In an article on corporate inversions (relocating their official headquarters to another country) the Washington Post told readers:
“the potential costs to the U.S. treasury are enormous. One measure, by the congressional Joint Committee on Taxation (JCT), suggests that the nation stands to lose nearly $20 billion in tax revenue over the next decade. Former JCT director Edward Kleinbard said he thinks the potential loss is much higher.”
For those wondering how big a deal $20 billion over the next decade is, the Congressional Budget Office (CBO) projects total revenue over this period of $40.6 trillion, which means that the JCT estimate would imply a lose of revenue of 0.05 percent. To make another comparison, Medicare spending has been coming in far lower than projected in recent years. The most recent projections for net spending in 2015 is $524 billion. By comparison, in 2008 CBO projected that we would spend $609 billion in 2015, implying a saving of $85 billion in 2015 alone. Carrying through the differences in projected growth rates in the most recent projections with the growth rate projected in 2008, the savings from lower Medicare spending would exceed $1 trillion, making them more than 50 times “enormous.”
This does not mean that the Congress and the president should not try to stop a practice that serves no economic purpose and will needlessly cost the government a substantial amount of revenue. It is also important to note that this gaming of the tax code imposes real costs on the economy. There are financial firms that will earn lots of money from this sort of financial engineering. The resources used by these firms (e.g. the labor of the accountants and lawyers engineering the switch) could instead be used productively. In effect. some people are getting very rich being paid to dig holes and fill them up again, in other words, doing work of no economic value.
This is a problem with all economic transactions that become profitable wholly or partly because of quirks in the tax code. For example, much of the wealth of private equity fund managers can be attributed to their exploitation of the deduction for interest payments. This deduction effectively subsidizes heavy corporate leverage, which is undesirable from an economic standpoint since it increases the risk of bankruptcy.
The economic waste associated with tax loopholes, which almost always makes the rich richer, is at least as important a reason to be concerned about corporate tax loopholes as the lost revenue to the government.
In an article on corporate inversions (relocating their official headquarters to another country) the Washington Post told readers:
“the potential costs to the U.S. treasury are enormous. One measure, by the congressional Joint Committee on Taxation (JCT), suggests that the nation stands to lose nearly $20 billion in tax revenue over the next decade. Former JCT director Edward Kleinbard said he thinks the potential loss is much higher.”
For those wondering how big a deal $20 billion over the next decade is, the Congressional Budget Office (CBO) projects total revenue over this period of $40.6 trillion, which means that the JCT estimate would imply a lose of revenue of 0.05 percent. To make another comparison, Medicare spending has been coming in far lower than projected in recent years. The most recent projections for net spending in 2015 is $524 billion. By comparison, in 2008 CBO projected that we would spend $609 billion in 2015, implying a saving of $85 billion in 2015 alone. Carrying through the differences in projected growth rates in the most recent projections with the growth rate projected in 2008, the savings from lower Medicare spending would exceed $1 trillion, making them more than 50 times “enormous.”
This does not mean that the Congress and the president should not try to stop a practice that serves no economic purpose and will needlessly cost the government a substantial amount of revenue. It is also important to note that this gaming of the tax code imposes real costs on the economy. There are financial firms that will earn lots of money from this sort of financial engineering. The resources used by these firms (e.g. the labor of the accountants and lawyers engineering the switch) could instead be used productively. In effect. some people are getting very rich being paid to dig holes and fill them up again, in other words, doing work of no economic value.
This is a problem with all economic transactions that become profitable wholly or partly because of quirks in the tax code. For example, much of the wealth of private equity fund managers can be attributed to their exploitation of the deduction for interest payments. This deduction effectively subsidizes heavy corporate leverage, which is undesirable from an economic standpoint since it increases the risk of bankruptcy.
The economic waste associated with tax loopholes, which almost always makes the rich richer, is at least as important a reason to be concerned about corporate tax loopholes as the lost revenue to the government.
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That one should be obvious, but for some reason almost no one ever says it. This is why it is very nice to see Eduardo Porter’s piece making the point in the NYT today.
