Catherine Rampell used her column to note the decline in birthrates among millennials. She identifies the weak economy as a main factor behind the drop. However she warns that this drop in birthrates is “bad news for older folks” because:
“for economic reasons — including cultivating the next generation of Americans to work and pay for the benefits of their many, many elders — we still need more babies.”
This is not true. If we have fewer people entering the labor force, we would expect that they would move into higher productivity, higher paying jobs. This might mean that fewer people would be willing to work at near minimum wages at McDonalds or Walmart (we would therefore have fewer McDonalds and Walmarts) and would instead work at higher paying jobs in health care, manufacturing, or other sectors. A worker earning $60,000 a year in the health care sector can afford to pay much more to support retirees than a worker earning $20,000 a year at Walmart. The impact of a smaller number of workers can easily be offset by an increase in the productivity per worker.
Fewer children will also mean less demand on public services (e.g schools) and infrastructure. It also means less environmental damage.
It is also worth noting that Rampell’s concern about too few children goes 180 degrees against the concern that robots will take the jobs. In other words, if you are concerned that we won’t have enough workers, then you must think the robot worriers are nuts.
It is a problem if people feel they are unable to have children for financial reasons because we should want people to have good lives. That means having children if they want them. It is definitely not a problem for the rest of us if they don’t have children.
Catherine Rampell used her column to note the decline in birthrates among millennials. She identifies the weak economy as a main factor behind the drop. However she warns that this drop in birthrates is “bad news for older folks” because:
“for economic reasons — including cultivating the next generation of Americans to work and pay for the benefits of their many, many elders — we still need more babies.”
This is not true. If we have fewer people entering the labor force, we would expect that they would move into higher productivity, higher paying jobs. This might mean that fewer people would be willing to work at near minimum wages at McDonalds or Walmart (we would therefore have fewer McDonalds and Walmarts) and would instead work at higher paying jobs in health care, manufacturing, or other sectors. A worker earning $60,000 a year in the health care sector can afford to pay much more to support retirees than a worker earning $20,000 a year at Walmart. The impact of a smaller number of workers can easily be offset by an increase in the productivity per worker.
Fewer children will also mean less demand on public services (e.g schools) and infrastructure. It also means less environmental damage.
It is also worth noting that Rampell’s concern about too few children goes 180 degrees against the concern that robots will take the jobs. In other words, if you are concerned that we won’t have enough workers, then you must think the robot worriers are nuts.
It is a problem if people feel they are unable to have children for financial reasons because we should want people to have good lives. That means having children if they want them. It is definitely not a problem for the rest of us if they don’t have children.
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The sharp jump in the March trade deficit reported this morning means that GDP in the first quarter will be revised into negative territory. The $51.4 billion trade deficit reported for March, was $15.5 billion increase from the $35.9 billion deficit reported in February. Some of this is undoubtedly noise in the data (the February number was surprisingly low), but some of the rise is likely due to the impact of the higher dollar which is making U.S. goods and services less competitive internationally.
This is a really big deal, much bigger than the news about greater or smaller than expected budget deficits that can often be found on the front page. There is no easy mechanism to offset the demand lost as a result of a trade deficit that was running at more than a $600 billion annual rate in March. It is difficult to see how the economy can get to full employment with a trade deficit of this size, without the government running large budget deficits or an asset bubble spurring demand.
The sharp jump in the March trade deficit reported this morning means that GDP in the first quarter will be revised into negative territory. The $51.4 billion trade deficit reported for March, was $15.5 billion increase from the $35.9 billion deficit reported in February. Some of this is undoubtedly noise in the data (the February number was surprisingly low), but some of the rise is likely due to the impact of the higher dollar which is making U.S. goods and services less competitive internationally.
This is a really big deal, much bigger than the news about greater or smaller than expected budget deficits that can often be found on the front page. There is no easy mechanism to offset the demand lost as a result of a trade deficit that was running at more than a $600 billion annual rate in March. It is difficult to see how the economy can get to full employment with a trade deficit of this size, without the government running large budget deficits or an asset bubble spurring demand.
