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.

In an article that ran under the headline “Biden’s mammoth education agenda would expand the federal role from cradle to college,” the Washington Post spewed a whole set of budget numbers with literally no context whatsoever, not even giving the number of years over which the money would be spent. For example, the piece told readers about a $200 billion pre-K plan and a proposal for $225 billion for child care without telling readers the time period for this spending.

Presumably, this is a 10-year funding stream, which means the pre-K spending comes to $20 billion a year, while the child care spending would be $22.5 billion a year. The Congressional Budget Office projects that GDP will average $27.9 trillion over the next decade, which means that the additional spending on pre-K would come to just over 0.07 percent of GDP, while the proposal for child care would come to a bit more than 0.08 percent of GDP. To use another base of comparison, these proposed increases in spending are each equal to less than 3.0 percent of projected military spending.

The piece also includes a chart with the heading “Biden’s proposed increase in education spending is enormous,” which shows Biden’s requested increase in discretionary spending by the Education Department of 41 percent. As the chart shows, this follows cuts in the Trump years. If we compare Biden’s 2022 proposal to spending in 2016, the last full year President Obama was in office, the increase is 50.5 percent, in a period in which nominal GDP  grew 23.1 percent.

If we compare Biden’s proposed spending to 2011 spending, before the Republican Congress forced austerity on President Obama, the 2022 figure would be 50.4 percent higher. The economy is projected to be 48.5 percent larger in 2022 than it was in 2011, which means that Biden’s “enormous” increase in education spending would essentially be raising spending measured as a share of GDP back to its 2011 level. 

This context does not minimize the importance of Biden’s proposals, which will likely have a substantial impact on educational outcomes, especially for children from low and moderate-income families. The additional support for child care will also make it far easier for parents of young children to balance work and family obligations. However, it is irresponsible to imply that these proposals involve some extraordinary commitment of resources. They do not.  

In an article that ran under the headline “Biden’s mammoth education agenda would expand the federal role from cradle to college,” the Washington Post spewed a whole set of budget numbers with literally no context whatsoever, not even giving the number of years over which the money would be spent. For example, the piece told readers about a $200 billion pre-K plan and a proposal for $225 billion for child care without telling readers the time period for this spending.

Presumably, this is a 10-year funding stream, which means the pre-K spending comes to $20 billion a year, while the child care spending would be $22.5 billion a year. The Congressional Budget Office projects that GDP will average $27.9 trillion over the next decade, which means that the additional spending on pre-K would come to just over 0.07 percent of GDP, while the proposal for child care would come to a bit more than 0.08 percent of GDP. To use another base of comparison, these proposed increases in spending are each equal to less than 3.0 percent of projected military spending.

The piece also includes a chart with the heading “Biden’s proposed increase in education spending is enormous,” which shows Biden’s requested increase in discretionary spending by the Education Department of 41 percent. As the chart shows, this follows cuts in the Trump years. If we compare Biden’s 2022 proposal to spending in 2016, the last full year President Obama was in office, the increase is 50.5 percent, in a period in which nominal GDP  grew 23.1 percent.

If we compare Biden’s proposed spending to 2011 spending, before the Republican Congress forced austerity on President Obama, the 2022 figure would be 50.4 percent higher. The economy is projected to be 48.5 percent larger in 2022 than it was in 2011, which means that Biden’s “enormous” increase in education spending would essentially be raising spending measured as a share of GDP back to its 2011 level. 

This context does not minimize the importance of Biden’s proposals, which will likely have a substantial impact on educational outcomes, especially for children from low and moderate-income families. The additional support for child care will also make it far easier for parents of young children to balance work and family obligations. However, it is irresponsible to imply that these proposals involve some extraordinary commitment of resources. They do not.  

(This post first appeared on my Patreon page.)

President Biden has indicated that he wants to raise much of the money to cover the cost of his infrastructure program by raising the corporate income tax. The amount of money raised through the corporate income tax plummeted following the Trump tax cut in 2017. In non-recession years it had been averaging close to 2.0 percent of GDP. It had plummeted to just 1.0 percent of GDP in 2018 and 1.1 percent of GDP in 20019.

If we could get the corporate income tax back to 2.0 percent of GDP, it would add over $200 billion a year to government revenue. Over the ten-year budget planning horizon, this would add more than the projected $2.3 trillion projected cost of President Biden’s infrastructure program. This would be real money.

There are two issues with the corporate income tax, the nominal tax rate and the portion of the targeted tax that is actually collected. Corporations never pay taxes at a rate that is close to the nominal rate. Prior to the Trump tax cut, the nominal tax rate was 35 percent. Actual tax collections were around 21 percent of corporate profits, on average.

Both fell further after the Trump tax cut in 2017. The tax cut lowered the nominal rate to 21 percent. Part of the rationale for this tax cut was that it was supposed to eliminate many of the loopholes that had previously created the large gap between the nominal tax rate and the actual rate so that we would actually be collecting close to the 21 percent nominal rate.

That didn’t happen, the effective tax rate on corporate profits averaged less than 13.0 percent in 2018 and 2019. We lowered the tax rate and left in the loopholes.

Part of this story is that a substantial share of corporate profits is actually earned abroad, for example on sales by subsidiaries in Germany, to German companies or individuals. These profits are generally subject to taxes by other countries and therefore we would not expect to see substantial U.S. tax revenue raised on these foreign profits.

But that is a small part of the story of the gap between the nominal tax rate and the effective tax rate. Corporations use a wide variety of loopholes to avoid paying taxes on their profits. Tax gaming can be a very lucrative line of work for lawyers and accountants. Changing the tax code in a way that actually does eliminate opportunities for avoidance and evasion would both raise more revenue and reduce the amount of resources being wasted in legal fees and accounting.

 

A Simple Alternative – Taxing Stock Returns

Taxing stock returns is better than taxing corporate profits for the simple reason that it is completely transparent. Stock returns are the rise in the value of a company’s stock, plus whatever it paid out in dividends over the course of a year. It requires no complex calculations of depreciation or other issues, it can be calculated with a normal spreadsheet.

To take a simple example, if a company’s stock is worth $10 billion at the start of the year and $10.5 billion at the end of the year, then it would be taxed on this $500 million increase in the value of its shares. If it paid out $300 million in dividends, then it would also be taxed on this $300 million, for total stock returns of $800 million. If we apply a 25 percent corporate tax rate, then the company owes $200 million in taxes. All of the information needed for this calculation is fully public and could be calculated in seconds.

There is the small complication that most of our major companies are now multinationals, which means that they earn profits in more than one country. This does not need to be a major complication, we can simply allocate returns according to sales.

If 60 percent of their sales are in the United States, then they will be taxed based on 60 percent of their stock returns. This means that actually having large sales in Germany, Japan, and other major markets will lower their U.S. tax liability. Having a post office box in the Cayman Islands, or in other tax havens, will not do them any good.

In addition to being simple, having stock returns as the basis for the corporate income tax also means that companies can’t cheat the I.R.S. unless they also cheat their shareholders. The I.R.S. gets 25 percent of whatever their shareholders got: full stop.

There will still be a problem with private companies, with no publicly traded shares. These companies will still have to be taxed based on their profits. However, the vast majority of profits are earned by publicly traded companies, so this switch to having stock returns as the basis for the corporate income tax will deal with the vast majority of potential tax avoidance/evasion.

Also, by making the tax collection from publicly traded companies a simple spreadsheet calculation, this switch would free up I.R.S. resources to more carefully monitor privately traded companies. It would also be reasonable to structure the tax code so as to have a modest penalty on privately traded companies, to give them an incentive to go public.

Furthermore, the route of having stock returns as the basis for their corporate income tax should actually be a desirable switch for private companies that are not actively engaged in tax avoidance or evasion. Most companies have substantial fees associated with hiring tax lawyers and accountants. A simple tax structure, with no loopholes, will save them these fees. That should be an additional reason for private companies to go public, and also make the decision not to go public a huge warning flag for the I.R.S.

 

The Purpose of Taxing: Reducing Demand in the Economy

As our Modern Monetary Theory friends remind us, the purpose of taxes for a country that prints its own currency is to reduce demand in the economy, thereby preventing inflation. Corporate income taxes have this effect indirectly, by reducing the money going to shareholders. If shareholders have less income, they will consume less.[1] This frees up resources for spending in other areas, like President Biden’s investment and recovery package. (There is a small impact of taxes on investment, but we need not spend much time worrying about this.)

