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.

(This post originally appeared on my Patreon page.)

I know I have been pounding on this a lot, but it is important and there is a lot of money at stake. All we need (okay, maybe not all) is some clear thinking.

The Washington Post had a good piece this week talking about how a company set up by a hedge fund, with no background or expertise in pharmacology, arranged to get rights to a drug that was developed by researchers at Emory University on a $16 million contract with the government. The drug, EIDD-2801, is thought to be a potential treatment for the coronavirus. Shortly after arranging to buy the rights to the drug, the company turned around and sold them to Merck, presumably for a substantial profit. 

The piece highlights how some companies are likely to profit off government-funded research, often while contributing little or nothing to developing effective vaccines or treatments. We also face the likelihood that any vaccines or treatments that are developed will be sold at high prices by companies that were granted patent monopolies.

But this is only the beginning of the problem with the U.S. government’s approach for developing a vaccine or treatments for the pandemic. The U.S. approach encourages secrecy in research. Companies are racing to get valuable patents. This gives pharmaceutical companies an incentive to keep as much of their research secret as possible, in order not to give away valuable information to competitors.

This is the exact opposite of what we should want to see in response to the pandemic. This is a worldwide crisis; we should want researchers across the globe working in collaboration, sharing their results as quickly as possible so that they can learn from each other’s successes and failures. This issue is recognized by the scientists who are working to develop these vaccines and treatments.

As a recent editorial in Nature magazine noted, there is an extraordinary amount of international cooperation taking place, which is allowing progress to take place far more rapidly than would ordinarily be the case. However, neither the United States nor the United Kingdom have agreed to share the fruits of research with the world, leaving open the possibility that one or more of their drug companies will take advantage of research that was widely shared to develop a vaccine or treatment on which they will claim a patent monopoly, and then charge very high prices.

It is not just for purposes of getting a vaccine and treatments quickly that we should want fully open research. There is also the issue of the credibility of research findings. There already have been questions raised about Moderna, a leading contender in the race to develop a vaccine. The company had a major stock offering just after releasing very limited results suggesting progress in developing a vaccine. Two top executives took advantage of the jump in share prices to sell a substantial portion of their holdings.

While the results released by Moderna may be entirely honest, it is difficult not to raise questions when so much money is at stake for the people controlling the release of information. It is also troubling that the results reported were very limited. For whatever reason, the company chose not to release the detailed data it had available at the time.

The issue of the integrity of research is especially serious in the context of a Trump controlled FDA. If a vaccine is developed by Moderna or another company, there will be enormous pressure on the FDA to approve it, especially if this could be done before the election. Does anyone doubt at this point that Donald Trump would fire an FDA head who refused to approve a vaccine before the election? After all, he does have the legal right to do so, and every Republican in national office, except Senator Mitt Romney, is on record saying that this sort of behavior is fine. We should just take for granted that the FDA will approve any plausible vaccine candidate because Donald Trump demands it.

Not only would this be incredibly reckless, but it is also likely to undermine the goal of having an effective vaccine widely circulated. The distinction between a vaccine and a treatment is that we are asking healthy people to take the vaccine. In the case of a treatment, we are looking at people who are already sick, and likely suffering serious symptoms. It is reasonable to take some risks in such cases if the possible alternative is dying from the coronavirus.

However, with a vaccine we are asking billions of people, most of whom are healthy and would probably not face much risk from the coronavirus, to take a vaccine that possibly could have serious side effects. Would people in the United States be willing to take the risk associated with a vaccine, whose safety is certified by a Donald Trump controlled FDA?

For my part, as someone in good health, I would much rather take my chances with the coronavirus, at least until a credible agency, like the ones in Germany or Canada, had signed off on the vaccine. I would not be willing to risk my health for a Donald Trump campaign stunt. (As a practical matter, any vaccine would almost certainly not be ready for mass circulation until some point in 2021, but if the Trump FDA had set the process in motion, it might be difficult for a new administration to stop it.)

This raises another point about the value of fully open research. If all the information submitted to the FDA to establish the safety and effectiveness of a vaccine were open to the entire scientific community, it is very unlikely that it could certify the safety and effectiveness of a vaccine, if the evidence did not support this certification. If Moderna or any other company could not establish that its vaccine was safe and effective, the community of researchers working on a vaccine would almost certainly recognize this fact.

Of course, without a patent monopoly, Moderna would have little incentive to lie about the safety and effectiveness of its vaccine. Its interest would be in establishing a reputation as a company that supported important research so that it was well-positioned to secure future research funding from the government. Bending research results, so as to get a vaccine approved that was ineffective or dangerous, would likely prevent it from ever again being in the running for research funding.[1]

And, it is worth repeating that without patent monopolies and related protections, drugs and vaccines would almost invariably be cheap. It is rare that a drug or vaccine is expensive to manufacture or distribute. Drugs are expensive because we give drug companies patent monopolies. It seems more than a bit absurd that we make drugs expensive with these monopolies and then struggle to find ways to make them affordable.

Also, the amount of money at stake here is enormous. We will spend over $500 billion in 2020 for drugs that would almost certainly cost less than $100 billion in a free market with patent monopolies and related protections. The difference of $400 billion is roughly 1.8 percent of GDP. It is more than twice the size of the Trump tax cut and more than five times the entire budget for food stamps.

It is more than a bit incredible, that a time when serious people are discussing defunding the police, that the idea that the government should own the research it pays for is too radical for public discussion. It is even more incredible that this lack of imagination cannot be overcome even as we are facing a worldwide pandemic that is more deadly than anything we have seen in over a hundred years.

Somehow, we have to convince the folks determining policy that God did not create patent monopolies. There are better ways to finance the development of new drugs and vaccines.    

 

[1] I discuss this system of publicly financed open-source research at more length in chapter 5 of Rigged (it’s free).

(This post originally appeared on my Patreon page.)

I know I have been pounding on this a lot, but it is important and there is a lot of money at stake. All we need (okay, maybe not all) is some clear thinking.

The Washington Post had a good piece this week talking about how a company set up by a hedge fund, with no background or expertise in pharmacology, arranged to get rights to a drug that was developed by researchers at Emory University on a $16 million contract with the government. The drug, EIDD-2801, is thought to be a potential treatment for the coronavirus. Shortly after arranging to buy the rights to the drug, the company turned around and sold them to Merck, presumably for a substantial profit. 

The piece highlights how some companies are likely to profit off government-funded research, often while contributing little or nothing to developing effective vaccines or treatments. We also face the likelihood that any vaccines or treatments that are developed will be sold at high prices by companies that were granted patent monopolies.

But this is only the beginning of the problem with the U.S. government’s approach for developing a vaccine or treatments for the pandemic. The U.S. approach encourages secrecy in research. Companies are racing to get valuable patents. This gives pharmaceutical companies an incentive to keep as much of their research secret as possible, in order not to give away valuable information to competitors.

This is the exact opposite of what we should want to see in response to the pandemic. This is a worldwide crisis; we should want researchers across the globe working in collaboration, sharing their results as quickly as possible so that they can learn from each other’s successes and failures. This issue is recognized by the scientists who are working to develop these vaccines and treatments.

As a recent editorial in Nature magazine noted, there is an extraordinary amount of international cooperation taking place, which is allowing progress to take place far more rapidly than would ordinarily be the case. However, neither the United States nor the United Kingdom have agreed to share the fruits of research with the world, leaving open the possibility that one or more of their drug companies will take advantage of research that was widely shared to develop a vaccine or treatment on which they will claim a patent monopoly, and then charge very high prices.