The basic point is probably too simple for economists to understand, but if we have 20 percent fewer people in 2050 than in a baseline scenario, then they all can emit 20 percent more greenhouse gas (GHG) emissions in that year and have the same amount of total emissions. Alternatively, if we have the same amount of per capita emissions, we will have 20 percent less total emissions.Restraining population growth is not going to solve the problem. We have to sharply reduce the amount of GHG emissions per person, but reaching whatever targets we set will be much easier with a smaller population.
It is remarkable how frequently news stories decry evidence of slowing population growth or shrinking populations as implying some sort of catastrophe. This is nonsense. It simply implies a tighter labor market with a rising ratio of capital to labor. In this scenario, workers switch from low productivity jobs (e.g. restaurant work, house cleaning, and retail clerks) to higher productivity jobs. This is a problem for the people who want to hire cheap labor, but will likely be seen as good news by almost everyone else.
That one should be obvious, but for some reason almost no one ever says it. This is why it is very nice to see Eduardo Porter’s piece making the point in the NYT today.
The basic point is probably too simple for economists to understand, but if we have 20 percent fewer people in 2050 than in a baseline scenario, then they all can emit 20 percent more greenhouse gas (GHG) emissions in that year and have the same amount of total emissions. Alternatively, if we have the same amount of per capita emissions, we will have 20 percent less total emissions.Restraining population growth is not going to solve the problem. We have to sharply reduce the amount of GHG emissions per person, but reaching whatever targets we set will be much easier with a smaller population.
It is remarkable how frequently news stories decry evidence of slowing population growth or shrinking populations as implying some sort of catastrophe. This is nonsense. It simply implies a tighter labor market with a rising ratio of capital to labor. In this scenario, workers switch from low productivity jobs (e.g. restaurant work, house cleaning, and retail clerks) to higher productivity jobs. This is a problem for the people who want to hire cheap labor, but will likely be seen as good news by almost everyone else.
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Yes, that is what he said according to the Washington Post. The context was a business summit involving U.S. and African business people and African heads of state. Immelt was complaining that the reauthorization of the Export-Import Bank is being seriously debated Washington.
The Bank makes or guarantees around $35 billion in loans, with the vast majority of the money going to large companies like GE, which Immelt heads. The Bank effectively is allowing these companies to get loans at below market interest rates, adding billions of dollars to their profits each year.
According to the piece Immelt complained:
“There’s a lot of things to be critical about big businesses, and there’s a lot of things that don’t work in government, but exporting is not one of them and the Ex-Im Bank is not one of them, … And the fact that we have to sit here and argue for it I think is just wrong.”
It is also worth noting that article misled readers by saying:
“some Republicans and conservative groups say the bank should be allowed to die, claiming that it doles out corporate welfare and engages in crony capitalism.”
There are also many people who are neither Republicans nor conservatives who do not think it is an important role of government to make people like Jeffrey Immelt even richer.
Yes, that is what he said according to the Washington Post. The context was a business summit involving U.S. and African business people and African heads of state. Immelt was complaining that the reauthorization of the Export-Import Bank is being seriously debated Washington.
The Bank makes or guarantees around $35 billion in loans, with the vast majority of the money going to large companies like GE, which Immelt heads. The Bank effectively is allowing these companies to get loans at below market interest rates, adding billions of dollars to their profits each year.
According to the piece Immelt complained:
“There’s a lot of things to be critical about big businesses, and there’s a lot of things that don’t work in government, but exporting is not one of them and the Ex-Im Bank is not one of them, … And the fact that we have to sit here and argue for it I think is just wrong.”
It is also worth noting that article misled readers by saying:
“some Republicans and conservative groups say the bank should be allowed to die, claiming that it doles out corporate welfare and engages in crony capitalism.”
There are also many people who are neither Republicans nor conservatives who do not think it is an important role of government to make people like Jeffrey Immelt even richer.
