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.

I have largely been in agreement with Paul Krugman in his assessment of the economy over the last dozen years or so, but I think in his latest column he let the promise of a post-Trump era get the better of him. Krugman notes that the distribution of effective vaccines should allow people to return to their normal lives.

He argues that this will lead to a spending boom, as consumers have accumulated savings through the slump and will now be in a position to spend lots of money. As a model he points to the boom in 1983 and 1984 after the Fed lowered interest rates.

While I have not been one of the doomsayers predicting economic collapse, I can’t be as optimistic as Paul on this one. First, just to be clear, Krugman does not at all question the need for immediate and substantial stimulus. In the next few months, with the pandemic spreading largely unchecked until vaccines become widely available, millions of people will be thrown out of work as restaurants, bars and other businesses in the service sector are either forced to close or see demand collapse even if they remain open.

These people will need unemployment benefits, protection from eviction, and other support until the labor market improves. State and local governments will also need massive aid to avoid a further round of layoffs and to provide essential services, including setting guidelines and rules for safe re-openings.

But getting beyond this period, once the vaccines have allowed us to return to normal, will there be a spending spree? Krugman is right about the state of people’s balance sheets. The people who have stayed employed have been doing well. The government gave them $1,200 checks, many have refinanced mortgages often saving a percentage point or more in annual interest. That’s $2,000 a year for someone with a $200,000 mortgage. And, many have been saving money as a result of not commuting to work, eating out at restaurants, or spending on other services.

Still, I don’t see this as a 1983-84 type spending boom for the simple reason that the sectors that drove that boom, housing and car buying, have not been depressed. The boom in those years followed large contractions in home buying and construction, as well as car buying, which were the result of the Fed’s high-interest rate policy.

At the trough of the recession in the third quarter of 1982, residential construction was down more than 40 percent from its peak in 1979. New car sales were down by more than 15 percent. The recovery was driven by the reversal of these drops. By the second quarter of 1984, residential construction was up almost 70 percent from its level of two years earlier. New car sales were almost 50 percent higher than they were in 1981. This was the basis of the 1980s boom.

We can’t tell any comparable story today. Both housing and car sales have done very well through this downturn. Residential construction in the most recent quarter was actually more than 5 percent higher than in the fourth quarter of 2019. Car sales were almost 8.0 percent higher. Clearly, there is no basis for expecting a boom based on pent-up demand in these sectors.

The question is whether we should expect a huge boom in other consumption spending. That doesn’t seem likely to me. We will see people return to restaurants, but do we think they will be eating meals out every night? People will go to gyms and movies again, but this will not create the sort of boom we had in 1983 and 1984. If you look at the various categories of consumption spending, it’s very hard to see anything like the booms in housing and car buying we had after the 1981-82 recession.

So what’s my story? I see many of the changes forced by the pandemic as being permanent. First and foremost, many of the people who were forced to work from home will continue to work from home. Some may move away from the cities where they are working. (We are already seeing this.) We are also likely to see less business travel as meetings and conferences are held over Zoom. We’ll see more telemedicine and, hitting close to home, less in-person classes in colleges and universities.

In many ways, this is great news. People will save hundreds of hours a year on commuting. We will also see large reductions in greenhouse gas emissions by eliminating unnecessary travel. (This will be recorded as a drop in GDP, which is yet another case where GDP is not a good measure of well-being. In effect, we are eliminating work-related expenses that provide little welfare to anyone. I discuss this issue more here.)

The downside in this story is that many of the jobs that were dependent on supporting this commuting economy will not be coming back. We are talking about millions of lost jobs in restaurants, gyms, and other businesses that serve the people who come into the city to work each day. These people will not easily find new jobs.

It is also likely to be the case that the finances of cities like New York, Boston, and others seeing major reductions in their commuting population will be badly strained. This means that they will lack the resources to help displaced workers get new jobs in areas where they are needed, like health care, child care, and clean energy.

The really bad part of this story is that the displaced workers will be overwhelmingly women, Blacks, Hispanics, and others who are disadvantaged in the labor market. These groups had been doing relatively well as the labor market tightened between 2014 and 2020. These gains evaporated with the pandemic. These groups may see this pain enduring long into the future.

So, this is a story of worsening inequality. Large sectors of the population will be doing just fine, but those at the bottom will be getting kicked in the face. I expect a Biden administration will try to help this displaced workforce, but the Republicans in Congress will be celebrating the pain in “Democrat” cities.

I can’t say how this will shape elections in 2022 and 2024. The people who are doing well may be happy and vote for Biden and the Democrats. But if the economy shapes up like I fear, this will not be a story worth celebrating.        

I have largely been in agreement with Paul Krugman in his assessment of the economy over the last dozen years or so, but I think in his latest column he let the promise of a post-Trump era get the better of him. Krugman notes that the distribution of effective vaccines should allow people to return to their normal lives.

He argues that this will lead to a spending boom, as consumers have accumulated savings through the slump and will now be in a position to spend lots of money. As a model he points to the boom in 1983 and 1984 after the Fed lowered interest rates.

While I have not been one of the doomsayers predicting economic collapse, I can’t be as optimistic as Paul on this one. First, just to be clear, Krugman does not at all question the need for immediate and substantial stimulus. In the next few months, with the pandemic spreading largely unchecked until vaccines become widely available, millions of people will be thrown out of work as restaurants, bars and other businesses in the service sector are either forced to close or see demand collapse even if they remain open.

These people will need unemployment benefits, protection from eviction, and other support until the labor market improves. State and local governments will also need massive aid to avoid a further round of layoffs and to provide essential services, including setting guidelines and rules for safe re-openings.

But getting beyond this period, once the vaccines have allowed us to return to normal, will there be a spending spree? Krugman is right about the state of people’s balance sheets. The people who have stayed employed have been doing well. The government gave them $1,200 checks, many have refinanced mortgages often saving a percentage point or more in annual interest. That’s $2,000 a year for someone with a $200,000 mortgage. And, many have been saving money as a result of not commuting to work, eating out at restaurants, or spending on other services.

Still, I don’t see this as a 1983-84 type spending boom for the simple reason that the sectors that drove that boom, housing and car buying, have not been depressed. The boom in those years followed large contractions in home buying and construction, as well as car buying, which were the result of the Fed’s high-interest rate policy.

At the trough of the recession in the third quarter of 1982, residential construction was down more than 40 percent from its peak in 1979. New car sales were down by more than 15 percent. The recovery was driven by the reversal of these drops. By the second quarter of 1984, residential construction was up almost 70 percent from its level of two years earlier. New car sales were almost 50 percent higher than they were in 1981. This was the basis of the 1980s boom.

We can’t tell any comparable story today. Both housing and car sales have done very well through this downturn. Residential construction in the most recent quarter was actually more than 5 percent higher than in the fourth quarter of 2019. Car sales were almost 8.0 percent higher. Clearly, there is no basis for expecting a boom based on pent-up demand in these sectors.

The question is whether we should expect a huge boom in other consumption spending. That doesn’t seem likely to me. We will see people return to restaurants, but do we think they will be eating meals out every night? People will go to gyms and movies again, but this will not create the sort of boom we had in 1983 and 1984. If you look at the various categories of consumption spending, it’s very hard to see anything like the booms in housing and car buying we had after the 1981-82 recession.

So what’s my story? I see many of the changes forced by the pandemic as being permanent. First and foremost, many of the people who were forced to work from home will continue to work from home. Some may move away from the cities where they are working. (We are already seeing this.) We are also likely to see less business travel as meetings and conferences are held over Zoom. We’ll see more telemedicine and, hitting close to home, less in-person classes in colleges and universities.

In many ways, this is great news. People will save hundreds of hours a year on commuting. We will also see large reductions in greenhouse gas emissions by eliminating unnecessary travel. (This will be recorded as a drop in GDP, which is yet another case where GDP is not a good measure of well-being. In effect, we are eliminating work-related expenses that provide little welfare to anyone. I discuss this issue more here.)

The downside in this story is that many of the jobs that were dependent on supporting this commuting economy will not be coming back. We are talking about millions of lost jobs in restaurants, gyms, and other businesses that serve the people who come into the city to work each day. These people will not easily find new jobs.

It is also likely to be the case that the finances of cities like New York, Boston, and others seeing major reductions in their commuting population will be badly strained. This means that they will lack the resources to help displaced workers get new jobs in areas where they are needed, like health care, child care, and clean energy.

The really bad part of this story is that the displaced workers will be overwhelmingly women, Blacks, Hispanics, and others who are disadvantaged in the labor market. These groups had been doing relatively well as the labor market tightened between 2014 and 2020. These gains evaporated with the pandemic. These groups may see this pain enduring long into the future.

So, this is a story of worsening inequality. Large sectors of the population will be doing just fine, but those at the bottom will be getting kicked in the face. I expect a Biden administration will try to help this displaced workforce, but the Republicans in Congress will be celebrating the pain in “Democrat” cities.

I can’t say how this will shape elections in 2022 and 2024. The people who are doing well may be happy and vote for Biden and the Democrats. But if the economy shapes up like I fear, this will not be a story worth celebrating.        

The New York Times had an article discussing the prospects for U.S. trade relations with China during Biden’s presidency. At one point it tells readers:

“Mr. Biden has given few details about his plans for U.S.-China relations, other than saying he wants to recruit American allies such as Europe and Japan to pressure China to make economic reforms, like protecting intellectual property.” 

Stronger and longer patent and copyright protections have redistributed enormous amounts of income upward over the past four decades, likely more than $1 trillion annually (half of all corporate profits). If Biden plans to put stronger enforcement of U.S. intellectual property claims at the center of his trade relations with China, it means he wants to redistribute even more money away from the vast majority of people who voted for him to the richest 10 percent of the population. 

That should be a big deal in a news story on Biden’s trade policy towards China.

The New York Times had an article discussing the prospects for U.S. trade relations with China during Biden’s presidency. At one point it tells readers:

“Mr. Biden has given few details about his plans for U.S.-China relations, other than saying he wants to recruit American allies such as Europe and Japan to pressure China to make economic reforms, like protecting intellectual property.” 

Stronger and longer patent and copyright protections have redistributed enormous amounts of income upward over the past four decades, likely more than $1 trillion annually (half of all corporate profits). If Biden plans to put stronger enforcement of U.S. intellectual property claims at the center of his trade relations with China, it means he wants to redistribute even more money away from the vast majority of people who voted for him to the richest 10 percent of the population. 

That should be a big deal in a news story on Biden’s trade policy towards China.

