(This post first appeared on my Patreon page.)
We have a lot of economist type people telling us how awful the economy will be once we get through our near-term shutdown period. At the risk of being accused of unwarranted optimism, I am not sure I buy the pessimists’ story.
Before saying anything about the economy, we have to outline where we think our containment efforts are headed. I will throw out my story, which people here who know what they are talking about can correct.
Let’s assume that after two months we have the coronavirus reasonably well-contained. People are still getting sick, but the numbers are much more manageable so that our hospitals are no longer overflowing and health care personal are no longer being worked to exhaustion and beyond.
At least as important, let’s assume that we have testing fairly well advanced so that we can quickly identify people with the disease and both quarantine them and test the people with whom they have been in contact.
We can also envision that we would be able to do some quick checks, that while not conclusive, should be able to substantially reduce the likelihood of an infected person entering a public place. To give an example, my wife and I visited a doctor’s office yesterday (not coronavirus related). We had our temperatures checked before we entered and were asked a series of questions about our own health and the people with whom we had been in contact.
This sort of testing is hardly foolproof, recently infected people generally won’t have fevers, and people may not be truthful about their health or their contacts, but this sort of simple check should screen out a substantial share of the people who are infected. I would also be fairly confident that we can develop better techniques over the period of the shutdown. Anyhow, checks of this sort should allow most businesses to reopen with the requirement that they have people stationed at the door whenever the business is open, so that in principle no one can enter without going through this sort of check.
Those pushing negative views on the post-pandemic economy generally highlight the situation of heavily indebted businesses that face bankruptcy. Clearly, there were many businesses that were heavily indebted prior to the crisis, although this burden was often exaggerated by those who focused on debt rather than interest burdens. We have been in a period of extraordinarily low interest rates, so it is not surprising that many businesses would take on a large amount of debt, since more debt can be serviced at a lower interest rate.
It is also wrong to imagine that bankruptcy is the end of the world. Businesses that are otherwise viable can and do operate through bankruptcies. (Most of our major airlines have been through at least one bankruptcy.) There will undoubtedly be a huge mess sorting out unpaid bills when the lockdown period ends (look to a boon for the accounting industry). It would be helpful if states (mostly a state issue) passed simplifying rules to cover loss-sharing over the shutdown period, but the idea that large numbers of businesses will be unable to reopen due to debt simply does not make sense.
Even apart from bankruptcy, a creditor has no interest in forcing an otherwise viable business to shut down. It is better for the business to be able to operate and allow the creditor to recover some of their debt than to shut it down and hope to get a few dollars from selling the scraps.
We have seen a lot of talk about how the plunge in the stock market will pose a huge blow to households and pension funds. Most households actually have little or no money in the stock market, but the important point in this discussion is that, even with the recent plunge, the market is still (April 2) roughly 17 percent above its level of five years ago. That is not a great return, but not too much worse than investors had a right to expect. So, the idea that the drop in the market is leaving everyone destitute does not make much sense. It essentially means that they don’t have as much money as they would like.
From the standpoint of households, most should come through a two-month shutdown period in pretty good financial shape. The rescue package will do a decent job keeping most people whole, through the loans to small businesses maintaining their payroll, the relatively generous unemployment benefits, and the $1,200 per person checks. There are many people who will fall through the cracks, most importantly undocumented workers, but the bulk of the workforce should have something close to their pre-crisis income over this period.
At the same time, their spending would have been quite restricted. They have not been able to go to restaurants, movies, travel, or spend on most other items, except bare necessities. If the economy can reopen in June, we are likely to see large numbers of people rushing to do the things they could not do for the prior two months.
This means that restaurants and stores are likely to be flooded with customers. This will also be the case with car dealers and appliance stores, as people will have put off major purchases through the shutdown period. Many businesses will have difficulty dealing with a big surge of customers since they have not retained their staff, and will be forced to hire and train new workers. We are also likely to see a burst of travel as people make up for the prior two months. Also, many conventions and business trips that were scheduled for the shutdown period will be rescheduled for the late summer and fall. On the morbid side, there will be many people who will want to visit with family members after the loss of a loved one.
Will this demand be enough to re-employ all the workers now being laid off? There clearly will be a major sorting out period, but I don’t think it is possible to reach any firm conclusions.
First, hopefully, most workers will have the option to return to their former employers. This will likely be the case where employers had the foresight to keep workers on their payrolls. In cases where they laid-off workers, when they reopen, most will likely be looking to hire roughly the same number of workers that they laid off.
The qualification is that many businesses may have found more efficient ways to do things. This is productivity growth, which is ordinarily a good thing, but perhaps not just now. Some businesses may also not reopen if they were already marginally profitable and/or the owner(s) were getting tired of running a business. On the flip side, if restaurants, stores, airports and other public places all have to hire workers to test and question people before they can enter, this will be a major new source of employment.
It is also likely that some people who were in the workforce in the pre-crisis period will decide not to come back to work. This is especially likely to be the case with older workers who were nearing retirement anyhow. There were 11.6 million employed people between the ages of 60 and 64 before the crisis and 10.8 million over age 65. If 5.0 percent of the former and 10.0 percent of the latter decide to leave the labor force, that would mean 1.7 million fewer potential workers than before the crisis.
I don’t have any simple way of determining how this nets out, but I think it’s important to realize that the stories of weak near recession or even depression economy are not well-founded. It is actually possible that we could be seeing too much demand, as a burst of post-shutdown spending outstrips the immediate capacity of the restaurants, airlines, hotels, and other businesses. In that case, we may actually see a burst of inflation, as these businesses jack up prices in response to excessive demand. Hopefully, the Fed would move cautiously in its response, recognizing this as a one-time jump that will soon be eroded as more capacity on line. But Jerome Powell probably won’t be calling me for advice, and it’s possible to envision a stop-start scenario where the Fed zig zags on interest rates, responding to the immediate economic data.
Of course, we could see a much worse recovery scenario than I have outlined here, especially if we are unable to control the spread of the disease. If we still lack adequate testing two months from now, and we still see the number of cases spiraling out of control, then we would be seeing a much worse scenario. I have no expertise on the likelihood of the different paths of the pandemic, but I would hope the one I have outlined is at least plausible.
Anyhow, my main point here is that I don’t believe the folks predicting a bad recession following our period of shutdown have really thought through the picture carefully. This matters for policy now as we discuss plans for a new spending bill. Since we don’t know the economy will be suffering from a shortfall in demand, generic spending is not advisable at this point.
At the same time, there are needs that should be addressed. We certainly need to spend more ensuring adequate supplies of medical equipment, protective gear, and training more medical personal to help in the crisis. (In the last category, we can quickly train people to do mundane tasks like changing bedding and cleaning surfaces that will free up time for more highly-trained medical professionals.) State and local governments are seeing an unprecedented collapse in revenue at the same time they seeing an explosion in demand for their services. They need far more money than was appropriated in the last bill.
These should be our priorities. If we want to spend more, it should be in our areas where more spending would be valuable whether or not the economy needs stimulus, such as clean energy, child care, and conservation. But we definitely should not commit ourselves to large amounts of spending for the sake of spending. That definitely made sense in the 2008-2009 recession, it is not clear it does now.
(This post first appeared on my Patreon page.)
We have a lot of economist type people telling us how awful the economy will be once we get through our near-term shutdown period. At the risk of being accused of unwarranted optimism, I am not sure I buy the pessimists’ story.
Before saying anything about the economy, we have to outline where we think our containment efforts are headed. I will throw out my story, which people here who know what they are talking about can correct.
