The Washington Post ran a column by Steven Woloshin and Lisa Schwartz complaining about drug companies inventing diseases to market their products for unapproved uses. The immediate target is the marketing campaign for testosterone supplements to treat “Low-T.” Low-T comes down to a set of symptoms that are essentially those associated with aging. Aging cannot be treated effectively with testosterone supplements.
While the column calls for more effective regulation from the Food and Drug Administration, the underlying problem are patent monopolies that allow companies to make enormous profits by pushing their drugs for unapproved uses. When a patent monopoly provides such incredible incentives (patent protected drugs can sell for prices that are several thousand percent above the free market price), it is unrealistic to think that government regulation will be effective in changing behavior.
This is like the Soviet Union trying to prevent people from selling blue jeans on the black market. It didn’t work. In the case of patent protected drugs, the incentives are much larger. And, the health costs can be enormous, since the drugs being pushed may actually be harmful.
The Washington Post ran a column by Steven Woloshin and Lisa Schwartz complaining about drug companies inventing diseases to market their products for unapproved uses. The immediate target is the marketing campaign for testosterone supplements to treat “Low-T.” Low-T comes down to a set of symptoms that are essentially those associated with aging. Aging cannot be treated effectively with testosterone supplements.
While the column calls for more effective regulation from the Food and Drug Administration, the underlying problem are patent monopolies that allow companies to make enormous profits by pushing their drugs for unapproved uses. When a patent monopoly provides such incredible incentives (patent protected drugs can sell for prices that are several thousand percent above the free market price), it is unrealistic to think that government regulation will be effective in changing behavior.
This is like the Soviet Union trying to prevent people from selling blue jeans on the black market. It didn’t work. In the case of patent protected drugs, the incentives are much larger. And, the health costs can be enormous, since the drugs being pushed may actually be harmful.
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Paul Krugman questions whether there is an existence of positive relationship between equality and growth. He rightly cautions those on the left against being too quick to accept the existence of such a relationship.
He uses a simple graph showing the relationship between inequality and growth per working age person in the years 1985 to 2007. His takeaway is that there is not much of a positive relationship, but there clearly is no negative relationship between equality and growth. In other words, the people who argue that we need to have more inequality to support stronger growth have a hard case to make using this simple comparison.
I would suggest taking the analysis one step further. One big difference between countries over this period is the extent to which they opted to take the benefits from growth in more leisure time. There are large differences in the decline in the length of the average work year across countries.
Using the OECD data (which is not perfect for international comparisons) we find that relatively equal France saw a decline in average work hours of 10.2 percent over this period. Denmark had a decline of 5.3 percent, and West Germany had a drop of 15.9 percent. These would translate into annual increases in GDP per potential work hour of 0.5, 0.2, and 0.8 percentage points, respectively.
By contrast, in the relatively unequal U.K. the drop in average hours was 4.7 percent, in Canada 3.1 percent, and in the U.S. 2.2 percent. These translates in gains in annual GDP per potential hour worked of 0.2, 0.1, and 0.1 percentage points, respectively.
Would looking at GDP per potential hour worked strengthen the positive correlation between equality and growth? I don’t have time to check that one just now, but a quick eyeballing of the data suggests that it is possible. This still would not be conclusive evidence that equality is good for growth, but it would be interesting. And, it is an important reminder that there is nothing wrong with taking the benefits of higher productivity in the form of leisure rather than income. The planet will thank you for it.
Paul Krugman questions whether there is an existence of positive relationship between equality and growth. He rightly cautions those on the left against being too quick to accept the existence of such a relationship.
He uses a simple graph showing the relationship between inequality and growth per working age person in the years 1985 to 2007. His takeaway is that there is not much of a positive relationship, but there clearly is no negative relationship between equality and growth. In other words, the people who argue that we need to have more inequality to support stronger growth have a hard case to make using this simple comparison.
I would suggest taking the analysis one step further. One big difference between countries over this period is the extent to which they opted to take the benefits from growth in more leisure time. There are large differences in the decline in the length of the average work year across countries.
Using the OECD data (which is not perfect for international comparisons) we find that relatively equal France saw a decline in average work hours of 10.2 percent over this period. Denmark had a decline of 5.3 percent, and West Germany had a drop of 15.9 percent. These would translate into annual increases in GDP per potential work hour of 0.5, 0.2, and 0.8 percentage points, respectively.
By contrast, in the relatively unequal U.K. the drop in average hours was 4.7 percent, in Canada 3.1 percent, and in the U.S. 2.2 percent. These translates in gains in annual GDP per potential hour worked of 0.2, 0.1, and 0.1 percentage points, respectively.