Washington Post columnist Megan McArdle was anxious to tell readers that drug development in the pandemic has been a great success story. After all, look at all the treatments we have, and now it appears that Pfizer/BioNtech have developed a highly effective vaccine. What could be better than that?

Well, first we need a bit of perspective. Yes, we place an enormous value on our health and our lives, so getting effective treatments and vaccines quickly are extremely important. But we do also care about what we pay to get there.

To take my favorite analogy, the firefighter who goes into a burning building to rescue a couple of children can be said to deserve many millions of dollars. After all, we put a huge value on human life. While firefighters are reasonably well-paid, most of their paychecks don’t cross $100,000. Should we pay all of our firefighters $1 million a year? Perhaps in some sense that would be fair, but the reality is that we can get people to do the work for far less.

And, if we want to talk about payments that are commensurate with the value they provide to society, how much did the anti-smoking activists of the 1970s, 1980s, and 1990s get paid? My guess is that most of the people (I’m sure mostly women) who crusaded to restrict smoking, originally in places like airplanes and restaurants and later public places more generally, got compensated little or nothing for their work. But how many hundreds of thousands (or millions) of lives were saved and heart attacks and strokes prevented as a result of their work. Surely that would be worth many trillions of dollars if we sought to put a price tag on it.

Telling us that the drug companies should get big bucks because their drugs save lives is beside the point. We want to know if the way we finance drug research is the best way, not just that it can lead to successful drugs and vaccines.

And the evidence certainly does not support the view that it is the best way. Let’s start with the best story, the Pfizer/BioNtech vaccine. It will certainly be great news if the initial reports of a 90 percent effectiveness rate hold up when the full results are submitted to the FDA. But how much are we paying for this vaccine?

The U.S. has an advance purchase agreement for 100 million doses (that’s 50 million people since we need two shots) at a cost of $19.95 each. According to some analysts, the vaccine can be profitably manufactured and distributed for roughly $2 a shot. That means we are handing Pfizer/BioNtech $1.7 billion extra to cover its research costs and risks because our government gave it a patent monopoly. (Patent monopolies are not the free market folks, even if right-wingers like them.) That’s a pretty good deal since it’s unlikely their research costs were even one-fourth this amount. And, the U.S. purchase is only about one-fifth of the companies’ expected 2021 output. 

It’s also important to note that the Pfizer vaccine, as well as most of the others being worked on now,  are heavily dependent on research conducted by NIH. Pfizer also can’t tell the usual story about the many years or decades of research that they claim it takes for them to develop a marketable product. In this case, we don’t need to debate the issue, we know it took them less than nine months.  

But rather than arguing whether we are getting a good deal going this patent monopoly route, let’s ask about the alternatives. There was a huge amount of international cooperation early in the pandemic, as scientists freely shared their findings, allowing for enormous progress in understanding the coronavirus.

Suppose this cooperation had continued into the development of vaccines and treatments. This would mean that all research would be fully open and shared across countries. Scientists do need to be paid for their work, but we can do that without patent monopolies.  We paid Moderna roughly $1 billion upfront to develop a vaccine. Of course, in the spirit of welfare for drug companies, we are also giving them a patent monopoly on their vaccine.

We could have gone the Moderna route more generally, paying companies to do research in specific areas, but requiring that all results be posted on the web as soon as practical and that patents are in the public domain. That means that any vaccines or treatments can be produced as generics from the day they are approved. 

To prevent free-riding we would want some international agreement on cost-sharing with other countries, requiring them to make comparable commitments for research spending given their size and wealth. That would be the sort of thing a competent government could negotiate, even if it might have been inconceivable for Donald Trump.

Would this route have gotten us a vaccine sooner? It is very possible that it would. Several Chinese companies have developed vaccines that are already far along in Phase 3 testing. One of these companies is planning to ship 46 million doses to Brazil later this month. Hundreds of thousands of people in China have already received one of the vaccines based on an Emergency Use Authorization. That may not be a good public health practice, but it does mean that we can be reasonably well-assured that the vaccines do not have serious short-term side effects.

Without more access to the data, we can’t know whether China’s vaccines would meet our standards and qualify for FDA approval. However, if we had gone the collaborative route we would have this data. And if the tests done by China’s companies were not adequate, we could do additional tests ourselves.

It is also important to note that China’s leading vaccine candidates are old-fashioned dead virus vaccines. As a result, they don’t require the super cold storage of the Pfizer/BioNtech vaccine. In a world where the U.S. is now seeing more than 140,000 new cases a day and 1,400 deaths, getting a vaccine distributed even a few weeks earlier can mean millions of fewer infections and tens of thousands of fewer deaths.

We can’t know that this collaborative route would have produced an effective vaccine more quickly, but we certainly can’t rule out that possibility. In other words, McArdle’s celebration of the success of the U.S.  drug development system is based on nothing.

But we can also look at treatments. Here we have an even murkier picture. While the monoclonal antibodies being developed by Eli Lilly and Regeneron show considerable promise, the first drug pushed as an effective treatment was Gilead’s Remdesivir. Gilead was charging over $2,000 for a course of treatment with this drug. High quality Indian generic manufacturers were charging less than one-tenth of this price. Remdesivir was also developed with considerable government support.

But even more important than the high price is the possibility that Remdesivir may not actually be an effective treatment. While the initial trial results were promising, the World Health Organization (WHO) has determined that the drug is ineffective in treating the coronavirus. Gilead disputes the WHO’s assessment and it’s possible the company is correct, but there is a simple point here; patent monopolies give drug companies a large incentive to lie.

The Indian generic manufacturers make a profit when they sell the drug for $250 for a course of treatment. But when Gilead sells it for more than $2000, it effectively has a mark-up of 1000 percent. These sorts of mark-ups give drug companies an enormous incentive to exaggerate the effectiveness of their drugs and conceal evidence of harmful side effects.

If this sort of lying is hard to imagine, let me tell you about the opioid crisis. The major opioid manufacturers have paid out billions of dollars in settlements over allegations that they deliberately concealed evidence on the addictiveness of the new generation of opioids. (For some reason, I have literally never seen any mention of the perverse incentives created by patent monopolies in discussions of the opioid crisis.)

Anyhow, I will leave the determination of the true effectiveness of Remdesivir to people more competent in the area, but it is important to note that because of its patent monopoly Gilead has a powerful incentive to not be honest in this debate. If that has led people to be improperly treated for the coronavirus, that is a very serious downside to the way we finance drug research.

In short, it takes a very selective reading of the evidence to pronounce the performance of the pharmaceutical industry in response to the pandemic a great success. We should undoubtedly be happy that we will soon have an effective vaccine and treatments, but that does not in any way establish that we followed the best path to get here.

In the old days, many countries were pursuing import-substitution as a route to development. There were some successes, but in many cases, countries would end up with factories that produced steel, cars, or other products at two or three times the world price. They could then brag that they were producing 10 million tons of steel or 2 million cars a year, but the reality would be that these projects were disastrous failures. Based on the available evidence, we cannot say that we don’t have a failed pharmaceutical industry.     

Washington Post columnist Megan McArdle was anxious to tell readers that drug development in the pandemic has been a great success story. After all, look at all the treatments we have, and now it appears that Pfizer/BioNtech have developed a highly effective vaccine. What could be better than that?

Well, first we need a bit of perspective. Yes, we place an enormous value on our health and our lives, so getting effective treatments and vaccines quickly are extremely important. But we do also care about what we pay to get there.

To take my favorite analogy, the firefighter who goes into a burning building to rescue a couple of children can be said to deserve many millions of dollars. After all, we put a huge value on human life. While firefighters are reasonably well-paid, most of their paychecks don’t cross $100,000. Should we pay all of our firefighters $1 million a year? Perhaps in some sense that would be fair, but the reality is that we can get people to do the work for far less.

And, if we want to talk about payments that are commensurate with the value they provide to society, how much did the anti-smoking activists of the 1970s, 1980s, and 1990s get paid? My guess is that most of the people (I’m sure mostly women) who crusaded to restrict smoking, originally in places like airplanes and restaurants and later public places more generally, got compensated little or nothing for their work. But how many hundreds of thousands (or millions) of lives were saved and heart attacks and strokes prevented as a result of their work. Surely that would be worth many trillions of dollars if we sought to put a price tag on it.

Telling us that the drug companies should get big bucks because their drugs save lives is beside the point. We want to know if the way we finance drug research is the best way, not just that it can lead to successful drugs and vaccines.

And the evidence certainly does not support the view that it is the best way. Let’s start with the best story, the Pfizer/BioNtech vaccine. It will certainly be great news if the initial reports of a 90 percent effectiveness rate hold up when the full results are submitted to the FDA. But how much are we paying for this vaccine?

The U.S. has an advance purchase agreement for 100 million doses (that’s 50 million people since we need two shots) at a cost of $19.95 each. According to some analysts, the vaccine can be profitably manufactured and distributed for roughly $2 a shot. That means we are handing Pfizer/BioNtech $1.7 billion extra to cover its research costs and risks because our government gave it a patent monopoly. (Patent monopolies are not the free market folks, even if right-wingers like them.) That’s a pretty good deal since it’s unlikely their research costs were even one-fourth this amount. And, the U.S. purchase is only about one-fifth of the companies’ expected 2021 output. 

It’s also important to note that the Pfizer vaccine, as well as most of the others being worked on now,  are heavily dependent on research conducted by NIH. Pfizer also can’t tell the usual story about the many years or decades of research that they claim it takes for them to develop a marketable product. In this case, we don’t need to debate the issue, we know it took them less than nine months.  

But rather than arguing whether we are getting a good deal going this patent monopoly route, let’s ask about the alternatives. There was a huge amount of international cooperation early in the pandemic, as scientists freely shared their findings, allowing for enormous progress in understanding the coronavirus.

Suppose this cooperation had continued into the development of vaccines and treatments. This would mean that all research would be fully open and shared across countries. Scientists do need to be paid for their work, but we can do that without patent monopolies.  We paid Moderna roughly $1 billion upfront to develop a vaccine. Of course, in the spirit of welfare for drug companies, we are also giving them a patent monopoly on their vaccine.

We could have gone the Moderna route more generally, paying companies to do research in specific areas, but requiring that all results be posted on the web as soon as practical and that patents are in the public domain. That means that any vaccines or treatments can be produced as generics from the day they are approved. 

To prevent free-riding we would want some international agreement on cost-sharing with other countries, requiring them to make comparable commitments for research spending given their size and wealth. That would be the sort of thing a competent government could negotiate, even if it might have been inconceivable for Donald Trump.

