• Economic Crisis and RecoveryCrisis económica y recuperaciónEconomic GrowthEl DesarolloInequalityLa DesigualdadUnited StatesEE. UU.
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Okay, that’s not exactly what the NYT told us. A piece, headlined “The Medicine is a Miracle, but only if You Can Afford It,” told readers how patients struggle to pay for drugs that sell for tens, or even hundreds, of thousands a dollars a year. The piece describes people taking out GoFundMe pages or seeking out foundations that would pay for treatments that can improve their health and/or save their lives.
While the piece tells us that drug companies invest lots of money in developing these drugs or treatments, it neglects to mention that the we could eliminate this problem if we simply paid for the research up front. This would mean having the government pick up the tab for the research, as it already does with over $50 billion a year of funding to the National Institutes of Health, and then having all new drugs and treatments available as cheap generics. In that situation, we would not be forcing people with serious illnesses to run around begging for money to get effective treatments.
Okay, that’s not exactly what the NYT told us. A piece, headlined “The Medicine is a Miracle, but only if You Can Afford It,” told readers how patients struggle to pay for drugs that sell for tens, or even hundreds, of thousands a dollars a year. The piece describes people taking out GoFundMe pages or seeking out foundations that would pay for treatments that can improve their health and/or save their lives.
While the piece tells us that drug companies invest lots of money in developing these drugs or treatments, it neglects to mention that the we could eliminate this problem if we simply paid for the research up front. This would mean having the government pick up the tab for the research, as it already does with over $50 billion a year of funding to the National Institutes of Health, and then having all new drugs and treatments available as cheap generics. In that situation, we would not be forcing people with serious illnesses to run around begging for money to get effective treatments.
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• HealthcareIntellectual PropertyPropiedad IntelectualUnited StatesEE. UU.
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• Affordable Care ActHealth and Social ProgramsLos Programas Sociales y de SaludHealthcareSocial SecurityUnited StatesEE. UU.
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In the last year or so there have been many people who complained about China’s “vaccine nationalism.” This generally meant the country refused to approve the U.S. mRNA vaccines. The claim was that our mRNA vaccines were far superior to China’s old-fashioned dead virus vaccines. The argument went that the country needed to maintain its zero Covid policy, otherwise, the pandemic would devastate its unprotected population.
Well, we have now gotten the opportunity to test that claim. There is little doubt that the abrupt ending of pandemic restrictions led to much death and suffering in China. The government is not being open about the pandemic toll, but even the high-end estimates put the number of deaths at around 1 million.
That is a terrible number of lives lost, but the official count in the U.S. is over 1.1 million deaths. The number of Covid-related excess deaths that were not recorded would push this figure at least 200,000 higher. With four times the population, if China were to be similarly hard-hit it would be seeing well over 5 million deaths.
The current omicron strain is less fatal than the original alpha and delta strains, but plenty of people, including vaccinated people, have died from the omicron strain. Clearly the Chinese vaccines have done a reasonably job protecting China’s population.
We didn’t need this gigantic test to know that China’s vaccines were effective. We actually had some good data from studies that compared the effectiveness of China’s vaccines with the mRNA vaccines. While one study found that the Chinese vaccines were somewhat less effective, they still would prevent the overwhelming majority of the population from getting seriously ill from the disease. The other study found that with a booster shot, one of the Chinese vaccines was actually trivially more effective in preventing death in older people.
The major issue with China was not that it lacked an effective vaccine, its biggest problem in coping with the opening of the country was its failure to get much of its elderly population fully vaccinated and boosted. It’s not clear that President Xi gave a damn about the advice he was getting from our elite policy types, but their complaint that vaccine nationalism was keeping him from buying our mRNA vaccines was nonsense.
If they wanted to give useful advice to Xi, they would have harped on his failure to get China’s elderly population fully vaccinated. This is something that could have in principle been remedied fairly quickly. The idea of quickly shipping over billions of doses of Pfizer or Moderna’s vaccines was the sort of thing that would be laughed at anywhere other than the pages of the Washington Post.
