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.

As we get more data in, it seems increasingly likely that we are looking at a horrible and prolonged recession, not a complete economic collapse of Great Depression proportions. The May employment report showed a substantial bounce back in employment, with jobs up by more than 2.5 million from the April level. Retail sales had a huge 17.7 percent jump in May, by far the largest on record, although they are still 6.1 percent below the May 2019 level.

Mortgage applications also show a considerable degree of confidence about the future, with both refinancing and purchase mortgages soaring. Mortgage applications for refinancing are up more than ten-fold from year-ago levels, while purchase applications are up 268.6 percent to the highest level in more than 11 years. The latter is far more important for the economy since it implies people are buying homes, which typically lead to the purchase of new appliances and spending on renovations.

These data, and a variety of surveys of consumers and businesses, do not show an economy in collapse. At the same time, there is little reason to believe that we will see a robust rebound to anything resembling normal. We lost 22 million jobs between February and April. Even if we had seven more months adding jobs back at the May rate, we would still be down by more than 2 million jobs from the pre-pandemic level. And, we are not likely to see seven more months with job growth anything like May’s pace, without some very serious fiscal stimulus.

A new paper from Raj Chetty and co-authors provides some interesting insights on the problem the economy faces. Using real-time data from a number of private sources, it finds that there has been a sharp fall in consumption by people in the top income quartile of households, with relatively little change in consumption from the other three quartiles.

This drop is overwhelmingly associated with a sharp drop in demand for services, like restaurant meals, hair salons, and other personal services. Interestingly, the size of the drop is not affected to any substantial extent by laws on shutdowns. Areas where these services were fully available saw comparable declines in spending as areas where these services were still subject to lockdowns.

There are two major takeaways from these findings. First, the drop in demand that we have seen to date has little to do with declines in income. The top quartile has reduced its spending not because it lacks the income to spend, it has reduced spending because it is scared to spend in the areas where it would ordinarily be spending its money.

An implication is that any further efforts at boosting the economy should be better targeted than the first rounds. For example, giving $1,200 to every adult in the country was not a very effective way to boost the economy. While this was payment was phased out for very high-end earners, the phase out only affected the top 2-3 percent of the income distribution, the bulk of the top quartile received their checks even though they were not suffering any income loss as a result of the pandemic.

The other major take away is that if we want people to use restaurants, hair salons, gyms, and other services, the issue of legal shutdowns matters far less important than ensuring their safety. This means actually getting the pandemic under control. While virtually every wealthy country has been able to do this, outside of the Northeast corridor, new infections are higher than ever in the United States. This means that without a vaccine and/or effective treatment, we are likely to see demand for a wide range of services badly depressed for the foreseeable future.

This matters in a big way because these industries provide tens of millions of jobs largely to less-educated workers. These sectors also disproportionately employ women and people of color. If they continue to see demand at far below pre-pandemic levels, it will mean a massive and persistent increase in unemployment for the less-educated segments of the workforce. This will quickly reverse all the gains that lower-paid workers were able to make as the labor market tightened in the prior five years.

 

Shaping the Stimulus

The most immediate need in the next round of a rescue package to come from Congress is for money for state and local governments. Their budgets have been devastated by the loss of tax revenue due to the shutdown and the additional demand for services. The Center on Budget and Policy Priorities calculated that the shortfalls could be as high as $500 billion.

They have already laid off 1.6 million workers and this number will hugely increase if Congress does not provide a large chunk of money to make up for their shortfalls. Some people have pointed out that the laid-off workers were largely teachers, who were not paid for the period in which schools were shut down. This is true, but if state and local governments cannot get the money to make up shortfalls, many of these teachers may not be called back in the fall and other workers are likely to be laid off to make up the cost of paying the teachers who are called back. Cutbacks at the state and local level were one of the main reasons that the recovery from the Great Recession was so slow. We should not make an even larger mistake now.

The Post Office will also need substantial funding to stay in business, as it has seen both a sharp decline in revenue and sharp increase in spending due to efforts to keep its workers safe. As with state and local governments, the employees of the Post Office are disproportionately Black. This is due to the fact that Black workers in the public sector have faced less discrimination than Black workers in the private sector. As a result, the public sector has historically been an important source of middle-class jobs for Black workers. This will be threatened if the fallout from the pandemic forces large cutbacks in employment.