The switch from having corporate profits to stock returns as a basis for the corporate income tax will also reduce demand by reducing the need for accountants, lawyers, and others engaged in the tax avoidance/evasion industry. This secondary effect will likely free up tens of billions annually, that would be otherwise spent complying with, avoiding, and enforcing the tax code. These savings may be in the range of 5-10 percent of the money raised through the corporate income tax. Also, since there are big payoffs in the tax avoidance/evasion industry, this switch will eliminate one important source of inequality in the economy.[2]

Let’s Make Tax Reform Real

If the Biden administration wants to do a serious overhaul of the tax code, to both raise more money and make it fairer, it is difficult to imagine a better way to go than switching the basis for the corporate income tax from profits to stock returns. It will be a huge step towards simplicity and transparency. This is exactly what we should want in our tax code.

[1] There also is a wealth effect. Higher corporate taxes lead to lower stock prices, other things equal. Insofar as stockholders spend out of their wealth, a reduction in stock prices should mean they consume less.

[2] Michael Moore’s movie, Capitalism: A Love Story, featured a fascinating segment on “dead peasant insurance policies.” These are life insurance policies that large companies like Walmart take out on their front-line workers, like cashiers. Generally, the workers never know about the policies. The company, not the worker’s family collects when a worker dies. Moore pointed to these policies as an example of the perversity of American capitalism. But, apart from their morbid nature, the real story of dead peasant policies is that someone undoubtedly got very rich from this scheme for smoothing corporate profits and tax liability. There would be many fewer opportunities for great fortunes with a tax system based on stock returns.

(This post first appeared on my Patreon page.)

President Biden has indicated that he wants to raise much of the money to cover the cost of his infrastructure program by raising the corporate income tax. The amount of money raised through the corporate income tax plummeted following the Trump tax cut in 2017. In non-recession years it had been averaging close to 2.0 percent of GDP. It had plummeted to just 1.0 percent of GDP in 2018 and 1.1 percent of GDP in 20019.

If we could get the corporate income tax back to 2.0 percent of GDP, it would add over $200 billion a year to government revenue. Over the ten-year budget planning horizon, this would add more than the projected $2.3 trillion projected cost of President Biden’s infrastructure program. This would be real money.

There are two issues with the corporate income tax, the nominal tax rate and the portion of the targeted tax that is actually collected. Corporations never pay taxes at a rate that is close to the nominal rate. Prior to the Trump tax cut, the nominal tax rate was 35 percent. Actual tax collections were around 21 percent of corporate profits, on average.

Both fell further after the Trump tax cut in 2017. The tax cut lowered the nominal rate to 21 percent. Part of the rationale for this tax cut was that it was supposed to eliminate many of the loopholes that had previously created the large gap between the nominal tax rate and the actual rate so that we would actually be collecting close to the 21 percent nominal rate.

That didn’t happen, the effective tax rate on corporate profits averaged less than 13.0 percent in 2018 and 2019. We lowered the tax rate and left in the loopholes.

Part of this story is that a substantial share of corporate profits is actually earned abroad, for example on sales by subsidiaries in Germany, to German companies or individuals. These profits are generally subject to taxes by other countries and therefore we would not expect to see substantial U.S. tax revenue raised on these foreign profits.

But that is a small part of the story of the gap between the nominal tax rate and the effective tax rate. Corporations use a wide variety of loopholes to avoid paying taxes on their profits. Tax gaming can be a very lucrative line of work for lawyers and accountants. Changing the tax code in a way that actually does eliminate opportunities for avoidance and evasion would both raise more revenue and reduce the amount of resources being wasted in legal fees and accounting.

 

A Simple Alternative – Taxing Stock Returns

Taxing stock returns is better than taxing corporate profits for the simple reason that it is completely transparent. Stock returns are the rise in the value of a company’s stock, plus whatever it paid out in dividends over the course of a year. It requires no complex calculations of depreciation or other issues, it can be calculated with a normal spreadsheet.

To take a simple example, if a company’s stock is worth $10 billion at the start of the year and $10.5 billion at the end of the year, then it would be taxed on this $500 million increase in the value of its shares. If it paid out $300 million in dividends, then it would also be taxed on this $300 million, for total stock returns of $800 million. If we apply a 25 percent corporate tax rate, then the company owes $200 million in taxes. All of the information needed for this calculation is fully public and could be calculated in seconds.

There is the small complication that most of our major companies are now multinationals, which means that they earn profits in more than one country. This does not need to be a major complication, we can simply allocate returns according to sales.

If 60 percent of their sales are in the United States, then they will be taxed based on 60 percent of their stock returns. This means that actually having large sales in Germany, Japan, and other major markets will lower their U.S. tax liability. Having a post office box in the Cayman Islands, or in other tax havens, will not do them any good.

In addition to being simple, having stock returns as the basis for the corporate income tax also means that companies can’t cheat the I.R.S. unless they also cheat their shareholders. The I.R.S. gets 25 percent of whatever their shareholders got: full stop.

There will still be a problem with private companies, with no publicly traded shares. These companies will still have to be taxed based on their profits. However, the vast majority of profits are earned by publicly traded companies, so this switch to having stock returns as the basis for the corporate income tax will deal with the vast majority of potential tax avoidance/evasion.

Also, by making the tax collection from publicly traded companies a simple spreadsheet calculation, this switch would free up I.R.S. resources to more carefully monitor privately traded companies. It would also be reasonable to structure the tax code so as to have a modest penalty on privately traded companies, to give them an incentive to go public.

Furthermore, the route of having stock returns as the basis for their corporate income tax should actually be a desirable switch for private companies that are not actively engaged in tax avoidance or evasion. Most companies have substantial fees associated with hiring tax lawyers and accountants. A simple tax structure, with no loopholes, will save them these fees. That should be an additional reason for private companies to go public, and also make the decision not to go public a huge warning flag for the I.R.S.

 

The Purpose of Taxing: Reducing Demand in the Economy

As our Modern Monetary Theory friends remind us, the purpose of taxes for a country that prints its own currency is to reduce demand in the economy, thereby preventing inflation. Corporate income taxes have this effect indirectly, by reducing the money going to shareholders. If shareholders have less income, they will consume less.[1] This frees up resources for spending in other areas, like President Biden’s investment and recovery package. (There is a small impact of taxes on investment, but we need not spend much time worrying about this.)

The switch from having corporate profits to stock returns as a basis for the corporate income tax will also reduce demand by reducing the need for accountants, lawyers, and others engaged in the tax avoidance/evasion industry. This secondary effect will likely free up tens of billions annually, that would be otherwise spent complying with, avoiding, and enforcing the tax code. These savings may be in the range of 5-10 percent of the money raised through the corporate income tax. Also, since there are big payoffs in the tax avoidance/evasion industry, this switch will eliminate one important source of inequality in the economy.[2]

Let’s Make Tax Reform Real

If the Biden administration wants to do a serious overhaul of the tax code, to both raise more money and make it fairer, it is difficult to imagine a better way to go than switching the basis for the corporate income tax from profits to stock returns. It will be a huge step towards simplicity and transparency. This is exactly what we should want in our tax code.

[1] There also is a wealth effect. Higher corporate taxes lead to lower stock prices, other things equal. Insofar as stockholders spend out of their wealth, a reduction in stock prices should mean they consume less.

[2] Michael Moore’s movie, Capitalism: A Love Story, featured a fascinating segment on “dead peasant insurance policies.” These are life insurance policies that large companies like Walmart take out on their front-line workers, like cashiers. Generally, the workers never know about the policies. The company, not the worker’s family collects when a worker dies. Moore pointed to these policies as an example of the perversity of American capitalism. But, apart from their morbid nature, the real story of dead peasant policies is that someone undoubtedly got very rich from this scheme for smoothing corporate profits and tax liability. There would be many fewer opportunities for great fortunes with a tax system based on stock returns.

I have been following Washington debates on economic policy for several decades, so I’m used to silly claims. While it may not be in the top ten just yet, the idea that a shortage of semi-conductors now hitting the auto industry and other sectors is a supply-chain problem is certainly moving up.

A Washington Post piece on the issue began with a quote from Intel’s CEO, Pat Gelsinger, telling us that the shortage will be a problem that could last a couple of years. While this has been presented as a supply chain problem, it hardly fits the bill.

A supply chain problem is when a link in the supply chain suddenly breaks. Examples would be if a major producer of a product were idled by a fire or strike or if a country decided to block exports of an item for political reasons. If there were no easy alternative sources available, this could rightly be called a supply chain problem.

