pensions or universities. Contracts differ across institutions, but a standard pattern in years past was to pay fund managers 2 percent of the money being managed each year, and then 20 percent of returns over some target, such as the S&P 500. In this story, if a hedge fund was managing $1 billion of Harvard’s endowment, they would get paid $20 million a year, even if their investments trailed the S&P 500. That is a lot of money to pay to lose money.

Pension funds and universities can structure their contracts so that the entire payment is dependent on beating a threshold. In that case, if a fund trailed the S&P 500, they would get nothing. (There can be a clause that ensures everyone who worked for the fund gets the minimum wage for the time they put in. We wouldn’t want to undermine labor laws.) Some private equity and hedge funds would balk at this sort of arrangement, but if these fund managers don’t have confidence in their own ability to beat the market, why should institutions risk money with them?

There are many other areas where we have large amounts of economic waste in finance, which persists because rich people are pocketing this waste. For example, we could have the Fed give every person and business a digital account from which they could conduct normal business transactions, such as getting their paycheck and paying their bills. This would save us tens of billions of dollars annually in banking fees. But, that would mean less money for people in the financial industry.

There is a similar story with retirement accounts. It is common for the financial industry to charge people with 401(k)s or IRAs 1-2 percent of the money in their accounts each year as an administration fee. This means that if you have $100,000 in a 401(k), the bank, brokerage house, or insurance company that manages it could be charging you $1,000 to $2,000 a year. This can be in addition to the fees charged by specific funds, which also can be as high as 1 percent.

These fees can be radically reduced if the government offered a public option similar to the Federal Employees Thrift Saving Plan. The fee for that fund is around 0.1 percent annually. Many states have already taken the initiative to begin to allow workers in the private sector to have money invested by their public worker pension fund managers.  

We can also do a lot to downsize the financial industry with a modest financial transactions tax. A fee of 0.1 percent would eliminate a huge amount of wasteful transactions while having virtually no impact on productive investment. It would also radically reduce the money going to high-frequency traders and others engaged in speculative trading.

Making the World Safe and Good for Ordinary Workers

The sort of restructuring of the market described here would mean much less money going to the rich and very rich. That means they will be pulling away fewer resources for lavish lifestyles since their lifestyles would have to be somewhat less lavish. That leaves more money for everyone else.

I wrote a piece last year pointing out that in the three decades from 1938 to 1968, the minimum wage not only kept pace with prices, it also rose in step with productivity. This means that as the country got richer, so did the workers at the bottom rungs of the wage ladder.

In the years since 1968, the minimum wage has not even kept pace with prices, so that a worker getting $7.25 an hour in 2022 can buy far less than a worker earning the minimum wage in 1968. However, if the minimum wage had continued to keep pace with productivity growth, it would have been more than $23 an hour in 2021.

Imagine a country where the lowest-paid full-time worker was pocketing more than $46,000 a year and a two-earner couple would have more than $92,000 a year, even if both were just getting the minimum wage. This is not possible in our world, where the economy has been deliberately structured to send so much income to those at the top, but we should never forget that this is a policy choice.

We have implemented a set of policies that give large amounts of money to people in a position to benefit from patent and copyright monopolies, to CEOs and other top management, and to a favored few in the financial industry. These groups will fight like crazy to prevent these policies from being reversed.

But, the first step in the battle is recognizing they rigged the deck. Don’t let them ever get away with saying that it was just the natural workings of the market.

[1] It also helps that it is typically a deep-pocketed third-party payer, like an insurance company or the government, so drug companies don’t have to convince patients of the value of their drugs.

[2] I calculate the savings and costs involved in getting to a universal Medicare program here.

[3] I have also proposed radically restructuring Section 230 protection, taking it away from sites that sell personal information or accept advertising. This should have the effect of downsizing Facebook and other sites that operate along similar lines.

I have been engaging on Twitter recently on my ideas on repealing Section 230. Not surprisingly, I provoked a considerable response. While much of it was angry ad hominems, some of it involved thoughtful comments, especially those from Jeff Koseff and Mike Masnick, the latter of whom took the time to write a full column responding to my proposals on repeal.