There has been a peculiar debate over the extension of the $600 weekly supplements to unemployment benefits that are scheduled to end next month. It is important to remember the reason these were included. We gave people this supplement because we did not want them to work. The point was to keep people whole through a period in which the economy was largely shut down in an effort to contain the virus.

In this context, the question we should be asking in deciding whether to continue the supplement is whether it is safe to work. This depends on our progress on containing the virus. One obvious way to determine the extent to which the pandemic has been contained is the positive rate on new tests. If the positive rate is below some low level, say 3 percent, then it would be reasonable to remove the supplement in that area (this can be county specific), however, if we are seeing high positive rates, then as a matter of policy it would make more sense to encourage people to stay at home than to work.

For the areas where the virus is under control, it would still be desirable to have some supplement to the standard benefit. Benefits in many states have been eroded in recent decades so that it would be very difficult for unemployed workers to survive on them. In a context where the nationwide unemployment rate is virtually certain to be in double digits through the rest of the year, most of the unemployed are not going to be able to find work. For these reasons, a smaller supplement, perhaps $200 a week, should be left in place until the economy has recovered more.

In addition, we should also increase SNAP benefits to protect those at the bottom of the income ladder. Food prices have risen sharply since the pandemic hit. These increases may be reversed in the months ahead, but for now, low-income families have to cope with high food prices, with no increase in benefits. It is also important to remember that SNAP spending is a small share of the total budget. At $70 billion a year, it is just 1.6 percent of total spending. It is less than one-fifth of the premium we pay each year for prescription drugs because of government-granted patent monopolies.

 

Longer Term Recovery

 

At the point where we have developed effective treatments and/or a vaccine, many people will go back to eating at restaurants and flying for vacations. However, there are some changes in spending patterns that are likely to be enduring.

It is likely that much of the increase in telecommuting will be permanent. This means that many fewer people will be going to downturn offices and taking advantage of restaurants, bars, gyms, and other services in central cities at lunch and after work. People are also likely to be taking many fewer business trips, as meetings will take place on Zoom. Also, many colleges and universities will likely be downsized, as more instruction takes place on the web, decreasing retail sales in college towns.

While there will be other long-term changes resulting from the pandemic (maybe even some questioning of government-granted patent monopolies for prescription drugs), the basic point is that large numbers of workers are likely to still be displaced even after the immediate impact of the pandemic is over.

This actually presents a great opportunity. If the private sector is not spending enough to fully employ the workforce, then the public sector has to fill the gap. In this case, we don’t need to have make-work jobs, we have enormous unmet needs.

Most obviously we need people to increase our capacity for clean energy and conservation. This can mean millions of jobs for people installing solar panels, insulation, and other energy-saving measures. We also need to ramp up our child care capacity. The lack of adequate child care was driven home in the pandemic as many health care and other essential workers had difficulty making arrangements when child care facilities shut down. We also need more health care workers as we move towards establishing a universal Medicare system. This will likely mean many more nurses, nurses’ assistants, and other health care professionals. And we will need social workers or other trained professionals who can be the first responders in many non-violent situations where the police are currently called in.   

We can’t imagine that all the people who lose their jobs in restaurants and hotels will be able to work installing solar panels or train to be nurses, but that is not how the labor market functions. In a normal pre-pandemic month, more than five and a half million workers lost or left their job every month. As jobs are generated in these new areas, many currently employed people will look to fill them. That will create job openings that former restaurant and hotel workers can fill. The story is not as simple as this, as we know there is considerable discrimination in the labor market and many pockets of high unemployment, but we don’t have to imagine that we need to match up displaced workers directly with the newly created jobs in clean energy, child care and health care. The labor market is far more flexible than this story implies.

Anyhow, a full discussion of the post-pandemic economy is a much longer story, but the basic picture is actually a positive one. More telecommuting will mean a more productive and less polluting economy. It will also lead to more dispersion of higher paid jobs, benefiting many of the areas that have been left behind in the last four decades and lowering rents and house prices in places like New York City and San Francisco. If we can get through a very bad stretch for the country and the economy, the future could actually be quite bright. 

As we get more data in, it seems increasingly likely that we are looking at a horrible and prolonged recession, not a complete economic collapse of Great Depression proportions. The May employment report showed a substantial bounce back in employment, with jobs up by more than 2.5 million from the April level. Retail sales had a huge 17.7 percent jump in May, by far the largest on record, although they are still 6.1 percent below the May 2019 level.