It is not just for purposes of getting a vaccine and treatments quickly that we should want fully open research. There is also the issue of the credibility of research findings. There already have been questions raised about Moderna, a leading contender in the race to develop a vaccine. The company had a major stock offering just after releasing very limited results suggesting progress in developing a vaccine. Two top executives took advantage of the jump in share prices to sell a substantial portion of their holdings.

While the results released by Moderna may be entirely honest, it is difficult not to raise questions when so much money is at stake for the people controlling the release of information. It is also troubling that the results reported were very limited. For whatever reason, the company chose not to release the detailed data it had available at the time.

The issue of the integrity of research is especially serious in the context of a Trump controlled FDA. If a vaccine is developed by Moderna or another company, there will be enormous pressure on the FDA to approve it, especially if this could be done before the election. Does anyone doubt at this point that Donald Trump would fire an FDA head who refused to approve a vaccine before the election? After all, he does have the legal right to do so, and every Republican in national office, except Senator Mitt Romney, is on record saying that this sort of behavior is fine. We should just take for granted that the FDA will approve any plausible vaccine candidate because Donald Trump demands it.

Not only would this be incredibly reckless, but it is also likely to undermine the goal of having an effective vaccine widely circulated. The distinction between a vaccine and a treatment is that we are asking healthy people to take the vaccine. In the case of a treatment, we are looking at people who are already sick, and likely suffering serious symptoms. It is reasonable to take some risks in such cases if the possible alternative is dying from the coronavirus.

However, with a vaccine we are asking billions of people, most of whom are healthy and would probably not face much risk from the coronavirus, to take a vaccine that possibly could have serious side effects. Would people in the United States be willing to take the risk associated with a vaccine, whose safety is certified by a Donald Trump controlled FDA?

For my part, as someone in good health, I would much rather take my chances with the coronavirus, at least until a credible agency, like the ones in Germany or Canada, had signed off on the vaccine. I would not be willing to risk my health for a Donald Trump campaign stunt. (As a practical matter, any vaccine would almost certainly not be ready for mass circulation until some point in 2021, but if the Trump FDA had set the process in motion, it might be difficult for a new administration to stop it.)

This raises another point about the value of fully open research. If all the information submitted to the FDA to establish the safety and effectiveness of a vaccine were open to the entire scientific community, it is very unlikely that it could certify the safety and effectiveness of a vaccine, if the evidence did not support this certification. If Moderna or any other company could not establish that its vaccine was safe and effective, the community of researchers working on a vaccine would almost certainly recognize this fact.

Of course, without a patent monopoly, Moderna would have little incentive to lie about the safety and effectiveness of its vaccine. Its interest would be in establishing a reputation as a company that supported important research so that it was well-positioned to secure future research funding from the government. Bending research results, so as to get a vaccine approved that was ineffective or dangerous, would likely prevent it from ever again being in the running for research funding.[1]

And, it is worth repeating that without patent monopolies and related protections, drugs and vaccines would almost invariably be cheap. It is rare that a drug or vaccine is expensive to manufacture or distribute. Drugs are expensive because we give drug companies patent monopolies. It seems more than a bit absurd that we make drugs expensive with these monopolies and then struggle to find ways to make them affordable.

Also, the amount of money at stake here is enormous. We will spend over $500 billion in 2020 for drugs that would almost certainly cost less than $100 billion in a free market with patent monopolies and related protections. The difference of $400 billion is roughly 1.8 percent of GDP. It is more than twice the size of the Trump tax cut and more than five times the entire budget for food stamps.

It is more than a bit incredible, that a time when serious people are discussing defunding the police, that the idea that the government should own the research it pays for is too radical for public discussion. It is even more incredible that this lack of imagination cannot be overcome even as we are facing a worldwide pandemic that is more deadly than anything we have seen in over a hundred years.

Somehow, we have to convince the folks determining policy that God did not create patent monopolies. There are better ways to finance the development of new drugs and vaccines.    

 

[1] I discuss this system of publicly financed open-source research at more length in chapter 5 of Rigged (it’s free).

The NYT ran a piece with a headline that began “break the China Habit,” and featured the subhead, “the risks of relying economically on the Asian superpower have never seemed clearer. But as the world tries to get moving again, it needs China more than ever.”

Perhaps the paper considered the risks so apparent that it didn’t need to mention them in the article, because it didn’t. Yes, we all know the coronavirus originated in China and that its government was not forthcoming with information about the disease and its spread, but what does that have to do with “relying economically” on China? Is the NYT suggesting as an alternative a complete ban on trade and travel between China and the rest of the world?

If not, the issue of “relying economically” on China is pretty much beside the point. I guess we infer from the article that the NYT doesn’t like China’s government, but other than that, the piece is incoherent. It is also worth noting that there is a good chance that China will develop an effective vaccine against the coronavirus before anyone else.  It would be interesting to know if the NYT would then argue that it is important we not rely on the vaccine. 

The NYT ran a piece with a headline that began “break the China Habit,” and featured the subhead, “the risks of relying economically on the Asian superpower have never seemed clearer. But as the world tries to get moving again, it needs China more than ever.”

Perhaps the paper considered the risks so apparent that it didn’t need to mention them in the article, because it didn’t. Yes, we all know the coronavirus originated in China and that its government was not forthcoming with information about the disease and its spread, but what does that have to do with “relying economically” on China? Is the NYT suggesting as an alternative a complete ban on trade and travel between China and the rest of the world?

If not, the issue of “relying economically” on China is pretty much beside the point. I guess we infer from the article that the NYT doesn’t like China’s government, but other than that, the piece is incoherent. It is also worth noting that there is a good chance that China will develop an effective vaccine against the coronavirus before anyone else.  It would be interesting to know if the NYT would then argue that it is important we not rely on the vaccine. 

I want to do a bit more beating up on a NYT piece this morning on breaking ties with China. There is a widely held view in policy circles that the pandemic showed that our extensive economic ties with China are a bad thing. I will ask a simple question, how?

First to get over some obvious points, yes, China has an authoritarian government that does not respect basic human rights. That is true, but what exactly do we hope to do about it? If we cut our imports from China by half or even put a complete embargo on them, do we think it will improve their human rights record?

I suppose we could have more impact if we got most of the rest of the world to go along, but apart from a few puppet states, no one would follow the U.S. in banning trade from China. Everyone knows that the U.S. doesn’t give a damn about democracy. Just last year we helped to overthrow a democratically elected government in Bolivia and installed someone who got almost no votes. No one here cared. 

So the question is if the U.S. and a few inconsequential puppets stopped buying stuff from China, would it prompt its leadership to show more respect for human rights? Be serious.

Okay, but the pandemic spread from China and this was in part because its government withheld information about the spread of the disease. That’s true and what does it have to do with our ties to China. I suppose if we had no trade and travel with China then we would have had to get the pandemic from somewhere else, which seems to be the case.

Alright, so we would have gotten the pandemic here even if we didn’t rely on China for anything. But when we were first hit with the pandemic we were short of items like face masks and other protective gear, which we were importing from China.

