The NYT headlined an article on the drop in unemployment insurance claims, “Jobless claims near 42-year low as labor market tightens.” While it would be good news if fewer people were filing for unemployment insurance because they were not losing their jobs, this is only part of the story behind the drop in claims. Due to tighter restrictions on unemployment insurance, a much smaller share of the unemployed are eligible for benefits than in prior decades.
For example, in the most recent month, just under 2.2 million people were collecting benefits out of 7.9 million unemployed, which means that 29.1 percent of the unemployed were collected benefits. If we go back to November of 1973 (42 years ago), 1.7 million people were getting benefits out of unemployed population of 4.3 million, for a ratio of 39.5 percent.
Part of the drop in claims in recent years is due to the improvement in the labor market, but part of the decline is due to fewer people being eligible. One can debate whether the tighter restrictions are desirable, but this is clearly a separate issue from a tightening of the labor market.
The NYT headlined an article on the drop in unemployment insurance claims, “Jobless claims near 42-year low as labor market tightens.” While it would be good news if fewer people were filing for unemployment insurance because they were not losing their jobs, this is only part of the story behind the drop in claims. Due to tighter restrictions on unemployment insurance, a much smaller share of the unemployed are eligible for benefits than in prior decades.
For example, in the most recent month, just under 2.2 million people were collecting benefits out of 7.9 million unemployed, which means that 29.1 percent of the unemployed were collected benefits. If we go back to November of 1973 (42 years ago), 1.7 million people were getting benefits out of unemployed population of 4.3 million, for a ratio of 39.5 percent.
Part of the drop in claims in recent years is due to the improvement in the labor market, but part of the decline is due to fewer people being eligible. One can debate whether the tighter restrictions are desirable, but this is clearly a separate issue from a tightening of the labor market.
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I am going to do a bit of nitpicking on a Paul Krugman post on the Affordable Care Act (ACA). Krugman notes the continued progress of the ACA in reducing the number of uninsured and keeping costs down. Krugman basic points are right, the ACA is working and its opponents are determined to ignore its success.
The basis of the nitpick is that among the positive items, Krugman tells us that “the pool is getting younger.” The problem with this comment is that the age of the enrollees really does not matter much, what matters is their health. It’s true that on average young people have lower health care costs, but they also pay much lower premiums. The ratio of payments for the oldest group (ages 55-64) to the youngest is three to one for an average policy. The ratio of average costs is roughly 3.5 to 1.
This means that it matters somewhat for the ACA if the distribution skews older, but not very much. The Kaiser Family Foundation did the arithmetic a few years ago and found that even an extreme age skewing only raised costs by 2 percent. What matters much more is if there is a skewing by health. The difference in costs within each age group swamp the differences between age groups.
This matters because it is important to get a proper understanding of the progress of the ACA and what matters. I recall a few years ago talking with some twenty somethings who were saying that they didn’t plan to sign up for the exchanges. They were putting it as sort of a threat because they didn’t like the ACA. (They were single payer supporters — so am I.) I encouraged them to sign up because I thought it was good that they had insurance, but explained it was far more important if the 60-year-olds in good health sign up than if they did.
If this sounds strange, think of the premium as a tax that varies by age. There are large numbers of people of all ages with near zero health care expenses, but the older ones pay a tax that is three times as high as the younger ones pay. In this case, it clearly matters much more that we get the older healthy people into the pool than the younger ones.
Anyhow, this is a relatively small point, but people should be clear on what it is at issue. We should kill the “young invincible” myth for good.
I am going to do a bit of nitpicking on a Paul Krugman post on the Affordable Care Act (ACA). Krugman notes the continued progress of the ACA in reducing the number of uninsured and keeping costs down. Krugman basic points are right, the ACA is working and its opponents are determined to ignore its success.