I will directly respond to Mike’s column, but first I should probably outline again what I am proposing. I somewhat foolishly assumed that people had read my earlier pieces, and probably even more foolishly assumed anyone remembered them. So, I will first give the highlights of how I would like to see the law restructured and then respond to some of the points made by Mike and others.

Narrowing the Scope of 230

To my view, the best way to limit the power of a Mark Zuckerberg or Jack Dorsey to shape our political debates and influence elections is to downsize Facebook and Twitter, and possibly other sites, that can grow so large as to have an outsize influence on American politics. Restructuring the protection provided by Section 230 can be a way to accomplish this goal.

As it stands, Section 230 means that Facebook and Twitter cannot be sued for defamation for third party content, either in the form of paid advertisements or for any defamatory material that might be contained in any of the billions of posts made on these sites every month. Newspapers and broadcast outlets do not enjoy this protection for third party content.

I would propose taking away this protection for sites that either accept paid advertisements or sell personal information. This means that the only sites that would still have Section 230 protection would be sites that either had paid subscriptions or survived on donations.

Since it would not be practical for a major site like Facebook to monitor every post as it was made, I proposed a notification and takedown rule similar to what now exists with material alleged to be infringing on copyrights. Under the Digital Millennium Copyright Act, a website, such as Facebook, can be subject to penalties for copyright infringement if they have been notified by the copyright holder and fail to take down the infringing material in a timely manner.

A similar rule can be put in place for allegedly defamatory material, where the person (or company) claiming defamation notifies the website, which then would have to remove the material in a timely manner in order to shield itself from potential liability.[1] Of course, many people could make complaints alleging defamation that are not justified. If a site owner has made this assessment, the site need not do anything, but it would then risk a lawsuit just as a newspaper or television station does now over circulating defamatory items.

This sort of change would not have much impact on the vast majority of websites. A business that has its own site would generally have no third party content that it would need to worry about.

Some business sites do have customer reviews of products. For example, many retail sites allow customers to comment on items they purchased. These reviews could include some potentially defamatory comments.

A business could decide to pre-emptively get rid of its review section, avoiding any potential problems. Alternatively, it could take responsibility for monitoring its reviews and be prepared to remove potentially defamatory reviews if a complaint is made. (I assume that most of these review sections already require some degree of moderation, at least to remove comments that are obscene, racist, or in other ways offensive.) It may also, as a substitute, simply have links to sites that host reviews.

There are also a large number of sites that would still enjoy 230 protection by virtue of the fact that they do not have paid advertising or sell personal information. For example, this would be the case with most websites for policy organizations, universities, or other non-profits.

There would be a clear issue with many sites that are essentially dependent on third party content for their business. This would include sites like Yelp, which is based on customer reviews of businesses, or Airbnb, which prominently feature guests’ reviews of hosts.

Without Section 230 protection these sites could be held liable for defamatory comments in these reviews. These sites could make the decision to accept responsibility for moderation (they already moderate to exclude offensive content) and be prepared to remove posts that are called to their attention as potentially defamatory.[2]

Another option would be to go to a subscription model where users paid some monthly or annual fee for use of the service. Even large sites could be supported with a fairly limited number of subscribers paying a modest fee.

As I noted in an earlier Tweet thread, the employee-employer website Glassdoor had revenue of $170 million in 2020. This could be covered by 3 million people paying $5 a month or 1.5 million paying $10 a month. That hardly seems like a big leap for a major website.

It is more than a bit far-fetched to claim such fees would make these sites exclusively for the rich. In prior decades it was common for working class and even poor people to have subscriptions to newspapers, which cost them far more in today’s dollars than $10 a month. There are currently over 290 million smartphone users in the United States and almost all of them are paying far more than $10 a month for their service. Needless to say, we do not have 290 million rich people in this country.

Of course, there is no guarantee that every service that exists today on an advertising model would survive a switch to a paid circulation model, but so what? Companies go out of business all the time, that is capitalism. If it turned out that very few people were willing to shell out money for a site like Glassdoor, we can infer that there were not very many people who valued the site.

