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The NYT won’t name names, but obviously these people don’t know much economics. In a generally useful article about differences in regulatory policy between the European Union and the United States the NYT told readers:
“The talks [on the Trans-Atlantic Trade and Investment Pact] are considered more of a priority for Europe, which is mired in deflation and high unemployment, than the United States, where the economy is recovering.”
An analysis by the Centre for Economic Policy Research in the U.K. (no connection to Washington CEPR) found that the pact would increase the EU’s GDP by 0.5 percent after its full effects are felt more than a decade after it is implemented. This translates into a boost to EU growth of less than 0.05 percentage points annually.
This is not much of a cure for stagnation. Even if the number were doubled its impact on growth would be too small for people to notice in their everyday lives. Furthermore, this calculation does not take account of any negative impact on growth that could result from higher prices for drugs and other products due to the stronger patent and copyright protections that will almost certainly be part of any deal. It also doesn’t include losses that may be suffered if regulatory changes damage the environment or public health.
The NYT won’t name names, but obviously these people don’t know much economics. In a generally useful article about differences in regulatory policy between the European Union and the United States the NYT told readers:
“The talks [on the Trans-Atlantic Trade and Investment Pact] are considered more of a priority for Europe, which is mired in deflation and high unemployment, than the United States, where the economy is recovering.”
An analysis by the Centre for Economic Policy Research in the U.K. (no connection to Washington CEPR) found that the pact would increase the EU’s GDP by 0.5 percent after its full effects are felt more than a decade after it is implemented. This translates into a boost to EU growth of less than 0.05 percentage points annually.
This is not much of a cure for stagnation. Even if the number were doubled its impact on growth would be too small for people to notice in their everyday lives. Furthermore, this calculation does not take account of any negative impact on growth that could result from higher prices for drugs and other products due to the stronger patent and copyright protections that will almost certainly be part of any deal. It also doesn’t include losses that may be suffered if regulatory changes damage the environment or public health.
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It’s always exciting to read an interesting new idea in the NYT opinion section. It’s less exciting to read an idea that is not new, but presented as such. Hence my lack of joy when reading Ezekiel Emanuel’s proposal for a prize fund for the development of new antibiotics.
Emanuel wants the government to put up a $2 billion prize for the first five companies that get regulatory approval for a new antibiotic. He writes his piece as though a prize fund for developing drugs is a new idea. It isn’t. The idea of prize funds for developing drugs goes back close to two decades (possibly longer), and has had many prominent proponents, most notably Joe Stiglitz, the Nobel prize winning economist.
Emanuel does have an original twist on his proposal. Stiglitz and other proponents of prize funds saw them as an alternative to patents. The idea was that the company got paid for their research when they got the prize. There was no reason to pay them a second time by giving them a monopoly over the sale of the drug.
In fact, one of the main points of the prize was to allow drugs to be sold at their free market price. This would both ensure that they were affordable (drugs are almost always cheap to produce) and eliminate the drug companies’ incentive to lie about the safety and effectiveness of their drugs.
Emanuel does depart from earlier proponents of prize funds in proposing that drug companies be allowed to have a patent monopoly even after having been awarded with a prize. This leaves in place the potential problems of affordability and perverse incentives that earlier proponents of prize funds had sought to address.
It’s always exciting to read an interesting new idea in the NYT opinion section. It’s less exciting to read an idea that is not new, but presented as such. Hence my lack of joy when reading Ezekiel Emanuel’s proposal for a prize fund for the development of new antibiotics.
Emanuel wants the government to put up a $2 billion prize for the first five companies that get regulatory approval for a new antibiotic. He writes his piece as though a prize fund for developing drugs is a new idea. It isn’t. The idea of prize funds for developing drugs goes back close to two decades (possibly longer), and has had many prominent proponents, most notably Joe Stiglitz, the Nobel prize winning economist.
Emanuel does have an original twist on his proposal. Stiglitz and other proponents of prize funds saw them as an alternative to patents. The idea was that the company got paid for their research when they got the prize. There was no reason to pay them a second time by giving them a monopoly over the sale of the drug.
In fact, one of the main points of the prize was to allow drugs to be sold at their free market price. This would both ensure that they were affordable (drugs are almost always cheap to produce) and eliminate the drug companies’ incentive to lie about the safety and effectiveness of their drugs.
