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.

The NYT had its second piece in a week on how business owners can’t use the money from the paycheck protection program (PPP) to build their businesses. While it is understandable that business owners would like a handout from the government, that is not the purpose of the PPP.

The point of the PPP is to get workers their paychecks, or at least a large fraction thereof, not to support businesses. The businesses are essentially an intermediary. It should be a large help to these businesses to be able to keep workers on their payroll and have their rent covered, but the program is not designed to get businesses through the crisis, it’s designed to get their workers through.

For some reason, the NYT and much of the rest of the media can’t seem to understand this point. Obviously many businesses will struggle to get through this crisis, and a lot won’t make it, but the PPP is not designed for this purpose. This is not news.

The NYT had its second piece in a week on how business owners can’t use the money from the paycheck protection program (PPP) to build their businesses. While it is understandable that business owners would like a handout from the government, that is not the purpose of the PPP.

The point of the PPP is to get workers their paychecks, or at least a large fraction thereof, not to support businesses. The businesses are essentially an intermediary. It should be a large help to these businesses to be able to keep workers on their payroll and have their rent covered, but the program is not designed to get businesses through the crisis, it’s designed to get their workers through.

For some reason, the NYT and much of the rest of the media can’t seem to understand this point. Obviously many businesses will struggle to get through this crisis, and a lot won’t make it, but the PPP is not designed for this purpose. This is not news.

(This post first appeared on my Patreon page.)

Last week the Boston Review (BR) published an exchange on a wealth tax that included a proposal from Berkeley economists Emmanuel Saez and Gabriel Zucman, with a number of responses, including one from me. I was critical of the proposal for both political reasons and because I think avoidance and evasion will be massive problems.

On the political side, in addition to the difficulty of getting a wealth tax through Congress, there is the virtual certainty that the current Supreme Court will rule it unconstitutional. This is not an abstract question of whether a wealth tax should be viewed as constitutional. I realize that many legal scholars have argued that such a tax is not inconsistent with the power to tax granted to Congress by the constitution. This is a very concrete question as to whether the current Supreme Court would rule that a wealth tax is constitutional. I don’t think anyone with a straight face could argue that it would.

We can of course talk about various plans to pack the court, either by adding new justices or through some rotation scheme of judges across federal courts. These may be interesting and worthwhile strategies to pursue against a corrupt court, but if we’re thinking of a timeline of a presidential term in which we hope to get important legislation passed, they are not likely to be helpful. 

Even if we can implement an effective strategy for ending the right-wing lock on the court, it is not likely to be quick enough to allow a measure like a wealth tax to be implemented in the same presidential term. If this is at the center of a progressive president’s agenda, they will have to find a way to get re-elected without passing this important measure. 

My other reason for objecting is that I think a wealth tax will prove very difficult to enforce. We have experience with income taxes and estate taxes. The enforcement of these is far from perfect, but at least the apparatus is in place. We would be starting from scratch with a wealth tax and the rich will have a very strong incentive to avoid or evade it. My guess is that they would be fairly successful, undermining the goal of the tax as well as confidence in the tax system. 

As I pointed in the BR piece, one foolproof mechanism for avoidance is renouncing citizenship. While Saez and Zucman have a 47 percent exit tax as part of their proposal, this would not apply to people who renounce their citizenship before the tax is enacted. In their response, Saez and Zucman suggest that the tax could be imposed even on those who have already left. While they have a good moral argument, as a practical matter, the probability of collecting large amounts of retroactive taxes from someone who has fled to a tax haven does not seem very high. 

Stopping Extreme Wealth at Its Source

While I don’t think a wealth tax is an effective mechanism to contain excessive wealth, I strongly agree with Saez and Zucman that it is a serious problem for both economic and political reasons. However, I have focused my own work on changing the economic structures that allow for the accumulation of extreme wealth. 

I won’t go through the whole story here (this is the point of Rigged [it’s free]), but the basic argument is that over the last four decades we have structured the economy in ways that allow for the accumulation of massive amounts of wealth. There is nothing inevitable about this structuring, we can structure the economy differently so that its benefits are more broadly shared instead of flowing so disproportionately to those at the top.  

My poster child for the impact of the structuring of the economy is Bill Gates. Gates is one of the richest people in the world because we have patent and copyright monopolies. If the government didn’t grant these monopolies, and anyone who wanted to could freely copy Microsoft’s software, Bill Gates would probably still be working for a living.

Patents and copyrights serve a purpose, they provide an incentive for innovation and creative work, but there are other ways to provide these incentives. And even if we decide to use patent and copyright monopolies, they could be shorter and weaker, so that they don’t redistribute so much income to their holders. 

The place where I have spent the most effort combatting these government-granted monopolies is with prescription drugs. This is both where they cause the greatest amount of corruption — think of the opioid crisis, a direct result of the incentive created by patent monopoly prices to push drugs — and where they lead to the most obscene outcomes: people being unable to afford cheap drugs because patent monopolies make them expensive.

The pandemic should provide a great opportunity to challenge patent monopolies in prescription drugs. There is an unprecedented amount of international cooperation, as well as public funding, in the efforts to develop treatments and an effective vaccine against the coronavirus. Given this collective effort, it would be utterly absurd to give the company that happened to be the first to the patent office a monopoly on a treatment or vaccine. 

The only sensible solution is that the drugs and vaccines that are developed through this collective effort be in the public domain so that they can be sold as cheap generics, where the price is the cost of manufacturing and distribution, and a normal profit. We should not be in the position of begging a patent holder to make a drug or vaccine available at an affordable price.

If we could go this route with the coronavirus then it should raise the obvious question of why this should not be the standard practice – publicly funded, open-source research with everything placed in the public domain. And, what is really neat about this approach is that we don’t even have to stop drug companies from pursuing patent-supported research. They would just face the risk that any drugs they do develop will face competition from a drug that is as good or better and selling as a generic at one percent of the price they planned to charge. That risk would likely shut down most patent-supported research very quickly.

The amount at stake here is enormous, as I continually point out. In the case of prescription drugs alone, it is close to $400 billion a year, roughly 20 percent of all corporate profits.

I could be wrong, but it strikes me as a far smaller political lift to say that the government should increase its funding for the development of prescription drugs (we already spend $40 billion a year through NIH), and have everything developed in the public domain, than imposing a wealth tax. And there is no issue of its constitutionality. 

As I point out in Rigged, there are also measures we can do to radically reduce the big fortunes built-in finance, most obviously by imposing a modest financial transaction tax. We can hugely reduce Mark Zuckerberg’s fortune by repealing Section 230 of the Communications Decency Act, thereby subjecting Facebook and other Internet intermediaries to the same legal liabilities as their competitors in traditional media. 

We don’t need to structure our economy in a way that leads to massive inequality. There has been a conscious choice made by those designing policy in the last four decades. Our top priority should be to change this design.

Leveling the Political Playing Field

Saez and Zucman are entirely correct in pointing out that the enormous amount of wealth at the top gives these people hugely outsized political influence. While this is true, we are not going to be able to easily reverse this, even with a wealth tax. Jeff Bezos and Bill Gates could still wield ridiculous amounts of political influence if we managed to tax away half of their wealth.

Our efforts can’t be focused just on bringing the top down, we have to bring everyone else up. Fortunately, there are models for doing this. Seattle gives every voter a $75 voucher to support the candidate(s) of their choice in city council elections. Several cities now have super-matches, where small campaign contributions are matched three or four to one. I have outlined a plan where everyone would have a $100 voucher to support journalism or any other creative work they choose.  