Would looking at GDP per potential hour worked strengthen the positive correlation between equality and growth? I don’t have time to check that one just now, but a quick eyeballing of the data suggests that it is possible. This still would not be conclusive evidence that equality is good for growth, but it would be interesting. And, it is an important reminder that there is nothing wrong with taking the benefits of higher productivity in the form of leisure rather than income. The planet will thank you for it.
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That would appear to be the implication of his comment in a WSJ column that:
“Further, a recent study has shown that Germans and Americans spend the same amount of time working, but the proportion of taxable market time vs. nontaxable home work time is different. In other words, Germans work just as much, but more of their work is not captured in the taxable market.”
According to the OECD, the average work year for a German worker is just 77.6 percent as long as for a U.S. worker (1388 hours per year compared with 1788 hours per year). However their per capita income is more than 83 percent as high as in the United States.
If Germans are doing nontaxable home work then this would not be picked up in its official GDP data. If this nontaxable homework is on average at least 75 percent as productive as the taxable work that German’s perform, then a measure of GDP that included this work would show that Germany has a higher per capita income than the United States.
That would appear to be the implication of his comment in a WSJ column that:
“Further, a recent study has shown that Germans and Americans spend the same amount of time working, but the proportion of taxable market time vs. nontaxable home work time is different. In other words, Germans work just as much, but more of their work is not captured in the taxable market.”
According to the OECD, the average work year for a German worker is just 77.6 percent as long as for a U.S. worker (1388 hours per year compared with 1788 hours per year). However their per capita income is more than 83 percent as high as in the United States.
If Germans are doing nontaxable home work then this would not be picked up in its official GDP data. If this nontaxable homework is on average at least 75 percent as productive as the taxable work that German’s perform, then a measure of GDP that included this work would show that Germany has a higher per capita income than the United States.
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In his Upshot piece discussing the May jobs report, Neil Irwin noted both the healthy job growth and the implication for productivity growth. I was troubled by the same issue when I wrote up the jobs report yesterday.
The point here is quite simple, we are seeing relatively rapid job growth, just under 2.0 percent over the last year, when the rate of economic growth is quite weak. The drop in first quarter GDP was clearly an anomaly. (One of the great pointless economic debates of all time is whether the bad number is due to unusually bad weather or an inadequate seasonal adjustment.) But even pulling this out, we are looking at an economy that at best is only growing at a bit more than 2.0 percent annually.
The implication, as arithmetic fans everywhere are quick to point out, is that productivity growth is far under 1.0 percent and possibly close to zero. This seems really hard to believe. You don’t have to ascribe to the robots will take all our jobs view to believe that the trend rate of productivity has to be at least 1.5 percent and quite possibly over 2.0 percent.
Productivity had grown at almost a 3.0 percent annual rate from 1995 to 2005. While that may have been a one-time spurt, even in the years of the slowdown, from 1973 to 1995, productivity still grew at a 1.5 percent annual rate.
There is always a substantial cyclical element to productivity growth. Firms are less concerned about maximizing output per worker when workers are cheap and plentiful. There also is some skewing as desperate workers take jobs in low pay and low productivity sectors like restaurants. By my calculation, this skewing knocked about 0.2 percentage points off of annual productivity growth since 2007. That is some of the story, but clearly there is much else going on.
Anyhow, it is good to see people getting jobs, but we should want to see a better pace of productivity growth. It is also important to remember that we still have a long way to go on the jobs front. While a 5.5 percent unemployment rate may not sound too bad, the employment rate for prime age workers (ages 25-54) is still down by 3.0 percentage points from its pre-recession level and 4.0 percentage points from its 2000 level. It is not plausible that all of these people just decided that they don’t feel like working.
This means that we still have far to go before we have fully recovered from the downturn. The Fed should keep this in mind when it considers putting its foot on the brakes by raising interest rates.
In his Upshot piece discussing the May jobs report, Neil Irwin noted both the healthy job growth and the implication for productivity growth. I was troubled by the same issue when I wrote up the jobs report yesterday.
The point here is quite simple, we are seeing relatively rapid job growth, just under 2.0 percent over the last year, when the rate of economic growth is quite weak. The drop in first quarter GDP was clearly an anomaly. (One of the great pointless economic debates of all time is whether the bad number is due to unusually bad weather or an inadequate seasonal adjustment.) But even pulling this out, we are looking at an economy that at best is only growing at a bit more than 2.0 percent annually.
The implication, as arithmetic fans everywhere are quick to point out, is that productivity growth is far under 1.0 percent and possibly close to zero. This seems really hard to believe. You don’t have to ascribe to the robots will take all our jobs view to believe that the trend rate of productivity has to be at least 1.5 percent and quite possibly over 2.0 percent.
Productivity had grown at almost a 3.0 percent annual rate from 1995 to 2005. While that may have been a one-time spurt, even in the years of the slowdown, from 1973 to 1995, productivity still grew at a 1.5 percent annual rate.