I don’t mean to be glib about the prospect that sites that some people may value a great deal may not survive this sort of change in regimes, but almost all policy that accomplishes anything positive will also have negative effects. The growth of Internet retailing put many old-line retailers out of business. And the growth of Facebook, partially fueled by Section 230 protection, has helped to put many newspapers out of business. If we think we have a policy that won’t have any undesirable effects, then we probably don’t understand the policy.   

If we saw many sites switching to a paid circulation model, it is likely that we would see aggregators that charge a fee for access to a large number of sites. This would be similar to the combination of television channels offered by major cable providers. This means that instead of individually subscribing to Yelp, Glassdoor, etc., it would be possible to subscribe to a service that provided access to a wide range of sites.

It’s understandable that people would not be happy about paying for access to sites that had previously been free, but we see this all the time. Most newspapers now have paywalls, and many don’t even allow a single article to be viewed for free. (In the past, it was common for newspapers with paywalls to allow free access to some limited number of articles per month.)

Forty years ago, free broadcast television accounted for the vast majority of viewing. Households spent just $3.15 billion on cable TV in 1980, the equivalent (relative to the size of the economy) of $22.7 billion in 2020. By comparison, households spent $96.3 billion on cable television in 2020 (more than $700 per household), more than four times as much as in 1980.[3] In short, there is ample precedent for people being willing to pay for items that were formerly available for free, if they value them.

Would This Change Hurt Facebook?

Mike argues in his piece that changing Section 230 in the way that I have proposed would work to the benefit of Facebook, arguing that Facebook is actually now pushing for eliminating Section 230. It is true that Facebook is lobbying to have Section 230 changed, but it does not seem to be advocating eliminating this protection, at least for itself.

I’ll confess to not fully understanding the changes Facebook is advocating, but according to the Electric Frontier Foundation (EFF), it would amount to protection from liability for defamation, if a company spent a certain proportion of its revenue monitoring its site for offensive, dangerous, or defamatory material. That is certainly not the same as asking Congress to eliminate Section 230 protection altogether. (The EFF piece is titled “Facebook’s Pitch to Congress: Section 230 for Me, but not for Thee.”)

If Facebook had to operate without Section 230 protection, as I am proposing, it could face liability for defamation if it left material posted after being given notice by someone claiming damages. It is possible that it would just ignore these notices and operate as it does currently, but it seems more likely that it would take down much of the material that provided the basis for complaints. In fact, if we can extrapolate from the experience with copyright infringement claims, websites have in general been overly cautious after being given notice, often removing material that is not actually infringing.[4]

If we assume Facebook goes the compliance route, many users will see posts removed from their Facebook page over claims that they are defamatory. It seems likely that this would upset users, causing many of them to look for sites that will not remove their posts. Since sites that did not depend on advertising or selling personal information would still enjoy Section 230 protection, it seems likely that many current users would opt to leave Facebook for these alternatives.

I also pointed out that as a simple financial matter, the Facebook leavers are likely to be more affluent, since they could easily afford the fees charged for a subscription site. While most households may be able to pay $5 or $10 for a subscription site, this expense would be trivial for the 30 plus percent of households with incomes over $100,000 a year.[5] This is the group that advertisers on Facebook are most interested in reaching. If a substantial percent of higher income users left Facebook, or used the site less frequently, it would be a big hit to the company’s profits.

It is also worth noting that, even if alternative sites may be many magnitudes smaller in their potential reach than Facebook, this is not likely to make much difference to the overwhelming majority of Facebook users. While Facebook may have billions of users, almost none of its users will ever reach more than a tiny fraction of the total with their posts. If their friends and family members shared a site that was 0.01 percent as large as Facebook, in almost all cases they could count on reaching just as many viewers. As a practical matter, the billions of users that will never see a person’s Facebook page are irrelevant to them. 

The other possibility is that Facebook would simply ignore complaints and leave potentially defamatory material posted on its site. Masnick seems to think this is a possibility for Facebook.

