The Wonderful World of Free Market Drugs

May 30, 2019

30 Mayo 2019

(This post first appeared on my Patreon page.) I write about the possibility of producing drugs without patent monopolies frequently for several reasons. First, drugs can be essential for people’s health or even life. It should not be a struggle for people to pay for them. Second, there is a huge amount of money at stake, way more than in almost any other realm of public policy. Third, it is such a great example where government intervention, in the form of patents and related monopolies, creates the problem. This is not a story where we need the government to correct an inequity created by the market, we need the government to stop intervening in a way that creates tremendous inequities and inefficiencies. I find that people (I mean people engaged in public policy work, not random people grabbed off the bus) have a hard time even understanding what the market for prescription drugs looks like in the absence of patent and related monopolies,[1] so I thought I would devote a blogpost to describing my view of such a world. The first and most basic point is that in nearly all cases drugs would be cheap. Drugs are very rarely expensive to manufacture. They are expensive for patients because drug companies have patent or related monopolies and they use these monopolies to charge very high prices to the people who need their drugs. If there were dozens of competing manufacturers producing the same drug, they would be no better positioned to get away with charging incredibly high prices than a supermarket could get away with charging incredibly high prices for food. (We need food to survive, too.) They would be welcome to try, but almost everyone would simply turn to a competitor, likely driving them out of business. We know that drugs are cheap in the absence of patent monopolies for two reasons. First, because generic prices in the United States are much less than brand prices. In addition, many of the high priced drugs sold with patent protection in the United States are sold as generics elsewhere in the world, in some cases for less than one percent of the price in the U.S. According to data from the Association for Accessible Medicines, the trade group for the generic industry, brand drugs accounted for 74 percent of spending even though they were only 11 percent of the prescriptions sold. By contrast, generic drugs accounted for just 26 percent of spending even though they were 89 percent of sales. This implies that the average generic prescription cost just 3.6 percent of the price of the average brand prescription, or $29.70 per prescription in 2017. This figure would mean that we could save 96.4 percent of the money spent on brand drugs if we immediately got rid of protections and allowed them to be sold as generics.

Robert Rubin, Who Made a Fortune on the Housing Bubble, and Wanted the Fed to Raise Interest Rates When the Unemployment Rate Was Over 6.0 Percent, Is Concerned About the Social Determinants of Health

By CEPRCEPR

May 28, 2019

28 Mayo 2019

Most people probably know of Robert Rubin as the person who thought deregulating finance and having a huge housing bubble was cool. They may also know that he hugely profited from the bubble personally as a top executive at Citigroup, a bank that was at the center of the bubble’s finance and would have gone bankrupt in the crash, had it not been for a massive government bailout.

They may also know Robert Rubin as the person who pushed for an over-valued dollar, which led to a huge trade deficit and decimated U.S. manufacturing. And, they may know Robert Rubin as the person who wanted the Fed to raise interest rates back in 2014 when the overall unemployment rate was over 6.0 percent and the unemployment rate for blacks was over 11.0 percent.

But, thanks to the New York Times, we can also learn that Robert Rubin wants us to take into account the federal government’s savings on health care costs associated with programs like food stamps. Rubin is of course right on this, but it would really be hard to beat him on the trivia scale here.

Most people probably know of Robert Rubin as the person who thought deregulating finance and having a huge housing bubble was cool. They may also know that he hugely profited from the bubble personally as a top executive at Citigroup, a bank that was at the center of the bubble’s finance and would have gone bankrupt in the crash, had it not been for a massive government bailout.

They may also know Robert Rubin as the person who pushed for an over-valued dollar, which led to a huge trade deficit and decimated U.S. manufacturing. And, they may know Robert Rubin as the person who wanted the Fed to raise interest rates back in 2014 when the overall unemployment rate was over 6.0 percent and the unemployment rate for blacks was over 11.0 percent.

But, thanks to the New York Times, we can also learn that Robert Rubin wants us to take into account the federal government’s savings on health care costs associated with programs like food stamps. Rubin is of course right on this, but it would really be hard to beat him on the trivia scale here.

Is Uber's Stock Scam Evidence of a Successful Business Model?