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USA Today got its numbers seriously wrong in pushing the case for the Trans-Pacific Partnership (TPP). Its editorial told readers:
“Democrats, however, are wedded to unions who blame trade, and trade agreements, for the decline in manufacturing jobs.
“Theirs is a simplistic view that ignores the fact that manufacturing output has nearly doubled since the late 1990s, showing that technology is the real job killer.”
It’s USA Today, not the unions, who are being simplistic here. The data they are relying on refers to gross output. This would include the full value of a car assembled in the United States even if the engine, transmission, and the other major components are imported. It also doesn’t adjust for inflation. If USA used the correct table it would find that real value added in manufacturing has risen by a bit less than 41.0 percent since 1997, compared to growth of 45.8 percent for the economy as a whole.
The story here is a one of very basic marcoeconomics. The $500 billion annual trade deficit ($600 billion at an annual rate in March), implies a loss of demand of almost 3.0 percent of GDP. In the context of an economy that is below full employment, this has the same impact on the economy as if consumers took $500 billion every year and stuffed it under their mattress instead of spending it. USA Today might try working on its numbers and economics a bit before calling people names.
USA Today got its numbers seriously wrong in pushing the case for the Trans-Pacific Partnership (TPP). Its editorial told readers:
“Democrats, however, are wedded to unions who blame trade, and trade agreements, for the decline in manufacturing jobs.
“Theirs is a simplistic view that ignores the fact that manufacturing output has nearly doubled since the late 1990s, showing that technology is the real job killer.”
It’s USA Today, not the unions, who are being simplistic here. The data they are relying on refers to gross output. This would include the full value of a car assembled in the United States even if the engine, transmission, and the other major components are imported. It also doesn’t adjust for inflation. If USA used the correct table it would find that real value added in manufacturing has risen by a bit less than 41.0 percent since 1997, compared to growth of 45.8 percent for the economy as a whole.
The story here is a one of very basic marcoeconomics. The $500 billion annual trade deficit ($600 billion at an annual rate in March), implies a loss of demand of almost 3.0 percent of GDP. In the context of an economy that is below full employment, this has the same impact on the economy as if consumers took $500 billion every year and stuffed it under their mattress instead of spending it. USA Today might try working on its numbers and economics a bit before calling people names.
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Robert Samuelson begins his argument for the Trans-Pacific Partnership (TPP) by telling readers:
“The trouble with our trade debates is that people assume they’re only about economics.”
I suppose this means that the advocates of TPP think they are losing the economic argument so now it is a matter of national security. (Just out of curiosity, I wonder how many of the foreign policy experts arguing for the necessity of the TPP supported the Iraq war.)
Anyhow, we do get some economics in Samuelson’s piece, which deserve comment. He refers readers to a study by the Peterson Institute which shows that the increase in U.S. GDP by 2025 could be $85 billion, a bit less than 0.4 percent. It’s worth noting that this study took no account of the higher prices in drugs and other products due to stronger and longer patent and copyright protections.
The higher prices would be expected to slow growth in the same way that increases in protectionist barriers in general slow growth. The impact could be large. For example, if a country is forced to pay the $84,000 patent protected price for Sovaldi, the hepatitis C drug, rather than the $900 generic price, it will be a drain on its purchasing power and an impediment to growth.
The Peterson Institute analysis also does not take account of the costs that would result from rent-seeking behavior due to stronger and longer patent protection. A recent CEPR analysis found that the mismarketing of just five drugs imposed annual costs of $27 billion a year in the form of increased mortality and morbidity between 1994 and 2008.
Samuelson also turns to a peculiar analysis by Robert Lawrence to question the widely accepted view among economists that trade has cost manufacturing jobs and lowered wages for workers without college degrees. The study argues that we have seen nothing unusual in the sharp loss of manufacturing jobs as the trade deficit exploded in the last 15 years, claiming that the manufacturing share of employment has continued to decline at a trend rate of 0.4 percentage points a year.
This is bizarre, because we might expect manufacturing to decline at constant rate, not a constant percentage of total employment. If manufacturing employment fell by 0.4 percentage points when manufacturing accounted for 20 percent of total employment, the drop would be 2 percent. If it declines by 0.4 percentage points when manufacturing is 10 percent of total employment, the loss of jobs is 4 percent of manufacturing. There is no reason we would expect this pattern to hold. The implication is that if manufacturing employment were 4 percent of total employment then we would see 10 percent of total manufacturing employment to disappear in a single year.