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Knowingly issuing a fraudulent mortgage (e.g. a mortgage based on false information) is fraud. It is the sort of thing that you can go to jail for, especially when it is done on a mass scale, as was the case in the financial crisis. Knowingly passing along fraudulent mortgages in mortgage backed securities is also fraud.
No important figure at any major bank was prosecuted for these activities by the Justice Department. As a result, virtually all of them benefited from their actions in the housing bubble years. They were better off as a result of having committed fraud than if they had obeyed the law. Economic theory tells us that we should expect that this would lead other executives in similar positions to act the same way. In other words, they will break the law, since the consequences of getting caught are essentially zero.
In spite of this reality, in an article on a Justice Department investigation of loan practice in the subprime auto loan market the NYT told readers:
“For the Justice Department, buffeted by criticism for not indicting a Wall Street executive, the mortgage investigations have helped polish the agency’s image as a tough enforcer as they have yielded a string of multibillion dollar penalties.”
The article doesn’t tell readers in whose mind the Justice Department’s image has been polished. The recent settlements against banks can be seen as taking actions against a mob run company after the mob has sold it off, while all the mobsters continue to go free and live off the proceeds of their illegal dealings. That may seem tough to some people, but probably not anyone who has given the issue much attention.
Note: Typo corrected.
Knowingly issuing a fraudulent mortgage (e.g. a mortgage based on false information) is fraud. It is the sort of thing that you can go to jail for, especially when it is done on a mass scale, as was the case in the financial crisis. Knowingly passing along fraudulent mortgages in mortgage backed securities is also fraud.
No important figure at any major bank was prosecuted for these activities by the Justice Department. As a result, virtually all of them benefited from their actions in the housing bubble years. They were better off as a result of having committed fraud than if they had obeyed the law. Economic theory tells us that we should expect that this would lead other executives in similar positions to act the same way. In other words, they will break the law, since the consequences of getting caught are essentially zero.
In spite of this reality, in an article on a Justice Department investigation of loan practice in the subprime auto loan market the NYT told readers:
“For the Justice Department, buffeted by criticism for not indicting a Wall Street executive, the mortgage investigations have helped polish the agency’s image as a tough enforcer as they have yielded a string of multibillion dollar penalties.”
The article doesn’t tell readers in whose mind the Justice Department’s image has been polished. The recent settlements against banks can be seen as taking actions against a mob run company after the mob has sold it off, while all the mobsters continue to go free and live off the proceeds of their illegal dealings. That may seem tough to some people, but probably not anyone who has given the issue much attention.
Note: Typo corrected.
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The Post’s Wonkblog has a piece telling us that we should thank the recession for the slowdown in health care cost growth. I was one of those in the camp who thought the recession was responsible for the slowdown in health care growth in 2008-2010, however I think the explanation weakens as time goes on and costs continue to grow slowly.
The point is simple. Suppose that you have $10k slashed from your income in 2008 compared to its 2007 level. We might expect that you would spend less on health care and everything else in 2008. Suppose that your income in 2009 is again $10k below where you expected it would have been back in 2007. This happens again in 2010, 2011, 2012, 2013, and 2014. In other words, your income grows at more or less the same pace that you would have expected in each of these years, but the level in each year is 10k below what you had expected it would be in back in 2007.
In this story, which more or less captures the recovery, we might expect that the level of health care spending in these later years would be lower than had been projected in 2007, but the growth rate would be pretty much the same. The Post piece tells us that ain’t so.
It cites two studies. Since one is behind a paywall, I will focus on the Brookings study which is freely available to the unwashed masses. This study finds a reasonably strong link between health care spending and GDP growth, however there is a long lag. The regressions for the growth of per capita health care spending use as independent variables current GDP growth and 5 lagged GDP terms using annual data. What is striking is that the strongest effect shows up on the fourth lagged term.
This is noteworthy in the current context because in 2013, the fourth lagged term gave us 2009 GDP growth, which was -2.8 percent. The fourth lagged term this year would give us 2010 GDP growth, which was 2.5 percent. The difference between these two implies a predicted rate of health care cost growth that is 1.6 percentage points higher in 2014 than in 2013. (This calculation uses the coefficients from column 1 of Table 1, the uptick in predicted cost growth would apply for all the regressions whose results are shown in the table, although the size would vary.)