Mortgage applications also show a considerable degree of confidence about the future, with both refinancing and purchase mortgages soaring. Mortgage applications for refinancing are up more than ten-fold from year-ago levels, while purchase applications are up 268.6 percent to the highest level in more than 11 years. The latter is far more important for the economy since it implies people are buying homes, which typically lead to the purchase of new appliances and spending on renovations.

These data, and a variety of surveys of consumers and businesses, do not show an economy in collapse. At the same time, there is little reason to believe that we will see a robust rebound to anything resembling normal. We lost 22 million jobs between February and April. Even if we had seven more months adding jobs back at the May rate, we would still be down by more than 2 million jobs from the pre-pandemic level. And, we are not likely to see seven more months with job growth anything like May’s pace, without some very serious fiscal stimulus.

A new paper from Raj Chetty and co-authors provides some interesting insights on the problem the economy faces. Using real-time data from a number of private sources, it finds that there has been a sharp fall in consumption by people in the top income quartile of households, with relatively little change in consumption from the other three quartiles.

This drop is overwhelmingly associated with a sharp drop in demand for services, like restaurant meals, hair salons, and other personal services. Interestingly, the size of the drop is not affected to any substantial extent by laws on shutdowns. Areas where these services were fully available saw comparable declines in spending as areas where these services were still subject to lockdowns.

There are two major takeaways from these findings. First, the drop in demand that we have seen to date has little to do with declines in income. The top quartile has reduced its spending not because it lacks the income to spend, it has reduced spending because it is scared to spend in the areas where it would ordinarily be spending its money.

An implication is that any further efforts at boosting the economy should be better targeted than the first rounds. For example, giving $1,200 to every adult in the country was not a very effective way to boost the economy. While this was payment was phased out for very high-end earners, the phase out only affected the top 2-3 percent of the income distribution, the bulk of the top quartile received their checks even though they were not suffering any income loss as a result of the pandemic.

The other major take away is that if we want people to use restaurants, hair salons, gyms, and other services, the issue of legal shutdowns matters far less important than ensuring their safety. This means actually getting the pandemic under control. While virtually every wealthy country has been able to do this, outside of the Northeast corridor, new infections are higher than ever in the United States. This means that without a vaccine and/or effective treatment, we are likely to see demand for a wide range of services badly depressed for the foreseeable future.

This matters in a big way because these industries provide tens of millions of jobs largely to less-educated workers. These sectors also disproportionately employ women and people of color. If they continue to see demand at far below pre-pandemic levels, it will mean a massive and persistent increase in unemployment for the less-educated segments of the workforce. This will quickly reverse all the gains that lower-paid workers were able to make as the labor market tightened in the prior five years.

 

Shaping the Stimulus

The most immediate need in the next round of a rescue package to come from Congress is for money for state and local governments. Their budgets have been devastated by the loss of tax revenue due to the shutdown and the additional demand for services. The Center on Budget and Policy Priorities calculated that the shortfalls could be as high as $500 billion.

They have already laid off 1.6 million workers and this number will hugely increase if Congress does not provide a large chunk of money to make up for their shortfalls. Some people have pointed out that the laid-off workers were largely teachers, who were not paid for the period in which schools were shut down. This is true, but if state and local governments cannot get the money to make up shortfalls, many of these teachers may not be called back in the fall and other workers are likely to be laid off to make up the cost of paying the teachers who are called back. Cutbacks at the state and local level were one of the main reasons that the recovery from the Great Recession was so slow. We should not make an even larger mistake now.

The Post Office will also need substantial funding to stay in business, as it has seen both a sharp decline in revenue and sharp increase in spending due to efforts to keep its workers safe. As with state and local governments, the employees of the Post Office are disproportionately Black. This is due to the fact that Black workers in the public sector have faced less discrimination than Black workers in the private sector. As a result, the public sector has historically been an important source of middle-class jobs for Black workers. This will be threatened if the fallout from the pandemic forces large cutbacks in employment.

There has been a peculiar debate over the extension of the $600 weekly supplements to unemployment benefits that are scheduled to end next month. It is important to remember the reason these were included. We gave people this supplement because we did not want them to work. The point was to keep people whole through a period in which the economy was largely shut down in an effort to contain the virus.