Lawrence also criticizes Paul Krugman’s analysis showing that trade with China has lowered wages by complaining that his model is “simplistic.” He seems unaware of the research by David Autor and others that support this assessment.
Robert Samuelson begins his argument for the Trans-Pacific Partnership (TPP) by telling readers:
“The trouble with our trade debates is that people assume they’re only about economics.”
I suppose this means that the advocates of TPP think they are losing the economic argument so now it is a matter of national security. (Just out of curiosity, I wonder how many of the foreign policy experts arguing for the necessity of the TPP supported the Iraq war.)
Anyhow, we do get some economics in Samuelson’s piece, which deserve comment. He refers readers to a study by the Peterson Institute which shows that the increase in U.S. GDP by 2025 could be $85 billion, a bit less than 0.4 percent. It’s worth noting that this study took no account of the higher prices in drugs and other products due to stronger and longer patent and copyright protections.
The higher prices would be expected to slow growth in the same way that increases in protectionist barriers in general slow growth. The impact could be large. For example, if a country is forced to pay the $84,000 patent protected price for Sovaldi, the hepatitis C drug, rather than the $900 generic price, it will be a drain on its purchasing power and an impediment to growth.
The Peterson Institute analysis also does not take account of the costs that would result from rent-seeking behavior due to stronger and longer patent protection. A recent CEPR analysis found that the mismarketing of just five drugs imposed annual costs of $27 billion a year in the form of increased mortality and morbidity between 1994 and 2008.
Samuelson also turns to a peculiar analysis by Robert Lawrence to question the widely accepted view among economists that trade has cost manufacturing jobs and lowered wages for workers without college degrees. The study argues that we have seen nothing unusual in the sharp loss of manufacturing jobs as the trade deficit exploded in the last 15 years, claiming that the manufacturing share of employment has continued to decline at a trend rate of 0.4 percentage points a year.
This is bizarre, because we might expect manufacturing to decline at constant rate, not a constant percentage of total employment. If manufacturing employment fell by 0.4 percentage points when manufacturing accounted for 20 percent of total employment, the drop would be 2 percent. If it declines by 0.4 percentage points when manufacturing is 10 percent of total employment, the loss of jobs is 4 percent of manufacturing. There is no reason we would expect this pattern to hold. The implication is that if manufacturing employment were 4 percent of total employment then we would see 10 percent of total manufacturing employment to disappear in a single year.
Lawrence also criticizes Paul Krugman’s analysis showing that trade with China has lowered wages by complaining that his model is “simplistic.” He seems unaware of the research by David Autor and others that support this assessment.
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The advocates of the Trans-Pacific Partnership must really be desperate. Why else would they continue to make such ridiculous assertions? (And why does the Post print them?)
Thomas McLarty puts on the show today. McLarty was President Clinton’s chief of staff when they pushed NAFTA through Congress. He used his column to tout all the jobs created through exports as a result of NAFTA. He never once mentions the jobs lost to imports. In fact, the United States went from having a modest trade surplus with Mexico, to having a trade deficit of $54 billion in 2014.
While this rise in the trade deficit may not be all or even mostly attributable to NAFTA, in the context of an economy that is below full employment, a trade deficit of this size would be expected to lead to a loss of roughly 600,000 jobs.
The advocates of the Trans-Pacific Partnership must really be desperate. Why else would they continue to make such ridiculous assertions? (And why does the Post print them?)
Thomas McLarty puts on the show today. McLarty was President Clinton’s chief of staff when they pushed NAFTA through Congress. He used his column to tout all the jobs created through exports as a result of NAFTA. He never once mentions the jobs lost to imports. In fact, the United States went from having a modest trade surplus with Mexico, to having a trade deficit of $54 billion in 2014.
While this rise in the trade deficit may not be all or even mostly attributable to NAFTA, in the context of an economy that is below full employment, a trade deficit of this size would be expected to lead to a loss of roughly 600,000 jobs.
