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.

A common problem in policy circles is that government protections that redistribute income upward are defined as part of the market, and getting rid of them or weakening them is described as government intervention. This issue comes up most frequently with government-granted patent monopolies with prescription drugs. Any measure to lower prices by weakening patent monopoly protections is treated as a government intervention, while the patent monopoly itself is treated as the free market. And, just to remind people, patent monopolies on prescription drugs cost us more than $400 billion annually, more than twice the amount at stake with the Trump tax cut.

This Washington Post piece describes the prospect of the Federal Communications Commission (FCC) removing Section 230 protection for Internet intermediaries, like Facebook and Twitter, as “regulation.” This turns reality on its head. Removing this protection would mean that Internet intermediaries would be subject to the same rules on libel as traditional media outlets like CNN and the Washington Post. There is no obvious reason why an Internet intermediary should be subject to different standards, although this protection does obviously increase their profits and allow people like Mark Zuckerberg to get very rich.

It is worth noting that this threat to remove Section 230 protections from FCC chair Ajit Pai, is obviously an act of political intimidation directed at Facebook and Twitter. The FCC is supposed to be nonpolitical. This should be the basis for removing him as FCC chair.

A common problem in policy circles is that government protections that redistribute income upward are defined as part of the market, and getting rid of them or weakening them is described as government intervention. This issue comes up most frequently with government-granted patent monopolies with prescription drugs. Any measure to lower prices by weakening patent monopoly protections is treated as a government intervention, while the patent monopoly itself is treated as the free market. And, just to remind people, patent monopolies on prescription drugs cost us more than $400 billion annually, more than twice the amount at stake with the Trump tax cut.

This Washington Post piece describes the prospect of the Federal Communications Commission (FCC) removing Section 230 protection for Internet intermediaries, like Facebook and Twitter, as “regulation.” This turns reality on its head. Removing this protection would mean that Internet intermediaries would be subject to the same rules on libel as traditional media outlets like CNN and the Washington Post. There is no obvious reason why an Internet intermediary should be subject to different standards, although this protection does obviously increase their profits and allow people like Mark Zuckerberg to get very rich.

It is worth noting that this threat to remove Section 230 protections from FCC chair Ajit Pai, is obviously an act of political intimidation directed at Facebook and Twitter. The FCC is supposed to be nonpolitical. This should be the basis for removing him as FCC chair.

It seems increasingly likely that China will begin providing vaccines to its own people, as well as those in some other countries, by December, and possibly as early as next month. The prospect of a vaccine being available that soon has to look good to people here, now that the Trump administration’s pandemic control efforts have completely failed. The whole country would like to get back to normal, but that doesn’t seem like a serious possibility until we have an effective vaccine widely available.

It seems China’s leading vaccine makers got ahead of the ones in the U.S. and Europe by using the old-fashioned dead virus approach to developing a vaccine. This is well-known technology that they were apparently able to quickly adapt for a vaccine providing protection against the coronavirus. This allowed for them to get into the field sooner with large-scale Phase 3 tests. It also has apparently created fewer issues with side effects than the mRNA vaccines being pursued here. In addition, the dead virus vaccines do not require super-cold storage, like the mRNA vaccines. That will be a huge problem in the developing world, but also a serious logistic problem even in the United States.

China has followed a path of questionable safety in carrying out large-scale vaccination on emergency use authorization. The people being vaccinated were not just frontline workers in hospitals at high risk of catching the virus, but also students traveling abroad and others who were not in obviously high risk categories. Several hundred thousand people have now received one of China’s vaccines on this basis.

While we may not approve of China’s lax standards, we can still learn from its experience. At this point, we can be fairly well assured that its leading vaccines do not have harmful short-term side effects.

If the United States had pursued a route of open collaborative research, we would now be in a position to start mass producing China’s leading vaccines and distributing them as soon as evidence of their effectiveness was sufficiently established to satisfy the Food and Drug Administration’s (FDA) standards for approval. Collaborative research would have meant that all the results from clinical trials were freely shared as soon as they were available. This means that we would have the results at the same time as China’s health safety agency, and of course companies here would be free to run their own trials with China’s vaccines.

