November 29, 2015
I am going to submit a piece to the Washington Monthly about how astronomers should support science. After reading Robert Atkinson’s Washington Monthly piece on progressives and productivity, I’m convinced its editors would find its thesis compelling.
The Atkinson piece is more than a little annoying since it paints an imaginary image of progressives that exists only in Atkinson’s head. Atkinson tells us that progressives should support productivity growth, after first going through some bizarre nonsense on the path of wages and productivity. (Wages have diverged sharply from productivity over the last three decades. This is measured using hourly wages and productivity. Someone would only bring family income into this calculation, as Atkinson does, if they are either confused or dishonest.)
Every progressive I know would very much like to see more productivity growth. The most immediate way to secure more productivity growth would be to have faster economic growth. This is both likely to spur investment and also shift workers from low paying, low productivity jobs to higher paying, higher productivity jobs. This is exactly what happened in the late 1990s when the Fed allowed the unemployment rate to fall to 4.0 percent, ignoring the widely held view in the mainstream of the economics profession that unemployment could not fall below 6.0 percent without leading to spiraling inflation.
Most of the progressives I know are actively leaning on the Fed to not raise interest rates and instead allow the unemployment rate to continue to fall. Where are the centrists and conservatives who supposedly care about productivity on this one? When is Atkinson?
Progressives support higher minimum wages in large part because they want to see low-paid workers take home more money. But, there is also a substantial body of research showing that a higher minimum wage will lead to higher productivity. This is both due to reduced turnover and also higher morale and a greater degree of loyalty on the part of workers.
Of course, progressives have always been consistent supporters of education, infrastructure, and research and development spending, all of which should provide dividends in the form of increased productivity. However, there are also less apparent ways in which progressive policies would increase productivity.
Most progressives support a financial transactions tax (FTT). These would be expected to increase the productivity of the financial sector since it is likely that it would carry on its productive purpose (allocating capital) at least as well as it does today, even if were downsized by 40–50 percent as a result of an FTT. That means the sector would be more productive.
Patent monopolies on prescription drugs are another drag on productivity. Patients have to waste time and effort fighting with insurers and the government over paying prices like the $84,000 charged for the Hepatitis C drug Sovaldi. The drug would sell for less than $1,000 in a free market. We also see the corruption and economic distortions that would be expected when drugs are sold at prices that are 10,000 percent above their free market price. Drug companies routinely lie about the safety and effectiveness of their drugs. Eliminating patent monopolies would eliminate the enormous waste and damage to the public health associated with companies improperly pushing their drugs in response to monopoly profits.
It would be far more efficient to replace patent-financed research with direct public funding. That way all new drugs could be sold at generic prices. That is a clear progressive policy that reduces inequality by saving us $350 billion a year on drug prices and also increases productivity by reducing waste in the prescription drug industry. (I once debated Atkinson on this issue. He cited my work and acknowledged that we could save money by eliminating drug patents, but then asked how we would get new drugs? He completely ignored the proposal in the paper for public funding for this purpose.)
We could also increase productivity by opening up high-paying professions, like doctors, dentists, and lawyers, to international competition. The gains from trade argument is exactly the same when it comes to highly paid professional services as it is with shoes and steel. The only difference is that the wages being lost come from workers in the top 1–2 percent, as opposed to those at the middle or lower end of the income distribution.
There are many other ways in which progressives have proposed to increase productivity growth. My book, The End of Loser Liberalism: Making Markets Progressive, is entirely about such proposals. Atkinson has chosen to either keep himself ignorant of such proposals or to ignore what he knows to be true in cooking up a bogus argument. And the Washington Monthly, usually a serious policy magazine, has chosen to give him an outlet for this nonsense.
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