“First off, the actual bar for defamation is quite high, especially for public figures. Baker, incorrectly, seems to think that merely saying something false about a public figure is defamatory. That’s not how it works. It has to meet the standard of defamation, including the actual malice standard (which is not just that you were really mad when you said it). Second, and much more important for this situation, is that if the speaker was liable, that does not automatically mean that the intermediary would be liable. Under the two key cases prior to Section 230 becoming law, Cubby v. Compuserve and Stratton Oakmont v. Prodigy, the courts had to wrestle with what makes 3rd party intermediary liability consistent with the 1st Amendment.”

Of course, the bar for defamation is high, and especially so for public figures. That doesn’t mean that they are not brought and occasionally successful. General William Westmoreland sued CBS News in 1982 for a segment it did on his conduct during the Vietnam War. This suit survived summary judgement (wrong call in my view) and was settled just before the jury reached a verdict.

More recently, the former professional wrestler Jesse Ventura won a suit against American Sniper author Chris Kyle. After securing a judgement at the trial level, Ventura received an out-of-court settlement before the case was appealed.

But the issue of public figure defamation is the less important one. The overwhelming majority of defamation claims on a site like Facebook would not involve public figures but rather comments about a business or worker, friend, neighbor, or family member. It’s not obvious why in these sorts of cases, that Facebook should enjoy a greater level of immunity (post-notification) than a newspaper or television station.

If a person had a letter printed in a newspaper, claiming that a restaurant served rotten meat, causing dozens of customers to get sick, the paper, and not just the letter writer, could be sued for libel if the claim was not true. Why should the restaurant have no recourse against Facebook, if it allowed this false claim to continue to circulate, even after they brought it to Facebook’s attention?

Apart from the cost that news organizations incur when they defend against, and possibly lose, a defamation suit, they also incur considerable expenses to avoid facing suits. News outlets carefully comb investigative pieces to ensure that they do not contain potentially defamatory material. They review third party submissions, such as columns and letters to the editor, the same way.

Section 230 ensures that Facebook does not now have to incur these expenses. Repealing this protection will unambiguously raise its costs, both relative to the outlets that do not now have Section 230 protection and also relative to sites that would still enjoy this protection.

It is not clear what constitutional issues Masnick envisions in holding intermediaries liable for carrying defamatory material. The two cases he cites both focus on whether the intermediary could have reasonably been expected to know of the defamatory material at the time it was posted. In a case where Facebook has been given a takedown notice, they obviously have knowledge of the material. The courts have apparently not seen any First Amendment issues with holding intermediaries liable for carrying material that infringes on copyrights, it’s not clear why they would then hold that the First Amendment protects them from suits on hosting defamatory material.   

Is Mark Zuckerberg a Good Guy and Should We Care?

Facebook has obviously made some effort to limit the amount of false and hateful material that circulates on its site. We can be thankful for this, even if we can debate whether it has done enough.

But the more fundamental question is whether such important decisions should be left to the discretion of a private company. The disproportionate control of the media by large corporations and wealthy individuals has long been a problem, but the situation is much more serious when a single company can have the reach of Facebook.   

Even if people are reasonably satisfied with Mark Zuckerberg’s moderation of Facebook, he is not going to be running the company forever. Would people be equally satisfied if some Koch-Murdoch-type billionaire were in control? Would it be okay if they started removing any content pointing out that Donald Trump lost the 2020 election by a wide margin and that the allegations of vote fraud are absurd?

When a key communications outlet gets as large as Facebook it is a real problem. We can hope that it exercises its power responsibly, but the problem is that it has the power in the first place. At the same time, no one can reasonably want the government to dictate Facebook’s moderation policy, which would raise all sorts of First Amendment issues.

The better answer lies in downsizing Facebook so that what Mark Zuckerberg or any billionaire wants, doesn’t matter so much. Taking away its Section 230 protection is an effective route to accomplish this goal.

[1] With a site like Facebook, which effectively has a record of who has viewed any post, there could be an additional requirement that all the users that viewed the defamatory item be notified that it was removed. This would be equivalent to a newspaper publishing a retraction in response to a threat of a defamation suit. 

