Beat the Press

Beat the press por Dean Baker

Beat the Press is Dean Baker's commentary on economic reporting. He is a Senior Economist at the Center for Economic and Policy Research (CEPR). To never miss a post, subscribe to a weekly email roundup of Beat the Press. Please also consider supporting the blog on Patreon.

NPR had a piece on how the percentage of prime-age men (ages 25 to 54) in the workforce remains low, despite the relatively strong labor market. While the basic point is true, there are a couple of important qualifications. First, this is not a new story. The share of men who are employed has been dropping for a half-century. The second point is that, contrary to what is implied in the piece, the decline in employment rates has occurred for men at all education levels.

On the first point, if we look at business cycle peaks, we have a decline in prime-age employment to population (EPOP) ratios of 9.1 percentage points, taking business cycle peaks, from 95.6 in 1967 to 86.5 percent in the November data. (This assumes we are at a business cycle peak, which may prove not to be true.) I use employment rates since the decision to look for work, and therefore be counted as part of the workforce, is affected by the structure of unemployment benefits, which has been frequently changed over this period.

Most of this drop took place prior to 1990 when the prime age male EPOP peaked at 90.0 percent, 5.6 percentage points below its 1967 peak. The drop in the remaining 29 years has been just 3.5 percentage points, as shown below.

Prime Age (ages 25-54) Male Employment to Population Ratios

male EPOPs

Source: Bureau of Labor Statistics.

The other point is that the drop in EPOPs has occurred at all education levels, as is actually shown in a figure included in the piece. While the decline has been sharpest for less-educated workers, the figure shows a drop in EPOPs for prime-age men with a college degree of roughly five percentage points between 1975 and 2018. The drop for those with some college and with just a high school degree is larger (roughly 8.0 percentage points and 10.4 percentage points, respectively), but clearly, this drop cannot be explained by declining demand for workers with less education by itself.

In fact, if the story is that trade and technology have led to a decreased demand for workers with less skill, the implication is that it should have led to an increase in demand for workers with more skill. Other things equal, we would have expected that to mean an increased, or at least constant, EPOP for prime age men with college degrees.

In short, there clearly has been a drop in employment among prime age men, but this is not a new story, nor is it a simple story of changing skills demand in the labor market.

NPR had a piece on how the percentage of prime-age men (ages 25 to 54) in the workforce remains low, despite the relatively strong labor market. While the basic point is true, there are a couple of important qualifications. First, this is not a new story. The share of men who are employed has been dropping for a half-century. The second point is that, contrary to what is implied in the piece, the decline in employment rates has occurred for men at all education levels.

On the first point, if we look at business cycle peaks, we have a decline in prime-age employment to population (EPOP) ratios of 9.1 percentage points, taking business cycle peaks, from 95.6 in 1967 to 86.5 percent in the November data. (This assumes we are at a business cycle peak, which may prove not to be true.) I use employment rates since the decision to look for work, and therefore be counted as part of the workforce, is affected by the structure of unemployment benefits, which has been frequently changed over this period.

Most of this drop took place prior to 1990 when the prime age male EPOP peaked at 90.0 percent, 5.6 percentage points below its 1967 peak. The drop in the remaining 29 years has been just 3.5 percentage points, as shown below.

Prime Age (ages 25-54) Male Employment to Population Ratios

male EPOPs

Source: Bureau of Labor Statistics.

The other point is that the drop in EPOPs has occurred at all education levels, as is actually shown in a figure included in the piece. While the decline has been sharpest for less-educated workers, the figure shows a drop in EPOPs for prime-age men with a college degree of roughly five percentage points between 1975 and 2018. The drop for those with some college and with just a high school degree is larger (roughly 8.0 percentage points and 10.4 percentage points, respectively), but clearly, this drop cannot be explained by declining demand for workers with less education by itself.

In fact, if the story is that trade and technology have led to a decreased demand for workers with less skill, the implication is that it should have led to an increase in demand for workers with more skill. Other things equal, we would have expected that to mean an increased, or at least constant, EPOP for prime age men with college degrees.

In short, there clearly has been a drop in employment among prime age men, but this is not a new story, nor is it a simple story of changing skills demand in the labor market.

The Washington Post had an article telling readers “retail drug prices declined last year for the first time since 1973.” While the article refers to a study done by the Center for Medicare and Medicaid Services, it is not clear that this decline would have much meaning for anyone. As the piece notes, many people were still paying more for drugs in 2018 than 2017 because they faced higher deductibles and co-pays from insurance.

It is also important to note that this study only looked at the retail drug market. That excludes drugs purchases by hospitals, nursing homes, and other institutions. If their spending is included, total spending on prescription drugs rose by 4.0 percent in 2018. Furthermore, it is on a path to increase by more than 8.0 percent in 2019 (National Income and Product Accounts, Table 2.4.5U, Line 121).

The piece also notes a sharp increase in the cost of health insurance in 2018, which it speculates could have been due to an increase in taxes on insurance in 2018. That does not appear to be the cause since insurance costs have been increasing even more rapidly in 2019.

The Bureau of Labor Statistics reports that the cost of health care insurance (administrative expenses and profits — not premiums) increased by 20.1 percent over the last twelve months and rose 2.1 percent in October alone. This rise cannot be explained by a tax increase that took effect at the start of 2018.

The Washington Post had an article telling readers “retail drug prices declined last year for the first time since 1973.” While the article refers to a study done by the Center for Medicare and Medicaid Services, it is not clear that this decline would have much meaning for anyone. As the piece notes, many people were still paying more for drugs in 2018 than 2017 because they faced higher deductibles and co-pays from insurance.

It is also important to note that this study only looked at the retail drug market. That excludes drugs purchases by hospitals, nursing homes, and other institutions. If their spending is included, total spending on prescription drugs rose by 4.0 percent in 2018. Furthermore, it is on a path to increase by more than 8.0 percent in 2019 (National Income and Product Accounts, Table 2.4.5U, Line 121).

The piece also notes a sharp increase in the cost of health insurance in 2018, which it speculates could have been due to an increase in taxes on insurance in 2018. That does not appear to be the cause since insurance costs have been increasing even more rapidly in 2019.

The Bureau of Labor Statistics reports that the cost of health care insurance (administrative expenses and profits — not premiums) increased by 20.1 percent over the last twelve months and rose 2.1 percent in October alone. This rise cannot be explained by a tax increase that took effect at the start of 2018.

Coal and the Left Behind Regions

The NYT had an article that focused on Buchanan County, Virginia as an example of a left-behind area in the United States. The county’s economy had centered on coal.