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A NYT piece analyzing White House efforts to push the Trans-Pacific Partnership (TPP) began with the sentence:
“When President Obama defends the Trans-Pacific Partnership, a far-reaching agreement to tear down trade barriers between the United States and 11 other nations, he often argues it would cure the ills inflicted on American workers by trade pacts of the past, particularly the North American Free Trade Agreement.”
The problem with this sentence is that the TPP is not obviously, “a far-reaching agreement to tear down trade barriers.” The barriers to trade in most cases are already low. The main focus of the TPP is putting in place a new regulatory structure, which is likely to be very business friendly. The most obvious evidence of the business friendly nature of this structure is that the TPP would establish an extra-judicial legal system for enforcing the agreement. This system can only be used by foreign investors to sue governments; it is not open to governments, workers, or communities to sue foreign investors.
The deal also does much to increase barriers in the form of stronger patent and copyright protection. These barriers will raise prices and reduce trade.
For these reasons, it is a major distortion of reality to describe the TPP as “a far-reaching agreement to tear down trade barriers.” While the proponents of TPP may like to characterize the deal this way in order to appeal to the principle of “free trade,” it is not an accurate description of the agreement.
A NYT piece analyzing White House efforts to push the Trans-Pacific Partnership (TPP) began with the sentence:
“When President Obama defends the Trans-Pacific Partnership, a far-reaching agreement to tear down trade barriers between the United States and 11 other nations, he often argues it would cure the ills inflicted on American workers by trade pacts of the past, particularly the North American Free Trade Agreement.”
The problem with this sentence is that the TPP is not obviously, “a far-reaching agreement to tear down trade barriers.” The barriers to trade in most cases are already low. The main focus of the TPP is putting in place a new regulatory structure, which is likely to be very business friendly. The most obvious evidence of the business friendly nature of this structure is that the TPP would establish an extra-judicial legal system for enforcing the agreement. This system can only be used by foreign investors to sue governments; it is not open to governments, workers, or communities to sue foreign investors.
The deal also does much to increase barriers in the form of stronger patent and copyright protection. These barriers will raise prices and reduce trade.
For these reasons, it is a major distortion of reality to describe the TPP as “a far-reaching agreement to tear down trade barriers.” While the proponents of TPP may like to characterize the deal this way in order to appeal to the principle of “free trade,” it is not an accurate description of the agreement.
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In the United States it’s considered fine to just make crap up when talking about the government, especially when it comes to programs for poor people. That is why Ronald Reagan ran around the country telling people about the welfare queen who drove up to the welfare office every month in her new Cadillac to pick up her check.
Today, David Brooks does the welfare queen routine in his NYT column, telling readers:
“Since 1980 federal antipoverty spending has exploded. As Robert Samuelson of The Washington Post has pointed out, in 2013 the federal government spent nearly $14,000 per poor person. If you simply took that money and handed it to the poor, a family of four would have a household income roughly twice the poverty rate.”
Of course if NYT columnists were expected to be accurate when they talked about government programs, Brooks would have been forced to tell readers that around 40 percent of these payments are Medicaid payments that go directly to doctors and other health care providers. We pay twice as much per person for our health care as people in other wealthy countries, with little to show in the way of outcomes. We can think of these high health care costs as a generous payment to the poor, but what this actually means is that every time David Brooks’ cardiologist neighbor raises his fees, David Brooks will complain about how we are being too generous to the poor.
The other point that an honest columnist would be forced to make is that the vast majority of these payments do not go to people who are below the poverty line and therefore don’t count in the denominator for his “poor person” calculation. The cutoff for Medicaid is well above the poverty level in most states. The same is true for food stamps, the Earned Income Tax Credit (EITC), and most of the other programs that make up Brooks’ $14,000 per person figure. In other words, he has taken the spending that goes to a much larger population and divided it by the number of people who are classified as poor.
If Brooks actually wants to tell readers what we spend on poor people, it’s not hard to find the data. The average family of three on TANF gets less than $500 a month. The average food stamp benefit is $133 per person. If low income people are working, they can get around $5,000 a year from the EITC for a single person with two children at the poverty level. (They would get less at lower income levels.)
These programs account for the vast majority of federal government payments to poor people. It won’t get you anywhere near David Brooks’ $14,000 per person per year, but why spoil a good story with facts?