There are many other directions in which these sorts of proposals can be developed, but the point is that, with a relatively small amount of public funds, we can hugely democratize politics, as well as journalism and creative work more generally. Getting more input from those at the middle and bottom is likely to be a far more productive path towards counterbalancing the influence of the rich than trying to take away their money. And, this can be done piecemeal, one city or state at a time. 

Keeping Our Eye on the Ball

In contrast to the right, progressives get relatively few bites at the apple. The right can have a George W. Bush, who lied us into a pointless war in Iraq and then allowed the economy to collapse under his watch and then get back in control of the White House and both houses of Congress eight years later. If a progressive presidency had led to similar foreign policy and domestic disasters, the left could look forward to a half-century in the wilderness, maybe longer. 

For this reason, we have to make sure our bites at the apple are all good ones. A huge political battle for a wealth tax that ultimately ended in defeat in Congress or a loss at the Supreme Court would be a disaster. We need battles that are winnable and produce tangible near-term results. There are an infinite number of ways that we can turn to reverse the upward redistribution of the last four decades. This should be the focus of progressive economic policy. 

 
 
 
 

(This post first appeared on my Patreon page.)

Last week the Boston Review (BR) published an exchange on a wealth tax that included a proposal from Berkeley economists Emmanuel Saez and Gabriel Zucman, with a number of responses, including one from me. I was critical of the proposal for both political reasons and because I think avoidance and evasion will be massive problems.

On the political side, in addition to the difficulty of getting a wealth tax through Congress, there is the virtual certainty that the current Supreme Court will rule it unconstitutional. This is not an abstract question of whether a wealth tax should be viewed as constitutional. I realize that many legal scholars have argued that such a tax is not inconsistent with the power to tax granted to Congress by the constitution. This is a very concrete question as to whether the current Supreme Court would rule that a wealth tax is constitutional. I don’t think anyone with a straight face could argue that it would.

We can of course talk about various plans to pack the court, either by adding new justices or through some rotation scheme of judges across federal courts. These may be interesting and worthwhile strategies to pursue against a corrupt court, but if we’re thinking of a timeline of a presidential term in which we hope to get important legislation passed, they are not likely to be helpful. 

Even if we can implement an effective strategy for ending the right-wing lock on the court, it is not likely to be quick enough to allow a measure like a wealth tax to be implemented in the same presidential term. If this is at the center of a progressive president’s agenda, they will have to find a way to get re-elected without passing this important measure. 

My other reason for objecting is that I think a wealth tax will prove very difficult to enforce. We have experience with income taxes and estate taxes. The enforcement of these is far from perfect, but at least the apparatus is in place. We would be starting from scratch with a wealth tax and the rich will have a very strong incentive to avoid or evade it. My guess is that they would be fairly successful, undermining the goal of the tax as well as confidence in the tax system. 

As I pointed in the BR piece, one foolproof mechanism for avoidance is renouncing citizenship. While Saez and Zucman have a 47 percent exit tax as part of their proposal, this would not apply to people who renounce their citizenship before the tax is enacted. In their response, Saez and Zucman suggest that the tax could be imposed even on those who have already left. While they have a good moral argument, as a practical matter, the probability of collecting large amounts of retroactive taxes from someone who has fled to a tax haven does not seem very high. 

Stopping Extreme Wealth at Its Source

While I don’t think a wealth tax is an effective mechanism to contain excessive wealth, I strongly agree with Saez and Zucman that it is a serious problem for both economic and political reasons. However, I have focused my own work on changing the economic structures that allow for the accumulation of extreme wealth. 

I won’t go through the whole story here (this is the point of Rigged [it’s free]), but the basic argument is that over the last four decades we have structured the economy in ways that allow for the accumulation of massive amounts of wealth. There is nothing inevitable about this structuring, we can structure the economy differently so that its benefits are more broadly shared instead of flowing so disproportionately to those at the top.  

My poster child for the impact of the structuring of the economy is Bill Gates. Gates is one of the richest people in the world because we have patent and copyright monopolies. If the government didn’t grant these monopolies, and anyone who wanted to could freely copy Microsoft’s software, Bill Gates would probably still be working for a living.

Patents and copyrights serve a purpose, they provide an incentive for innovation and creative work, but there are other ways to provide these incentives. And even if we decide to use patent and copyright monopolies, they could be shorter and weaker, so that they don’t redistribute so much income to their holders. 

The place where I have spent the most effort combatting these government-granted monopolies is with prescription drugs. This is both where they cause the greatest amount of corruption — think of the opioid crisis, a direct result of the incentive created by patent monopoly prices to push drugs — and where they lead to the most obscene outcomes: people being unable to afford cheap drugs because patent monopolies make them expensive.

The pandemic should provide a great opportunity to challenge patent monopolies in prescription drugs. There is an unprecedented amount of international cooperation, as well as public funding, in the efforts to develop treatments and an effective vaccine against the coronavirus. Given this collective effort, it would be utterly absurd to give the company that happened to be the first to the patent office a monopoly on a treatment or vaccine. 

The only sensible solution is that the drugs and vaccines that are developed through this collective effort be in the public domain so that they can be sold as cheap generics, where the price is the cost of manufacturing and distribution, and a normal profit. We should not be in the position of begging a patent holder to make a drug or vaccine available at an affordable price.

If we could go this route with the coronavirus then it should raise the obvious question of why this should not be the standard practice – publicly funded, open-source research with everything placed in the public domain. And, what is really neat about this approach is that we don’t even have to stop drug companies from pursuing patent-supported research. They would just face the risk that any drugs they do develop will face competition from a drug that is as good or better and selling as a generic at one percent of the price they planned to charge. That risk would likely shut down most patent-supported research very quickly.

The amount at stake here is enormous, as I continually point out. In the case of prescription drugs alone, it is close to $400 billion a year, roughly 20 percent of all corporate profits.

I could be wrong, but it strikes me as a far smaller political lift to say that the government should increase its funding for the development of prescription drugs (we already spend $40 billion a year through NIH), and have everything developed in the public domain, than imposing a wealth tax. And there is no issue of its constitutionality. 

As I point out in Rigged, there are also measures we can do to radically reduce the big fortunes built-in finance, most obviously by imposing a modest financial transaction tax. We can hugely reduce Mark Zuckerberg’s fortune by repealing Section 230 of the Communications Decency Act, thereby subjecting Facebook and other Internet intermediaries to the same legal liabilities as their competitors in traditional media. 

We don’t need to structure our economy in a way that leads to massive inequality. There has been a conscious choice made by those designing policy in the last four decades. Our top priority should be to change this design.

Leveling the Political Playing Field

Saez and Zucman are entirely correct in pointing out that the enormous amount of wealth at the top gives these people hugely outsized political influence. While this is true, we are not going to be able to easily reverse this, even with a wealth tax. Jeff Bezos and Bill Gates could still wield ridiculous amounts of political influence if we managed to tax away half of their wealth.

Our efforts can’t be focused just on bringing the top down, we have to bring everyone else up. Fortunately, there are models for doing this. Seattle gives every voter a $75 voucher to support the candidate(s) of their choice in city council elections. Several cities now have super-matches, where small campaign contributions are matched three or four to one. I have outlined a plan where everyone would have a $100 voucher to support journalism or any other creative work they choose.  

