The NYT had an article reporting that a number of states are restricting enrollment in a program that provides drugs for people with AIDS. It notes that the program cost governments an average of $12,000 a year. It would have been mentioning that in the absence of patent protection these drugs would sell for a few hundred dollars per year.
Patent protection for drugs is an extremely costly form of protectionism causing many drugs to be sold at several thousand percent above their free market price. There are almost certainly more efficient mechanisms for supporting prescription drug research. While the Washington Post recently devoted a lead front page article to tariffs on ironing boards, no major news outlet has been interested in discussing the much greater distortions resulting from protection for prescription drugs.
The NYT had an article reporting that a number of states are restricting enrollment in a program that provides drugs for people with AIDS. It notes that the program cost governments an average of $12,000 a year. It would have been mentioning that in the absence of patent protection these drugs would sell for a few hundred dollars per year.
Patent protection for drugs is an extremely costly form of protectionism causing many drugs to be sold at several thousand percent above their free market price. There are almost certainly more efficient mechanisms for supporting prescription drug research. While the Washington Post recently devoted a lead front page article to tariffs on ironing boards, no major news outlet has been interested in discussing the much greater distortions resulting from protection for prescription drugs.
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That is what the NYT would have told readers if they followed the same practice they do now in talking about opponents of extending unemployment benefits. The NYT told readers that: “the jobless aid measure is one of the last remnants of the Democrats’ jobs agenda, which has largely fallen prey to GOP concerns about the deficit.”
How does the NYT know that the Republicans are really concerned about the deficit, because they say are concerned about the deficit? Almost without exception, the opponents of the major pieces of civil rights legislation in Congress claimed that they really were not opposed to civil rights, they just wanted the issue left to the states. Would the NYT tell its readers that the opposition to the legislation stemmed exclusively from concern about states’ rights.
In this case, many members of Congress who had no difficulty adding to deficits with spending on the wars in Iraq and Afghanistan or with tax cuts largely targeted to the wealthy, are suddenly concerned about the deficit when the issue is unemployment benefits or aid to state governments. While it is possible that their views about deficits really have changed, it is also possible that concerns about deficits are not the real reason for the Republicans’ opposition.
Politicians sometimes are not completely honest in the explanations they give for their actions. Reporters should know this. Therefore news outlets should tell readers what politicians say. It should not try to tell readers what their motive is, because the news outlet does not know.
That is what the NYT would have told readers if they followed the same practice they do now in talking about opponents of extending unemployment benefits. The NYT told readers that: “the jobless aid measure is one of the last remnants of the Democrats’ jobs agenda, which has largely fallen prey to GOP concerns about the deficit.”
How does the NYT know that the Republicans are really concerned about the deficit, because they say are concerned about the deficit? Almost without exception, the opponents of the major pieces of civil rights legislation in Congress claimed that they really were not opposed to civil rights, they just wanted the issue left to the states. Would the NYT tell its readers that the opposition to the legislation stemmed exclusively from concern about states’ rights.
In this case, many members of Congress who had no difficulty adding to deficits with spending on the wars in Iraq and Afghanistan or with tax cuts largely targeted to the wealthy, are suddenly concerned about the deficit when the issue is unemployment benefits or aid to state governments. While it is possible that their views about deficits really have changed, it is also possible that concerns about deficits are not the real reason for the Republicans’ opposition.
Politicians sometimes are not completely honest in the explanations they give for their actions. Reporters should know this. Therefore news outlets should tell readers what politicians say. It should not try to tell readers what their motive is, because the news outlet does not know.
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Harold Meyerson touts Germany as one of the winners in this downturn noting that its unemployment rate remained below that of the United States. While he attributes this fact to its strong manufacturing sector, Germany has actually suffered a steeper downturn than the United States.
The reason that Germany’s unemployment rate is more than 2 percentage points lower than the rate in the United States is that it has a policy of work-sharing to deal with inadequate demand. Instead of paying out benefits to unemployed workers, it pays companies to reduce workers’ hours.
In a typical arrangement workers would see their hours cut by 20 percent. The government makes up 60 percent of the lost wages or 12 percent of total wages. The company makes up 20 percent of the lost wages or 4 percent of total wages. The worker then ends up with a pay cut of 4 percent while working 20 percent fewer hours. This loss of pay is likely to be largely offset by fewer work-related expenses, for example lower commuting costs as a result of working a 4-day week instead of a 5-day week.
As a result of work sharing Germans are experiencing this downturn in the form of shorter workweeks and longer vacations. By contrast, in the United States workers are experiencing the downturn as near double-digit unemployment.
Harold Meyerson touts Germany as one of the winners in this downturn noting that its unemployment rate remained below that of the United States. While he attributes this fact to its strong manufacturing sector, Germany has actually suffered a steeper downturn than the United States.
