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.

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

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

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

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

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

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

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

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

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

The China Vaccines

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

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

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

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

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

Correcting a Really Horrible Mistake

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

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

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

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

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

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

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

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

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

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

The China Vaccines

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

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

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

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

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

Correcting a Really Horrible Mistake

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The Real Reason for Repealing Section 230: Restructuring the Industry

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

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

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

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

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

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

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

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

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

The Real Reason for Repealing Section 230: Restructuring the Industry

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Dear Beat the Press Readers,

It’s that time of year again, when I hijack Dean’s blog to ask you to consider making a year-end donation to the Center for Economic and Policy Research. As many of you know, Dean pretty much gives his work away for free, which is great for the public but not so great for CEPR’s bottom line. Plus, it makes my job as CEPR’s Development Director a really difficult one. 

On the other hand, it’s inspiring that Dean lives up to the values he promotes. He doesn’t stray far from his principles, which are in line with his policy prescriptions – things like replacing patent monopolies with direct public funding for drug research, for example. So please consider donating to CEPR in Dean’s honor so that we can continue to share his work widely. As we look to recover from the economic fallout from the pandemic, Dean’s insights are needed more than ever.

Wishing you and yours a healthy and happy holiday season,

Dawn Niederhauser

PS: For the month of December you can double your impact by voting for CEPR at CREDO Mobile! CEPR is one of three progressive organizations chosen to receive a share of CREDO Mobile’s profits this month. If you are based in the US, you can help us to win a bigger share of the prize and it won’t cost you a dime. Please click here to cast your vote.

Thanks again for supporting Beat the Press. Now back to your regularly scheduled program…

Dear Beat the Press Readers,

It’s that time of year again, when I hijack Dean’s blog to ask you to consider making a year-end donation to the Center for Economic and Policy Research. As many of you know, Dean pretty much gives his work away for free, which is great for the public but not so great for CEPR’s bottom line. Plus, it makes my job as CEPR’s Development Director a really difficult one. 

On the other hand, it’s inspiring that Dean lives up to the values he promotes. He doesn’t stray far from his principles, which are in line with his policy prescriptions – things like replacing patent monopolies with direct public funding for drug research, for example. So please consider donating to CEPR in Dean’s honor so that we can continue to share his work widely. As we look to recover from the economic fallout from the pandemic, Dean’s insights are needed more than ever.

Wishing you and yours a healthy and happy holiday season,

Dawn Niederhauser

PS: For the month of December you can double your impact by voting for CEPR at CREDO Mobile! CEPR is one of three progressive organizations chosen to receive a share of CREDO Mobile’s profits this month. If you are based in the US, you can help us to win a bigger share of the prize and it won’t cost you a dime. Please click here to cast your vote.

Thanks again for supporting Beat the Press. Now back to your regularly scheduled program…

Thomas Edsall had an interesting piece last week on the politics of resentment. The gist being that a large portion of non-college-educated whites are voting based on their fear of losing their social status.

While there is undoubtedly much truth to Edsall’s argument, there is an important point that Edsall leaves out. He tells readers:

“Voters in the bottom half of the income distribution face a level of hyper-competition that has, in turn, served to elevate politicized status anxiety in a world where social and economic mobility has, for many, ground to a halt: 90 percent of the age cohort born in the 1940s looked forward to a better standard of living than their parents’, compared with 50 percent for those born since 1980.”

The key point is that this level of hyper-competition, which is driving down the living standards of large segments of the population, is by design. Politicians in both political parties have deliberately structured the market in ways to redistribute income upward.

We could have structured globalization to put doctors, dentists, and other highly paid professionals into direct competition with their much lower paid counterparts in the developing world, instead of just subjecting manufacturing workers to this competition. We also structured the rules on finance to allow great fortunes to be made in this sector at the expense of the rest of the economy. And, the government has made patent and copyright monopolies ever longer and stronger over the last four decades, giving more money to people like Bill Gates at the expense of the rest of the workforce.

Resentment likely comes not only from the actual upward redistribution of income but from the continual efforts by our elites to pretend that it was a natural development of the market, rather than deliberate design. Major news outlets continually assert things that are not true to perpetuate this lie.

Thomas Edsall had an interesting piece last week on the politics of resentment. The gist being that a large portion of non-college-educated whites are voting based on their fear of losing their social status.

While there is undoubtedly much truth to Edsall’s argument, there is an important point that Edsall leaves out. He tells readers:

“Voters in the bottom half of the income distribution face a level of hyper-competition that has, in turn, served to elevate politicized status anxiety in a world where social and economic mobility has, for many, ground to a halt: 90 percent of the age cohort born in the 1940s looked forward to a better standard of living than their parents’, compared with 50 percent for those born since 1980.”