While the discussion implies that its downturn is a recent story, the data presented in the piece shows that most of the decline occurred more than two decades ago. The county had more than 5,000 coal mining jobs in the early 1980s. This had fallen to just over 1,000 by the late 1990s. While there was some uptick in coal jobs from 2009 to 2013, the current level is not very different from the level of twenty years ago.

This pattern of decline is also captured in the data on per capita disposable income shown in the article. This fell from around 85 percent of the national average in the early 1980s to around 65 percent by the end of the decade. There have been fluctuations since then, but it is roughly at the same level today.

The timing here is important, since it is wrong to imply that the decline of the coal areas is a new phenomenon. There was a sharp downturn in coal employment in the 1980s, that bottomed out in the late 1990s. Since then the changes have been largely cyclical. By contrast, the loss of millions of manufacturing jobs due to trade in the last decade was a much more recent and far-reaching phenomenon.  

The NYT had an article that focused on Buchanan County, Virginia as an example of a left-behind area in the United States. The county’s economy had centered on coal.

While the discussion implies that its downturn is a recent story, the data presented in the piece shows that most of the decline occurred more than two decades ago. The county had more than 5,000 coal mining jobs in the early 1980s. This had fallen to just over 1,000 by the late 1990s. While there was some uptick in coal jobs from 2009 to 2013, the current level is not very different from the level of twenty years ago.

This pattern of decline is also captured in the data on per capita disposable income shown in the article. This fell from around 85 percent of the national average in the early 1980s to around 65 percent by the end of the decade. There have been fluctuations since then, but it is roughly at the same level today.

The timing here is important, since it is wrong to imply that the decline of the coal areas is a new phenomenon. There was a sharp downturn in coal employment in the 1980s, that bottomed out in the late 1990s. Since then the changes have been largely cyclical. By contrast, the loss of millions of manufacturing jobs due to trade in the last decade was a much more recent and far-reaching phenomenon.  

This vocabulary problem is apparent in a lengthy (and interesting) piece on efforts by drug companies to push opioids in large part by denying their addictiveness. These companies would have had far less incentive to lie about the dangers of opiods if they were selling at generic prices from the day they were approved by the Food and Drug Administration.

The incentive to mislead clinicians and the public about the safety and effectiveness of drugs is one of the main problems of using patent monopolies as a way to finance research. It would be good if reporters were allowed to talk about this fact.

This vocabulary problem is apparent in a lengthy (and interesting) piece on efforts by drug companies to push opioids in large part by denying their addictiveness. These companies would have had far less incentive to lie about the dangers of opiods if they were selling at generic prices from the day they were approved by the Food and Drug Administration.

The incentive to mislead clinicians and the public about the safety and effectiveness of drugs is one of the main problems of using patent monopolies as a way to finance research. It would be good if reporters were allowed to talk about this fact.

Simple Economics that Most Economists Don’t Know

(This piece originally appeared on my Patreon page.)

Economists are continually developing new statistical techniques, at least some of which are useful for analyzing data in ways that allow us to learn new things about the world. While developing these new techniques can often be complicated, there are many simple things about the world that economists tend to overlook.

The most important example here is the housing bubble in the last decade. It didn’t require any complicated statistical techniques to recognize that house prices had sharply diverged from their long-term pattern, with no plausible explanation in the fundamentals of the housing market.

It also didn’t require sophisticated statistical analysis to see the housing market was driving the economy. At its peak in 2005 residential construction accounted for 6.8 percent of GDP. This compares to a long-run average that is close to 4.0 percent. Consumption was also booming, as people spent based on the bubble generated equity in their homes, pushing the savings rate to a record low.

The existence of the bubble and the fact that it was driving the economy could both be easily determined from regularly published government data, yet the vast majority of economists were surprised when the bubble burst and it gave us the Great Recession. This history should lead us to ask what other simple things economists are missing.

For this holiday season, I will give three big items that are apparently too simple for economists to understand.

1)Profit shares have not increased much — While there has been some redistribution in before-tax income shares from labor to capital, it at most explains a small portion of the upward redistribution of the last four decades. Furthermore, shares have been shifting back towards labor in the last four years.

2) Returns to shareholders have been low by historical standards — It is often asserted that is an era of shareholder capitalism in which companies are being run to maximize returns to shareholders. In fact, returns to shareholders have been considerably lower on average than they were in the long Golden Age from 1947 to 1973.

3) Patent and copyright rents are equivalent to government debt as a future burden – The burden that we are placing on our children through the debt of the government is a frequent theme in economic reporting. However, we impose a far larger burden with government-granted patent and copyright monopolies, although this literally never gets any attention in the media.

To be clear, none of these points are contestable. All three can all be shown with widely available data and/or basic economic logic. The fact that they are not widely recognized by people in policy debates reflects the laziness of economists and people who write about economic policy.

Profit Shares

It is common to see discussions where it is assumed that there has been a large shift from wages to profits, and then a lot of head-scratching about why this occurred. In fact, the shift from wages to profits has been relatively modest and all of it occurred after 2000, after the bulk of the upward redistribution of income had already taken place.

If we just compare end points, the labor share of net domestic product was 64.0 percent in 2019, a reduction of 1.6 percentage points from its 65.6 percent share in 1979, before the upward redistribution began. If, as a counter-factual, we assume that the labor share was still at its 1979 level it would mean that wages would be 2.5 percent higher than they are now. That is not a trivial effect, but it only explains a relatively small portion of the upward redistribution over the last four decades.

It is also worth noting the timing of this shift in shares. There was no change in shares from 1979 to 2000, the point at which most of the upward redistribution to the richest one percent had already taken place. The shift begins in the recovery from the 2001 recession.

This was the period of the housing bubble. The reason why this matters is that banks and other financial institutions were recording large profits on the issuance of mortgages that subsequently went bad, leading to large losses in the years 2008-09. This means that a substantial portion of the profits that were being booked in the years prior to the Great Recession were not real profits.

It would be as though companies reported profits based on huge sales to a country that didn’t exist. Such reporting would make profits look good when the sales were being booked, but then would produce large losses when the payments for the sales did not materialize, since the buyer did not exist. It’s not clear that when the financial industry books phony profits it means there was a redistribution from labor to capital.[1]

There clearly was a redistribution from labor to capital in the weak labor market following the Great Recession. Workers did not have enough bargaining power to capture any of the gains from productivity growth in those years. That has been partially reversed in the last four years as the labor share of net domestic income has risen by 2.4 percentage points.[2] This still leaves some room for further increases to make up for the drop in labor share from the Great Recession, but it does look as though the labor market is operating as we would expect.

Returns to Shareholders Lag in the Period of Shareholder Capitalism

It is common for people writing on economics, including economists, to say that companies have been focused on returns to shareholders in the last four decades in a way that was not previously true. The biggest problem with this story is that returns to shareholders have actually been relatively low in the last two decades.

