• Economic Crisis and RecoveryCrisis económica y recuperaciónInequalityLa Desigualdad
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For some reason, reporters feel it is part of their job to read politicians’ minds. We got another taste of this in a Washington Post news story pushing the idea of sending out another big check as a stimulus. The piece begins by telling readers:
“President Trump has told aides he is largely supportive of sending Americans another round of stimulus checks, believing the payments will boost the economy and help his chances at reelection in November, according to three people aware of internal administration deliberations.”
Of course, the Post has no idea what Trump believes about the economic impact of stimulus checks. It knows what he says about the economic impact. If Trump “believes” that the checks will boost his re-election chances then he is likely to say that he thinks they will boost the economy, regardless of what he really believes.
As a practical matter, these checks are likely a very poor form of stimulus. The point of another round of spending is first and foremost to help the people who have lost their jobs or in other ways have been hurt by the pandemic. The vast majority of people getting another round of pandemic checks will not be in this category.
The other motive for a stimulus is to increase demand in the economy. Sending checks to people who have not lost their jobs or seen a large decline in their income is likely to have little impact on spending, as shown by the record saving rate seen in April. The saving rate will be lower in May, but likely still extraordinarily high. Many potential check recipients are hesitant to spend money because they are worried about the pandemic, not because they don’t have it.
Incredibly, the Post does not give the view of any economists who have this perspective, even though they would not be hard to find. The only reservations about another round of stimulus mentioned in the piece come from Republicans concerned about the size of the budget deficit.
For some reason, reporters feel it is part of their job to read politicians’ minds. We got another taste of this in a Washington Post news story pushing the idea of sending out another big check as a stimulus. The piece begins by telling readers:
“President Trump has told aides he is largely supportive of sending Americans another round of stimulus checks, believing the payments will boost the economy and help his chances at reelection in November, according to three people aware of internal administration deliberations.”
Of course, the Post has no idea what Trump believes about the economic impact of stimulus checks. It knows what he says about the economic impact. If Trump “believes” that the checks will boost his re-election chances then he is likely to say that he thinks they will boost the economy, regardless of what he really believes.
As a practical matter, these checks are likely a very poor form of stimulus. The point of another round of spending is first and foremost to help the people who have lost their jobs or in other ways have been hurt by the pandemic. The vast majority of people getting another round of pandemic checks will not be in this category.
The other motive for a stimulus is to increase demand in the economy. Sending checks to people who have not lost their jobs or seen a large decline in their income is likely to have little impact on spending, as shown by the record saving rate seen in April. The saving rate will be lower in May, but likely still extraordinarily high. Many potential check recipients are hesitant to spend money because they are worried about the pandemic, not because they don’t have it.
Incredibly, the Post does not give the view of any economists who have this perspective, even though they would not be hard to find. The only reservations about another round of stimulus mentioned in the piece come from Republicans concerned about the size of the budget deficit.
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Bankruptcy typically means that shareholders are largely or totally wiped out. This should raise the question of why CEOs of companies that went bankrupt are getting large bonuses from these companies, as this NYT article points out.
These payments are consistent with a story where corporate boards primarily owe their allegiance to top management, not to shareholders. It would have been worth noting this fact.
Bankruptcy typically means that shareholders are largely or totally wiped out. This should raise the question of why CEOs of companies that went bankrupt are getting large bonuses from these companies, as this NYT article points out.
These payments are consistent with a story where corporate boards primarily owe their allegiance to top management, not to shareholders. It would have been worth noting this fact.
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The New York Times had a fascinating piece pointing out that Japan’s unemployment rate has barely budged in response to the pandemic recession, even as the U.S. rate (adjusted for measurement issues) has topped 15.0 percent. But the piece comes with an important warning:
“Critics say it makes companies reluctant to take risks in hiring new employees, reducing options for the country’s young workers. It may also make it more difficult for businesses to retool their work forces to adapt to changing conditions, making them less productive and hurting their ability to compete in the global economy.”
There actually is little evidence for the unnamed critics’ assertion. According to the OECD, since 2005, U.S. GDP per hour worked (the broadest measure of productivity) has increased at an annual rate of 1.1 percent. By comparison, Japan’s productivity has increased at a rate of 0.7 percent. This is a notable difference over time but does not imply that the U.S. is seeing a hugely different picture. In terms of international competitiveness, Japan has a trade surplus of roughly 3.5 percent of GDP, while the U.S. has a trade deficit of 2.4 percent of GDP.