Let’s assume that after two months we have the coronavirus reasonably well-contained. People are still getting sick, but the numbers are much more manageable so that our hospitals are no longer overflowing and health care personal are no longer being worked to exhaustion and beyond.
At least as important, let’s assume that we have testing fairly well advanced so that we can quickly identify people with the disease and both quarantine them and test the people with whom they have been in contact.
We can also envision that we would be able to do some quick checks, that while not conclusive, should be able to substantially reduce the likelihood of an infected person entering a public place. To give an example, my wife and I visited a doctor’s office yesterday (not coronavirus related). We had our temperatures checked before we entered and were asked a series of questions about our own health and the people with whom we had been in contact.
This sort of testing is hardly foolproof, recently infected people generally won’t have fevers, and people may not be truthful about their health or their contacts, but this sort of simple check should screen out a substantial share of the people who are infected. I would also be fairly confident that we can develop better techniques over the period of the shutdown. Anyhow, checks of this sort should allow most businesses to reopen with the requirement that they have people stationed at the door whenever the business is open, so that in principle no one can enter without going through this sort of check.
Those pushing negative views on the post-pandemic economy generally highlight the situation of heavily indebted businesses that face bankruptcy. Clearly, there were many businesses that were heavily indebted prior to the crisis, although this burden was often exaggerated by those who focused on debt rather than interest burdens. We have been in a period of extraordinarily low interest rates, so it is not surprising that many businesses would take on a large amount of debt, since more debt can be serviced at a lower interest rate.
It is also wrong to imagine that bankruptcy is the end of the world. Businesses that are otherwise viable can and do operate through bankruptcies. (Most of our major airlines have been through at least one bankruptcy.) There will undoubtedly be a huge mess sorting out unpaid bills when the lockdown period ends (look to a boon for the accounting industry). It would be helpful if states (mostly a state issue) passed simplifying rules to cover loss-sharing over the shutdown period, but the idea that large numbers of businesses will be unable to reopen due to debt simply does not make sense.
Even apart from bankruptcy, a creditor has no interest in forcing an otherwise viable business to shut down. It is better for the business to be able to operate and allow the creditor to recover some of their debt than to shut it down and hope to get a few dollars from selling the scraps.
We have seen a lot of talk about how the plunge in the stock market will pose a huge blow to households and pension funds. Most households actually have little or no money in the stock market, but the important point in this discussion is that, even with the recent plunge, the market is still (April 2) roughly 17 percent above its level of five years ago. That is not a great return, but not too much worse than investors had a right to expect. So, the idea that the drop in the market is leaving everyone destitute does not make much sense. It essentially means that they don’t have as much money as they would like.
From the standpoint of households, most should come through a two-month shutdown period in pretty good financial shape. The rescue package will do a decent job keeping most people whole, through the loans to small businesses maintaining their payroll, the relatively generous unemployment benefits, and the $1,200 per person checks. There are many people who will fall through the cracks, most importantly undocumented workers, but the bulk of the workforce should have something close to their pre-crisis income over this period.
At the same time, their spending would have been quite restricted. They have not been able to go to restaurants, movies, travel, or spend on most other items, except bare necessities. If the economy can reopen in June, we are likely to see large numbers of people rushing to do the things they could not do for the prior two months.
This means that restaurants and stores are likely to be flooded with customers. This will also be the case with car dealers and appliance stores, as people will have put off major purchases through the shutdown period. Many businesses will have difficulty dealing with a big surge of customers since they have not retained their staff, and will be forced to hire and train new workers. We are also likely to see a burst of travel as people make up for the prior two months. Also, many conventions and business trips that were scheduled for the shutdown period will be rescheduled for the late summer and fall. On the morbid side, there will be many people who will want to visit with family members after the loss of a loved one.
Will this demand be enough to re-employ all the workers now being laid off? There clearly will be a major sorting out period, but I don’t think it is possible to reach any firm conclusions.
First, hopefully, most workers will have the option to return to their former employers. This will likely be the case where employers had the foresight to keep workers on their payrolls. In cases where they laid-off workers, when they reopen, most will likely be looking to hire roughly the same number of workers that they laid off.
The qualification is that many businesses may have found more efficient ways to do things. This is productivity growth, which is ordinarily a good thing, but perhaps not just now. Some businesses may also not reopen if they were already marginally profitable and/or the owner(s) were getting tired of running a business. On the flip side, if restaurants, stores, airports and other public places all have to hire workers to test and question people before they can enter, this will be a major new source of employment.
It is also likely that some people who were in the workforce in the pre-crisis period will decide not to come back to work. This is especially likely to be the case with older workers who were nearing retirement anyhow. There were 11.6 million employed people between the ages of 60 and 64 before the crisis and 10.8 million over age 65. If 5.0 percent of the former and 10.0 percent of the latter decide to leave the labor force, that would mean 1.7 million fewer potential workers than before the crisis.
I don’t have any simple way of determining how this nets out, but I think it’s important to realize that the stories of weak near recession or even depression economy are not well-founded. It is actually possible that we could be seeing too much demand, as a burst of post-shutdown spending outstrips the immediate capacity of the restaurants, airlines, hotels, and other businesses. In that case, we may actually see a burst of inflation, as these businesses jack up prices in response to excessive demand. Hopefully, the Fed would move cautiously in its response, recognizing this as a one-time jump that will soon be eroded as more capacity on line. But Jerome Powell probably won’t be calling me for advice, and it’s possible to envision a stop-start scenario where the Fed zig zags on interest rates, responding to the immediate economic data.
Of course, we could see a much worse recovery scenario than I have outlined here, especially if we are unable to control the spread of the disease. If we still lack adequate testing two months from now, and we still see the number of cases spiraling out of control, then we would be seeing a much worse scenario. I have no expertise on the likelihood of the different paths of the pandemic, but I would hope the one I have outlined is at least plausible.
Anyhow, my main point here is that I don’t believe the folks predicting a bad recession following our period of shutdown have really thought through the picture carefully. This matters for policy now as we discuss plans for a new spending bill. Since we don’t know the economy will be suffering from a shortfall in demand, generic spending is not advisable at this point.
At the same time, there are needs that should be addressed. We certainly need to spend more ensuring adequate supplies of medical equipment, protective gear, and training more medical personal to help in the crisis. (In the last category, we can quickly train people to do mundane tasks like changing bedding and cleaning surfaces that will free up time for more highly-trained medical professionals.) State and local governments are seeing an unprecedented collapse in revenue at the same time they seeing an explosion in demand for their services. They need far more money than was appropriated in the last bill.
These should be our priorities. If we want to spend more, it should be in our areas where more spending would be valuable whether or not the economy needs stimulus, such as clean energy, child care, and conservation. But we definitely should not commit ourselves to large amounts of spending for the sake of spending. That definitely made sense in the 2008-2009 recession, it is not clear it does now.
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Folks probably recall that the federal government “made money” from the last bailout. Guess what? We’re going to make money from this one too.
Let’s go through the simple logic here. The federal government is by far the lowest cost borrower in the country. It can borrow right now at an average interest rate of roughly 0.5 percent. (That’s averaging short-term and long-term rates.) It is going to lend to the bailout beneficiaries at a higher rate, let’s say 4.0 percent. This means that it will net 3.5 percent annually on the money it lends out.
So, if we take the $17 billion designated for Boeing in the rescue package and assume it is borrowed for a year (it may be considerably longer), then we will make $595 million on this bailout. Sounds great doesn’t it?