The basis of the nitpick is that among the positive items, Krugman tells us that “the pool is getting younger.” The problem with this comment is that the age of the enrollees really does not matter much, what matters is their health. It’s true that on average young people have lower health care costs, but they also pay much lower premiums. The ratio of payments for the oldest group (ages 55-64) to the youngest is three to one for an average policy. The ratio of average costs is roughly 3.5 to 1.
This means that it matters somewhat for the ACA if the distribution skews older, but not very much. The Kaiser Family Foundation did the arithmetic a few years ago and found that even an extreme age skewing only raised costs by 2 percent. What matters much more is if there is a skewing by health. The difference in costs within each age group swamp the differences between age groups.
This matters because it is important to get a proper understanding of the progress of the ACA and what matters. I recall a few years ago talking with some twenty somethings who were saying that they didn’t plan to sign up for the exchanges. They were putting it as sort of a threat because they didn’t like the ACA. (They were single payer supporters — so am I.) I encouraged them to sign up because I thought it was good that they had insurance, but explained it was far more important if the 60-year-olds in good health sign up than if they did.
If this sounds strange, think of the premium as a tax that varies by age. There are large numbers of people of all ages with near zero health care expenses, but the older ones pay a tax that is three times as high as the younger ones pay. In this case, it clearly matters much more that we get the older healthy people into the pool than the younger ones.
Anyhow, this is a relatively small point, but people should be clear on what it is at issue. We should kill the “young invincible” myth for good.
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Eduardo Porter discusses the question of whether retirees will have sufficient income in twenty or thirty years. He points out that if no additional revenue is raised, Social Security will not be able to pay full scheduled benefits after 2034.
While this is true, it is important to note that this would have also been true in the 1940, 1950s, 1960s, and 1970s. If projections were made for Social Security that assumed no increase in the payroll tax in the future, there would have been a severe shortfall in the trust fund making it unable to pay full scheduled benefits.
We have now gone 25 years with no increase in the payroll tax, by far the longest such period since the program was created. With life expectancy continually increasing, it is inevitable that a fixed tax rate will eventually prove inadequate if the retirement age is not raised. (The age for full benefits has already been raised from 65 to 66 and will rise further to 67 by 2022, but no further increases are scheduled.)
The past increases in the Social Security tax have generally not imposed a large burden on workers because real wages rose. The Social Security trustees project average wages to rise by more than 50 percent over the next three decades. If most workers share in this wage growth, then the two or three percentage point tax increase that might be needed to keep the program fully funded would be a small fraction of the wage growth workers see over this period. Of course, if income gains continue to be redistributed upward, then any increase in the Social Security tax will be a large burden.
For this reason, Social Security should be seen first and foremost as part of the story of wage inequality. If workers get their share of the benefits of productivity growth then supporting a larger population of retirees will not be a problem. On the other hand, if the wealthy manage to prevent workers from benefiting from growth during their working lives, they will also likely prevent them from having a secure retirement.
Addendum:
Since folks asked, roughly 40 percent of the shortfall projected by the Social Security trustees would not be there if there had not been a massive upward redistribution of income over the last three decades. The story is here.
Eduardo Porter discusses the question of whether retirees will have sufficient income in twenty or thirty years. He points out that if no additional revenue is raised, Social Security will not be able to pay full scheduled benefits after 2034.
While this is true, it is important to note that this would have also been true in the 1940, 1950s, 1960s, and 1970s. If projections were made for Social Security that assumed no increase in the payroll tax in the future, there would have been a severe shortfall in the trust fund making it unable to pay full scheduled benefits.
We have now gone 25 years with no increase in the payroll tax, by far the longest such period since the program was created. With life expectancy continually increasing, it is inevitable that a fixed tax rate will eventually prove inadequate if the retirement age is not raised. (The age for full benefits has already been raised from 65 to 66 and will rise further to 67 by 2022, but no further increases are scheduled.)