If we take the average real rate of return over the last two decades, it has been 3.9 percent. That compares to rates of more than 8.0 percent in the fifties and sixties. Even this 3.9 percent return required a big helping hand from the government in the form a reduction in the corporate income tax rate from 35 percent to 21 percent.

The figure for the last two decades is somewhat distorted by the fact that we were reaching the peak of the stock bubble in the late 1990s, but the story is little changed if we adjust for this fact. If we take the average real return from July of 1997, when the price to earnings ratio was roughly the same as it is now, it is still just 5.7 percent, well below the Golden Age average when companies were supposedly not being run to maximize shareholder value.

It is striking that this drop in stock returns is so little noticed and basically does not feature at all in discussions of the economy. Back in the late 1990s, it was nearly universally accepted in public debates that stocks would provide a 7.0 percent real return on average in public debates.

This was most evident in debates on Social Security, where both conservatives and liberals assumed that the stock market would provide 7.0 percent real returns. Conservatives, like Martin Feldstein, made this assumption as part of their privatization plans. Liberal economists made the same assumption in plans put forward by the Clinton administration and others to shore up the Social Security trust fund by putting a portion of it in the stock market. The Congressional Budget Office even adopted the 7.0 percent real stock returns assumption in its analysis of various Social Security reform proposals that called for putting funds in the stock market.

Given the past history on stock returns and the widely held view that returns would continue to average close to 7.0 percent over the long-term, the actual performance of stock returns over the last two decades looks pretty disappointing from shareholders’ perspective. It certainly does not look like corporations are being run for their benefit, or if so, top executives are doing a poor job.

One of the obvious factors depressing returns has been the extraordinary run up in price to earnings ratios. A high price to earnings ratio (PE) effectively means that shareholders have to pay a lot of money for a dollar in corporate profits. When PEs were lower, in the 1950s and 1960s, dividends yields were in the range of 3.0 -5.0 percent. In the recent years they have been hovering near 2.0 percent. When the PE is over 30, as is now the case, paying out a dividend of even 3.0 percent would essentially mean paying out all the company’s profits as dividends. Clearly that cannot happen, or at least not on a sustained basis.

While shareholders have not done well by historical standards in recent decades, CEO pay has soared, with the ratio of the pay of CEOs to ordinary workers going from 20 or 30 to 1 in the 1960s and 1970s, to 200 or 300 to 1 at present. There is a story that could reconcile soaring CEO pay with historically low stock returns.

Corporations have increasingly turned to share buybacks as an alternative to dividends for paying out money to shareholders. The process of buying back shares would drive up share prices. Part of this is almost definitional, with fewer shares outstanding, the price per share should go up. If buybacks push up share prices enough to raise the price to earnings ratio, then in principle other investors should sell stock to bring the PE back to its prior level. But if this doesn’t happen, then buybacks could increase PEs.

That would of course imply huge irrationality in the stock market, but anyone who lived through the 1990s stock bubble and the housing bubble in the last decade knows that large investors can be exceedingly irrational for long periods of time. Anyhow, if share buybacks do raise PEs there would be a clear story whereby CEOs could drive up their own pay, which typically is largely in stock options, to the detriment of future shareholders, which would explain both soaring CEO pay and declining returns to shareholders.

Whether this story of share buybacks raising PE is accurate would require some serious research (I’d welcome references, if anyone has them), but what is beyond dispute is that the last two decades have provided shareholders with relatively low returns. That seems hard to reconcile with the often repeated story about this being a period of shareholder capitalism.

Patents and Copyright Monopolies Are Implicit Government Debt

There is a whole industry dedicated to highlighting the size and growth of the government debt, largely funded by the late private equity billionaire Peter Peterson. The leading news outlets feel a need to regularly turn to the Peterson funded outfits to give us updates on the size of the debt.

When presenting the horror story of a $20 trillion debt and the burden it will impose on our children, there is never any mention of the burden created by patent and copyright monopolies. This is an inexcusable inconsistency.

Patent and copyright monopolies are mechanisms that the government uses to pay for services that are alternatives to direct spending. For example, instead of granting drug companies patent monopolies and software developers copyright monopolies, the government could just pay directly for the research and creative work that was the basis for these monopolies. There are arguments as to why these monopolies might be better mechanisms than direct funding, but these arguments don’t change the fact they are mechanisms the government uses for paying for services.

While we keep careful accounting of the direct spending, we pretend the implicit spending by granting patent and copyright monopolies does not exist. This makes zero sense, especially given the size of the rents being created by these monopolies.

In the case of prescription drugs alone, we will spend close to $400 billion (1.8 percent of GDP) this year above the free market price, due to patent protections and other monopolies granted by the federal government. This is considerably more than the $330 billion in interest that the Congressional Budget Office projected we would spend on the $16.6 trillion in publicly held debt in 2019.[3]

And this figure is just a fraction of the total rents from patent and copyright monopolies, which would include most of the payments for medical equipment, computer software and hardware, and recorded music and video material. Since these payments dwarf the size of interest payments on the debt, it is difficult to understand how anyone concerned about the burdens the government was creating could ignore patents and copyrights, while harping on interest on the debt.

As I have often argued there are good reasons, especially in the case of prescription drugs, for thinking that direct funding would be a more efficient mechanism than patent monopolies. In the case of prescription drugs, direct funding would mean that all findings would be immediately available to all researchers worldwide. If drugs were sold at free market prices, it would no longer be a struggle to find ways to pay for them. And, we would take away the incentive to push drugs in contexts where they are not appropriate, as happened with the opioid crisis. (See Rigged, chapter 5, for a fuller discussion [it’s free.])

While the relative merits of patent/copyright monopolies and direct funding can be debated, the logical point, that these monopolies are an implicit form of government debt, cannot be. It shows the incredibly low quality of economic debate that this fact is not widely recognized.

The Prospect for Simple Facts and Logic Entering Economic Debate in the Next Decade

The three issues noted here are already pretty huge in terms of our understanding of the economy. The people who write in a wide range of areas should be aware of them, but with few exceptions, they are not.

Unfortunately, that situation is not likely to change any time soon for a simple economic reason, there is no incentive for people who write on economic issues to give these points serious attention. They can continue to draw paychecks and get grants for doing what they are doing. Why should they spend time addressing facts and logic that require they think differently about the world?

As has been noted many times, there is no real consequence to economists and people writing about the economy for being wrong. A custodian who doesn’t clean the toilet gets fired, but an economist who missed the housing bubble whose collapse led to the Great Recession gets the “who could have known?” amnesty.