In short, while it is clear that Japan’s workers enjoy much greater employment security than workers in the United States, it is not clear that the country is experiencing the negative outcomes of which the article warns.
The New York Times had a fascinating piece pointing out that Japan’s unemployment rate has barely budged in response to the pandemic recession, even as the U.S. rate (adjusted for measurement issues) has topped 15.0 percent. But the piece comes with an important warning:
“Critics say it makes companies reluctant to take risks in hiring new employees, reducing options for the country’s young workers. It may also make it more difficult for businesses to retool their work forces to adapt to changing conditions, making them less productive and hurting their ability to compete in the global economy.”
There actually is little evidence for the unnamed critics’ assertion. According to the OECD, since 2005, U.S. GDP per hour worked (the broadest measure of productivity) has increased at an annual rate of 1.1 percent. By comparison, Japan’s productivity has increased at a rate of 0.7 percent. This is a notable difference over time but does not imply that the U.S. is seeing a hugely different picture. In terms of international competitiveness, Japan has a trade surplus of roughly 3.5 percent of GDP, while the U.S. has a trade deficit of 2.4 percent of GDP.
In short, while it is clear that Japan’s workers enjoy much greater employment security than workers in the United States, it is not clear that the country is experiencing the negative outcomes of which the article warns.
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(This post originally appeared on my Patreon page.)
I know I have been pounding on this a lot, but it is important and there is a lot of money at stake. All we need (okay, maybe not all) is some clear thinking.
The Washington Post had a good piece this week talking about how a company set up by a hedge fund, with no background or expertise in pharmacology, arranged to get rights to a drug that was developed by researchers at Emory University on a $16 million contract with the government. The drug, EIDD-2801, is thought to be a potential treatment for the coronavirus. Shortly after arranging to buy the rights to the drug, the company turned around and sold them to Merck, presumably for a substantial profit.
The piece highlights how some companies are likely to profit off government-funded research, often while contributing little or nothing to developing effective vaccines or treatments. We also face the likelihood that any vaccines or treatments that are developed will be sold at high prices by companies that were granted patent monopolies.
But this is only the beginning of the problem with the U.S. government’s approach for developing a vaccine or treatments for the pandemic. The U.S. approach encourages secrecy in research. Companies are racing to get valuable patents. This gives pharmaceutical companies an incentive to keep as much of their research secret as possible, in order not to give away valuable information to competitors.
This is the exact opposite of what we should want to see in response to the pandemic. This is a worldwide crisis; we should want researchers across the globe working in collaboration, sharing their results as quickly as possible so that they can learn from each other’s successes and failures. This issue is recognized by the scientists who are working to develop these vaccines and treatments.
As a recent editorial in Nature magazine noted, there is an extraordinary amount of international cooperation taking place, which is allowing progress to take place far more rapidly than would ordinarily be the case. However, neither the United States nor the United Kingdom have agreed to share the fruits of research with the world, leaving open the possibility that one or more of their drug companies will take advantage of research that was widely shared to develop a vaccine or treatment on which they will claim a patent monopoly, and then charge very high prices.
It is not just for purposes of getting a vaccine and treatments quickly that we should want fully open research. There is also the issue of the credibility of research findings. There already have been questions raised about Moderna, a leading contender in the race to develop a vaccine. The company had a major stock offering just after releasing very limited results suggesting progress in developing a vaccine. Two top executives took advantage of the jump in share prices to sell a substantial portion of their holdings.
While the results released by Moderna may be entirely honest, it is difficult not to raise questions when so much money is at stake for the people controlling the release of information. It is also troubling that the results reported were very limited. For whatever reason, the company chose not to release the detailed data it had available at the time.
The issue of the integrity of research is especially serious in the context of a Trump controlled FDA. If a vaccine is developed by Moderna or another company, there will be enormous pressure on the FDA to approve it, especially if this could be done before the election. Does anyone doubt at this point that Donald Trump would fire an FDA head who refused to approve a vaccine before the election? After all, he does have the legal right to do so, and every Republican in national office, except Senator Mitt Romney, is on record saying that this sort of behavior is fine. We should just take for granted that the FDA will approve any plausible vaccine candidate because Donald Trump demands it.
Not only would this be incredibly reckless, but it is also likely to undermine the goal of having an effective vaccine widely circulated. The distinction between a vaccine and a treatment is that we are asking healthy people to take the vaccine. In the case of a treatment, we are looking at people who are already sick, and likely suffering serious symptoms. It is reasonable to take some risks in such cases if the possible alternative is dying from the coronavirus.