Would this route have gotten us a vaccine sooner? It is very possible that it would. Several Chinese companies have developed vaccines that are already far along in Phase 3 testing. One of these companies is planning to ship 46 million doses to Brazil later this month. Hundreds of thousands of people in China have already received one of the vaccines based on an Emergency Use Authorization. That may not be a good public health practice, but it does mean that we can be reasonably well-assured that the vaccines do not have serious short-term side effects.

Without more access to the data, we can’t know whether China’s vaccines would meet our standards and qualify for FDA approval. However, if we had gone the collaborative route we would have this data. And if the tests done by China’s companies were not adequate, we could do additional tests ourselves.

It is also important to note that China’s leading vaccine candidates are old-fashioned dead virus vaccines. As a result, they don’t require the super cold storage of the Pfizer/BioNtech vaccine. In a world where the U.S. is now seeing more than 140,000 new cases a day and 1,400 deaths, getting a vaccine distributed even a few weeks earlier can mean millions of fewer infections and tens of thousands of fewer deaths.

We can’t know that this collaborative route would have produced an effective vaccine more quickly, but we certainly can’t rule out that possibility. In other words, McArdle’s celebration of the success of the U.S.  drug development system is based on nothing.

But we can also look at treatments. Here we have an even murkier picture. While the monoclonal antibodies being developed by Eli Lilly and Regeneron show considerable promise, the first drug pushed as an effective treatment was Gilead’s Remdesivir. Gilead was charging over $2,000 for a course of treatment with this drug. High quality Indian generic manufacturers were charging less than one-tenth of this price. Remdesivir was also developed with considerable government support.

But even more important than the high price is the possibility that Remdesivir may not actually be an effective treatment. While the initial trial results were promising, the World Health Organization (WHO) has determined that the drug is ineffective in treating the coronavirus. Gilead disputes the WHO’s assessment and it’s possible the company is correct, but there is a simple point here; patent monopolies give drug companies a large incentive to lie.

The Indian generic manufacturers make a profit when they sell the drug for $250 for a course of treatment. But when Gilead sells it for more than $2000, it effectively has a mark-up of 1000 percent. These sorts of mark-ups give drug companies an enormous incentive to exaggerate the effectiveness of their drugs and conceal evidence of harmful side effects.

If this sort of lying is hard to imagine, let me tell you about the opioid crisis. The major opioid manufacturers have paid out billions of dollars in settlements over allegations that they deliberately concealed evidence on the addictiveness of the new generation of opioids. (For some reason, I have literally never seen any mention of the perverse incentives created by patent monopolies in discussions of the opioid crisis.)

Anyhow, I will leave the determination of the true effectiveness of Remdesivir to people more competent in the area, but it is important to note that because of its patent monopoly Gilead has a powerful incentive to not be honest in this debate. If that has led people to be improperly treated for the coronavirus, that is a very serious downside to the way we finance drug research.

In short, it takes a very selective reading of the evidence to pronounce the performance of the pharmaceutical industry in response to the pandemic a great success. We should undoubtedly be happy that we will soon have an effective vaccine and treatments, but that does not in any way establish that we followed the best path to get here.

In the old days, many countries were pursuing import-substitution as a route to development. There were some successes, but in many cases, countries would end up with factories that produced steel, cars, or other products at two or three times the world price. They could then brag that they were producing 10 million tons of steel or 2 million cars a year, but the reality would be that these projects were disastrous failures. Based on the available evidence, we cannot say that we don’t have a failed pharmaceutical industry.     

Some folks are seeing this election as a squeaker for Biden since we saw close races in key states. This has concealed the fact that Biden actually is winning the popular vote by a large margin. Since many votes are still not counted across the country I thought I would do a simple exercise where I projected margins for the votes outstanding in each state.

Much of this is naturally guesswork, but hopefully not too nutty. I applied some simple rules. As we have seen, the vast majority of mail-in ballots are for Biden, even in pro-Trump areas. This means that I assumed in most states that the remaining vote was more pro-Biden than the vote already recorded.

In the pro-Trump states, I assumed there was no margin for the outstanding votes. This would not have made a huge difference since in most of these states 98 percent of the vote was already in, but it seems plausible that Biden would have come close in the votes outstanding in these states. (I used the NYT data from 11:00 A.M. on Saturday, November 7th.) For other states, I assumed more of a pro-Biden tilt. As we saw, in Pennsylvania the mail-in votes went to Biden by a margin of around 50 percentage points. I assumed margins of 40 pp in a number of states (a 70-30 margin) and somewhat smaller margins in other states. In CA I assumed the remaining votes would follow the same pattern as the votes reported to date.

Here’s the story:

  Current       Percent   Assumed   Adjustment Adj Margin
  Biden Trump Margin   reported   Margin        
AK 56.6 108.2 -31.3%   56.0%   -31.3%   -41   -92
AL 843.5 1434.1 -25.9%   98.0%   0.0%   0   -591
Ark 421 761.3 -28.8%   98.0%   0.0%   0   -340
AZ  1626.9 1606.4 0.6%   97.0%   0.6%   1   21
CA 8180 4152 32.7%   77.0%   40.0%   1,473   5,501
CO 1753.4 1335.3 13.5%   95.0%   13.5%   22   440
CT 1058.8 698.7 20.5%   97.0%   40.0%   22   382
DC 258.6 14.4 89.5%   80.0%   89.5%   61   305
DE 295.4 199.9 19.3%   98.0%   30.0%   3   99
FL 5269.9 5646.9 -3.5%   96.0%   3.5%   16   -361
Georgia 2461.5 2454.2 0.1%   98.0%   40.0%   40   47
HI 365.8 196.6 30.1%   98.0%   30.1%   3   173
Idaho 287 554 -31.7%   98.0%   0.0%   0   -267
IL 3016.8 2330.7 12.8%   89.0%   30.0%   198   884
IN 1239.5 1727.1 -16.4%   98.0%   0.0%   0   -488
Iowa 757.8 865.5 -6.6%   92.0%   30.0%   42   -65
Kan 542.6 748.6 -16.0%   98.0%   0.0%   0   -206
Ken 777.8 1342.5 -26.6%   98.0%   0.0%   0   -565
Louis 855.6 1255.5 -18.9%   98.0%   0.0%   0   -400
Maine 419.3 340.5 10.4%   91.0%   30.0%   23   101
Mass 2246.3 1117.3 33.6%   92.0%   40.0%   117   1,246
MD 1367.1 760 28.5%   70.0%   40.0%   365   972
MI  2794.9 2647 2.7%   98.0%   40.0%   44   192
Minn 1717.9 1485.6 7.3%   96.0%   40.0%   53   286
Miss 447.2 683.5 -20.9%   86.0%   0.0%   0   -236
MO 1242.9 1711.8 -15.9%   98.0%   0.0%   0   -469
MT 243.7 341.8 -16.8%   98.0%   0.0%   0   -98
NC 2656.3 2732.8 -1.4%   98.0%   30.0%   33   -44
ND 114.7 235 -34.4%   91.0%   0.0%   0   -120
NE 367.9 550.2 -19.9%   98.0%   0.0%   0   -182
Nev 642.6 616.9 2.0%   94.0%   2.0%   2   27
NH  422.3 365.2 7.3%   98.0%   30.0%   5   62
NJ 2057.6 1414.1 18.5%   78.0%   40.0%   392   1,035
NM 497.8 400.8 10.8%   98.0%   30.0%   6   103
NY 4236 2934.1 18.2%   84.0%   40.0%   546   1,848
OH 2576.6 3038.2 -8.2%   90.0%   40.0%   250   -212
OK 503.9 1020.3 -33.9%   96.0%   0.0%   0   -516
OR 1318.5 942.7 16.6%   97.0%   16.6%   12   387
PA 3345.7 3311.3 0.5%   98.0%   40.0%   54   89
RI 300.3 197.7 20.6%   97.0%   40.0%   6   109
SC 1092.5 1386.2 -11.8%   98.0%   0.0%   0   -294
SD 150.5 260.1 -26.7%   98.0%   0.0%   0   -110
TN 1139.4 1849.8 -23.8%   98.0%   0.0%   0   -710
TX 5215.8 5872.1 -5.9%   97.0%   30.0%   103   -553
UT 444.5 701.1 -22.4%   88.0%   -22.4%   -35   -292
VA 2380.9 1953.8 9.9%   98.0%   30.0%   27   454
VT 227.2 111.1 34.3%   95.0%   40.0%   7   123
WA 2286.3 1498.3 20.8%   95.0%   20.8%   41   829
WI 1630.6 1610 0.6%   98.0%   40.0%   26   47
WV 259.2 589.8 -38.9%   98.0%   0.0%   0   -331
WY 73.4 193.5 -45.0%   98.0%   0.0%   0   -120
                       
                      8,101

 

I get a bottom line for a final adjusted margin of 8,101,000 votes. If anyone sees an obvious problem with my calculations, I welcome corrections.

(Note: I had originally had the margin at 9.7 million, but had two errors pointed out to me on Twitter.)

Some folks are seeing this election as a squeaker for Biden since we saw close races in key states. This has concealed the fact that Biden actually is winning the popular vote by a large margin. Since many votes are still not counted across the country I thought I would do a simple exercise where I projected margins for the votes outstanding in each state.

Much of this is naturally guesswork, but hopefully not too nutty. I applied some simple rules. As we have seen, the vast majority of mail-in ballots are for Biden, even in pro-Trump areas. This means that I assumed in most states that the remaining vote was more pro-Biden than the vote already recorded.

In the pro-Trump states, I assumed there was no margin for the outstanding votes. This would not have made a huge difference since in most of these states 98 percent of the vote was already in, but it seems plausible that Biden would have come close in the votes outstanding in these states. (I used the NYT data from 11:00 A.M. on Saturday, November 7th.) For other states, I assumed more of a pro-Biden tilt. As we saw, in Pennsylvania the mail-in votes went to Biden by a margin of around 50 percentage points. I assumed margins of 40 pp in a number of states (a 70-30 margin) and somewhat smaller margins in other states. In CA I assumed the remaining votes would follow the same pattern as the votes reported to date.