The past increases in the Social Security tax have generally not imposed a large burden on workers because real wages rose. The Social Security trustees project average wages to rise by more than 50 percent over the next three decades. If most workers share in this wage growth, then the two or three percentage point tax increase that might be needed to keep the program fully funded would be a small fraction of the wage growth workers see over this period. Of course, if income gains continue to be redistributed upward, then any increase in the Social Security tax will be a large burden.
For this reason, Social Security should be seen first and foremost as part of the story of wage inequality. If workers get their share of the benefits of productivity growth then supporting a larger population of retirees will not be a problem. On the other hand, if the wealthy manage to prevent workers from benefiting from growth during their working lives, they will also likely prevent them from having a secure retirement.
Addendum:
Since folks asked, roughly 40 percent of the shortfall projected by the Social Security trustees would not be there if there had not been a massive upward redistribution of income over the last three decades. The story is here.
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By Cherrie Bucknor and Dean Baker
Those of us unhappy with the Fed rate hike this month frequently point to the sharp drop in employment rates (EPOP) compared with the pre-recession level. The overall employment rate (the percentage of the adult population with jobs) is still down by more than 3.0 percentage points from pre-recession peaks. Even if the unemployment rate is not far above the pre-recession level, there remains a very large gap in the percent of the population that is working. This doesn’t show up in the unemployment rate because many people have dropped out of the labor force and are not looking for work, and therefore are not counted as unemployed.
One response is that because of the aging of the population many baby boomers are now retired and have no interest in working. A way to get around this issue is to restrict the comparison to the prime age population, people between the ages of 25–54. These people are not likely to be retired. This gives us pretty much the same story: the EPOP for prime age workers was down by 2.9 percentage points in November compared with its peak pre-recession level.
The next argument is that we have many prime age workers who have dropped out because they don’t have the skills needed to find work in today’s economy. This one might seem peculiar because these workers apparently did have the skills back in 2007 and the economy has not changed that much in the last eight years. But we can also test this one fairly easily.
If the drop in labor force participation was explained by less-skilled workers leaving the labor force then we should see most of the drop in employment rate among less-educated workers, with little or no change in employment rates for more educated workers. That is not what the data show.
Source: Authors’ analysis of Current Population Survey.
As can be seen, the overall EPOP is lower than the EPOP for people with college or advanced degrees. It has also dropped the most, falling by 3.3 percentage points from its 2007 level and 4.8 percentage points from its 2000 level. But the EPOP for prime age workers with college degrees has also fallen sharply, dropping by 1.7 percentage points from its 2007 level and 2.7 percentage points from the 2000 level. Even people with advanced degrees have seen substantial drops in employment with a decline in their EPOP of 1.6 percentage points from 2007 and 2.9 percentage points from 2000.
What should we make of these drops in employment among the most highly educated workers? We could twist the skills argument and say that even though these people are highly educated, they got their degrees in the wrong areas. Or, we could just say that we have a serious shortfall in demand in the economy and that it is not showing up in the unemployment rate because so many people have given up looking for work.
Or, we could say that millions of prime age workers suddenly decided they would take a long vacation. A shortfall in demand seems more likely and the Fed’s rate hike does not help in this case.
By Cherrie Bucknor and Dean Baker
Those of us unhappy with the Fed rate hike this month frequently point to the sharp drop in employment rates (EPOP) compared with the pre-recession level. The overall employment rate (the percentage of the adult population with jobs) is still down by more than 3.0 percentage points from pre-recession peaks. Even if the unemployment rate is not far above the pre-recession level, there remains a very large gap in the percent of the population that is working. This doesn’t show up in the unemployment rate because many people have dropped out of the labor force and are not looking for work, and therefore are not counted as unemployed.
One response is that because of the aging of the population many baby boomers are now retired and have no interest in working. A way to get around this issue is to restrict the comparison to the prime age population, people between the ages of 25–54. These people are not likely to be retired. This gives us pretty much the same story: the EPOP for prime age workers was down by 2.9 percentage points in November compared with its peak pre-recession level.