In this context, the question we should be asking in deciding whether to continue the supplement is whether it is safe to work. This depends on our progress on containing the virus. One obvious way to determine the extent to which the pandemic has been contained is the positive rate on new tests. If the positive rate is below some low level, say 3 percent, then it would be reasonable to remove the supplement in that area (this can be county specific), however, if we are seeing high positive rates, then as a matter of policy it would make more sense to encourage people to stay at home than to work.

For the areas where the virus is under control, it would still be desirable to have some supplement to the standard benefit. Benefits in many states have been eroded in recent decades so that it would be very difficult for unemployed workers to survive on them. In a context where the nationwide unemployment rate is virtually certain to be in double digits through the rest of the year, most of the unemployed are not going to be able to find work. For these reasons, a smaller supplement, perhaps $200 a week, should be left in place until the economy has recovered more.

In addition, we should also increase SNAP benefits to protect those at the bottom of the income ladder. Food prices have risen sharply since the pandemic hit. These increases may be reversed in the months ahead, but for now, low-income families have to cope with high food prices, with no increase in benefits. It is also important to remember that SNAP spending is a small share of the total budget. At $70 billion a year, it is just 1.6 percent of total spending. It is less than one-fifth of the premium we pay each year for prescription drugs because of government-granted patent monopolies.

 

Longer Term Recovery

 

At the point where we have developed effective treatments and/or a vaccine, many people will go back to eating at restaurants and flying for vacations. However, there are some changes in spending patterns that are likely to be enduring.

It is likely that much of the increase in telecommuting will be permanent. This means that many fewer people will be going to downturn offices and taking advantage of restaurants, bars, gyms, and other services in central cities at lunch and after work. People are also likely to be taking many fewer business trips, as meetings will take place on Zoom. Also, many colleges and universities will likely be downsized, as more instruction takes place on the web, decreasing retail sales in college towns.

While there will be other long-term changes resulting from the pandemic (maybe even some questioning of government-granted patent monopolies for prescription drugs), the basic point is that large numbers of workers are likely to still be displaced even after the immediate impact of the pandemic is over.

This actually presents a great opportunity. If the private sector is not spending enough to fully employ the workforce, then the public sector has to fill the gap. In this case, we don’t need to have make-work jobs, we have enormous unmet needs.

Most obviously we need people to increase our capacity for clean energy and conservation. This can mean millions of jobs for people installing solar panels, insulation, and other energy-saving measures. We also need to ramp up our child care capacity. The lack of adequate child care was driven home in the pandemic as many health care and other essential workers had difficulty making arrangements when child care facilities shut down. We also need more health care workers as we move towards establishing a universal Medicare system. This will likely mean many more nurses, nurses’ assistants, and other health care professionals. And we will need social workers or other trained professionals who can be the first responders in many non-violent situations where the police are currently called in.   

We can’t imagine that all the people who lose their jobs in restaurants and hotels will be able to work installing solar panels or train to be nurses, but that is not how the labor market functions. In a normal pre-pandemic month, more than five and a half million workers lost or left their job every month. As jobs are generated in these new areas, many currently employed people will look to fill them. That will create job openings that former restaurant and hotel workers can fill. The story is not as simple as this, as we know there is considerable discrimination in the labor market and many pockets of high unemployment, but we don’t have to imagine that we need to match up displaced workers directly with the newly created jobs in clean energy, child care and health care. The labor market is far more flexible than this story implies.

Anyhow, a full discussion of the post-pandemic economy is a much longer story, but the basic picture is actually a positive one. More telecommuting will mean a more productive and less polluting economy. It will also lead to more dispersion of higher paid jobs, benefiting many of the areas that have been left behind in the last four decades and lowering rents and house prices in places like New York City and San Francisco. If we can get through a very bad stretch for the country and the economy, the future could actually be quite bright. 

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.

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.

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.

(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).

The NYT ran a piece with a headline that began “break the China Habit,” and featured the subhead, “the risks of relying economically on the Asian superpower have never seemed clearer. But as the world tries to get moving again, it needs China more than ever.”

Perhaps the paper considered the risks so apparent that it didn’t need to mention them in the article, because it didn’t. Yes, we all know the coronavirus originated in China and that its government was not forthcoming with information about the disease and its spread, but what does that have to do with “relying economically” on China? Is the NYT suggesting as an alternative a complete ban on trade and travel between China and the rest of the world?