Emanuel does depart from earlier proponents of prize funds in proposing that drug companies be allowed to have a patent monopoly even after having been awarded with a prize. This leaves in place the potential problems of affordability and perverse incentives that earlier proponents of prize funds had sought to address.
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The myth of the “young invincibles” has come back to life in the editorials of the Washington Post. Folks may recall that this was the story where Obamacare would live or die depending on whether young healthy people signed up for the program. The small grain of truth to the story is that the premium for young people was slightly higher than an actuarially fair premium while the premium for those in the oldest Obamacare age band (ages 55-64) was slightly lower. This means that as a group, the young provide a modest subsidy to the old.
However the differences in costs within each age band swamp the differences across age bands. There are millions of people in the oldest age band who have little or no medical expenses each year just as there are millions of young people who have no medical expenses. Obamacare needs the former group at least as much as it needs the latter (arguably more, since the older group pays premiums that are three times as high).
The Kaiser Family Foundation did the calculations to show this point. Even a large skewing by age will make little difference in the cost of the program. It matters much more if there is a skewing on health status.
Anyhow, perhaps this study will find its way over the WaPo editorial board at some point.
The myth of the “young invincibles” has come back to life in the editorials of the Washington Post. Folks may recall that this was the story where Obamacare would live or die depending on whether young healthy people signed up for the program. The small grain of truth to the story is that the premium for young people was slightly higher than an actuarially fair premium while the premium for those in the oldest Obamacare age band (ages 55-64) was slightly lower. This means that as a group, the young provide a modest subsidy to the old.
However the differences in costs within each age band swamp the differences across age bands. There are millions of people in the oldest age band who have little or no medical expenses each year just as there are millions of young people who have no medical expenses. Obamacare needs the former group at least as much as it needs the latter (arguably more, since the older group pays premiums that are three times as high).
The Kaiser Family Foundation did the calculations to show this point. Even a large skewing by age will make little difference in the cost of the program. It matters much more if there is a skewing on health status.
Anyhow, perhaps this study will find its way over the WaPo editorial board at some point.
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That’s the question that millions of readers of the NYT will be asking after seeing an analysis of the deal between Greece and the European Union that told readers:
“Moreover, the finance ministers made clear that Greece will not get any more cash until it satisfies them it can keep a lid on spending.”
In fact, Greece has already cut government spending by almost 15 percent in real terms from 2008 to 2014, according to the International Monetary Fund (I.M.F.). This spending cut is equal to almost 9.0 percent of Greece’s potential GDP. This would be the equivalent of a cut in annual spending of $1.6 trillion in the United States in terms of its economic impact.
The piece also asserts that “leaders in the rest of Europe do not want to join or, more important, finance the Greek-led revolt.” Actually the financing is going from Greece to the rest of Europe since Greece is now running a primary budget surplus. That means that the government is collecting enough revenue to finance its spending, excluding interest payments. It is the size of the interest payments, which go primarily from Greece to the European Union, European Central Bank, and I.M.F. that is at issue. Greece is not asking for additional money from the rest of Europe. In the event that Greece leaves the euro the payments on its debt will almost certainly stop altogether, so the question is how much financing the rest of Europe gets from Greece, not how much financing Greece gets from Europe.
That’s the question that millions of readers of the NYT will be asking after seeing an analysis of the deal between Greece and the European Union that told readers:
“Moreover, the finance ministers made clear that Greece will not get any more cash until it satisfies them it can keep a lid on spending.”
In fact, Greece has already cut government spending by almost 15 percent in real terms from 2008 to 2014, according to the International Monetary Fund (I.M.F.). This spending cut is equal to almost 9.0 percent of Greece’s potential GDP. This would be the equivalent of a cut in annual spending of $1.6 trillion in the United States in terms of its economic impact.
The piece also asserts that “leaders in the rest of Europe do not want to join or, more important, finance the Greek-led revolt.” Actually the financing is going from Greece to the rest of Europe since Greece is now running a primary budget surplus. That means that the government is collecting enough revenue to finance its spending, excluding interest payments. It is the size of the interest payments, which go primarily from Greece to the European Union, European Central Bank, and I.M.F. that is at issue. Greece is not asking for additional money from the rest of Europe. In the event that Greece leaves the euro the payments on its debt will almost certainly stop altogether, so the question is how much financing the rest of Europe gets from Greece, not how much financing Greece gets from Europe.