There are many other directions in which these sorts of proposals can be developed, but the point is that, with a relatively small amount of public funds, we can hugely democratize politics, as well as journalism and creative work more generally. Getting more input from those at the middle and bottom is likely to be a far more productive path towards counterbalancing the influence of the rich than trying to take away their money. And, this can be done piecemeal, one city or state at a time. 

Keeping Our Eye on the Ball

In contrast to the right, progressives get relatively few bites at the apple. The right can have a George W. Bush, who lied us into a pointless war in Iraq and then allowed the economy to collapse under his watch and then get back in control of the White House and both houses of Congress eight years later. If a progressive presidency had led to similar foreign policy and domestic disasters, the left could look forward to a half-century in the wilderness, maybe longer. 

For this reason, we have to make sure our bites at the apple are all good ones. A huge political battle for a wealth tax that ultimately ended in defeat in Congress or a loss at the Supreme Court would be a disaster. We need battles that are winnable and produce tangible near-term results. There are an infinite number of ways that we can turn to reverse the upward redistribution of the last four decades. This should be the focus of progressive economic policy. 

 
 
 
 

(I have corrected the numbers in this post in response to a comment by Joe pointing out my mistake.)

Apparently the New York Times thinks we should give this person lots of money or at least that we should hear her argument that we should give her lots of money. Jackie Victor, the owner of a bakery that had employed 135 people is unhappy that the loan she got through the Paycheck Protection Program will only be forgiven for the portion spent on wages, rent, and other limited categories of expenses.

Ms. Victor complains that this money must be spent within 60 days, which apparently is finding difficult to do. The portion not spent on designated expenses over this period is a near zero interest loan that must be paid back over the next 18 months. Ms. Victor thinks this is too short a period of time she wants it to be ten years.

Let’s see how much money Ms. Victor gets under this program. If her workers’ compensation averaged $40,000 a year, then she would be eligible for a loan of $1,225,000 under the program. Let’s say that she is not able to maintain her full staff (she indicates that some do not want to come back to work because of health or family considerations, also demand has fallen sharply).

Suppose she only spends $1 million on salary and the other allowable expenses. This $1 million is then forgiven. It’s a grant. The other $225,000 is a loan on which she will pay 1.0 percent annual interest over the 18 month term of the loan. Let’s say, generously, that she otherwise could have borrowed money at a 4.0 percent interest. This means that we have effectively given her another $6,750 as an interest rate subsidy. That makes the total amount given to Ms. Victor to maintain her business is $1,006,750 or a bit less than 630 food stamp person years.

This may be a reasonable payment in order to keep 135 people employed through this crisis, but if Ms. Victor is not going to keep anywhere near this number of people employed, then perhaps we are paying too much. We have a clear public interest in keeping these bakery workers employed, we have no obvious interest in ensuring that Ms. Victor is able to maintain a profitable business.

The paycheck protection program is appropriately designed to keep workers employed through the crisis. If it doesn’t meet Ms. Victor’s needs for restructuring her business, it is hard to see that as a problem.

 

 

(I have corrected the numbers in this post in response to a comment by Joe pointing out my mistake.)

Apparently the New York Times thinks we should give this person lots of money or at least that we should hear her argument that we should give her lots of money. Jackie Victor, the owner of a bakery that had employed 135 people is unhappy that the loan she got through the Paycheck Protection Program will only be forgiven for the portion spent on wages, rent, and other limited categories of expenses.

Ms. Victor complains that this money must be spent within 60 days, which apparently is finding difficult to do. The portion not spent on designated expenses over this period is a near zero interest loan that must be paid back over the next 18 months. Ms. Victor thinks this is too short a period of time she wants it to be ten years.

Let’s see how much money Ms. Victor gets under this program. If her workers’ compensation averaged $40,000 a year, then she would be eligible for a loan of $1,225,000 under the program. Let’s say that she is not able to maintain her full staff (she indicates that some do not want to come back to work because of health or family considerations, also demand has fallen sharply).

Suppose she only spends $1 million on salary and the other allowable expenses. This $1 million is then forgiven. It’s a grant. The other $225,000 is a loan on which she will pay 1.0 percent annual interest over the 18 month term of the loan. Let’s say, generously, that she otherwise could have borrowed money at a 4.0 percent interest. This means that we have effectively given her another $6,750 as an interest rate subsidy. That makes the total amount given to Ms. Victor to maintain her business is $1,006,750 or a bit less than 630 food stamp person years.

This may be a reasonable payment in order to keep 135 people employed through this crisis, but if Ms. Victor is not going to keep anywhere near this number of people employed, then perhaps we are paying too much. We have a clear public interest in keeping these bakery workers employed, we have no obvious interest in ensuring that Ms. Victor is able to maintain a profitable business.

The paycheck protection program is appropriately designed to keep workers employed through the crisis. If it doesn’t meet Ms. Victor’s needs for restructuring her business, it is hard to see that as a problem.

 

 

I have seen several accounts where people have warned that the recovery of the economy from the shutdown period will be very slow, with China being used as a major point of reference. For example, see this piece in the New York Times. I won’t claim expertise on China’s economy, but the evidence seems to suggest the opposite.

The highlight of this piece is the weak recovery of retail sales which, if I’m reading the chart right, are still 16 percent below year-ago levels, one month after a shutdown ended. Industrial production has almost fully recovered to year-ago levels, although it had been running about 7 percent above year ago levels, so it still has a way to go before getting back to its pre-crisis trend.

The retail sales story actually is not as bleak as indicated. The one-month growth rate was around 6 percent, which would be more than 80 percent on an annual basis. I have no idea if China’s sales will continue to grow at anything like this pace, but recovering 6 percent in a month when many restrictions were still in place does not seem like a bad story.

Also, according to the piece, China did not provide any special stimulus associated with the crisis. In the US, most people are getting $1,200 checks, in addition to $600 weekly bonuses attached to unemployment insurance checks. This should leave consumers in the United States better situated to buy things after a period of shutdown ends.

To be clear, I still expect the economy to be badly hit after the shutdown period is over. As I’ve said, I think the Congressional Budget Office projections that show a 12 percent unemployment rate in the fourth quarter look plausible. But this is still a sharp bounce back from the data that we are likely to see for the current quarter.

I have seen several accounts where people have warned that the recovery of the economy from the shutdown period will be very slow, with China being used as a major point of reference. For example, see this piece in the New York Times. I won’t claim expertise on China’s economy, but the evidence seems to suggest the opposite.

The highlight of this piece is the weak recovery of retail sales which, if I’m reading the chart right, are still 16 percent below year-ago levels, one month after a shutdown ended. Industrial production has almost fully recovered to year-ago levels, although it had been running about 7 percent above year ago levels, so it still has a way to go before getting back to its pre-crisis trend.

The retail sales story actually is not as bleak as indicated. The one-month growth rate was around 6 percent, which would be more than 80 percent on an annual basis. I have no idea if China’s sales will continue to grow at anything like this pace, but recovering 6 percent in a month when many restrictions were still in place does not seem like a bad story.

Also, according to the piece, China did not provide any special stimulus associated with the crisis. In the US, most people are getting $1,200 checks, in addition to $600 weekly bonuses attached to unemployment insurance checks. This should leave consumers in the United States better situated to buy things after a period of shutdown ends.

To be clear, I still expect the economy to be badly hit after the shutdown period is over. As I’ve said, I think the Congressional Budget Office projections that show a 12 percent unemployment rate in the fourth quarter look plausible. But this is still a sharp bounce back from the data that we are likely to see for the current quarter.