Addendum:
Folks seem anxious to count Medicaid spending as spending on the poor. That’s fine by me. The point I was making is that we pay twice as much as people elsewhere in the world for care that is no better because doctors and other providers get paid twice as much.
That seems worth noting in an assessment of how generous we are to the poor. To take an overblown analogy, suppose terrorists took some number of poor people hostage and demanded tens of millions of dollars for their release. We can include our ransom payments as money spent on the poor and say again how generous we are.
In this case, the folks playing the role of the terrorists in making big money demands are the doctors and other health care providers. In other words, they are David Brooks’ cardiologist neighbor who gets well over $400,000 a year in large part due to payments from the government. You’re welcome to see this as generosity to the poor, I see it as generosity to David Brooks’ cardiologist neighbor.
In the United States it’s considered fine to just make crap up when talking about the government, especially when it comes to programs for poor people. That is why Ronald Reagan ran around the country telling people about the welfare queen who drove up to the welfare office every month in her new Cadillac to pick up her check.
Today, David Brooks does the welfare queen routine in his NYT column, telling readers:
“Since 1980 federal antipoverty spending has exploded. As Robert Samuelson of The Washington Post has pointed out, in 2013 the federal government spent nearly $14,000 per poor person. If you simply took that money and handed it to the poor, a family of four would have a household income roughly twice the poverty rate.”
Of course if NYT columnists were expected to be accurate when they talked about government programs, Brooks would have been forced to tell readers that around 40 percent of these payments are Medicaid payments that go directly to doctors and other health care providers. We pay twice as much per person for our health care as people in other wealthy countries, with little to show in the way of outcomes. We can think of these high health care costs as a generous payment to the poor, but what this actually means is that every time David Brooks’ cardiologist neighbor raises his fees, David Brooks will complain about how we are being too generous to the poor.
The other point that an honest columnist would be forced to make is that the vast majority of these payments do not go to people who are below the poverty line and therefore don’t count in the denominator for his “poor person” calculation. The cutoff for Medicaid is well above the poverty level in most states. The same is true for food stamps, the Earned Income Tax Credit (EITC), and most of the other programs that make up Brooks’ $14,000 per person figure. In other words, he has taken the spending that goes to a much larger population and divided it by the number of people who are classified as poor.
If Brooks actually wants to tell readers what we spend on poor people, it’s not hard to find the data. The average family of three on TANF gets less than $500 a month. The average food stamp benefit is $133 per person. If low income people are working, they can get around $5,000 a year from the EITC for a single person with two children at the poverty level. (They would get less at lower income levels.)
These programs account for the vast majority of federal government payments to poor people. It won’t get you anywhere near David Brooks’ $14,000 per person per year, but why spoil a good story with facts?
Addendum:
Folks seem anxious to count Medicaid spending as spending on the poor. That’s fine by me. The point I was making is that we pay twice as much as people elsewhere in the world for care that is no better because doctors and other providers get paid twice as much.
That seems worth noting in an assessment of how generous we are to the poor. To take an overblown analogy, suppose terrorists took some number of poor people hostage and demanded tens of millions of dollars for their release. We can include our ransom payments as money spent on the poor and say again how generous we are.
In this case, the folks playing the role of the terrorists in making big money demands are the doctors and other health care providers. In other words, they are David Brooks’ cardiologist neighbor who gets well over $400,000 a year in large part due to payments from the government. You’re welcome to see this as generosity to the poor, I see it as generosity to David Brooks’ cardiologist neighbor.
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Actually, I don’t know that he is, but he would be if he were consistent. Earlier in the week, he complained that I thought there should be rules on currency manipulation in the Trans-Pacific Partnership (TPP). The gist of his argument is that if another country wants to deliberately under-value its currency, so that we can buy their exports at a lower price, our response should be “thank you very much.” In effect the currency manipulator is subsidizing our consumption.
This is of course true and the same logic applies to export subsidies. If Japan, Australia, or some other country wants to provide a 20 percent subsidy on exports of cars, computers, or other goods and services, then they are making those items cheaper for U.S. consumers. Worstall would presumably want us to say “thank you very much” and leave it at that.