There is always a substantial cyclical element to productivity growth. Firms are less concerned about maximizing output per worker when workers are cheap and plentiful. There also is some skewing as desperate workers take jobs in low pay and low productivity sectors like restaurants. By my calculation, this skewing knocked about 0.2 percentage points off of annual productivity growth since 2007. That is some of the story, but clearly there is much else going on.
Anyhow, it is good to see people getting jobs, but we should want to see a better pace of productivity growth. It is also important to remember that we still have a long way to go on the jobs front. While a 5.5 percent unemployment rate may not sound too bad, the employment rate for prime age workers (ages 25-54) is still down by 3.0 percentage points from its pre-recession level and 4.0 percentage points from its 2000 level. It is not plausible that all of these people just decided that they don’t feel like working.
This means that we still have far to go before we have fully recovered from the downturn. The Fed should keep this in mind when it considers putting its foot on the brakes by raising interest rates.
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No, Krauthammer didn’t actually come out in support of free trade. Instead he wants us to be concerned that doctors in the United States are quitting (to become shoe salespeople?) because they don’t like Obamacare.
Since our doctors get paid on average roughly twice as much as those in other wealthy countries and even more relative to doctors in less developed countries, there should be little problem attracting large numbers of people willing to train to U.S. standards and work as doctors in the United States, even if it means filling out annoying forms.
However, since protectionists dominate trade policy, we are not likely to see an opening of physicians to foreign competition. While our trade negotiators are happy to craft deals that put manufacturing workers in competition with low paid workers in the developing world, they do not want to do the same with doctors. Instead, we are supposed to be worried that doctors are unhappy even though many are in the richest one percent of the country and the vast majority are in the richest two percent.
No, Krauthammer didn’t actually come out in support of free trade. Instead he wants us to be concerned that doctors in the United States are quitting (to become shoe salespeople?) because they don’t like Obamacare.
Since our doctors get paid on average roughly twice as much as those in other wealthy countries and even more relative to doctors in less developed countries, there should be little problem attracting large numbers of people willing to train to U.S. standards and work as doctors in the United States, even if it means filling out annoying forms.
However, since protectionists dominate trade policy, we are not likely to see an opening of physicians to foreign competition. While our trade negotiators are happy to craft deals that put manufacturing workers in competition with low paid workers in the developing world, they do not want to do the same with doctors. Instead, we are supposed to be worried that doctors are unhappy even though many are in the richest one percent of the country and the vast majority are in the richest two percent.
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An AP article in the Washington Post on the release of Commerce Department data showing a sharp drop in the trade deficit in April concluded with a discussion of the Trans-Pacific Partnership (TPP). The piece told readers:
“Obama and backers of the trade deal argue that it would open huge markets to U.S. goods by lowering tariffs and other trade barriers. But critics, including labor and environmental groups, say that the trade agreement would subject American workers to unfair competition from countries with lower standards for both labor rights and environmental protections.”
Actually critics also dispute the assertion that the TPP “would open huge markets.” Most of the countries included in the TPP already have trade deals with the United States, so there is likely to be little increase in access to their markets. Of the remaining countries, Japan is by far the most important, but Japan’s tariffs on U.S. exports are already low, so the gains from lowering these barriers further is likely to be limited. The remaining countries all have relatively small economies. Their size coupled with their distance from the United States makes it implausible that the United States will have any substantial increase in exports as a result of the TPP.
An AP article in the Washington Post on the release of Commerce Department data showing a sharp drop in the trade deficit in April concluded with a discussion of the Trans-Pacific Partnership (TPP). The piece told readers:
“Obama and backers of the trade deal argue that it would open huge markets to U.S. goods by lowering tariffs and other trade barriers. But critics, including labor and environmental groups, say that the trade agreement would subject American workers to unfair competition from countries with lower standards for both labor rights and environmental protections.”
Actually critics also dispute the assertion that the TPP “would open huge markets.” Most of the countries included in the TPP already have trade deals with the United States, so there is likely to be little increase in access to their markets. Of the remaining countries, Japan is by far the most important, but Japan’s tariffs on U.S. exports are already low, so the gains from lowering these barriers further is likely to be limited. The remaining countries all have relatively small economies. Their size coupled with their distance from the United States makes it implausible that the United States will have any substantial increase in exports as a result of the TPP.
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The NYT apparently thinks this is a common practice. An article discussing a Supreme Court ruling that a second mortgage could not be discharged in a chapter 7 bankruptcy filing even when the homeowner’s first mortgage vastly exceeded the value of the house, told readers:
“a ruling in favor of the homeowners might have made banks and other lenders less willing to extend second mortgages in the future.”