Here’s the story:

  Current       Percent   Assumed   Adjustment Adj Margin
  Biden Trump Margin   reported   Margin        
AK 56.6 108.2 -31.3%   56.0%   -31.3%   -41   -92
AL 843.5 1434.1 -25.9%   98.0%   0.0%   0   -591
Ark 421 761.3 -28.8%   98.0%   0.0%   0   -340
AZ  1626.9 1606.4 0.6%   97.0%   0.6%   1   21
CA 8180 4152 32.7%   77.0%   40.0%   1,473   5,501
CO 1753.4 1335.3 13.5%   95.0%   13.5%   22   440
CT 1058.8 698.7 20.5%   97.0%   40.0%   22   382
DC 258.6 14.4 89.5%   80.0%   89.5%   61   305
DE 295.4 199.9 19.3%   98.0%   30.0%   3   99
FL 5269.9 5646.9 -3.5%   96.0%   3.5%   16   -361
Georgia 2461.5 2454.2 0.1%   98.0%   40.0%   40   47
HI 365.8 196.6 30.1%   98.0%   30.1%   3   173
Idaho 287 554 -31.7%   98.0%   0.0%   0   -267
IL 3016.8 2330.7 12.8%   89.0%   30.0%   198   884
IN 1239.5 1727.1 -16.4%   98.0%   0.0%   0   -488
Iowa 757.8 865.5 -6.6%   92.0%   30.0%   42   -65
Kan 542.6 748.6 -16.0%   98.0%   0.0%   0   -206
Ken 777.8 1342.5 -26.6%   98.0%   0.0%   0   -565
Louis 855.6 1255.5 -18.9%   98.0%   0.0%   0   -400
Maine 419.3 340.5 10.4%   91.0%   30.0%   23   101
Mass 2246.3 1117.3 33.6%   92.0%   40.0%   117   1,246
MD 1367.1 760 28.5%   70.0%   40.0%   365   972
MI  2794.9 2647 2.7%   98.0%   40.0%   44   192
Minn 1717.9 1485.6 7.3%   96.0%   40.0%   53   286
Miss 447.2 683.5 -20.9%   86.0%   0.0%   0   -236
MO 1242.9 1711.8 -15.9%   98.0%   0.0%   0   -469
MT 243.7 341.8 -16.8%   98.0%   0.0%   0   -98
NC 2656.3 2732.8 -1.4%   98.0%   30.0%   33   -44
ND 114.7 235 -34.4%   91.0%   0.0%   0   -120
NE 367.9 550.2 -19.9%   98.0%   0.0%   0   -182
Nev 642.6 616.9 2.0%   94.0%   2.0%   2   27
NH  422.3 365.2 7.3%   98.0%   30.0%   5   62
NJ 2057.6 1414.1 18.5%   78.0%   40.0%   392   1,035
NM 497.8 400.8 10.8%   98.0%   30.0%   6   103
NY 4236 2934.1 18.2%   84.0%   40.0%   546   1,848
OH 2576.6 3038.2 -8.2%   90.0%   40.0%   250   -212
OK 503.9 1020.3 -33.9%   96.0%   0.0%   0   -516
OR 1318.5 942.7 16.6%   97.0%   16.6%   12   387
PA 3345.7 3311.3 0.5%   98.0%   40.0%   54   89
RI 300.3 197.7 20.6%   97.0%   40.0%   6   109
SC 1092.5 1386.2 -11.8%   98.0%   0.0%   0   -294
SD 150.5 260.1 -26.7%   98.0%   0.0%   0   -110
TN 1139.4 1849.8 -23.8%   98.0%   0.0%   0   -710
TX 5215.8 5872.1 -5.9%   97.0%   30.0%   103   -553
UT 444.5 701.1 -22.4%   88.0%   -22.4%   -35   -292
VA 2380.9 1953.8 9.9%   98.0%   30.0%   27   454
VT 227.2 111.1 34.3%   95.0%   40.0%   7   123
WA 2286.3 1498.3 20.8%   95.0%   20.8%   41   829
WI 1630.6 1610 0.6%   98.0%   40.0%   26   47
WV 259.2 589.8 -38.9%   98.0%   0.0%   0   -331
WY 73.4 193.5 -45.0%   98.0%   0.0%   0   -120
                       
                      8,101

 

I get a bottom line for a final adjusted margin of 8,101,000 votes. If anyone sees an obvious problem with my calculations, I welcome corrections.

(Note: I had originally had the margin at 9.7 million, but had two errors pointed out to me on Twitter.)

As it increasingly looks like Joe Biden has won the election, I see many people around me appalled that so many of their fellow citizens can vote for someone as racist, sexist, and otherwise offensive as Donald Trump. Given what we know about the guy, and think everyone else should know about him as well, it is hard not to be appalled.

But we will not get anywhere politically by looking at half the country with disgust. Trying to win over some of Trump’s voters doesn’t mean giving in to Trump’s racism and sexism, it is about recognizing that large segments of the country have not benefitted from the economy’s growth over the last four decades as a result of deliberate policy.

This group does not at all coincide perfectly with the group of people who support Trump. Many Trump supporters have done quite well economically. There are also many among those who have been pushed behind who do not support Trump. This is especially the case for Blacks and other people of color who do not see a happy home for themselves in a party dominated by Trump’s racism.  

Progressives have no reason to try to appease affluent Trump backers, but we should be looking to help the pushed behind among the Trump backers. Policies that benefit this group may not mean that they will turn to backing progressive candidates, but it is the right thing to do in any case.

The first part of this strategy is simply to state the facts. There is a conventional story that dominates economic and policy discussions, in which people without college degrees (still a majority of the workforce) have lost out because they don’t have the right skills to prosper in today’s high-tech global economy.

That is nonsense. The high-tech global economy was deliberately structured to redistribute income away from workers without college degrees to those at the top.

In terms of the impact of globalization, our trade deals were quite explicitly designed to make it as easy as possible for U.S. manufacturers to locate their operations anywhere in the world and to then import what they produce back to the United States. This puts U.S. manufacturing workers in direct competition with low-paid workers in the developing world. This had the predicted and actual effect of putting downward pressure on the wages of manufacturing workers and on non-college-educated workers more generally.

There was nothing natural about taking globalization in this direction. We could have focused on making it easier for highly educated professionals in the developing world, like doctors and dentists, to train to our standards, and then practice in the United States. This would have put downward pressure on the pay of our most highly paid workers.

Putting highly paid professionals in the United States in direct competition with their counterparts in the developing world have led to the same sort of gains from trade that economists always tout in pushing trade deals. However, in this case, the losers from globalization would be the most highly-educated workers. (I discuss this at more length in chapter 7 of Rigged [it’s free].)

There is a similar story with the impact of technology. The huge sums going to the tech sector, and the stockholders and workers in it, are almost entirely due to the government-granted patent and copyright monopolies that allow them to charge prices far above the free market price.

Here too, economists do a great act of not-seeing. If you suggest that we get rid of patents and copyrights, they will all jump up and down and insist that people would then have no incentive to innovate and do creative work. But somehow, they avoid the unavoidable implication, the amount of incentive that we provide with these government-granted monopolies is entirely due to policy choices. We can make patents and copyrights shorter and weaker, or longer or stronger, as we have done. There are also alternative mechanisms for financing innovation and creative work. (I talk about this issue in chapter 5 of Rigged.) If we had gone the route of providing less incentive, then less money would have been redistributed upward from people without college degrees to the tech sector.   

With almost no exceptions, the people you see in policy debates ignore these basic facts about income distribution in the modern economy. While they may support measures to help non-college-educated workers, they almost invariably treat their fate as an unfortunate outcome of natural developments, as opposed to a deliberate design by those who held power.

If we want to reach out to non-college-educated workers, who may have supported Trump, a really good first step would be to acknowledge that their poor prospects in the economy were the result of design. It might still be good for them, as an individual matter, to get more skill and education, but as a group they are hurting because people in power wanted to redistribute income upward.

Reversing this upward redistribution is a long and complicated story that I write about all the time. A big part of the picture is reversing the policies that led to this upward redistribution. My favorite place to start is to move away from the patent monopoly financing of the development of prescription drugs.

If drugs were sold in a free market, it would save us more than $400 billion a year on drug spending. That comes to more than $3,000 a year for an average family. It would also eliminate the perverse incentives created by patent monopolies, like pushing opioids by falsely claiming they are not addictive.

Anyhow, we can start by having President Biden invoke Section 1498 of the Commercial Code, a provision commonly used in defense contracting, which allows the president to essentially over-ride a patent while compensating the patent holder. Biden can do this for a number of expensive drugs, say some of the cancer drugs selling for more than $100k a year, so people can see what they would cost selling as free-market generics.

In the same vein, he can arrange for some portion of the National Institutes of Health $40 billion budget to be designated for developing and testing drugs and bringing them through the FDA approval process. This is essentially what we did with Moderna in its development of a coronavirus vaccine, except we let them keep patent rights, even though we paid for the research upfront. With the policy I am proposing, the new drugs developed would be sold as generics from the day they are approved. Cancer drugs might be a good place to start and set a model for other areas of research.

We can also look to cut into the waste and great fortunes made in the financial sector. Having the government prepare people’s tax returns for them would be a great place to start. This has been the practice in several European countries for decades. It would save people hundreds of dollars each year that they now pay to tax preparation services, in addition to an enormous amount of anxiety. Requiring public pension funds to fully disclose the terms of their contracts with the funds they invest might also bite into the big fortunes made by private equity partners.

And, if we tried to improve corporate governance, we might put an end to CEOs ripping off the companies they work for with their $20 million a year salaries. My preferred route is to put some bite into the “Say on Pay” votes that shareholders vote on every three years. Suppose the boards of directors, who set CEO pay, lost their annual stipend if a Say on Pay vote was defeated. My guess is that this will cause them to think much more carefully about whether they could get away with lowering CEO pay. And, the issue is not just the CEO. The outlandish compensation packages at the top contaminate the pay structure throughout the economy.

If we adopt a broader inequality fighting agenda will it make non-college-educated whites more likely to vote for progressives? I don’t have the answer to that question. We do know that college-educated whites are more likely to vote Democratic than non-college-educated whites. If that pattern held, and we saw the same increases in college enrollment since 1980 as we did prior to 1980, the Democrats would have much more sold majorities in large sections of the country.  

Of course, this inequality fighting agenda will benefit many more people than non-college-educated whites. It will benefit people of color without college degrees. It will also benefit non-affluent college graduates. A large share of college grads, especially recent college grads, have not been faring well in the last two decades.

Whatever the political implications, we should pursue an anti-inequality agenda because it is the right thing to do. It is also the honest thing to do. Telling the victims of a four-decade-long policy of upward redistribution that it is their fault, is a lie of Trumpian proportions.

As it increasingly looks like Joe Biden has won the election, I see many people around me appalled that so many of their fellow citizens can vote for someone as racist, sexist, and otherwise offensive as Donald Trump. Given what we know about the guy, and think everyone else should know about him as well, it is hard not to be appalled.