Furthermore, the obsession with mRNA vaccines is incredibly silly. There are a number of non-mRNA vaccines that have been widely administered to billions of people around the world, providing protection that is comparable to the mRNA vaccines. Most notable in this category is the Oxford-AstraZeneca vaccine, which was widely used in Europe. Our elite policy types have not felt the need to denounce European countries for vaccine nationalism for their failure to ensure that their populations received a mRNA vaccine.
The fact is that we have done a horrible job dealing with the pandemic. Our policy was always more focused on making Moderna billionaires than protecting people here and around the world from the pandemic. If saving lives had been the focus of policy we would have worked together with researchers around the world (including China), pooling technology and allowing anyone anywhere in the world to produce any vaccines that were determined to be effective. Not only would more rapid dispersion of vaccines, along with tests and treatments, have saved lives in developing countries, by slowing the spread it may have prevented the development of new strains of the pandemic that led to massive waves of infections here.
And, just to be clear, this is not a question of relying on the market rather than government. In spite of what we hear from the policy types who dominate public debate, government-granted patent monopolies, and related forms of intellectual property, are not the free market. These are policies that we have chosen for promoting innovation, they do not amount to leaving things to the market, even if their beneficiaries would like us to believe otherwise.
In the last year or so there have been many people who complained about China’s “vaccine nationalism.” This generally meant the country refused to approve the U.S. mRNA vaccines. The claim was that our mRNA vaccines were far superior to China’s old-fashioned dead virus vaccines. The argument went that the country needed to maintain its zero Covid policy, otherwise, the pandemic would devastate its unprotected population.
Well, we have now gotten the opportunity to test that claim. There is little doubt that the abrupt ending of pandemic restrictions led to much death and suffering in China. The government is not being open about the pandemic toll, but even the high-end estimates put the number of deaths at around 1 million.
That is a terrible number of lives lost, but the official count in the U.S. is over 1.1 million deaths. The number of Covid-related excess deaths that were not recorded would push this figure at least 200,000 higher. With four times the population, if China were to be similarly hard-hit it would be seeing well over 5 million deaths.
The current omicron strain is less fatal than the original alpha and delta strains, but plenty of people, including vaccinated people, have died from the omicron strain. Clearly the Chinese vaccines have done a reasonably job protecting China’s population.
We didn’t need this gigantic test to know that China’s vaccines were effective. We actually had some good data from studies that compared the effectiveness of China’s vaccines with the mRNA vaccines. While one study found that the Chinese vaccines were somewhat less effective, they still would prevent the overwhelming majority of the population from getting seriously ill from the disease. The other study found that with a booster shot, one of the Chinese vaccines was actually trivially more effective in preventing death in older people.
The major issue with China was not that it lacked an effective vaccine, its biggest problem in coping with the opening of the country was its failure to get much of its elderly population fully vaccinated and boosted. It’s not clear that President Xi gave a damn about the advice he was getting from our elite policy types, but their complaint that vaccine nationalism was keeping him from buying our mRNA vaccines was nonsense.
If they wanted to give useful advice to Xi, they would have harped on his failure to get China’s elderly population fully vaccinated. This is something that could have in principle been remedied fairly quickly. The idea of quickly shipping over billions of doses of Pfizer or Moderna’s vaccines was the sort of thing that would be laughed at anywhere other than the pages of the Washington Post.
Furthermore, the obsession with mRNA vaccines is incredibly silly. There are a number of non-mRNA vaccines that have been widely administered to billions of people around the world, providing protection that is comparable to the mRNA vaccines. Most notable in this category is the Oxford-AstraZeneca vaccine, which was widely used in Europe. Our elite policy types have not felt the need to denounce European countries for vaccine nationalism for their failure to ensure that their populations received a mRNA vaccine.