The key point is that this level of hyper-competition, which is driving down the living standards of large segments of the population, is by design. Politicians in both political parties have deliberately structured the market in ways to redistribute income upward.

We could have structured globalization to put doctors, dentists, and other highly paid professionals into direct competition with their much lower paid counterparts in the developing world, instead of just subjecting manufacturing workers to this competition. We also structured the rules on finance to allow great fortunes to be made in this sector at the expense of the rest of the economy. And, the government has made patent and copyright monopolies ever longer and stronger over the last four decades, giving more money to people like Bill Gates at the expense of the rest of the workforce.

Resentment likely comes not only from the actual upward redistribution of income but from the continual efforts by our elites to pretend that it was a natural development of the market, rather than deliberate design. Major news outlets continually assert things that are not true to perpetuate this lie.

Margot Sanger-Katz had a very good NYT piece on the difficulty of choosing among health insurance plans. The gist of the piece is that people have a very difficult time choosing among plans, and even well-educated people often make choices that are bad for them. (The highlight is that Nobel Prize winning economist Paul Krugman could not sort through the plan options at his university job.)

After presenting evidence that most people make bad choices, and low-income people do worst, at the end of the piece she turns to Medicare and notes that over a third of the people receiving benefits choose a private Medicare Advantage plan rather than the traditional government plan. Sanger-Katz takes this to mean that people do value choice in health care plans.

However, it is inaccurate to present the issue here as the traditional Medicare plan being a vote for no-choice versus Medicare Advantage as a vote for choice. The traditional plan now involves three separate programs: Part A, Part B, and Part D. Part D is actually a set of private plans, offering prescription drug benefits, that people must choose between.

In addition, the vast majority of people in traditional Medicare (81 percent) also have a private supplemental plan. This is in large part because the traditional plan has not been modernized in many decades. It doesn’t cover dental care, hearing aids, and many other health care services that would generally be regarded as essential. It also, unlike Medicare Advantage plans, has no out-of-pocket spending cap. These gaps have likely been by design to force people to either opt for Medicare Advantage or buy a private supplemental plan.

The key point for the choice issue is that even those opting for the traditional Medicare plan still have to deal with many choices in arranging their coverage. So it is wrong to present the selection of Medicare Advantage or traditional Medicare as a choice/no-choice scenario.

Margot Sanger-Katz had a very good NYT piece on the difficulty of choosing among health insurance plans. The gist of the piece is that people have a very difficult time choosing among plans, and even well-educated people often make choices that are bad for them. (The highlight is that Nobel Prize winning economist Paul Krugman could not sort through the plan options at his university job.)

After presenting evidence that most people make bad choices, and low-income people do worst, at the end of the piece she turns to Medicare and notes that over a third of the people receiving benefits choose a private Medicare Advantage plan rather than the traditional government plan. Sanger-Katz takes this to mean that people do value choice in health care plans.

However, it is inaccurate to present the issue here as the traditional Medicare plan being a vote for no-choice versus Medicare Advantage as a vote for choice. The traditional plan now involves three separate programs: Part A, Part B, and Part D. Part D is actually a set of private plans, offering prescription drug benefits, that people must choose between.

In addition, the vast majority of people in traditional Medicare (81 percent) also have a private supplemental plan. This is in large part because the traditional plan has not been modernized in many decades. It doesn’t cover dental care, hearing aids, and many other health care services that would generally be regarded as essential. It also, unlike Medicare Advantage plans, has no out-of-pocket spending cap. These gaps have likely been by design to force people to either opt for Medicare Advantage or buy a private supplemental plan.

The key point for the choice issue is that even those opting for the traditional Medicare plan still have to deal with many choices in arranging their coverage. So it is wrong to present the selection of Medicare Advantage or traditional Medicare as a choice/no-choice scenario.

By Dean Baker and Arjun Jayadev

On Monday, we, along with Achal Prabhala, had a column in the New York Times arguing in support of a resolution put forward before the WTO by India and South Africa, which would suspend intellectual property rights related to vaccines and treatments during the pandemic. The main point is that these rights are slowing the diffusion of life-saving medicines in a crisis. Furthermore, since much or all the cost of developing these vaccines and treatments were picked up by various governments, the drug companies would still be earning back their investment, plus a healthy profit, even with this suspension.