Given this structure of incentives, we should assume that economists and others who write on economics will continue to ignore some of the most basic facts about the economy. That is what economics tells us.

[1] Since income is supposed to be matched by output in the GDP accounts, the corresponding phony entry on the output side would be the loans that subsequently went bad. These loans were counted as a service when they were issued. Arguably, this was not accurate accounting.

[2] This rise in labor share appears in the net domestic income calculation, but not in the net domestic product figure. The reason is that there has been a sharp drop in the size of the statistical discrepancy over the last four years, as output side GDP now exceeds the income side measure. It is common to assume that the true figure lies somewhere in the middle, which would mean the increase in labor share is likely less the 2.4 percentage points calculated on the income side.

[3] This subtracts out the $50 billion in interest payments remitted from the Federal Reserve Board.

(This piece originally appeared on my Patreon page.)

Economists are continually developing new statistical techniques, at least some of which are useful for analyzing data in ways that allow us to learn new things about the world. While developing these new techniques can often be complicated, there are many simple things about the world that economists tend to overlook.

The most important example here is the housing bubble in the last decade. It didn’t require any complicated statistical techniques to recognize that house prices had sharply diverged from their long-term pattern, with no plausible explanation in the fundamentals of the housing market.

It also didn’t require sophisticated statistical analysis to see the housing market was driving the economy. At its peak in 2005 residential construction accounted for 6.8 percent of GDP. This compares to a long-run average that is close to 4.0 percent. Consumption was also booming, as people spent based on the bubble generated equity in their homes, pushing the savings rate to a record low.

The existence of the bubble and the fact that it was driving the economy could both be easily determined from regularly published government data, yet the vast majority of economists were surprised when the bubble burst and it gave us the Great Recession. This history should lead us to ask what other simple things economists are missing.

For this holiday season, I will give three big items that are apparently too simple for economists to understand.

1)Profit shares have not increased much — While there has been some redistribution in before-tax income shares from labor to capital, it at most explains a small portion of the upward redistribution of the last four decades. Furthermore, shares have been shifting back towards labor in the last four years.

2) Returns to shareholders have been low by historical standards — It is often asserted that is an era of shareholder capitalism in which companies are being run to maximize returns to shareholders. In fact, returns to shareholders have been considerably lower on average than they were in the long Golden Age from 1947 to 1973.

3) Patent and copyright rents are equivalent to government debt as a future burden – The burden that we are placing on our children through the debt of the government is a frequent theme in economic reporting. However, we impose a far larger burden with government-granted patent and copyright monopolies, although this literally never gets any attention in the media.

To be clear, none of these points are contestable. All three can all be shown with widely available data and/or basic economic logic. The fact that they are not widely recognized by people in policy debates reflects the laziness of economists and people who write about economic policy.

Profit Shares

It is common to see discussions where it is assumed that there has been a large shift from wages to profits, and then a lot of head-scratching about why this occurred. In fact, the shift from wages to profits has been relatively modest and all of it occurred after 2000, after the bulk of the upward redistribution of income had already taken place.

If we just compare end points, the labor share of net domestic product was 64.0 percent in 2019, a reduction of 1.6 percentage points from its 65.6 percent share in 1979, before the upward redistribution began. If, as a counter-factual, we assume that the labor share was still at its 1979 level it would mean that wages would be 2.5 percent higher than they are now. That is not a trivial effect, but it only explains a relatively small portion of the upward redistribution over the last four decades.

It is also worth noting the timing of this shift in shares. There was no change in shares from 1979 to 2000, the point at which most of the upward redistribution to the richest one percent had already taken place. The shift begins in the recovery from the 2001 recession.

This was the period of the housing bubble. The reason why this matters is that banks and other financial institutions were recording large profits on the issuance of mortgages that subsequently went bad, leading to large losses in the years 2008-09. This means that a substantial portion of the profits that were being booked in the years prior to the Great Recession were not real profits.

It would be as though companies reported profits based on huge sales to a country that didn’t exist. Such reporting would make profits look good when the sales were being booked, but then would produce large losses when the payments for the sales did not materialize, since the buyer did not exist. It’s not clear that when the financial industry books phony profits it means there was a redistribution from labor to capital.[1]

There clearly was a redistribution from labor to capital in the weak labor market following the Great Recession. Workers did not have enough bargaining power to capture any of the gains from productivity growth in those years. That has been partially reversed in the last four years as the labor share of net domestic income has risen by 2.4 percentage points.[2] This still leaves some room for further increases to make up for the drop in labor share from the Great Recession, but it does look as though the labor market is operating as we would expect.

Returns to Shareholders Lag in the Period of Shareholder Capitalism

It is common for people writing on economics, including economists, to say that companies have been focused on returns to shareholders in the last four decades in a way that was not previously true. The biggest problem with this story is that returns to shareholders have actually been relatively low in the last two decades.

If we take the average real rate of return over the last two decades, it has been 3.9 percent. That compares to rates of more than 8.0 percent in the fifties and sixties. Even this 3.9 percent return required a big helping hand from the government in the form a reduction in the corporate income tax rate from 35 percent to 21 percent.

The figure for the last two decades is somewhat distorted by the fact that we were reaching the peak of the stock bubble in the late 1990s, but the story is little changed if we adjust for this fact. If we take the average real return from July of 1997, when the price to earnings ratio was roughly the same as it is now, it is still just 5.7 percent, well below the Golden Age average when companies were supposedly not being run to maximize shareholder value.

It is striking that this drop in stock returns is so little noticed and basically does not feature at all in discussions of the economy. Back in the late 1990s, it was nearly universally accepted in public debates that stocks would provide a 7.0 percent real return on average in public debates.

This was most evident in debates on Social Security, where both conservatives and liberals assumed that the stock market would provide 7.0 percent real returns. Conservatives, like Martin Feldstein, made this assumption as part of their privatization plans. Liberal economists made the same assumption in plans put forward by the Clinton administration and others to shore up the Social Security trust fund by putting a portion of it in the stock market. The Congressional Budget Office even adopted the 7.0 percent real stock returns assumption in its analysis of various Social Security reform proposals that called for putting funds in the stock market.

Given the past history on stock returns and the widely held view that returns would continue to average close to 7.0 percent over the long-term, the actual performance of stock returns over the last two decades looks pretty disappointing from shareholders’ perspective. It certainly does not look like corporations are being run for their benefit, or if so, top executives are doing a poor job.