The reason that Germany’s unemployment rate is more than 2 percentage points lower than the rate in the United States is that it has a policy of work-sharing to deal with inadequate demand. Instead of paying out benefits to unemployed workers, it pays companies to reduce workers’ hours.
In a typical arrangement workers would see their hours cut by 20 percent. The government makes up 60 percent of the lost wages or 12 percent of total wages. The company makes up 20 percent of the lost wages or 4 percent of total wages. The worker then ends up with a pay cut of 4 percent while working 20 percent fewer hours. This loss of pay is likely to be largely offset by fewer work-related expenses, for example lower commuting costs as a result of working a 4-day week instead of a 5-day week.
As a result of work sharing Germans are experiencing this downturn in the form of shorter workweeks and longer vacations. By contrast, in the United States workers are experiencing the downturn as near double-digit unemployment.
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Erskine Bowles, the Democratic co-chairman of President Obama’s deficit commission, revealed that he was a numerologist yesterday when he suggested that the commission should set a limit on federal government spending at 21 percent of GDP. (Numerologists assign mystical powers to specific numbers.)This fact should have been highlighted more prominently because it is unusual to have people with such extraordinary beliefs in prominent positions in government.
More typically these people are pragmatists who believe that goods and services should be provided in the most efficient possible way. For example, if it is more efficient to provide retirement benefits through a public Social Security system or health care through a public Medicare-type system, most people in responsible positions would support expanding the public sector.
However, because of his belief in numerology, Mr. Bowles would waste resources, thereby slowing growth and eliminating jobs, by instead providing these services in a less efficient manner in the private sector. This is a very peculiar view and should be highlighted by those reporting on the deficit commission.
Erskine Bowles, the Democratic co-chairman of President Obama’s deficit commission, revealed that he was a numerologist yesterday when he suggested that the commission should set a limit on federal government spending at 21 percent of GDP. (Numerologists assign mystical powers to specific numbers.)This fact should have been highlighted more prominently because it is unusual to have people with such extraordinary beliefs in prominent positions in government.
More typically these people are pragmatists who believe that goods and services should be provided in the most efficient possible way. For example, if it is more efficient to provide retirement benefits through a public Social Security system or health care through a public Medicare-type system, most people in responsible positions would support expanding the public sector.
However, because of his belief in numerology, Mr. Bowles would waste resources, thereby slowing growth and eliminating jobs, by instead providing these services in a less efficient manner in the private sector. This is a very peculiar view and should be highlighted by those reporting on the deficit commission.
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That’s what readers could infer from the NYT’s description of the 2.9 percent projected growth for Japan as “anemic.” Japan’s population is decreasing at the rate of 0.2 percent annually. Therefore this growth rate translates into a projected per capita growth rate of 3.1 percent.
By contrast, most forecasts put U.S. GDP growth in the range of 2.0-3.0 percent. Since the population in the United States is growing at a rate of 0.9 percent annually, this translates into a per capita GDP growth rate of 1.1 to 2.1 percent. In other words, the United States is expected to have a per capita growth rate that is least a percentage point slower than the Japanese rate that was considered “anemic.”
That’s what readers could infer from the NYT’s description of the 2.9 percent projected growth for Japan as “anemic.” Japan’s population is decreasing at the rate of 0.2 percent annually. Therefore this growth rate translates into a projected per capita growth rate of 3.1 percent.
By contrast, most forecasts put U.S. GDP growth in the range of 2.0-3.0 percent. Since the population in the United States is growing at a rate of 0.9 percent annually, this translates into a per capita GDP growth rate of 1.1 to 2.1 percent. In other words, the United States is expected to have a per capita growth rate that is least a percentage point slower than the Japanese rate that was considered “anemic.”
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If you’re wondering why Goldman Sachs is richer than you are, and we supposedly have to cut Social Security, remember friends are everything.
If you’re wondering why Goldman Sachs is richer than you are, and we supposedly have to cut Social Security, remember friends are everything.
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It might have been worth pointing this out in an NYT piece telling readers how Ireland’s deficit reduction has devastated the country and still left it with large deficits. It also might have been worth talking to an economist who could have pointed out that it is not just markets that are forcing Ireland to go the austerity route, it is the European Central Bank (ECB).
The ECB, like the Fed in the United States, could adopt a more aggressive policy of supporting member states governments. For example, the ECB could buy up large amounts of member state debt and offer extensive guarantees. This would allow Ireland, which had run budget surpluses and had a low national debt before the collapse of its housing bubble, more time to re-orient its economy. Given the huge amount of unemployment and excess capacity in the European Union, there is little risk of inflation from going this route.