But let’s step back for a second. The government can lend money to anyone in this crisis. If Boeing is borrowing from the government at a 4.0 percent interest rate, then it is because it would have to pay more to borrow in the private market. Let’s say it would cost 9.0 percentage points to borrow in the private market. This means that we effectively subsidized the loan by 5.0 percentage points (9.0 percent minus 4.0 percent). That is the same as handing Boeing $500 million on its one-year loan.
If this is hard to understand, suppose I had a home that I paid $150,000 for. Imagine that I could sell it for $250,000 on the market, but I chose to sell it to a friend for $200,000. While I still made $50,000 on the home (I got $200,000 from my friend, but only paid $150,000), I effectively gave my friend $50,000.
In this case Boeing is our friend since it is in the privileged position of being able to borrow at below-market interest rates. In the Great Recession, Goldman Sachs, Citigroup and the other big banks were our friends.
Of course, in principle, there is the risk that these businesses will go under and not be able to repay their loans. In the Great Recession that risk was essentially zero. As then-Treasury Secretary Timothy Geithner wrote in his autobiography, he was not going to allow any more Lehmans. If any of the major banks were threatened with failure, he would give them enough of the taxpayers’ dollars to keep them going. Eventually, getting below-market interest rate loans from the government, coupled with a fairly explicit government guarantee of solvency, will allow even a seriously underwater bank to get back in the black. This is the story of the 2008-09 bailouts.
Can we be assured that Boeing will be able to survive to pay back its loans? My personal bet is that, if $17 billion is not enough to get it through, there will be Round II and Round III of the rescue, so that eventually our politicians and hack columnists will be able to say that we made a profit on the bailout.
So folks, you should be happy that we are bailing out all these big corporations. We’re going to make money on it!
Folks probably recall that the federal government “made money” from the last bailout. Guess what? We’re going to make money from this one too.
Let’s go through the simple logic here. The federal government is by far the lowest cost borrower in the country. It can borrow right now at an average interest rate of roughly 0.5 percent. (That’s averaging short-term and long-term rates.) It is going to lend to the bailout beneficiaries at a higher rate, let’s say 4.0 percent. This means that it will net 3.5 percent annually on the money it lends out.
So, if we take the $17 billion designated for Boeing in the rescue package and assume it is borrowed for a year (it may be considerably longer), then we will make $595 million on this bailout. Sounds great doesn’t it?
But let’s step back for a second. The government can lend money to anyone in this crisis. If Boeing is borrowing from the government at a 4.0 percent interest rate, then it is because it would have to pay more to borrow in the private market. Let’s say it would cost 9.0 percentage points to borrow in the private market. This means that we effectively subsidized the loan by 5.0 percentage points (9.0 percent minus 4.0 percent). That is the same as handing Boeing $500 million on its one-year loan.
If this is hard to understand, suppose I had a home that I paid $150,000 for. Imagine that I could sell it for $250,000 on the market, but I chose to sell it to a friend for $200,000. While I still made $50,000 on the home (I got $200,000 from my friend, but only paid $150,000), I effectively gave my friend $50,000.
In this case Boeing is our friend since it is in the privileged position of being able to borrow at below-market interest rates. In the Great Recession, Goldman Sachs, Citigroup and the other big banks were our friends.
Of course, in principle, there is the risk that these businesses will go under and not be able to repay their loans. In the Great Recession that risk was essentially zero. As then-Treasury Secretary Timothy Geithner wrote in his autobiography, he was not going to allow any more Lehmans. If any of the major banks were threatened with failure, he would give them enough of the taxpayers’ dollars to keep them going. Eventually, getting below-market interest rate loans from the government, coupled with a fairly explicit government guarantee of solvency, will allow even a seriously underwater bank to get back in the black. This is the story of the 2008-09 bailouts.
Can we be assured that Boeing will be able to survive to pay back its loans? My personal bet is that, if $17 billion is not enough to get it through, there will be Round II and Round III of the rescue, so that eventually our politicians and hack columnists will be able to say that we made a profit on the bailout.
So folks, you should be happy that we are bailing out all these big corporations. We’re going to make money on it!
Read More Leer más Join the discussion Participa en la discusión
Read More Leer más Join the discussion Participa en la discusión
Read More Leer más Join the discussion Participa en la discusión
Read More Leer más Join the discussion Participa en la discusión
With Joe Biden now looking like the certain Democratic presidential nominee, it is pretty clear that we will not get to Medicare for All in a single step. Even if Sanders had won it would have been a long shot, but without a president committed to the program, there is not even a possibility.
Still, we can look for ways to get to M4A incrementally, with the idea that we will make progress wherever and whenever we can. In order to do this, we need policies that can be politically feasible even without a M4A advocate leading the charge in the White House. In order to maintain momentum, these incremental steps must offer real and visible gains. They also should be stepping stones that advance us toward the goal of M4A.
With this in mind, I would recommend four policies:
Starting with the simplest, lowering the Medicare age to 64 might sound trivial, but it is likely to be a big deal politically and mean a lot to millions of people.[1] In terms of politics, there are millions of people in their early sixties with, either or both, bad health and questionable access to health insurance. For these people, hitting the Medicare age is a huge relief, since they finally know that most of their health care expenses will be covered.
Lowering the age by a year moves that date closer. For someone who is 62, it means waiting two years rather than three years. That has to sound a lot better to millions of people. And, to add an important consideration, these people vote in very high numbers. This is a change that is likely to make many people very grateful.
Lowering the age by one year should also provide a great lesson in the difficulties in extending Medicare by one year. This will roughly double the number of people who are newly enrolled in a given year. We will be able to see the difficulties in expanding coverage. Clearly, there will be some, and it will be good to know what they are with a relatively small expansion, so that we can be better prepared for a larger expansion in future years.
The expense of adding an additional year of coverage is likely to be limited, probably between $10-20 billion annually (0.2-0.4 percent of federal spending). This age group will be healthier than the average Medicare beneficiary. Furthermore, most of the people in this age group with high expenses are likely already receiving government-funded health care, either through Medicaid or already qualify for Medicare through the Social Security disability program.
This step will also show people that expanding Medicare eligibility is possible. If the age reduction is done successfully, people will inevitably ask why can’t we go further. Ideally, we would be prepared to lower the age to 62 or 60 in a relatively short period after the successful completion of a simple one-year reduction.
Also, from a political perspective, a one-year reduction in the age of eligibility may be the sort of step that a centrist Democrat like Joe Biden might be persuaded to try. And, in terms of getting this through the Senate, one could imagine a Joe Manchin going along with it.
While the administrative costs and profits associated with our private health insurance system are a source of enormous waste, the fact that we pay twice as much for everything as people in other countries is an even larger source of waste. This is true pretty much across the board, we pay twice as much for our drugs, twice as much for our medical equipment, and twice as much for our doctors. If we got these costs in line with what other countries pay, the savings would be in the neighborhood of $350 billion to $400 billion a year, or $2,700 to $3,000 per family.
The story with drugs and medical equipment is straightforward; we give these industries patent monopolies and then allow them to charge whatever they want. By contrast, every other wealthy country imposes some sort of price control or negotiates prices with these companies. If we did the same in the United States, we would pay similar prices.
However, we can and should go much further. The patent monopoly system is an incredibly inefficient mechanism for supporting innovation, especially in the health care sector. None of the normal logic of the benefits of consumer choice applies here. There almost always is a third-party payer for drugs or medical equipment (either the government or an insurer) so the idea that we are somehow measuring consumers’ willingness to pay is basically nuts. What drug companies can get away with charging is overwhelming a political decision.