In a foreclosure, a first mortgage must be paid in full before a dollar can be paid on a second mortgage. In the case before the court, the first mortgage was for $183,000, while the home was valued at $98,000. The homeowner therefore argued that the second mortgage was effectively unsecured debt that should be discharged in bankruptcy.
A ruling in favor of the homeowner would only affect banks’ lending behavior if they think there is a substantial probability that a home will fall below the value of a first mortgage. If they do believe this risk to be large enough to affect their lending, then it is probably best for the homeowner and the economy more generally that the second mortgage not be issued.
The NYT apparently thinks this is a common practice. An article discussing a Supreme Court ruling that a second mortgage could not be discharged in a chapter 7 bankruptcy filing even when the homeowner’s first mortgage vastly exceeded the value of the house, told readers:
“a ruling in favor of the homeowners might have made banks and other lenders less willing to extend second mortgages in the future.”
In a foreclosure, a first mortgage must be paid in full before a dollar can be paid on a second mortgage. In the case before the court, the first mortgage was for $183,000, while the home was valued at $98,000. The homeowner therefore argued that the second mortgage was effectively unsecured debt that should be discharged in bankruptcy.
A ruling in favor of the homeowner would only affect banks’ lending behavior if they think there is a substantial probability that a home will fall below the value of a first mortgage. If they do believe this risk to be large enough to affect their lending, then it is probably best for the homeowner and the economy more generally that the second mortgage not be issued.
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It is amazing how economic reporters continue to repeat nonsense about deflation. As fans of arithmetic and logic everywhere know, deflation is bad for the same reason a lower rate of inflation is bad. It raises the real interest rate at a time when we want a lower real interest rate and it increases the real value of debt when we want to see the real value of debt reduced. (The real interest rate is the nominal interest minus the inflation rate.)
Crossing zero means nothing, which should be obvious to anyone who has given the issue a moment’s thought. The inflation rate is a sum of millions of different price changes. When it is near zero, many prices are already falling. When it crosses zero and becomes negative, that means a somewhat larger share of prices are falling. So what? Since prices are quality adjusted, the prices people pay may still be rising.
Anyhow, the NYT added to the silliness yet again when it told readers that price declines in the euro zone due to falling energy prices are a potential problem. Let’s think this one through for a moment. Suppose that prices are rising at a 1.0 percent annual rate. Given the weakness of the euro zone economy that is lower than would be desirable, but let’s use that as a starting point.
Now let’s have energy prices fall at a 40 percent annual rate so that prices are now falling at a 1.0 percent annual rate. Let’s assume that the rate of inflation for non-energy prices has not changed.
Now how does this make things worse? People used to be pay more for gas and heat, with most of that money ending up outside of the euro zone. With the lower prices, this money stays in their pocket for them to spend on other things. In terms of debt burdens, if wages are rising in step with inflation, then the real value of debt to workers is being eroded at exactly the same rate as before. And since non-energy prices are still rising at the same pace, the real interest rate for investment outside the energy sector has not changed.
So what is the problem? It would be great if the NYT could get someone other than deflation cultists to do their economic reporting.
It is amazing how economic reporters continue to repeat nonsense about deflation. As fans of arithmetic and logic everywhere know, deflation is bad for the same reason a lower rate of inflation is bad. It raises the real interest rate at a time when we want a lower real interest rate and it increases the real value of debt when we want to see the real value of debt reduced. (The real interest rate is the nominal interest minus the inflation rate.)
Crossing zero means nothing, which should be obvious to anyone who has given the issue a moment’s thought. The inflation rate is a sum of millions of different price changes. When it is near zero, many prices are already falling. When it crosses zero and becomes negative, that means a somewhat larger share of prices are falling. So what? Since prices are quality adjusted, the prices people pay may still be rising.
Anyhow, the NYT added to the silliness yet again when it told readers that price declines in the euro zone due to falling energy prices are a potential problem. Let’s think this one through for a moment. Suppose that prices are rising at a 1.0 percent annual rate. Given the weakness of the euro zone economy that is lower than would be desirable, but let’s use that as a starting point.
Now let’s have energy prices fall at a 40 percent annual rate so that prices are now falling at a 1.0 percent annual rate. Let’s assume that the rate of inflation for non-energy prices has not changed.
Now how does this make things worse? People used to be pay more for gas and heat, with most of that money ending up outside of the euro zone. With the lower prices, this money stays in their pocket for them to spend on other things. In terms of debt burdens, if wages are rising in step with inflation, then the real value of debt to workers is being eroded at exactly the same rate as before. And since non-energy prices are still rising at the same pace, the real interest rate for investment outside the energy sector has not changed.
So what is the problem? It would be great if the NYT could get someone other than deflation cultists to do their economic reporting.
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