This is a common gotcha for those arguing the case against China reliance. But this actually shows nothing. We had a shortage of protective gear because we had not stockpiled it and saw a sudden surge in demand. The problem was that we had not stockpiled protective gear, not that it was coming from China. Suppose we made all our protective gear in the good old USA, could our factories suddenly ramp up production by a factor of five or ten? Not on this planet they couldn’t. So this argument about reliance on China is an argument about maintaining stockpiles of important medical gear.

What about other items where our supply chain was interrupted because China reduced or stopped production back in January or February? Well, there were some spot shortages of some items, but these were mostly inconveniences. Did people find themselves unable to buy cars, washing machines, iPhones, or anything else during the last five months? (Okay, toilet paper was in short supply, but I don’t think we can blame China.) And, for those folks who may have missed it, we also had some factories shut down here.

There are issues about our trade with China that I, and others, have raised. Most importantly, China has maintained an under-valued currency that allows them to undercut U.S. manufacturers and cost us millions of good-paying manufacturing jobs. For better or worse, this is a historical issue, not a present-day one.

Insofar as we have regained manufacturing jobs in the last decade (before the pandemic hit), they have not been good-paying union jobs.  In fact, they are little better paying than jobs in other sectors. If a new manufacturing job does not pay much more than a job in retail or restaurants, then there is no particular reason to be concerned about manufacturing jobs. In my book, we should want to make all jobs good-paying jobs.

Then we get to the issue about China stealing “our” intellectual property. Well, this is a great concern for the people who want to redistribute even more money upward. The “our” in that story is not the person serving food in a restaurant or cleaning toilets in a hotel. It refers to the privileged group in a position to benefit from stronger and longer patent monopolies, copyright monopolies, and other forms of intellectual property.

For my part, I am happy if China doesn’t respect Microsoft’s copyrights and Pfizer’s patents. That would be great if billions of people in China and elsewhere can get cheaper computers and software and even better if all drugs were sold around the world as cheap generics. I realize that most “liberals” in this country want to protect their incomes and those of their friends, but I care more about the non-rich both here and in the rest of the world. So I won’t be joining the China-bashing on this one.

The long and short is the story that the pandemic taught us some lessons about relying on China is utter nonsense, with no foundation in reality. In this way, it is very similar to the story about how we risked a Second Great Depression in 2008-09 if we didn’t save the banks. In both cases, the story was nearly universally accepted in policy circles, although no one could coherently argue the case. And, in both cases the story advanced the central policy concern of people in Washington, making the rich richer.

 

I want to do a bit more beating up on a NYT piece this morning on breaking ties with China. There is a widely held view in policy circles that the pandemic showed that our extensive economic ties with China are a bad thing. I will ask a simple question, how?

First to get over some obvious points, yes, China has an authoritarian government that does not respect basic human rights. That is true, but what exactly do we hope to do about it? If we cut our imports from China by half or even put a complete embargo on them, do we think it will improve their human rights record?

I suppose we could have more impact if we got most of the rest of the world to go along, but apart from a few puppet states, no one would follow the U.S. in banning trade from China. Everyone knows that the U.S. doesn’t give a damn about democracy. Just last year we helped to overthrow a democratically elected government in Bolivia and installed someone who got almost no votes. No one here cared. 

So the question is if the U.S. and a few inconsequential puppets stopped buying stuff from China, would it prompt its leadership to show more respect for human rights? Be serious.

Okay, but the pandemic spread from China and this was in part because its government withheld information about the spread of the disease. That’s true and what does it have to do with our ties to China. I suppose if we had no trade and travel with China then we would have had to get the pandemic from somewhere else, which seems to be the case.

Alright, so we would have gotten the pandemic here even if we didn’t rely on China for anything. But when we were first hit with the pandemic we were short of items like face masks and other protective gear, which we were importing from China.

This is a common gotcha for those arguing the case against China reliance. But this actually shows nothing. We had a shortage of protective gear because we had not stockpiled it and saw a sudden surge in demand. The problem was that we had not stockpiled protective gear, not that it was coming from China. Suppose we made all our protective gear in the good old USA, could our factories suddenly ramp up production by a factor of five or ten? Not on this planet they couldn’t. So this argument about reliance on China is an argument about maintaining stockpiles of important medical gear.

What about other items where our supply chain was interrupted because China reduced or stopped production back in January or February? Well, there were some spot shortages of some items, but these were mostly inconveniences. Did people find themselves unable to buy cars, washing machines, iPhones, or anything else during the last five months? (Okay, toilet paper was in short supply, but I don’t think we can blame China.) And, for those folks who may have missed it, we also had some factories shut down here.

There are issues about our trade with China that I, and others, have raised. Most importantly, China has maintained an under-valued currency that allows them to undercut U.S. manufacturers and cost us millions of good-paying manufacturing jobs. For better or worse, this is a historical issue, not a present-day one.

Insofar as we have regained manufacturing jobs in the last decade (before the pandemic hit), they have not been good-paying union jobs.  In fact, they are little better paying than jobs in other sectors. If a new manufacturing job does not pay much more than a job in retail or restaurants, then there is no particular reason to be concerned about manufacturing jobs. In my book, we should want to make all jobs good-paying jobs.

Then we get to the issue about China stealing “our” intellectual property. Well, this is a great concern for the people who want to redistribute even more money upward. The “our” in that story is not the person serving food in a restaurant or cleaning toilets in a hotel. It refers to the privileged group in a position to benefit from stronger and longer patent monopolies, copyright monopolies, and other forms of intellectual property.

For my part, I am happy if China doesn’t respect Microsoft’s copyrights and Pfizer’s patents. That would be great if billions of people in China and elsewhere can get cheaper computers and software and even better if all drugs were sold around the world as cheap generics. I realize that most “liberals” in this country want to protect their incomes and those of their friends, but I care more about the non-rich both here and in the rest of the world. So I won’t be joining the China-bashing on this one.

The long and short is the story that the pandemic taught us some lessons about relying on China is utter nonsense, with no foundation in reality. In this way, it is very similar to the story about how we risked a Second Great Depression in 2008-09 if we didn’t save the banks. In both cases, the story was nearly universally accepted in policy circles, although no one could coherently argue the case. And, in both cases the story advanced the central policy concern of people in Washington, making the rich richer.

 

The Washington Post had an interesting piece on how a hedge fund managed to secure $16 million in public funds (10,000 food stamp person-years) for a shell company, Ridgeback Biotherapeutics, which then used the money to contract for research with Emory University. When the results showed some promise, Ridgeback Biotherapeutics then sold the rights to Merck, which is doing further testing.

This problem would have been easy to avoid if the government had a rule that when it pays for research, all the findings are open-source (meaning posted to the web as soon as practical) and that everything developed remains in the public domain. That means that any drugs or vaccines developed with public funds would be available as cheap generics.

This does conflict with the widely held view that the role of the government is to redistribute as much money to rich people as possible, but if anyone cared about economic efficiency, this is the path they would be advocating.

The Washington Post had an interesting piece on how a hedge fund managed to secure $16 million in public funds (10,000 food stamp person-years) for a shell company, Ridgeback Biotherapeutics, which then used the money to contract for research with Emory University. When the results showed some promise, Ridgeback Biotherapeutics then sold the rights to Merck, which is doing further testing.

This problem would have been easy to avoid if the government had a rule that when it pays for research, all the findings are open-source (meaning posted to the web as soon as practical) and that everything developed remains in the public domain. That means that any drugs or vaccines developed with public funds would be available as cheap generics.