By CEPRCEPR

May 28, 2019

28 Mayo 2019

Back in the old days, economists used to think that having a profitable business was evidence of a successful business model. This success could be based on things like ripping off workers and/or customers or destroying the environment, which obviously are not good, but if a business was not profitable, it would be hard to call it a success, whether or not it followed the law and social norms.

However, for Roger Lowenstein and the Washington Post, profits no longer matter. Lowenstein proclaimed the taxi services Uber and Lyft successes based on the large amount of money they raised in their IPOs. This is in spite of the fact that both companies are huge money losers, with no immediate prospect of reversing course. Also, they both have difficulty following the law in areas like treating their drivers as employees and following labor law on issues like minimum wages and overtime. (They insist their drivers are independent contractors, but since both companies set their pay, this price setting among independent contractors would violate anti-trust law.)

The argument that a company has a successful business model because it can fetch a high stock price would mean all the crazy dotcoms of the 1990s stock boom had successful business models as did Theranos. It should not be too much to demand that a company at least show a capacity to earn a profit before being touted for its successful business model.

Lowenstein is correct that the taxi system was horribly regulated for the benefit of the taxi companies. However, it does not follow that we should want completely unregulated taxis from Uber and Lyft. People getting a ride should be able to know that their driver won’t assault them, that they are not driving drunk, that they will be covered by insurance if there is an accident, and that the car is safe. And the drivers should be protected by minimum wage and overtime regulations and other basic labor standards.

These are legitimate forms of regulation that both companies have fiercely resisted. When they can comply with regulations in these areas and make a profit, then we will know that they have a successful business model.

Back in the old days, economists used to think that having a profitable business was evidence of a successful business model. This success could be based on things like ripping off workers and/or customers or destroying the environment, which obviously are not good, but if a business was not profitable, it would be hard to call it a success, whether or not it followed the law and social norms.

However, for Roger Lowenstein and the Washington Post, profits no longer matter. Lowenstein proclaimed the taxi services Uber and Lyft successes based on the large amount of money they raised in their IPOs. This is in spite of the fact that both companies are huge money losers, with no immediate prospect of reversing course. Also, they both have difficulty following the law in areas like treating their drivers as employees and following labor law on issues like minimum wages and overtime. (They insist their drivers are independent contractors, but since both companies set their pay, this price setting among independent contractors would violate anti-trust law.)

The argument that a company has a successful business model because it can fetch a high stock price would mean all the crazy dotcoms of the 1990s stock boom had successful business models as did Theranos. It should not be too much to demand that a company at least show a capacity to earn a profit before being touted for its successful business model.

Lowenstein is correct that the taxi system was horribly regulated for the benefit of the taxi companies. However, it does not follow that we should want completely unregulated taxis from Uber and Lyft. People getting a ride should be able to know that their driver won’t assault them, that they are not driving drunk, that they will be covered by insurance if there is an accident, and that the car is safe. And the drivers should be protected by minimum wage and overtime regulations and other basic labor standards.

These are legitimate forms of regulation that both companies have fiercely resisted. When they can comply with regulations in these areas and make a profit, then we will know that they have a successful business model.

Robert Samuelson Warns China Might Pull Out Its Water Pistol and Sell U.S. Treasury Bonds

By CEPRCEPR

May 27, 2019

27 Mayo 2019

With the trade war between the U.S. and China heating up, Robert Samuelson warns us that China may just sell the trillions of dollars worth of U.S. assets it holds. While the idea is that this is a potential threat, it is not clear why.

Other things equal, China’s decision to sell large amounts of Treasury bonds would drive up interest rates in the United States. That would be bad news, but if the Fed did not want interest rates to rise, then it could simply buy the Treasury bonds that China is selling, leaving interest rates unchanged.

China’s decision to sell large amounts of U.S. Treasury bonds and other dollar-based assets would have the effect of lowering the value of the dollar against the yuan, ending its currency management, or “manipulation,” as Donald Trump calls it. This would make U.S. goods and services relatively more competitive internationally and Chinese goods and services less competitive.

That could be a peace gesture in the trade war, as it would likely mean a sharply lower U.S. trade deficit with China, but this is not how Samuelson is presenting it.