But we will not get anywhere politically by looking at half the country with disgust. Trying to win over some of Trump’s voters doesn’t mean giving in to Trump’s racism and sexism, it is about recognizing that large segments of the country have not benefitted from the economy’s growth over the last four decades as a result of deliberate policy.

This group does not at all coincide perfectly with the group of people who support Trump. Many Trump supporters have done quite well economically. There are also many among those who have been pushed behind who do not support Trump. This is especially the case for Blacks and other people of color who do not see a happy home for themselves in a party dominated by Trump’s racism.  

Progressives have no reason to try to appease affluent Trump backers, but we should be looking to help the pushed behind among the Trump backers. Policies that benefit this group may not mean that they will turn to backing progressive candidates, but it is the right thing to do in any case.

The first part of this strategy is simply to state the facts. There is a conventional story that dominates economic and policy discussions, in which people without college degrees (still a majority of the workforce) have lost out because they don’t have the right skills to prosper in today’s high-tech global economy.

That is nonsense. The high-tech global economy was deliberately structured to redistribute income away from workers without college degrees to those at the top.

In terms of the impact of globalization, our trade deals were quite explicitly designed to make it as easy as possible for U.S. manufacturers to locate their operations anywhere in the world and to then import what they produce back to the United States. This puts U.S. manufacturing workers in direct competition with low-paid workers in the developing world. This had the predicted and actual effect of putting downward pressure on the wages of manufacturing workers and on non-college-educated workers more generally.

There was nothing natural about taking globalization in this direction. We could have focused on making it easier for highly educated professionals in the developing world, like doctors and dentists, to train to our standards, and then practice in the United States. This would have put downward pressure on the pay of our most highly paid workers.

Putting highly paid professionals in the United States in direct competition with their counterparts in the developing world have led to the same sort of gains from trade that economists always tout in pushing trade deals. However, in this case, the losers from globalization would be the most highly-educated workers. (I discuss this at more length in chapter 7 of Rigged [it’s free].)

There is a similar story with the impact of technology. The huge sums going to the tech sector, and the stockholders and workers in it, are almost entirely due to the government-granted patent and copyright monopolies that allow them to charge prices far above the free market price.

Here too, economists do a great act of not-seeing. If you suggest that we get rid of patents and copyrights, they will all jump up and down and insist that people would then have no incentive to innovate and do creative work. But somehow, they avoid the unavoidable implication, the amount of incentive that we provide with these government-granted monopolies is entirely due to policy choices. We can make patents and copyrights shorter and weaker, or longer or stronger, as we have done. There are also alternative mechanisms for financing innovation and creative work. (I talk about this issue in chapter 5 of Rigged.) If we had gone the route of providing less incentive, then less money would have been redistributed upward from people without college degrees to the tech sector.   

With almost no exceptions, the people you see in policy debates ignore these basic facts about income distribution in the modern economy. While they may support measures to help non-college-educated workers, they almost invariably treat their fate as an unfortunate outcome of natural developments, as opposed to a deliberate design by those who held power.

If we want to reach out to non-college-educated workers, who may have supported Trump, a really good first step would be to acknowledge that their poor prospects in the economy were the result of design. It might still be good for them, as an individual matter, to get more skill and education, but as a group they are hurting because people in power wanted to redistribute income upward.

Reversing this upward redistribution is a long and complicated story that I write about all the time. A big part of the picture is reversing the policies that led to this upward redistribution. My favorite place to start is to move away from the patent monopoly financing of the development of prescription drugs.

If drugs were sold in a free market, it would save us more than $400 billion a year on drug spending. That comes to more than $3,000 a year for an average family. It would also eliminate the perverse incentives created by patent monopolies, like pushing opioids by falsely claiming they are not addictive.

Anyhow, we can start by having President Biden invoke Section 1498 of the Commercial Code, a provision commonly used in defense contracting, which allows the president to essentially over-ride a patent while compensating the patent holder. Biden can do this for a number of expensive drugs, say some of the cancer drugs selling for more than $100k a year, so people can see what they would cost selling as free-market generics.

In the same vein, he can arrange for some portion of the National Institutes of Health $40 billion budget to be designated for developing and testing drugs and bringing them through the FDA approval process. This is essentially what we did with Moderna in its development of a coronavirus vaccine, except we let them keep patent rights, even though we paid for the research upfront. With the policy I am proposing, the new drugs developed would be sold as generics from the day they are approved. Cancer drugs might be a good place to start and set a model for other areas of research.

We can also look to cut into the waste and great fortunes made in the financial sector. Having the government prepare people’s tax returns for them would be a great place to start. This has been the practice in several European countries for decades. It would save people hundreds of dollars each year that they now pay to tax preparation services, in addition to an enormous amount of anxiety. Requiring public pension funds to fully disclose the terms of their contracts with the funds they invest might also bite into the big fortunes made by private equity partners.

And, if we tried to improve corporate governance, we might put an end to CEOs ripping off the companies they work for with their $20 million a year salaries. My preferred route is to put some bite into the “Say on Pay” votes that shareholders vote on every three years. Suppose the boards of directors, who set CEO pay, lost their annual stipend if a Say on Pay vote was defeated. My guess is that this will cause them to think much more carefully about whether they could get away with lowering CEO pay. And, the issue is not just the CEO. The outlandish compensation packages at the top contaminate the pay structure throughout the economy.

If we adopt a broader inequality fighting agenda will it make non-college-educated whites more likely to vote for progressives? I don’t have the answer to that question. We do know that college-educated whites are more likely to vote Democratic than non-college-educated whites. If that pattern held, and we saw the same increases in college enrollment since 1980 as we did prior to 1980, the Democrats would have much more sold majorities in large sections of the country.  

Of course, this inequality fighting agenda will benefit many more people than non-college-educated whites. It will benefit people of color without college degrees. It will also benefit non-affluent college graduates. A large share of college grads, especially recent college grads, have not been faring well in the last two decades.

Whatever the political implications, we should pursue an anti-inequality agenda because it is the right thing to do. It is also the honest thing to do. Telling the victims of a four-decade-long policy of upward redistribution that it is their fault, is a lie of Trumpian proportions.

In its efforts to provide us with exactly what we don’t need now, the New York Times gave us an utterly pointless piece by Yuval Levin telling us that we shouldn’t worry about national politics and instead focus on helping our neighbors and communities. This paragraph tells it all:

“More often, though, our deepest problems aren’t really amenable to resolution by a president. These problems have been adding up to something of a social crisis, evident not only in the breakdown of our political culture but also in the isolation and despair that have driven up suicide and opioid abuse rates, and in a sense of alienation that leaves whole communities feeling excluded from the American story and in turn angrily rejecting it.”

Well, Mr. Levin may not understand this, but many of the “deepest problems” he describes are actually pretty direct results of the people who serve as president or in Congress. Since he refers to deaths of despair, we now know that a major cause was the loss of millions of good-paying manufacturing jobs due to trade. This job loss was the result of trade agreements that were explicitly designed to put our manufacturing workers in direct competition with low-paid workers in the developing world, while largely protecting doctors, dentists, and other highly paid professionals from the same competition.

People, most often women, also face very deep problems when they can’t get decent child care for their kids. They need to work to put bread on the table, but they don’t make enough to ensure that their children have safe, high-quality care. We can tell similar stories with access to health care and housing.

One of my favorite stories is that if the minimum wage had kept pace with productivity growth since 1968, as it did from when it was created in 1938 until 1968, it would be $24 an hour today. Imagine a world where the lowest-paid worker earned $48,000 a year and a two-earner couple would earn at least $96,000 a year.

Yeah, people will still be lonely, families will break up, and we will all have to deal with the deaths of loved ones, but I would be willing to bet that there would be a lot less “isolation and despair” in that world. And, the reason we don’t have this world where the lowest-paid workers get $48,000 a year is because of decisions made by our presidents and Congresses. We really don’t need people like Levin trying to hide that fact.

In its efforts to provide us with exactly what we don’t need now, the New York Times gave us an utterly pointless piece by Yuval Levin telling us that we shouldn’t worry about national politics and instead focus on helping our neighbors and communities. This paragraph tells it all:

“More often, though, our deepest problems aren’t really amenable to resolution by a president. These problems have been adding up to something of a social crisis, evident not only in the breakdown of our political culture but also in the isolation and despair that have driven up suicide and opioid abuse rates, and in a sense of alienation that leaves whole communities feeling excluded from the American story and in turn angrily rejecting it.”

Well, Mr. Levin may not understand this, but many of the “deepest problems” he describes are actually pretty direct results of the people who serve as president or in Congress. Since he refers to deaths of despair, we now know that a major cause was the loss of millions of good-paying manufacturing jobs due to trade. This job loss was the result of trade agreements that were explicitly designed to put our manufacturing workers in direct competition with low-paid workers in the developing world, while largely protecting doctors, dentists, and other highly paid professionals from the same competition.

People, most often women, also face very deep problems when they can’t get decent child care for their kids. They need to work to put bread on the table, but they don’t make enough to ensure that their children have safe, high-quality care. We can tell similar stories with access to health care and housing.

One of my favorite stories is that if the minimum wage had kept pace with productivity growth since 1968, as it did from when it was created in 1938 until 1968, it would be $24 an hour today. Imagine a world where the lowest-paid worker earned $48,000 a year and a two-earner couple would earn at least $96,000 a year.

Yeah, people will still be lonely, families will break up, and we will all have to deal with the deaths of loved ones, but I would be willing to bet that there would be a lot less “isolation and despair” in that world. And, the reason we don’t have this world where the lowest-paid workers get $48,000 a year is because of decisions made by our presidents and Congresses. We really don’t need people like Levin trying to hide that fact.

The NYT has apparently assigned Ruchir Sharma the task of writing periodic pieces about the prospect of a crashing bubble giving us another horrible recession. These pieces always show a failure to understand the most basic features of the Great Recession. This fits with the need of elite-types to pretend that the risks of the housing bubble were hard to see, as opposed to requiring a passing glance at quarterly GDP data.

Sharma’s latest tells us that we should be worried because house prices are rising even as we are in a recession. While it is true that house prices are rising, people who have been paying attention to the data, know that large segments of the population are doing just fine, in spite of the recession. The job loss has been hugely concentrated among those in relatively low-paying industries, like hotels and restaurants. These lower-paid workers are much less likely to be home buyers than the workers who kept their jobs.

With interest rates at historic lows, people can afford to pay more for housing, as Sharma notes. And, with many more workers now able to work remotely, it should not be surprising that we would see a strong housing market.