This does conflict with the widely held view that the role of the government is to redistribute as much money to rich people as possible, but if anyone cared about economic efficiency, this is the path they would be advocating.

The Republicans have been working hard to ensure that the $600 weekly supplement to unemployment insurance benefits, which was put in place as part of the pandemic rescue package, is not extended beyond the current July 31 cutoff. They argue that we need people to return to work.

They do have a point. The supplement is equivalent to pay of $15 an hour for someone working a 40-hour week, and this is in addition to a regular benefit that is typically equal to 40 to 50 percent of workers’ pay. The supplement translates into an even larger hourly pay rate for workers putting in shorter workweeks, which was the case for most laid off workers in the restaurant and retail sectors.

It is hard for employers in traditionally low paying sectors to match these pay rates.  Even those of us who are big proponents of higher minimum wages would not advocate a jump to more than $20 an hour at a point when businesses are crippled by the pandemic.

However, there is also the point that we don’t want workers to have to expose themselves to the coronavirus. That was the reason for the generous supplement. We wanted to make sure that workers, who in many cases were legally prevented from working, did not suffer as a result.

There is an obvious solution here. Suppose we reduce or end the supplement in areas where the pandemic is under control.

This would not be determined by some Trumpian declaration that the pandemic is over, but by solid data. The obvious metric would be positive test rates. Suppose that the supplement was reduced or eliminated in states or counties where the positive test rate is less than 5 percent. (This may not be the right rate.) This would mean that workers going back to work would face relatively little risk of contracting the virus. It would also give states the incentive to conduct vigorous testing programs, as well as other control measures, in order to get their positive rates down.

Our unemployment insurance system is badly broken and it would be desirable to have more generous benefits, and also to focus more on work-sharing, as other countries have done. We can recognize this point and still agree that an arbitrary supplement to all benefits is not the right long-term fix even if it was a very good policy in the pandemic.

The Republicans have been working hard to ensure that the $600 weekly supplement to unemployment insurance benefits, which was put in place as part of the pandemic rescue package, is not extended beyond the current July 31 cutoff. They argue that we need people to return to work.

They do have a point. The supplement is equivalent to pay of $15 an hour for someone working a 40-hour week, and this is in addition to a regular benefit that is typically equal to 40 to 50 percent of workers’ pay. The supplement translates into an even larger hourly pay rate for workers putting in shorter workweeks, which was the case for most laid off workers in the restaurant and retail sectors.

It is hard for employers in traditionally low paying sectors to match these pay rates.  Even those of us who are big proponents of higher minimum wages would not advocate a jump to more than $20 an hour at a point when businesses are crippled by the pandemic.

However, there is also the point that we don’t want workers to have to expose themselves to the coronavirus. That was the reason for the generous supplement. We wanted to make sure that workers, who in many cases were legally prevented from working, did not suffer as a result.

There is an obvious solution here. Suppose we reduce or end the supplement in areas where the pandemic is under control.

This would not be determined by some Trumpian declaration that the pandemic is over, but by solid data. The obvious metric would be positive test rates. Suppose that the supplement was reduced or eliminated in states or counties where the positive test rate is less than 5 percent. (This may not be the right rate.) This would mean that workers going back to work would face relatively little risk of contracting the virus. It would also give states the incentive to conduct vigorous testing programs, as well as other control measures, in order to get their positive rates down.

Our unemployment insurance system is badly broken and it would be desirable to have more generous benefits, and also to focus more on work-sharing, as other countries have done. We can recognize this point and still agree that an arbitrary supplement to all benefits is not the right long-term fix even if it was a very good policy in the pandemic.

No, I have not gone off the deep end, there is an important connection that I will get to in a moment. First, I want to be clear that I am not trying to take anything away from the immediate issue that has brought hundreds of thousands into the streets, the police killing of George Floyd. (We even had a protest in my little town in Utah.)

It is encouraging to see so many people of all races marching to demand justice. Perhaps these mass protests will lead to a lasting change in the way the police treat people of color. We can hope.

Anyhow, I was prompted to think about the connection of racism to patent monopolies, and the way we structure the economy more generally, by a tweet that was passed along to me a few days ago. The tweet was from a doctor who I gather held an important position in a hospital or some other health care provider. (I don’t know the person; the tweet was retweeted by someone I follow.)

The tweet said something to the effect that the killing and the protests had moved them to be more aggressive in promoting blacks in the medical profession. That would be a great thing to see, but we should be clear what a long way we have to go before blacks are anywhere close to being proportionately represented in this high-paying profession.

Currently, 13.4 percent of the population is black. Just 5.0 percent of doctors are black. Suppose we increase that figure by 50 percent over the next two decades, which would be a big change from where we are now. That would mean that 7.5 percent of doctors would be black, a bit more than half of their percentage of the population. That’s better, but still far from anything close to equality.

My response to the tweet was that we should focus on reducing the pay gap between doctors and lower-paying occupations in health care, like home health care aides and nurses’ assistants. These jobs often play close to the minimum wage, whereas the average doctor earns close to $300,000 a year (net of expenses like malpractice insurance) and doctors in higher-paying areas of specialization can earn close to $500,000. Needless to say, blacks and other people of color tend to be over-represented in the lower-paying occupations in the health care sector.

Suppose that we reduced the pay gap between doctors and these lower-paying occupations to something like four or five to one, rather than the ratios of ten to one or more that we see today? The nice thing about going this route is that the key is simply reducing the protections that sustain high doctor pay today.

This means, for example, ending the requirement that foreign-trained doctors have to go through a U.S. residency program before being allowed to practice in the United States. We can also eliminate the barriers that prevent nurse practitioners and other health care professionals from doing tasks for which they are entirely qualified, but are now reserved for licensed physicians.

By using market mechanisms to increase the supply and reduce the demand for doctors, we can expect to see doctors’ pay driven down to something more in line with what we see in Germany, Canada, and other wealthy countries. That would be around half of the current level in the United States. (Yes, I know about the student loan debt many doctors incur. It doesn’t come close to explaining the differences in pay with other countries, but part of the deal should be a write off of most of this debt.)

We can tell similar stories pretty much everywhere. People in highly paid professions, like doctors, dentists, and lawyers, get lots of money, and dishwashers and retail clerks don’t, because we structured the markets so that people in these professions can get lots of money, at the same time that we also structure the markets so that dishwashers and retail clerks don’t get lots of money.

There are similar stories to be told about other areas where people get very high pay. The financial sector is an obvious one. We have people who get hugely rich as hedge fund managers or traders at banks who thrive on being able to turn over massive amounts of stock and other financial assets to take advantage of small price differences. A modest financial transactions tax, similar to the sales tax we pay on clothes and appliances, would go a long way towards reducing the big bucks in this sector. Measures that prevented the finance boys from ripping off pension funds would also reduce the big bucks earned in this sector.

In the case of CEOs getting salaries of tens of millions of dollars, even when they screw the shareholders for whom they are supposed to be working, the problem is a corrupt corporate governance structure. And the problem of excessive CEO pay is not just a question of the pay of a small number of CEOs. If the CEO is getting $20 million a year, odds are the chief financial officer and other top execs are getting somewhere close to $10 million and even the next tier is likely drawing paychecks of well over a million a year. We would be in a very different world if the ratio of CEO pay to the pay of ordinary workers was something closer to the 60s and 70s ratios, and CEOs earned $2 million to $3 million a year. That would likely be the story if corporate boards actually acted in the interest of shareholders. (It would be even better if they cared about workers, too.)  