With the trade war between the U.S. and China heating up, Robert Samuelson warns us that China may just sell the trillions of dollars worth of U.S. assets it holds. While the idea is that this is a potential threat, it is not clear why.

Other things equal, China’s decision to sell large amounts of Treasury bonds would drive up interest rates in the United States. That would be bad news, but if the Fed did not want interest rates to rise, then it could simply buy the Treasury bonds that China is selling, leaving interest rates unchanged.

China’s decision to sell large amounts of U.S. Treasury bonds and other dollar-based assets would have the effect of lowering the value of the dollar against the yuan, ending its currency management, or “manipulation,” as Donald Trump calls it. This would make U.S. goods and services relatively more competitive internationally and Chinese goods and services less competitive.

That could be a peace gesture in the trade war, as it would likely mean a sharply lower U.S. trade deficit with China, but this is not how Samuelson is presenting it.

Trump’s Trade War with China and “Our” Intellectual Property

By CEPRCEPR

May 23, 2019

23 Mayo 2019

(This post first appeared on my Patreon page.) Some events give extraordinary insights into the biases of the economics profession. The trade war with China clearly fit the bill. The origins of the trade war can be traced to campaign promises Trump made to go after China over its large trade surplus with the United States, which he attributed to “currency manipulation.” The argument was that by intervening in currency markets (buying up U.S. dollars), China was propping up the value of the dollar against its own currency. This makes Chinese goods and services relatively cheaper to U.S. consumers and makes U.S. goods more expensive to Chinese purchasers. The net effect is to increase U.S. imports of Chinese goods and reduce U.S. exports to China, thereby leading to a large trade deficit. While most economists now acknowledge that China was intervening in currency markets in the last decade (they did not acknowledge the currency intervention at the time), they insist that this is no longer an issue. China is no longer a large net buyer of dollar denominated assets, so the argument goes, therefore it is not currently keeping down the value of its currency against the dollar. As I have argued elsewhere, this argument ignores the effect of China holding well in excess of $3 trillion worth of dollar denominated assets. Its decision to hold a massive stock of dollar assets depresses the value of the Chinese yuan against the dollar, thereby maintaining the competitive advantage from a lower valued currency. This is the same logic that applies with the Fed’s decision to hold trillions of dollars worth of assets that it acquired as part of its quantitative easing program. Even though the Fed is not currently buying assets, most economists argue that its holding of assets still works to keep down interest rates. Perhaps in the next decade they will acknowledge that the same relationship holds with China’s massive stock of dollars and the relative value of the dollar and the yuan, but for now they insist that currency intervention was only an issue in the past. This is important background, because currency values will directly affect our trade balance with China, and thereby impact the number of manufacturing jobs in the United States. While reducing the trade deficit will not get back most of the relatively high paying manufacturing jobs that were lost in the last decade, it would likely still be a plus for relatively less-educated workers who still rely on manufacturing as a source of higher paying jobs.

We Wrecked the Planet but if the Young Just Read the Washington Post, They Will Only Blame Us for the National Debt!

By CEPRCEPR

May 21, 2019

21 Mayo 2019

You have to love Robert Samuelson. He writes a column noting that baby boomers are leaving the workforce, and some are dying off, leaving the country to our children and grandchildren. He concludes the piece with a comment on the national debt.

“To boot, there’s also a massive federal debt. Good luck.”

Given the enormous damage that we have done to the environment, our children and grandchildren would be enormously forgiving if all they blamed us for is the national debt. Of course, since we (baby boomers) will all be dead at some point, we will also be passing on the bonds that constitute the national debt to our children and grandchildren.

Most kids will not be inheriting bonds, due to the inequality of wealth, but at some future point, the debt will be held by the children and grandchildren of Bill Gates and his ilk, making the debt an issue of intra-generational inequality, not inter-generational inequality. But even beyond this logical point, the burden of the debt is also relatively low these days, around 1.0 percent of GDP, as opposed to 3.0 percent of GDP in the early 1990s. So it’s hard to see what the big deal is.