There is no disruption of any supply chain identified in this article. It simply seems to be the case that there is a worldwide shortage of semi-conductors.

That raises a completely different set of issues. How could such a shortage not have been anticipated by Intel and other major companies? Demand for semi-conductors doesn’t just appear out of thin air, they are needed in a wide range of products from computers and smartphones to cars and heavy machinery. These companies presumably have projections of demand for these products which should give them a reasonably good idea of future demand for semi-conductors.

The pandemic undoubtedly skewed buying patterns to some extent, but it is difficult to see how it could have led to a two-year shortage. For example, many people bought video game consoles and other devices in the pandemic that they would not have otherwise purchased. While this led to more demand for semi-conductors during the pandemic, now that these people have new video game consoles, presumably they are less likely to buy another one in the next two years. This means that it was largely an issue of timing, not an ongoing increase in demand.

If Mr. Gelsinger is, in fact, right about the shortage being a two-year problem, then the issue is not a supply chain one. The problem was the failure of major manufacturers to anticipate demand growth for some reason. And, there is no reason to believe that this failure would be affected by whether their chips were produced in South Korea, China, or Texas. Those interested in preventing this sort of problem should be asking why highly paid executives at major semi-conductor manufacturers don’t seem to know their industry. If the world is not producing enough semi-conductors, it doesn’t matter if the inadequate supply is coming from domestic plants.

I have been following Washington debates on economic policy for several decades, so I’m used to silly claims. While it may not be in the top ten just yet, the idea that a shortage of semi-conductors now hitting the auto industry and other sectors is a supply-chain problem is certainly moving up.

A Washington Post piece on the issue began with a quote from Intel’s CEO, Pat Gelsinger, telling us that the shortage will be a problem that could last a couple of years. While this has been presented as a supply chain problem, it hardly fits the bill.

A supply chain problem is when a link in the supply chain suddenly breaks. Examples would be if a major producer of a product were idled by a fire or strike or if a country decided to block exports of an item for political reasons. If there were no easy alternative sources available, this could rightly be called a supply chain problem.

There is no disruption of any supply chain identified in this article. It simply seems to be the case that there is a worldwide shortage of semi-conductors.

That raises a completely different set of issues. How could such a shortage not have been anticipated by Intel and other major companies? Demand for semi-conductors doesn’t just appear out of thin air, they are needed in a wide range of products from computers and smartphones to cars and heavy machinery. These companies presumably have projections of demand for these products which should give them a reasonably good idea of future demand for semi-conductors.

The pandemic undoubtedly skewed buying patterns to some extent, but it is difficult to see how it could have led to a two-year shortage. For example, many people bought video game consoles and other devices in the pandemic that they would not have otherwise purchased. While this led to more demand for semi-conductors during the pandemic, now that these people have new video game consoles, presumably they are less likely to buy another one in the next two years. This means that it was largely an issue of timing, not an ongoing increase in demand.

If Mr. Gelsinger is, in fact, right about the shortage being a two-year problem, then the issue is not a supply chain one. The problem was the failure of major manufacturers to anticipate demand growth for some reason. And, there is no reason to believe that this failure would be affected by whether their chips were produced in South Korea, China, or Texas. Those interested in preventing this sort of problem should be asking why highly paid executives at major semi-conductor manufacturers don’t seem to know their industry. If the world is not producing enough semi-conductors, it doesn’t matter if the inadequate supply is coming from domestic plants.

(This post originally appeared on my Patreon site.)

I realize that I may seem obsessed with the topic of patents (and copyrights), but it really is a big deal, and few people seem to appreciate the issue in its larger economic context. I have written about the inefficiency and corruption associated with these monopolies for decades, but if there were ever a time when public attention should be focused on reforming the system, it is now.

With the pandemic costing millions of lives around the world and costing our economies trillions in lost output, we really should be asking whether the current system serves us well in producing vaccines, tests, and treatments. Incredibly, public debate is so dominated by the pharmaceutical industry and its allies that we are primarily seeing celebration of the system’s dubious claims to success, rather than discussions of the ways in which system was and is failing us in addressing the pandemic. We also should be discussing the lessons for possible alternatives.

Starting with the failures, while we should all be glad that we now have several effective vaccines, which a large percentage of the U.S. population has now received, the fact is that only a small portion of the world’s population has been vaccinated. In Latin America less than ten percent of the population has been vaccinated and in Sub Saharan Africa the figure is less than one percent.

The enormous gap in vaccination rates is important not only because of the unfairness of the world’s poor being left behind, but because of the risk the situation poses to the whole world. If the pandemic is allowed to spread unchecked through the developing world it is certain that we will see more mutations. It is very possible that some of these mutations may be more contagious and/or more deadly and more resistant to our current crop of vaccines.

The last possibility should make us very worried. The makers of the mRNA vaccines are confident that they will be able to tweak their current vaccines to protect against new variants. That may prove to be true, but even if it is the case, we would still be looking at a disastrous scenario.

In a best case scenario we would still be looking at many months where a new variant was spreading across the country while we wait for a new vaccine to be tested and then produced in mass quantities. We would then need to distribute and administer hundreds of millions of shots. In the mean time, we would be looking at more sickness, death, and economic shutdowns.

Given the enormous costs associated with a vaccine-resistant strain, we should be doing everything possible to get the whole world vaccinated as quickly as possible. We clearly are not going this route, as the U.S. and other wealthy countries insist on maintaining patent protections as well as doing nothing to ensure that the technologies needed to manufacture vaccines are made widely available instead of being kept as industrial secrets.

The Vaccines as a Dubious Success of Patent Monopoly Financing

There have been numerous efforts to point to the mRNA vaccines developed by Pfizer and Moderna as great successes of our system of patent-monopoly financing of drug research. These celebrations are bizarre because so much of the research that led up to these vaccines was done on the taxpayer’s tab through funding by the National Institutes of Health (NIH) and other government agencies.

Earlier this month New York Times ran a piece on Katalin Kariko, one the heroes in the development of mRNA technology, who spent her career going from lab to lab where she was supported by government grants. According to the piece, she never made more than $60,000 a year.

This was the sort of work that created the basis for the developments of the vaccines shortly after the pandemic was recognized. The scientists at both Moderna and Pfizer (and its German partner BioNtech) have boasted about how they were able to develop the vaccines now being distributed in a matter of days after getting the genome for the coronavirus. These companies claim that this success was only possible because of years of prior research. That claim is true, but most of the key research was on the taxpayers’ dime, not out of the pockets of these companies.

In short, telling the story of the mRNA vaccines as a tale of a successful patent system is a serious rewrite of history. This is a story where two companies stand to make tens of billions in profits off of decades of publicly funded research, while putting relatively little of their own money at risk.

In fact, if there is a tale to be told about the development of vaccines in response to the pandemic, it is how public funding can provide an enormous impetus to medical progress. In addition to the years in which the NIH supported the development of mRNA technology, we had the one-time influx of $10 billion in public funding through Operation Warp Speed (OWS).

While this is a substantial sum, it is just 11 percent of the $90 billion that the industry reports spending on research each year. This means that if we think a dollar of public funding is equal to a dollar of private funding in its impact, then we should have expected OWS to have roughly one tenth of the impact on medical progress as the industry’s annual spending.

From we have seen to date, this public spending could quite possibly have an impact that is ten times as large as the industry’s annual $90 billion in spending. In addition to helping to quickly develop vaccines against the coronavirus, it looks as though it is also leading to spinoff results that could result in effective vaccines against Malaria, HIV, and possibly other diseases. And, we must remember that only a portion of the $10 billion from OWS went to developing vaccines. Much of the funding went to developing treatments and tests.

Even this picture understates the potential benefits from publicly funded research. There was little concern from the Trump administration about sharing findings. If publicly funded research were fully open-source, researchers could build more quickly on each other’s successes and failures. There would also be the benefit that the cost of research itself is inflated by patent monopolies, due to the fact that many of the tools researchers must use are themselves protected by patents. As a result of patent protection, these tools sell at prices that are many thousand percent above the free market price.

 

Additional Benefits of Publicly Funded Research

In addition to the likelihood that research would advance more quickly if it were fully open, we would also have the advantage that we would take away the perverse incentives created by patent monopolies. When a drug or vaccine can sell for many thousand percent above the free market price due to a government-granted monopoly, we give companies an enormous incentive to lie about the safety and effectiveness of their products.

We saw this most dramatically with the opioid crisis. The leading manufacturers of the new generation of opioids paid billions in settlements based on the allegation that they deliberately misled doctors about the addictiveness of the new generation of opioids in order to maximize sales. They would have had little incentive to push their drugs so aggressively if they had been selling as cheap generics.