This gets me to patents. There is a largely unquestioned fallacy in policy circles that technology has increased the value of skills, especially those in the STEM fields, and reduced the value of less-educated workers. This fallacy is used to justify the huge growth in inequality over the last four decades. The basic line is that we may not like it but it just turns out that Bill Gates’ skills have become hugely more valuable over the last four decades, and the skills of manufacturing workers, truck drivers, and other people in jobs requiring less education are worth much less.

This is a very simple and obvious lie. The value of STEM skills has increased because as a matter of policy we decided to make them more valuable, first and foremost by having longer and stronger patent and copyright monopolies. As I like to say, if we didn’t give Microsoft patent and copyright monopolies on its software, Bill Gates would still be working for a living. For some reason, people in policy circles, including most progressives, simply don’t like to talk about this obvious truth. 

Suppose that we did not see the same upward redistribution over the last four decades so that everyone had shared equally in the gains of productivity growth. In that world the minimum wage would be over $24 an hour today. This means that a person working at the lowest paying jobs would still get almost $50,000 a year if they put in a full 40-hour week, fifty weeks a year. If we imagine that people in the lower paying occupations in health care get some premium for their skills and the importance of their work, they would be getting over $50,000 a year. A two-earner couple would be getting over $100,000 a year.

Could we afford to pay the lowest workers $100,000 a year? We certainly could if we didn’t pay the people at the top so much. It may not be apparent (especially for people who do policy work for a living), but these high paychecks come out of everyone else’s pockets.

This is very clear if we put on our Keynesian-MMT thinking hat for a moment. The limiting factor for government spending is inflation. We have to cut back spending and/or raise taxes if spending is pushing the economy too far and causing excess demand. The consumption spending by doctors getting $400,000 a year, Wall Street types getting $4 million a year, and CEOs getting $40 million a year, increases demand in the same way more government spending increases demand. If these rich and very rich people have less money to spend, they will spend less. (See what you learn by getting a PhD in economics.)

Anyhow, if we structure the market differently so that those at the top have less, then everyone else can have more. We can ensure that even people at the bottom of the pay ladder can ensure decent secure lives. This is especially the case if we have items like national health care insurance and child care as part of our agenda.

So, getting back to the impact of structural racism, we certainly should do everything possible to eliminate the barriers that deny African Americans an equal chance to get high paying and high prestige jobs in health care and other sectors of the economy. But, recognizing our history, we can’t believe that in ten, twenty, or even fifty years we will have overcome centuries of institutionalized racism.

It is still a big deal if a black kid doesn’t have the same chance in life to work as a doctor or some other high-paying profession as a white kid, but it will matter much less if people working as home health care workers and in other currently low-paying jobs could count on a decent wage, decent health care and other aspects of a secure existence. And, in that world, their kids would have a much better shot at securing a higher paying higher prestige job than they do today.

No, I have not gone off the deep end, there is an important connection that I will get to in a moment. First, I want to be clear that I am not trying to take anything away from the immediate issue that has brought hundreds of thousands into the streets, the police killing of George Floyd. (We even had a protest in my little town in Utah.)

It is encouraging to see so many people of all races marching to demand justice. Perhaps these mass protests will lead to a lasting change in the way the police treat people of color. We can hope.

Anyhow, I was prompted to think about the connection of racism to patent monopolies, and the way we structure the economy more generally, by a tweet that was passed along to me a few days ago. The tweet was from a doctor who I gather held an important position in a hospital or some other health care provider. (I don’t know the person; the tweet was retweeted by someone I follow.)

The tweet said something to the effect that the killing and the protests had moved them to be more aggressive in promoting blacks in the medical profession. That would be a great thing to see, but we should be clear what a long way we have to go before blacks are anywhere close to being proportionately represented in this high-paying profession.

Currently, 13.4 percent of the population is black. Just 5.0 percent of doctors are black. Suppose we increase that figure by 50 percent over the next two decades, which would be a big change from where we are now. That would mean that 7.5 percent of doctors would be black, a bit more than half of their percentage of the population. That’s better, but still far from anything close to equality.

My response to the tweet was that we should focus on reducing the pay gap between doctors and lower-paying occupations in health care, like home health care aides and nurses’ assistants. These jobs often play close to the minimum wage, whereas the average doctor earns close to $300,000 a year (net of expenses like malpractice insurance) and doctors in higher-paying areas of specialization can earn close to $500,000. Needless to say, blacks and other people of color tend to be over-represented in the lower-paying occupations in the health care sector.

Suppose that we reduced the pay gap between doctors and these lower-paying occupations to something like four or five to one, rather than the ratios of ten to one or more that we see today? The nice thing about going this route is that the key is simply reducing the protections that sustain high doctor pay today.

This means, for example, ending the requirement that foreign-trained doctors have to go through a U.S. residency program before being allowed to practice in the United States. We can also eliminate the barriers that prevent nurse practitioners and other health care professionals from doing tasks for which they are entirely qualified, but are now reserved for licensed physicians.

By using market mechanisms to increase the supply and reduce the demand for doctors, we can expect to see doctors’ pay driven down to something more in line with what we see in Germany, Canada, and other wealthy countries. That would be around half of the current level in the United States. (Yes, I know about the student loan debt many doctors incur. It doesn’t come close to explaining the differences in pay with other countries, but part of the deal should be a write off of most of this debt.)

We can tell similar stories pretty much everywhere. People in highly paid professions, like doctors, dentists, and lawyers, get lots of money, and dishwashers and retail clerks don’t, because we structured the markets so that people in these professions can get lots of money, at the same time that we also structure the markets so that dishwashers and retail clerks don’t get lots of money.

There are similar stories to be told about other areas where people get very high pay. The financial sector is an obvious one. We have people who get hugely rich as hedge fund managers or traders at banks who thrive on being able to turn over massive amounts of stock and other financial assets to take advantage of small price differences. A modest financial transactions tax, similar to the sales tax we pay on clothes and appliances, would go a long way towards reducing the big bucks in this sector. Measures that prevented the finance boys from ripping off pension funds would also reduce the big bucks earned in this sector.

In the case of CEOs getting salaries of tens of millions of dollars, even when they screw the shareholders for whom they are supposed to be working, the problem is a corrupt corporate governance structure. And the problem of excessive CEO pay is not just a question of the pay of a small number of CEOs. If the CEO is getting $20 million a year, odds are the chief financial officer and other top execs are getting somewhere close to $10 million and even the next tier is likely drawing paychecks of well over a million a year. We would be in a very different world if the ratio of CEO pay to the pay of ordinary workers was something closer to the 60s and 70s ratios, and CEOs earned $2 million to $3 million a year. That would likely be the story if corporate boards actually acted in the interest of shareholders. (It would be even better if they cared about workers, too.)  

This gets me to patents. There is a largely unquestioned fallacy in policy circles that technology has increased the value of skills, especially those in the STEM fields, and reduced the value of less-educated workers. This fallacy is used to justify the huge growth in inequality over the last four decades. The basic line is that we may not like it but it just turns out that Bill Gates’ skills have become hugely more valuable over the last four decades, and the skills of manufacturing workers, truck drivers, and other people in jobs requiring less education are worth much less.