One of the obvious factors depressing returns has been the extraordinary run up in price to earnings ratios. A high price to earnings ratio (PE) effectively means that shareholders have to pay a lot of money for a dollar in corporate profits. When PEs were lower, in the 1950s and 1960s, dividends yields were in the range of 3.0 -5.0 percent. In the recent years they have been hovering near 2.0 percent. When the PE is over 30, as is now the case, paying out a dividend of even 3.0 percent would essentially mean paying out all the company’s profits as dividends. Clearly that cannot happen, or at least not on a sustained basis.

While shareholders have not done well by historical standards in recent decades, CEO pay has soared, with the ratio of the pay of CEOs to ordinary workers going from 20 or 30 to 1 in the 1960s and 1970s, to 200 or 300 to 1 at present. There is a story that could reconcile soaring CEO pay with historically low stock returns.

Corporations have increasingly turned to share buybacks as an alternative to dividends for paying out money to shareholders. The process of buying back shares would drive up share prices. Part of this is almost definitional, with fewer shares outstanding, the price per share should go up. If buybacks push up share prices enough to raise the price to earnings ratio, then in principle other investors should sell stock to bring the PE back to its prior level. But if this doesn’t happen, then buybacks could increase PEs.

That would of course imply huge irrationality in the stock market, but anyone who lived through the 1990s stock bubble and the housing bubble in the last decade knows that large investors can be exceedingly irrational for long periods of time. Anyhow, if share buybacks do raise PEs there would be a clear story whereby CEOs could drive up their own pay, which typically is largely in stock options, to the detriment of future shareholders, which would explain both soaring CEO pay and declining returns to shareholders.

Whether this story of share buybacks raising PE is accurate would require some serious research (I’d welcome references, if anyone has them), but what is beyond dispute is that the last two decades have provided shareholders with relatively low returns. That seems hard to reconcile with the often repeated story about this being a period of shareholder capitalism.

Patents and Copyright Monopolies Are Implicit Government Debt

There is a whole industry dedicated to highlighting the size and growth of the government debt, largely funded by the late private equity billionaire Peter Peterson. The leading news outlets feel a need to regularly turn to the Peterson funded outfits to give us updates on the size of the debt.

When presenting the horror story of a $20 trillion debt and the burden it will impose on our children, there is never any mention of the burden created by patent and copyright monopolies. This is an inexcusable inconsistency.

Patent and copyright monopolies are mechanisms that the government uses to pay for services that are alternatives to direct spending. For example, instead of granting drug companies patent monopolies and software developers copyright monopolies, the government could just pay directly for the research and creative work that was the basis for these monopolies. There are arguments as to why these monopolies might be better mechanisms than direct funding, but these arguments don’t change the fact they are mechanisms the government uses for paying for services.

While we keep careful accounting of the direct spending, we pretend the implicit spending by granting patent and copyright monopolies does not exist. This makes zero sense, especially given the size of the rents being created by these monopolies.

In the case of prescription drugs alone, we will spend close to $400 billion (1.8 percent of GDP) this year above the free market price, due to patent protections and other monopolies granted by the federal government. This is considerably more than the $330 billion in interest that the Congressional Budget Office projected we would spend on the $16.6 trillion in publicly held debt in 2019.[3]

And this figure is just a fraction of the total rents from patent and copyright monopolies, which would include most of the payments for medical equipment, computer software and hardware, and recorded music and video material. Since these payments dwarf the size of interest payments on the debt, it is difficult to understand how anyone concerned about the burdens the government was creating could ignore patents and copyrights, while harping on interest on the debt.

As I have often argued there are good reasons, especially in the case of prescription drugs, for thinking that direct funding would be a more efficient mechanism than patent monopolies. In the case of prescription drugs, direct funding would mean that all findings would be immediately available to all researchers worldwide. If drugs were sold at free market prices, it would no longer be a struggle to find ways to pay for them. And, we would take away the incentive to push drugs in contexts where they are not appropriate, as happened with the opioid crisis. (See Rigged, chapter 5, for a fuller discussion [it’s free.])

While the relative merits of patent/copyright monopolies and direct funding can be debated, the logical point, that these monopolies are an implicit form of government debt, cannot be. It shows the incredibly low quality of economic debate that this fact is not widely recognized.

The Prospect for Simple Facts and Logic Entering Economic Debate in the Next Decade

The three issues noted here are already pretty huge in terms of our understanding of the economy. The people who write in a wide range of areas should be aware of them, but with few exceptions, they are not.

Unfortunately, that situation is not likely to change any time soon for a simple economic reason, there is no incentive for people who write on economic issues to give these points serious attention. They can continue to draw paychecks and get grants for doing what they are doing. Why should they spend time addressing facts and logic that require they think differently about the world?

As has been noted many times, there is no real consequence to economists and people writing about the economy for being wrong. A custodian who doesn’t clean the toilet gets fired, but an economist who missed the housing bubble whose collapse led to the Great Recession gets the “who could have known?” amnesty.

Given this structure of incentives, we should assume that economists and others who write on economics will continue to ignore some of the most basic facts about the economy. That is what economics tells us.

[1] Since income is supposed to be matched by output in the GDP accounts, the corresponding phony entry on the output side would be the loans that subsequently went bad. These loans were counted as a service when they were issued. Arguably, this was not accurate accounting.

[2] This rise in labor share appears in the net domestic income calculation, but not in the net domestic product figure. The reason is that there has been a sharp drop in the size of the statistical discrepancy over the last four years, as output side GDP now exceeds the income side measure. It is common to assume that the true figure lies somewhere in the middle, which would mean the increase in labor share is likely less the 2.4 percentage points calculated on the income side.

[3] This subtracts out the $50 billion in interest payments remitted from the Federal Reserve Board.

That point was missing from this NYT piece on how Trump’s trade deal gives into a number of longstanding Democratic demands on labor issues. While promoting workers’ rights in Mexico is a positive part of the new NAFTA, this is likely to have less long-term impact on both the United States and Mexico than rules that further strengthen and lengthen patent and copyright monopolies.

The new deal also limits governments’ abilities to regulate companies like Facebook and Google. Since the new NAFTA is likely to provide a framework for other trade deals, the provisions on intellectual property claims and restrictions on regulating the digital economy are the most important aspects of the new pact.

That point was missing from this NYT piece on how Trump’s trade deal gives into a number of longstanding Democratic demands on labor issues. While promoting workers’ rights in Mexico is a positive part of the new NAFTA, this is likely to have less long-term impact on both the United States and Mexico than rules that further strengthen and lengthen patent and copyright monopolies.

The new deal also limits governments’ abilities to regulate companies like Facebook and Google. Since the new NAFTA is likely to provide a framework for other trade deals, the provisions on intellectual property claims and restrictions on regulating the digital economy are the most important aspects of the new pact.