Jim Tankersley had a very good piece in the NYT pointing out that those being forced back to work as the economy reopens are mostly lower paid workers, who don’t have the option to telecommute and disproportionately people of color. One important point that was left out is that these workers are also more likely on average to have health conditions, such as diabetes, which hugely increase the risks they face from the coronavirus.

While even relatively healthy people face serious risks from the coronavirus, it poses far greater risks to those who already have health issues. For this reason, the people who are being forced back to work face even greater risk to their health than the virus would pose to the people who have the luxury of being able to stay home.

Jim Tankersley had a very good piece in the NYT pointing out that those being forced back to work as the economy reopens are mostly lower paid workers, who don’t have the option to telecommute and disproportionately people of color. One important point that was left out is that these workers are also more likely on average to have health conditions, such as diabetes, which hugely increase the risks they face from the coronavirus.

While even relatively healthy people face serious risks from the coronavirus, it poses far greater risks to those who already have health issues. For this reason, the people who are being forced back to work face even greater risk to their health than the virus would pose to the people who have the luxury of being able to stay home.

The Congressional Budget Office came out with its new economic projections and they look realistically bad to me. They show the economy declining at a 39.6 percent annual rate in the current quarter and then rebounding at a 23.5 percent rate in the third quarter and closing out the year with a 10.5 percent increase. Unemployment averages 14.0 percent in the current quarter and rises to 16.0 percent in the third quarter. It falls back to 11.7 percent in the fourth quarter, but still averages 10.1 percent in 2021.

While this looks like a pretty bad story to me, I saw comments on Twitter arguing it was too optimistic. The gist of these comments was that people will be too scared when the shutdown period ends to carry on anything like their normal life.

I don’t really see that. First, as we know, there are plenty of jerks who never took the pandemic seriously. Given a green light to go shopping, get a haircut, or a tattoo, many will be quick to do so. The fact that all of these people are not going to die will cause others to follow.

But, we are making progress in learning how to limit the spread. Unfortunately, the U.S. is basically nowhere in the testing and tracing department, but that hopefully will change over the next couple of months. Also, there are many simple common sense practices that will substantially reduce the risk.

Wearing masks in public places is an obvious one. Limiting the number of people allowed in stores and restaurants is another. Presumably, ventilation also matters. This is a worldwide problem. Several European countries have already begun to reopen and others will do so soon. We should be able to learn best practices from each other.

This is not a zero/one story where there is either zero risk or an intolerable risk, the issue is one of reducing the probability of catching the virus so that more people can feel comfortable engaging in normal activities. (Improvements in treatment will also be hugely important.) Unfortunately, Donald “America First” Trump is probably not interested in learning from the experiences in other countries, but the best money forward-thinking governors will ever spend will be carefully monitoring the successes and failures in re-openings elsewhere and finding ways to adopt the successes here. Until we have a vaccine we will not be completely safe, but there is enormous room for reducing risks and that should be the top priority for people in policy positions.

The Congressional Budget Office came out with its new economic projections and they look realistically bad to me. They show the economy declining at a 39.6 percent annual rate in the current quarter and then rebounding at a 23.5 percent rate in the third quarter and closing out the year with a 10.5 percent increase. Unemployment averages 14.0 percent in the current quarter and rises to 16.0 percent in the third quarter. It falls back to 11.7 percent in the fourth quarter, but still averages 10.1 percent in 2021.

While this looks like a pretty bad story to me, I saw comments on Twitter arguing it was too optimistic. The gist of these comments was that people will be too scared when the shutdown period ends to carry on anything like their normal life.

I don’t really see that. First, as we know, there are plenty of jerks who never took the pandemic seriously. Given a green light to go shopping, get a haircut, or a tattoo, many will be quick to do so. The fact that all of these people are not going to die will cause others to follow.

But, we are making progress in learning how to limit the spread. Unfortunately, the U.S. is basically nowhere in the testing and tracing department, but that hopefully will change over the next couple of months. Also, there are many simple common sense practices that will substantially reduce the risk.

Wearing masks in public places is an obvious one. Limiting the number of people allowed in stores and restaurants is another. Presumably, ventilation also matters. This is a worldwide problem. Several European countries have already begun to reopen and others will do so soon. We should be able to learn best practices from each other.

This is not a zero/one story where there is either zero risk or an intolerable risk, the issue is one of reducing the probability of catching the virus so that more people can feel comfortable engaging in normal activities. (Improvements in treatment will also be hugely important.) Unfortunately, Donald “America First” Trump is probably not interested in learning from the experiences in other countries, but the best money forward-thinking governors will ever spend will be carefully monitoring the successes and failures in re-openings elsewhere and finding ways to adopt the successes here. Until we have a vaccine we will not be completely safe, but there is enormous room for reducing risks and that should be the top priority for people in policy positions.

I’m not trying to be morbid, but it is obviously wrong. As of this moment, we have 47,700 reported coronavirus deaths. We have been seeing this number increase at a rate of more than 2,000 per day.  Furthermore, the number of people who are now dying typically got the disease two or three weeks ago, so unless we somehow develop a miraculous cure very quickly, a substantial percentage of the people who contracted the disease in prior weeks are going to die.

For this reason, it would be good if articles, like this update in the NYT, stopped referring to “the 60,000 projected virus-related deaths in the U.S.” This is clearly not a realistic number and the media should stop using it.

I’m not trying to be morbid, but it is obviously wrong. As of this moment, we have 47,700 reported coronavirus deaths. We have been seeing this number increase at a rate of more than 2,000 per day.  Furthermore, the number of people who are now dying typically got the disease two or three weeks ago, so unless we somehow develop a miraculous cure very quickly, a substantial percentage of the people who contracted the disease in prior weeks are going to die.

For this reason, it would be good if articles, like this update in the NYT, stopped referring to “the 60,000 projected virus-related deaths in the U.S.” This is clearly not a realistic number and the media should stop using it.

There has been a new wave of despair among journalists in the last couple of weeks as several major news outlets, including the Los Angeles Times and McClatchy News Service, announced layoffs and/or pay cuts. The immediate cause is the coronavirus. Pandemics sharply reduce advertising opportunities, but the underlying model is clearly not viable for most news outlets.

There is a limited amount of money that businesses are willing to pay for web ads, which is now by far the largest form of distribution. This is especially the case when Facebook and Google can offer much better targeted advertising. Subscriptions can raise some money, but apart from the New York Times and a few other elite publications, this source of revenue will not go far in supporting the people who produce and edit content.  

While the immediate problem of the coronavirus forced shutdown will eventually abate, the longer-term trends in the industry are not going away. Fewer and fewer journalists will be supported through the current model, leaving us ever more poorly served. We clearly need a new model.

A New Approach

Most of the thinking on a new model involves some sort of government subsidy to existing news outlets. This is likely a political non-starter, since it is almost inconceivable that Republicans would support papers like the New York Times or the Washington Post, much less more progressive outlets. Of course, few non-Republicans would be able to stomach tax dollars going to Fox News or some of the other looney outlets on the right.

It is also hard to justify from a moral standpoint. Why should the government entrench the current structure of the media? Maybe at some point in the past people thought that certain news outlets provided valuable content, and that made them profitable (or they just had good marketing), but what is the rationale for locking in this outcome with government dollars?

There is a way around this roadblock. Instead of having the government directly give money to news outlets, we can have the government give individual tax credits to people, who could then support the news outlet(s) of their choice. The model for this already exists: the charitable contribution tax deduction.  (I discuss this in somewhat more detail in chapter 5 of Rigged [it’s free].)