This is a very simple and obvious lie. The value of STEM skills has increased because as a matter of policy we decided to make them more valuable, first and foremost by having longer and stronger patent and copyright monopolies. As I like to say, if we didn’t give Microsoft patent and copyright monopolies on its software, Bill Gates would still be working for a living. For some reason, people in policy circles, including most progressives, simply don’t like to talk about this obvious truth. 

Suppose that we did not see the same upward redistribution over the last four decades so that everyone had shared equally in the gains of productivity growth. In that world the minimum wage would be over $24 an hour today. This means that a person working at the lowest paying jobs would still get almost $50,000 a year if they put in a full 40-hour week, fifty weeks a year. If we imagine that people in the lower paying occupations in health care get some premium for their skills and the importance of their work, they would be getting over $50,000 a year. A two-earner couple would be getting over $100,000 a year.

Could we afford to pay the lowest workers $100,000 a year? We certainly could if we didn’t pay the people at the top so much. It may not be apparent (especially for people who do policy work for a living), but these high paychecks come out of everyone else’s pockets.

This is very clear if we put on our Keynesian-MMT thinking hat for a moment. The limiting factor for government spending is inflation. We have to cut back spending and/or raise taxes if spending is pushing the economy too far and causing excess demand. The consumption spending by doctors getting $400,000 a year, Wall Street types getting $4 million a year, and CEOs getting $40 million a year, increases demand in the same way more government spending increases demand. If these rich and very rich people have less money to spend, they will spend less. (See what you learn by getting a PhD in economics.)

Anyhow, if we structure the market differently so that those at the top have less, then everyone else can have more. We can ensure that even people at the bottom of the pay ladder can ensure decent secure lives. This is especially the case if we have items like national health care insurance and child care as part of our agenda.

So, getting back to the impact of structural racism, we certainly should do everything possible to eliminate the barriers that deny African Americans an equal chance to get high paying and high prestige jobs in health care and other sectors of the economy. But, recognizing our history, we can’t believe that in ten, twenty, or even fifty years we will have overcome centuries of institutionalized racism.

It is still a big deal if a black kid doesn’t have the same chance in life to work as a doctor or some other high-paying profession as a white kid, but it will matter much less if people working as home health care workers and in other currently low-paying jobs could count on a decent wage, decent health care and other aspects of a secure existence. And, in that world, their kids would have a much better shot at securing a higher paying higher prestige job than they do today.

That is not precisely what the newspaper said because it prefers to use really big numbers that it knows are meaningless to almost all of its readers. It instead told readers that the aid is expected to be $16 billion. This is in addition to the 7.5 million food stamp person-years that farmers got in 2018 as relief from Trump’s trade war and the 10 million food stamp person-years that they got in relief last year. 

Anyhow, the NYT knows that when it writes $16 billion or any other really big budget number it is virtually meaningless to the vast majority of its readers, but it refuses to do anything to put these numbers in a context that would make them meaningful. The best that you can say is that the paper does not give a damn about providing information to readers.

That is not precisely what the newspaper said because it prefers to use really big numbers that it knows are meaningless to almost all of its readers. It instead told readers that the aid is expected to be $16 billion. This is in addition to the 7.5 million food stamp person-years that farmers got in 2018 as relief from Trump’s trade war and the 10 million food stamp person-years that they got in relief last year. 

Anyhow, the NYT knows that when it writes $16 billion or any other really big budget number it is virtually meaningless to the vast majority of its readers, but it refuses to do anything to put these numbers in a context that would make them meaningful. The best that you can say is that the paper does not give a damn about providing information to readers.

(This is the first entry in an exchange with Leigh Phillips. I am responding to a piece he wrote in Jacobin last week about the drug industry’s response to the pandemic.)

Leigh Phillips had a very useful piece in Jacobin on how patent protections are impeding progress in developing and distributing vaccines or treatments for the Coronavirus. The piece points out how the United States has engaged in a pointless competition with the rest of the world, which has involved trying to procure control over a potential vaccine. It also points out how pharmaceutical companies are planning to charge exorbitant prices that are likely to limit access, especially in developing countries.

All of this is very true and important for the public to know, but where the piece goes badly off the mark is in the punchline in its subhead: “But the real architect of these crimes is not CEOs or shareholders, but the market.”

The reason this is so far off the mark is that the clear villain in this piece is government-granted patent monopolies, which exist as a result of the government, not the market. If we envision a world where these government-granted monopolies did not exist, all of the problems (and more) that Phillips mentions would not exist. Without patent monopolies, and related government protections, drugs would be cheap.[1] They are almost invariably cheap to manufacture and distribute.

This means that the problems Phillips points to would disappear in the absence of patent monopolies. It would be absurd to fight over a race to develop a vaccine, since as soon as a vaccine was developed, any manufacturer in the world would be equally able to produce it, regardless of where it originated. And a vaccine, or any drugs that are useful treatments, would be available as cheap generics. That could still raise issues of affordability in the poorest countries, but that is a problem of poverty, not the high cost of drugs.

Patent monopolies actually are causing even worse problems than Phillips indicates. For example, he notes that Gilead is likely to charge very high prices for its drug remdesivir, the first drug that shows clear evidence of being an effective treatment for the coronavirus. It turns out that Gilead has developed another drug, GS-441524, that holds equal or better promise as a treatment for the coronavirus, and is easier to manufacture. The reason that Gilead is pursuing tests with remdesivir, and not GS-441524, is that the patent is much newer for remdesivir, and therefore it can expect many more years of a patent monopoly for this drug.

Another problem with patent monopoly supported research is the incentive to lie about results. We may have seen this with the limited test results reported by Moderna, which were the basis for its jumping ahead with the clinical testing of its vaccine. These reports were sufficient to send its stock price soaring, leading to big payouts for top executives, even if they may not provide much evidence of the vaccine’s effectiveness.

Patent monopolies often lead companies to lie about the safety and effectiveness of their drugs. Merck was forced to pay billions over allegations that it withheld evidence that its blockbuster arthritis drug, Vioxx, increased the risk of strokes and heart attacks. More recently, opioid manufacturers are paying out billions to settle suits claiming they lied about the addictiveness of the new generation of opioids they were pushing. The incentive for such harmful lies largely disappears when drugs are selling in a free market without patent protection.

The possibility for misinformation is also hugely reduced when all research is open-sourced, which is another very big part of the picture with responding to the pandemic. Since we are confronting a worldwide problem, ideally we would have all results posted to the web as quickly as possible so that researchers everywhere could benefit from successes and learn from failures. This is happening to some extent, but the continuing pursuit of patent monopolies, especially in the United States, is slowing progress.

The really perverse part of the story with the development of coronavirus treatments and vaccines is that the government is already picking up most of the tab for the research. Patent monopolies are supposed to be a mechanism for providing companies with incentives to do research, but if the government pays for the research upfront, they just obstruct progress and lead to high prices for whatever may be developed. As a condition of funding, the government should be requiring all results be posted as soon as practical (the Bermuda Principles for the Human Genome Project is a good model), with everything in the public domain, so that it can be produced as a generic from day one.

Companies can still make a profit from their research, and manufacturers can still profit from selling drugs, but their profits would be more like the profits made by manufacturers of plastic cups and paper plates. Drugs would be cheap.[2]  

Medical equipment is a similar story to prescription drugs. MRIs, kidney dialysis machines, and other types of medical equipment are expensive because we give companies patent monopolies. Without these government-granted monopolies, these items would be a small fraction of their current price. To take one example that has been in the news, a ventilator typically sells for $25,000 to $30,000. A group of researchers developed an open-sourced model that they calculated could be made for $400 to $500. In nearly all cases, if medical equipment was sold in a free market without patent monopolies, it would cost just a small fraction of the current price.