NAFTA Was About Redistributing Upward

The Washington Post gave readers the official story about NAFTA, diverging seriously from reality, in a piece on the status of negotiations on the new NAFTA. The piece tells readers:

“NAFTA was meant to expand trade among the United States, Canada and Mexico by removing tariffs and other barriers on products as they were shipped between countries. The pact did open up trade, but it also proved disruptive in terms of creating new manufacturing supply chains and relocating businesses and jobs.”

This implies that the disruption in terms of shifting jobs to Mexico to take advantage of low wage labor was an accidental outcome. In fact, this was a main point of the deal, as was widely noted by economists at the time. Proponents of the deal argued that it was necessary for U.S. manufacturers to have access to low-cost labor in Mexico to remain competitive internationally. No one who followed the debate at the time should have been in the least surprised by the loss of high paying union manufacturing jobs to Mexico, that is exactly the result that NAFTA was designed for.

NAFTA also did nothing to facilitate trade in highly paid professional services, such as those provided by doctors and dentists. This is because doctors and dentists are far more powerful politically than autoworkers.

It is also wrong to say that NAFTA was about expanding trade by removing barriers. A major feature of NAFTA was the requirement that Mexico strengthen and lengthen its patent and copyright protections. These barriers are 180 degrees at odds with expanding trade and removing barriers.

It is noteworthy that the new deal expands these barriers further. The Trump administration likely intends these provisions to be a model for other trade pacts, just as the rules on patents and copyrights were later put into other trade deals.

The new NAFTA will also make it more difficult for the member countries to regulate Facebook and other Internet giants. This is likely to make it easier for Mark Zuckerberg to spread fake news.

The Washington Post gave readers the official story about NAFTA, diverging seriously from reality, in a piece on the status of negotiations on the new NAFTA. The piece tells readers:

“NAFTA was meant to expand trade among the United States, Canada and Mexico by removing tariffs and other barriers on products as they were shipped between countries. The pact did open up trade, but it also proved disruptive in terms of creating new manufacturing supply chains and relocating businesses and jobs.”

This implies that the disruption in terms of shifting jobs to Mexico to take advantage of low wage labor was an accidental outcome. In fact, this was a main point of the deal, as was widely noted by economists at the time. Proponents of the deal argued that it was necessary for U.S. manufacturers to have access to low-cost labor in Mexico to remain competitive internationally. No one who followed the debate at the time should have been in the least surprised by the loss of high paying union manufacturing jobs to Mexico, that is exactly the result that NAFTA was designed for.

NAFTA also did nothing to facilitate trade in highly paid professional services, such as those provided by doctors and dentists. This is because doctors and dentists are far more powerful politically than autoworkers.

It is also wrong to say that NAFTA was about expanding trade by removing barriers. A major feature of NAFTA was the requirement that Mexico strengthen and lengthen its patent and copyright protections. These barriers are 180 degrees at odds with expanding trade and removing barriers.

It is noteworthy that the new deal expands these barriers further. The Trump administration likely intends these provisions to be a model for other trade pacts, just as the rules on patents and copyrights were later put into other trade deals.

The new NAFTA will also make it more difficult for the member countries to regulate Facebook and other Internet giants. This is likely to make it easier for Mark Zuckerberg to spread fake news.

(This post first appeared on my Patreon page.)

Earlier this month, Senator Warren put out a set of steps that she would put forward as president as part of a transition to Medicare for All. The items that got the most attention were including everyone over age 50 and under age 18 in Medicare, and providing people of all ages with the option to buy into the program. This buy-in would include large subsidies, and people with incomes of less than 200 percent of the poverty level would be able to enter the Medicare program at no cost.

These measures would be enormous steps toward Medicare for All, bringing tens of millions of people into the program, including most of those (people over age 50) with serious medical issues. It would certainly be more than halfway to a universal Medicare program.

While these measures captured most of the attention given to Warren’s transition plan, another part of the plan is probably at least as important. Warren proposed to use the government’s authority to compel the licensing of drug patents so that multiple companies can produce a patented drug, in effect allowing them to be sold at generic prices.

The government can do this both because it has general authority to compel licensing of patents (with reasonable compensation) and because it has explicit authority under the 1980 Bayh-Dole Act to require licensing of any drug developed in part with government-funded research. The overwhelming majority of drugs required some amount of government-supported research in their development, so there would be few drugs that would be exempted if Warren decided to use this mechanism.

These measures are noteworthy because they can be done on the president’s own authority. While the pharmaceutical industry will surely contest in court a president’s use of the government’s authority to weaken their patent rights, these actions would not require Congressional approval.

The other reason that these steps would be so important is that there is a huge amount of money involved. The United States is projected to spend over $6.6 trillion on prescription drugs over the next decade, more than 2.5 percent of GDP. This comes to almost $20,000 per person over the next decade.

This is an enormous amount of money. We spend more than twice as much per person on drugs as people in other wealthy countries.

This is not an accident. The grant of a patent monopoly allows drug companies to charge as much as they want for drugs that are necessary for people’s health or even their life, without having to worry about a competitor undercutting them.

Other countries also grant patent monopolies, but they limit the ability of drug companies to exploit these monopolies with negotiations or price controls. This is why prices in these countries are so much lower than in the United States.

But even these negotiated prices are far above what drug prices would be in a free market. The price of drugs in a free market, without patent monopolies or related protections, will typically be less than 10 percent of the US price and in some cases, less than one percent.    

This is because drugs are almost invariably cheap to manufacture and distribute. They are expensive because government-granted patent monopolies make them expensive. We have this perverse situation where the government deliberately makes drugs expensive, then we struggle with how to pay for them.

The rationale for patent monopolies is to give companies an incentive to research and develop drugs. This process is expensive, and if newly developed drugs were sold in a free market, companies would not be able to recover these expenses.

To make up for the loss of research funding supported by patent monopolies, Warren proposes an increase in public funding for research. This would be an important move towards an increased reliance on publicly funded biomedical research.

There are enormous advantages to publicly-funded research over patent monopoly-supported research. First, if the government is funding the research it can require that all results be fully public as soon as possible so that all researchers can quickly benefit from them.

By contrast, under the patent system, drug companies have an incentive to keep results secret. They have no desire to share results that could benefit competitors.

In most other contexts we quite explicitly value the benefits of open research. Science is inherently a collaborative process where researchers build upon the successes and failures of their peers. For some reason, this obvious truth is largely absent from discussions of biomedical research where the merits of patent financing go largely unquestioned.

In addition to allowing research results to be spread more quickly, public funding would also radically reduce the incentive to develop copycat drugs. Under the current system, drug companies will often devote substantial sums to developing drugs that are intended to duplicate the function of drugs already on the market. This allows them to get a share of an innovator drug’s patent rents. While there is generally an advantage to having more options to treat a specific condition, most often research dollars would be better spent trying to develop drugs for conditions where no effective treatment currently exists.