But those dunderheads negotiating the TPP are banning export subsidies. They will make it a trade violation if Australia wants to subsidize our consumers. I assume Worstall is very angry about this.
There are two points here. First there is a small one about optimal allocations in the economists’ perfect world of full employment. Even though U.S. consumers may benefit in this world from the stupidity of other countries subsidizing our consumption through their export subsidies, this is not an optimal allocation. In principle, the world economy would be larger if governments did not subsidize exports and instead let the market make allocations. Note, this argument applies with equal force to currency values that are deliberately set below market rates by governments seeking trade advantages.
The other more important point is that we’re typically not living in the economists’ perfect world of full employment, and certainly have not been there lately. In a context of an economy that is below full employment, both an export subsidy and under-valued currency have the effect of increasing the U.S. trade deficit and reducing U.S. employment. (There appears to be some serious confusion on trade and jobs by Worstall and his friends. If foreigners use the dollars they get from their exports to buy U.S. government bonds, shares or U.S. stock, or real estate, it does not create jobs in the United States, except for the small number of people involved in the sale of financial assets.)
Anyhow, in the world where we live there can be, and is now, a very direct link between the trade deficit and jobs. If we run a larger trade deficit, neither Worstall nor his friends have some magic formula that can fill the gap in demand that would be created. This is why it is important to have rules in the TPP on currency values. We simply have no mechanism for replacing the demand we are losing through a $500 billion plus annual trade deficit.
Addendum:
I see Tim has responded. I think I see the problem. Tim seems to believe the economy is always at full employment so that lack of demand is not a problem. If the economy were always at full employment, he would of course be right. There is no obvious reason we shouldn’t be happy if other countries are willing to subsidize our consumption. (There may still be some issues about market power and potential monopolization, but we can skip those for now.)
However in the world I live, the economy is often nowhere near full employment. This means that anything that reduces demand (like a larger trade deficit due to a rise in the value of the dollar) reduce output and employment. We can offset this loss of jobs and output through larger government budget deficits, but as a practical matter, we don’t. This is why I am concerned about an over-valued currency, but if I thought unemployment wasn’t a problem, I’d be with Tim.
Actually, I don’t know that he is, but he would be if he were consistent. Earlier in the week, he complained that I thought there should be rules on currency manipulation in the Trans-Pacific Partnership (TPP). The gist of his argument is that if another country wants to deliberately under-value its currency, so that we can buy their exports at a lower price, our response should be “thank you very much.” In effect the currency manipulator is subsidizing our consumption.
This is of course true and the same logic applies to export subsidies. If Japan, Australia, or some other country wants to provide a 20 percent subsidy on exports of cars, computers, or other goods and services, then they are making those items cheaper for U.S. consumers. Worstall would presumably want us to say “thank you very much” and leave it at that.
But those dunderheads negotiating the TPP are banning export subsidies. They will make it a trade violation if Australia wants to subsidize our consumers. I assume Worstall is very angry about this.
There are two points here. First there is a small one about optimal allocations in the economists’ perfect world of full employment. Even though U.S. consumers may benefit in this world from the stupidity of other countries subsidizing our consumption through their export subsidies, this is not an optimal allocation. In principle, the world economy would be larger if governments did not subsidize exports and instead let the market make allocations. Note, this argument applies with equal force to currency values that are deliberately set below market rates by governments seeking trade advantages.
The other more important point is that we’re typically not living in the economists’ perfect world of full employment, and certainly have not been there lately. In a context of an economy that is below full employment, both an export subsidy and under-valued currency have the effect of increasing the U.S. trade deficit and reducing U.S. employment. (There appears to be some serious confusion on trade and jobs by Worstall and his friends. If foreigners use the dollars they get from their exports to buy U.S. government bonds, shares or U.S. stock, or real estate, it does not create jobs in the United States, except for the small number of people involved in the sale of financial assets.)
Anyhow, in the world where we live there can be, and is now, a very direct link between the trade deficit and jobs. If we run a larger trade deficit, neither Worstall nor his friends have some magic formula that can fill the gap in demand that would be created. This is why it is important to have rules in the TPP on currency values. We simply have no mechanism for replacing the demand we are losing through a $500 billion plus annual trade deficit.