The next argument is that we have many prime age workers who have dropped out because they don’t have the skills needed to find work in today’s economy. This one might seem peculiar because these workers apparently did have the skills back in 2007 and the economy has not changed that much in the last eight years. But we can also test this one fairly easily.
If the drop in labor force participation was explained by less-skilled workers leaving the labor force then we should see most of the drop in employment rate among less-educated workers, with little or no change in employment rates for more educated workers. That is not what the data show.
Source: Authors’ analysis of Current Population Survey.
As can be seen, the overall EPOP is lower than the EPOP for people with college or advanced degrees. It has also dropped the most, falling by 3.3 percentage points from its 2007 level and 4.8 percentage points from its 2000 level. But the EPOP for prime age workers with college degrees has also fallen sharply, dropping by 1.7 percentage points from its 2007 level and 2.7 percentage points from the 2000 level. Even people with advanced degrees have seen substantial drops in employment with a decline in their EPOP of 1.6 percentage points from 2007 and 2.9 percentage points from 2000.
What should we make of these drops in employment among the most highly educated workers? We could twist the skills argument and say that even though these people are highly educated, they got their degrees in the wrong areas. Or, we could just say that we have a serious shortfall in demand in the economy and that it is not showing up in the unemployment rate because so many people have given up looking for work.
Or, we could say that millions of prime age workers suddenly decided they would take a long vacation. A shortfall in demand seems more likely and the Fed’s rate hike does not help in this case.
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A NYT article on the uncertain politics in Spain following an election which left no obvious path to a majority government noted that the outcome was in large part a revolt against the austerity imposed on the country. There have been similar revolts in Greece and Portugal. The piece points out the popular discontent and tells readers:
“As the result in Greece showed, even anti-austerity parties have to answer to financial markets and balance national budgets, and the numbers are still deeply stacked against the policies of the old left and their heavy spending on welfare states.”
The countries of southern Europe actually had relatively less developed welfare states. The countries with heavy spending on welfare states are mostly in northern Europe. They have relatively small budget deficits and face extremely low interest rates in financial markets. The difference between these countries and the countries in southern Europe is that the latter collect less money in tax revenue.
It is also worth noting that, least in the case of Spain, the problems with deficits followed the crisis. Before 2008, the country was running budget surpluses and had a very low national debt.
It is also worth mentioning that it is not the financial markets that are constraining Spain and other southern European governments. The decision by Germany and other northern European countries to deliberately keep their rates of inflation very low is requiring the southern European countries to adjust trade imbalances through deflation and austerity.
If these countries still had their own currencies, they would simply allow the value to decline. Within a currency union, it would be expected that the surplus countries would share in the adjustment process by having moderately higher rates of inflation, but Germany and its followers have refused to accept this responsibility.
A NYT article on the uncertain politics in Spain following an election which left no obvious path to a majority government noted that the outcome was in large part a revolt against the austerity imposed on the country. There have been similar revolts in Greece and Portugal. The piece points out the popular discontent and tells readers:
“As the result in Greece showed, even anti-austerity parties have to answer to financial markets and balance national budgets, and the numbers are still deeply stacked against the policies of the old left and their heavy spending on welfare states.”
The countries of southern Europe actually had relatively less developed welfare states. The countries with heavy spending on welfare states are mostly in northern Europe. They have relatively small budget deficits and face extremely low interest rates in financial markets. The difference between these countries and the countries in southern Europe is that the latter collect less money in tax revenue.
It is also worth noting that, least in the case of Spain, the problems with deficits followed the crisis. Before 2008, the country was running budget surpluses and had a very low national debt.
It is also worth mentioning that it is not the financial markets that are constraining Spain and other southern European governments. The decision by Germany and other northern European countries to deliberately keep their rates of inflation very low is requiring the southern European countries to adjust trade imbalances through deflation and austerity.
If these countries still had their own currencies, they would simply allow the value to decline. Within a currency union, it would be expected that the surplus countries would share in the adjustment process by having moderately higher rates of inflation, but Germany and its followers have refused to accept this responsibility.