Furthermore, there are enormous problems of asymmetric information. The drug companies know far more about their drugs than patients or doctors. Patent monopolies gives them enormous incentives to conceal evidence that their drugs are less effective than claimed or even harmful. We see this all the time, most obviously in the case of the opioid crisis where drug manufacturers deliberately misled doctors about the addictiveness of their drugs. The costs in terms of needless deaths and ruined lives has been enormous. The opioid example is an extreme case, but misrepresenting evidence to promote sales is standard practice. These are the sort of abuses that anyone who took an intro econ course would expect when the government creates a monopoly in a market.
There is an alternative to patent monopoly financing of research. The government already spends more than $40 billion a year in biomedical research through the National Institutes of Health. We can double or triple this amount to replace the $70 billion or so of patent-supported research done by the industry.[2] Under a publicly funded system, private drug companies could still do the research, but the condition of getting money is that all research is made fully public as soon as practical (the model here is the Bermuda Principles for the Human Genome Project) and all patents are placed in the public domain. This means that new drugs would be sold as cheap generics from the first day they are introduced into the market.
Having all research fully open should substantially hasten medical progress. Researchers everywhere in the world would be able to quickly benefit from learning of the successes and failures of colleagues working elsewhere. This would certainly be an enormous help in a case like the coronavirus where scientists researching treatments and vaccines would be sharing findings rather than hoping to win a patent race.
If all drugs were sold as generics from the first day, that would save us more than $400 billion a year. If we had the same practice with medical equipment and supplies the savings would rise to around $600 billion a year, more than 15 percent of health care spending. In addition to yielding enormous savings, having these items sold in a free market would change the way medical practitioners thought about their work. There would be no reason ever to not use the best drug or recommend the best scan for a patient when the cost differences would be trivial.
Drugs are rarely expensive to manufacture and the same is true of medical equipment. Why wouldn’t a doctor prescribe the best drug if it carried a price tag of $20 or $30, rather than $20,000 or $30,000?
The best thing about going this route is that it can be done incrementally. We could appropriate money for developing drugs in specific areas, like heart disease or cancer. The drugs produced would all be cheap and all the test results from clinical trials would be fully public. People would then be able to see that public funding could produce great innovations and that drugs are cheap. The industry could even keep patent monopolies on the research it funded. The only problem is that they may find that the new drug they hoped to sell for $200,000 is competing against a generic that is every bit as good and sells for 0.1 percent of this price.
The last major area where are prices are grossly out of line is the pay of physicians and dentists. They get roughly twice as much as their counterparts in other wealthy countries. If we got the pay of our physicians and dentists down to the levels in places like Germany and Canada we would save roughly $100 billion a year or $700 per family.
The high pay of these professionals is due to good old-fashioned protectionism. Licensing restrictions prevent competition from both qualified foreign doctors and dentists and lesser paid health professionals like nurse practitioners and dental hygienists.
The route to getting the pay for these professionals in line with their counterparts in other wealthy countries is to weaken or find ways around these restrictions.[3] Just this week, one of these restrictions was removed when the government allowed doctors who had not completed a U.S. residency program to practice here. This is a great precedent. We can have requirements that ensure competence, but allow many more doctors to practice here. We can also broaden the scope of practice rules to allow other health care professionals to carry through tasks for which they are qualified.
We can also encourage people to take advantage of lower-cost health care elsewhere. The cost of major medical procedures is a fraction of the cost in the United States. Major procedures that can cost $100,000 or $200,000 here, can often be performed for 10-20 percent of this price in places like Canada and Germany. If we allowed people to travel to these countries (with a family member) and share in the savings, it would both lead to direct savings and also educate people about the fact that people get high-quality health care in other countries for a fraction of the price here.
Are these steps at lowering input costs politically feasible? Well, the affected industries and doctors and dentists lobby will fight like crazy, but we can put them on difficult political turf. In the case of drugs, we would be starting with relatively small sums of research spending (relative to the federal budget).
The industry, which is the biggest lobbyist for NIH funding, has to claim that public funding for the development and testing of new drugs would be the same thing as throwing money in the toilet. It seems kind of hard to argue that the dollars currently spent at NIH are tremendously valuable but additional funding to support later stages of development (which already often happens with NIH funding) is a complete waste. If we do get a foot in the door with funding in some important health areas, and people can see new effective drugs selling as cheap generics, it would likely create powerful momentum for going further down this road.
The doctors’ lobby will go nuts at anything that threatens their income (the worst hate mail I ever have received has been from doctors or people claiming to be doctors), but here too we can move forward with baby steps. Are the doctors going to try to prevent people from going to other countries and take advantage of lower-cost care? That would seem to put them in an awkward position. In the health care emergency we are now facing, the federal government is allowing doctors who have not passed a U.S. residency program to practice in the United States. Assuming we don’t see bad outcomes, this could be made permanent.
Substantially lowering the income of drug companies, medical equipment makers and doctors and dentists will be a huge lift politically, but it is hard to defend government interventions that have the sole purpose of transferring money from everyone else to these groups. That is the world we see now and we should be able to find ways to incrementally move away from it.
Many people are not aware of the extent to which the quality of the traditional Medicare program has deteriorated in recent decades. This is the direct result of efforts to sabotage the traditional Medicare program in order to drive people into private Medicare Advantage plans. Nearly 40 percent of new beneficiaries opt for Medicare Advantage. If they do go into the traditional Medicare program, most non-Medicaid eligible people buy private supplemental insurance, another money-making opportunity for private insurers.
The most immediate fix to the traditional Medicare program would be to have an out-of-pocket cap on spending. This is actually required for Medicare Advantage plans, but for some reason, no cap was ever put in place for traditional Medicare. We can start with a cap of $6,000, which is roughly the cap for Medicare Advantage. As we move towards the more comprehensive system envisioned by proponents of Medicare for All, this cap can be lowered, but the first step is simply to have a cap in place comparable to the cap for Medicare Advantage plans.
The second important fix is to roll part D drug benefits into the traditional Medicare program. Requiring a separate insurance package for prescription drugs makes little sense except as a way to force beneficiaries to give money to the insurance industry. Stand-alone prescription drug insurance plans do not exist in the private sector; it is absurd that the Bush administration insisted on going this route on 2003 as a condition of providing a prescription drug benefit.
It would also be desirable to merge Medicare Part A and Part B as part of a single system, to reduce complexity. This would require some fundamental revamping of the program (Part A is financed by the designated payroll tax, while Part B is paid partly by premiums and mostly out of general revenue), but this revamping will be necessary at some point in the movement towards Medicare for All in any case. Even if Part A and Part B are not immediately merged for current beneficiaries, they should certainly be merged for those opting to buy into the program.
Also, the scope of Medicare coverage has to be expanded to include all health care. This means adding in coverage for dental, hearing aids, and other items that were deemed less important when the program was created almost sixty years ago.
Finally, if we can’t eliminate the private Medicare Advantage plans, we should at least eliminate the effective subsidies they enjoy as a result of “upcoding” their enrollees. Medicare reimburses Medicare Advantage plans based on the health of the people they have enrolled. Recent research indicates Medicare Advantage plans systematically upcode their enrollees, implying their health is worse than is actually the case. This upcoding increases payments by as much as 16 percent.