Not surprisingly, the pharmaceutical industry is not letting this proposal go unchallenged in public debate. Thomas Cueni, the director-general of the International Federation of Pharmaceutical Manufacturers and Associations, had a column in the NYT on Thursday pushing the industry’s line. Cueni argues that it would be unfair to the industry to suspend its patent rights in the pandemic. He also argues that it wouldn’t help distribution in any case because of supply constraints and that it would be harmful in the long-run since companies would not invest in developing new drugs if they could not count on their patent rights being respected.

Starting with the issue of supply constraints, while the processes for manufacturing the leading U.S. vaccine contenders are complicated, there are sophisticated manufacturing facilities in India and elsewhere. While it clearly would take time for anyone to gear up to manufacture these vaccines, it is important to remember there were no vaccines to manufacture nine months ago.

Ideally, we would have had open-source research all along, so that any manufacturer anywhere in the world could have been preparing for large-scale production, but even if we started today it is still likely that additional facilities can be producing these vaccines well before the end of 2021. And no one thinks we will be anywhere close to having the world’s population fully vaccinated for at least several years. This means production that comes on line in six or eight months would be enormously valuable. Also, the issue is not just vaccines, but also effective treatments, like Regeneron, which are in very short supply even in the United States and other rich countries.

The pharmaceutical industry wants to be in a position to license these to whom they choose and argue that they will themselves resolve the manufacturing capacity constraints. But this is fraught with dangers. First, if the past is anything to go by, license agreements are limited to a few producers and involve costs to producers that will inevitably increase the price of the drug. The WTO proposal will do away with these restrictions and allow anyone with the know-how or capacity to produce at as low a price as possible under competitive conditions—and they can supply all over the world so that the pandemic is over sooner. If knowhow is a barrier and no one can ever develop the manufacturing capacity, countries should not worry about their IP.

An important aside here is the history that Cueni alludes to. One reason his piece is extraordinary is that it is the first time, to our knowledge that PHARMA has apologized for the role in the AIDS crisis. But what is not said is that the very same laws that allowed for that disaster and that are being challenged now, routinely prevent people from developing countries from accessing generic medicines for a whole host of other diseases (cancer for example), these are rolling and silent crises that the current system continues to perpetuate.

The next question is whether the companies are being treated fairly after their heroic efforts to develop vaccines in a record amount of time. First, while the researchers do deserve enormous credit, their performance here is not quite as exceptional as many seem to believe. China has several vaccines in the final stage of testing, one of which has already been approved in the United Arab Emirates after showing an 86 percent effectiveness rate. This doesn’t denigrate the accomplishments of the scientists who developed the leading U.S.-European vaccines, it just means that the achievement wasn’t quite as exceptional as it is often portrayed.

But getting to the issue of fairness, one of the main points we made in the piece is that Moderna and Pfizer have already been paid for their work on the vaccines. In the case of Moderna, the U.S. government paid the full cost of the research and clinical trials for the economy. If the vaccine turned out to be ineffective, the U.S. taxpayer would have been out the money, Moderna had been paid for its work.

In the case of Pfizer, the company has large advance purchase agreements with the U.S. and many other countries, which far more than cover its plausible research costs and allow for a generous profit. The German government also contributed several hundred million dollars to manufacturing facilities.

Of course, both vaccines rely heavily on taxpayer-funded research through the National Institutes of Health. So, their reliance on government support is extensive.

But what about the issue that this could affect the incentives for the development of vaccines and drugs in the future… Hopefully, these sorts of events will be rare, so the impact on expected future profits should be limited. Furthermore, in any comparable situations in the future, presumably, the government will again step in to put up the money and absorb risk, so that companies will still be able to cover their costs and make a healthy profit if such a situation arises.

It is also important to note that limiting patent rights is already in the law. The TRIPS accords in the WTO allow for governments to issue compulsory licenses. This means that a patent holder can be required to let other companies produce their patented drugs for a set fee. U.S. law also explicitly allows for such limits, as we mentioned in our piece. At the height of the Anthrax scare in 2001, President Bush threatened to invoke Section 1498 of the Commercial Code to force Bayer to lower its price for large quantities of ciprofloxacin, the most effective treatment for Anthrax. (The threat worked.)

In short, the U.S. and other governments have always had the ability to restrict the patent monopolies they issue. Presumably, the people who run the drug companies know this, so limited patent rights in a pandemic would not be an event that should have been unanticipated.

Finally, Cueni is dismissive of the idea that the government could directly fund the development of new drugs and vaccines, as it just did with Moderna. He tells us:

“Further, governments have neither the money nor the risk tolerance to take over the role of businesses in developing pharmacy-ready medicines.”