With the charitable tax deduction, the government is effectively picking up the tab for 37 cents of each dollar of a rich person’s contribution to whatever charity they choose. If a rich person decides to give a million dollars to the local symphony, we give them $370,000 back on their taxes. The same is true if they give the money to a museum, or the Church of Scientology. 

I picked the last one to make the obvious point that this subsidy is not necessarily going to an organization that many of us would think of as serving the common good. Perhaps we should be bothered by that, but in any case, we have been living for decades with a tax code that provides large subsidies to organizations that many of us would not approve of, without it become a major political issue.

An individual tax credit would work along the same lines as the charitable contribution deduction on income taxes, with some important differences. First, it would be a credit, let’s say $100 per person, that would be fully refundable. This means that every adult in the country would have the right to give $100, regardless of whether they owed taxes or not. This is far more progressive than the charitable contribution deduction, which overwhelming benefits high income people. This is in part because the value is larger for people in higher income tax brackets (it’s worth 37 cents on the dollar for people in the top bracket, versus 12 cents on the dollar for the bulk of the population in the 12 percent tax bracket). Also, only people who itemize can benefit from the deduction, and the vast majority of moderate and middle-income taxpayers do not itemize their deductions.

The second difference would be that it would be used for supporting journalism and other creative work and workers. This could mean writers of both fiction and non-fiction, musicians, moviemakers, and other people doing creative work. The reason for drawing the line broadly is that we don’t want the I.R.S. to be in the business of deciding who is doing journalism and who isn’t. If we draw the lines at creative work, we don’t have to get into arguments about whether a reporter with a political slant is still doing journalism. Also, all creative work has suffered in the Internet age, as it is very difficult to raise revenue from recorded music, videos, and other material when it can be transmitted at a near-zero cost over the web.

There will still be boundary questions, where it can be debated whether work can qualify as “creative,” but this is not likely to be a major problem. After all, someone could try to qualify as a tax-exempt religious institution by creating the “Church for Ripping Off the I.R.S.” Scams do happen, but they are not frequent enough to be a major problem.

We also will need an explicit system of registration, comparable to registering for 501(c) status as a tax-exempt organization. This would mean reporting to the I.R.S. an individual or organization’s status as a creative worker or an organization that supports creative work. It would require reporting what creative work a person claims to do or an organization supports. The I.R.S. would make no evaluation of the quality of the work, just as it does not attempt to evaluate the merits of a religion filing for tax-exempt status. The only issue would be one of fraud, where the I.R.S. could investigate whether a person or organization is actually engaged in doing or supporting the creative work they identified.

The other aspect to filing to be eligible to receive money through the tax credit system would be that the person and/or organization would be denied getting copyright protection for a substantial period of time, say 3-5 years. The logic here is that copyright monopolies are one way the government supports creative work. The tax credit is an alternative mechanism. People are entitled to getting support through whichever mechanism they choose, but not both.

The reason for having a waiting period between getting money through the tax credit system and getting it from copyright protection is to avoid people using the former system to establish a reputation and then cashing in from copyright protection. We do not want the tax credit system to be a farm system for writers, musicians, and other creative workers to work their way through before making it big-time in the copyright-protected system. If people want to start out in the tax credit system, they should likely expect to stay in the system.

The nice aspect of this provision is that it is entirely self-enforcing. Suppose that we have a 5-year ban on copyright protection, that a popular singer tries to get around by securing a copyright for songs recorded three years after their last payments through the tax credit system. Since it would be public record that they had been in the tax credit system three years earlier, anyone could freely copy and transfer the new songs in spite of the singer’s copyright. He would have no recourse, since the copyright was not legally issued. This requires no action from the government; it is simply not enforcing an improperly awarded copyright.[1]

 

Supporting Journalism and Creative Work in the Tax Credit System

Suppose we went the tax credit system route and chose the $100 level. With roughly 250 million people over age 18, this would imply $25 billion a year to support journalists and other creative workers. At an average annual pay of $100,000 a year, this would support 250,000 journalists and other creative workers. At an average pay of $50,0000, it would support 500,000 creative workers.

I once used this $50,000 figure in a talk and got many creative workers very angry at me, since they felt I was under-valuing their work with this number. There are two important points to remember here. First, many creative workers, such as musicians or writers, do this work part-time. In other words, they have day jobs. For these people, getting $50,000 a year for work they very much value would sound quite good.

The other point is that being in this system does not prevent creative workers from making money through other channels. Musicians could still get paid for live performances or teaching music. Writers could get paid for workshops. In fact, nothing prevents someone from even printing out books (or newspapers) and selling them at a profit. However, without copyright protection, they probably could not hope to make too much money going this route, since a large markup would lead others to enter the market and undercut their price.

From the standpoint of the individual taxpayer this system could be made very simple. Individuals could have the option to make their $100 contribution and then file for their refund on their tax form. They would only have to identify the recipient in the event of an audit. Alternatively, the I.R.S. could provide a number corresponding to every eligible recipient of the tax credit. The person would then indicate which individual(s) and/or organization(s) they wanted to receive their $100. This could be divided among as many recipients as the individual chose.

To benefit from the tax credit system, creative workers and organizations would have to promote themselves as being worthy of people’s contributions. For newspapers and television news outlets, they would have to make a case that they provide especially useful and important news or that they give a political slant that people should find appealing. Writers, musicians, and other creative workers would have to tout the merits of their work. Alternatively, organizations that support particular types of writing or music or other creative work would tout the great work they are currently supporting.

As with the current system, there is no guarantee that everyone who wants to do creative work would be able to find enough backers to support themselves. If not many people value a particular writer’s work or a musician’s music, then they may not be able to make a living under the tax credit system, just as is the case now.

And, there is no guarantee that the Los Angeles Times or any other news outlet would be able to maintain a full staff of reporters and editors under this system. That would depend on them convincing enough people of the merits of their work. That may trouble some people who want to ensure that such news outlets survive, but it is hard to see what case can be made if these outlets can’t convince enough people of the merits of their work.

 

Obstacles to the Tax Credit System: Politics and Simplicity

I have no illusions about the obstacles to implementing a tax credit system along these lines. A large segment of the political establishment (pretty much the whole Republican party) would be very happy if any sources of information other than Fox News disappeared. They would have zero problem if every newspaper in the country went under. Most of them don’t really care about the fate of other creative workers either. That is an enormous obstacle to any effort to having a new program intended to shore up reporting and boost creative work.

But there is also the obstacle that many people who do support independent reporting can’t get themselves to think beyond the current system. Many continue to believe that what we just need is direct government subsidies to the existing outlets, as though this would be politically feasible or even desirable. Looking to a whole new system is a step too far.

The proposal outlined here probably also suffers from its simplicity. I recall once having an extended exchange with a professor at a major university. I explained several times how the system worked and how it would be determined who would get how much money. He was still insistent that I needed a measure of clicks or some other unit of viewership to determine the money that outlets or individuals received. For some reason, he simply could not understand that people’s contributions were the sole determinant: end of story.

Anyhow, I have never heard a remotely compelling argument as to why a system along the lines I have outlined would not work. I get the political obstacles, but if someone says we don’t have a way of supporting journalism in the Internet Age, they just haven’t done much thinking on the issue.

[1] We also would need some rules to prevent simple types of fraud. For example, to prevent two people from trading their credits with each other, we could set a minimum level (say $3000) for someone to be able to get money through the system. People could still scam the system, but it would require a lot of effort for not much payoff.