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This is what the NYT told readers in an article that reported Secretary Clinton wants to embrace her husband’s economic record as president. While the last four years of the Clinton presidency did have low unemployment and rising real wages for workers at the middle and bottom of the income distribution, these gains were driven by the demand generated by the stock bubble.
The bubble led to a surge of investment in high tech, as start-ups were using the money they could raise from issuing stock to finance their investment. (Generally companies first issue stock to allow the founders to cash out some of their profits.) The stock wealth generated by the bubble also led to a consumption boom as savings rate fell to what were at the time record lows.
While the bubble did produce a period of prosperity, its collapse was both inevitable and predictable. While the recession resulting from the crash is usually thought to have been short and mild, it actually led to what was at the time the longest period without job growth since the Great Depression. The economy did not gain back the jobs lost in the recession until January of 2005. At the time, the economy was being propelled by the housing bubble.
Clintonomics set the economy on this path of bubble driven growth through its engineering of the bailout from the East Asian financial crisis. The result of the bailout was a huge run-up in the dollar against other currencies. Developing countries, which had been borrowing capital, switched to become huge lenders of capital as they tried to accumulate all the reserves they could to protect themselves from facing a similar situation as the East Asian countries.
The direct result of the run-up in the dollar was an explosion in size of the U.S. trade deficit, as the over-valued dollar made U.S. produced goods and services less competitive in the world economy. The trade deficit has led to a huge gap in demand (now around $500 billion annually) which can be filled only by large budget deficits or bubble-driven growth.
It is striking that Secretary Clinton would embrace policies that have led to so much pain for large segments of the American public. This could hurt her prospects in getting the nomination or winning the general election.
This is what the NYT told readers in an article that reported Secretary Clinton wants to embrace her husband’s economic record as president. While the last four years of the Clinton presidency did have low unemployment and rising real wages for workers at the middle and bottom of the income distribution, these gains were driven by the demand generated by the stock bubble.
The bubble led to a surge of investment in high tech, as start-ups were using the money they could raise from issuing stock to finance their investment. (Generally companies first issue stock to allow the founders to cash out some of their profits.) The stock wealth generated by the bubble also led to a consumption boom as savings rate fell to what were at the time record lows.
While the bubble did produce a period of prosperity, its collapse was both inevitable and predictable. While the recession resulting from the crash is usually thought to have been short and mild, it actually led to what was at the time the longest period without job growth since the Great Depression. The economy did not gain back the jobs lost in the recession until January of 2005. At the time, the economy was being propelled by the housing bubble.
Clintonomics set the economy on this path of bubble driven growth through its engineering of the bailout from the East Asian financial crisis. The result of the bailout was a huge run-up in the dollar against other currencies. Developing countries, which had been borrowing capital, switched to become huge lenders of capital as they tried to accumulate all the reserves they could to protect themselves from facing a similar situation as the East Asian countries.
The direct result of the run-up in the dollar was an explosion in size of the U.S. trade deficit, as the over-valued dollar made U.S. produced goods and services less competitive in the world economy. The trade deficit has led to a huge gap in demand (now around $500 billion annually) which can be filled only by large budget deficits or bubble-driven growth.
It is striking that Secretary Clinton would embrace policies that have led to so much pain for large segments of the American public. This could hurt her prospects in getting the nomination or winning the general election.
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It’s hardly a surprise to see a column in the Washington Post opinion pages calling for lower federal budget deficits. In spite of the continued weakness of the labor market and the economy, the Washington Post continues to push for less demand, growth, and employment.
Fred Hiatt did the job today by praising Rhode Island Governor Gina Raimondo for cutting public employee pensions, and contrasting these cuts with increased tax cuts and spending at the federal level. Hiatt’s complaint is that Congress agreed to extend tax cuts, which with interest are projected to cost $780 billion over the next decade. This comes to roughly 0.4 percent of GDP over this period.