This one is a real head-scratcher. Governments don’t have the money? The U.S. government is projected to spend over $5 trillion in 2021. The Bureau of Economic Analysis puts the pharmaceutical industry’s research tab for 2019 at less than $90 billion, or 1.8 percent of the U.S. budget. Obviously, if we wanted to pick up the tab we have the money, especially since the savings from buying drugs at generic prices in government programs like Medicare and Medicaid would quickly swamp the research tab.

As far as “risk tolerance,” the U.S. government spends over $40 billion a year on basic research at the National Institutes of Health. While much of this work has huge payoffs, like the discovery of the spike protein that is the basis for both the Moderna and Pfizer vaccines, much of it leads to dead ends. Apparently, the government has the risk tolerance for spending tens of billions annually on research with distant and uncertain payoffs but somehow lacks the risk tolerance to put up the money for developing a specific drug or vaccine. Sorry, that doesn’t make sense.

If we did go the route of direct funding there would be enormous advantages in addition to having all new drugs and vaccines available as cheap generics. First, we can make open-source research a condition of the funding. This means that any contractor or subcontractor that worked on publicly funded research would have to post any findings as quickly as practical on the web. That way, other researchers would be able to promptly build on successes and learn from mistakes.

The other major advantage is that we would take away the perverse incentives created by patent monopolies. Since these monopolies allow drug companies to charge prices that can be many thousand percent above costs, they provide an incentive to promote their drugs as widely as possible. This often leads drug companies to exaggerate the effectiveness of their drugs or conceal evidence of harmful side effects. We saw this very clearly with the opioid crisis, where drug companies have paid billions of dollars in settlements over the allegation that they recklessly pushed their drugs.  

There are very good reasons for thinking that direct public funding would be a better way to support the development of new drugs than the current system of patent monopolies. There are obviously better and worse ways to structure such a system. (This issue is discussed in chapter 5 of Rigged [it’s free] and in some journal articles.) But it is absurd to argue that a system of direct funding is not a possibility, as Mr. Cueni would apparently like us to believe.

We need a serious debate on the best mechanisms for financing the development of drugs and vaccines, even if the pharmaceutical industry doesn’t want us to have one.

By Dean Baker and Arjun Jayadev

On Monday, we, along with Achal Prabhala, had a column in the New York Times arguing in support of a resolution put forward before the WTO by India and South Africa, which would suspend intellectual property rights related to vaccines and treatments during the pandemic. The main point is that these rights are slowing the diffusion of life-saving medicines in a crisis. Furthermore, since much or all the cost of developing these vaccines and treatments were picked up by various governments, the drug companies would still be earning back their investment, plus a healthy profit, even with this suspension.

Not surprisingly, the pharmaceutical industry is not letting this proposal go unchallenged in public debate. Thomas Cueni, the director-general of the International Federation of Pharmaceutical Manufacturers and Associations, had a column in the NYT on Thursday pushing the industry’s line. Cueni argues that it would be unfair to the industry to suspend its patent rights in the pandemic. He also argues that it wouldn’t help distribution in any case because of supply constraints and that it would be harmful in the long-run since companies would not invest in developing new drugs if they could not count on their patent rights being respected.

Starting with the issue of supply constraints, while the processes for manufacturing the leading U.S. vaccine contenders are complicated, there are sophisticated manufacturing facilities in India and elsewhere. While it clearly would take time for anyone to gear up to manufacture these vaccines, it is important to remember there were no vaccines to manufacture nine months ago.

Ideally, we would have had open-source research all along, so that any manufacturer anywhere in the world could have been preparing for large-scale production, but even if we started today it is still likely that additional facilities can be producing these vaccines well before the end of 2021. And no one thinks we will be anywhere close to having the world’s population fully vaccinated for at least several years. This means production that comes on line in six or eight months would be enormously valuable. Also, the issue is not just vaccines, but also effective treatments, like Regeneron, which are in very short supply even in the United States and other rich countries.

The pharmaceutical industry wants to be in a position to license these to whom they choose and argue that they will themselves resolve the manufacturing capacity constraints. But this is fraught with dangers. First, if the past is anything to go by, license agreements are limited to a few producers and involve costs to producers that will inevitably increase the price of the drug. The WTO proposal will do away with these restrictions and allow anyone with the know-how or capacity to produce at as low a price as possible under competitive conditions—and they can supply all over the world so that the pandemic is over sooner. If knowhow is a barrier and no one can ever develop the manufacturing capacity, countries should not worry about their IP.