The program should move quickly to end these excess payments. One route would be to assume that the insurers lie about the health of their enrollees and adjust payments according. For example, if the average overpayment is found to be 10 percent, then the payment to Medicare Advantage plans can simply be reduced by 10 percent.
Alternatively, improper coding of enrollees could be treated like the fraud which it is. This would mean severe civil penalties for the companies that engage in the practice and possible criminal penalties for the corporate executives that design the policy. There are plenty of people in prison for stealing cars that might be worth just a few thousand dollars. There is no reason that insurance executives, who might be stealing tens of millions from Medicare, should not face punishment that is at least as harsh.
We should also merge Medicare and Medicaid. There is no reason for the government to run parallel health care programs, one for seniors and the disabled, and one for low-income people. There will be problems with this sort of merger since states administer the Medicaid program, but this would have to be easier to overcome than a quick move to Medicare for All.
In terms of the politics of these changes, all of the improvements and simplifications of Medicare would almost certainly be hugely popular with beneficiaries. Taking away the subsidies for Medicare Advantage plan will be somewhat of a problem, as the insurers who provide these plans will fight vigorously to save their subsidies. There will also be objections by some Medicare beneficiaries to merging Medicare and Medicaid, but with enough new benefits, this can likely be overcome. It is also likely to be the case that hospitals and other providers will be very happy to see a simplification of the billing related to these programs.
After putting in the fixes discussed above (which should be doable over a reasonable time frame), people of all ages should be allowed to buy into the Medicare program, so that the system competes directly with private insurers. This buy-in would be either through the exchanges, with households being able to apply whatever subsidies for which they are eligible under the exchanges, or alternatively through employer-based coverage, with employers able to pay an age-adjusted rate for their workers, as is the case now for private insurers under the Affordable Care Act (ACA).
This buy-in would serve four purposes. First, it should give every person in the country access to a decent insurance plan. A reformed Medicare plan will provide access to a large number of providers and avoid the harassment in paying claims that often proves so profitable for private insurers. It also is likely to provide an attractive option to employers who currently provide insurance for their workers. There is no reason not to allow employers to replace a private plan with Medicare, and undoubtedly many would choose to do so.
The second benefit is that it would provide a serious competitor for private insurers. This is especially important in markets where consolidation of insurers have limited the availability of plans to just one or two insurers. A reformed Medicare plan, if priced at cost, should be an attractive option everywhere.
The third benefit is that a reformed Medicare program, with a buy-in option, should have enormous market power. The existing plan, with 40 million enrollees, already has substantially market power. But if we assume that half of those currently enrolled in Medicare Advantage switch to a reformed Medicare plan, along with 10 percent of the pre-Medicare age population, the reformed Medicare plan would have almost 80 million people enrolled, or just under a quarter of the population.
Since this group includes most of the elderly and disabled, it would account for an even larger share of health care spending. If we add in 60 million Medicaid beneficiaries, we’re up to 140 million people, who would almost certainly account for well more than half of national health care spending, and far more than half in some markets.
This would be such a large share of the market that it is likely that providers in many areas would opt only to deal with Medicare in order to avoid the administrative costs associated with dealing with a variety of smaller insurers. In this way, the administrative efficiencies associated with a single-payer system can go far towards getting us there. There is no reason for providers to want to incur additional expenses to keep insurers happy.
The last advantage of a buy-in is that it would increase people’s familiarity and comfort with getting their insurance through Medicare. It would make the step to a universal Medicare program seem far less drastic.
It’s hard to put any precise time-frame on this sort of incremental approach. While it is desirable to move as fast as possible, taking steps for which we are not prepared administratively will be self-defeating. It could both mean that people are not getting the care they should and it will provide the foes of Medicare for All with powerful ammunition to use to block further changes.
None off the items on this list should be politically impossible, but all will face tremendous opposition. Getting to Medicare for All means confronting the most powerful interest groups in the country. If they are going to be defeated, we have to be able to put them in a position where the only thing they are arguing for is higher incomes for themselves, not the public’s health. This can be done, but it will be a long and difficult task.
[1] I’ll save folks from doing the arithmetic for the cheap joke here. If it takes us 60 years to lower the age one year then it will take us 3900 years to get universal Medicare. Of course if we insist on getting there all at once, and don’t ever have the political force to bring it about, then we will get to universal Medicare exactly never.
[2] I go through some of these numbers here. The fullest picture of my proposed alternative system is probably in chapter 5 of Rigged (it’s free).
[3] As we bring our pay in line with other countries, we should also reduce the cost of medical education here. It is either free or relatively cheap elsewhere. We should also reduce the debt that most medical school graduates accumulated in their training.
With Joe Biden now looking like the certain Democratic presidential nominee, it is pretty clear that we will not get to Medicare for All in a single step. Even if Sanders had won it would have been a long shot, but without a president committed to the program, there is not even a possibility.
Still, we can look for ways to get to M4A incrementally, with the idea that we will make progress wherever and whenever we can. In order to do this, we need policies that can be politically feasible even without a M4A advocate leading the charge in the White House. In order to maintain momentum, these incremental steps must offer real and visible gains. They also should be stepping stones that advance us toward the goal of M4A.
With this in mind, I would recommend four policies:
Starting with the simplest, lowering the Medicare age to 64 might sound trivial, but it is likely to be a big deal politically and mean a lot to millions of people.[1] In terms of politics, there are millions of people in their early sixties with, either or both, bad health and questionable access to health insurance. For these people, hitting the Medicare age is a huge relief, since they finally know that most of their health care expenses will be covered.
Lowering the age by a year moves that date closer. For someone who is 62, it means waiting two years rather than three years. That has to sound a lot better to millions of people. And, to add an important consideration, these people vote in very high numbers. This is a change that is likely to make many people very grateful.
Lowering the age by one year should also provide a great lesson in the difficulties in extending Medicare by one year. This will roughly double the number of people who are newly enrolled in a given year. We will be able to see the difficulties in expanding coverage. Clearly, there will be some, and it will be good to know what they are with a relatively small expansion, so that we can be better prepared for a larger expansion in future years.
The expense of adding an additional year of coverage is likely to be limited, probably between $10-20 billion annually (0.2-0.4 percent of federal spending). This age group will be healthier than the average Medicare beneficiary. Furthermore, most of the people in this age group with high expenses are likely already receiving government-funded health care, either through Medicaid or already qualify for Medicare through the Social Security disability program.
This step will also show people that expanding Medicare eligibility is possible. If the age reduction is done successfully, people will inevitably ask why can’t we go further. Ideally, we would be prepared to lower the age to 62 or 60 in a relatively short period after the successful completion of a simple one-year reduction.
Also, from a political perspective, a one-year reduction in the age of eligibility may be the sort of step that a centrist Democrat like Joe Biden might be persuaded to try. And, in terms of getting this through the Senate, one could imagine a Joe Manchin going along with it.
While the administrative costs and profits associated with our private health insurance system are a source of enormous waste, the fact that we pay twice as much for everything as people in other countries is an even larger source of waste. This is true pretty much across the board, we pay twice as much for our drugs, twice as much for our medical equipment, and twice as much for our doctors. If we got these costs in line with what other countries pay, the savings would be in the neighborhood of $350 billion to $400 billion a year, or $2,700 to $3,000 per family.
The story with drugs and medical equipment is straightforward; we give these industries patent monopolies and then allow them to charge whatever they want. By contrast, every other wealthy country imposes some sort of price control or negotiates prices with these companies. If we did the same in the United States, we would pay similar prices.