Under the patent system, a company that has invested a substantial sum in developing a drug, where a superior alternative already exists, may decide to invest an additional amount to carry it through the final phases of testing and the FDA approval process. From their vantage point, if they hope that a successful marketing effort will allow them to recover its additional investment costs, they would come out ahead.

On the other hand, in a system without patent monopolies, it would be difficult for a company to justify additional spending after it was already clear that the drug it was developing offered few health benefits. This could save a considerable amount of money on what would be largely pointless tests.

Also, as some researchers have noted, the number of potential test subjects (people with specific conditions) is also a limiting factor in research. It would be best if these people were available for testing genuinely innovative drugs rather than ones with little or no incremental value.   

Ending patent monopoly pricing would also take away the incentive for drug companies to conceal evidence that their drugs may not be as safe or effective as claimed. Patent monopolies give drug companies an incentive to push their drugs as widely as possible.

That is literally the point of patent monopoly pricing. If a drug company can sell a drug for $30,000 that costs them $300 to manufacture and distribute, then they have a huge incentive to market it as widely as possible. If this means being somewhat misleading about the safety and effectiveness of their drug, that is what many drug companies will do.  

The opioid crisis provides a dramatic example of the dangers of this system. Opioid manufacturers would not have had the same incentive to push their drugs, concealing evidence of their addictive properties, if they were not making huge profits on them.

Unfortunately, this is far from the only case where drug companies have not accurately presented their research findings when marketing their drugs. The mismarketing of the arthritis drug Vioxx, which increased the risk of heart attacks and strokes, is another famous example.

We can try to have the FDA police marketing, but where there is so much money at stake in putting out wrong information, we can hardly expect it to be 100 percent successful in overcoming the incentives from the large profits available. There is little reason to think that the FDA will be better able to combat the mismarketing of drugs, than law enforcement agencies have been in stopping the sale of heroin, cocaine, and other illegal drugs. Where you have large potential profits, and willing buyers, government enforcement is at a serious disadvantage.

It is also worth mentioning that the whole story of medical care is radically altered if we end patent monopolies on drugs and medical equipment, an area that also involves trillions of dollars over the next decade. We face tough choices on allocating medical care when these items are selling at patent protected prices, whether under the current system of private insurance or a Medicare for All system.

Doctors and other health care professionals have to decide whether the marginal benefits of a new drug or higher quality scan is worth the additional price. But if the new drug costs roughly the same price as the old drug and the highest quality scan costs just a few hundred dollars (the cost of the electricity and the time of the professionals operating the machine and reading the scan), then there is little reason not to prescribe the best available treatment. Patent monopoly pricing in these areas creates large and needless problems.  

In short, Senator Warren’s plans on drugs are a really huge deal. How far and how quickly she will be able to get to Medicare for All will depend on what she can get through Congress. But her proposal for prescription drugs is something she would be able to do as president, and it will make an enormous difference in both the cost and the quality of our health care. 

(This post first appeared on my Patreon page.)

Earlier this month, Senator Warren put out a set of steps that she would put forward as president as part of a transition to Medicare for All. The items that got the most attention were including everyone over age 50 and under age 18 in Medicare, and providing people of all ages with the option to buy into the program. This buy-in would include large subsidies, and people with incomes of less than 200 percent of the poverty level would be able to enter the Medicare program at no cost.

These measures would be enormous steps toward Medicare for All, bringing tens of millions of people into the program, including most of those (people over age 50) with serious medical issues. It would certainly be more than halfway to a universal Medicare program.

While these measures captured most of the attention given to Warren’s transition plan, another part of the plan is probably at least as important. Warren proposed to use the government’s authority to compel the licensing of drug patents so that multiple companies can produce a patented drug, in effect allowing them to be sold at generic prices.

The government can do this both because it has general authority to compel licensing of patents (with reasonable compensation) and because it has explicit authority under the 1980 Bayh-Dole Act to require licensing of any drug developed in part with government-funded research. The overwhelming majority of drugs required some amount of government-supported research in their development, so there would be few drugs that would be exempted if Warren decided to use this mechanism.

These measures are noteworthy because they can be done on the president’s own authority. While the pharmaceutical industry will surely contest in court a president’s use of the government’s authority to weaken their patent rights, these actions would not require Congressional approval.

The other reason that these steps would be so important is that there is a huge amount of money involved. The United States is projected to spend over $6.6 trillion on prescription drugs over the next decade, more than 2.5 percent of GDP. This comes to almost $20,000 per person over the next decade.

This is an enormous amount of money. We spend more than twice as much per person on drugs as people in other wealthy countries.

This is not an accident. The grant of a patent monopoly allows drug companies to charge as much as they want for drugs that are necessary for people’s health or even their life, without having to worry about a competitor undercutting them.

Other countries also grant patent monopolies, but they limit the ability of drug companies to exploit these monopolies with negotiations or price controls. This is why prices in these countries are so much lower than in the United States.

But even these negotiated prices are far above what drug prices would be in a free market. The price of drugs in a free market, without patent monopolies or related protections, will typically be less than 10 percent of the US price and in some cases, less than one percent.    

This is because drugs are almost invariably cheap to manufacture and distribute. They are expensive because government-granted patent monopolies make them expensive. We have this perverse situation where the government deliberately makes drugs expensive, then we struggle with how to pay for them.

The rationale for patent monopolies is to give companies an incentive to research and develop drugs. This process is expensive, and if newly developed drugs were sold in a free market, companies would not be able to recover these expenses.

To make up for the loss of research funding supported by patent monopolies, Warren proposes an increase in public funding for research. This would be an important move towards an increased reliance on publicly funded biomedical research.

There are enormous advantages to publicly-funded research over patent monopoly-supported research. First, if the government is funding the research it can require that all results be fully public as soon as possible so that all researchers can quickly benefit from them.

By contrast, under the patent system, drug companies have an incentive to keep results secret. They have no desire to share results that could benefit competitors.

In most other contexts we quite explicitly value the benefits of open research. Science is inherently a collaborative process where researchers build upon the successes and failures of their peers. For some reason, this obvious truth is largely absent from discussions of biomedical research where the merits of patent financing go largely unquestioned.

In addition to allowing research results to be spread more quickly, public funding would also radically reduce the incentive to develop copycat drugs. Under the current system, drug companies will often devote substantial sums to developing drugs that are intended to duplicate the function of drugs already on the market. This allows them to get a share of an innovator drug’s patent rents. While there is generally an advantage to having more options to treat a specific condition, most often research dollars would be better spent trying to develop drugs for conditions where no effective treatment currently exists.