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The NYT reported that efforts by rich Chinese to get some of their wealth out of the country have led to downward pressure on the value of the country’s currency. It noted that the central bank is trying to counteract some of this pressure by selling some its foreign exchange reserves to buy up yuan. It then tells readers:
“A weaker renminbi could produce greater tensions with the United States, by widening that trade imbalance. The Obama administration is in a tricky position, however. It has long argued that Beijing should guide the value of the renminbi less and let market forces prevail. But following that logic now and letting the renminbi fall further could make it even harder for American producers to compete.”
This is not accurate. As the article notes, China’s central bank holds $3.8 trillion in foreign exchange reserves. This is close to four times what a country with an economy the size of China’s would be expected to hold. The holdings of dollars and other reserves prop up the dollar against the yuan even if China’s bank decides to sell off some of its holdings.
In this way, it is very similar to the situation of the Fed with respect to quantitative easing. Even if the Fed sells off some of its bonds, the net effect of its policy is still to lower interest rates, as long as it still has a large stock of long-term debt on its balance sheets.
The NYT reported that efforts by rich Chinese to get some of their wealth out of the country have led to downward pressure on the value of the country’s currency. It noted that the central bank is trying to counteract some of this pressure by selling some its foreign exchange reserves to buy up yuan. It then tells readers:
“A weaker renminbi could produce greater tensions with the United States, by widening that trade imbalance. The Obama administration is in a tricky position, however. It has long argued that Beijing should guide the value of the renminbi less and let market forces prevail. But following that logic now and letting the renminbi fall further could make it even harder for American producers to compete.”
This is not accurate. As the article notes, China’s central bank holds $3.8 trillion in foreign exchange reserves. This is close to four times what a country with an economy the size of China’s would be expected to hold. The holdings of dollars and other reserves prop up the dollar against the yuan even if China’s bank decides to sell off some of its holdings.
In this way, it is very similar to the situation of the Fed with respect to quantitative easing. Even if the Fed sells off some of its bonds, the net effect of its policy is still to lower interest rates, as long as it still has a large stock of long-term debt on its balance sheets.
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To paraphrase a line from an iconic American toy doll, “currency values are hard.” That is probably the best way to describe the Washington Post’s editorial against including rules on currency values in trade agreements.
The Post’s essential argument against including rules on currency values is that some measures whose main purpose is not to affect currency values may nonetheless affect currency values. Its example is the Fed’s quantitative easing (QE) policy, which by lowering interest rates also had the effect of lowering the value of the dollar. (It’s not clear why the Post singles out QE, since any Fed cut in interest rates would also lower the value of the dollar, other things equal.) The Post then argues that other countries could have contested QE policy as an unfair effort to lower the value of the dollar.
If the Post editorial board really believes this argument then it would be opposed to almost any possible trade agreement. Almost all trade agreements prohibit subsidies on exports. For example, the United States and other parties to trade deals are prohibiting from giving a 20 percent subsidy to steel exports so as to help their domestic steel industries. That’s about as basic as it gets.
But what about providing public education and training for the workers in the steel industry, is that a subsidy? How about having the government pick up the tab for the roads and ports used to export the steel? How about tax abatements and land condemnations for the construction of new steel factories? How about providing below-market interest loans through the Export-Import Bank? All of these are arguably forms of export subsidies and in fact raise far more difficult questions than quantitative easing.
If the Washington Post’s editors really can’t tell the difference between a policy whose primary purpose and effect is boosting aggregate demand in the United States by lowering interest rates and policy that directly lowers the value of the dollar by purchasing trillions of dollars of foreign currency, then surely they can’t tell the difference between education and infrastructure policy and export subsidies.
In short, the Washington Post editorial board apparently thinks our trade officials lack the competence to do trade policy. If they took their own logic seriously they would recommend just canning trade deals altogether; they are too complicated.
Addendum:
There is one point worth noting on this issue that the WaPo editorial doesn’t quite make. If the Obama administration cared about currency values there are measures it could take now. For example, it could push the Fed to actually buy up $1 trillion of currencies that are under-valued against the dollar. For currencies that are not freely traded it can try to put indirect pressure on their value by buying up futures or by offering to buy the currency directly from holders at a price above the pegged exchange rate. For example if the yuan is being targeted at a price of 16 cents, the Treasury could offer to pay 25 cents per yuan.
There is nothing that prevents the United States from going this route, although it would obviously be seen as a hostile step by our trading partners. Presumably the threat of going this route would lead to serious negotiations on currency values and end up with an agreement that resulted in a lower valued dollar.