However, we can and should go much further. The patent monopoly system is an incredibly inefficient mechanism for supporting innovation, especially in the health care sector. None of the normal logic of the benefits of consumer choice applies here. There almost always is a third-party payer for drugs or medical equipment (either the government or an insurer) so the idea that we are somehow measuring consumers’ willingness to pay is basically nuts. What drug companies can get away with charging is overwhelming a political decision.
Furthermore, there are enormous problems of asymmetric information. The drug companies know far more about their drugs than patients or doctors. Patent monopolies gives them enormous incentives to conceal evidence that their drugs are less effective than claimed or even harmful. We see this all the time, most obviously in the case of the opioid crisis where drug manufacturers deliberately misled doctors about the addictiveness of their drugs. The costs in terms of needless deaths and ruined lives has been enormous. The opioid example is an extreme case, but misrepresenting evidence to promote sales is standard practice. These are the sort of abuses that anyone who took an intro econ course would expect when the government creates a monopoly in a market.
There is an alternative to patent monopoly financing of research. The government already spends more than $40 billion a year in biomedical research through the National Institutes of Health. We can double or triple this amount to replace the $70 billion or so of patent-supported research done by the industry.[2] Under a publicly funded system, private drug companies could still do the research, but the condition of getting money is that all research is made fully public as soon as practical (the model here is the Bermuda Principles for the Human Genome Project) and all patents are placed in the public domain. This means that new drugs would be sold as cheap generics from the first day they are introduced into the market.
Having all research fully open should substantially hasten medical progress. Researchers everywhere in the world would be able to quickly benefit from learning of the successes and failures of colleagues working elsewhere. This would certainly be an enormous help in a case like the coronavirus where scientists researching treatments and vaccines would be sharing findings rather than hoping to win a patent race.
If all drugs were sold as generics from the first day, that would save us more than $400 billion a year. If we had the same practice with medical equipment and supplies the savings would rise to around $600 billion a year, more than 15 percent of health care spending. In addition to yielding enormous savings, having these items sold in a free market would change the way medical practitioners thought about their work. There would be no reason ever to not use the best drug or recommend the best scan for a patient when the cost differences would be trivial.
Drugs are rarely expensive to manufacture and the same is true of medical equipment. Why wouldn’t a doctor prescribe the best drug if it carried a price tag of $20 or $30, rather than $20,000 or $30,000?
The best thing about going this route is that it can be done incrementally. We could appropriate money for developing drugs in specific areas, like heart disease or cancer. The drugs produced would all be cheap and all the test results from clinical trials would be fully public. People would then be able to see that public funding could produce great innovations and that drugs are cheap. The industry could even keep patent monopolies on the research it funded. The only problem is that they may find that the new drug they hoped to sell for $200,000 is competing against a generic that is every bit as good and sells for 0.1 percent of this price.
The last major area where are prices are grossly out of line is the pay of physicians and dentists. They get roughly twice as much as their counterparts in other wealthy countries. If we got the pay of our physicians and dentists down to the levels in places like Germany and Canada we would save roughly $100 billion a year or $700 per family.
The high pay of these professionals is due to good old-fashioned protectionism. Licensing restrictions prevent competition from both qualified foreign doctors and dentists and lesser paid health professionals like nurse practitioners and dental hygienists.
The route to getting the pay for these professionals in line with their counterparts in other wealthy countries is to weaken or find ways around these restrictions.[3] Just this week, one of these restrictions was removed when the government allowed doctors who had not completed a U.S. residency program to practice here. This is a great precedent. We can have requirements that ensure competence, but allow many more doctors to practice here. We can also broaden the scope of practice rules to allow other health care professionals to carry through tasks for which they are qualified.
We can also encourage people to take advantage of lower-cost health care elsewhere. The cost of major medical procedures is a fraction of the cost in the United States. Major procedures that can cost $100,000 or $200,000 here, can often be performed for 10-20 percent of this price in places like Canada and Germany. If we allowed people to travel to these countries (with a family member) and share in the savings, it would both lead to direct savings and also educate people about the fact that people get high-quality health care in other countries for a fraction of the price here.
Are these steps at lowering input costs politically feasible? Well, the affected industries and doctors and dentists lobby will fight like crazy, but we can put them on difficult political turf. In the case of drugs, we would be starting with relatively small sums of research spending (relative to the federal budget).
The industry, which is the biggest lobbyist for NIH funding, has to claim that public funding for the development and testing of new drugs would be the same thing as throwing money in the toilet. It seems kind of hard to argue that the dollars currently spent at NIH are tremendously valuable but additional funding to support later stages of development (which already often happens with NIH funding) is a complete waste. If we do get a foot in the door with funding in some important health areas, and people can see new effective drugs selling as cheap generics, it would likely create powerful momentum for going further down this road.
The doctors’ lobby will go nuts at anything that threatens their income (the worst hate mail I ever have received has been from doctors or people claiming to be doctors), but here too we can move forward with baby steps. Are the doctors going to try to prevent people from going to other countries and take advantage of lower-cost care? That would seem to put them in an awkward position. In the health care emergency we are now facing, the federal government is allowing doctors who have not passed a U.S. residency program to practice in the United States. Assuming we don’t see bad outcomes, this could be made permanent.
Substantially lowering the income of drug companies, medical equipment makers and doctors and dentists will be a huge lift politically, but it is hard to defend government interventions that have the sole purpose of transferring money from everyone else to these groups. That is the world we see now and we should be able to find ways to incrementally move away from it.
Many people are not aware of the extent to which the quality of the traditional Medicare program has deteriorated in recent decades. This is the direct result of efforts to sabotage the traditional Medicare program in order to drive people into private Medicare Advantage plans. Nearly 40 percent of new beneficiaries opt for Medicare Advantage. If they do go into the traditional Medicare program, most non-Medicaid eligible people buy private supplemental insurance, another money-making opportunity for private insurers.
The most immediate fix to the traditional Medicare program would be to have an out-of-pocket cap on spending. This is actually required for Medicare Advantage plans, but for some reason, no cap was ever put in place for traditional Medicare. We can start with a cap of $6,000, which is roughly the cap for Medicare Advantage. As we move towards the more comprehensive system envisioned by proponents of Medicare for All, this cap can be lowered, but the first step is simply to have a cap in place comparable to the cap for Medicare Advantage plans.
The second important fix is to roll part D drug benefits into the traditional Medicare program. Requiring a separate insurance package for prescription drugs makes little sense except as a way to force beneficiaries to give money to the insurance industry. Stand-alone prescription drug insurance plans do not exist in the private sector; it is absurd that the Bush administration insisted on going this route on 2003 as a condition of providing a prescription drug benefit.
It would also be desirable to merge Medicare Part A and Part B as part of a single system, to reduce complexity. This would require some fundamental revamping of the program (Part A is financed by the designated payroll tax, while Part B is paid partly by premiums and mostly out of general revenue), but this revamping will be necessary at some point in the movement towards Medicare for All in any case. Even if Part A and Part B are not immediately merged for current beneficiaries, they should certainly be merged for those opting to buy into the program.
Also, the scope of Medicare coverage has to be expanded to include all health care. This means adding in coverage for dental, hearing aids, and other items that were deemed less important when the program was created almost sixty years ago.
Finally, if we can’t eliminate the private Medicare Advantage plans, we should at least eliminate the effective subsidies they enjoy as a result of “upcoding” their enrollees. Medicare reimburses Medicare Advantage plans based on the health of the people they have enrolled. Recent research indicates Medicare Advantage plans systematically upcode their enrollees, implying their health is worse than is actually the case. This upcoding increases payments by as much as 16 percent.