If not, the issue of “relying economically” on China is pretty much beside the point. I guess we infer from the article that the NYT doesn’t like China’s government, but other than that, the piece is incoherent. It is also worth noting that there is a good chance that China will develop an effective vaccine against the coronavirus before anyone else.  It would be interesting to know if the NYT would then argue that it is important we not rely on the vaccine. 

The NYT ran a piece with a headline that began “break the China Habit,” and featured the subhead, “the risks of relying economically on the Asian superpower have never seemed clearer. But as the world tries to get moving again, it needs China more than ever.”

Perhaps the paper considered the risks so apparent that it didn’t need to mention them in the article, because it didn’t. Yes, we all know the coronavirus originated in China and that its government was not forthcoming with information about the disease and its spread, but what does that have to do with “relying economically” on China? Is the NYT suggesting as an alternative a complete ban on trade and travel between China and the rest of the world?

If not, the issue of “relying economically” on China is pretty much beside the point. I guess we infer from the article that the NYT doesn’t like China’s government, but other than that, the piece is incoherent. It is also worth noting that there is a good chance that China will develop an effective vaccine against the coronavirus before anyone else.  It would be interesting to know if the NYT would then argue that it is important we not rely on the vaccine. 

I want to do a bit more beating up on a NYT piece this morning on breaking ties with China. There is a widely held view in policy circles that the pandemic showed that our extensive economic ties with China are a bad thing. I will ask a simple question, how?

First to get over some obvious points, yes, China has an authoritarian government that does not respect basic human rights. That is true, but what exactly do we hope to do about it? If we cut our imports from China by half or even put a complete embargo on them, do we think it will improve their human rights record?

I suppose we could have more impact if we got most of the rest of the world to go along, but apart from a few puppet states, no one would follow the U.S. in banning trade from China. Everyone knows that the U.S. doesn’t give a damn about democracy. Just last year we helped to overthrow a democratically elected government in Bolivia and installed someone who got almost no votes. No one here cared. 

So the question is if the U.S. and a few inconsequential puppets stopped buying stuff from China, would it prompt its leadership to show more respect for human rights? Be serious.

Okay, but the pandemic spread from China and this was in part because its government withheld information about the spread of the disease. That’s true and what does it have to do with our ties to China. I suppose if we had no trade and travel with China then we would have had to get the pandemic from somewhere else, which seems to be the case.

Alright, so we would have gotten the pandemic here even if we didn’t rely on China for anything. But when we were first hit with the pandemic we were short of items like face masks and other protective gear, which we were importing from China.

This is a common gotcha for those arguing the case against China reliance. But this actually shows nothing. We had a shortage of protective gear because we had not stockpiled it and saw a sudden surge in demand. The problem was that we had not stockpiled protective gear, not that it was coming from China. Suppose we made all our protective gear in the good old USA, could our factories suddenly ramp up production by a factor of five or ten? Not on this planet they couldn’t. So this argument about reliance on China is an argument about maintaining stockpiles of important medical gear.

What about other items where our supply chain was interrupted because China reduced or stopped production back in January or February? Well, there were some spot shortages of some items, but these were mostly inconveniences. Did people find themselves unable to buy cars, washing machines, iPhones, or anything else during the last five months? (Okay, toilet paper was in short supply, but I don’t think we can blame China.) And, for those folks who may have missed it, we also had some factories shut down here.

There are issues about our trade with China that I, and others, have raised. Most importantly, China has maintained an under-valued currency that allows them to undercut U.S. manufacturers and cost us millions of good-paying manufacturing jobs. For better or worse, this is a historical issue, not a present-day one.

Insofar as we have regained manufacturing jobs in the last decade (before the pandemic hit), they have not been good-paying union jobs.  In fact, they are little better paying than jobs in other sectors. If a new manufacturing job does not pay much more than a job in retail or restaurants, then there is no particular reason to be concerned about manufacturing jobs. In my book, we should want to make all jobs good-paying jobs.

Then we get to the issue about China stealing “our” intellectual property. Well, this is a great concern for the people who want to redistribute even more money upward. The “our” in that story is not the person serving food in a restaurant or cleaning toilets in a hotel. It refers to the privileged group in a position to benefit from stronger and longer patent monopolies, copyright monopolies, and other forms of intellectual property.

For my part, I am happy if China doesn’t respect Microsoft’s copyrights and Pfizer’s patents. That would be great if billions of people in China and elsewhere can get cheaper computers and software and even better if all drugs were sold around the world as cheap generics. I realize that most “liberals” in this country want to protect their incomes and those of their friends, but I care more about the non-rich both here and in the rest of the world. So I won’t be joining the China-bashing on this one.