An important aside here is the history that Cueni alludes to. One reason his piece is extraordinary is that it is the first time, to our knowledge that PHARMA has apologized for the role in the AIDS crisis. But what is not said is that the very same laws that allowed for that disaster and that are being challenged now, routinely prevent people from developing countries from accessing generic medicines for a whole host of other diseases (cancer for example), these are rolling and silent crises that the current system continues to perpetuate.

The next question is whether the companies are being treated fairly after their heroic efforts to develop vaccines in a record amount of time. First, while the researchers do deserve enormous credit, their performance here is not quite as exceptional as many seem to believe. China has several vaccines in the final stage of testing, one of which has already been approved in the United Arab Emirates after showing an 86 percent effectiveness rate. This doesn’t denigrate the accomplishments of the scientists who developed the leading U.S.-European vaccines, it just means that the achievement wasn’t quite as exceptional as it is often portrayed.

But getting to the issue of fairness, one of the main points we made in the piece is that Moderna and Pfizer have already been paid for their work on the vaccines. In the case of Moderna, the U.S. government paid the full cost of the research and clinical trials for the economy. If the vaccine turned out to be ineffective, the U.S. taxpayer would have been out the money, Moderna had been paid for its work.

In the case of Pfizer, the company has large advance purchase agreements with the U.S. and many other countries, which far more than cover its plausible research costs and allow for a generous profit. The German government also contributed several hundred million dollars to manufacturing facilities.

Of course, both vaccines rely heavily on taxpayer-funded research through the National Institutes of Health. So, their reliance on government support is extensive.

But what about the issue that this could affect the incentives for the development of vaccines and drugs in the future… Hopefully, these sorts of events will be rare, so the impact on expected future profits should be limited. Furthermore, in any comparable situations in the future, presumably, the government will again step in to put up the money and absorb risk, so that companies will still be able to cover their costs and make a healthy profit if such a situation arises.

It is also important to note that limiting patent rights is already in the law. The TRIPS accords in the WTO allow for governments to issue compulsory licenses. This means that a patent holder can be required to let other companies produce their patented drugs for a set fee. U.S. law also explicitly allows for such limits, as we mentioned in our piece. At the height of the Anthrax scare in 2001, President Bush threatened to invoke Section 1498 of the Commercial Code to force Bayer to lower its price for large quantities of ciprofloxacin, the most effective treatment for Anthrax. (The threat worked.)

In short, the U.S. and other governments have always had the ability to restrict the patent monopolies they issue. Presumably, the people who run the drug companies know this, so limited patent rights in a pandemic would not be an event that should have been unanticipated.

Finally, Cueni is dismissive of the idea that the government could directly fund the development of new drugs and vaccines, as it just did with Moderna. He tells us:

“Further, governments have neither the money nor the risk tolerance to take over the role of businesses in developing pharmacy-ready medicines.”

This one is a real head-scratcher. Governments don’t have the money? The U.S. government is projected to spend over $5 trillion in 2021. The Bureau of Economic Analysis puts the pharmaceutical industry’s research tab for 2019 at less than $90 billion, or 1.8 percent of the U.S. budget. Obviously, if we wanted to pick up the tab we have the money, especially since the savings from buying drugs at generic prices in government programs like Medicare and Medicaid would quickly swamp the research tab.

As far as “risk tolerance,” the U.S. government spends over $40 billion a year on basic research at the National Institutes of Health. While much of this work has huge payoffs, like the discovery of the spike protein that is the basis for both the Moderna and Pfizer vaccines, much of it leads to dead ends. Apparently, the government has the risk tolerance for spending tens of billions annually on research with distant and uncertain payoffs but somehow lacks the risk tolerance to put up the money for developing a specific drug or vaccine. Sorry, that doesn’t make sense.

If we did go the route of direct funding there would be enormous advantages in addition to having all new drugs and vaccines available as cheap generics. First, we can make open-source research a condition of the funding. This means that any contractor or subcontractor that worked on publicly funded research would have to post any findings as quickly as practical on the web. That way, other researchers would be able to promptly build on successes and learn from mistakes.

The other major advantage is that we would take away the perverse incentives created by patent monopolies. Since these monopolies allow drug companies to charge prices that can be many thousand percent above costs, they provide an incentive to promote their drugs as widely as possible. This often leads drug companies to exaggerate the effectiveness of their drugs or conceal evidence of harmful side effects. We saw this very clearly with the opioid crisis, where drug companies have paid billions of dollars in settlements over the allegation that they recklessly pushed their drugs.  