The program should move quickly to end these excess payments. One route would be to assume that the insurers lie about the health of their enrollees and adjust payments according. For example, if the average overpayment is found to be 10 percent, then the payment to Medicare Advantage plans can simply be reduced by 10 percent.
Alternatively, improper coding of enrollees could be treated like the fraud which it is. This would mean severe civil penalties for the companies that engage in the practice and possible criminal penalties for the corporate executives that design the policy. There are plenty of people in prison for stealing cars that might be worth just a few thousand dollars. There is no reason that insurance executives, who might be stealing tens of millions from Medicare, should not face punishment that is at least as harsh.
We should also merge Medicare and Medicaid. There is no reason for the government to run parallel health care programs, one for seniors and the disabled, and one for low-income people. There will be problems with this sort of merger since states administer the Medicaid program, but this would have to be easier to overcome than a quick move to Medicare for All.
In terms of the politics of these changes, all of the improvements and simplifications of Medicare would almost certainly be hugely popular with beneficiaries. Taking away the subsidies for Medicare Advantage plan will be somewhat of a problem, as the insurers who provide these plans will fight vigorously to save their subsidies. There will also be objections by some Medicare beneficiaries to merging Medicare and Medicaid, but with enough new benefits, this can likely be overcome. It is also likely to be the case that hospitals and other providers will be very happy to see a simplification of the billing related to these programs.
After putting in the fixes discussed above (which should be doable over a reasonable time frame), people of all ages should be allowed to buy into the Medicare program, so that the system competes directly with private insurers. This buy-in would be either through the exchanges, with households being able to apply whatever subsidies for which they are eligible under the exchanges, or alternatively through employer-based coverage, with employers able to pay an age-adjusted rate for their workers, as is the case now for private insurers under the Affordable Care Act (ACA).
This buy-in would serve four purposes. First, it should give every person in the country access to a decent insurance plan. A reformed Medicare plan will provide access to a large number of providers and avoid the harassment in paying claims that often proves so profitable for private insurers. It also is likely to provide an attractive option to employers who currently provide insurance for their workers. There is no reason not to allow employers to replace a private plan with Medicare, and undoubtedly many would choose to do so.
The second benefit is that it would provide a serious competitor for private insurers. This is especially important in markets where consolidation of insurers have limited the availability of plans to just one or two insurers. A reformed Medicare plan, if priced at cost, should be an attractive option everywhere.
The third benefit is that a reformed Medicare program, with a buy-in option, should have enormous market power. The existing plan, with 40 million enrollees, already has substantially market power. But if we assume that half of those currently enrolled in Medicare Advantage switch to a reformed Medicare plan, along with 10 percent of the pre-Medicare age population, the reformed Medicare plan would have almost 80 million people enrolled, or just under a quarter of the population.
Since this group includes most of the elderly and disabled, it would account for an even larger share of health care spending. If we add in 60 million Medicaid beneficiaries, we’re up to 140 million people, who would almost certainly account for well more than half of national health care spending, and far more than half in some markets.
This would be such a large share of the market that it is likely that providers in many areas would opt only to deal with Medicare in order to avoid the administrative costs associated with dealing with a variety of smaller insurers. In this way, the administrative efficiencies associated with a single-payer system can go far towards getting us there. There is no reason for providers to want to incur additional expenses to keep insurers happy.
The last advantage of a buy-in is that it would increase people’s familiarity and comfort with getting their insurance through Medicare. It would make the step to a universal Medicare program seem far less drastic.
It’s hard to put any precise time-frame on this sort of incremental approach. While it is desirable to move as fast as possible, taking steps for which we are not prepared administratively will be self-defeating. It could both mean that people are not getting the care they should and it will provide the foes of Medicare for All with powerful ammunition to use to block further changes.
None off the items on this list should be politically impossible, but all will face tremendous opposition. Getting to Medicare for All means confronting the most powerful interest groups in the country. If they are going to be defeated, we have to be able to put them in a position where the only thing they are arguing for is higher incomes for themselves, not the public’s health. This can be done, but it will be a long and difficult task.
[1] I’ll save folks from doing the arithmetic for the cheap joke here. If it takes us 60 years to lower the age one year then it will take us 3900 years to get universal Medicare. Of course if we insist on getting there all at once, and don’t ever have the political force to bring it about, then we will get to universal Medicare exactly never.
[2] I go through some of these numbers here. The fullest picture of my proposed alternative system is probably in chapter 5 of Rigged (it’s free).
[3] As we bring our pay in line with other countries, we should also reduce the cost of medical education here. It is either free or relatively cheap elsewhere. We should also reduce the debt that most medical school graduates accumulated in their training.
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The paper had a short piece touting the unprecedented level of international cooperation and open-sourcing of results surrounding efforts to develop effective vaccines and treatments for the coronavirus. Scientists are quickly posting their findings on the web and not worrying about publications and patent claims.
This is a fantastic development and will almost certainly lead to far more rapid progress in treating and containing the disease. It also should be a lesson for the benefits of open science. There is no reason this sort of international cooperation should not be the standard practice, not only in treating medical problems, but also in developing clean technologies to combat global warming, and developing better crops to combat hunger, and a wide variety of other areas.
Yes, scientists need to be paid, and we can do that as they do their work, through institutions like the National Institutes of Health. The money can even be parceled out through private companies, but the condition is that all results are made public as soon as practical and patents are put in the public domain. (Better yet, if the research has already been disclosed it should not be patentable.)
Anyhow, we know the drug, medical equipment, and chemical industries will hate this one and of course, intellectual types have difficulties with new ideas.
The paper had a short piece touting the unprecedented level of international cooperation and open-sourcing of results surrounding efforts to develop effective vaccines and treatments for the coronavirus. Scientists are quickly posting their findings on the web and not worrying about publications and patent claims.
This is a fantastic development and will almost certainly lead to far more rapid progress in treating and containing the disease. It also should be a lesson for the benefits of open science. There is no reason this sort of international cooperation should not be the standard practice, not only in treating medical problems, but also in developing clean technologies to combat global warming, and developing better crops to combat hunger, and a wide variety of other areas.
Yes, scientists need to be paid, and we can do that as they do their work, through institutions like the National Institutes of Health. The money can even be parceled out through private companies, but the condition is that all results are made public as soon as practical and patents are put in the public domain. (Better yet, if the research has already been disclosed it should not be patentable.)
Anyhow, we know the drug, medical equipment, and chemical industries will hate this one and of course, intellectual types have difficulties with new ideas.
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According to the Washington Post, Donald Trump is calling for a fourth stimulus package, which he wants to be “very big and bold,” and to focus on infrastructure. He argued that this is a good time to do this, since interest rates are very low.
It’s good to see that Donald Trump has discovered infrastructure once again, but there are a few points worth making. First, the prior spending packages are better thought of as disaster relief or economic survival packages. We are trying to cope with a horrible pandemic and to keep people and businesses whole through a period in which much of the economy is shut down.
We really don’t want people to go out and spend money, as would be the case with an ordinary stimulus package. We want people to stay at home, but to be able to pay for their food, rent, and other necessities without the income they would normally get from working.
But it is good idea to think about economic priorities for when the period of shutdown is over, which will hopefully not be too many months in the future. It is not clear that we will need a boost to the economy at that point.