This sort of collaboration would have had to have been negotiated. Donald Trump, with his “America First” rants had no interest in international collaboration and therefore never tried to negotiate any plan for open research with equitable cost-sharing across countries. Unfortunately, leading Democrats, with their determination to use patent monopolies to increase inequality, never sought to raise the issue either.

As a result of this failed leadership, we may be waiting months longer than necessary for our lives to get back to normal. This will mean tens of thousands of avoidable deaths and hundreds of thousands of avoidable infections, but hey, at least we preserved the idea that we need government-granted patent monopolies to finance research. And, we can create many high-paying jobs for economists and policy types trying to figure out ways to combat inequality.

It seems increasingly likely that China will begin providing vaccines to its own people, as well as those in some other countries, by December, and possibly as early as next month. The prospect of a vaccine being available that soon has to look good to people here, now that the Trump administration’s pandemic control efforts have completely failed. The whole country would like to get back to normal, but that doesn’t seem like a serious possibility until we have an effective vaccine widely available.

It seems China’s leading vaccine makers got ahead of the ones in the U.S. and Europe by using the old-fashioned dead virus approach to developing a vaccine. This is well-known technology that they were apparently able to quickly adapt for a vaccine providing protection against the coronavirus. This allowed for them to get into the field sooner with large-scale Phase 3 tests. It also has apparently created fewer issues with side effects than the mRNA vaccines being pursued here. In addition, the dead virus vaccines do not require super-cold storage, like the mRNA vaccines. That will be a huge problem in the developing world, but also a serious logistic problem even in the United States.

China has followed a path of questionable safety in carrying out large-scale vaccination on emergency use authorization. The people being vaccinated were not just frontline workers in hospitals at high risk of catching the virus, but also students traveling abroad and others who were not in obviously high risk categories. Several hundred thousand people have now received one of China’s vaccines on this basis.

While we may not approve of China’s lax standards, we can still learn from its experience. At this point, we can be fairly well assured that its leading vaccines do not have harmful short-term side effects.

If the United States had pursued a route of open collaborative research, we would now be in a position to start mass producing China’s leading vaccines and distributing them as soon as evidence of their effectiveness was sufficiently established to satisfy the Food and Drug Administration’s (FDA) standards for approval. Collaborative research would have meant that all the results from clinical trials were freely shared as soon as they were available. This means that we would have the results at the same time as China’s health safety agency, and of course companies here would be free to run their own trials with China’s vaccines.

This sort of collaboration would have had to have been negotiated. Donald Trump, with his “America First” rants had no interest in international collaboration and therefore never tried to negotiate any plan for open research with equitable cost-sharing across countries. Unfortunately, leading Democrats, with their determination to use patent monopolies to increase inequality, never sought to raise the issue either.

As a result of this failed leadership, we may be waiting months longer than necessary for our lives to get back to normal. This will mean tens of thousands of avoidable deaths and hundreds of thousands of avoidable infections, but hey, at least we preserved the idea that we need government-granted patent monopolies to finance research. And, we can create many high-paying jobs for economists and policy types trying to figure out ways to combat inequality.

In an article on a contribution by Facebook to support efforts to administer the election, the Washington Post noted that Donald Trump recently tweeted “REPEAL SECTION 230!!!.” The piece then described Section 230 as “a part of U.S. law that protects social networks from litigation for their decisions regarding content moderation.”

Actually, Section 230 has nothing to do with protecting Facebook and other social networks from litigation over their content moderation. Facebook is a private network. That means, that just like the Washington Post it can make any decision it wants about the content that it carries.

What Section 230 does is protect Facebook from liability for defamatory content. This means, for example, if someone transmitted false assertions on Facebook that a person was a thief and a murderer, Facebook could not be sued. By contrast, if someone printed the identical claims in a Washington Post ad, the Post would face liability along with the person who bought the ad. Section 230 effectively allows Facebook to profit from being a conduit of libelous material.