We have seen the same sort of issue in the pandemic where all the drug companies have been less transparent in sharing their clinical trial data. Most notably, Astra Zeneca was accused of cherry-picking results to inflate the reported effectiveness of its vaccine. More recently, the company insisted that there was no issue with its vaccines causing blood clots even though a number of young healthy people got blood clots, many of them fatal, shortly after receiving its vaccine.

If the people managing clinical trials and overseeing a vaccine’s safety record had no incentive to misrepresent evidence, then we should see many fewer cases of deliberate lying. Anyone who believes that people respond to incentives has to accept this fact.

Patents and copyright monopolies are also a big part of the story of inequality. Bill Gates is the poster child on this one. Gates is one of the world’s richest people because the government will arrest anyone who uses software developed by Microsoft without its permission. Without government-granted patent and copyright monopolies, Mr. Gates would probably still be working for a living.

But we are also getting a lesson on the inequality story in front of our faces in the pandemic. The shareholders and top scientists at Moderna, Pfizer, and the other leading manufacturers stand to make billions that will come out of the pockets of the rest of us. The amount of money transferred to the drug industry alone through patent monopolies and related protections is close to $400 billion a year.

This comes to more than $5,000 a year for a family of four. People would have a lot more money in their pocket if drugs sold for ten or twenty dollars a prescription instead of hundreds or thousands of dollars.    

When economists claim that technology is the cause of the growth in inequality over the last four decades, they actually mean that patent and copyright monopolies are the cause. These government-granted monopolies are what allowed a relatively small group of people to get a grossly disproportionate share of the benefits of new technologies. It wasn’t the fault of the software or mRNA.

Finally, it is important that we recognize that the rents created by patent and copyright monopolies are implicit forms of government debt. With the passage of President Biden’s recovery plan and his newly proposed infrastructure package, we have seen the deficit hawks return in force, warning about the burden the debt will be placing on our children.

The argument is that they will have to pay higher taxes to service the debt created by current and future deficits. While I have mocked this argument numerous times, if anyone wants to take debt service burdens seriously, they have to also include the higher prices that our children will pay for drugs, medical equipment, software, and other items due to the patent and copyright monopolies that we are currently granting.

It makes zero sense to claim that a tax on these, or other items, to cover debt service is a burden, but paying higher prices due to patent or copyright monopoly is not. Unfortunately, no one expects the people who lead our policy debates to be consistent, so the debt whiners literally never have to comment on the burdens of patent and copyright monopolies.

 

Can We Get to a Patent Free World?

To my view, there is no economic policy that is worse in its outcomes than our system of patent monopoly financing for prescription drugs. Yet, the question of alternatives almost never comes up in policy discussions. (My scheme is in chapter 5 of Rigged [it’s free].) It is encouraging that there are politically plausible proposals to limit drug prices in the United States comparable to the limits that already exist in Europe, Canada, and elsewhere.

However, as we know, intellectuals have a hard time dealing with new ideas. Even though having public funding of biomedical research is not new, in public debates, it is treated like an alien concept. Corruption and inertia are very powerful forces in public policy, but we can still hope.

(This post originally appeared on my Patreon site.)

I realize that I may seem obsessed with the topic of patents (and copyrights), but it really is a big deal, and few people seem to appreciate the issue in its larger economic context. I have written about the inefficiency and corruption associated with these monopolies for decades, but if there were ever a time when public attention should be focused on reforming the system, it is now.

With the pandemic costing millions of lives around the world and costing our economies trillions in lost output, we really should be asking whether the current system serves us well in producing vaccines, tests, and treatments. Incredibly, public debate is so dominated by the pharmaceutical industry and its allies that we are primarily seeing celebration of the system’s dubious claims to success, rather than discussions of the ways in which system was and is failing us in addressing the pandemic. We also should be discussing the lessons for possible alternatives.

Starting with the failures, while we should all be glad that we now have several effective vaccines, which a large percentage of the U.S. population has now received, the fact is that only a small portion of the world’s population has been vaccinated. In Latin America less than ten percent of the population has been vaccinated and in Sub Saharan Africa the figure is less than one percent.

The enormous gap in vaccination rates is important not only because of the unfairness of the world’s poor being left behind, but because of the risk the situation poses to the whole world. If the pandemic is allowed to spread unchecked through the developing world it is certain that we will see more mutations. It is very possible that some of these mutations may be more contagious and/or more deadly and more resistant to our current crop of vaccines.

The last possibility should make us very worried. The makers of the mRNA vaccines are confident that they will be able to tweak their current vaccines to protect against new variants. That may prove to be true, but even if it is the case, we would still be looking at a disastrous scenario.

In a best case scenario we would still be looking at many months where a new variant was spreading across the country while we wait for a new vaccine to be tested and then produced in mass quantities. We would then need to distribute and administer hundreds of millions of shots. In the mean time, we would be looking at more sickness, death, and economic shutdowns.

Given the enormous costs associated with a vaccine-resistant strain, we should be doing everything possible to get the whole world vaccinated as quickly as possible. We clearly are not going this route, as the U.S. and other wealthy countries insist on maintaining patent protections as well as doing nothing to ensure that the technologies needed to manufacture vaccines are made widely available instead of being kept as industrial secrets.

The Vaccines as a Dubious Success of Patent Monopoly Financing

There have been numerous efforts to point to the mRNA vaccines developed by Pfizer and Moderna as great successes of our system of patent-monopoly financing of drug research. These celebrations are bizarre because so much of the research that led up to these vaccines was done on the taxpayer’s tab through funding by the National Institutes of Health (NIH) and other government agencies.

Earlier this month New York Times ran a piece on Katalin Kariko, one the heroes in the development of mRNA technology, who spent her career going from lab to lab where she was supported by government grants. According to the piece, she never made more than $60,000 a year.

This was the sort of work that created the basis for the developments of the vaccines shortly after the pandemic was recognized. The scientists at both Moderna and Pfizer (and its German partner BioNtech) have boasted about how they were able to develop the vaccines now being distributed in a matter of days after getting the genome for the coronavirus. These companies claim that this success was only possible because of years of prior research. That claim is true, but most of the key research was on the taxpayers’ dime, not out of the pockets of these companies.

In short, telling the story of the mRNA vaccines as a tale of a successful patent system is a serious rewrite of history. This is a story where two companies stand to make tens of billions in profits off of decades of publicly funded research, while putting relatively little of their own money at risk.

In fact, if there is a tale to be told about the development of vaccines in response to the pandemic, it is how public funding can provide an enormous impetus to medical progress. In addition to the years in which the NIH supported the development of mRNA technology, we had the one-time influx of $10 billion in public funding through Operation Warp Speed (OWS).

While this is a substantial sum, it is just 11 percent of the $90 billion that the industry reports spending on research each year. This means that if we think a dollar of public funding is equal to a dollar of private funding in its impact, then we should have expected OWS to have roughly one tenth of the impact on medical progress as the industry’s annual spending.

From we have seen to date, this public spending could quite possibly have an impact that is ten times as large as the industry’s annual $90 billion in spending. In addition to helping to quickly develop vaccines against the coronavirus, it looks as though it is also leading to spinoff results that could result in effective vaccines against Malaria, HIV, and possibly other diseases. And, we must remember that only a portion of the $10 billion from OWS went to developing vaccines. Much of the funding went to developing treatments and tests.

Even this picture understates the potential benefits from publicly funded research. There was little concern from the Trump administration about sharing findings. If publicly funded research were fully open-source, researchers could build more quickly on each other’s successes and failures. There would also be the benefit that the cost of research itself is inflated by patent monopolies, due to the fact that many of the tools researchers must use are themselves protected by patents. As a result of patent protection, these tools sell at prices that are many thousand percent above the free market price.

 

Additional Benefits of Publicly Funded Research

In addition to the likelihood that research would advance more quickly if it were fully open, we would also have the advantage that we would take away the perverse incentives created by patent monopolies. When a drug or vaccine can sell for many thousand percent above the free market price due to a government-granted monopoly, we give companies an enormous incentive to lie about the safety and effectiveness of their products.

We saw this most dramatically with the opioid crisis. The leading manufacturers of the new generation of opioids paid billions in settlements based on the allegation that they deliberately misled doctors about the addictiveness of the new generation of opioids in order to maximize sales. They would have had little incentive to push their drugs so aggressively if they had been selling as cheap generics.