In a context where the economy is likely to face a shortfall in demand, this addition to the deficit will lead to more growth and jobs, although its impact would be larger if more of the money were committed to items like education and infrastructure or the tax cuts went to lower or middle income people. Assuming a multiplier of 1, the addition to GDP would be approximately 0.4 percent of GDP, implying around 500,000 more jobs. (If the Fed is deliberately blocking growth by raising interest rates, then the tax cuts will not boost growth.)
It is also worth noting that Raimondo’s pension strategy in Rhode Island has meant a windfall for hedge funds, which are now collecting substantial fees from the state’s pension funds. While the Washington Post is generally happy to see cuts to ordinary workers’ pensions and Social Security, it consistently applauds actions, such as the TARP, which give public money to the financial sector.
It’s hardly a surprise to see a column in the Washington Post opinion pages calling for lower federal budget deficits. In spite of the continued weakness of the labor market and the economy, the Washington Post continues to push for less demand, growth, and employment.
Fred Hiatt did the job today by praising Rhode Island Governor Gina Raimondo for cutting public employee pensions, and contrasting these cuts with increased tax cuts and spending at the federal level. Hiatt’s complaint is that Congress agreed to extend tax cuts, which with interest are projected to cost $780 billion over the next decade. This comes to roughly 0.4 percent of GDP over this period.
In a context where the economy is likely to face a shortfall in demand, this addition to the deficit will lead to more growth and jobs, although its impact would be larger if more of the money were committed to items like education and infrastructure or the tax cuts went to lower or middle income people. Assuming a multiplier of 1, the addition to GDP would be approximately 0.4 percent of GDP, implying around 500,000 more jobs. (If the Fed is deliberately blocking growth by raising interest rates, then the tax cuts will not boost growth.)
It is also worth noting that Raimondo’s pension strategy in Rhode Island has meant a windfall for hedge funds, which are now collecting substantial fees from the state’s pension funds. While the Washington Post is generally happy to see cuts to ordinary workers’ pensions and Social Security, it consistently applauds actions, such as the TARP, which give public money to the financial sector.
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Brad posted a short note commenting on my paper on rents as the basis for upward redistribution in the last thirty five years. The paper outlines ways in which rents in various areas can explain this upward redistribution, as opposed to the sort of argument advanced by Thomas Piketty that it is some natural process that is inherent to capitalism.
Brad suggested that Piketty would respond by saying that the beneficiaries of this upward redistribution are behind the mechanisms (e.g. stronger and longer patent protection and a bloated financial sector) that have led to this upward redistribution. I agree that this is likely Piketty’s response, but I would raise two points.
First, do we believe that all of these mechanisms were somehow preordained? Was it inevitable that we would have TRIPS, extending and strengthening patent and copyright protection throughout the world? Was there no way to avoid the financial deregulation that gave us too big to fail banks and an explosion of short-term trading and proliferation of new financial instruments? We can look back and know who won these battles, but surely it was possible that some or most of them could have gone the other way.
The other point is how we envision political battles going forward. We know the rich will fight any policy that jeopardizes their wealth and power, but let’s consider two scenarios. On the one hand, we have policies that give shareholders more power to contain CEO pay and proposals to publicly fund clinical trials so that new drugs can be put on the market at generic prices. On the other hand we have a proposal for a global tax on wealth. Which direction has better prospects?
Addendum
Joe Seydl raises a good question in his comment, asking: “who are the selfless activists who are supposed to continuously keep competiton fair?”
The answer is that I am not expecting anyone to be a selfless activist. I am expecting people to act in their own interest. The pharmaceutical companies rip people off by getting longer and stronger patent protection. Doctors rip people off by creating protectionists barriers that restrict supply. The financial industry rips people off on the fees they charge to manage pensions, IRAs, and 401(k)s, and CEOs rip off shareholders by paying themselves exorbitant salaries.