In an article on a contribution by Facebook to support efforts to administer the election, the Washington Post noted that Donald Trump recently tweeted “REPEAL SECTION 230!!!.” The piece then described Section 230 as “a part of U.S. law that protects social networks from litigation for their decisions regarding content moderation.”

Actually, Section 230 has nothing to do with protecting Facebook and other social networks from litigation over their content moderation. Facebook is a private network. That means, that just like the Washington Post it can make any decision it wants about the content that it carries.

What Section 230 does is protect Facebook from liability for defamatory content. This means, for example, if someone transmitted false assertions on Facebook that a person was a thief and a murderer, Facebook could not be sued. By contrast, if someone printed the identical claims in a Washington Post ad, the Post would face liability along with the person who bought the ad. Section 230 effectively allows Facebook to profit from being a conduit of libelous material.

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That would seem to be the case from reading the paper’s editorial on the need to take steps to reduce extreme poverty in developing countries. The editorial never once mentions the proposal before the International Monetary Fund to substantially increase the special drawing rights available to developing countries.

This measure, which has the support of the I.M.F. leadership, and most of its member states (but not the Trump administration), would give the developing countries resources to help their economies recover from the pandemic. It is surprising that the Post would not mention it in an editorial on reducing world poverty.

It is also worth noting that the Trump method of pursuing a vaccine, with grants of patent monopolies, rather than an open collaborative effort, is likely to make it more difficult for developing countries to get access to a vaccine. While this route does contribute to the upward distribution of income, it is not an efficient way to develop a vaccine. It does appear as though China is at least partially filling the gap created by the Trump administration going this route. 

That would seem to be the case from reading the paper’s editorial on the need to take steps to reduce extreme poverty in developing countries. The editorial never once mentions the proposal before the International Monetary Fund to substantially increase the special drawing rights available to developing countries.

This measure, which has the support of the I.M.F. leadership, and most of its member states (but not the Trump administration), would give the developing countries resources to help their economies recover from the pandemic. It is surprising that the Post would not mention it in an editorial on reducing world poverty.

It is also worth noting that the Trump method of pursuing a vaccine, with grants of patent monopolies, rather than an open collaborative effort, is likely to make it more difficult for developing countries to get access to a vaccine. While this route does contribute to the upward distribution of income, it is not an efficient way to develop a vaccine. It does appear as though China is at least partially filling the gap created by the Trump administration going this route. 

I have been harping on the fact that it is very likely China will be mass producing and distributing a vaccine at least a month, and quite possibly several months, before the United States. This should make people very angry.

Even a month’s delay is likely to mean tens of thousands of avoidable deaths and hundreds of thousands of avoidable infections. And, it adds a month to the time period before we can get back to living normal lives. Of course, the delay could end up being many months, since we still have no idea how the clinical trials will turn out for the leading U.S. contenders.

We are in the situation where we can be waiting several months for a vaccine, after one has already been demonstrated to be safe and effective, because the Trump administration opted to pursue a route of patent monopoly research, as opposed to open-source collaborative research. If Trump had gone the latter route, as soon as China, or anyone, had a vaccine, everyone would have a vaccine, or at least everyone would be able to manufacture it.

 

Patent Monopoly Financing Versus Open Source

Since people seem to find the alternative to Trump’s patent monopoly approach confusing, let me outline it simply, so that people can see what is at issue. As it turned out, Trump quite explicitly turned the development of a vaccine into a race. He created “Operation Warp Speed,” to which he committed more than $10 billion of public funds. This effort is supposed to develop both vaccines and treatments for the coronavirus.

The funding takes a variety of forms. Several companies received some upfront funding, but are relying primarily on advance purchase agreements for an effective vaccine. For example, Pfizer signed a contract that commits the government to buying 100 million doses for $1.95 billion ($19.50 per shot), if it has a successful vaccine.

By contrast, Moderna relied largely on upfront funding, getting $483 million for its pre-clinical research and phase 1 and 2 trials, and then another $472 million to cover the cost of its phase 3 trials. Incredibly, after largely picking up Moderna’s development costs, the government is also allowing Moderna to have a patent monopoly on its vaccine. This means it will effectively be paying Moderna twice. First with the direct funding and then a second time by allowing it to charge monopoly prices on its vaccine.