Under the patent system, a company that has invested a substantial sum in developing a drug, where a superior alternative already exists, may decide to invest an additional amount to carry it through the final phases of testing and the FDA approval process. From their vantage point, if they hope that a successful marketing effort will allow them to recover its additional investment costs, they would come out ahead.

On the other hand, in a system without patent monopolies, it would be difficult for a company to justify additional spending after it was already clear that the drug it was developing offered few health benefits. This could save a considerable amount of money on what would be largely pointless tests.

Also, as some researchers have noted, the number of potential test subjects (people with specific conditions) is also a limiting factor in research. It would be best if these people were available for testing genuinely innovative drugs rather than ones with little or no incremental value.   

Ending patent monopoly pricing would also take away the incentive for drug companies to conceal evidence that their drugs may not be as safe or effective as claimed. Patent monopolies give drug companies an incentive to push their drugs as widely as possible.

That is literally the point of patent monopoly pricing. If a drug company can sell a drug for $30,000 that costs them $300 to manufacture and distribute, then they have a huge incentive to market it as widely as possible. If this means being somewhat misleading about the safety and effectiveness of their drug, that is what many drug companies will do.  

The opioid crisis provides a dramatic example of the dangers of this system. Opioid manufacturers would not have had the same incentive to push their drugs, concealing evidence of their addictive properties, if they were not making huge profits on them.

Unfortunately, this is far from the only case where drug companies have not accurately presented their research findings when marketing their drugs. The mismarketing of the arthritis drug Vioxx, which increased the risk of heart attacks and strokes, is another famous example.

We can try to have the FDA police marketing, but where there is so much money at stake in putting out wrong information, we can hardly expect it to be 100 percent successful in overcoming the incentives from the large profits available. There is little reason to think that the FDA will be better able to combat the mismarketing of drugs, than law enforcement agencies have been in stopping the sale of heroin, cocaine, and other illegal drugs. Where you have large potential profits, and willing buyers, government enforcement is at a serious disadvantage.

It is also worth mentioning that the whole story of medical care is radically altered if we end patent monopolies on drugs and medical equipment, an area that also involves trillions of dollars over the next decade. We face tough choices on allocating medical care when these items are selling at patent protected prices, whether under the current system of private insurance or a Medicare for All system.

Doctors and other health care professionals have to decide whether the marginal benefits of a new drug or higher quality scan is worth the additional price. But if the new drug costs roughly the same price as the old drug and the highest quality scan costs just a few hundred dollars (the cost of the electricity and the time of the professionals operating the machine and reading the scan), then there is little reason not to prescribe the best available treatment. Patent monopoly pricing in these areas creates large and needless problems.  

In short, Senator Warren’s plans on drugs are a really huge deal. How far and how quickly she will be able to get to Medicare for All will depend on what she can get through Congress. But her proposal for prescription drugs is something she would be able to do as president, and it will make an enormous difference in both the cost and the quality of our health care. 

The Washington Post reported that birthrates hit their lowest level in more than three decades in 2018. It then told us why this could be bad news for the country:

“Keeping the number of births within a certain range, called the “replacement level,” ensures the population level will remain stable. A low birthrate runs the risk that the country will not be able to replace the workforce and have enough tax revenue, while a high birthrate can cause shortages of resources.”

That’s an interesting story, but productivity growth, even at slow rates, swamps the impact of demographic changes on the need for labor. Even a modest rate of productivity growth (e.g. 1.5 percent annually) means that we would need one third fewer workers to get the same output twenty years from now as we do today. This would dwarf the effect of any plausible shrinkage in the size of the workforce due to a smaller population. Such shrinkage could also be easily offset by immigration if we choose.

It is also worth noting that a regular theme in economic reporting is that robots are taking all the jobs. This is not true as the productivity data clearly show, but if it were true, then the last thing we would need to be concerned about is a shrinking workforce.

Finally, as a practical matter, a shrinking population will reduce strains on resources, as in making it easier to limit global warming, for those familiar with the issue. It is difficult to see a downside to a smaller population.

(Yes, we should have the supports to give people the option to have children. That is a different issue. They should have the right to have kids, but we don’t need their children.)

The Washington Post reported that birthrates hit their lowest level in more than three decades in 2018. It then told us why this could be bad news for the country:

“Keeping the number of births within a certain range, called the “replacement level,” ensures the population level will remain stable. A low birthrate runs the risk that the country will not be able to replace the workforce and have enough tax revenue, while a high birthrate can cause shortages of resources.”

That’s an interesting story, but productivity growth, even at slow rates, swamps the impact of demographic changes on the need for labor. Even a modest rate of productivity growth (e.g. 1.5 percent annually) means that we would need one third fewer workers to get the same output twenty years from now as we do today. This would dwarf the effect of any plausible shrinkage in the size of the workforce due to a smaller population. Such shrinkage could also be easily offset by immigration if we choose.

It is also worth noting that a regular theme in economic reporting is that robots are taking all the jobs. This is not true as the productivity data clearly show, but if it were true, then the last thing we would need to be concerned about is a shrinking workforce.

Finally, as a practical matter, a shrinking population will reduce strains on resources, as in making it easier to limit global warming, for those familiar with the issue. It is difficult to see a downside to a smaller population.

(Yes, we should have the supports to give people the option to have children. That is a different issue. They should have the right to have kids, but we don’t need their children.)

That would have been worth mentioning in a piece discussing a new organization dedicated to reining in Amazon. Through much of its existence Amazon did not collect sales tax in most states.

As this became more contentious and it had a physical presence in more states, Amazon eventually agreed to start collecting sales taxes in all states. However, it still does not collect sales taxes on the sales of its affiliates, who account for more than 40 percent of the sales through Amazon’s site.

This is a massive subsidy with literally no policy rationale. In effect, the government is subsidizing purchases through Amazon at the expense of brick and mortar stores, many of which are small businesses. This policy is costing state and local governments billions of dollars in revenue and helping Amazon to grow at the expense of its competitors.

That would have been worth mentioning in a piece discussing a new organization dedicated to reining in Amazon. Through much of its existence Amazon did not collect sales tax in most states.

As this became more contentious and it had a physical presence in more states, Amazon eventually agreed to start collecting sales taxes in all states. However, it still does not collect sales taxes on the sales of its affiliates, who account for more than 40 percent of the sales through Amazon’s site.

This is a massive subsidy with literally no policy rationale. In effect, the government is subsidizing purchases through Amazon at the expense of brick and mortar stores, many of which are small businesses. This policy is costing state and local governments billions of dollars in revenue and helping Amazon to grow at the expense of its competitors.

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