There are very good reasons for thinking that direct public funding would be a better way to support the development of new drugs than the current system of patent monopolies. There are obviously better and worse ways to structure such a system. (This issue is discussed in chapter 5 of Rigged [it’s free] and in some journal articles.) But it is absurd to argue that a system of direct funding is not a possibility, as Mr. Cueni would apparently like us to believe.

We need a serious debate on the best mechanisms for financing the development of drugs and vaccines, even if the pharmaceutical industry doesn’t want us to have one.

InequalityLa Desigualdad

Beating Up on Finance

When I do one of my diatribes about how our protectionist barriers allow U.S. doctors to earn twice as much as doctors in other wealthy countries, I invariably get complaints from doctors and their friends asking why I don’t go after the really big bucks people on Wall Street. The answer of course is that I do, but the bloated paychecks on Wall Street are not a reason to pay an extra $100 billion a year ($750 per household) to doctors in the United States. But it is true that I haven’t beaten up on the financial sector for a while, and with Biden now putting together his administration, this would be a great time to take a few shots. 

First, we need some important background. Finance is an intermediate good, like trucking. It does not directly provide value to people like housing or health care. Its value to the economy is allocating capital and facilitating transactions so that the sectors that do provide value are as efficient as possible.

For this reason, an efficient financial sector is a small financial sector. People need to be able to borrow money to buy a home or start a business, and businesses need to be able to get money to expand, but we want as few resources as possible employed in handing out the money.

However, rather than getting smaller and more efficient, the financial sector has expanded hugely over the last four decades. This is seen most clearly in the narrow commodities and securities trading sector, which was less than 0.4 percent of GDP in the mid-seventies and is now more than 2 percent of GDP ($400 billion a year). Other parts of finance have exploded also. We now spend over $250 billion a year (1.2 percent of GDP) on the administration of the health insurance industry, $100 billion on life insurance (0.5 percent of GDP), and hundreds of billions more on other financial services.

In addition to being a drain on the rest of the economy, the financial industry is the source of many of the country’s greatest fortunes. Folks who are concerned about inequality need to have their eyes squarely focused on the sector.

 

Financial Transactions Taxes

I have long been a huge fan of financial transactions taxes (FTT) as a great way to reduce the size of the sector and raise a large amount of money for the government.  By my calculations, a FTT could raise an amount of revenue roughly equal to 0.6 percent of GDP or $130 billion a year in the 2021 economy.

This revenue would come almost entirely at the expense of the financial industry. This needs a bit of explaining since the industry spokespeople have worked so hard to create confusion on this issue. It is true that a tax will likely be mostly passed on to investors in the form of higher trading costs. If the tax on stock trades is 0.2 percent, the cost of trading stock is likely to rise by close to 0.2 percentage points.

However, if we want to look at the costs actually borne by investors, we have to look at a fuller picture. Suppose that an increase in trading costs of 0.2 percentage points would double the cost of trading. There is a large amount of research that shows that trading volume would decline by roughly the same percentage as the increase in costs. (in other words, the elasticity of trading is close to 1.0.)

This means that the doubling of trading costs would mean that trading volume would be roughly cut in half. In that situation, investors would be paying twice as much on each trade, but trading half as much as they did previously, which means their total trading costs would be little changed.

Who pays the tax in that story? Well, the industry pays it in the form of reduced revenue. The money that investors had been paying to the industry to carry through trades is instead going to the government as tax revenue. 

What about the reduction in trading volume, won’t investors be worse off with fewer trades? This is the dirty secret that the industry doesn’t want people to know about. In general, investors will not be worse off if their portfolio turned over less frequently.

The logic here is straightforward. Every trade has a winner and a loser. There are a small number of very astute investors who are disproportionately on the winning side of trades, but the vast majority of investment managers are not that skilled. On average they win half the time and they lose half the time.

This means that on average if they reduced their trading, the direct returns on the portfolio would not suffer, and investors would save from lower fees. The losers of course are the people in the financial industry, who get money from trading.

Cutting trading volume in half means cutting their revenue in half. When we realize who is actually paying the tax, it is no longer a surprise that the financial industry screams bloody murder when anyone talks about a financial transactions tax. This is money out of their pockets and they will fight like crazy to protect their income. And, since they are very rich, we can expect a serious fight.

As a practical matter, a financial transactions tax would face an enormous uphill fight in the Senate, even if the Democrats can somehow win the two seats in Georgia that will give them control. But there are other things that can be done to attack the inefficiencies and great fortunes in the sector.