However, with a vaccine we are asking billions of people, most of whom are healthy and would probably not face much risk from the coronavirus, to take a vaccine that possibly could have serious side effects. Would people in the United States be willing to take the risk associated with a vaccine, whose safety is certified by a Donald Trump controlled FDA?
For my part, as someone in good health, I would much rather take my chances with the coronavirus, at least until a credible agency, like the ones in Germany or Canada, had signed off on the vaccine. I would not be willing to risk my health for a Donald Trump campaign stunt. (As a practical matter, any vaccine would almost certainly not be ready for mass circulation until some point in 2021, but if the Trump FDA had set the process in motion, it might be difficult for a new administration to stop it.)
This raises another point about the value of fully open research. If all the information submitted to the FDA to establish the safety and effectiveness of a vaccine were open to the entire scientific community, it is very unlikely that it could certify the safety and effectiveness of a vaccine, if the evidence did not support this certification. If Moderna or any other company could not establish that its vaccine was safe and effective, the community of researchers working on a vaccine would almost certainly recognize this fact.
Of course, without a patent monopoly, Moderna would have little incentive to lie about the safety and effectiveness of its vaccine. Its interest would be in establishing a reputation as a company that supported important research so that it was well-positioned to secure future research funding from the government. Bending research results, so as to get a vaccine approved that was ineffective or dangerous, would likely prevent it from ever again being in the running for research funding.[1]
And, it is worth repeating that without patent monopolies and related protections, drugs and vaccines would almost invariably be cheap. It is rare that a drug or vaccine is expensive to manufacture or distribute. Drugs are expensive because we give drug companies patent monopolies. It seems more than a bit absurd that we make drugs expensive with these monopolies and then struggle to find ways to make them affordable.
Also, the amount of money at stake here is enormous. We will spend over $500 billion in 2020 for drugs that would almost certainly cost less than $100 billion in a free market with patent monopolies and related protections. The difference of $400 billion is roughly 1.8 percent of GDP. It is more than twice the size of the Trump tax cut and more than five times the entire budget for food stamps.
It is more than a bit incredible, that a time when serious people are discussing defunding the police, that the idea that the government should own the research it pays for is too radical for public discussion. It is even more incredible that this lack of imagination cannot be overcome even as we are facing a worldwide pandemic that is more deadly than anything we have seen in over a hundred years.
Somehow, we have to convince the folks determining policy that God did not create patent monopolies. There are better ways to finance the development of new drugs and vaccines.
[1] I discuss this system of publicly financed open-source research at more length in chapter 5 of Rigged (it’s free).
(This post originally appeared on my Patreon page.)
I know I have been pounding on this a lot, but it is important and there is a lot of money at stake. All we need (okay, maybe not all) is some clear thinking.
The Washington Post had a good piece this week talking about how a company set up by a hedge fund, with no background or expertise in pharmacology, arranged to get rights to a drug that was developed by researchers at Emory University on a $16 million contract with the government. The drug, EIDD-2801, is thought to be a potential treatment for the coronavirus. Shortly after arranging to buy the rights to the drug, the company turned around and sold them to Merck, presumably for a substantial profit.
The piece highlights how some companies are likely to profit off government-funded research, often while contributing little or nothing to developing effective vaccines or treatments. We also face the likelihood that any vaccines or treatments that are developed will be sold at high prices by companies that were granted patent monopolies.
But this is only the beginning of the problem with the U.S. government’s approach for developing a vaccine or treatments for the pandemic. The U.S. approach encourages secrecy in research. Companies are racing to get valuable patents. This gives pharmaceutical companies an incentive to keep as much of their research secret as possible, in order not to give away valuable information to competitors.
This is the exact opposite of what we should want to see in response to the pandemic. This is a worldwide crisis; we should want researchers across the globe working in collaboration, sharing their results as quickly as possible so that they can learn from each other’s successes and failures. This issue is recognized by the scientists who are working to develop these vaccines and treatments.
As a recent editorial in Nature magazine noted, there is an extraordinary amount of international cooperation taking place, which is allowing progress to take place far more rapidly than would ordinarily be the case. However, neither the United States nor the United Kingdom have agreed to share the fruits of research with the world, leaving open the possibility that one or more of their drug companies will take advantage of research that was widely shared to develop a vaccine or treatment on which they will claim a patent monopoly, and then charge very high prices.