The point is that if this study is the basis for expecting a sharp slowing of health care costs due to the weak economy, the period during which that would be true is over. Based on the study’s findings we should be seeing substantially more rapid increases in health care costs in 2014 than we did last year. Thus far this doesn’t appear to be the case, which may cause us to question the usefulness of this model for explaining recent patterns in health care cost growth.
Addendum:
Medgeek was good enough to send me the other study, a paper by David Dranove, Craig Garthwaite, and Christopher Ody, which I quickly read through. Looks to me like it provides good evidence that the recession was the major factor in reducing cost growth in 2008-2010. Their model shows that the recession would not lead to any further decline in cost growth in 2011 or later years (see Exhibit 3). In fact, the modest uptick in the employment to population ratio in subsequent years means that we should have been seeing somewhat above trend increases in health care costs in 2012-2014. So yes, there is good reason to believe that the recession was the major factor behind slower health care costs in the years 2008-2010. The continued slow growth over the last three and a half years requires another explanation.
The Post’s Wonkblog has a piece telling us that we should thank the recession for the slowdown in health care cost growth. I was one of those in the camp who thought the recession was responsible for the slowdown in health care growth in 2008-2010, however I think the explanation weakens as time goes on and costs continue to grow slowly.
The point is simple. Suppose that you have $10k slashed from your income in 2008 compared to its 2007 level. We might expect that you would spend less on health care and everything else in 2008. Suppose that your income in 2009 is again $10k below where you expected it would have been back in 2007. This happens again in 2010, 2011, 2012, 2013, and 2014. In other words, your income grows at more or less the same pace that you would have expected in each of these years, but the level in each year is 10k below what you had expected it would be in back in 2007.
In this story, which more or less captures the recovery, we might expect that the level of health care spending in these later years would be lower than had been projected in 2007, but the growth rate would be pretty much the same. The Post piece tells us that ain’t so.
It cites two studies. Since one is behind a paywall, I will focus on the Brookings study which is freely available to the unwashed masses. This study finds a reasonably strong link between health care spending and GDP growth, however there is a long lag. The regressions for the growth of per capita health care spending use as independent variables current GDP growth and 5 lagged GDP terms using annual data. What is striking is that the strongest effect shows up on the fourth lagged term.
This is noteworthy in the current context because in 2013, the fourth lagged term gave us 2009 GDP growth, which was -2.8 percent. The fourth lagged term this year would give us 2010 GDP growth, which was 2.5 percent. The difference between these two implies a predicted rate of health care cost growth that is 1.6 percentage points higher in 2014 than in 2013. (This calculation uses the coefficients from column 1 of Table 1, the uptick in predicted cost growth would apply for all the regressions whose results are shown in the table, although the size would vary.)
The point is that if this study is the basis for expecting a sharp slowing of health care costs due to the weak economy, the period during which that would be true is over. Based on the study’s findings we should be seeing substantially more rapid increases in health care costs in 2014 than we did last year. Thus far this doesn’t appear to be the case, which may cause us to question the usefulness of this model for explaining recent patterns in health care cost growth.
Addendum:
Medgeek was good enough to send me the other study, a paper by David Dranove, Craig Garthwaite, and Christopher Ody, which I quickly read through. Looks to me like it provides good evidence that the recession was the major factor in reducing cost growth in 2008-2010. Their model shows that the recession would not lead to any further decline in cost growth in 2011 or later years (see Exhibit 3). In fact, the modest uptick in the employment to population ratio in subsequent years means that we should have been seeing somewhat above trend increases in health care costs in 2012-2014. So yes, there is good reason to believe that the recession was the major factor behind slower health care costs in the years 2008-2010. The continued slow growth over the last three and a half years requires another explanation.