The fact is that we have done a horrible job dealing with the pandemic. Our policy was always more focused on making Moderna billionaires than protecting people here and around the world from the pandemic. If saving lives had been the focus of policy we would have worked together with researchers around the world (including China), pooling technology and allowing anyone anywhere in the world to produce any vaccines that were determined to be effective. Not only would more rapid dispersion of vaccines, along with tests and treatments, have saved lives in developing countries, by slowing the spread it may have prevented the development of new strains of the pandemic that led to massive waves of infections here.
And, just to be clear, this is not a question of relying on the market rather than government. In spite of what we hear from the policy types who dominate public debate, government-granted patent monopolies, and related forms of intellectual property, are not the free market. These are policies that we have chosen for promoting innovation, they do not amount to leaving things to the market, even if their beneficiaries would like us to believe otherwise.
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• Economic Crisis and RecoveryCrisis económica y recuperaciónEconomic GrowthEl DesarolloJobsTrabajosUnited StatesEE. UU.
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• IMFFondo Monetario InternacionalMediaWorldEl Mundo
Maybe you have some idea, but I sure as hell don’t. I was struck by seeing this number in a column on why the birth rate in South Korea has declined so much. While it is a very interesting column, this sentence left me scratching my head:
Over 16 years, 280 trillion won ($210 billion) has been poured into programs encouraging procreation, such as a monthly allowance for parents of newborns.
I suspect I have more knowledge of Korea’s economy than most NYT readers, but offhand I really had no idea of how large a commitment this spending is. I had to go to the IMF’s website and find that Korea’s GDP over the last sixteen years has been $22.9 trillion, which puts this spending at a bit more than 0.9 percent of GDP.
This would be the equivalent of around $2 trillion in spending in the United States, which is a pretty sizable commitment. It would have been useful if the NYT had insisted that the number be expressed as a share of GDP or personal income or some measure that would be meaningful to a substantial portion of its readers.
As it is, I doubt that almost any NYT reader had much sense of whether this money was a big or small commitment. Presumably, the intent was to convey information to readers. This figure did not.
Maybe you have some idea, but I sure as hell don’t. I was struck by seeing this number in a column on why the birth rate in South Korea has declined so much. While it is a very interesting column, this sentence left me scratching my head:
Over 16 years, 280 trillion won ($210 billion) has been poured into programs encouraging procreation, such as a monthly allowance for parents of newborns.
I suspect I have more knowledge of Korea’s economy than most NYT readers, but offhand I really had no idea of how large a commitment this spending is. I had to go to the IMF’s website and find that Korea’s GDP over the last sixteen years has been $22.9 trillion, which puts this spending at a bit more than 0.9 percent of GDP.
This would be the equivalent of around $2 trillion in spending in the United States, which is a pretty sizable commitment. It would have been useful if the NYT had insisted that the number be expressed as a share of GDP or personal income or some measure that would be meaningful to a substantial portion of its readers.
As it is, I doubt that almost any NYT reader had much sense of whether this money was a big or small commitment. Presumably, the intent was to convey information to readers. This figure did not.
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The New York Times had an interesting article on how the drug company AbbVie made billions of dollars on the arthritis drug Humira by exploiting the patent system. AbbVie’s strategy was to file hundreds of patents on Humira, long after the drug had already been brought to market. This meant that even after its main patents had expired it would still have other patents that were still in effect.
The legal status of these secondary patents may have been dubious, but the company was prepared to spend large amounts of money suing potential generic competitors for patent infringement. This threat was sufficiently credible to get competitors to agree to delay entry for many years, and also to pay a licensing fee after they did enter the market.
This is now a common pattern for drug companies to protect their blockbuster drugs. There is a fundamental asymmetry in contesting infringement lawsuits.