It is not just for purposes of getting a vaccine and treatments quickly that we should want fully open research. There is also the issue of the credibility of research findings. There already have been questions raised about Moderna, a leading contender in the race to develop a vaccine. The company had a major stock offering just after releasing very limited results suggesting progress in developing a vaccine. Two top executives took advantage of the jump in share prices to sell a substantial portion of their holdings.
While the results released by Moderna may be entirely honest, it is difficult not to raise questions when so much money is at stake for the people controlling the release of information. It is also troubling that the results reported were very limited. For whatever reason, the company chose not to release the detailed data it had available at the time.
The issue of the integrity of research is especially serious in the context of a Trump controlled FDA. If a vaccine is developed by Moderna or another company, there will be enormous pressure on the FDA to approve it, especially if this could be done before the election. Does anyone doubt at this point that Donald Trump would fire an FDA head who refused to approve a vaccine before the election? After all, he does have the legal right to do so, and every Republican in national office, except Senator Mitt Romney, is on record saying that this sort of behavior is fine. We should just take for granted that the FDA will approve any plausible vaccine candidate because Donald Trump demands it.
Not only would this be incredibly reckless, but it is also likely to undermine the goal of having an effective vaccine widely circulated. The distinction between a vaccine and a treatment is that we are asking healthy people to take the vaccine. In the case of a treatment, we are looking at people who are already sick, and likely suffering serious symptoms. It is reasonable to take some risks in such cases if the possible alternative is dying from the coronavirus.
However, with a vaccine we are asking billions of people, most of whom are healthy and would probably not face much risk from the coronavirus, to take a vaccine that possibly could have serious side effects. Would people in the United States be willing to take the risk associated with a vaccine, whose safety is certified by a Donald Trump controlled FDA?
For my part, as someone in good health, I would much rather take my chances with the coronavirus, at least until a credible agency, like the ones in Germany or Canada, had signed off on the vaccine. I would not be willing to risk my health for a Donald Trump campaign stunt. (As a practical matter, any vaccine would almost certainly not be ready for mass circulation until some point in 2021, but if the Trump FDA had set the process in motion, it might be difficult for a new administration to stop it.)
This raises another point about the value of fully open research. If all the information submitted to the FDA to establish the safety and effectiveness of a vaccine were open to the entire scientific community, it is very unlikely that it could certify the safety and effectiveness of a vaccine, if the evidence did not support this certification. If Moderna or any other company could not establish that its vaccine was safe and effective, the community of researchers working on a vaccine would almost certainly recognize this fact.
Of course, without a patent monopoly, Moderna would have little incentive to lie about the safety and effectiveness of its vaccine. Its interest would be in establishing a reputation as a company that supported important research so that it was well-positioned to secure future research funding from the government. Bending research results, so as to get a vaccine approved that was ineffective or dangerous, would likely prevent it from ever again being in the running for research funding.[1]
And, it is worth repeating that without patent monopolies and related protections, drugs and vaccines would almost invariably be cheap. It is rare that a drug or vaccine is expensive to manufacture or distribute. Drugs are expensive because we give drug companies patent monopolies. It seems more than a bit absurd that we make drugs expensive with these monopolies and then struggle to find ways to make them affordable.
Also, the amount of money at stake here is enormous. We will spend over $500 billion in 2020 for drugs that would almost certainly cost less than $100 billion in a free market with patent monopolies and related protections. The difference of $400 billion is roughly 1.8 percent of GDP. It is more than twice the size of the Trump tax cut and more than five times the entire budget for food stamps.
It is more than a bit incredible, that a time when serious people are discussing defunding the police, that the idea that the government should own the research it pays for is too radical for public discussion. It is even more incredible that this lack of imagination cannot be overcome even as we are facing a worldwide pandemic that is more deadly than anything we have seen in over a hundred years.
Somehow, we have to convince the folks determining policy that God did not create patent monopolies. There are better ways to finance the development of new drugs and vaccines.
[1] I discuss this system of publicly financed open-source research at more length in chapter 5 of Rigged (it’s free).
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The Washington Post had an interesting piece on how a hedge fund managed to secure $16 million in public funds (10,000 food stamp person-years) for a shell company, Ridgeback Biotherapeutics, which then used the money to contract for research with Emory University. When the results showed some promise, Ridgeback Biotherapeutics then sold the rights to Merck, which is doing further testing.
This problem would have been easy to avoid if the government had a rule that when it pays for research, all the findings are open-source (meaning posted to the web as soon as practical) and that everything developed remains in the public domain. That means that any drugs or vaccines developed with public funds would be available as cheap generics.