The long and short is the story that the pandemic taught us some lessons about relying on China is utter nonsense, with no foundation in reality. In this way, it is very similar to the story about how we risked a Second Great Depression in 2008-09 if we didn’t save the banks. In both cases, the story was nearly universally accepted in policy circles, although no one could coherently argue the case. And, in both cases the story advanced the central policy concern of people in Washington, making the rich richer.

 

I want to do a bit more beating up on a NYT piece this morning on breaking ties with China. There is a widely held view in policy circles that the pandemic showed that our extensive economic ties with China are a bad thing. I will ask a simple question, how?

First to get over some obvious points, yes, China has an authoritarian government that does not respect basic human rights. That is true, but what exactly do we hope to do about it? If we cut our imports from China by half or even put a complete embargo on them, do we think it will improve their human rights record?

I suppose we could have more impact if we got most of the rest of the world to go along, but apart from a few puppet states, no one would follow the U.S. in banning trade from China. Everyone knows that the U.S. doesn’t give a damn about democracy. Just last year we helped to overthrow a democratically elected government in Bolivia and installed someone who got almost no votes. No one here cared. 

So the question is if the U.S. and a few inconsequential puppets stopped buying stuff from China, would it prompt its leadership to show more respect for human rights? Be serious.

Okay, but the pandemic spread from China and this was in part because its government withheld information about the spread of the disease. That’s true and what does it have to do with our ties to China. I suppose if we had no trade and travel with China then we would have had to get the pandemic from somewhere else, which seems to be the case.

Alright, so we would have gotten the pandemic here even if we didn’t rely on China for anything. But when we were first hit with the pandemic we were short of items like face masks and other protective gear, which we were importing from China.

This is a common gotcha for those arguing the case against China reliance. But this actually shows nothing. We had a shortage of protective gear because we had not stockpiled it and saw a sudden surge in demand. The problem was that we had not stockpiled protective gear, not that it was coming from China. Suppose we made all our protective gear in the good old USA, could our factories suddenly ramp up production by a factor of five or ten? Not on this planet they couldn’t. So this argument about reliance on China is an argument about maintaining stockpiles of important medical gear.

What about other items where our supply chain was interrupted because China reduced or stopped production back in January or February? Well, there were some spot shortages of some items, but these were mostly inconveniences. Did people find themselves unable to buy cars, washing machines, iPhones, or anything else during the last five months? (Okay, toilet paper was in short supply, but I don’t think we can blame China.) And, for those folks who may have missed it, we also had some factories shut down here.

There are issues about our trade with China that I, and others, have raised. Most importantly, China has maintained an under-valued currency that allows them to undercut U.S. manufacturers and cost us millions of good-paying manufacturing jobs. For better or worse, this is a historical issue, not a present-day one.

Insofar as we have regained manufacturing jobs in the last decade (before the pandemic hit), they have not been good-paying union jobs.  In fact, they are little better paying than jobs in other sectors. If a new manufacturing job does not pay much more than a job in retail or restaurants, then there is no particular reason to be concerned about manufacturing jobs. In my book, we should want to make all jobs good-paying jobs.

Then we get to the issue about China stealing “our” intellectual property. Well, this is a great concern for the people who want to redistribute even more money upward. The “our” in that story is not the person serving food in a restaurant or cleaning toilets in a hotel. It refers to the privileged group in a position to benefit from stronger and longer patent monopolies, copyright monopolies, and other forms of intellectual property.

For my part, I am happy if China doesn’t respect Microsoft’s copyrights and Pfizer’s patents. That would be great if billions of people in China and elsewhere can get cheaper computers and software and even better if all drugs were sold around the world as cheap generics. I realize that most “liberals” in this country want to protect their incomes and those of their friends, but I care more about the non-rich both here and in the rest of the world. So I won’t be joining the China-bashing on this one.

The long and short is the story that the pandemic taught us some lessons about relying on China is utter nonsense, with no foundation in reality. In this way, it is very similar to the story about how we risked a Second Great Depression in 2008-09 if we didn’t save the banks. In both cases, the story was nearly universally accepted in policy circles, although no one could coherently argue the case. And, in both cases the story advanced the central policy concern of people in Washington, making the rich richer.

 

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.

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.

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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