 

Private Equity

Many of the richest people in the country have made their fortunes in private equity. While the industry tries to sell a heroic image of itself as being turn around experts that give failing companies the capital and management skills they need to be successful, more typically they make their money by financial engineering, tax gaming, laying off workers, and pushing down wages. My colleagues, Eileen Appelbaum and Eleanor Eagon, have comprised a Day One agenda of measures the Biden administration can do through executive action to rein in these abuses.

But in addition to measures to rein in abusive practices, there is another side of the equation that is worth pursuing. Private equity actually has not been providing good returns to investors in recent years. While private equity funds did provide outsized returns in the 1980s and 1990s, that has not been the case since 2006.

This means that, while the general partners who run private equity firms might be getting very rich, the limited partners who put up the money are doing no better on average than if they just put their money into a stock index. And, they would face much less risk.

While we can’t keep rich people from blowing their money on bad investments, much of the money for private equity comes from pension funds and especially from public sector pension funds. In most cases, it is not possible to find the terms of the contracts that private equity companies sign with pension funds. Their standard line is that they are giving the pension fund a good deal. If they had to disclose their terms, they would have to give the same deal to everyone else, and then it wouldn’t be profitable.

Of course, the idea that everyone else is being ripped off, except our favored pension fund, is nonsense on its face. Private equity companies want their terms kept secret so that it is not clear how much money they are taking from the pension funds that invest with them.

This practice suggests a very simple and obvious reform: require full disclosure of terms. States could require that contract terms with every private equity company (for that matter any investment manager) be posted in full on their website, so that any reporter, researcher, or individual could quickly see the terms the fund had negotiated.

The pension funds should also report the returns from the private equity fund or investment manager. (In the case of private equity funds, the only returns that will typically be meaningful will be after the fund has been closed. This is generally a period of ten years.) This would allow anyone to quickly assess how much money the pension fund earned on an investment, compared to how much money the private equity fund or an investment manager made.

A little sunshine may go a long way to reducing the worst rip-offs in this sector. As things stand now, private equity partners make a big point of courting pension fund managers, who typically are not financial professionals. The pension fund managers may view the private equity partners as friends, as opposed to shrewd dealers looking to make as much money as possible from the pension fund.

Anyhow, a push for full transparency on public pension fund investments should in principle be a manageable lift. After all, it might be hard for Republicans to claim that insisting the public be able to know where public money is going is “socialism.”

Needless to say, both Republican and Democratic politicians receive large campaign contributions from private equity funds and other investment managers. They will fight like crazy to block disclosure requirements at the state or federal level. But this seems like good grounds on which to fight a battle.

When I do one of my diatribes about how our protectionist barriers allow U.S. doctors to earn twice as much as doctors in other wealthy countries, I invariably get complaints from doctors and their friends asking why I don’t go after the really big bucks people on Wall Street. The answer of course is that I do, but the bloated paychecks on Wall Street are not a reason to pay an extra $100 billion a year ($750 per household) to doctors in the United States. But it is true that I haven’t beaten up on the financial sector for a while, and with Biden now putting together his administration, this would be a great time to take a few shots. 

First, we need some important background. Finance is an intermediate good, like trucking. It does not directly provide value to people like housing or health care. Its value to the economy is allocating capital and facilitating transactions so that the sectors that do provide value are as efficient as possible.

For this reason, an efficient financial sector is a small financial sector. People need to be able to borrow money to buy a home or start a business, and businesses need to be able to get money to expand, but we want as few resources as possible employed in handing out the money.

However, rather than getting smaller and more efficient, the financial sector has expanded hugely over the last four decades. This is seen most clearly in the narrow commodities and securities trading sector, which was less than 0.4 percent of GDP in the mid-seventies and is now more than 2 percent of GDP ($400 billion a year). Other parts of finance have exploded also. We now spend over $250 billion a year (1.2 percent of GDP) on the administration of the health insurance industry, $100 billion on life insurance (0.5 percent of GDP), and hundreds of billions more on other financial services.

In addition to being a drain on the rest of the economy, the financial industry is the source of many of the country’s greatest fortunes. Folks who are concerned about inequality need to have their eyes squarely focused on the sector.

 

Financial Transactions Taxes

I have long been a huge fan of financial transactions taxes (FTT) as a great way to reduce the size of the sector and raise a large amount of money for the government.  By my calculations, a FTT could raise an amount of revenue roughly equal to 0.6 percent of GDP or $130 billion a year in the 2021 economy.

This revenue would come almost entirely at the expense of the financial industry. This needs a bit of explaining since the industry spokespeople have worked so hard to create confusion on this issue. It is true that a tax will likely be mostly passed on to investors in the form of higher trading costs. If the tax on stock trades is 0.2 percent, the cost of trading stock is likely to rise by close to 0.2 percentage points.