This nationalistic patent monopoly route was the one Trump chose to pursue. It should be mentioned there was little visible opposition from leading Democrats in Congress.

But, we could have taken a different route. We could have looked to pool research, not just nationally, but internationally. This would mean that all research findings would be posted on the web as soon as practical, and that any patents would be placed in the public domain so that everyone could take advantage of them.

We were actually seeing this sort of cooperation in the early days of the pandemic, which allowed scientists to gain an understanding of the virus more quickly than if we had followed the path of patent monopoly supported research. This path of cooperation could have continued, if Operation Warp Speed had been structured differently. Instead of paying for the research costs of a company like Moderna, and then telling them they could get a patent monopoly so that they could charge whatever they want, we could have made the condition of the funding that all its findings would be fully public and patents would be in the public domain.

Since some folks have a hard time understanding what incentive Moderna would have if they weren’t getting a patent monopoly, let me explain: they would be getting paid.

Just as most of us work for money, not patent monopolies, Moderna and other drug companies developing vaccines or treatments would be getting paid directly for their research. Their incentive would be that they presumably want to continue to get paid. If they went two or three months and had nothing to show, then they would not continue to get paid.

This is the idea of working for money. I thought that most economists were familiar with it, but when it comes to financing drug research, they seem to view it as an alien concept.[1]

Anyhow, if we committed $10 billion for open research, presumably we would want comparable commitments (adjusted for size and wealth) from other countries. For example, Germany, which has an economy that is roughly one fifth the size of the U.S. economy, would be expected to commit to paying $2 billion to support open research. China would also be expected to make a commitment that was comparable relative to its GDP, although as a much poorer country (on a per person basis), perhaps the commitment would only be half as large relative to its economy.

If we had leadership in the United States that was committed to pursuing a path of open research, then presumably it would be possible to quickly work out a deal that countries were reasonably satisfied with. It doesn’t matter that a deal may not make everyone perfectly happy. Lots of things are happening in the pandemic and the responses are far from perfectly fair. Such is life.

Anyhow, in this world of open research, if it turned out that China’s vaccines were showing more promise earlier than the ones developed by Pfizer and Moderna and other U.S. companies, we would be able to manufacture and mass distribute their vaccines, as soon as the Food and Drug Administration (FDA) approved them. No one would need permission from China since the research was open, and anyone could manufacture the vaccines who had the capability.

Just to be clear, using a Chinese vaccine does not mean accepting China’s safety standards. The FDA would make its own determination of a vaccine’s safety and effectiveness based on the data from the clinical trials. If it could not be confident that the data supported approval, then it would not be granted, just as is the case with any domestic vaccine or drug.

If we had gone this route, if the Chinese vaccines are shown to be safe and effective before the vaccines developed by U.S. companies, we would not be left waiting. If China, or any other country had a vaccine, we would as well. This system still leaves a problem for developing countries who lack manufacturing capabilities, but at least intellectual property concerns would not be preventing people from getting a vaccine or treatment.

 

Open Research and Inequality

It is hard to understand how, not just mainstream Democrats, but even progressive leaders like Senators Bernie Sanders, Elizabeth Warren, and Representative Alexandra Ocasio-Cortez, were not pushing for an open research response to the pandemic. This almost certainly would have given us a vaccine more quickly.

However, an open research approach to the pandemic also could have been a very important model for biomedical research more generally. If we went a route of financing research upfront and putting all patents in the public domain, it could save us $400 billion a year on prescription drug spending. This comes to more than $3,000 per household. It is more than twice the size of the Trump tax cut. This is real money.

Patent monopolies also have a lot to do with inequality. We are often told that technology is a big part of the story of upward redistribution over the last four decades. While this story is frequently exaggerated, insofar as it is true, it is because we have designed patent and copyright laws so that some people can get very rich at the expense of everyone else. Bill Gates would still be working for a living if the government did not give Microsoft patent and copyright monopolies on its software.