Sharma implies that we would face some catastrophic situation if interest rates and then the prices of houses and other assets fall. People who have access to the Commerce Department’s GDP data know that Sharma doesn’t have much of a case. In the housing bubble before the Great Recession, housing construction peaked at 6.7 percent of GDP in 2005. After the collapse of the bubble, it bottomed out at less than 2.0 percent of GDP. This implied a loss in demand of 4.7 percentage points of GDP, which would be equivalent to roughly $1 trillion in annual demand in today’s economy.

In addition, there was also a plunge in consumption of more than 2.0 percent of GDP following the crash. The bubble had led to a record consumption boom, as the savings rate fell to less than 4.0 percent of disposable income. This bubble driven consumption disappeared when the bubble burst and the savings rate returned to more normal levels.

The fact that we would see a serious recession following the collapse of the housing bubble was 100 percent predictable for anyone who follows the basic GDP data. There is no remotely comparable story today. Housing was 4.2 percent of GDP in the third quarter, only slightly higher than its long-term average. Furthermore, unlike during the bubble years, we are not seeing extraordinarily high vacancy rates in most areas.

Also, in contrast to the bubble years, consumption is relatively low, as the savings rate is near record highs. A plunge in house prices may upset some homeowners but would likely have little impact on consumption. In short, there is no basis for the concerns in Sharma’s column.

It’s worth adding that the collapse of the stock bubble in the years 2000-2002 was able to cause a recession because it too was driving the economy. Investment, especially in the tech sector, rose sharply at the end of the 1990s, as companies with no profits, and no idea how they could make a profit, were able to raise billions by issuing stock. The stock wealth generated by the bubble also led to a consumption boom. These were reversed when the bubble collapsed.

While the 2001 recession is usually considered short and mild, this is not true from the perspective of the labor market. It took the economy four full years to recover the jobs lost in the downturn. At the time, this was the longest period without job growth since the Great Depression. 

The NYT has apparently assigned Ruchir Sharma the task of writing periodic pieces about the prospect of a crashing bubble giving us another horrible recession. These pieces always show a failure to understand the most basic features of the Great Recession. This fits with the need of elite-types to pretend that the risks of the housing bubble were hard to see, as opposed to requiring a passing glance at quarterly GDP data.

Sharma’s latest tells us that we should be worried because house prices are rising even as we are in a recession. While it is true that house prices are rising, people who have been paying attention to the data, know that large segments of the population are doing just fine, in spite of the recession. The job loss has been hugely concentrated among those in relatively low-paying industries, like hotels and restaurants. These lower-paid workers are much less likely to be home buyers than the workers who kept their jobs.

With interest rates at historic lows, people can afford to pay more for housing, as Sharma notes. And, with many more workers now able to work remotely, it should not be surprising that we would see a strong housing market.

Sharma implies that we would face some catastrophic situation if interest rates and then the prices of houses and other assets fall. People who have access to the Commerce Department’s GDP data know that Sharma doesn’t have much of a case. In the housing bubble before the Great Recession, housing construction peaked at 6.7 percent of GDP in 2005. After the collapse of the bubble, it bottomed out at less than 2.0 percent of GDP. This implied a loss in demand of 4.7 percentage points of GDP, which would be equivalent to roughly $1 trillion in annual demand in today’s economy.

In addition, there was also a plunge in consumption of more than 2.0 percent of GDP following the crash. The bubble had led to a record consumption boom, as the savings rate fell to less than 4.0 percent of disposable income. This bubble driven consumption disappeared when the bubble burst and the savings rate returned to more normal levels.

The fact that we would see a serious recession following the collapse of the housing bubble was 100 percent predictable for anyone who follows the basic GDP data. There is no remotely comparable story today. Housing was 4.2 percent of GDP in the third quarter, only slightly higher than its long-term average. Furthermore, unlike during the bubble years, we are not seeing extraordinarily high vacancy rates in most areas.

Also, in contrast to the bubble years, consumption is relatively low, as the savings rate is near record highs. A plunge in house prices may upset some homeowners but would likely have little impact on consumption. In short, there is no basis for the concerns in Sharma’s column.

It’s worth adding that the collapse of the stock bubble in the years 2000-2002 was able to cause a recession because it too was driving the economy. Investment, especially in the tech sector, rose sharply at the end of the 1990s, as companies with no profits, and no idea how they could make a profit, were able to raise billions by issuing stock. The stock wealth generated by the bubble also led to a consumption boom. These were reversed when the bubble collapsed.

While the 2001 recession is usually considered short and mild, this is not true from the perspective of the labor market. It took the economy four full years to recover the jobs lost in the downturn. At the time, this was the longest period without job growth since the Great Depression. 

I’m not going to get too into mapping out an agenda for the Biden administration. I still remember speaking at the zombie conferences (stealing that line from my friend, Josh Bivens) in November and December of 2016. We had all sorts of great plans for the Clinton administration. But there are still some points that can be usefully made even if Biden doesn’t win. (Okay, I realize the world will look pretty scary if Trump gets four more years and can let lose the fury of hell on anyone who doesn’t kiss his rear.)

The key point is the one I make all the time: the bad guys have deliberately structured the market in ways that redistribute income upward. While it is understandable that the right likes to pretend that the rich getting all the money was just a happy outcome of the natural forces of globalization and technology, it is malpractice for a progressive to go along with this charade.  

It is also important to reduce the huge flows to the top. While proposals to raise the minimum wage, drastically improve welfare state provision of items like child care and health care, and make it easier for workers to organize, are hugely important, there is a limit to how much we can improve living standards at the bottom and middle if we don’t take a whack at the top.

I realize many folks think we can do this with more progressive taxes. While we can and should make the tax system more progressive, we rarely collect as much from taxing the rich as we expect when we pass the taxes. The rich are very good at evading and avoiding taxes. Some will argue that we just need better enforcement. We do need better enforcement, but the idea that we will somehow succeed in collecting taxes on the rich, in a way that all previous generations have failed, seems more than a bit far-fetched.

It makes much more sense to not structure the market in a way that gives the rich so much money in the first place. This seems a much better approach both practically and politically. As a practical matter, it is far easy to alter the structure of the market so that it is not generating so much inequality than trying to tax back the excessive fortunes that we dropped in rich peoples’ laps.

On the political side, the market does enjoy tremendous legitimacy. This is for good cause; it is a very effective tool for generating wealth. It should be an easier political sell to propose changes that both make the market more efficient and generate less inequality than to propose taxing away the vast fortunes that the rich earned because of the way we structured the market.

 

Three Market Reorienting Baby Steps for Biden to Reduce Inequality

Over the last four decades, we have altered market structures in numerous ways that have had the effect of shifting more income to the top. (This is the point of Rigged [it’s free].) I’ll hit on three of the themes in that book:

  • a corrupt corporate governance structure that allows CEOs to rip off the companies they work for;
  • the system of patent and copyright monopolies, which transfers over $1 trillion a year from everyone else to beneficiaries of these rents;
  • a bloated financial system that allows some people to get tremendously wealthy while providing no service to the real economy.

I have a maximalist agenda in all three areas, most of which I discuss in Rigged, but I know that Joe Biden is no radical. So, I will instead lay out some simple steps that hopefully will be politically feasible, and can be a foot in the door for further changes later.

Giving Corporate Boards Incentive to Do Their Job

I will start with the corporate governance structure, in part because I think this problem has been horribly neglected by progressives. As I have argued many times, CEOs rip off the companies for which they work. They get their $20 million paychecks not because they produce $20 million in value for shareholders, but because the boards that set their pay primarily owe their allegiance to the CEO and top management, not to shareholders.

While it is standard to say that companies are run to maximize shareholder value, this claim is hard to reconcile with the fact that returns to shareholders have not been particularly good over the last two decades. And, the relatively modest returns of the last two decades enjoyed a substantial boost due to the large reduction in the corporate income tax over this period, not the hard work of CEOs.

It is more than a bit bizarre that the fact that CEOs work to maximize their own pay, rather than shareholder value is not more widely recognized. We routinely see CEOs manipulating stock prices to maximize the value of their options or walking away with huge severance packages after they have nearly wrecked the companies for which they work. This is not maximizing shareholder value.

This is not an argument for crying for shareholders, since we all know the enormous skewing of share ownership. Nonetheless, a dollar in the pocket of shareholders, which includes pension funds and middle-class people with 401(k)s, is better than a dollar in the pocket of CEOs, all of whom are in the top 0.001 percent.

But more importantly, the exorbitant pay at the top contaminates pay structures throughout the economy. If CEOs got paid $2-$3 million, as they did before the enormous upward redistribution of the last four decades, we would see much lower pay for the second and third-tier executives as well. And presidents of universities and non-profits would likely get closer to $500k than the $1-$2 million many now pocket. Other top-level administrators would see their pay correspondingly reduced. And, as fans of arithmetic everywhere know, less money for those at the top means more for everyone else.

The fact that shareholders stand to gain from reining in the pay of CEOs and other top execs means that they are allies in this effort. To my mind, the big issue is changing the incentives for corporate boards. As it stands now, they have little incentive to rein in the pay of their friend, the CEO.    

My plan on this is to add a little bite to the “Say on Pay” provision that was part of the Dodd-Frank financial reform bill. This provision requires companies to submit their CEO pay package to a non-binding vote of the shareholders every three years. The vast majority of packages are approved since it is hard to organize shareholders and there is not much consequence to having one turned down.

My proposal is to change the rules so that directors lose their annual stipend (which is often in the range of $200,000 to $300,000) if a CEO pay package is voted down. My guess is that if even one or two packages go down, we will see boards start asking the questions they are supposed to be asking, like “can we get away with paying our CEO a few million less?” or “is there someone just as qualified who would do the job for half the pay?”  

The job of directors is first and foremost to keep top management in check by asking questions like this, but it is a safe bet that almost none ever do. If we could change incentives, so they did start putting serious downward pressure on CEO pay, we might be looking at a very different pay structure in the not distant future.

I also like the logic. Will the right call people socialists for proposing that shareholders have more control over the companies they own? 

Playing with a Post-Patent World

It is amazing how many people, including progressive-type people, view patent and copyright monopolies as just part of the natural order of things. These government-granted monopolies are quite explicitly forms of government intervention in the market. They hugely raise the price of items like prescription drugs, medical equipment, and software. They also redistribute an enormous amount of income upward, likely more than $1 trillion a year (half of all corporate profits). But no one would expect Joe Biden to make a frontal assault on this bulwark of inequality and waste.