Also, Samuelson consistently ignores (like all deficit hawks) the implicit debt that the government creates by granting patent and copyright monopolies. These government-granted monopolies raise the price of items like prescription drugs, medical equipment, software, and other products by many hundred billion dollars annually above the free market price. Yet, the deficit hawks want us to pay no attention to this burden. If I were more cynical I would think they were getting money from the interest groups that benefit from these monopolies.

Anyhow, if the only thing our kids think we did was wrong was run up large government debt, then we failed big-time in giving them a decent education.

You have to love Robert Samuelson. He writes a column noting that baby boomers are leaving the workforce, and some are dying off, leaving the country to our children and grandchildren. He concludes the piece with a comment on the national debt.

“To boot, there’s also a massive federal debt. Good luck.”

Given the enormous damage that we have done to the environment, our children and grandchildren would be enormously forgiving if all they blamed us for is the national debt. Of course, since we (baby boomers) will all be dead at some point, we will also be passing on the bonds that constitute the national debt to our children and grandchildren.

Most kids will not be inheriting bonds, due to the inequality of wealth, but at some future point, the debt will be held by the children and grandchildren of Bill Gates and his ilk, making the debt an issue of intra-generational inequality, not inter-generational inequality. But even beyond this logical point, the burden of the debt is also relatively low these days, around 1.0 percent of GDP, as opposed to 3.0 percent of GDP in the early 1990s. So it’s hard to see what the big deal is.

Also, Samuelson consistently ignores (like all deficit hawks) the implicit debt that the government creates by granting patent and copyright monopolies. These government-granted monopolies raise the price of items like prescription drugs, medical equipment, software, and other products by many hundred billion dollars annually above the free market price. Yet, the deficit hawks want us to pay no attention to this burden. If I were more cynical I would think they were getting money from the interest groups that benefit from these monopolies.

Anyhow, if the only thing our kids think we did was wrong was run up large government debt, then we failed big-time in giving them a decent education.

The Money in the Trump-Kushner Peace Plan

By CEPRCEPR

May 20, 2019

20 Mayo 2019

The New York Times had an article on the Middle East peace plan being developed by Donald Trump and his son-in-law Jared Kushner. The piece tells readers:

“The idea is to secure financial commitments from wealthy Persian Gulf states as well as donors in Europe and Asia to induce the Palestinians and their allies to make political concessions to resolve the decades-old conflict with Israel. The White House has indicated that it is seeking tens of billions of dollars but would not identify a precise figure; diplomats and lawmakers have been told the goal is about $68 billion for the Palestinians, Egypt, Jordan, and Lebanon.”

This is obviously quite vague, but it might be helpful to readers to put this $68 billion figure in context. First, it is a bit more than half of the estimated fortune of Jeff Bezos.

More importantly, if we take the total population of the four groups listed, it comes to roughly 120 million. This means that the sum that Trump and Kushner hope to raise to induce a commitment to their peace plan comes to $560 per person. This seems to be a one-time figure rather than any ongoing commitment of aid.

The New York Times had an article on the Middle East peace plan being developed by Donald Trump and his son-in-law Jared Kushner. The piece tells readers:

“The idea is to secure financial commitments from wealthy Persian Gulf states as well as donors in Europe and Asia to induce the Palestinians and their allies to make political concessions to resolve the decades-old conflict with Israel. The White House has indicated that it is seeking tens of billions of dollars but would not identify a precise figure; diplomats and lawmakers have been told the goal is about $68 billion for the Palestinians, Egypt, Jordan, and Lebanon.”

This is obviously quite vague, but it might be helpful to readers to put this $68 billion figure in context. First, it is a bit more than half of the estimated fortune of Jeff Bezos.

More importantly, if we take the total population of the four groups listed, it comes to roughly 120 million. This means that the sum that Trump and Kushner hope to raise to induce a commitment to their peace plan comes to $560 per person. This seems to be a one-time figure rather than any ongoing commitment of aid.

All New York Times Readers Know How Important 167,000 Jobs Are to Australia

By CEPRCEPR

May 19, 2019

19 Mayo 2019

That apparently is the assumption of the paper’s editors. An article that discussed the impact of the debate on global warming on this weekend’s election told readers of a study pushed by proponents of inaction which:

“estimated that the 45 percent reduction in carbon emissions proposed by the opposition Labor Party would cost the economy 167,000 jobs and 264 billion Australian dollars, or $181 million.”