If the effort to contain the coronavirus is largely successful, then we could emerge from the period of shutdown with tens of millions of people having money in their pockets (from the rescue package) and anxious to do the things they have not been able to do for the prior two or three months. This means going out to restaurants, movies, traveling and all sorts of other things. In that context, especially with businesses struggling to rebuild their workforce and get other arrangements in order, we may have too much demand in the economy.
Nonetheless, the focus on infrastructure may still not be a bad plan. Since it takes a long time to get plans in place and projects underway, even if Congress passed a bill next month, almost nothing would be spent in 2020. This is money that would be spent in later years. At that point, even though we perhaps can borrow cheaply today, the infrastructure spending may still lead to higher interest rates in the economy. (This depends on the extent to which we are close to an inflation constraint and the Fed raises rates in response.)
In any case, infrastructure is a good idea, and given the immense problem of global warming, it should be focused on clean energy and conservation. Unfortunately, Donald Trump doesn’t seem to believe in global warming in the same way that he didn’t use to believe in pandemics. But maybe he will be able to learn a little bit in this area also.
According to the Washington Post, Donald Trump is calling for a fourth stimulus package, which he wants to be “very big and bold,” and to focus on infrastructure. He argued that this is a good time to do this, since interest rates are very low.
It’s good to see that Donald Trump has discovered infrastructure once again, but there are a few points worth making. First, the prior spending packages are better thought of as disaster relief or economic survival packages. We are trying to cope with a horrible pandemic and to keep people and businesses whole through a period in which much of the economy is shut down.
We really don’t want people to go out and spend money, as would be the case with an ordinary stimulus package. We want people to stay at home, but to be able to pay for their food, rent, and other necessities without the income they would normally get from working.
But it is good idea to think about economic priorities for when the period of shutdown is over, which will hopefully not be too many months in the future. It is not clear that we will need a boost to the economy at that point.
If the effort to contain the coronavirus is largely successful, then we could emerge from the period of shutdown with tens of millions of people having money in their pockets (from the rescue package) and anxious to do the things they have not been able to do for the prior two or three months. This means going out to restaurants, movies, traveling and all sorts of other things. In that context, especially with businesses struggling to rebuild their workforce and get other arrangements in order, we may have too much demand in the economy.
Nonetheless, the focus on infrastructure may still not be a bad plan. Since it takes a long time to get plans in place and projects underway, even if Congress passed a bill next month, almost nothing would be spent in 2020. This is money that would be spent in later years. At that point, even though we perhaps can borrow cheaply today, the infrastructure spending may still lead to higher interest rates in the economy. (This depends on the extent to which we are close to an inflation constraint and the Fed raises rates in response.)
In any case, infrastructure is a good idea, and given the immense problem of global warming, it should be focused on clean energy and conservation. Unfortunately, Donald Trump doesn’t seem to believe in global warming in the same way that he didn’t use to believe in pandemics. But maybe he will be able to learn a little bit in this area also.
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Ben Smith had a piece on the collapse of the news industry and makes a case that the government will play a role in rescuing journalists, even if it does not rescue specific news outlets. There is a very good argument for this, except most people across the political spectrum would probably not like the idea of the government deciding which journalists get supported.
As Smith has written previously, the obvious answer to have some sort of individual tax credit, where the government gives $100-$200 per person to support the journalist and/or creative workers of their choice. I lump journalists, writers, musicians, and other creative workers together both because they all face the same problem and we don’t want the government to be deciding who fits the bill. The condition of getting the money is that you give up your right to a copyright monopoly on your work. (The government only pays you once, not twice.)
Those who think this is too radical are unfamiliar with the U.S. tax code. We already provide this sort of grant to rich people. If Bill Gates gives $1 million to an art museum or opera, he will get paid $370,000 in the form of an income tax deduction. This is just about giving the same sort of benefit to ordinary people.
This is discussed in chapter 5 of Rigged [it’s free].
Ben Smith had a piece on the collapse of the news industry and makes a case that the government will play a role in rescuing journalists, even if it does not rescue specific news outlets. There is a very good argument for this, except most people across the political spectrum would probably not like the idea of the government deciding which journalists get supported.
As Smith has written previously, the obvious answer to have some sort of individual tax credit, where the government gives $100-$200 per person to support the journalist and/or creative workers of their choice. I lump journalists, writers, musicians, and other creative workers together both because they all face the same problem and we don’t want the government to be deciding who fits the bill. The condition of getting the money is that you give up your right to a copyright monopoly on your work. (The government only pays you once, not twice.)
Those who think this is too radical are unfamiliar with the U.S. tax code. We already provide this sort of grant to rich people. If Bill Gates gives $1 million to an art museum or opera, he will get paid $370,000 in the form of an income tax deduction. This is just about giving the same sort of benefit to ordinary people.
This is discussed in chapter 5 of Rigged [it’s free].
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The New York Times had a good piece examining how Denmark is coping with the coronavirus crisis. According to the piece, the government is paying companies up 75 to 90 percent of workers salaries, provided they don’t lay anyone off. This approach has the great advantage that it keeps workers tied to their employers, so that when the lockdowns end they have a job to go back to. It also means that employers don’t have to hire and train a workforce from scratch.
However, the piece claims that this approach would not be possible in the United States because of the cost.
“But having the government nationalize American payrolls is the sort of idea that may seem as practical as sprinkling the landscape with fairy dust. It would cost untold trillions of dollars, yielding substantially larger budget deficits.”
Actually, this approach would cost no more money than the bill Congress just passed. Total labor compensation in 2019 (this includes all wages and benefits) was $11.4 trillion. Roughly 20 percent of this was paid to the very rich such as CEOs, Wall Street traders and the like. We don’t have to worry about keeping a CEO earning $17 million a year whole through this crisis. This means we are looking at a wage bill of roughly $9 trillion.
Suppose we target replacing 80 percent of this amount, that would give us an annual tab of $7.2 trillion. If we assume that we need to cover 60 percent of the workforce (some people are still working and being paid), that comes to $4.3 trillion. If the lockdown lasts for three months, the tab would be $1.1 trillion, roughly half the size of the bill that passed Congress yesterday.
Clearly cost was not the reason that we did not follow the Danish model.
The New York Times had a good piece examining how Denmark is coping with the coronavirus crisis. According to the piece, the government is paying companies up 75 to 90 percent of workers salaries, provided they don’t lay anyone off. This approach has the great advantage that it keeps workers tied to their employers, so that when the lockdowns end they have a job to go back to. It also means that employers don’t have to hire and train a workforce from scratch.
However, the piece claims that this approach would not be possible in the United States because of the cost.
“But having the government nationalize American payrolls is the sort of idea that may seem as practical as sprinkling the landscape with fairy dust. It would cost untold trillions of dollars, yielding substantially larger budget deficits.”
Actually, this approach would cost no more money than the bill Congress just passed. Total labor compensation in 2019 (this includes all wages and benefits) was $11.4 trillion. Roughly 20 percent of this was paid to the very rich such as CEOs, Wall Street traders and the like. We don’t have to worry about keeping a CEO earning $17 million a year whole through this crisis. This means we are looking at a wage bill of roughly $9 trillion.
Suppose we target replacing 80 percent of this amount, that would give us an annual tab of $7.2 trillion. If we assume that we need to cover 60 percent of the workforce (some people are still working and being paid), that comes to $4.3 trillion. If the lockdown lasts for three months, the tab would be $1.1 trillion, roughly half the size of the bill that passed Congress yesterday.
Clearly cost was not the reason that we did not follow the Danish model.
Read More Leer más Join the discussion Participa en la discusión