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A New York Times article on New York City’s pension funds implied that its assumed rate of return going forward is too high based on past returns over a highly selective period:
“But excessive optimism can lead to financial disaster, because regular shortfalls could ultimately leave the city unable to fulfill its required payouts. For years, the investment return expectation was set at 8 percent. In reality, the system’s returns have often fallen well short of that, earning just 2 percent on average from 1999 to 2009, for instance.”
It should not have been surprising that returns would be well below 8 percent in a period that started in 1999 when the price to trend earnings ratio in the stock market was close to 30. The funds should have adjusted their return projections downward in line with the unprecedented run-up in the stock market.
On the other hand, the fact that it is possible to find a year where the market has slumped badly and thereby provided very low returns is completely irrelevant to the a pension fund that in principle can exist forever. It had no need to cash out large amounts of its holdings in 2009, nor is there a plausible scenario in which it would. Of course returns have been far above the 8 percent average in the years since 2009, as the piece notes.
Given this reality, it is entirely reasonable for pensions to use the expected rate of return on their pension assets as the discount rate for future liabilities. This would lead to the smoothest flow of funding. The alternative risk-free rate which is advocated by this article (it uses it in the main chart) would effectively have pensions pre-fund their obligations so that future payments would be much lower relative to revenue. This would be equivalent to building up a large account so that the police or fire department could be paid out of the interest. No policy experts would advocate such an approach.
The piece also misleadingly blames pensions for cutbacks in city programs;
“Already, the growing sums consumed by the pension funds have forced officials to scrimp on certain programs or abandon them, said Marc La Vorgna, a press secretary during Mr. Bloomberg’s administration. One casualty was the Advantage program, which helped homeless people move out of shelters and into apartments. It was eliminated in the Bloomberg administration.”
It is equally accurate to say that these programs were only possible (assuming no other revenue or spending cuts) because the city wasn’t meeting its obligations to the pension funds. In other words, rather than paying for possibly worthwhile programs, the city was taking the money from its workers’ pay in the form of their pensions. It seems more than a bit misguided to blame the pensions for putting an end to this practice.
The points the article makes on the needless cost of investment advisers and questionable returns from private equity investments are well-taken.
A New York Times article on New York City’s pension funds implied that its assumed rate of return going forward is too high based on past returns over a highly selective period:
“But excessive optimism can lead to financial disaster, because regular shortfalls could ultimately leave the city unable to fulfill its required payouts. For years, the investment return expectation was set at 8 percent. In reality, the system’s returns have often fallen well short of that, earning just 2 percent on average from 1999 to 2009, for instance.”
It should not have been surprising that returns would be well below 8 percent in a period that started in 1999 when the price to trend earnings ratio in the stock market was close to 30. The funds should have adjusted their return projections downward in line with the unprecedented run-up in the stock market.
On the other hand, the fact that it is possible to find a year where the market has slumped badly and thereby provided very low returns is completely irrelevant to the a pension fund that in principle can exist forever. It had no need to cash out large amounts of its holdings in 2009, nor is there a plausible scenario in which it would. Of course returns have been far above the 8 percent average in the years since 2009, as the piece notes.
Given this reality, it is entirely reasonable for pensions to use the expected rate of return on their pension assets as the discount rate for future liabilities. This would lead to the smoothest flow of funding. The alternative risk-free rate which is advocated by this article (it uses it in the main chart) would effectively have pensions pre-fund their obligations so that future payments would be much lower relative to revenue. This would be equivalent to building up a large account so that the police or fire department could be paid out of the interest. No policy experts would advocate such an approach.
The piece also misleadingly blames pensions for cutbacks in city programs;
“Already, the growing sums consumed by the pension funds have forced officials to scrimp on certain programs or abandon them, said Marc La Vorgna, a press secretary during Mr. Bloomberg’s administration. One casualty was the Advantage program, which helped homeless people move out of shelters and into apartments. It was eliminated in the Bloomberg administration.”
It is equally accurate to say that these programs were only possible (assuming no other revenue or spending cuts) because the city wasn’t meeting its obligations to the pension funds. In other words, rather than paying for possibly worthwhile programs, the city was taking the money from its workers’ pay in the form of their pensions. It seems more than a bit misguided to blame the pensions for putting an end to this practice.
