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Paying Taxes and Getting Benefits Misses the Boat

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Tuesday, 18 September 2012 12:36

Bill Gates is a huge beneficiary of government largess. So are Pfizer and Merck. If you don't immediately understand why, then you haven't been reading BTP enough.

Gates and Microsoft are incredibly wealthy because of the copyright and patent monopolies given to them by the government. Without these government enforced monopolies, we would all be getting Windows and Word for free (they're worth it). The same applies to Pfizer and Merck. These companies' drugs would be selling for $5 per prescription if we had a free market in prescription drugs. Government patent monopolies make drugs expensive and allow drug companies and select high level employees to get very rich.

There are many other ways in which the government structures markets that advantage some groups within society to the detriment of others. The financial sector presents many other obvious examples with its too big to fail insurance and enormous bailouts of the last few years that kept the Wall Street giants from going belly up.

The response to Governor Romney's now famous comment about the 47 percent of households who freeload on the government is causing an enormous distraction. The tax and benefit sides of the ledger are the least important way in which the government affects the distribution of income. The far more important route is how the government structures markets to affect the before tax distribution of income.

This affects every area of the economy. For example, Chicago Mayor Rahm Emanuel is now trying to use the power of the government to throw striking teachers in jail if they continue their strike. Trade policy for the last three decades has been designed to undermine the bargaining power of manufacturing workers, as has been the high dollar policy that is a legacy of the Clinton years. The failure of the Fed to act more aggressively to try to boost the economy is denying tens of millions of workers employment or full-time employment at decent wages.

The list of ways in which government policy affects the pre-tax distribution of income is long. (Read my free book, The End of Loser Liberalism: Making Markets Progressive to get the whole story.) The leadership of both parties would like to keep the public's focus exclusively on explicit tax and transfer policy, but this is just for children. The real story is what lies behind the curtain.

Comments (12)Add Comment
Form of Benefits
written by James, September 18, 2012 2:16
The ones that you have been villifying are considered necessary by the their beneficiaries. Who knew?

Both parties tell us and esp. one in more particular, those are needed for job creation - trig down theory.

One should not be surprised though just look at which party generally gets the most support from the Silicon Valley.

And for the rest of us, sit and wish some thing might fall onto us.
Thanks for that ...
written by David, September 18, 2012 4:16
Patents really have very little to do with innovation, or even protecting innovators, the major point is that they protect the patent holders. A patent challenge is expensive (about $35,000 just to file), and if some deep pockets company steals an individual's ideas, why not? Because the minimal legal fees are about $1.5 million (on each side). Now tell me which mom and pop/ Steve Wozniak garage inventor is going to be able to afford that? Well, if they license their patent to another big company, that's how. It's ridiculous and economically unproductive, other than swelling the ranks of patent lawyers (the numbers of which have been growing at a faster rate than the patents).

It's very disheartening to have someone like Mr. Romney (for example) who can use his access to big bucks to crap on the head of those below him, all done legally by finance laws and regulations written specifically for his business to do so. And then they laugh at how stupid and lazy those losers are. They just have to buy the tag-alongs like Erskine Bowles, who cares if they lose a couple hundred million in the deal, when there's billions and trillions to plunder?
put the dunce cap on romney's head
written by mel in oregon, September 18, 2012 5:11
no surprise about romney's "off the cuff remarks". most people that are born into wealth have a very condescending attitude to the poor & working classes. they can't help it, it's in their DNA. but what is infuriating to many romney camp followers, is how he could be so stupid as to reveal the common attitude of most conservatives to the general public. i mean, what the hell, didn't his security people check for tape reorders? romney is showing he's stupider than palin, which is a very bitter pill for his backers. only the terminally stupid, (i'm thinking of you rush), believe what he said is positive. but let's don't get too excited, the new economy is here to stay. still it's good comic relief for red blooded american progressives even in these terrible times.
...
written by Matt, September 18, 2012 5:17
There are many other ways in which the government structures markets that advantage some groups within society to the detriment of others. The financial sector presents many other obvious examples with its too big to fail insurance and enormous bailouts of the last few years that kept the Wall Street giants from going belly up.

The largest of which is land rent, which is an order of magnitude greater than examples such as patents or copyrights (estimates put it as high as $2T annually). Yet, it's largely just gifted away by the government, and generally is absorbed as interest by financial institutions, or becomes capital gains for large corporations which own many high-value sites.
Like the Palestinian miracle drugs?
written by daxxenos, September 18, 2012 5:28
Without copyrights and patents we'd be getting Windows free? Why would one assume Windows would have even come into existence under those conditions?
Linux is free
written by Gavin, September 18, 2012 6:08
The Linux operating system did come into existence even though it is given away free
windows for free?
written by David, September 18, 2012 8:41
Like the Palestinian miracle drugs?
written by daxxenos, September 18, 2012 4:28
Without copyrights and patents we'd be getting Windows free? Why would one assume Windows would have even come into existence under those conditions?


For the same reason that Ben Franklin never filed a patent on a single one of his inventions, but bifocals are still being used to this day. Same with the Franklin stove: at the time the most efficient stove available.

Why did these solutions come into existence? Because there was a problem someone had and found a solution to, and a lot of other people had that same problem and wanted that solution too. Providers provided. It's not hard to figure out. What doesn't work is when marketers make up false problems for their products to solve (e.g. pharmaceutical companies marketing their product for unintended uses). Windows solved a real problem; and Steve Jobs got it from Xerox before Gates did, but they both relied on the largesse of Xerox Corporation.
...
written by Alex Hamilton, September 19, 2012 5:32
Great blog!
...
written by skeptonomist, September 19, 2012 9:43
Microsoft's monopoly is to a large extent natural and accidental. It would be extremely inefficient to have a multitude of competing operating systems. Microsoft was selected from the beginning by IBM and its DOS and Windows were sufficiently good to maintain the monopoly. As others point out, Linux is an option that will run on all the same computers and which is absolutely free. It will perform the same functions as Windows and Mac OS, but certain aspects of installation and user interface are inferior so it is not attractive to home users, though it is widely users for servers.

Linux is a direct descendent of Unix, which was developed at Bell Labs. MS's DOS was a derivative of Unix. The Mac operating system is now based on Unix as well. Bell Labs was operated by AT&T but was forbidden to patent or copyright its discoveries - which include many of the basic discoveries which underlie modern electronics - essentially as condition of maintaining its then-monopoly on telephone systems. It could be claimed that modern electronics, including computers and their operating systems, would not exist in their present forms without some non-free-trade monopolistic arrangements between business and government.
Gates's benefits
written by Richard Marens, September 19, 2012 4:33
The gov't subsidies to Gates et al were a great deal more direct than patent protection. The entire computer industry was largely constructed on the basis of government procurement. IBM's monopoly, ultimately the source of his wealth, was built first upon the need of the Social Security Administration for adding machines, and then later on the Strategic Air Command's orders for mainframes. Nathan Newman's book has a great deal on the debt Silicone Valley owes to the Pentagon and NASA.
...
written by liberal, September 19, 2012 6:59
Matt wrote,
The largest of which is land rent...


Yeah, was just going to post the same thing.

Dean is great, saved me a lot of money by beating on the drum about the 90s tech bubble and the 00s housing bubble, but he seems to have a particular gap in his worldview about land. Though that, sadly, makes him like almost all other modern economics.
...
written by liberal, September 19, 2012 7:10
skeptonomist wrote,
Microsoft's monopoly is to a large extent natural...


Yes, because of so-called network effects. The problem of course is that natural or not, its monopoly still resulted in rent being sucked out of computer users (consumers and businesses).

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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