This does conflict with the widely held view that the role of the government is to redistribute as much money to rich people as possible, but if anyone cared about economic efficiency, this is the path they would be advocating.
The Washington Post had an interesting piece on how a hedge fund managed to secure $16 million in public funds (10,000 food stamp person-years) for a shell company, Ridgeback Biotherapeutics, which then used the money to contract for research with Emory University. When the results showed some promise, Ridgeback Biotherapeutics then sold the rights to Merck, which is doing further testing.
This problem would have been easy to avoid if the government had a rule that when it pays for research, all the findings are open-source (meaning posted to the web as soon as practical) and that everything developed remains in the public domain. That means that any drugs or vaccines developed with public funds would be available as cheap generics.
This does conflict with the widely held view that the role of the government is to redistribute as much money to rich people as possible, but if anyone cared about economic efficiency, this is the path they would be advocating.
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The Republicans have been working hard to ensure that the $600 weekly supplement to unemployment insurance benefits, which was put in place as part of the pandemic rescue package, is not extended beyond the current July 31 cutoff. They argue that we need people to return to work.
They do have a point. The supplement is equivalent to pay of $15 an hour for someone working a 40-hour week, and this is in addition to a regular benefit that is typically equal to 40 to 50 percent of workers’ pay. The supplement translates into an even larger hourly pay rate for workers putting in shorter workweeks, which was the case for most laid off workers in the restaurant and retail sectors.
It is hard for employers in traditionally low paying sectors to match these pay rates. Even those of us who are big proponents of higher minimum wages would not advocate a jump to more than $20 an hour at a point when businesses are crippled by the pandemic.
However, there is also the point that we don’t want workers to have to expose themselves to the coronavirus. That was the reason for the generous supplement. We wanted to make sure that workers, who in many cases were legally prevented from working, did not suffer as a result.
There is an obvious solution here. Suppose we reduce or end the supplement in areas where the pandemic is under control.
This would not be determined by some Trumpian declaration that the pandemic is over, but by solid data. The obvious metric would be positive test rates. Suppose that the supplement was reduced or eliminated in states or counties where the positive test rate is less than 5 percent. (This may not be the right rate.) This would mean that workers going back to work would face relatively little risk of contracting the virus. It would also give states the incentive to conduct vigorous testing programs, as well as other control measures, in order to get their positive rates down.
Our unemployment insurance system is badly broken and it would be desirable to have more generous benefits, and also to focus more on work-sharing, as other countries have done. We can recognize this point and still agree that an arbitrary supplement to all benefits is not the right long-term fix even if it was a very good policy in the pandemic.
The Republicans have been working hard to ensure that the $600 weekly supplement to unemployment insurance benefits, which was put in place as part of the pandemic rescue package, is not extended beyond the current July 31 cutoff. They argue that we need people to return to work.
They do have a point. The supplement is equivalent to pay of $15 an hour for someone working a 40-hour week, and this is in addition to a regular benefit that is typically equal to 40 to 50 percent of workers’ pay. The supplement translates into an even larger hourly pay rate for workers putting in shorter workweeks, which was the case for most laid off workers in the restaurant and retail sectors.
It is hard for employers in traditionally low paying sectors to match these pay rates. Even those of us who are big proponents of higher minimum wages would not advocate a jump to more than $20 an hour at a point when businesses are crippled by the pandemic.
However, there is also the point that we don’t want workers to have to expose themselves to the coronavirus. That was the reason for the generous supplement. We wanted to make sure that workers, who in many cases were legally prevented from working, did not suffer as a result.
There is an obvious solution here. Suppose we reduce or end the supplement in areas where the pandemic is under control.
This would not be determined by some Trumpian declaration that the pandemic is over, but by solid data. The obvious metric would be positive test rates. Suppose that the supplement was reduced or eliminated in states or counties where the positive test rate is less than 5 percent. (This may not be the right rate.) This would mean that workers going back to work would face relatively little risk of contracting the virus. It would also give states the incentive to conduct vigorous testing programs, as well as other control measures, in order to get their positive rates down.
Our unemployment insurance system is badly broken and it would be desirable to have more generous benefits, and also to focus more on work-sharing, as other countries have done. We can recognize this point and still agree that an arbitrary supplement to all benefits is not the right long-term fix even if it was a very good policy in the pandemic.
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No, I have not gone off the deep end, there is an important connection that I will get to in a moment. First, I want to be clear that I am not trying to take anything away from the immediate issue that has brought hundreds of thousands into the streets, the police killing of George Floyd. (We even had a protest in my little town in Utah.)