The points the article makes on the needless cost of investment advisers and questionable returns from private equity investments are well-taken.
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Zachary Goldfarb has an interesting analysis of trends in before and after-tax income inequality in the Obama years. However he is mistaken in attributing the rise in before-tax inequality to the market rather than deliberate policy choices.
For example, the big banks still exist today because the government had a policy of saving them from the market. They would have managed to put themselves into bankruptcy in 2008 without huge amounts of below market loans and implicit and explicit guarantees from the government. In the wake of this history, the income and wealth of most of the financial sector can hardly be viewed as a market outcome. (The financial sector also profits by being exempted from taxes that apply to other industries.)
Globalization has increased inequality because of the way the government structured trade. It has designed trade agreements to put downward pressure on the wages of manufacturing workers by putting them in direct competition with their much lower paid counterparts in the developing world. It could have designed trade agreements to make it as easy as possible for people in the developing world to train to our standards as doctors, lawyers, and other professionals and then to compete freely in the U.S. market with native-born professionals. This pattern of trade would have yielded enormous benefits to the economy by reducing the cost of health care and other services, while reducing inequality. The fact that we did not go this way was a policy decision, not a market outcome.
In the same vein, the fact that many products, most notably prescription drugs, sell for high prices is due to government granted patent monopolies. The Hepatitis C drug, Sovaldi, which is being sold by Gilead Sciences for $84,000 for a 3-month treatment, would sell for less than $1,000 in the absence of a patent monopoly. The difference is overwhelmingly a transfer from everyone else to the wealthy. Patent monopolies transfer hundreds of billions of dollars a year to patent holders, who are overwhelming high-income households.
Finally, by running a high unemployment policy the government is transferring money from low and moderate income people to the higher income people. We could bring the unemployment rate down to 5.0 percent or possibly 4.0 percent with larger government deficits or a lower valued dollar, which would reduce the size of the trade deficit. The lower rate of unemployment would not only give millions more people jobs, it would also give workers in the bottom half of the wage distribution the bargaining power necessary to raise their wages. These workers would then have more money, while high income households would have to pay more for help.
In short, there are a whole list of easily identifiable policies that have fostered the large upward redistribution we have seen in the last three decades. It is not just the market.
Zachary Goldfarb has an interesting analysis of trends in before and after-tax income inequality in the Obama years. However he is mistaken in attributing the rise in before-tax inequality to the market rather than deliberate policy choices.
For example, the big banks still exist today because the government had a policy of saving them from the market. They would have managed to put themselves into bankruptcy in 2008 without huge amounts of below market loans and implicit and explicit guarantees from the government. In the wake of this history, the income and wealth of most of the financial sector can hardly be viewed as a market outcome. (The financial sector also profits by being exempted from taxes that apply to other industries.)
Globalization has increased inequality because of the way the government structured trade. It has designed trade agreements to put downward pressure on the wages of manufacturing workers by putting them in direct competition with their much lower paid counterparts in the developing world. It could have designed trade agreements to make it as easy as possible for people in the developing world to train to our standards as doctors, lawyers, and other professionals and then to compete freely in the U.S. market with native-born professionals. This pattern of trade would have yielded enormous benefits to the economy by reducing the cost of health care and other services, while reducing inequality. The fact that we did not go this way was a policy decision, not a market outcome.
In the same vein, the fact that many products, most notably prescription drugs, sell for high prices is due to government granted patent monopolies. The Hepatitis C drug, Sovaldi, which is being sold by Gilead Sciences for $84,000 for a 3-month treatment, would sell for less than $1,000 in the absence of a patent monopoly. The difference is overwhelmingly a transfer from everyone else to the wealthy. Patent monopolies transfer hundreds of billions of dollars a year to patent holders, who are overwhelming high-income households.