This otherwise good piece does a disservice to readers by implying that markets are forcing this suffering on the Irish population. It is the decisions of the ECB that is leading to this suffering.
It might have been worth pointing this out in an NYT piece telling readers how Ireland’s deficit reduction has devastated the country and still left it with large deficits. It also might have been worth talking to an economist who could have pointed out that it is not just markets that are forcing Ireland to go the austerity route, it is the European Central Bank (ECB).
The ECB, like the Fed in the United States, could adopt a more aggressive policy of supporting member states governments. For example, the ECB could buy up large amounts of member state debt and offer extensive guarantees. This would allow Ireland, which had run budget surpluses and had a low national debt before the collapse of its housing bubble, more time to re-orient its economy. Given the huge amount of unemployment and excess capacity in the European Union, there is little risk of inflation from going this route.
This otherwise good piece does a disservice to readers by implying that markets are forcing this suffering on the Irish population. It is the decisions of the ECB that is leading to this suffering.
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Last week the Washington Post devoted a major front page story to a report on tariffs on Chinese ironing boards that can be as high as 150 percent. Today a page 2 article reported on evidence that a popular diabetes drug, Avandia, increases the risk of strokes and heart attacks.
The Avandia article never discussed the government imposed patent protection that allows Avandia’s manufacturer, GlaxoSmithKline, to charge prices that are several thousand percent above the competitive market price. The enormous profits that result from this protection gave GlaxoSmithKline a powerful incentive to conceal evidence that the drug was harmful, as is alleged in the article.
It is interesting that the Post would devote so much attention to highlighting protectionism in the context of ironing boards, while ignoring the issue altogether in the case of a drug with sales of $3 billion a year and which could lead to thousands of unnecessary of heart attacks and strokes. There are other mechanisms to support drug research which would allow drugs to be sold at competitive market prices.
Last week the Washington Post devoted a major front page story to a report on tariffs on Chinese ironing boards that can be as high as 150 percent. Today a page 2 article reported on evidence that a popular diabetes drug, Avandia, increases the risk of strokes and heart attacks.
The Avandia article never discussed the government imposed patent protection that allows Avandia’s manufacturer, GlaxoSmithKline, to charge prices that are several thousand percent above the competitive market price. The enormous profits that result from this protection gave GlaxoSmithKline a powerful incentive to conceal evidence that the drug was harmful, as is alleged in the article.
It is interesting that the Post would devote so much attention to highlighting protectionism in the context of ironing boards, while ignoring the issue altogether in the case of a drug with sales of $3 billion a year and which could lead to thousands of unnecessary of heart attacks and strokes. There are other mechanisms to support drug research which would allow drugs to be sold at competitive market prices.
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The Post noted that Congress has been reluctant to extend unemployment benefits in spite of the evidence that they will boost the economy. It then told readers that: “Congress is balking at the added expense in an election year, as Republicans accuse Democrats of out-of-control spending and as many rank-and-file Democrats struggle to justify an increase in already sky-high deficits.”
It is not clear that members who oppose extending benefits (most of whom are Republican) are actually concerned “out-of-control” spending or “sky-high” deficits. Of course, spending grew in response to the economic downturn, as the Post should know. So it is misleading to refer to it as “out-of-control” or the deficits as “sky-high.”
While the Republicans who oppose stimulus measures such as extending unemployment benefits because they are now concerned about budget deficits (most were not during the Bush presidency), it is also possible that they oppose these measures because they feel they would gain politically in November from seeing them voted down. It is likely that a weak economy will benefit the Republicans in the election. This article should have at least noted the possibility that politicians may not act for the reasons they claim in public, sometimes they don’t.
This piece also said that President Obama “acknowledged” that reining in the debt may require cuts in Medicare, Medicaid, and Social Security. The correct word would be “said” or “asserted” unless the Post has some independent basis for knowing that changes in such programs are necessary, in which case it should share this evidence with readers.
The Post noted that Congress has been reluctant to extend unemployment benefits in spite of the evidence that they will boost the economy. It then told readers that: “Congress is balking at the added expense in an election year, as Republicans accuse Democrats of out-of-control spending and as many rank-and-file Democrats struggle to justify an increase in already sky-high deficits.”
It is not clear that members who oppose extending benefits (most of whom are Republican) are actually concerned “out-of-control” spending or “sky-high” deficits. Of course, spending grew in response to the economic downturn, as the Post should know. So it is misleading to refer to it as “out-of-control” or the deficits as “sky-high.”
While the Republicans who oppose stimulus measures such as extending unemployment benefits because they are now concerned about budget deficits (most were not during the Bush presidency), it is also possible that they oppose these measures because they feel they would gain politically in November from seeing them voted down. It is likely that a weak economy will benefit the Republicans in the election. This article should have at least noted the possibility that politicians may not act for the reasons they claim in public, sometimes they don’t.