We have seen the same sort of issue in the pandemic where all the drug companies have been less transparent in sharing their clinical trial data. Most notably, Astra Zeneca was accused of cherry-picking results to inflate the reported effectiveness of its vaccine. More recently, the company insisted that there was no issue with its vaccines causing blood clots even though a number of young healthy people got blood clots, many of them fatal, shortly after receiving its vaccine.

If the people managing clinical trials and overseeing a vaccine’s safety record had no incentive to misrepresent evidence, then we should see many fewer cases of deliberate lying. Anyone who believes that people respond to incentives has to accept this fact.

Patents and copyright monopolies are also a big part of the story of inequality. Bill Gates is the poster child on this one. Gates is one of the world’s richest people because the government will arrest anyone who uses software developed by Microsoft without its permission. Without government-granted patent and copyright monopolies, Mr. Gates would probably still be working for a living.

But we are also getting a lesson on the inequality story in front of our faces in the pandemic. The shareholders and top scientists at Moderna, Pfizer, and the other leading manufacturers stand to make billions that will come out of the pockets of the rest of us. The amount of money transferred to the drug industry alone through patent monopolies and related protections is close to $400 billion a year.

This comes to more than $5,000 a year for a family of four. People would have a lot more money in their pocket if drugs sold for ten or twenty dollars a prescription instead of hundreds or thousands of dollars.    

When economists claim that technology is the cause of the growth in inequality over the last four decades, they actually mean that patent and copyright monopolies are the cause. These government-granted monopolies are what allowed a relatively small group of people to get a grossly disproportionate share of the benefits of new technologies. It wasn’t the fault of the software or mRNA.

Finally, it is important that we recognize that the rents created by patent and copyright monopolies are implicit forms of government debt. With the passage of President Biden’s recovery plan and his newly proposed infrastructure package, we have seen the deficit hawks return in force, warning about the burden the debt will be placing on our children.

The argument is that they will have to pay higher taxes to service the debt created by current and future deficits. While I have mocked this argument numerous times, if anyone wants to take debt service burdens seriously, they have to also include the higher prices that our children will pay for drugs, medical equipment, software, and other items due to the patent and copyright monopolies that we are currently granting.

It makes zero sense to claim that a tax on these, or other items, to cover debt service is a burden, but paying higher prices due to patent or copyright monopoly is not. Unfortunately, no one expects the people who lead our policy debates to be consistent, so the debt whiners literally never have to comment on the burdens of patent and copyright monopolies.

 

Can We Get to a Patent Free World?

To my view, there is no economic policy that is worse in its outcomes than our system of patent monopoly financing for prescription drugs. Yet, the question of alternatives almost never comes up in policy discussions. (My scheme is in chapter 5 of Rigged [it’s free].) It is encouraging that there are politically plausible proposals to limit drug prices in the United States comparable to the limits that already exist in Europe, Canada, and elsewhere.

However, as we know, intellectuals have a hard time dealing with new ideas. Even though having public funding of biomedical research is not new, in public debates, it is treated like an alien concept. Corruption and inertia are very powerful forces in public policy, but we can still hope.

You might think that, after a year in which have seen millions of deaths and tens of millions of infections, and trillions of dollars in economic losses, our leaders would take the pandemic seriously. But apparently, that is too much to ask.

To my view, taking the pandemic seriously means doing everything we can to get the whole world vaccinated as quickly as possible. This is not just an issue of being concerned for the poor people in the developing world, who are being left behind in the vaccination race, it is a recognition of the reality that viruses mutate.

We already know about several mutations that are more contagious than the original coronavirus and are at least somewhat more resistant to some of the vaccines that have been developed. If the pandemic is allowed to spread largely unchecked through the developing world for another year or two, then it is virtually certain that we will see many more mutations. Some of these may be even more contagious and deadly, and most importantly, more vaccine-resistant.

The developers of the mRNA vaccines are confident that if this happens, they can quickly tweak their vaccines to make them effective against whatever new mutations develop. This should give us little comfort. Do we want to go through another round of infections, deaths, and lockdowns as we wait for hundreds of millions of the new vaccines to be manufactured and distributed?

Getting the world vaccinated is not about some feel-good gestures, like a few billion dollars for COVAX, the Bill Gates inspired initiative to make vaccines available in developing countries. It means pulling out all the stops to produce and distribute billions of vaccines as quickly as possible.

To do this, we need the cooperation of the whole world and the elimination of all the barriers to the production and distribution of vaccines. My model here is the bad science fiction movies of the 1950s. When the world was facing an alien invasion, the president of the United States would always call his counterpart in the Soviet Union and agree to a common effort to save humanity. We need to do the same now.

To my view, this means a vaccine summit, which would include Russia and China. We need to produce and distribute vaccines around the world as quickly as possible. That means using every vaccine that has been shown to be safe and effective. Russia has at least one at this point and China has four. Both countries are working on developing more vaccines, as are India, Iran, and Cuba. As soon as a vaccine is shown to meet world standards, we should be producing as much of it as possible and distributing it as quickly as possible.

This will require more transparency of clinical trial results, an area where China’s vaccine manufacturers have failed badly and even U.S.-European manufacturers have been far from perfect.  We need to know how effective each vaccine is against each variant and have a clear understanding of possible side effects.

I’ve heard people assert that China will never be open about its results. That could be true, but why not test the claim? There is a lot at stake here.

We also need transparency about production processes so that the technology to manufacture vaccines is freely available for anyone who can use it. The pharmaceutical industry group has been anxious to assert that there is no possible way to increase the production of their vaccines because of inherent limitations in productive capacities. This claim is contradicted by the fact that Pfizer announced the discovery of production efficiencies in early February, that will allow it to nearly double its output. Unless we believe that Pfizer’s engineers are the only people in the world who can develop ways to improve its production process, making the knowledge open will lead to further innovations that will allow for more vaccines to be manufactured.

This would mean suspending intellectual property claims over these vaccines. From a moral standpoint, this should not be a tough call since governments paid for so much of the development costs. In the United States, Section 1498 of the commercial code provides legal authority.

We also have the issue that much of the manufacturing expertise is held as an industrial secret by Pfizer, Moderna, and other drug companies. We can buy this expertise, but if these companies choose not to be willing sellers, we can simply go around them. Large payments to their engineers (e.g. $1 million a month) should be able to convince most of them to share their knowledge with the world. The government can also commit to covering their legal liability from lawsuits by their former employers.

These may sound like extreme measures, but what are we going to do if a new and more deadly vaccine-resistant strain develops in Zambia or Burma? I don’t want to hear another chorus of “who could have known?” from our intellectuals who missed another huge one.

Let’s get it right this time, even if it means having to do things a little differently. Our leaders are not forced to take a vow of incompetence.

You might think that, after a year in which have seen millions of deaths and tens of millions of infections, and trillions of dollars in economic losses, our leaders would take the pandemic seriously. But apparently, that is too much to ask.

To my view, taking the pandemic seriously means doing everything we can to get the whole world vaccinated as quickly as possible. This is not just an issue of being concerned for the poor people in the developing world, who are being left behind in the vaccination race, it is a recognition of the reality that viruses mutate.

We already know about several mutations that are more contagious than the original coronavirus and are at least somewhat more resistant to some of the vaccines that have been developed. If the pandemic is allowed to spread largely unchecked through the developing world for another year or two, then it is virtually certain that we will see many more mutations. Some of these may be even more contagious and deadly, and most importantly, more vaccine-resistant.

The developers of the mRNA vaccines are confident that if this happens, they can quickly tweak their vaccines to make them effective against whatever new mutations develop. This should give us little comfort. Do we want to go through another round of infections, deaths, and lockdowns as we wait for hundreds of millions of the new vaccines to be manufactured and distributed?

Getting the world vaccinated is not about some feel-good gestures, like a few billion dollars for COVAX, the Bill Gates inspired initiative to make vaccines available in developing countries. It means pulling out all the stops to produce and distribute billions of vaccines as quickly as possible.

To do this, we need the cooperation of the whole world and the elimination of all the barriers to the production and distribution of vaccines. My model here is the bad science fiction movies of the 1950s. When the world was facing an alien invasion, the president of the United States would always call his counterpart in the Soviet Union and agree to a common effort to save humanity. We need to do the same now.

To my view, this means a vaccine summit, which would include Russia and China. We need to produce and distribute vaccines around the world as quickly as possible. That means using every vaccine that has been shown to be safe and effective. Russia has at least one at this point and China has four. Both countries are working on developing more vaccines, as are India, Iran, and Cuba. As soon as a vaccine is shown to meet world standards, we should be producing as much of it as possible and distributing it as quickly as possible.