But, we can maybe envision a modest step that could end being a big foot in the door. Suppose the National Institutes of Health were to substantially ramp up funding in one specific area, with the explicit condition that all the results would be fully open and all patents in the public domain. (Cancer research would be an obvious candidate since Biden’s son died of cancer and he seems to feel strongly about developing effective treatments and cures.)

In this case, new treatments would be available at generic prices from the day they were approved by the FDA. Instead of the next breakthrough cancer drug selling for hundreds of thousands of dollars for a year’s dosage, it might sell for hundreds of dollars, or at worst a figure in the low thousands. Drugs are almost always cheap to manufacture and distribute. It is government-granted patent monopolies that make them expensive.

If we could get some serious funding for open-source cancer research and it paid off with successful treatments, it would set a great example. This would likely lead to enormous pressure to do the same with the development of drugs to treat other conditions. Ideally, we would have gone this route with developing vaccines and treatments for the coronavirus, but the idea of collaborative research was obviously alien to Donald Trump and his team. 

Making the Financial Sector More Efficient

The financial sector is also an enormous source of waste and inequality. While we need a well-functioning financial sector to make payments and allocate capital, an efficient financial sector is a small financial sector. Unlike sectors like health care and housing, which provide direct value to people, finance is an intermediate sector, like trucking. While we need trucking to get goods from one place to another, but if our trucking sector increased five-fold relative to the size of the economy over five decades (as has finance), it would likely mean we have a very inefficient trucking system.

Not only is the financial system inefficient, but it also has also generated many of the great fortunes in the economy. It is hard to argue that these great fortunes were earned by producing great value for the economy, rather they are a story of being able to game the system to get money at the expense of others.

I have long argued for a financial transaction tax as a great way to downsize the financial sector and get a large amount of revenue. Biden has also indicated his support for a FTT. I hope that he does push for one, although he will certainly have a difficult fight in Congress.

While a FTT is hopefully on the table, there are two smaller, but nonetheless, important measures that Biden can look to pursue. The first is to have the IRS prepare tax returns for people, instead of forcing them to do it themselves or pay hundreds of dollars to tax preparers.

This should be a hugely popular measure. No one enjoys filling out a tax return or paying money to a tax preparer. The idea here is that IRS would fill out a return for every taxpayer, based on the information it already has from W-2s and other tax forms, and mail it to everyone for their review. If people were satisfied that their taxes were calculated accurately, they would just accept the calculation and either pay what they owe or get the refund the IRS had calculated.

If they were convinced the IRS had erred, they would have to complete their own return, with the necessary documentation. In the vast majority of cases, people would likely accept the IRS calculation, meaning that they did not have to do anything.

This should not be rocket science, many European countries have had this sort of system in place for more than two decades. This would save people a huge amount of grief, as well as tens of billions paid each year to tax preparation services. The only losers in this story are H&R Block and the other companies that provide these services and/or software.

In the same vein, Biden could look to establish a national system of low-cost 401(k)-type accounts that people could contribute to on a voluntary basis. The idea here is that the current system is often complicated and expensive. Many accounts charge people over 1 percent annually just to hold their money. (Individual funds, held through these accounts, charge additional fees.) This means that someone with $100k in a retirement account is paying $1,000 a year or more, for essentially nothing.

The government already offers this sort of account for government workers through its Thrift Savings Plan. The cost is less than one-tenth of one percent annually. Illinois, California, New York, and other states are setting up these systems at the state level. The federal government can do this at an even lower cost and allow people to remain in the same system throughout their whole working lives, even if they move across state borders.

Here again, the only losers are the financial industry players that made a fortune gouging workers. If $2 trillion were shifted from high-cost accounts to a government account, the savings would be on the order of $20 billion a year. Also, since roughly half of all workers do not even have the option to contribute to a retirement account at their workplace, we would likely see many more workers contributing to retirement accounts.

There are of course other areas in finance where a Biden administration could and should look to crack down on the industry. Private equity has a whole bag of tricks that largely depends on tax games and running up debts that can be dumped off on other parties, like workers and suppliers. Reining in these abuses should be on the administration’s agenda. Simplifying the tax code, ideally by changing the target of the corporate income taxes from profits to returns to shareholders, should radically reduce the resources devoted to tax avoidance and evasion.

There are other ways in which Biden can and should look to rein in finance, but this should be a very good beginner’s list for a moderate president. Besides, I don’t want to spend too much time writing up proposals for a second Trump administration to ignore.

We’ll see what happens next week. Let’s hope we can have some great battles to fight with the Wall Street Democrats. 

I’m not going to get too into mapping out an agenda for the Biden administration. I still remember speaking at the zombie conferences (stealing that line from my friend, Josh Bivens) in November and December of 2016. We had all sorts of great plans for the Clinton administration. But there are still some points that can be usefully made even if Biden doesn’t win. (Okay, I realize the world will look pretty scary if Trump gets four more years and can let lose the fury of hell on anyone who doesn’t kiss his rear.)

The key point is the one I make all the time: the bad guys have deliberately structured the market in ways that redistribute income upward. While it is understandable that the right likes to pretend that the rich getting all the money was just a happy outcome of the natural forces of globalization and technology, it is malpractice for a progressive to go along with this charade.  

It is also important to reduce the huge flows to the top. While proposals to raise the minimum wage, drastically improve welfare state provision of items like child care and health care, and make it easier for workers to organize, are hugely important, there is a limit to how much we can improve living standards at the bottom and middle if we don’t take a whack at the top.

I realize many folks think we can do this with more progressive taxes. While we can and should make the tax system more progressive, we rarely collect as much from taxing the rich as we expect when we pass the taxes. The rich are very good at evading and avoiding taxes. Some will argue that we just need better enforcement. We do need better enforcement, but the idea that we will somehow succeed in collecting taxes on the rich, in a way that all previous generations have failed, seems more than a bit far-fetched.

It makes much more sense to not structure the market in a way that gives the rich so much money in the first place. This seems a much better approach both practically and politically. As a practical matter, it is far easy to alter the structure of the market so that it is not generating so much inequality than trying to tax back the excessive fortunes that we dropped in rich peoples’ laps.

On the political side, the market does enjoy tremendous legitimacy. This is for good cause; it is a very effective tool for generating wealth. It should be an easier political sell to propose changes that both make the market more efficient and generate less inequality than to propose taxing away the vast fortunes that the rich earned because of the way we structured the market.

 

Three Market Reorienting Baby Steps for Biden to Reduce Inequality

Over the last four decades, we have altered market structures in numerous ways that have had the effect of shifting more income to the top. (This is the point of Rigged [it’s free].) I’ll hit on three of the themes in that book:

  • a corrupt corporate governance structure that allows CEOs to rip off the companies they work for;
  • the system of patent and copyright monopolies, which transfers over $1 trillion a year from everyone else to beneficiaries of these rents;
  • a bloated financial system that allows some people to get tremendously wealthy while providing no service to the real economy.

I have a maximalist agenda in all three areas, most of which I discuss in Rigged, but I know that Joe Biden is no radical. So, I will instead lay out some simple steps that hopefully will be politically feasible, and can be a foot in the door for further changes later.

Giving Corporate Boards Incentive to Do Their Job

I will start with the corporate governance structure, in part because I think this problem has been horribly neglected by progressives. As I have argued many times, CEOs rip off the companies for which they work. They get their $20 million paychecks not because they produce $20 million in value for shareholders, but because the boards that set their pay primarily owe their allegiance to the CEO and top management, not to shareholders.

While it is standard to say that companies are run to maximize shareholder value, this claim is hard to reconcile with the fact that returns to shareholders have not been particularly good over the last two decades. And, the relatively modest returns of the last two decades enjoyed a substantial boost due to the large reduction in the corporate income tax over this period, not the hard work of CEOs.

It is more than a bit bizarre that the fact that CEOs work to maximize their own pay, rather than shareholder value is not more widely recognized. We routinely see CEOs manipulating stock prices to maximize the value of their options or walking away with huge severance packages after they have nearly wrecked the companies for which they work. This is not maximizing shareholder value.

This is not an argument for crying for shareholders, since we all know the enormous skewing of share ownership. Nonetheless, a dollar in the pocket of shareholders, which includes pension funds and middle-class people with 401(k)s, is better than a dollar in the pocket of CEOs, all of whom are in the top 0.001 percent.

But more importantly, the exorbitant pay at the top contaminates pay structures throughout the economy. If CEOs got paid $2-$3 million, as they did before the enormous upward redistribution of the last four decades, we would see much lower pay for the second and third-tier executives as well. And presidents of universities and non-profits would likely get closer to $500k than the $1-$2 million many now pocket. Other top-level administrators would see their pay correspondingly reduced. And, as fans of arithmetic everywhere know, less money for those at the top means more for everyone else.

The fact that shareholders stand to gain from reining in the pay of CEOs and other top execs means that they are allies in this effort. To my mind, the big issue is changing the incentives for corporate boards. As it stands now, they have little incentive to rein in the pay of their friend, the CEO.    

My plan on this is to add a little bite to the “Say on Pay” provision that was part of the Dodd-Frank financial reform bill. This provision requires companies to submit their CEO pay package to a non-binding vote of the shareholders every three years. The vast majority of packages are approved since it is hard to organize shareholders and there is not much consequence to having one turned down.

My proposal is to change the rules so that directors lose their annual stipend (which is often in the range of $200,000 to $300,000) if a CEO pay package is voted down. My guess is that if even one or two packages go down, we will see boards start asking the questions they are supposed to be asking, like “can we get away with paying our CEO a few million less?” or “is there someone just as qualified who would do the job for half the pay?”  

The job of directors is first and foremost to keep top management in check by asking questions like this, but it is a safe bet that almost none ever do. If we could change incentives, so they did start putting serious downward pressure on CEO pay, we might be looking at a very different pay structure in the not distant future.

I also like the logic. Will the right call people socialists for proposing that shareholders have more control over the companies they own? 

Playing with a Post-Patent World

It is amazing how many people, including progressive-type people, view patent and copyright monopolies as just part of the natural order of things. These government-granted monopolies are quite explicitly forms of government intervention in the market. They hugely raise the price of items like prescription drugs, medical equipment, and software. They also redistribute an enormous amount of income upward, likely more than $1 trillion a year (half of all corporate profits). But no one would expect Joe Biden to make a frontal assault on this bulwark of inequality and waste.

But, we can maybe envision a modest step that could end being a big foot in the door. Suppose the National Institutes of Health were to substantially ramp up funding in one specific area, with the explicit condition that all the results would be fully open and all patents in the public domain. (Cancer research would be an obvious candidate since Biden’s son died of cancer and he seems to feel strongly about developing effective treatments and cures.)