[2] A site like Airbnb could probably also get their hosts to waive their right to sue for defamation as a condition of listing on the service. 

[3] These data are taken from Bureau of Economic Analysis, National Income and Product Accounts, Table 2.4.5U,  Line 217.

[4] Mike Masnick called my attention to this issue.

[5] I have argued for a tax credit system, modeled on the charitable contribution tax deduction as an alternative to copyright for supporting creative work. Such a credit would be a great way to ensure that even the poorest households could afford access to subscription sites.

I have been engaging on Twitter recently on my ideas on repealing Section 230. Not surprisingly, I provoked a considerable response. While much of it was angry ad hominems, some of it involved thoughtful comments, especially those from Jeff Koseff and Mike Masnick, the latter of whom took the time to write a full column responding to my proposals on repeal.

I will directly respond to Mike’s column, but first I should probably outline again what I am proposing. I somewhat foolishly assumed that people had read my earlier pieces, and probably even more foolishly assumed anyone remembered them. So, I will first give the highlights of how I would like to see the law restructured and then respond to some of the points made by Mike and others.

Narrowing the Scope of 230

To my view, the best way to limit the power of a Mark Zuckerberg or Jack Dorsey to shape our political debates and influence elections is to downsize Facebook and Twitter, and possibly other sites, that can grow so large as to have an outsize influence on American politics. Restructuring the protection provided by Section 230 can be a way to accomplish this goal.

As it stands, Section 230 means that Facebook and Twitter cannot be sued for defamation for third party content, either in the form of paid advertisements or for any defamatory material that might be contained in any of the billions of posts made on these sites every month. Newspapers and broadcast outlets do not enjoy this protection for third party content.

I would propose taking away this protection for sites that either accept paid advertisements or sell personal information. This means that the only sites that would still have Section 230 protection would be sites that either had paid subscriptions or survived on donations.

Since it would not be practical for a major site like Facebook to monitor every post as it was made, I proposed a notification and takedown rule similar to what now exists with material alleged to be infringing on copyrights. Under the Digital Millennium Copyright Act, a website, such as Facebook, can be subject to penalties for copyright infringement if they have been notified by the copyright holder and fail to take down the infringing material in a timely manner.

A similar rule can be put in place for allegedly defamatory material, where the person (or company) claiming defamation notifies the website, which then would have to remove the material in a timely manner in order to shield itself from potential liability.[1] Of course, many people could make complaints alleging defamation that are not justified. If a site owner has made this assessment, the site need not do anything, but it would then risk a lawsuit just as a newspaper or television station does now over circulating defamatory items.

This sort of change would not have much impact on the vast majority of websites. A business that has its own site would generally have no third party content that it would need to worry about.

Some business sites do have customer reviews of products. For example, many retail sites allow customers to comment on items they purchased. These reviews could include some potentially defamatory comments.

A business could decide to pre-emptively get rid of its review section, avoiding any potential problems. Alternatively, it could take responsibility for monitoring its reviews and be prepared to remove potentially defamatory reviews if a complaint is made. (I assume that most of these review sections already require some degree of moderation, at least to remove comments that are obscene, racist, or in other ways offensive.) It may also, as a substitute, simply have links to sites that host reviews.

There are also a large number of sites that would still enjoy 230 protection by virtue of the fact that they do not have paid advertising or sell personal information. For example, this would be the case with most websites for policy organizations, universities, or other non-profits.

There would be a clear issue with many sites that are essentially dependent on third party content for their business. This would include sites like Yelp, which is based on customer reviews of businesses, or Airbnb, which prominently feature guests’ reviews of hosts.

Without Section 230 protection these sites could be held liable for defamatory comments in these reviews. These sites could make the decision to accept responsibility for moderation (they already moderate to exclude offensive content) and be prepared to remove posts that are called to their attention as potentially defamatory.[2]

Another option would be to go to a subscription model where users paid some monthly or annual fee for use of the service. Even large sites could be supported with a fairly limited number of subscribers paying a modest fee.