This is not a story that requires selfless activists, but there is a collective action problem. For example, people paying more money for their health care due to high doctors’ pay have to act to remove the protections that get them high pay. The shareholders being ripped off by CEOs have to act to check CEO pay.
Collective action problems are difficult, but the other side has managed to overcome them. They have been able to reduce or eliminate trade barriers that allowed U.S. manufacturing workers to enjoy relatively high wages. The same story applies to the reduction or elimination of agricultural subsidies that have supported small farmers.
The problem for progressives is figuring out how to mobilize people who have a direct stake in leading the efforts to rein in abuses. In the case of the drug companies, the insurance industry would be an obvious suspect. In the case of doctors, nurses and other health care professionals who could do many of the tasks that doctors try to preserve for themselves, would be an obvious group. Also foreign educated physicians who are excluded from the U.S. could make an appeal to all the “free traders” who consider any protectionist barrier a crime against humanity if the beneficiary is a less-educated workers. (Yes, these people are pathetic hypocrites.)
Anyhow, the point of the rent argument is that there is money on the table. We just have to get people to notice the money so that they will take it.
Brad posted a short note commenting on my paper on rents as the basis for upward redistribution in the last thirty five years. The paper outlines ways in which rents in various areas can explain this upward redistribution, as opposed to the sort of argument advanced by Thomas Piketty that it is some natural process that is inherent to capitalism.
Brad suggested that Piketty would respond by saying that the beneficiaries of this upward redistribution are behind the mechanisms (e.g. stronger and longer patent protection and a bloated financial sector) that have led to this upward redistribution. I agree that this is likely Piketty’s response, but I would raise two points.
First, do we believe that all of these mechanisms were somehow preordained? Was it inevitable that we would have TRIPS, extending and strengthening patent and copyright protection throughout the world? Was there no way to avoid the financial deregulation that gave us too big to fail banks and an explosion of short-term trading and proliferation of new financial instruments? We can look back and know who won these battles, but surely it was possible that some or most of them could have gone the other way.
The other point is how we envision political battles going forward. We know the rich will fight any policy that jeopardizes their wealth and power, but let’s consider two scenarios. On the one hand, we have policies that give shareholders more power to contain CEO pay and proposals to publicly fund clinical trials so that new drugs can be put on the market at generic prices. On the other hand we have a proposal for a global tax on wealth. Which direction has better prospects?
Addendum
Joe Seydl raises a good question in his comment, asking: “who are the selfless activists who are supposed to continuously keep competiton fair?”
The answer is that I am not expecting anyone to be a selfless activist. I am expecting people to act in their own interest. The pharmaceutical companies rip people off by getting longer and stronger patent protection. Doctors rip people off by creating protectionists barriers that restrict supply. The financial industry rips people off on the fees they charge to manage pensions, IRAs, and 401(k)s, and CEOs rip off shareholders by paying themselves exorbitant salaries.
This is not a story that requires selfless activists, but there is a collective action problem. For example, people paying more money for their health care due to high doctors’ pay have to act to remove the protections that get them high pay. The shareholders being ripped off by CEOs have to act to check CEO pay.
Collective action problems are difficult, but the other side has managed to overcome them. They have been able to reduce or eliminate trade barriers that allowed U.S. manufacturing workers to enjoy relatively high wages. The same story applies to the reduction or elimination of agricultural subsidies that have supported small farmers.
The problem for progressives is figuring out how to mobilize people who have a direct stake in leading the efforts to rein in abuses. In the case of the drug companies, the insurance industry would be an obvious suspect. In the case of doctors, nurses and other health care professionals who could do many of the tasks that doctors try to preserve for themselves, would be an obvious group. Also foreign educated physicians who are excluded from the U.S. could make an appeal to all the “free traders” who consider any protectionist barrier a crime against humanity if the beneficiary is a less-educated workers. (Yes, these people are pathetic hypocrites.)
Anyhow, the point of the rent argument is that there is money on the table. We just have to get people to notice the money so that they will take it.
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