In this case, new treatments would be available at generic prices from the day they were approved by the FDA. Instead of the next breakthrough cancer drug selling for hundreds of thousands of dollars for a year’s dosage, it might sell for hundreds of dollars, or at worst a figure in the low thousands. Drugs are almost always cheap to manufacture and distribute. It is government-granted patent monopolies that make them expensive.

If we could get some serious funding for open-source cancer research and it paid off with successful treatments, it would set a great example. This would likely lead to enormous pressure to do the same with the development of drugs to treat other conditions. Ideally, we would have gone this route with developing vaccines and treatments for the coronavirus, but the idea of collaborative research was obviously alien to Donald Trump and his team. 

Making the Financial Sector More Efficient

The financial sector is also an enormous source of waste and inequality. While we need a well-functioning financial sector to make payments and allocate capital, an efficient financial sector is a small financial sector. Unlike sectors like health care and housing, which provide direct value to people, finance is an intermediate sector, like trucking. While we need trucking to get goods from one place to another, but if our trucking sector increased five-fold relative to the size of the economy over five decades (as has finance), it would likely mean we have a very inefficient trucking system.

Not only is the financial system inefficient, but it also has also generated many of the great fortunes in the economy. It is hard to argue that these great fortunes were earned by producing great value for the economy, rather they are a story of being able to game the system to get money at the expense of others.

I have long argued for a financial transaction tax as a great way to downsize the financial sector and get a large amount of revenue. Biden has also indicated his support for a FTT. I hope that he does push for one, although he will certainly have a difficult fight in Congress.

While a FTT is hopefully on the table, there are two smaller, but nonetheless, important measures that Biden can look to pursue. The first is to have the IRS prepare tax returns for people, instead of forcing them to do it themselves or pay hundreds of dollars to tax preparers.

This should be a hugely popular measure. No one enjoys filling out a tax return or paying money to a tax preparer. The idea here is that IRS would fill out a return for every taxpayer, based on the information it already has from W-2s and other tax forms, and mail it to everyone for their review. If people were satisfied that their taxes were calculated accurately, they would just accept the calculation and either pay what they owe or get the refund the IRS had calculated.

If they were convinced the IRS had erred, they would have to complete their own return, with the necessary documentation. In the vast majority of cases, people would likely accept the IRS calculation, meaning that they did not have to do anything.

This should not be rocket science, many European countries have had this sort of system in place for more than two decades. This would save people a huge amount of grief, as well as tens of billions paid each year to tax preparation services. The only losers in this story are H&R Block and the other companies that provide these services and/or software.

In the same vein, Biden could look to establish a national system of low-cost 401(k)-type accounts that people could contribute to on a voluntary basis. The idea here is that the current system is often complicated and expensive. Many accounts charge people over 1 percent annually just to hold their money. (Individual funds, held through these accounts, charge additional fees.) This means that someone with $100k in a retirement account is paying $1,000 a year or more, for essentially nothing.

The government already offers this sort of account for government workers through its Thrift Savings Plan. The cost is less than one-tenth of one percent annually. Illinois, California, New York, and other states are setting up these systems at the state level. The federal government can do this at an even lower cost and allow people to remain in the same system throughout their whole working lives, even if they move across state borders.

Here again, the only losers are the financial industry players that made a fortune gouging workers. If $2 trillion were shifted from high-cost accounts to a government account, the savings would be on the order of $20 billion a year. Also, since roughly half of all workers do not even have the option to contribute to a retirement account at their workplace, we would likely see many more workers contributing to retirement accounts.

There are of course other areas in finance where a Biden administration could and should look to crack down on the industry. Private equity has a whole bag of tricks that largely depends on tax games and running up debts that can be dumped off on other parties, like workers and suppliers. Reining in these abuses should be on the administration’s agenda. Simplifying the tax code, ideally by changing the target of the corporate income taxes from profits to returns to shareholders, should radically reduce the resources devoted to tax avoidance and evasion.

There are other ways in which Biden can and should look to rein in finance, but this should be a very good beginner’s list for a moderate president. Besides, I don’t want to spend too much time writing up proposals for a second Trump administration to ignore.

We’ll see what happens next week. Let’s hope we can have some great battles to fight with the Wall Street Democrats. 

It’s not normal for a president of the United States to make plans with the president of an allied country that is likely to get tens of thousands of people in that country killed. But we’re not talking about ordinary presidents, we’re talking about Donald Trump and Jair Bolsonaro.

The goal of the Trump-Bolsonaro plot was to keep Brazil from getting access to a vaccine developed in China. China is apparently somewhat ahead of the United States in developing an effective vaccine. While the pharmaceutical companies in the United States have approached a vaccine by developing a new RNA method, the leading Chinese companies have pursued an old-fashioned dead virus approach.

This allowed these companies to move more quickly with their testing and get to the final Phase 3 stage of clinical trials before the U.S. companies. They also went the route of picking countries with high infection rates, like Brazil, to conduct their trials. A high infection rate makes it easier to determine how effective a vaccine is in preventing infections.

Now that Sinovac, one of the leading Chinese companies, is concluding its trials, it is negotiating large sales of the vaccine to Brazil. Joao Doria, the governor of Sao Paulo, had negotiated a major purchase for the people in his state. Bolsonaro has sought to nix the deal.

According to a press account, Bolsonaro made this decision after meeting with Trump’s national security adviser, Robert O’Brien. Trump apparently would consider it a setback in his contest with China for global stature if Brazil were to adopt a vaccine developed by a Chinese company.

Brazil ranks second to the United States in total deaths from the pandemic and is seeing close to 400 deaths a day. This means a delay in getting a vaccine of even a month can mean over 10,000 additional deaths. If the delay is longer, as seems likely, the number of needless deaths would increase accordingly.

Bolsonaro’s claim is that he doesn’t want his country to be “anyone’s guinea pig.” But this is hardly the issue. Large-scale purchases of the Sinovac vaccine would come only after Brazil’s regulatory authority had determined that the vaccine was safe and effective. Bolsonaro’s move was purely an effort to satisfy his friend Donald Trump. He apparently has no more respect for the lives of the people in Brazil than Trump does for people in the United States.  

It’s not normal for a president of the United States to make plans with the president of an allied country that is likely to get tens of thousands of people in that country killed. But we’re not talking about ordinary presidents, we’re talking about Donald Trump and Jair Bolsonaro.

The goal of the Trump-Bolsonaro plot was to keep Brazil from getting access to a vaccine developed in China. China is apparently somewhat ahead of the United States in developing an effective vaccine. While the pharmaceutical companies in the United States have approached a vaccine by developing a new RNA method, the leading Chinese companies have pursued an old-fashioned dead virus approach.

This allowed these companies to move more quickly with their testing and get to the final Phase 3 stage of clinical trials before the U.S. companies. They also went the route of picking countries with high infection rates, like Brazil, to conduct their trials. A high infection rate makes it easier to determine how effective a vaccine is in preventing infections.

Now that Sinovac, one of the leading Chinese companies, is concluding its trials, it is negotiating large sales of the vaccine to Brazil. Joao Doria, the governor of Sao Paulo, had negotiated a major purchase for the people in his state. Bolsonaro has sought to nix the deal.

According to a press account, Bolsonaro made this decision after meeting with Trump’s national security adviser, Robert O’Brien. Trump apparently would consider it a setback in his contest with China for global stature if Brazil were to adopt a vaccine developed by a Chinese company.

Brazil ranks second to the United States in total deaths from the pandemic and is seeing close to 400 deaths a day. This means a delay in getting a vaccine of even a month can mean over 10,000 additional deaths. If the delay is longer, as seems likely, the number of needless deaths would increase accordingly.

Bolsonaro’s claim is that he doesn’t want his country to be “anyone’s guinea pig.” But this is hardly the issue. Large-scale purchases of the Sinovac vaccine would come only after Brazil’s regulatory authority had determined that the vaccine was safe and effective. Bolsonaro’s move was purely an effort to satisfy his friend Donald Trump. He apparently has no more respect for the lives of the people in Brazil than Trump does for people in the United States.  

The Post had a nice piece reported on how the top executives of major companies that went into bankruptcy were able to get large bonuses. As the piece points out, the bonuses are not tied to performance outcomes, like getting the companies out of bankruptcy in a specific time frame. Of course, ordinary workers at these companies are not so lucky, with many being laid off with little or nothing by way of severance pay.

While the piece does not make this point explicitly, these sorts of payouts to CEOs and top executives are hard to reconcile with a story where companies are being run to maximize shareholder value. They are more consistent with a story where CEOs are able to use their power to rip off the companies for which they work.

This matters because the bloated pay of CEOs affects pay structures throughout the economy. When CEOs get $15 to $20 million, the CFOs and other top execs might get $10 to $12 million, and the third tier execs can get $1 to $3 million. This also leads to million dollar paychecks for top execs in nonprofits and universities. The world would be very different if we had the pay differentials from the 1960s and 1970s, in which case the CEOs would earn $2 to $3 million. And, the bloated pay at the top affects pay for everyone else, since fans of arithmetic know that more money for the top, means less money for those at the middle and the bottom.

If high CEO pay was associated with strong returns for shareholders, there would at least be a rationale for it, but as this and many other accounts indicate, this is not the case. Bloated CEO pay is simply corruption that generates inequality, and shareholders should be allies in stopping it.

The Post had a nice piece reported on how the top executives of major companies that went into bankruptcy were able to get large bonuses. As the piece points out, the bonuses are not tied to performance outcomes, like getting the companies out of bankruptcy in a specific time frame. Of course, ordinary workers at these companies are not so lucky, with many being laid off with little or nothing by way of severance pay.

While the piece does not make this point explicitly, these sorts of payouts to CEOs and top executives are hard to reconcile with a story where companies are being run to maximize shareholder value. They are more consistent with a story where CEOs are able to use their power to rip off the companies for which they work.

This matters because the bloated pay of CEOs affects pay structures throughout the economy. When CEOs get $15 to $20 million, the CFOs and other top execs might get $10 to $12 million, and the third tier execs can get $1 to $3 million. This also leads to million dollar paychecks for top execs in nonprofits and universities. The world would be very different if we had the pay differentials from the 1960s and 1970s, in which case the CEOs would earn $2 to $3 million. And, the bloated pay at the top affects pay for everyone else, since fans of arithmetic know that more money for the top, means less money for those at the middle and the bottom.

If high CEO pay was associated with strong returns for shareholders, there would at least be a rationale for it, but as this and many other accounts indicate, this is not the case. Bloated CEO pay is simply corruption that generates inequality, and shareholders should be allies in stopping it.

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