In case readers did not know how important 167,000 jobs are to Australia, it is equal to a bit less than 1.3 percent of its current workforce. (The calculation of job loss in these models is typically associated with a reduction in pay due to carbon taxes, which means fewer people will decide to work.) The loss of GDP is equal to 0.8 percent of projected GDP, according to the model.

Since it is likely that most NYT readers have no idea how large Australia’s workforce is, or the size of its economy, it might have been useful to include context that would make these numbers meaningful.

That apparently is the assumption of the paper’s editors. An article that discussed the impact of the debate on global warming on this weekend’s election told readers of a study pushed by proponents of inaction which:

“estimated that the 45 percent reduction in carbon emissions proposed by the opposition Labor Party would cost the economy 167,000 jobs and 264 billion Australian dollars, or $181 million.”

In case readers did not know how important 167,000 jobs are to Australia, it is equal to a bit less than 1.3 percent of its current workforce. (The calculation of job loss in these models is typically associated with a reduction in pay due to carbon taxes, which means fewer people will decide to work.) The loss of GDP is equal to 0.8 percent of projected GDP, according to the model.

Since it is likely that most NYT readers have no idea how large Australia’s workforce is, or the size of its economy, it might have been useful to include context that would make these numbers meaningful.

The Washington Post Argues that a Free Market Means that People Get to Dump Their Sewage on Their Neighbors' Lawn

By CEPRCEPR

May 19, 2019

19 Mayo 2019

That is the logic of a major article on the idea of a Green New Deal which equates measures to stem global warming with big government and socialism. If we recognize the emission of greenhouse gases as an externality that is doing serious harm to others, then it is equivalent to massive dumping of sewage on other people’s lawns.

Most of us would not think that government action to prevent this sort of massive sewage dump was “big government” or socialism. It is government that is taking the action necessary to protect people’s rights.

This is effectively the story that we are looking at with a Green New Deal. It is understandable that opponents of actions to stop global warming would describe a Green New Deal as big government, but it is not clear why the Post would choose to do so.

That is the logic of a major article on the idea of a Green New Deal which equates measures to stem global warming with big government and socialism. If we recognize the emission of greenhouse gases as an externality that is doing serious harm to others, then it is equivalent to massive dumping of sewage on other people’s lawns.

Most of us would not think that government action to prevent this sort of massive sewage dump was “big government” or socialism. It is government that is taking the action necessary to protect people’s rights.

This is effectively the story that we are looking at with a Green New Deal. It is understandable that opponents of actions to stop global warming would describe a Green New Deal as big government, but it is not clear why the Post would choose to do so.

Ady Barken, the Fed, and the Liberal Funder Industry

By CEPRCEPR

May 16, 2019

16 Mayo 2019

(This post first appeared on my Patreon page.) Earlier this month, New York Times reporter Binyamin Appelbaum wrote a moving piece on Ady Barkan. Ady is a lifelong activist who is now dying from A.L.S., often known as Lou Gehrig’s disease. It is an incredibly sad story, Ady is just 35 years old. He is married with a young son. While I’m sure he would like to spend the time he has left with his loved ones, he is determined to use whatever energy he can to push for universal Medicare. I was sitting next to him last month when we were both testifying on universal Medicare. Ady was in a wheel chair, having lost control over most of his muscles. He could not speak and instead had a mechanical voice speak out the words he typed. It was clear that it was not easy for him to be there. He was sweating profusely in a room that was not particularly warm. It was a very impressive show of determination for a cause to which he is very committed. I actually first met Ady through his work on a different topic, the Fed Up campaign, which was designed to push the Federal Reserve Board to prioritize full employment and higher wages. Fed Up was about bringing the voices of ordinary workers and community activists into the debate on monetary policy. Ady was one of the lead organizers with the Center for Popular Democracy, the group that spearheaded the Fed Up campaign. As Appelbaum points out in this piece, the Fed Up campaign was remarkably successful in getting the Fed to take the concerns of working people more seriously. In general, the Fed is far more responsive to the concerns of the financial industry.