This will require more transparency of clinical trial results, an area where China’s vaccine manufacturers have failed badly and even U.S.-European manufacturers have been far from perfect.  We need to know how effective each vaccine is against each variant and have a clear understanding of possible side effects.

I’ve heard people assert that China will never be open about its results. That could be true, but why not test the claim? There is a lot at stake here.

We also need transparency about production processes so that the technology to manufacture vaccines is freely available for anyone who can use it. The pharmaceutical industry group has been anxious to assert that there is no possible way to increase the production of their vaccines because of inherent limitations in productive capacities. This claim is contradicted by the fact that Pfizer announced the discovery of production efficiencies in early February, that will allow it to nearly double its output. Unless we believe that Pfizer’s engineers are the only people in the world who can develop ways to improve its production process, making the knowledge open will lead to further innovations that will allow for more vaccines to be manufactured.

This would mean suspending intellectual property claims over these vaccines. From a moral standpoint, this should not be a tough call since governments paid for so much of the development costs. In the United States, Section 1498 of the commercial code provides legal authority.

We also have the issue that much of the manufacturing expertise is held as an industrial secret by Pfizer, Moderna, and other drug companies. We can buy this expertise, but if these companies choose not to be willing sellers, we can simply go around them. Large payments to their engineers (e.g. $1 million a month) should be able to convince most of them to share their knowledge with the world. The government can also commit to covering their legal liability from lawsuits by their former employers.

These may sound like extreme measures, but what are we going to do if a new and more deadly vaccine-resistant strain develops in Zambia or Burma? I don’t want to hear another chorus of “who could have known?” from our intellectuals who missed another huge one.

Let’s get it right this time, even if it means having to do things a little differently. Our leaders are not forced to take a vow of incompetence.

Yes, you can read it right there on the front page. Of course, the Post didn’t say 0.001 percent of the budget, its headline said $60 million a week. Since it is likely a safe bet that almost none of the Post’s readers has any idea how much $60 million is to the federal government, it might have been useful if the paper put the number in some context that would make its meaning clearer. But, it didn’t.

Yes, you can read it right there on the front page. Of course, the Post didn’t say 0.001 percent of the budget, its headline said $60 million a week. Since it is likely a safe bet that almost none of the Post’s readers has any idea how much $60 million is to the federal government, it might have been useful if the paper put the number in some context that would make its meaning clearer. But, it didn’t.

I was going to let pass this column by Margaret Sullivan, warning us not to applaud Dominion’s lawsuit against Fox News. I’m generally a big fan of Sullivan’s columns and was willing to look the other way on what I see as a very poorly argued piece. But when a friend sent it to me and asked my opinion, I decided it was worth chiming in.

To remind people of the issue, Dominion is a voting machine manufacturer. Fox has had numerous guests appear on its network who have made outlandish accusations about how Dominion rigged its machines so as to undercount Donald Trump’s votes and/or inflate Joe Biden’s totals.

Needless to say, none of them have an iota of evidence to support these claims and many are absurd on their face. For example, Hugo Chavez, the former president of Venezuela who has been dead for eight years, figures prominently in many of the stories. Nonetheless, many Fox News viewers believe them.

For a voting machine manufacturer, the claim that your machines are rigged is pretty much a textbook definition of a damaging statement. Therefore, Dominion should have a pretty solid case.

Sullivan doesn’t dispute any of this, instead, she points out that libel or defamation suits can also be used against news outlets doing serious reporting. She highlights the case of Reveal, a nonprofit news outfit that is dedicated to investigative reporting. Reveal was nearly forced out of business due to the cost of defending itself against a charity that it exposed as being run by a cult. Sullivan’s takeaway is that defamation lawsuits can be used as a weapon against legitimate news organizations doing serious reporting.

Sullivan is right on this point, but wrong in understanding the implications. Every civil course of action can be abused by those with money to harm people without substantial resources. There are tens of thousands of frivolous tort cases filed every year, but would anyone argue that we should deny people the right to sue a contractor that mistakenly sets their customer’s house on fire? The same applies to suits for breach of contract. If I pay someone $10,000 in advance to paint my house and they don’t do it, should I not be able to sue to get my money back?

Even stalking injunctions can be misused. Typically, a no stalking order is obtained by a woman to protect her and/or her children from an abusive ex-spouse or former boyfriend. However, in my little town in Utah, a powerful political figure managed to get a no stalking order against a protestor who had never touched him, threatened to touch him, or come anywhere near his house. Should we take away the right to have no stalking injunctions?

The reality is that our legal system can be abused by the powerful to harm those with less power. That is the result of the enormous disparities of income and power in this country, and the inadequate shields against abuse in the legal system. It would be great to have more shields to protect against abuse, but Sullivan’s reservations about Dominion’s suit could be equally well applied to any effort to seek justice through the legal system.

I will add that I was totally applauding Dominion’s suit and the earlier one by Smartmatic, which makes voting software. Fox and a range of Trump cronies made outlandish charges against both. They should be forced to pay a price for these lies.

The alternative is a lot of tut-tutting and hand-wringing, saying it is unfortunate that a major news outlet and prominent political figures would resort to outright lies to advance their political agenda. Perhaps this tut-tutting and hand-wringing makes some people feel good, but it does absolutely zero to stop the lies.

On the other hand, if Fox and Trump’s cronies have to pay tens or hundreds of millions of dollars in damages as a result of their lies, they will be more reluctant to make up such lies in the future. The threat of defamation suits is also very helpful in preventing lies from being pushed in the first place.

We see this clearly with Donald Trump. Even though he endlessly claims the election was stolen with millions of fake votes for Biden, he will literally never make any specific allegation. This is because he knows that if he named anyone who supposedly played a role in producing these fake votes, he will be sued for whatever is left of his father’s fortune.

This also allows the rest of us to play on Trump’s lie, pointing out that even though he claims millions of votes were fraudulently cast, he cannot identify a single person involved in this effort. For anyone not completely lost in outer space, this should be a decisive slam dunk.

Anyhow, telling us that libel law can be abused is telling us nothing. Most of us know that those with money and power can use the legal system against the less powerful. This is true with libel law just as with any other area of law.    

I was going to let pass this column by Margaret Sullivan, warning us not to applaud Dominion’s lawsuit against Fox News. I’m generally a big fan of Sullivan’s columns and was willing to look the other way on what I see as a very poorly argued piece. But when a friend sent it to me and asked my opinion, I decided it was worth chiming in.

To remind people of the issue, Dominion is a voting machine manufacturer. Fox has had numerous guests appear on its network who have made outlandish accusations about how Dominion rigged its machines so as to undercount Donald Trump’s votes and/or inflate Joe Biden’s totals.

Needless to say, none of them have an iota of evidence to support these claims and many are absurd on their face. For example, Hugo Chavez, the former president of Venezuela who has been dead for eight years, figures prominently in many of the stories. Nonetheless, many Fox News viewers believe them.

For a voting machine manufacturer, the claim that your machines are rigged is pretty much a textbook definition of a damaging statement. Therefore, Dominion should have a pretty solid case.

Sullivan doesn’t dispute any of this, instead, she points out that libel or defamation suits can also be used against news outlets doing serious reporting. She highlights the case of Reveal, a nonprofit news outfit that is dedicated to investigative reporting. Reveal was nearly forced out of business due to the cost of defending itself against a charity that it exposed as being run by a cult. Sullivan’s takeaway is that defamation lawsuits can be used as a weapon against legitimate news organizations doing serious reporting.

Sullivan is right on this point, but wrong in understanding the implications. Every civil course of action can be abused by those with money to harm people without substantial resources. There are tens of thousands of frivolous tort cases filed every year, but would anyone argue that we should deny people the right to sue a contractor that mistakenly sets their customer’s house on fire? The same applies to suits for breach of contract. If I pay someone $10,000 in advance to paint my house and they don’t do it, should I not be able to sue to get my money back?

Even stalking injunctions can be misused. Typically, a no stalking order is obtained by a woman to protect her and/or her children from an abusive ex-spouse or former boyfriend. However, in my little town in Utah, a powerful political figure managed to get a no stalking order against a protestor who had never touched him, threatened to touch him, or come anywhere near his house. Should we take away the right to have no stalking injunctions?

The reality is that our legal system can be abused by the powerful to harm those with less power. That is the result of the enormous disparities of income and power in this country, and the inadequate shields against abuse in the legal system. It would be great to have more shields to protect against abuse, but Sullivan’s reservations about Dominion’s suit could be equally well applied to any effort to seek justice through the legal system.