The patent holder is suing to maintain a patent that allows it to sell its drug at the monopoly price. The potential generic competitor is trying to get the right to sell a drug at the free market price. Since there is so much more money at stake for the patent holder, it can profitably deploy far more resources to press its case than a generic competitor. That is why it is common for potential generic competitors to agree to delaying entry or just give up altogether.
This is the sort of corruption that economics predicts will result from government-granted patent monopolies.
The New York Times had an interesting article on how the drug company AbbVie made billions of dollars on the arthritis drug Humira by exploiting the patent system. AbbVie’s strategy was to file hundreds of patents on Humira, long after the drug had already been brought to market. This meant that even after its main patents had expired it would still have other patents that were still in effect.
The legal status of these secondary patents may have been dubious, but the company was prepared to spend large amounts of money suing potential generic competitors for patent infringement. This threat was sufficiently credible to get competitors to agree to delay entry for many years, and also to pay a licensing fee after they did enter the market.
This is now a common pattern for drug companies to protect their blockbuster drugs. There is a fundamental asymmetry in contesting infringement lawsuits.
The patent holder is suing to maintain a patent that allows it to sell its drug at the monopoly price. The potential generic competitor is trying to get the right to sell a drug at the free market price. Since there is so much more money at stake for the patent holder, it can profitably deploy far more resources to press its case than a generic competitor. That is why it is common for potential generic competitors to agree to delaying entry or just give up altogether.
This is the sort of corruption that economics predicts will result from government-granted patent monopolies.
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• Economic Crisis and RecoveryCrisis económica y recuperaciónEconomic GrowthEl DesarolloInflationUnited StatesEE. UU.
While the media keep touting the prospects for a recession, it is difficult to see why there would be one in the immediate future. To start with the basic picture, growth in the fourth quarter was a very solid 2.9 percent, following a slightly stronger 3.1 percent in the third quarter. This is very far from the negative growth we see in a recession.
When we look at the individual components, the picture is somewhat mixed. Inventory accumulation accounted for half the growth, adding 1.46 percentage points to growth in the quarter. This obviously will not be sustained, and after the rapid growth in the fourth quarter, we are likely to see inventories as a drag on growth in future quarters.
However, the flip side is that some of the items dragging growth down in the fourth quarter will have less of a negative impact in future quarters. Housing stands out here, and the drop in residential investment knocked 1.29 percentage points off the quarter’s growth, after lowering third-quarter growth by 1.42 percentage points.
The reason for thinking the hit to growth will be much smaller in future quarters is that housing has already fallen so far. The 1.38 million rate of starts in December is roughly the same as the pre-pandemic pace. The December figure was only a small drop from the November rate, so the rapid plunges of the summer and fall seem to be behind us for the moment.
New home sales actually rose slightly in the last two months. And, with vacancy rates still near historic lows, it’s hard to envision builders cutting back on construction much further from what is already a slow pace of construction. In addition, mortgage interest rates have been falling in the last couple of months and are likely to fall further, barring a big hawkish turn by the Fed.
Another bright spot for housing is that mortgage refinancing has fallen to almost zero. The costs associated with refinancing a mortgage count as residential investment. The plunge in refinancing and new mortgages accounted for 34.6 percent of the decline in residential investment over the last year.
Non-residential investment is also likely to look better in future quarters. It rose at just a 0.7 percent annual rate in the fourth quarter. It was held down by a 3.7 percent drop in equipment investment. This component will likely turn around in 2023 due to a surge in airplane orders.
Structure investment seems to also be turning upward. There was a sharp falloff in most categories of structure investment in the pandemic, especially office buildings and hotels. These components seem to have hit bottom. A recent surge in factory construction is likely to pull this component further into positive territory in 2023. Overall structure investment grew at a 0.4 percent rate in the fourth quarter.
Consumption is the bulk of the story for GDP, and here we should see a picture of continuing modest growth. Consumption grew at a 2.1 percent rate in the fourth quarter, nearly identical to the 2.0 percent rate of the second quarter and 2.3 percent rate of the third quarter.