It is encouraging to see so many people of all races marching to demand justice. Perhaps these mass protests will lead to a lasting change in the way the police treat people of color. We can hope.
Anyhow, I was prompted to think about the connection of racism to patent monopolies, and the way we structure the economy more generally, by a tweet that was passed along to me a few days ago. The tweet was from a doctor who I gather held an important position in a hospital or some other health care provider. (I don’t know the person; the tweet was retweeted by someone I follow.)
The tweet said something to the effect that the killing and the protests had moved them to be more aggressive in promoting blacks in the medical profession. That would be a great thing to see, but we should be clear what a long way we have to go before blacks are anywhere close to being proportionately represented in this high-paying profession.
Currently, 13.4 percent of the population is black. Just 5.0 percent of doctors are black. Suppose we increase that figure by 50 percent over the next two decades, which would be a big change from where we are now. That would mean that 7.5 percent of doctors would be black, a bit more than half of their percentage of the population. That’s better, but still far from anything close to equality.
My response to the tweet was that we should focus on reducing the pay gap between doctors and lower-paying occupations in health care, like home health care aides and nurses’ assistants. These jobs often play close to the minimum wage, whereas the average doctor earns close to $300,000 a year (net of expenses like malpractice insurance) and doctors in higher-paying areas of specialization can earn close to $500,000. Needless to say, blacks and other people of color tend to be over-represented in the lower-paying occupations in the health care sector.
Suppose that we reduced the pay gap between doctors and these lower-paying occupations to something like four or five to one, rather than the ratios of ten to one or more that we see today? The nice thing about going this route is that the key is simply reducing the protections that sustain high doctor pay today.
This means, for example, ending the requirement that foreign-trained doctors have to go through a U.S. residency program before being allowed to practice in the United States. We can also eliminate the barriers that prevent nurse practitioners and other health care professionals from doing tasks for which they are entirely qualified, but are now reserved for licensed physicians.
By using market mechanisms to increase the supply and reduce the demand for doctors, we can expect to see doctors’ pay driven down to something more in line with what we see in Germany, Canada, and other wealthy countries. That would be around half of the current level in the United States. (Yes, I know about the student loan debt many doctors incur. It doesn’t come close to explaining the differences in pay with other countries, but part of the deal should be a write off of most of this debt.)
We can tell similar stories pretty much everywhere. People in highly paid professions, like doctors, dentists, and lawyers, get lots of money, and dishwashers and retail clerks don’t, because we structured the markets so that people in these professions can get lots of money, at the same time that we also structure the markets so that dishwashers and retail clerks don’t get lots of money.
There are similar stories to be told about other areas where people get very high pay. The financial sector is an obvious one. We have people who get hugely rich as hedge fund managers or traders at banks who thrive on being able to turn over massive amounts of stock and other financial assets to take advantage of small price differences. A modest financial transactions tax, similar to the sales tax we pay on clothes and appliances, would go a long way towards reducing the big bucks in this sector. Measures that prevented the finance boys from ripping off pension funds would also reduce the big bucks earned in this sector.
In the case of CEOs getting salaries of tens of millions of dollars, even when they screw the shareholders for whom they are supposed to be working, the problem is a corrupt corporate governance structure. And the problem of excessive CEO pay is not just a question of the pay of a small number of CEOs. If the CEO is getting $20 million a year, odds are the chief financial officer and other top execs are getting somewhere close to $10 million and even the next tier is likely drawing paychecks of well over a million a year. We would be in a very different world if the ratio of CEO pay to the pay of ordinary workers was something closer to the 60s and 70s ratios, and CEOs earned $2 million to $3 million a year. That would likely be the story if corporate boards actually acted in the interest of shareholders. (It would be even better if they cared about workers, too.)
This gets me to patents. There is a largely unquestioned fallacy in policy circles that technology has increased the value of skills, especially those in the STEM fields, and reduced the value of less-educated workers. This fallacy is used to justify the huge growth in inequality over the last four decades. The basic line is that we may not like it but it just turns out that Bill Gates’ skills have become hugely more valuable over the last four decades, and the skills of manufacturing workers, truck drivers, and other people in jobs requiring less education are worth much less.
This is a very simple and obvious lie. The value of STEM skills has increased because as a matter of policy we decided to make them more valuable, first and foremost by having longer and stronger patent and copyright monopolies. As I like to say, if we didn’t give Microsoft patent and copyright monopolies on its software, Bill Gates would still be working for a living. For some reason, people in policy circles, including most progressives, simply don’t like to talk about this obvious truth.
