Birthday Boasts: Round II

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Saturday, 13 July 2013 07:12

No, I won't bother everyone with the list again. Those who are interested can see the original. But I thought I should do an update on the 5 things I said that I would be proved right about in 5-10 years. Here's the list:

1) Patents Are an Incredibly Inefficient Way to Finance the Development of Prescription Drugs

2) We Will Need Alternative Mechanisms to Copyrights to Finance Creative Work

3) Medical Trade Will Help to Keep Down Health Care Costs in the U.S. If We Don’t Fix the Health Care System

4) Countries Can Finance Much of the Debt Issued in the Downturn by Central Bank's Holding of Assets

5) Financial Speculation Taxes Will Make the Financial System More Efficient


How much progress have we seen on these items? Not very much, I'm afraid.

There was this great piece on patents being an impediment to growth by Michele Boldrin and David Levine, a version of which also ran in the Journal of Economic Perspectives. There is at least some appreciation among economists and people in policy circles that patents are a monopoly that leads to major economic distortions.

On the ground there was a huge victory against patent abuses when India's supreme court rejected the patent in the Gleevec case. The implication is that India will provide more limited patent protection than the United States and Europe. This will provide far more scope for its booming generic industry, which now looks to be a power in its own right, providing low cost drugs throughout the developing world.

Not much good news on copyrights. The entertainment industry wants to use trade agreements to overcome its defeats in 2012 on SOPA and PIPA, and in this way deputize the whole world as junior copyright cops. (No, you don't get to carry a gun.)

The idea is get SOPA and PIPA type wording into an E.U.-U.S. trade agreement and/or the Trans-Pacific Partnership Agreement. Then, when the final deal comes to a vote, the media will hype the huge gains from the deal. Anyone who opposes it will be denounced as a knuckle-scraping protectionist. With a few hundred million dollars for campaign contributions and lobbying fees it is virtually a guaranteed winner. So far, it certainly looks like the media part at least is very much on track  

There's not a lot new to report on the medical trade front. It is striking that almost all of our favorite free traders get blank looks on their faces when the topic of medical trade comes up. It really should not be too hard to understand. Operations that cost $100,000 to $200,000 in the United States may cost $15,000 to $25,000 in top rate facilities in India, Thailand and elsewhere. The huge gap in prices means there are possibilities for large gains from trade. That is true even if we throw in $10k or so in air fares and hotel bills for the patient and immediate family members. And, since the vast majority of such procedures are not done on an emergency basis, there should be ample opportunity to plan the travel.

But it is unlikely you will see measures to facilitate medical travel (e.g. rules on legal liability or international licensing standards) in trade agreements any time soon. This is because doctors, hospitals, and other health care providers are much more powerful lobbies than autoworkers or textile workers. And the economists will therefore all get blank stares on their faces when the issue comes up.

There still is remarkably little discussion of the possibility of central banks deliberately holding assets as a way to keep down interest burdens in the years ahead. Interestingly, Adiar Turner, who has held a variety of top financial posts in the U.K., went a step further in explicitly arguing for printing money as a way to finance deficits. It actually gets to the same issue, since at some point when the economy recovers, presumably we will be concerned about inflation. At that time, do we consider raising reserve requirements as a way to slow the economy, which would allow us to have a much higher amount of interest free debt in existence than if we kept reserve requirements constant?

In the latter case, we would need more contractionary fiscal policy. I would prefer the higher reserve requirement route (yes, I know this is an implicit tax on bank deposits), but it seems it is worth some public discussion. Anyhow, we'll have to wait until at least next year.

As far as financial transactions taxes, these are now in the mainstream. Even the Center for American Progress included it in its monster policy paper last month. Unfortunately the Obama administration has positioned itself firmly on the side of Wall Street, energetically lobbying in Europe to prevent 11 EU countries from establishing a tax. This is shaping up as a clear case of intellectual arguments versus economic power. We'll see how that one turns out.

Anyhow, I hope that i will be able to report more progress on my next birthday. Progress is always difficult. Economics is much more a matter of authority and inertia than evidence and logic.

I recall being at a meeting with some I.M.F. officials a few years back assessing why they failed to see and warn of the collapse. At one point, one of the I.M.F. people there complained that they should not have to listen to gadflies (i.e. me) rather than the received doctrine from on high. Of course the argument was never that anyone should have to take an argument from someone like me on authority, but rather they should be able to listen to it and evaluate it themselves for its soundness.

Unfortunately, there are very few people in positions of authority who have both the willingness and ability to engage in such thinking. Hence we will likely have to contend with the wreckage from long disproved doctrines for many years in the future. But hey, we have to keep trying.