Addendum:
I see Tim has responded. I think I see the problem. Tim seems to believe the economy is always at full employment so that lack of demand is not a problem. If the economy were always at full employment, he would of course be right. There is no obvious reason we shouldn’t be happy if other countries are willing to subsidize our consumption. (There may still be some issues about market power and potential monopolization, but we can skip those for now.)
However in the world I live, the economy is often nowhere near full employment. This means that anything that reduces demand (like a larger trade deficit due to a rise in the value of the dollar) reduce output and employment. We can offset this loss of jobs and output through larger government budget deficits, but as a practical matter, we don’t. This is why I am concerned about an over-valued currency, but if I thought unemployment wasn’t a problem, I’d be with Tim.
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Takeda, a Japanese drug company, agreed to pay $2.4 billion to settle suits claiming it concealed evidence that its diabetes drug, Actos, increased the risk of cancer. Concealing evidence of a drug’s dangers is a predictable result of government-granted patent monopolies. Since patent monopolies allow drug companies to sell their products at prices that are often several thousand percent above the free market price, they provide drug companies an enormous incentive to mislead the public about the safety and effectiveness of their drugs. The damage caused as a result of these misrepresentations is likely comparable to the amount of research financed through patent monopolies.
Typos corrected, thanks to Robert Salzberg.
Takeda, a Japanese drug company, agreed to pay $2.4 billion to settle suits claiming it concealed evidence that its diabetes drug, Actos, increased the risk of cancer. Concealing evidence of a drug’s dangers is a predictable result of government-granted patent monopolies. Since patent monopolies allow drug companies to sell their products at prices that are often several thousand percent above the free market price, they provide drug companies an enormous incentive to mislead the public about the safety and effectiveness of their drugs. The damage caused as a result of these misrepresentations is likely comparable to the amount of research financed through patent monopolies.
Typos corrected, thanks to Robert Salzberg.
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The NYT has a column today by Uki Goni, warning of the bad things that will face Greece if it defaults. The default by Argentina in December of 2001 provides the basis for his warnings.
“Economic activity was paralyzed, supermarket prices soared and pharmaceutical companies withdrew their products as the peso lost three-quarters of its value against the dollar. With private medical insurance firms virtually bankrupt and the public health system on the brink of collapse, badly needed drugs for cancer, H.I.V. and heart conditions soon became scarce. Insulin for the country’s estimated 300,000 diabetics disappeared from drugstore shelves.
“With the economy in free fall, about half the country’s population was below the poverty line.”
There is no doubt that the people of Argentina suffered serious hardship due to the default. However it is important to recognize that they were suffering severe hardship even before the default. The economy contracted by 8.4 percent since its peak in 1998, and contracted by 4.4 percent in 2001 alone. The unemployment rate had risen to more than 19.0 percent. Even worse, there was no end in sight.
There is no doubt that 2002 was worse for the people of Argentina as a result of the default, but by the second half of the year the economy returned to growth and grew strongly for the next seven years. (There are serious issues about the accuracy of the Argentine data, but this is primarily a question for more recent years, not the initial recovery.) By the end of 2003 Argentina had made up all of the ground loss due to the default and was clearly far ahead of its stay the course path.
Source: International Monetary Fund.
This raises the question of whether the pain associated with the default was justified by the subsequent recovery. Clearly Mr. Goni thinks it is not. In this respect it is worth bringing in a hero among American policy wonks, Paul Volcker. Volcker is given enormous praise by economists (not me) for bringing on a recession in 1981 that brought inflation down from near double digit levels. This recession caused enormous pain of the sort described by Mr. Goni (people lost their houses and farms and couldn’t pay for necessary health care, unemployment rose to almost 11.0 percent), but the economy did bounce back in 1983. The vast majority of policy types think this pain was well worth it as a price to bring down inflation.
For further background, it is worth noting that the economy had been growing prior to Volcker’s decision to bring on a recession. Argentina’s economy was already contracting and virtually certain to continue to contract prior to the decision to default. In other words, there was no pain free path available to Argentina, whereas the U.S. economy likely would have continued to grow, albeit with higher inflation, without Volcker’s actions. (For cheap fun look at this paper showing the I.M.F. consistently over-projecting growth prior to default and then hugely under-projecting growth post default.)