To paraphrase a line from an iconic American toy doll, “currency values are hard.” That is probably the best way to describe the Washington Post’s editorial against including rules on currency values in trade agreements.
The Post’s essential argument against including rules on currency values is that some measures whose main purpose is not to affect currency values may nonetheless affect currency values. Its example is the Fed’s quantitative easing (QE) policy, which by lowering interest rates also had the effect of lowering the value of the dollar. (It’s not clear why the Post singles out QE, since any Fed cut in interest rates would also lower the value of the dollar, other things equal.) The Post then argues that other countries could have contested QE policy as an unfair effort to lower the value of the dollar.
If the Post editorial board really believes this argument then it would be opposed to almost any possible trade agreement. Almost all trade agreements prohibit subsidies on exports. For example, the United States and other parties to trade deals are prohibiting from giving a 20 percent subsidy to steel exports so as to help their domestic steel industries. That’s about as basic as it gets.
But what about providing public education and training for the workers in the steel industry, is that a subsidy? How about having the government pick up the tab for the roads and ports used to export the steel? How about tax abatements and land condemnations for the construction of new steel factories? How about providing below-market interest loans through the Export-Import Bank? All of these are arguably forms of export subsidies and in fact raise far more difficult questions than quantitative easing.
If the Washington Post’s editors really can’t tell the difference between a policy whose primary purpose and effect is boosting aggregate demand in the United States by lowering interest rates and policy that directly lowers the value of the dollar by purchasing trillions of dollars of foreign currency, then surely they can’t tell the difference between education and infrastructure policy and export subsidies.
In short, the Washington Post editorial board apparently thinks our trade officials lack the competence to do trade policy. If they took their own logic seriously they would recommend just canning trade deals altogether; they are too complicated.
Addendum:
There is one point worth noting on this issue that the WaPo editorial doesn’t quite make. If the Obama administration cared about currency values there are measures it could take now. For example, it could push the Fed to actually buy up $1 trillion of currencies that are under-valued against the dollar. For currencies that are not freely traded it can try to put indirect pressure on their value by buying up futures or by offering to buy the currency directly from holders at a price above the pegged exchange rate. For example if the yuan is being targeted at a price of 16 cents, the Treasury could offer to pay 25 cents per yuan.
There is nothing that prevents the United States from going this route, although it would obviously be seen as a hostile step by our trading partners. Presumably the threat of going this route would lead to serious negotiations on currency values and end up with an agreement that resulted in a lower valued dollar.
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The NYT completely abandoned its commitment to put numbers in context in an article on the budget cuts proposed by Illinois’ new governor, Bruce Rauner. The piece tells readers that the governor had proposed cuts of more than $6 billion. Since most NYT readers are not familiar with the size of Illinois’ budget, this is not providing very much information. In fact, the cuts (actually $6.7 billion) would be equal to approximately 17.5 percent of baseline spending (see page 2-23). It refers to a cut of $1.5 billion in state Medicaid spending. This is just under 20 percent of baseline spending on the program.
The piece notes a projected shortfall of $110 billion in the state’s pension plans. This is equal to approximately 0.8 percent of the state’s projected income over the pension’s 30-year planning period. The piece refers to a plan to cut pension benefits by $100 billion. This would imply cuts of more than $200,000 per active employee. (This calculation does not apply any discounting since it’s not clear if any discounting is applied to the $100 billion figure.)
The NYT completely abandoned its commitment to put numbers in context in an article on the budget cuts proposed by Illinois’ new governor, Bruce Rauner. The piece tells readers that the governor had proposed cuts of more than $6 billion. Since most NYT readers are not familiar with the size of Illinois’ budget, this is not providing very much information. In fact, the cuts (actually $6.7 billion) would be equal to approximately 17.5 percent of baseline spending (see page 2-23). It refers to a cut of $1.5 billion in state Medicaid spending. This is just under 20 percent of baseline spending on the program.
The piece notes a projected shortfall of $110 billion in the state’s pension plans. This is equal to approximately 0.8 percent of the state’s projected income over the pension’s 30-year planning period. The piece refers to a plan to cut pension benefits by $100 billion. This would imply cuts of more than $200,000 per active employee. (This calculation does not apply any discounting since it’s not clear if any discounting is applied to the $100 billion figure.)
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