Finally, by running a high unemployment policy the government is transferring money from low and moderate income people to the higher income people. We could bring the unemployment rate down to 5.0 percent or possibly 4.0 percent with larger government deficits or a lower valued dollar, which would reduce the size of the trade deficit. The lower rate of unemployment would not only give millions more people jobs, it would also give workers in the bottom half of the wage distribution the bargaining power necessary to raise their wages. These workers would then have more money, while high income households would have to pay more for help.
In short, there are a whole list of easily identifiable policies that have fostered the large upward redistribution we have seen in the last three decades. It is not just the market.
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The “hard to get good help” crowd continue to dominate reporting at the Washington Post. An article on Japan’s efforts to facilitate women returning to jobs after childbirth told readers:
“Japan is sitting on a demographic time bomb: With its low birth rate, the population is on track to shrink 30 percent by 2060, at the same time 40 percent of its citizens will hit old age.”
There is no time bomb. Japan, like most countries, has seen an increasing ratio of retirees to workers. This has been going on for a century. This increase has been associated with rising living standards because of increases in productivity. By all projections, productivity in Japan will be vastly higher in 2060 than it is today, which means that both workers and retirees will be able to enjoy higher living standards even though there will be a lower ratio of workers to retirees.
As labor markets tighten in Japan, workers will go from less productive to more productive jobs. This will mean that people who want workers for menial jobs such as cleaning their house or tending their garden will have to pay more money. This is bad news for them, but it does not amount to a time bomb for the country.
The “hard to get good help” crowd continue to dominate reporting at the Washington Post. An article on Japan’s efforts to facilitate women returning to jobs after childbirth told readers:
“Japan is sitting on a demographic time bomb: With its low birth rate, the population is on track to shrink 30 percent by 2060, at the same time 40 percent of its citizens will hit old age.”
There is no time bomb. Japan, like most countries, has seen an increasing ratio of retirees to workers. This has been going on for a century. This increase has been associated with rising living standards because of increases in productivity. By all projections, productivity in Japan will be vastly higher in 2060 than it is today, which means that both workers and retirees will be able to enjoy higher living standards even though there will be a lower ratio of workers to retirees.
As labor markets tighten in Japan, workers will go from less productive to more productive jobs. This will mean that people who want workers for menial jobs such as cleaning their house or tending their garden will have to pay more money. This is bad news for them, but it does not amount to a time bomb for the country.
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The NYT tells us the good news on the cost of giving people Sovaldi for treating Hepatitis C. First, the annual costs are likely to fall in the years ahead as the backlog of people with the disease are cured and the numbers needing treatment declines sharply. Second, new effective drugs will come on the market and compete with Sovaldi, driving the price down.
In a context where the government gives Savaldi a patent monopoly it is good to have multiple drugs that can provide competition. However from the standpoint of the efficiency of the drug development process this implies an enormous amount of waste.
Once an effective treatment for Hepatitis C has been developed, there is little medical benefit in having a second or third effective treatment. The resources to develop these alternatives to Sovaldi could have been much better utilized researching treatments for diseases which do not presently have a cure. However the incentives provided by the massive patent rents being earned by Gilead Sciences (the patent holder for Sovaldi) give a huge incentive to other companies to carry through duplicative research. If anyone cared about efficiency in the health care system this point would be widely publicized.
The NYT tells us the good news on the cost of giving people Sovaldi for treating Hepatitis C. First, the annual costs are likely to fall in the years ahead as the backlog of people with the disease are cured and the numbers needing treatment declines sharply. Second, new effective drugs will come on the market and compete with Sovaldi, driving the price down.
In a context where the government gives Savaldi a patent monopoly it is good to have multiple drugs that can provide competition. However from the standpoint of the efficiency of the drug development process this implies an enormous amount of waste.
Once an effective treatment for Hepatitis C has been developed, there is little medical benefit in having a second or third effective treatment. The resources to develop these alternatives to Sovaldi could have been much better utilized researching treatments for diseases which do not presently have a cure. However the incentives provided by the massive patent rents being earned by Gilead Sciences (the patent holder for Sovaldi) give a huge incentive to other companies to carry through duplicative research. If anyone cared about efficiency in the health care system this point would be widely publicized.
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