This is not just a question of making health care affordable. There is a huge amount of money at stake. We will spend over $500 billion this year on prescription drugs, more than $3,000 per household. In the absence of patent monopolies and related protections, we would almost certainly pay less than $100 billion. Patent protections also add more than $100 billion to annual spending on medical equipment. By my calculations, patent and copyright protections cost us more than $1 trillion annually, an amount that is more than half of all after-tax corporate profits.

And, this money is very unevenly distributed. If were not for the patent and copyright protections on Microsoft’s software, Bill Gates would probably still be working for a living. More than a quarter of the Forbes 400 richest people owe their wealth in large part to patent and copyright monopolies.

We would have a far more equal distribution of income and wealth without these government granted monopolies. And, we would still very much have a market-oriented capitalist economy if Bill Gates could not get a copyright on Windows.  The issue here is how we have chosen to structure the market, not the market itself.

This point arises in other contexts also. There are many huge fortunes in the financial sector which would not have been made if we had a modest financial transactions tax in place. And, a financial market with a financial transactions tax is still very much a capitalist market, just as a shoe market doesn’t cease to be a capitalist market if we have a sales tax on shoes.

To take another example, if we didn’t exempt Internet intermediaries from the same liability for libel that traditional media companies face, as provided for by Section 230 of the Communications Decency Act, Facebook would be a far smaller company. None of us would then have ever heard of Mark Zuckerberg or give a damn what he thinks about anything. And, we would still have a media market and be every bit as much a capitalist economy.

There are many other examples I could give, including rules on international trade and labor laws (see Rigged), but the point should be clear. The market is infinitely malleable. For the last four decades, the right has been actively working to restructure the market in ways that redistribute income upward. We can structure the market differently so that it leads to more equality and everyone shares in the benefits of growth.

We have to recognize the market as a tool that can be used towards different ends. Lashing out at the market because we don’t like current outcomes would be like lashing out at the wheel because we had a friend run over by a car. For better or worse, we are likely to have the market for a long time into the future. The left needs to figure out how to make it work to achieve ends we want. The right succeeded at this task long ago.  

[1] Drug companies benefit from other forms of government protection, such as data exclusivity, which prevent generic manufacturers from relying on a brand producer’s data to show that a chemically equivalent drug is safe and effective.  

[2] Military contracting in the United States provides a useful model here. The military does get good weapons, even if we may not like what it does with them. Contractors make profits off their payments from the government. They may get patents, but these are really secondary. There is fraud and abuse in the system, but part of this is due to the secrecy in the process. Unlike the development of weapons systems, there is no justification for secrecy in biomedical research. This is discussed in chapter 5 of Rigged (it’s free).

(This is the first entry in an exchange with Leigh Phillips. I am responding to a piece he wrote in Jacobin last week about the drug industry’s response to the pandemic.)

Leigh Phillips had a very useful piece in Jacobin on how patent protections are impeding progress in developing and distributing vaccines or treatments for the Coronavirus. The piece points out how the United States has engaged in a pointless competition with the rest of the world, which has involved trying to procure control over a potential vaccine. It also points out how pharmaceutical companies are planning to charge exorbitant prices that are likely to limit access, especially in developing countries.

All of this is very true and important for the public to know, but where the piece goes badly off the mark is in the punchline in its subhead: “But the real architect of these crimes is not CEOs or shareholders, but the market.”

The reason this is so far off the mark is that the clear villain in this piece is government-granted patent monopolies, which exist as a result of the government, not the market. If we envision a world where these government-granted monopolies did not exist, all of the problems (and more) that Phillips mentions would not exist. Without patent monopolies, and related government protections, drugs would be cheap.[1] They are almost invariably cheap to manufacture and distribute.

This means that the problems Phillips points to would disappear in the absence of patent monopolies. It would be absurd to fight over a race to develop a vaccine, since as soon as a vaccine was developed, any manufacturer in the world would be equally able to produce it, regardless of where it originated. And a vaccine, or any drugs that are useful treatments, would be available as cheap generics. That could still raise issues of affordability in the poorest countries, but that is a problem of poverty, not the high cost of drugs.

Patent monopolies actually are causing even worse problems than Phillips indicates. For example, he notes that Gilead is likely to charge very high prices for its drug remdesivir, the first drug that shows clear evidence of being an effective treatment for the coronavirus. It turns out that Gilead has developed another drug, GS-441524, that holds equal or better promise as a treatment for the coronavirus, and is easier to manufacture. The reason that Gilead is pursuing tests with remdesivir, and not GS-441524, is that the patent is much newer for remdesivir, and therefore it can expect many more years of a patent monopoly for this drug.

Another problem with patent monopoly supported research is the incentive to lie about results. We may have seen this with the limited test results reported by Moderna, which were the basis for its jumping ahead with the clinical testing of its vaccine. These reports were sufficient to send its stock price soaring, leading to big payouts for top executives, even if they may not provide much evidence of the vaccine’s effectiveness.

Patent monopolies often lead companies to lie about the safety and effectiveness of their drugs. Merck was forced to pay billions over allegations that it withheld evidence that its blockbuster arthritis drug, Vioxx, increased the risk of strokes and heart attacks. More recently, opioid manufacturers are paying out billions to settle suits claiming they lied about the addictiveness of the new generation of opioids they were pushing. The incentive for such harmful lies largely disappears when drugs are selling in a free market without patent protection.

The possibility for misinformation is also hugely reduced when all research is open-sourced, which is another very big part of the picture with responding to the pandemic. Since we are confronting a worldwide problem, ideally we would have all results posted to the web as quickly as possible so that researchers everywhere could benefit from successes and learn from failures. This is happening to some extent, but the continuing pursuit of patent monopolies, especially in the United States, is slowing progress.

The really perverse part of the story with the development of coronavirus treatments and vaccines is that the government is already picking up most of the tab for the research. Patent monopolies are supposed to be a mechanism for providing companies with incentives to do research, but if the government pays for the research upfront, they just obstruct progress and lead to high prices for whatever may be developed. As a condition of funding, the government should be requiring all results be posted as soon as practical (the Bermuda Principles for the Human Genome Project is a good model), with everything in the public domain, so that it can be produced as a generic from day one.

Companies can still make a profit from their research, and manufacturers can still profit from selling drugs, but their profits would be more like the profits made by manufacturers of plastic cups and paper plates. Drugs would be cheap.[2]  

Medical equipment is a similar story to prescription drugs. MRIs, kidney dialysis machines, and other types of medical equipment are expensive because we give companies patent monopolies. Without these government-granted monopolies, these items would be a small fraction of their current price. To take one example that has been in the news, a ventilator typically sells for $25,000 to $30,000. A group of researchers developed an open-sourced model that they calculated could be made for $400 to $500. In nearly all cases, if medical equipment was sold in a free market without patent monopolies, it would cost just a small fraction of the current price.

This is not just a question of making health care affordable. There is a huge amount of money at stake. We will spend over $500 billion this year on prescription drugs, more than $3,000 per household. In the absence of patent monopolies and related protections, we would almost certainly pay less than $100 billion. Patent protections also add more than $100 billion to annual spending on medical equipment. By my calculations, patent and copyright protections cost us more than $1 trillion annually, an amount that is more than half of all after-tax corporate profits.