I will add that I was totally applauding Dominion’s suit and the earlier one by Smartmatic, which makes voting software. Fox and a range of Trump cronies made outlandish charges against both. They should be forced to pay a price for these lies.

The alternative is a lot of tut-tutting and hand-wringing, saying it is unfortunate that a major news outlet and prominent political figures would resort to outright lies to advance their political agenda. Perhaps this tut-tutting and hand-wringing makes some people feel good, but it does absolutely zero to stop the lies.

On the other hand, if Fox and Trump’s cronies have to pay tens or hundreds of millions of dollars in damages as a result of their lies, they will be more reluctant to make up such lies in the future. The threat of defamation suits is also very helpful in preventing lies from being pushed in the first place.

We see this clearly with Donald Trump. Even though he endlessly claims the election was stolen with millions of fake votes for Biden, he will literally never make any specific allegation. This is because he knows that if he named anyone who supposedly played a role in producing these fake votes, he will be sued for whatever is left of his father’s fortune.

This also allows the rest of us to play on Trump’s lie, pointing out that even though he claims millions of votes were fraudulently cast, he cannot identify a single person involved in this effort. For anyone not completely lost in outer space, this should be a decisive slam dunk.

Anyhow, telling us that libel law can be abused is telling us nothing. Most of us know that those with money and power can use the legal system against the less powerful. This is true with libel law just as with any other area of law.    

I can remember few jobs reports that were as unambiguously positive as the data released last Friday. Just about everything in the report was moving in the right direction, and for the most part, at a rapid pace.

Most obviously, the economy created 914,000 jobs in March. In addition, the January and February numbers were revised up by a total of 156,000. There was a decline of 0.1 percentage points in the overall unemployment rate, with the employment to population ratio rising by the same amount. The improvements were pretty much across the board. The unemployment rate for Blacks fell by 0.3 percentage points, the unemployment rate for Hispanics dropped by 0.6 percentage points, and the unemployment rate for workers with just a high school degree fell by 0.5 percentage points.

But to say things are moving in the right direction does not mean that they are good. We are still down 8.4 million jobs from last February, and if we add in the jobs that should have been created over this period, we are missing more than 10 million jobs. Six percent unemployment means 9.7 million people are looking for work and can’t find it. In addition, another 4.7 million have dropped out of the labor force, either because they have given up hope of finding a job or because family responsibilities in the pandemic are keeping them from working.

It also continues to be striking how concentrated the unemployment is. The share of long-term unemployed (more than 26 weeks) rose to 43.4 percent in March, a level exceeded by only a few months in the Great Recession and never reached before the Great Recession. Typically, unemployment is spread more widely, with many workers experiencing stretches of two or three months. This percentage of long-term unemployment indicates that many people lost their jobs near the start of the pandemic and have not been rehired.

Grounds for Optimism

With all appropriate cautions, it is still hard not to see things looking pretty bright for the immediate future and even better if Biden’s infrastructure package is approved. Just to start, while we certainly should not be happy about a 6.0 percent unemployment rate, in the recovery following the Great Recession, the unemployment rate did not fall below 6.0 percent until September of 2014, so we are way ahead of that recovery.

But more importantly, we are likely to continue to see very rapid job growth in the immediate future. With the vaccination campaign moving along very rapidly, people will feel more comfortable going to restaurants and other public places. And, we know that state and local governments are removing pandemic restrictions (possibly too rapidly).

OpenTable reports that restaurant reservations were down by an average of just over 21 percent in the last seven days compared with 2019 levels. If we go back two months, the drop compared to 2019 was more than 53 percent. The restaurant industry added 176,000 jobs in March. It can easily add twice this many in April.

The state and local government sectors are also almost certain to be big job gainers in April. Biden’s recovery plan gave them the money needed to make up their budget shortfalls and rehire workers who were laid off. Also, with most schools returning to in-person instruction, many more teachers will be back to work. This sector added 129,000 jobs in March, and it will add far more in April.

Other sectors that have been badly depressed, like hotels, live entertainment, health care, and even air transportation will surely add large numbers of jobs in April. It will be several more months until these sectors are near their pre-pandemic employment levels, but we are seeing very rapid progress towards that point.

In short, April is likely to look a lot like March in terms of job growth, and we likely will continue to see strong job growth through the rest of the year. We will probably not approach our pre-pandemic employment path until some time in 2022, but the economy is getting better quickly.

Another very encouraging part of the picture is that wage growth has held up remarkably well through the recession. The average hourly wage for production and non-supervisory workers rose at a 3.4 percent annual rate, comparing the last three months (January, February, March) with the prior three months (October, November, December).

This is essentially the same as the pre-pandemic pace. This is a major departure from the pattern we saw in the Great Recession, where wage growth slowed sharply due to the weakness in the labor market. (The changing composition of the workforce would not have a major effect on wage growth over this period. To the extent it did, it would have slowed growth slightly.)

If wage growth continues at this pace it would mean that workers are seeing modest gains in real wages, with inflation still under 2.0 percent. There is the risk that inflation will rise, limiting real wage gains. To some extent, a rise in inflation is a virtual certainty as sharp price drops in sectors like hotels, airfares, and car insurance are reversed.

But these would be just one-time increases. The concern that Larry Summers and others have raised is that we get a cycle of price increases, driven by wage increases, as we saw in the 1970s. If this sort of wage-price spiral develops, it is difficult to say what will happen with real wages.

In the past, I have argued that we are not likely to see this sort of wage-price spiral, first and foremost because the economy is far more internationalized than in the 1970s. I also pointed out that unions are far weaker, which means that if we did start to see a serious uptick in inflation, it is not clear that workers would be able to secure wage gains to offset higher prices.   

But the March jobs report also gives us good news on the other key factor in the inflation story: productivity growth. There was a sharp uptick in productivity growth in 2020, with productivity rising 2.5 percent from the fourth quarter of 2019 to the fourth quarter of 2020. This compares to an annual growth rate of just 1.0 percent over the prior decade.

With the March data indicating that hours worked grew at around a 2.5 percent annual rate in the first quarter and with GDP growth projected to be in the range of 5.0 to 6.0 percent for the quarter, it is likely that productivity growth will be at least 2.5 percent for the first quarter. This means the more rapid productivity growth of 2020 is continuing for the moment.

Productivity data are erratic, and it is far too soon to assume a new trend of faster growth. (Economists are horrible at predicting productivity growth or even understanding changes in trends after the fact.) However, if we are in fact on a path of faster productivity growth, it is a huge deal. It means both that we have far less reason to be concerned about inflation and that workers can enjoy more rapid gains in living standards if they share in the benefits of more rapid productivity growth.

The simple arithmetic is that if we sustain a 2.5 percent rate of productivity growth, nominal wages can rise at a rate of 4.5 percent annually, with inflation remaining stable at 2.0 percent. There will always be factors, such as rising or falling import prices, which complicate this picture, but there is much less reason to fear inflation if productivity rises rapidly.

It’s still way too early to start the celebrations. First, we certainly don’t know that the more rapid pace of productivity growth will continue. Second, we know the Republicans will do everything in their power to try to sabotage the recovery, so they can blame Biden and the Democrats in 2022 and 2024. Many people are still suffering from the effects of the recession, and, of course, many people are still getting sick and dying from Covid.

And, the biggest risk to this happy picture remains the threat of a new vaccine-resistant strain developing and spreading around the world. This points again to the urgency of not only getting people in the United States vaccinated as quickly as possible but also getting the whole world vaccinated in order to contain the pandemic.

If a new vaccine-resistant strain develops anywhere, it is almost certain to spread. And then we will be back at ground zero with more deaths and shutdowns until we can again develop vaccines to protect us. Biden, as well as the leaders of other major countries, must take this risk very seriously and do everything possible to ensure that the battle against the pandemic does not go into extra innings.  

I can remember few jobs reports that were as unambiguously positive as the data released last Friday. Just about everything in the report was moving in the right direction, and for the most part, at a rapid pace.

Most obviously, the economy created 914,000 jobs in March. In addition, the January and February numbers were revised up by a total of 156,000. There was a decline of 0.1 percentage points in the overall unemployment rate, with the employment to population ratio rising by the same amount. The improvements were pretty much across the board. The unemployment rate for Blacks fell by 0.3 percentage points, the unemployment rate for Hispanics dropped by 0.6 percentage points, and the unemployment rate for workers with just a high school degree fell by 0.5 percentage points.