As I noted in an earlier Tweet thread, the employee-employer website Glassdoor had revenue of $170 million in 2020. This could be covered by 3 million people paying $5 a month or 1.5 million paying $10 a month. That hardly seems like a big leap for a major website.

It is more than a bit far-fetched to claim such fees would make these sites exclusively for the rich. In prior decades it was common for working class and even poor people to have subscriptions to newspapers, which cost them far more in today’s dollars than $10 a month. There are currently over 290 million smartphone users in the United States and almost all of them are paying far more than $10 a month for their service. Needless to say, we do not have 290 million rich people in this country.

Of course, there is no guarantee that every service that exists today on an advertising model would survive a switch to a paid circulation model, but so what? Companies go out of business all the time, that is capitalism. If it turned out that very few people were willing to shell out money for a site like Glassdoor, we can infer that there were not very many people who valued the site.

I don’t mean to be glib about the prospect that sites that some people may value a great deal may not survive this sort of change in regimes, but almost all policy that accomplishes anything positive will also have negative effects. The growth of Internet retailing put many old-line retailers out of business. And the growth of Facebook, partially fueled by Section 230 protection, has helped to put many newspapers out of business. If we think we have a policy that won’t have any undesirable effects, then we probably don’t understand the policy.   

If we saw many sites switching to a paid circulation model, it is likely that we would see aggregators that charge a fee for access to a large number of sites. This would be similar to the combination of television channels offered by major cable providers. This means that instead of individually subscribing to Yelp, Glassdoor, etc., it would be possible to subscribe to a service that provided access to a wide range of sites.

It’s understandable that people would not be happy about paying for access to sites that had previously been free, but we see this all the time. Most newspapers now have paywalls, and many don’t even allow a single article to be viewed for free. (In the past, it was common for newspapers with paywalls to allow free access to some limited number of articles per month.)

Forty years ago, free broadcast television accounted for the vast majority of viewing. Households spent just $3.15 billion on cable TV in 1980, the equivalent (relative to the size of the economy) of $22.7 billion in 2020. By comparison, households spent $96.3 billion on cable television in 2020 (more than $700 per household), more than four times as much as in 1980.[3] In short, there is ample precedent for people being willing to pay for items that were formerly available for free, if they value them.

Would This Change Hurt Facebook?

Mike argues in his piece that changing Section 230 in the way that I have proposed would work to the benefit of Facebook, arguing that Facebook is actually now pushing for eliminating Section 230. It is true that Facebook is lobbying to have Section 230 changed, but it does not seem to be advocating eliminating this protection, at least for itself.

I’ll confess to not fully understanding the changes Facebook is advocating, but according to the Electric Frontier Foundation (EFF), it would amount to protection from liability for defamation, if a company spent a certain proportion of its revenue monitoring its site for offensive, dangerous, or defamatory material. That is certainly not the same as asking Congress to eliminate Section 230 protection altogether. (The EFF piece is titled “Facebook’s Pitch to Congress: Section 230 for Me, but not for Thee.”)

If Facebook had to operate without Section 230 protection, as I am proposing, it could face liability for defamation if it left material posted after being given notice by someone claiming damages. It is possible that it would just ignore these notices and operate as it does currently, but it seems more likely that it would take down much of the material that provided the basis for complaints. In fact, if we can extrapolate from the experience with copyright infringement claims, websites have in general been overly cautious after being given notice, often removing material that is not actually infringing.[4]

If we assume Facebook goes the compliance route, many users will see posts removed from their Facebook page over claims that they are defamatory. It seems likely that this would upset users, causing many of them to look for sites that will not remove their posts. Since sites that did not depend on advertising or selling personal information would still enjoy Section 230 protection, it seems likely that many current users would opt to leave Facebook for these alternatives.

I also pointed out that as a simple financial matter, the Facebook leavers are likely to be more affluent, since they could easily afford the fees charged for a subscription site. While most households may be able to pay $5 or $10 for a subscription site, this expense would be trivial for the 30 plus percent of households with incomes over $100,000 a year.[5] This is the group that advertisers on Facebook are most interested in reaching. If a substantial percent of higher income users left Facebook, or used the site less frequently, it would be a big hit to the company’s profits.