Suppose that we did not see the same upward redistribution over the last four decades so that everyone had shared equally in the gains of productivity growth. In that world the minimum wage would be over $24 an hour today. This means that a person working at the lowest paying jobs would still get almost $50,000 a year if they put in a full 40-hour week, fifty weeks a year. If we imagine that people in the lower paying occupations in health care get some premium for their skills and the importance of their work, they would be getting over $50,000 a year. A two-earner couple would be getting over $100,000 a year.
Could we afford to pay the lowest workers $100,000 a year? We certainly could if we didn’t pay the people at the top so much. It may not be apparent (especially for people who do policy work for a living), but these high paychecks come out of everyone else’s pockets.
This is very clear if we put on our Keynesian-MMT thinking hat for a moment. The limiting factor for government spending is inflation. We have to cut back spending and/or raise taxes if spending is pushing the economy too far and causing excess demand. The consumption spending by doctors getting $400,000 a year, Wall Street types getting $4 million a year, and CEOs getting $40 million a year, increases demand in the same way more government spending increases demand. If these rich and very rich people have less money to spend, they will spend less. (See what you learn by getting a PhD in economics.)
Anyhow, if we structure the market differently so that those at the top have less, then everyone else can have more. We can ensure that even people at the bottom of the pay ladder can ensure decent secure lives. This is especially the case if we have items like national health care insurance and child care as part of our agenda.
So, getting back to the impact of structural racism, we certainly should do everything possible to eliminate the barriers that deny African Americans an equal chance to get high paying and high prestige jobs in health care and other sectors of the economy. But, recognizing our history, we can’t believe that in ten, twenty, or even fifty years we will have overcome centuries of institutionalized racism.
It is still a big deal if a black kid doesn’t have the same chance in life to work as a doctor or some other high-paying profession as a white kid, but it will matter much less if people working as home health care workers and in other currently low-paying jobs could count on a decent wage, decent health care and other aspects of a secure existence. And, in that world, their kids would have a much better shot at securing a higher paying higher prestige job than they do today.
No, I have not gone off the deep end, there is an important connection that I will get to in a moment. First, I want to be clear that I am not trying to take anything away from the immediate issue that has brought hundreds of thousands into the streets, the police killing of George Floyd. (We even had a protest in my little town in Utah.)
It is encouraging to see so many people of all races marching to demand justice. Perhaps these mass protests will lead to a lasting change in the way the police treat people of color. We can hope.
Anyhow, I was prompted to think about the connection of racism to patent monopolies, and the way we structure the economy more generally, by a tweet that was passed along to me a few days ago. The tweet was from a doctor who I gather held an important position in a hospital or some other health care provider. (I don’t know the person; the tweet was retweeted by someone I follow.)
The tweet said something to the effect that the killing and the protests had moved them to be more aggressive in promoting blacks in the medical profession. That would be a great thing to see, but we should be clear what a long way we have to go before blacks are anywhere close to being proportionately represented in this high-paying profession.
Currently, 13.4 percent of the population is black. Just 5.0 percent of doctors are black. Suppose we increase that figure by 50 percent over the next two decades, which would be a big change from where we are now. That would mean that 7.5 percent of doctors would be black, a bit more than half of their percentage of the population. That’s better, but still far from anything close to equality.
My response to the tweet was that we should focus on reducing the pay gap between doctors and lower-paying occupations in health care, like home health care aides and nurses’ assistants. These jobs often play close to the minimum wage, whereas the average doctor earns close to $300,000 a year (net of expenses like malpractice insurance) and doctors in higher-paying areas of specialization can earn close to $500,000. Needless to say, blacks and other people of color tend to be over-represented in the lower-paying occupations in the health care sector.
Suppose that we reduced the pay gap between doctors and these lower-paying occupations to something like four or five to one, rather than the ratios of ten to one or more that we see today? The nice thing about going this route is that the key is simply reducing the protections that sustain high doctor pay today.
This means, for example, ending the requirement that foreign-trained doctors have to go through a U.S. residency program before being allowed to practice in the United States. We can also eliminate the barriers that prevent nurse practitioners and other health care professionals from doing tasks for which they are entirely qualified, but are now reserved for licensed physicians.