However, if we want to look at the costs actually borne by investors, we have to look at a fuller picture. Suppose that an increase in trading costs of 0.2 percentage points would double the cost of trading. There is a large amount of research that shows that trading volume would decline by roughly the same percentage as the increase in costs. (in other words, the elasticity of trading is close to 1.0.)

This means that the doubling of trading costs would mean that trading volume would be roughly cut in half. In that situation, investors would be paying twice as much on each trade, but trading half as much as they did previously, which means their total trading costs would be little changed.

Who pays the tax in that story? Well, the industry pays it in the form of reduced revenue. The money that investors had been paying to the industry to carry through trades is instead going to the government as tax revenue. 

What about the reduction in trading volume, won’t investors be worse off with fewer trades? This is the dirty secret that the industry doesn’t want people to know about. In general, investors will not be worse off if their portfolio turned over less frequently.

The logic here is straightforward. Every trade has a winner and a loser. There are a small number of very astute investors who are disproportionately on the winning side of trades, but the vast majority of investment managers are not that skilled. On average they win half the time and they lose half the time.

This means that on average if they reduced their trading, the direct returns on the portfolio would not suffer, and investors would save from lower fees. The losers of course are the people in the financial industry, who get money from trading.

Cutting trading volume in half means cutting their revenue in half. When we realize who is actually paying the tax, it is no longer a surprise that the financial industry screams bloody murder when anyone talks about a financial transactions tax. This is money out of their pockets and they will fight like crazy to protect their income. And, since they are very rich, we can expect a serious fight.

As a practical matter, a financial transactions tax would face an enormous uphill fight in the Senate, even if the Democrats can somehow win the two seats in Georgia that will give them control. But there are other things that can be done to attack the inefficiencies and great fortunes in the sector.

 

Private Equity

Many of the richest people in the country have made their fortunes in private equity. While the industry tries to sell a heroic image of itself as being turn around experts that give failing companies the capital and management skills they need to be successful, more typically they make their money by financial engineering, tax gaming, laying off workers, and pushing down wages. My colleagues, Eileen Appelbaum and Eleanor Eagon, have comprised a Day One agenda of measures the Biden administration can do through executive action to rein in these abuses.

But in addition to measures to rein in abusive practices, there is another side of the equation that is worth pursuing. Private equity actually has not been providing good returns to investors in recent years. While private equity funds did provide outsized returns in the 1980s and 1990s, that has not been the case since 2006.

This means that, while the general partners who run private equity firms might be getting very rich, the limited partners who put up the money are doing no better on average than if they just put their money into a stock index. And, they would face much less risk.

While we can’t keep rich people from blowing their money on bad investments, much of the money for private equity comes from pension funds and especially from public sector pension funds. In most cases, it is not possible to find the terms of the contracts that private equity companies sign with pension funds. Their standard line is that they are giving the pension fund a good deal. If they had to disclose their terms, they would have to give the same deal to everyone else, and then it wouldn’t be profitable.

Of course, the idea that everyone else is being ripped off, except our favored pension fund, is nonsense on its face. Private equity companies want their terms kept secret so that it is not clear how much money they are taking from the pension funds that invest with them.

This practice suggests a very simple and obvious reform: require full disclosure of terms. States could require that contract terms with every private equity company (for that matter any investment manager) be posted in full on their website, so that any reporter, researcher, or individual could quickly see the terms the fund had negotiated.

The pension funds should also report the returns from the private equity fund or investment manager. (In the case of private equity funds, the only returns that will typically be meaningful will be after the fund has been closed. This is generally a period of ten years.) This would allow anyone to quickly assess how much money the pension fund earned on an investment, compared to how much money the private equity fund or an investment manager made.

A little sunshine may go a long way to reducing the worst rip-offs in this sector. As things stand now, private equity partners make a big point of courting pension fund managers, who typically are not financial professionals. The pension fund managers may view the private equity partners as friends, as opposed to shrewd dealers looking to make as much money as possible from the pension fund.

Anyhow, a push for full transparency on public pension fund investments should in principle be a manageable lift. After all, it might be hard for Republicans to claim that insisting the public be able to know where public money is going is “socialism.”

Needless to say, both Republican and Democratic politicians receive large campaign contributions from private equity funds and other investment managers. They will fight like crazy to block disclosure requirements at the state or federal level. But this seems like good grounds on which to fight a battle.

Want to search in the archives?

¿Quieres buscar en los archivos?

Click Here Haga clic aquí