This piece also said that President Obama “acknowledged” that reining in the debt may require cuts in Medicare, Medicaid, and Social Security. The correct word would be “said” or “asserted” unless the Post has some independent basis for knowing that changes in such programs are necessary, in which case it should share this evidence with readers.
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That seems to be the main point of Robert Samuelson’s column today. It might be a bit easier with a bit more careful thought.
For example, Samuelson tells readers that the debt burdens of major countries are rapidly approaching “financial and psychological limits” that prevent further fiscal stimulus. He then cites the 92 percent debt to GDP ratio for France, 82 percent for Germany, and 83 percent for the UK as countries that are reaching these limits.
If he was looking for financial and psychological limits, he might have considered the case of Japan. Its debt to GDP ratio is close to 220 percent. Its interest payment take up a bit more than 1.0 percent of GDP each year and it can borrow at long-term interest rates of around 1.5 percent. This is possible because its central bank has bought up much of the government’s debt over the last 15 years. Since the economy remains well below its capacity, the central bank’s actions have not to led to inflation. In fact, Japan continues to be troubled by deflation.
The European Central Bank could similarly adopt a policy of buying and holding large amounts of the debt of euro member governments. The interest on debt held by the central bank does not impose a burden on governments, since it is rebated to them.
The column also touts some recent research which purports to show the benefits of deficit reduction as stimulus. It is worth noting that nearly all the examples of deficit reduction as stimulus involve countries that faced very high interest rates and in which trade comprised a very large share of the economy.
In these circumstances, a reduction in the deficit could produce a substantial stimulus through two channels. First, it would lower interest rates, which would provide a direct boost to domestic investment and consumption. Second, lower interest rates would lower the value of the currency, which in turn would make its goods more competitive internationally, thereby increasing net exports.
These conditions do not apply for most countries at present and certainly not to the United States. It is very doubtful that even the strongest deficit reduction measures will have a noticeable effect on lowering already low interest rates. It is also not clear that there would be any substantial investment response to lower interest rates by businesses that already are sitting on huge amounts of retained earnings. Heavily indebted consumers are also not likely to substantially boost consumption.
The trade route also does not look especially promising. If interest rates fell in the United States it is unlikely that it will lead to much of a decline in the dollar in a context where it has been pushed up by a flight to safety in uncertain times. Furthermore, it is not clear that the United States will be able to increase its net exports by much at a time when every other country is trying to go the same route and is also constricting demand through fiscal contraction.
See, economics really isn’t hard.
That seems to be the main point of Robert Samuelson’s column today. It might be a bit easier with a bit more careful thought.
For example, Samuelson tells readers that the debt burdens of major countries are rapidly approaching “financial and psychological limits” that prevent further fiscal stimulus. He then cites the 92 percent debt to GDP ratio for France, 82 percent for Germany, and 83 percent for the UK as countries that are reaching these limits.
If he was looking for financial and psychological limits, he might have considered the case of Japan. Its debt to GDP ratio is close to 220 percent. Its interest payment take up a bit more than 1.0 percent of GDP each year and it can borrow at long-term interest rates of around 1.5 percent. This is possible because its central bank has bought up much of the government’s debt over the last 15 years. Since the economy remains well below its capacity, the central bank’s actions have not to led to inflation. In fact, Japan continues to be troubled by deflation.
The European Central Bank could similarly adopt a policy of buying and holding large amounts of the debt of euro member governments. The interest on debt held by the central bank does not impose a burden on governments, since it is rebated to them.
The column also touts some recent research which purports to show the benefits of deficit reduction as stimulus. It is worth noting that nearly all the examples of deficit reduction as stimulus involve countries that faced very high interest rates and in which trade comprised a very large share of the economy.
In these circumstances, a reduction in the deficit could produce a substantial stimulus through two channels. First, it would lower interest rates, which would provide a direct boost to domestic investment and consumption. Second, lower interest rates would lower the value of the currency, which in turn would make its goods more competitive internationally, thereby increasing net exports.
These conditions do not apply for most countries at present and certainly not to the United States. It is very doubtful that even the strongest deficit reduction measures will have a noticeable effect on lowering already low interest rates. It is also not clear that there would be any substantial investment response to lower interest rates by businesses that already are sitting on huge amounts of retained earnings. Heavily indebted consumers are also not likely to substantially boost consumption.
The trade route also does not look especially promising. If interest rates fell in the United States it is unlikely that it will lead to much of a decline in the dollar in a context where it has been pushed up by a flight to safety in uncertain times. Furthermore, it is not clear that the United States will be able to increase its net exports by much at a time when every other country is trying to go the same route and is also constricting demand through fiscal contraction.
See, economics really isn’t hard.
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