By using market mechanisms to increase the supply and reduce the demand for doctors, we can expect to see doctors’ pay driven down to something more in line with what we see in Germany, Canada, and other wealthy countries. That would be around half of the current level in the United States. (Yes, I know about the student loan debt many doctors incur. It doesn’t come close to explaining the differences in pay with other countries, but part of the deal should be a write off of most of this debt.)
We can tell similar stories pretty much everywhere. People in highly paid professions, like doctors, dentists, and lawyers, get lots of money, and dishwashers and retail clerks don’t, because we structured the markets so that people in these professions can get lots of money, at the same time that we also structure the markets so that dishwashers and retail clerks don’t get lots of money.
There are similar stories to be told about other areas where people get very high pay. The financial sector is an obvious one. We have people who get hugely rich as hedge fund managers or traders at banks who thrive on being able to turn over massive amounts of stock and other financial assets to take advantage of small price differences. A modest financial transactions tax, similar to the sales tax we pay on clothes and appliances, would go a long way towards reducing the big bucks in this sector. Measures that prevented the finance boys from ripping off pension funds would also reduce the big bucks earned in this sector.
In the case of CEOs getting salaries of tens of millions of dollars, even when they screw the shareholders for whom they are supposed to be working, the problem is a corrupt corporate governance structure. And the problem of excessive CEO pay is not just a question of the pay of a small number of CEOs. If the CEO is getting $20 million a year, odds are the chief financial officer and other top execs are getting somewhere close to $10 million and even the next tier is likely drawing paychecks of well over a million a year. We would be in a very different world if the ratio of CEO pay to the pay of ordinary workers was something closer to the 60s and 70s ratios, and CEOs earned $2 million to $3 million a year. That would likely be the story if corporate boards actually acted in the interest of shareholders. (It would be even better if they cared about workers, too.)
This gets me to patents. There is a largely unquestioned fallacy in policy circles that technology has increased the value of skills, especially those in the STEM fields, and reduced the value of less-educated workers. This fallacy is used to justify the huge growth in inequality over the last four decades. The basic line is that we may not like it but it just turns out that Bill Gates’ skills have become hugely more valuable over the last four decades, and the skills of manufacturing workers, truck drivers, and other people in jobs requiring less education are worth much less.
This is a very simple and obvious lie. The value of STEM skills has increased because as a matter of policy we decided to make them more valuable, first and foremost by having longer and stronger patent and copyright monopolies. As I like to say, if we didn’t give Microsoft patent and copyright monopolies on its software, Bill Gates would still be working for a living. For some reason, people in policy circles, including most progressives, simply don’t like to talk about this obvious truth.
Suppose that we did not see the same upward redistribution over the last four decades so that everyone had shared equally in the gains of productivity growth. In that world the minimum wage would be over $24 an hour today. This means that a person working at the lowest paying jobs would still get almost $50,000 a year if they put in a full 40-hour week, fifty weeks a year. If we imagine that people in the lower paying occupations in health care get some premium for their skills and the importance of their work, they would be getting over $50,000 a year. A two-earner couple would be getting over $100,000 a year.
Could we afford to pay the lowest workers $100,000 a year? We certainly could if we didn’t pay the people at the top so much. It may not be apparent (especially for people who do policy work for a living), but these high paychecks come out of everyone else’s pockets.
This is very clear if we put on our Keynesian-MMT thinking hat for a moment. The limiting factor for government spending is inflation. We have to cut back spending and/or raise taxes if spending is pushing the economy too far and causing excess demand. The consumption spending by doctors getting $400,000 a year, Wall Street types getting $4 million a year, and CEOs getting $40 million a year, increases demand in the same way more government spending increases demand. If these rich and very rich people have less money to spend, they will spend less. (See what you learn by getting a PhD in economics.)
Anyhow, if we structure the market differently so that those at the top have less, then everyone else can have more. We can ensure that even people at the bottom of the pay ladder can ensure decent secure lives. This is especially the case if we have items like national health care insurance and child care as part of our agenda.
So, getting back to the impact of structural racism, we certainly should do everything possible to eliminate the barriers that deny African Americans an equal chance to get high paying and high prestige jobs in health care and other sectors of the economy. But, recognizing our history, we can’t believe that in ten, twenty, or even fifty years we will have overcome centuries of institutionalized racism.
It is still a big deal if a black kid doesn’t have the same chance in life to work as a doctor or some other high-paying profession as a white kid, but it will matter much less if people working as home health care workers and in other currently low-paying jobs could count on a decent wage, decent health care and other aspects of a secure existence. And, in that world, their kids would have a much better shot at securing a higher paying higher prestige job than they do today.
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