There has been a new wave of despair among journalists in the last couple of weeks as several major news outlets, including the Los Angeles Times and McClatchy News Service, announced layoffs and/or pay cuts. The immediate cause is the coronavirus. Pandemics sharply reduce advertising opportunities, but the underlying model is clearly not viable for most news outlets.

There is a limited amount of money that businesses are willing to pay for web ads, which is now by far the largest form of distribution. This is especially the case when Facebook and Google can offer much better targeted advertising. Subscriptions can raise some money, but apart from the New York Times and a few other elite publications, this source of revenue will not go far in supporting the people who produce and edit content.  

While the immediate problem of the coronavirus forced shutdown will eventually abate, the longer-term trends in the industry are not going away. Fewer and fewer journalists will be supported through the current model, leaving us ever more poorly served. We clearly need a new model.

A New Approach

Most of the thinking on a new model involves some sort of government subsidy to existing news outlets. This is likely a political non-starter, since it is almost inconceivable that Republicans would support papers like the New York Times or the Washington Post, much less more progressive outlets. Of course, few non-Republicans would be able to stomach tax dollars going to Fox News or some of the other looney outlets on the right.

It is also hard to justify from a moral standpoint. Why should the government entrench the current structure of the media? Maybe at some point in the past people thought that certain news outlets provided valuable content, and that made them profitable (or they just had good marketing), but what is the rationale for locking in this outcome with government dollars?

There is a way around this roadblock. Instead of having the government directly give money to news outlets, we can have the government give individual tax credits to people, who could then support the news outlet(s) of their choice. The model for this already exists: the charitable contribution tax deduction.  (I discuss this in somewhat more detail in chapter 5 of Rigged [it’s free].)

With the charitable tax deduction, the government is effectively picking up the tab for 37 cents of each dollar of a rich person’s contribution to whatever charity they choose. If a rich person decides to give a million dollars to the local symphony, we give them $370,000 back on their taxes. The same is true if they give the money to a museum, or the Church of Scientology. 

I picked the last one to make the obvious point that this subsidy is not necessarily going to an organization that many of us would think of as serving the common good. Perhaps we should be bothered by that, but in any case, we have been living for decades with a tax code that provides large subsidies to organizations that many of us would not approve of, without it become a major political issue.

An individual tax credit would work along the same lines as the charitable contribution deduction on income taxes, with some important differences. First, it would be a credit, let’s say $100 per person, that would be fully refundable. This means that every adult in the country would have the right to give $100, regardless of whether they owed taxes or not. This is far more progressive than the charitable contribution deduction, which overwhelming benefits high income people. This is in part because the value is larger for people in higher income tax brackets (it’s worth 37 cents on the dollar for people in the top bracket, versus 12 cents on the dollar for the bulk of the population in the 12 percent tax bracket). Also, only people who itemize can benefit from the deduction, and the vast majority of moderate and middle-income taxpayers do not itemize their deductions.

The second difference would be that it would be used for supporting journalism and other creative work and workers. This could mean writers of both fiction and non-fiction, musicians, moviemakers, and other people doing creative work. The reason for drawing the line broadly is that we don’t want the I.R.S. to be in the business of deciding who is doing journalism and who isn’t. If we draw the lines at creative work, we don’t have to get into arguments about whether a reporter with a political slant is still doing journalism. Also, all creative work has suffered in the Internet age, as it is very difficult to raise revenue from recorded music, videos, and other material when it can be transmitted at a near-zero cost over the web.

There will still be boundary questions, where it can be debated whether work can qualify as “creative,” but this is not likely to be a major problem. After all, someone could try to qualify as a tax-exempt religious institution by creating the “Church for Ripping Off the I.R.S.” Scams do happen, but they are not frequent enough to be a major problem.

We also will need an explicit system of registration, comparable to registering for 501(c) status as a tax-exempt organization. This would mean reporting to the I.R.S. an individual or organization’s status as a creative worker or an organization that supports creative work. It would require reporting what creative work a person claims to do or an organization supports. The I.R.S. would make no evaluation of the quality of the work, just as it does not attempt to evaluate the merits of a religion filing for tax-exempt status. The only issue would be one of fraud, where the I.R.S. could investigate whether a person or organization is actually engaged in doing or supporting the creative work they identified.

The other aspect to filing to be eligible to receive money through the tax credit system would be that the person and/or organization would be denied getting copyright protection for a substantial period of time, say 3-5 years. The logic here is that copyright monopolies are one way the government supports creative work. The tax credit is an alternative mechanism. People are entitled to getting support through whichever mechanism they choose, but not both.

The reason for having a waiting period between getting money through the tax credit system and getting it from copyright protection is to avoid people using the former system to establish a reputation and then cashing in from copyright protection. We do not want the tax credit system to be a farm system for writers, musicians, and other creative workers to work their way through before making it big-time in the copyright-protected system. If people want to start out in the tax credit system, they should likely expect to stay in the system.

The nice aspect of this provision is that it is entirely self-enforcing. Suppose that we have a 5-year ban on copyright protection, that a popular singer tries to get around by securing a copyright for songs recorded three years after their last payments through the tax credit system. Since it would be public record that they had been in the tax credit system three years earlier, anyone could freely copy and transfer the new songs in spite of the singer’s copyright. He would have no recourse, since the copyright was not legally issued. This requires no action from the government; it is simply not enforcing an improperly awarded copyright.[1]

 

Supporting Journalism and Creative Work in the Tax Credit System

Suppose we went the tax credit system route and chose the $100 level. With roughly 250 million people over age 18, this would imply $25 billion a year to support journalists and other creative workers. At an average annual pay of $100,000 a year, this would support 250,000 journalists and other creative workers. At an average pay of $50,0000, it would support 500,000 creative workers.

I once used this $50,000 figure in a talk and got many creative workers very angry at me, since they felt I was under-valuing their work with this number. There are two important points to remember here. First, many creative workers, such as musicians or writers, do this work part-time. In other words, they have day jobs. For these people, getting $50,000 a year for work they very much value would sound quite good.

The other point is that being in this system does not prevent creative workers from making money through other channels. Musicians could still get paid for live performances or teaching music. Writers could get paid for workshops. In fact, nothing prevents someone from even printing out books (or newspapers) and selling them at a profit. However, without copyright protection, they probably could not hope to make too much money going this route, since a large markup would lead others to enter the market and undercut their price.

From the standpoint of the individual taxpayer this system could be made very simple. Individuals could have the option to make their $100 contribution and then file for their refund on their tax form. They would only have to identify the recipient in the event of an audit. Alternatively, the I.R.S. could provide a number corresponding to every eligible recipient of the tax credit. The person would then indicate which individual(s) and/or organization(s) they wanted to receive their $100. This could be divided among as many recipients as the individual chose.

To benefit from the tax credit system, creative workers and organizations would have to promote themselves as being worthy of people’s contributions. For newspapers and television news outlets, they would have to make a case that they provide especially useful and important news or that they give a political slant that people should find appealing. Writers, musicians, and other creative workers would have to tout the merits of their work. Alternatively, organizations that support particular types of writing or music or other creative work would tout the great work they are currently supporting.

As with the current system, there is no guarantee that everyone who wants to do creative work would be able to find enough backers to support themselves. If not many people value a particular writer’s work or a musician’s music, then they may not be able to make a living under the tax credit system, just as is the case now.