The data on unemployment claims indicate we are not seeing any noticeable jump in unemployment, in spite of some large layoff announcements. With a healthy pace of job growth and rising real wages, there is no reason to expect any sharp downturn in consumption.
This stable growth rate has gone along with a rebalancing of consumption back to services after a sharp rise in goods consumption during the pandemic. Goods consumption rose at a 1.1 percent annual rate in the fourth quarter after declining in the prior three quarters. Services rose at a 2.6 percent annual rate.
The share of goods consumption in GDP is still roughly 2.0 percentage points above its pre-pandemic level. It is likely to continue to decline modestly, with the growth in services more than offsetting it and keeping overall consumption growth in positive territory.
The drop in goods consumption will also have the benefit of leading to a smaller trade deficit. After rising sharply during the pandemic, the trade deficit has been decreasing for the last three quarters. As we see less demand for consumption goods, and also a reduction in the pace of inventory accumulation, we should see further declines in imports in 2023.
The dollar has also been dropping in the last couple of months, losing close to 10 percent of its value against the euro and other major currencies. While the dollar is still well above its pre-pandemic level, the recent drop in the dollar should help to reduce the trade deficit by making U.S. goods and services more competitive.
In addition, the fact that Europe’s economy is looking better than had been generally expected, and that China’s economy is now largely reopened, should be a boost to U.S. exports. Together, these factors should mean that the trade deficit continues to shrink and be a positive factor in growth.
The most recent data also suggest continued improvement on inflation. The core PCE rose at a 3.9 percent rate in Q4, down from 4.7 percent in Q3. This is still well above the Fed’s 2.0 percent target, but we know that rental inflation will be slowing sharply in the coming months, which will be a huge factor in lowering the core inflation rate.
Also, the fourth quarter GDP report provided more evidence to support the view that wage growth is moderating. Total labor compensation grew at a 4.9 percent annual rate in the fourth quarter. If we assume that hours grew at a 1.5 percent rate, that translates into a 3.4 percent pace of growth in average hourly compensation. This would be very much consistent with the Fed’s 2.0 percent target.
This is especially true with productivity growth in the range of 1.5 percent. After falling in the first half of 2022, productivity grew at a modest 0.8 percent rate in the third quarter. If hours growth comes to around 1.5 percent (the index of aggregate hours increased at a 1.1 percent rate, but there was a sharp rise in reported self-employment), then productivity growth should be close to 1.5 percent in the quarter.
Compared to the falling productivity in the first half, even a modest pace of positive growth will go far toward alleviating inflationary pressure. And of course, with modest positive productivity growth, we can sustain a modest rate of real wage growth without causing inflation.
In short, the world is looking good, we just have to keep the Fed from messing it up.
While the media keep touting the prospects for a recession, it is difficult to see why there would be one in the immediate future. To start with the basic picture, growth in the fourth quarter was a very solid 2.9 percent, following a slightly stronger 3.1 percent in the third quarter. This is very far from the negative growth we see in a recession.
When we look at the individual components, the picture is somewhat mixed. Inventory accumulation accounted for half the growth, adding 1.46 percentage points to growth in the quarter. This obviously will not be sustained, and after the rapid growth in the fourth quarter, we are likely to see inventories as a drag on growth in future quarters.
However, the flip side is that some of the items dragging growth down in the fourth quarter will have less of a negative impact in future quarters. Housing stands out here, and the drop in residential investment knocked 1.29 percentage points off the quarter’s growth, after lowering third-quarter growth by 1.42 percentage points.
The reason for thinking the hit to growth will be much smaller in future quarters is that housing has already fallen so far. The 1.38 million rate of starts in December is roughly the same as the pre-pandemic pace. The December figure was only a small drop from the November rate, so the rapid plunges of the summer and fall seem to be behind us for the moment.