It is also worth noting that, even if alternative sites may be many magnitudes smaller in their potential reach than Facebook, this is not likely to make much difference to the overwhelming majority of Facebook users. While Facebook may have billions of users, almost none of its users will ever reach more than a tiny fraction of the total with their posts. If their friends and family members shared a site that was 0.01 percent as large as Facebook, in almost all cases they could count on reaching just as many viewers. As a practical matter, the billions of users that will never see a person’s Facebook page are irrelevant to them. 

The other possibility is that Facebook would simply ignore complaints and leave potentially defamatory material posted on its site. Masnick seems to think this is a possibility for Facebook.

“First off, the actual bar for defamation is quite high, especially for public figures. Baker, incorrectly, seems to think that merely saying something false about a public figure is defamatory. That’s not how it works. It has to meet the standard of defamation, including the actual malice standard (which is not just that you were really mad when you said it). Second, and much more important for this situation, is that if the speaker was liable, that does not automatically mean that the intermediary would be liable. Under the two key cases prior to Section 230 becoming law, Cubby v. Compuserve and Stratton Oakmont v. Prodigy, the courts had to wrestle with what makes 3rd party intermediary liability consistent with the 1st Amendment.”

Of course, the bar for defamation is high, and especially so for public figures. That doesn’t mean that they are not brought and occasionally successful. General William Westmoreland sued CBS News in 1982 for a segment it did on his conduct during the Vietnam War. This suit survived summary judgement (wrong call in my view) and was settled just before the jury reached a verdict.

More recently, the former professional wrestler Jesse Ventura won a suit against American Sniper author Chris Kyle. After securing a judgement at the trial level, Ventura received an out-of-court settlement before the case was appealed.

But the issue of public figure defamation is the less important one. The overwhelming majority of defamation claims on a site like Facebook would not involve public figures but rather comments about a business or worker, friend, neighbor, or family member. It’s not obvious why in these sorts of cases, that Facebook should enjoy a greater level of immunity (post-notification) than a newspaper or television station.

If a person had a letter printed in a newspaper, claiming that a restaurant served rotten meat, causing dozens of customers to get sick, the paper, and not just the letter writer, could be sued for libel if the claim was not true. Why should the restaurant have no recourse against Facebook, if it allowed this false claim to continue to circulate, even after they brought it to Facebook’s attention?

Apart from the cost that news organizations incur when they defend against, and possibly lose, a defamation suit, they also incur considerable expenses to avoid facing suits. News outlets carefully comb investigative pieces to ensure that they do not contain potentially defamatory material. They review third party submissions, such as columns and letters to the editor, the same way.

Section 230 ensures that Facebook does not now have to incur these expenses. Repealing this protection will unambiguously raise its costs, both relative to the outlets that do not now have Section 230 protection and also relative to sites that would still enjoy this protection.

It is not clear what constitutional issues Masnick envisions in holding intermediaries liable for carrying defamatory material. The two cases he cites both focus on whether the intermediary could have reasonably been expected to know of the defamatory material at the time it was posted. In a case where Facebook has been given a takedown notice, they obviously have knowledge of the material. The courts have apparently not seen any First Amendment issues with holding intermediaries liable for carrying material that infringes on copyrights, it’s not clear why they would then hold that the First Amendment protects them from suits on hosting defamatory material.   

Is Mark Zuckerberg a Good Guy and Should We Care?

Facebook has obviously made some effort to limit the amount of false and hateful material that circulates on its site. We can be thankful for this, even if we can debate whether it has done enough.

But the more fundamental question is whether such important decisions should be left to the discretion of a private company. The disproportionate control of the media by large corporations and wealthy individuals has long been a problem, but the situation is much more serious when a single company can have the reach of Facebook.   

Even if people are reasonably satisfied with Mark Zuckerberg’s moderation of Facebook, he is not going to be running the company forever. Would people be equally satisfied if some Koch-Murdoch-type billionaire were in control? Would it be okay if they started removing any content pointing out that Donald Trump lost the 2020 election by a wide margin and that the allegations of vote fraud are absurd?