And, there is no guarantee that the Los Angeles Times or any other news outlet would be able to maintain a full staff of reporters and editors under this system. That would depend on them convincing enough people of the merits of their work. That may trouble some people who want to ensure that such news outlets survive, but it is hard to see what case can be made if these outlets can’t convince enough people of the merits of their work.

 

Obstacles to the Tax Credit System: Politics and Simplicity

I have no illusions about the obstacles to implementing a tax credit system along these lines. A large segment of the political establishment (pretty much the whole Republican party) would be very happy if any sources of information other than Fox News disappeared. They would have zero problem if every newspaper in the country went under. Most of them don’t really care about the fate of other creative workers either. That is an enormous obstacle to any effort to having a new program intended to shore up reporting and boost creative work.

But there is also the obstacle that many people who do support independent reporting can’t get themselves to think beyond the current system. Many continue to believe that what we just need is direct government subsidies to the existing outlets, as though this would be politically feasible or even desirable. Looking to a whole new system is a step too far.

The proposal outlined here probably also suffers from its simplicity. I recall once having an extended exchange with a professor at a major university. I explained several times how the system worked and how it would be determined who would get how much money. He was still insistent that I needed a measure of clicks or some other unit of viewership to determine the money that outlets or individuals received. For some reason, he simply could not understand that people’s contributions were the sole determinant: end of story.

Anyhow, I have never heard a remotely compelling argument as to why a system along the lines I have outlined would not work. I get the political obstacles, but if someone says we don’t have a way of supporting journalism in the Internet Age, they just haven’t done much thinking on the issue.

[1] We also would need some rules to prevent simple types of fraud. For example, to prevent two people from trading their credits with each other, we could set a minimum level (say $3000) for someone to be able to get money through the system. People could still scam the system, but it would require a lot of effort for not much payoff.

The Washington Post is always telling us that debt, especially government debt is bad, very bad. It’s not quite sure why or how, but debt is definitely bad.

We got the latest confused entry from the Post’s debt cult today, warning us about some “tipping point” that we are at risk of passing. The notion of a tipping point on government debt had its shining hour when a paper by Harvard professors Carmen Reinhart and Ken Rogoff purported to show that when a country’s debt-to-GDP ratio crossed 90 percent, it led to sharply slower growth. While this paper was used to justify austerity in countries around the world, it turned out that the result was driven by an Excel spreadsheet error, as shown in a paper by University of Massachusetts economists Thomas Herndon, Michael Ash, and Robert Pollin. When the error was corrected, the data showed no 90 percent tipping point.

This piece acknowledges that the United States is not likely to see a tipping point, where it can’t sell its debt:

“That scenario has afflicted numerous smaller economies. But such an outcome seems less likely for the United States, given the primacy of the dollar in the world economy and the country’s long track record of relative economic stability.”

While the U.S. dollar is still the preeminent currency in transactions and as a reserve currency, this is not a necessary condition for it being able to issue large amounts of debt without creating a crisis. Japan’s debt to GDP ratio is more than twice as high as in the U.S. and it had near zero interest rates and near zero inflation, just before the coronavirus crisis.

Japan does enter in this piece as a debt horror story:

“Japan has been stuck in an endless loop of disappointing growth, low interest rates and mounting debt, and the United States could face a similar future.”

Actually, Japan’s per capita growth since the bursting of its stock and real estate bubble in 1990 has not been hugely different from growth in the United States. Japan’s per capita growth rate has averaged 1.4 percent over the last three decades, compared to 2.3 percent in the United States.

But Japan also reduced the length of its average work year by 16 percent over this period, while it fell just 3.0 percent in the United States. In effect, Japan is choosing to take the benefits of productivity growth largely in the form of increased leisure rather than increased income. This does imply slower GDP growth, but there is no economic reason to prefer GDP growth to increased leisure.

The piece then gets into what can only be described as non-sequiturs:

“An era of perpetually ultralow interest rates distorts the economy by eliminating the traditional market discipline that discriminates between worthy investments and unprofitable ones. If money is virtually ‘free’ for many years — as it has been since 2008 — even bad ideas can attract financing.”

“As the United States once again turns to debt to rescue the economy, it is locking in a future of lower growth. The national credit card is being used largely to stop today’s financial bleeding, rather than for investments — in the medical system, infrastructure, and education — that would boost future growth.”

The standard economics argument against the problem of high deficit and debt is that it will lead to higher interest rates. We have been seeing extraordinarily low interest rates ever since the Great Recession. Now, this is supposed to be bad because it allows for investment projects of little value to go forward. This makes zero sense. Having projects little value move forward is bad if there is a better use for the resources. Implicitly, there is no better use, which is why interest rates are low.

On the second point, in a period of low interest rates, there is no reason why the government should not be spending money on investments in the medical system, infrastructure, and education. There is not any economic obstacle if the country has idle resources, only the political obstacles due to needless deficit fears promoted by news outlets like the Washington Post.

The piece does rightly raise the risk of inflation, which is real. However, any inflation in the months ahead will be primarily the result of the fact that large sectors of the economy, such as restaurants, hotels, and airlines, are likely to have sharply reduced capacity even after the shutdown period is over. They are also likely to see rising costs due to the precautions needed to slow the spread of the coronavirus.

It is also striking that patent and copyright rents are not mentioned once in this piece. The granting of these monopolies is an alternative mechanism to direct spending, which the government uses to pay for things it wants done. For example, right now it is paying Gilead Science to do testing on remdesivir as a treatment for the pandemic with the promise of a monopoly on the drug if it proves effective.

The rents from these monopolies, which are effectively privately imposed taxes, dwarfs the interest burden of the debt. It is over $400 billion a year in the case of prescription drugs alone.

The debt complaints move on to the corporate sector. While debt burdens in the corporate sector are high, this should not be surprising given very low interest rates which encourage companies to take on debt. After-tax profits are also at historically high levels as a share of GDP. Furthermore, stock prices remain at historically high price-to-earnings ratios even after the plunge earlier due to the pandemic. This means that many companies can easily issue stock if they need money to meet their debt obligations.

It’s true that not all companies are in this situation, but so what? If a company that is otherwise viable, is facing debt service problems, it is likely that another company will take them over. Many companies, such as the airlines, also operate just fine through periods of bankruptcy. If a company is not otherwise viable, then the problem is not the debt, the problem is the company is not viable.

Finally, the piece tells us we should be worried about household debt, which is also near record-high levels relative to income. Here again the key point is that interest rates are low. As a result, the financial obligation ratio, which measures debt payments and rent relative to income, is near a four-decade low. It’s true that many people may face eviction or foreclosure in the months ahead, but that will be because they have lost their jobs, not because of high debt burdens.

In short, this piece is desperately trying to create a problem where one does not exist. Having large chunks of the U.S.  economy shut down because of a pandemic is a really huge problem. The debt that is created as a result is not.

The Washington Post is always telling us that debt, especially government debt is bad, very bad. It’s not quite sure why or how, but debt is definitely bad.

We got the latest confused entry from the Post’s debt cult today, warning us about some “tipping point” that we are at risk of passing. The notion of a tipping point on government debt had its shining hour when a paper by Harvard professors Carmen Reinhart and Ken Rogoff purported to show that when a country’s debt-to-GDP ratio crossed 90 percent, it led to sharply slower growth. While this paper was used to justify austerity in countries around the world, it turned out that the result was driven by an Excel spreadsheet error, as shown in a paper by University of Massachusetts economists Thomas Herndon, Michael Ash, and Robert Pollin. When the error was corrected, the data showed no 90 percent tipping point.