New home sales actually rose slightly in the last two months. And, with vacancy rates still near historic lows, it’s hard to envision builders cutting back on construction much further from what is already a slow pace of construction. In addition, mortgage interest rates have been falling in the last couple of months and are likely to fall further, barring a big hawkish turn by the Fed.
Another bright spot for housing is that mortgage refinancing has fallen to almost zero. The costs associated with refinancing a mortgage count as residential investment. The plunge in refinancing and new mortgages accounted for 34.6 percent of the decline in residential investment over the last year.
Non-residential investment is also likely to look better in future quarters. It rose at just a 0.7 percent annual rate in the fourth quarter. It was held down by a 3.7 percent drop in equipment investment. This component will likely turn around in 2023 due to a surge in airplane orders.
Structure investment seems to also be turning upward. There was a sharp falloff in most categories of structure investment in the pandemic, especially office buildings and hotels. These components seem to have hit bottom. A recent surge in factory construction is likely to pull this component further into positive territory in 2023. Overall structure investment grew at a 0.4 percent rate in the fourth quarter.
Consumption is the bulk of the story for GDP, and here we should see a picture of continuing modest growth. Consumption grew at a 2.1 percent rate in the fourth quarter, nearly identical to the 2.0 percent rate of the second quarter and 2.3 percent rate of the third quarter.
The data on unemployment claims indicate we are not seeing any noticeable jump in unemployment, in spite of some large layoff announcements. With a healthy pace of job growth and rising real wages, there is no reason to expect any sharp downturn in consumption.
This stable growth rate has gone along with a rebalancing of consumption back to services after a sharp rise in goods consumption during the pandemic. Goods consumption rose at a 1.1 percent annual rate in the fourth quarter after declining in the prior three quarters. Services rose at a 2.6 percent annual rate.
The share of goods consumption in GDP is still roughly 2.0 percentage points above its pre-pandemic level. It is likely to continue to decline modestly, with the growth in services more than offsetting it and keeping overall consumption growth in positive territory.
The drop in goods consumption will also have the benefit of leading to a smaller trade deficit. After rising sharply during the pandemic, the trade deficit has been decreasing for the last three quarters. As we see less demand for consumption goods, and also a reduction in the pace of inventory accumulation, we should see further declines in imports in 2023.
The dollar has also been dropping in the last couple of months, losing close to 10 percent of its value against the euro and other major currencies. While the dollar is still well above its pre-pandemic level, the recent drop in the dollar should help to reduce the trade deficit by making U.S. goods and services more competitive.
In addition, the fact that Europe’s economy is looking better than had been generally expected, and that China’s economy is now largely reopened, should be a boost to U.S. exports. Together, these factors should mean that the trade deficit continues to shrink and be a positive factor in growth.
The most recent data also suggest continued improvement on inflation. The core PCE rose at a 3.9 percent rate in Q4, down from 4.7 percent in Q3. This is still well above the Fed’s 2.0 percent target, but we know that rental inflation will be slowing sharply in the coming months, which will be a huge factor in lowering the core inflation rate.
Also, the fourth quarter GDP report provided more evidence to support the view that wage growth is moderating. Total labor compensation grew at a 4.9 percent annual rate in the fourth quarter. If we assume that hours grew at a 1.5 percent rate, that translates into a 3.4 percent pace of growth in average hourly compensation. This would be very much consistent with the Fed’s 2.0 percent target.
This is especially true with productivity growth in the range of 1.5 percent. After falling in the first half of 2022, productivity grew at a modest 0.8 percent rate in the third quarter. If hours growth comes to around 1.5 percent (the index of aggregate hours increased at a 1.1 percent rate, but there was a sharp rise in reported self-employment), then productivity growth should be close to 1.5 percent in the quarter.
Compared to the falling productivity in the first half, even a modest pace of positive growth will go far toward alleviating inflationary pressure. And of course, with modest positive productivity growth, we can sustain a modest rate of real wage growth without causing inflation.
In short, the world is looking good, we just have to keep the Fed from messing it up.
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