When a key communications outlet gets as large as Facebook it is a real problem. We can hope that it exercises its power responsibly, but the problem is that it has the power in the first place. At the same time, no one can reasonably want the government to dictate Facebook’s moderation policy, which would raise all sorts of First Amendment issues.

The better answer lies in downsizing Facebook so that what Mark Zuckerberg or any billionaire wants, doesn’t matter so much. Taking away its Section 230 protection is an effective route to accomplish this goal.

[1] With a site like Facebook, which effectively has a record of who has viewed any post, there could be an additional requirement that all the users that viewed the defamatory item be notified that it was removed. This would be equivalent to a newspaper publishing a retraction in response to a threat of a defamation suit. 

[2] A site like Airbnb could probably also get their hosts to waive their right to sue for defamation as a condition of listing on the service. 

[3] These data are taken from Bureau of Economic Analysis, National Income and Product Accounts, Table 2.4.5U,  Line 217.

[4] Mike Masnick called my attention to this issue.

[5] I have argued for a tax credit system, modeled on the charitable contribution tax deduction as an alternative to copyright for supporting creative work. Such a credit would be a great way to ensure that even the poorest households could afford access to subscription sites.

We Temporarily Interrupt this Blog

Hi everyone, this is Dean’s colleague Dawn, CEPR’s Development Director. I am hijacking Dean’s blog as I do on occasion to make sure you saw this post I wrote about Dean’s work on vaccines and intellectual property and to point out why that work is worthy of your support.

I was thinking as I began to write this post that I have worked with Dean for over 13 years now (a record in my profession, and a testament to CEPR’s positive work environment and respect for its employees). Anyhow (as Dean wound say) it struck me that just as his 2002 prediction that a growing housing bubble would wreck the economy proved to be true, his work showing that unfair patent and copyright protections lead to economic inequality and poor health outcomes has also proven to be true, with deadly consequences thanks to the Covid 19 pandemic. As regular readers of this blog, I know that you are aware of Dean’s prolific writings on this topic. He’s been saying these things for years, and people are now finally starting to listen.

Dean warned that the collapse of the housing bubble would bring economic pain. Now, he is ramping up his call for policy change that will both level the economic playing field and save lives around the world. I know that BTP readers are some of CEPR’s staunchest financial supporters and we thank you. But if you haven’t already given, please consider making a donation to CEPR today so that we can amplify Dean’s message. We’ve had some success, but thanks to the money and power of those patent protectors, we unfortunately still have a long way to go.

Again, thanks to all of you for supporting Beat the Press over the years. Now back to your regularly scheduled program. And remember, don’t believe everything you read in the papers.

Hi everyone, this is Dean’s colleague Dawn, CEPR’s Development Director. I am hijacking Dean’s blog as I do on occasion to make sure you saw this post I wrote about Dean’s work on vaccines and intellectual property and to point out why that work is worthy of your support.

I was thinking as I began to write this post that I have worked with Dean for over 13 years now (a record in my profession, and a testament to CEPR’s positive work environment and respect for its employees). Anyhow (as Dean wound say) it struck me that just as his 2002 prediction that a growing housing bubble would wreck the economy proved to be true, his work showing that unfair patent and copyright protections lead to economic inequality and poor health outcomes has also proven to be true, with deadly consequences thanks to the Covid 19 pandemic. As regular readers of this blog, I know that you are aware of Dean’s prolific writings on this topic. He’s been saying these things for years, and people are now finally starting to listen.

Dean warned that the collapse of the housing bubble would bring economic pain. Now, he is ramping up his call for policy change that will both level the economic playing field and save lives around the world. I know that BTP readers are some of CEPR’s staunchest financial supporters and we thank you. But if you haven’t already given, please consider making a donation to CEPR today so that we can amplify Dean’s message. We’ve had some success, but thanks to the money and power of those patent protectors, we unfortunately still have a long way to go.

Again, thanks to all of you for supporting Beat the Press over the years. Now back to your regularly scheduled program. And remember, don’t believe everything you read in the papers.

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