And, this money is very unevenly distributed. If were not for the patent and copyright protections on Microsoft’s software, Bill Gates would probably still be working for a living. More than a quarter of the Forbes 400 richest people owe their wealth in large part to patent and copyright monopolies.

We would have a far more equal distribution of income and wealth without these government granted monopolies. And, we would still very much have a market-oriented capitalist economy if Bill Gates could not get a copyright on Windows.  The issue here is how we have chosen to structure the market, not the market itself.

This point arises in other contexts also. There are many huge fortunes in the financial sector which would not have been made if we had a modest financial transactions tax in place. And, a financial market with a financial transactions tax is still very much a capitalist market, just as a shoe market doesn’t cease to be a capitalist market if we have a sales tax on shoes.

To take another example, if we didn’t exempt Internet intermediaries from the same liability for libel that traditional media companies face, as provided for by Section 230 of the Communications Decency Act, Facebook would be a far smaller company. None of us would then have ever heard of Mark Zuckerberg or give a damn what he thinks about anything. And, we would still have a media market and be every bit as much a capitalist economy.

There are many other examples I could give, including rules on international trade and labor laws (see Rigged), but the point should be clear. The market is infinitely malleable. For the last four decades, the right has been actively working to restructure the market in ways that redistribute income upward. We can structure the market differently so that it leads to more equality and everyone shares in the benefits of growth.

We have to recognize the market as a tool that can be used towards different ends. Lashing out at the market because we don’t like current outcomes would be like lashing out at the wheel because we had a friend run over by a car. For better or worse, we are likely to have the market for a long time into the future. The left needs to figure out how to make it work to achieve ends we want. The right succeeded at this task long ago.  

[1] Drug companies benefit from other forms of government protection, such as data exclusivity, which prevent generic manufacturers from relying on a brand producer’s data to show that a chemically equivalent drug is safe and effective.  

[2] Military contracting in the United States provides a useful model here. The military does get good weapons, even if we may not like what it does with them. Contractors make profits off their payments from the government. They may get patents, but these are really secondary. There is fraud and abuse in the system, but part of this is due to the secrecy in the process. Unlike the development of weapons systems, there is no justification for secrecy in biomedical research. This is discussed in chapter 5 of Rigged (it’s free).

Sweden has stood apart from most other wealthy countries in dealing with the pandemic, by not imposing some sort of shutdown, where non-essential businesses are closed and travel is kept to a minimum. Its Nordic neighbors all went this route and then engaged in extensive testing and tracing strategies.

As a result, Sweden has seen a much higher infection and fatality rate than the other Nordic countries. Sweden’s fatality rate to date is 450 per million, which compares to 101 per million for Denmark, 58 per million for Norway, and 44 per million for Finland.

Even worse, while these other countries all seem to have the pandemic well under control, infection rates and deaths remain high in Sweden. Yesterday there were two coronavirus related deaths in Denmark, one in Finland and none in Norway. Sweden had 74 deaths. (Sweden’s population is roughly twice the size of each of the other three Nordic countries.) Sweden’s track record in containing in the spread of the pandemic has clearly been abysmal.

However, the Washington Post holds out the prospect that Sweden has at least had an economic benefit from going the no shutdown route, telling readers:

“And because Sweden’s economy is tightly bound to the rest of Europe’s, it also has suffered, although not as badly as others.”

While it is true that it does not appear that Sweden’s economy will shrink as much as hard-hit countries like Italy and Spain, the I.M.F. projects that it will actually do worse in 2020 than its Nordic neighbors. The I.M.F. projects that Sweden’s economy will shrink by 6.8 percent in 2020. That compares to projected declines of 6.5 percent in Denmark, 6.3 percent in Norway, and 6.0 percent in Finland. In short, contrary to what the Post piece implies, there is little evidence that Sweden has gotten any economic benefit from its no shutdown strategy.

Sweden has stood apart from most other wealthy countries in dealing with the pandemic, by not imposing some sort of shutdown, where non-essential businesses are closed and travel is kept to a minimum. Its Nordic neighbors all went this route and then engaged in extensive testing and tracing strategies.

As a result, Sweden has seen a much higher infection and fatality rate than the other Nordic countries. Sweden’s fatality rate to date is 450 per million, which compares to 101 per million for Denmark, 58 per million for Norway, and 44 per million for Finland.

Even worse, while these other countries all seem to have the pandemic well under control, infection rates and deaths remain high in Sweden. Yesterday there were two coronavirus related deaths in Denmark, one in Finland and none in Norway. Sweden had 74 deaths. (Sweden’s population is roughly twice the size of each of the other three Nordic countries.) Sweden’s track record in containing in the spread of the pandemic has clearly been abysmal.

However, the Washington Post holds out the prospect that Sweden has at least had an economic benefit from going the no shutdown route, telling readers:

“And because Sweden’s economy is tightly bound to the rest of Europe’s, it also has suffered, although not as badly as others.”

While it is true that it does not appear that Sweden’s economy will shrink as much as hard-hit countries like Italy and Spain, the I.M.F. projects that it will actually do worse in 2020 than its Nordic neighbors. The I.M.F. projects that Sweden’s economy will shrink by 6.8 percent in 2020. That compares to projected declines of 6.5 percent in Denmark, 6.3 percent in Norway, and 6.0 percent in Finland. In short, contrary to what the Post piece implies, there is little evidence that Sweden has gotten any economic benefit from its no shutdown strategy.

The New York Times ran a piece on the second round of government funding for the development of a coronavirus vaccine. The piece only mentions in passing the issue raised by some Democrats in Congress about the price of any vaccine that gets developed through this funding.

This is probably too simple for the NYT reporters and editors to understand, but the reason the government grants drug companies patent monopolies is to give them a way to recover their research costs. In this case, according to the piece, the government has already paid $2.2 billion for research. The article makes clear that the government will be putting up considerably more money.

This is a huge amount to pay for research. At no point does the piece give any indication of how much of their own money, if any, the companies are putting up. Fans of the free market might be saying that if the government is paying the money, why on earth should the drug companies then have a patent monopoly?

But, reporters don’t seem interested in asking questions like this when the beneficiaries of government handouts are rich people (generally white). They generally are far more concerned about a few hundred dollars that might improperly be paid out to someone on food stamps rather than the hundreds of billions that the government hands out every year with its patent and copyright monopolies.

The New York Times ran a piece on the second round of government funding for the development of a coronavirus vaccine. The piece only mentions in passing the issue raised by some Democrats in Congress about the price of any vaccine that gets developed through this funding.

This is probably too simple for the NYT reporters and editors to understand, but the reason the government grants drug companies patent monopolies is to give them a way to recover their research costs. In this case, according to the piece, the government has already paid $2.2 billion for research. The article makes clear that the government will be putting up considerably more money.

This is a huge amount to pay for research. At no point does the piece give any indication of how much of their own money, if any, the companies are putting up. Fans of the free market might be saying that if the government is paying the money, why on earth should the drug companies then have a patent monopoly?

But, reporters don’t seem interested in asking questions like this when the beneficiaries of government handouts are rich people (generally white). They generally are far more concerned about a few hundred dollars that might improperly be paid out to someone on food stamps rather than the hundreds of billions that the government hands out every year with its patent and copyright monopolies.

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