This piece acknowledges that the United States is not likely to see a tipping point, where it can’t sell its debt:

“That scenario has afflicted numerous smaller economies. But such an outcome seems less likely for the United States, given the primacy of the dollar in the world economy and the country’s long track record of relative economic stability.”

While the U.S. dollar is still the preeminent currency in transactions and as a reserve currency, this is not a necessary condition for it being able to issue large amounts of debt without creating a crisis. Japan’s debt to GDP ratio is more than twice as high as in the U.S. and it had near zero interest rates and near zero inflation, just before the coronavirus crisis.

Japan does enter in this piece as a debt horror story:

“Japan has been stuck in an endless loop of disappointing growth, low interest rates and mounting debt, and the United States could face a similar future.”

Actually, Japan’s per capita growth since the bursting of its stock and real estate bubble in 1990 has not been hugely different from growth in the United States. Japan’s per capita growth rate has averaged 1.4 percent over the last three decades, compared to 2.3 percent in the United States.

But Japan also reduced the length of its average work year by 16 percent over this period, while it fell just 3.0 percent in the United States. In effect, Japan is choosing to take the benefits of productivity growth largely in the form of increased leisure rather than increased income. This does imply slower GDP growth, but there is no economic reason to prefer GDP growth to increased leisure.

The piece then gets into what can only be described as non-sequiturs:

“An era of perpetually ultralow interest rates distorts the economy by eliminating the traditional market discipline that discriminates between worthy investments and unprofitable ones. If money is virtually ‘free’ for many years — as it has been since 2008 — even bad ideas can attract financing.”

“As the United States once again turns to debt to rescue the economy, it is locking in a future of lower growth. The national credit card is being used largely to stop today’s financial bleeding, rather than for investments — in the medical system, infrastructure, and education — that would boost future growth.”

The standard economics argument against the problem of high deficit and debt is that it will lead to higher interest rates. We have been seeing extraordinarily low interest rates ever since the Great Recession. Now, this is supposed to be bad because it allows for investment projects of little value to go forward. This makes zero sense. Having projects little value move forward is bad if there is a better use for the resources. Implicitly, there is no better use, which is why interest rates are low.

On the second point, in a period of low interest rates, there is no reason why the government should not be spending money on investments in the medical system, infrastructure, and education. There is not any economic obstacle if the country has idle resources, only the political obstacles due to needless deficit fears promoted by news outlets like the Washington Post.

The piece does rightly raise the risk of inflation, which is real. However, any inflation in the months ahead will be primarily the result of the fact that large sectors of the economy, such as restaurants, hotels, and airlines, are likely to have sharply reduced capacity even after the shutdown period is over. They are also likely to see rising costs due to the precautions needed to slow the spread of the coronavirus.

It is also striking that patent and copyright rents are not mentioned once in this piece. The granting of these monopolies is an alternative mechanism to direct spending, which the government uses to pay for things it wants done. For example, right now it is paying Gilead Science to do testing on remdesivir as a treatment for the pandemic with the promise of a monopoly on the drug if it proves effective.

The rents from these monopolies, which are effectively privately imposed taxes, dwarfs the interest burden of the debt. It is over $400 billion a year in the case of prescription drugs alone.

The debt complaints move on to the corporate sector. While debt burdens in the corporate sector are high, this should not be surprising given very low interest rates which encourage companies to take on debt. After-tax profits are also at historically high levels as a share of GDP. Furthermore, stock prices remain at historically high price-to-earnings ratios even after the plunge earlier due to the pandemic. This means that many companies can easily issue stock if they need money to meet their debt obligations.

It’s true that not all companies are in this situation, but so what? If a company that is otherwise viable, is facing debt service problems, it is likely that another company will take them over. Many companies, such as the airlines, also operate just fine through periods of bankruptcy. If a company is not otherwise viable, then the problem is not the debt, the problem is the company is not viable.

Finally, the piece tells us we should be worried about household debt, which is also near record-high levels relative to income. Here again the key point is that interest rates are low. As a result, the financial obligation ratio, which measures debt payments and rent relative to income, is near a four-decade low. It’s true that many people may face eviction or foreclosure in the months ahead, but that will be because they have lost their jobs, not because of high debt burdens.

In short, this piece is desperately trying to create a problem where one does not exist. Having large chunks of the U.S.  economy shut down because of a pandemic is a really huge problem. The debt that is created as a result is not.

The subhead of Bret Stephens’ latest column tells readers “there should be no big-pharma haters in pandemics.” The point is that researchers at Gilead Sciences, one of the biggest pharmaceutical companies, are working tirelessly on the testing of remdesivir, which at the moment is the most promising treatment for the coronavirus. Stephens’ column focuses on Diana Brainard, the lead researcher on the project. Somehow the fact that Dr. Brainard is apparently a dedicated researcher is supposed to mean that we should love Big Pharma.

Stephens is apparently unaware of the debates over access to medicine over the last three decades, which is understandable, given that he is a conservative columnist at the New York Times. This battle has nothing to do with whether Big Pharma had dedicated researchers, the issue is the ability of Big Pharma to get government-granted patent monopolies over life-saving medicines, especially when much of the research was paid for by the government, which is very much the case with remdesivir.

We do need to pay people to do the work that Dr. Brainard is doing, but that doesn’t require patent monopolies. Economists have discovered that many people will work for money. The government could just pay Dr. Brainard and her team for her work. This would have the great advantage that not only would it mean remdesivir would be available as a cheap generic, but all the findings along the way would be open-sourced for researchers around the world to see and comment on. This would likely be a huge help in moving forward with the research.

So yes, we absolutely should hate Big Pharma in this pandemic. Its quest for patent monopolies has almost certainly slowed down the effort to find effective treatments and vaccines. And by the way, there is a huge amount of money at stake with patent monopolies in prescription drugs, likely over $400 billion a year (more than $4,000 per household). This is more than five times the size of the annual food stamp budget that gets Mr. Stephens’ conservative friends so upset.

The subhead of Bret Stephens’ latest column tells readers “there should be no big-pharma haters in pandemics.” The point is that researchers at Gilead Sciences, one of the biggest pharmaceutical companies, are working tirelessly on the testing of remdesivir, which at the moment is the most promising treatment for the coronavirus. Stephens’ column focuses on Diana Brainard, the lead researcher on the project. Somehow the fact that Dr. Brainard is apparently a dedicated researcher is supposed to mean that we should love Big Pharma.

Stephens is apparently unaware of the debates over access to medicine over the last three decades, which is understandable, given that he is a conservative columnist at the New York Times. This battle has nothing to do with whether Big Pharma had dedicated researchers, the issue is the ability of Big Pharma to get government-granted patent monopolies over life-saving medicines, especially when much of the research was paid for by the government, which is very much the case with remdesivir.

We do need to pay people to do the work that Dr. Brainard is doing, but that doesn’t require patent monopolies. Economists have discovered that many people will work for money. The government could just pay Dr. Brainard and her team for her work. This would have the great advantage that not only would it mean remdesivir would be available as a cheap generic, but all the findings along the way would be open-sourced for researchers around the world to see and comment on. This would likely be a huge help in moving forward with the research.

So yes, we absolutely should hate Big Pharma in this pandemic. Its quest for patent monopolies has almost certainly slowed down the effort to find effective treatments and vaccines. And by the way, there is a huge amount of money at stake with patent monopolies in prescription drugs, likely over $400 billion a year (more than $4,000 per household). This is more than five times the size of the annual food stamp budget that gets Mr. Stephens’ conservative friends so upset.

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