Clearly Greece looks much more like Argentina than the United States in 1981. Its economy has already contracted by more than 20 percent, with unemployment now over 25 percent. And, there is little hope for improvement any time soon under the stay the course scenario. This should make the default route look more attractive, since the country has little to lose.
That doesn’t mean default will be pretty. People will suffer as a result, but at least default offers a better path forward. The striking takeaway from Goni’s piece is how the notion of short-term pain for long-term gain can be made to look so appalling in a case where it was almost certainly necessary, whereas a similar choice is widely applauded in the United States in a case where it almost certainly was not. (For any Brits reading this, plug in “Thatcher” for Volcker.) It would probably be rude to point out that the 1981-82 recession was associated with a sharp upward redistribution of income away from workers at the middle and bottom of the wage distribution.
Note: Typos fixed, thanks folks.
The NYT has a column today by Uki Goni, warning of the bad things that will face Greece if it defaults. The default by Argentina in December of 2001 provides the basis for his warnings.
“Economic activity was paralyzed, supermarket prices soared and pharmaceutical companies withdrew their products as the peso lost three-quarters of its value against the dollar. With private medical insurance firms virtually bankrupt and the public health system on the brink of collapse, badly needed drugs for cancer, H.I.V. and heart conditions soon became scarce. Insulin for the country’s estimated 300,000 diabetics disappeared from drugstore shelves.
“With the economy in free fall, about half the country’s population was below the poverty line.”
There is no doubt that the people of Argentina suffered serious hardship due to the default. However it is important to recognize that they were suffering severe hardship even before the default. The economy contracted by 8.4 percent since its peak in 1998, and contracted by 4.4 percent in 2001 alone. The unemployment rate had risen to more than 19.0 percent. Even worse, there was no end in sight.
There is no doubt that 2002 was worse for the people of Argentina as a result of the default, but by the second half of the year the economy returned to growth and grew strongly for the next seven years. (There are serious issues about the accuracy of the Argentine data, but this is primarily a question for more recent years, not the initial recovery.) By the end of 2003 Argentina had made up all of the ground loss due to the default and was clearly far ahead of its stay the course path.
Source: International Monetary Fund.
This raises the question of whether the pain associated with the default was justified by the subsequent recovery. Clearly Mr. Goni thinks it is not. In this respect it is worth bringing in a hero among American policy wonks, Paul Volcker. Volcker is given enormous praise by economists (not me) for bringing on a recession in 1981 that brought inflation down from near double digit levels. This recession caused enormous pain of the sort described by Mr. Goni (people lost their houses and farms and couldn’t pay for necessary health care, unemployment rose to almost 11.0 percent), but the economy did bounce back in 1983. The vast majority of policy types think this pain was well worth it as a price to bring down inflation.
For further background, it is worth noting that the economy had been growing prior to Volcker’s decision to bring on a recession. Argentina’s economy was already contracting and virtually certain to continue to contract prior to the decision to default. In other words, there was no pain free path available to Argentina, whereas the U.S. economy likely would have continued to grow, albeit with higher inflation, without Volcker’s actions. (For cheap fun look at this paper showing the I.M.F. consistently over-projecting growth prior to default and then hugely under-projecting growth post default.)
Clearly Greece looks much more like Argentina than the United States in 1981. Its economy has already contracted by more than 20 percent, with unemployment now over 25 percent. And, there is little hope for improvement any time soon under the stay the course scenario. This should make the default route look more attractive, since the country has little to lose.
That doesn’t mean default will be pretty. People will suffer as a result, but at least default offers a better path forward. The striking takeaway from Goni’s piece is how the notion of short-term pain for long-term gain can be made to look so appalling in a case where it was almost certainly necessary, whereas a similar choice is widely applauded in the United States in a case where it almost certainly was not. (For any Brits reading this, plug in “Thatcher” for Volcker.) It would probably be rude to point out that the 1981-82 recession was associated with a sharp upward redistribution of income away from workers at the middle and bottom of the wage distribution.
Note: Typos fixed, thanks folks.
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