But to say things are moving in the right direction does not mean that they are good. We are still down 8.4 million jobs from last February, and if we add in the jobs that should have been created over this period, we are missing more than 10 million jobs. Six percent unemployment means 9.7 million people are looking for work and can’t find it. In addition, another 4.7 million have dropped out of the labor force, either because they have given up hope of finding a job or because family responsibilities in the pandemic are keeping them from working.

It also continues to be striking how concentrated the unemployment is. The share of long-term unemployed (more than 26 weeks) rose to 43.4 percent in March, a level exceeded by only a few months in the Great Recession and never reached before the Great Recession. Typically, unemployment is spread more widely, with many workers experiencing stretches of two or three months. This percentage of long-term unemployment indicates that many people lost their jobs near the start of the pandemic and have not been rehired.

Grounds for Optimism

With all appropriate cautions, it is still hard not to see things looking pretty bright for the immediate future and even better if Biden’s infrastructure package is approved. Just to start, while we certainly should not be happy about a 6.0 percent unemployment rate, in the recovery following the Great Recession, the unemployment rate did not fall below 6.0 percent until September of 2014, so we are way ahead of that recovery.

But more importantly, we are likely to continue to see very rapid job growth in the immediate future. With the vaccination campaign moving along very rapidly, people will feel more comfortable going to restaurants and other public places. And, we know that state and local governments are removing pandemic restrictions (possibly too rapidly).

OpenTable reports that restaurant reservations were down by an average of just over 21 percent in the last seven days compared with 2019 levels. If we go back two months, the drop compared to 2019 was more than 53 percent. The restaurant industry added 176,000 jobs in March. It can easily add twice this many in April.

The state and local government sectors are also almost certain to be big job gainers in April. Biden’s recovery plan gave them the money needed to make up their budget shortfalls and rehire workers who were laid off. Also, with most schools returning to in-person instruction, many more teachers will be back to work. This sector added 129,000 jobs in March, and it will add far more in April.

Other sectors that have been badly depressed, like hotels, live entertainment, health care, and even air transportation will surely add large numbers of jobs in April. It will be several more months until these sectors are near their pre-pandemic employment levels, but we are seeing very rapid progress towards that point.

In short, April is likely to look a lot like March in terms of job growth, and we likely will continue to see strong job growth through the rest of the year. We will probably not approach our pre-pandemic employment path until some time in 2022, but the economy is getting better quickly.

Another very encouraging part of the picture is that wage growth has held up remarkably well through the recession. The average hourly wage for production and non-supervisory workers rose at a 3.4 percent annual rate, comparing the last three months (January, February, March) with the prior three months (October, November, December).

This is essentially the same as the pre-pandemic pace. This is a major departure from the pattern we saw in the Great Recession, where wage growth slowed sharply due to the weakness in the labor market. (The changing composition of the workforce would not have a major effect on wage growth over this period. To the extent it did, it would have slowed growth slightly.)

If wage growth continues at this pace it would mean that workers are seeing modest gains in real wages, with inflation still under 2.0 percent. There is the risk that inflation will rise, limiting real wage gains. To some extent, a rise in inflation is a virtual certainty as sharp price drops in sectors like hotels, airfares, and car insurance are reversed.

But these would be just one-time increases. The concern that Larry Summers and others have raised is that we get a cycle of price increases, driven by wage increases, as we saw in the 1970s. If this sort of wage-price spiral develops, it is difficult to say what will happen with real wages.

In the past, I have argued that we are not likely to see this sort of wage-price spiral, first and foremost because the economy is far more internationalized than in the 1970s. I also pointed out that unions are far weaker, which means that if we did start to see a serious uptick in inflation, it is not clear that workers would be able to secure wage gains to offset higher prices.   

But the March jobs report also gives us good news on the other key factor in the inflation story: productivity growth. There was a sharp uptick in productivity growth in 2020, with productivity rising 2.5 percent from the fourth quarter of 2019 to the fourth quarter of 2020. This compares to an annual growth rate of just 1.0 percent over the prior decade.

With the March data indicating that hours worked grew at around a 2.5 percent annual rate in the first quarter and with GDP growth projected to be in the range of 5.0 to 6.0 percent for the quarter, it is likely that productivity growth will be at least 2.5 percent for the first quarter. This means the more rapid productivity growth of 2020 is continuing for the moment.

Productivity data are erratic, and it is far too soon to assume a new trend of faster growth. (Economists are horrible at predicting productivity growth or even understanding changes in trends after the fact.) However, if we are in fact on a path of faster productivity growth, it is a huge deal. It means both that we have far less reason to be concerned about inflation and that workers can enjoy more rapid gains in living standards if they share in the benefits of more rapid productivity growth.

The simple arithmetic is that if we sustain a 2.5 percent rate of productivity growth, nominal wages can rise at a rate of 4.5 percent annually, with inflation remaining stable at 2.0 percent. There will always be factors, such as rising or falling import prices, which complicate this picture, but there is much less reason to fear inflation if productivity rises rapidly.

It’s still way too early to start the celebrations. First, we certainly don’t know that the more rapid pace of productivity growth will continue. Second, we know the Republicans will do everything in their power to try to sabotage the recovery, so they can blame Biden and the Democrats in 2022 and 2024. Many people are still suffering from the effects of the recession, and, of course, many people are still getting sick and dying from Covid.

And, the biggest risk to this happy picture remains the threat of a new vaccine-resistant strain developing and spreading around the world. This points again to the urgency of not only getting people in the United States vaccinated as quickly as possible but also getting the whole world vaccinated in order to contain the pandemic.

If a new vaccine-resistant strain develops anywhere, it is almost certain to spread. And then we will be back at ground zero with more deaths and shutdowns until we can again develop vaccines to protect us. Biden, as well as the leaders of other major countries, must take this risk very seriously and do everything possible to ensure that the battle against the pandemic does not go into extra innings.  

As I noted with Round I, this is stupid since there are so many things for which the president is not responsible. But, as we all know, the Trump crew would be pushing this graph everywhere if the situation were reversed, so here it is.

As we can see, after two months, Biden has created  1,384,000 jobs. In four years, Trump lost 2,876,000 jobs.

As I noted with Round I, this is stupid since there are so many things for which the president is not responsible. But, as we all know, the Trump crew would be pushing this graph everywhere if the situation were reversed, so here it is.

As we can see, after two months, Biden has created  1,384,000 jobs. In four years, Trump lost 2,876,000 jobs.

Okay, it is more money than even Bill Gates, Elon Musk, and Jeff Bezos have, put together. That probably still doesn’t give people too much information since most people don’t have much familiarity with these folks’ fortunes. But it might be helpful if the media made some effort to put the proposed spending in President Biden’s infrastructure package in a context that would make it meaningful.

The spending is supposed to take place over eight years which means that it would be equal to just over 0.8 percent of projected GDP over this period. At $250 billion a year, it comes to about $750 per person each year over this period. It is less than 40 percent of what we are projected to spend on prescription drugs over this period and less than half of the higher prices that we will be paying as a result of government-granted patent and related monopolies. (For some reason, the money transferred to the drug companies and other beneficiaries of these government-granted monopolies never gets called “big government.”)

Anyhow, instead of reporting $2 trillion as some big scary number, often not even telling people the time period involved, it would be helpful if news outlets tried to put the number in contexts that would make it meaningful to their readers. We get that reporting big numbers is a cool fraternity ritual among budget reporters, but making these numbers meaningful is actually supposed to be their job.

Okay, it is more money than even Bill Gates, Elon Musk, and Jeff Bezos have, put together. That probably still doesn’t give people too much information since most people don’t have much familiarity with these folks’ fortunes. But it might be helpful if the media made some effort to put the proposed spending in President Biden’s infrastructure package in a context that would make it meaningful.

The spending is supposed to take place over eight years which means that it would be equal to just over 0.8 percent of projected GDP over this period. At $250 billion a year, it comes to about $750 per person each year over this period. It is less than 40 percent of what we are projected to spend on prescription drugs over this period and less than half of the higher prices that we will be paying as a result of government-granted patent and related monopolies. (For some reason, the money transferred to the drug companies and other beneficiaries of these government-granted monopolies never gets called “big government.”)

Anyhow, instead of reporting $2 trillion as some big scary number, often not even telling people the time period involved, it would be helpful if news outlets tried to put the number in contexts that would make it meaningful to their readers. We get that reporting big numbers is a cool fraternity ritual among budget reporters, but making these numbers meaningful is actually supposed to be their job.

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