It is more than a bit bizarre that political figures who devote so much effort to combatting inequality look the other way when we design a pandemic health care research plan that both slows research progress and gives more money to those at the top.

It’s fine to have progressive taxes, but it is even better to structure the market so that we don’t have so much inequality in the first place. If the minimum wage had kept pace with productivity since its 1968 peak, it would be $24 an hour today. That would be a hugely different world.

While it would be great if we could raise the minimum wage to $24 an hour, we can’t do that without changing many of the rules that allow so much income to be redistributed upward. The current system of patents and copyrights is a really big part of that story. In the case of the pandemic, it is not just leading to inequality, it is also costing people’s health and their lives. Progressives should be paying attention.    

[1] I discuss in chapter 5 of Rigged how this sort of system can be structured in a more systematic way (it’s free). But in the context of dealing with the pandemic emergency, the arrangements would have to be somewhat ad hoc, as is already the case with Operation Warp Speed.

I have been harping on the fact that it is very likely China will be mass producing and distributing a vaccine at least a month, and quite possibly several months, before the United States. This should make people very angry.

Even a month’s delay is likely to mean tens of thousands of avoidable deaths and hundreds of thousands of avoidable infections. And, it adds a month to the time period before we can get back to living normal lives. Of course, the delay could end up being many months, since we still have no idea how the clinical trials will turn out for the leading U.S. contenders.

We are in the situation where we can be waiting several months for a vaccine, after one has already been demonstrated to be safe and effective, because the Trump administration opted to pursue a route of patent monopoly research, as opposed to open-source collaborative research. If Trump had gone the latter route, as soon as China, or anyone, had a vaccine, everyone would have a vaccine, or at least everyone would be able to manufacture it.

 

Patent Monopoly Financing Versus Open Source

Since people seem to find the alternative to Trump’s patent monopoly approach confusing, let me outline it simply, so that people can see what is at issue. As it turned out, Trump quite explicitly turned the development of a vaccine into a race. He created “Operation Warp Speed,” to which he committed more than $10 billion of public funds. This effort is supposed to develop both vaccines and treatments for the coronavirus.

The funding takes a variety of forms. Several companies received some upfront funding, but are relying primarily on advance purchase agreements for an effective vaccine. For example, Pfizer signed a contract that commits the government to buying 100 million doses for $1.95 billion ($19.50 per shot), if it has a successful vaccine.

By contrast, Moderna relied largely on upfront funding, getting $483 million for its pre-clinical research and phase 1 and 2 trials, and then another $472 million to cover the cost of its phase 3 trials. Incredibly, after largely picking up Moderna’s development costs, the government is also allowing Moderna to have a patent monopoly on its vaccine. This means it will effectively be paying Moderna twice. First with the direct funding and then a second time by allowing it to charge monopoly prices on its vaccine.

This nationalistic patent monopoly route was the one Trump chose to pursue. It should be mentioned there was little visible opposition from leading Democrats in Congress.

But, we could have taken a different route. We could have looked to pool research, not just nationally, but internationally. This would mean that all research findings would be posted on the web as soon as practical, and that any patents would be placed in the public domain so that everyone could take advantage of them.

We were actually seeing this sort of cooperation in the early days of the pandemic, which allowed scientists to gain an understanding of the virus more quickly than if we had followed the path of patent monopoly supported research. This path of cooperation could have continued, if Operation Warp Speed had been structured differently. Instead of paying for the research costs of a company like Moderna, and then telling them they could get a patent monopoly so that they could charge whatever they want, we could have made the condition of the funding that all its findings would be fully public and patents would be in the public domain.

Since some folks have a hard time understanding what incentive Moderna would have if they weren’t getting a patent monopoly, let me explain: they would be getting paid.

Just as most of us work for money, not patent monopolies, Moderna and other drug companies developing vaccines or treatments would be getting paid directly for their research. Their incentive would be that they presumably want to continue to get paid. If they went two or three months and had nothing to show, then they would not continue to get paid.

This is the idea of working for money. I thought that most economists were familiar with it, but when it comes to financing drug research, they seem to view it as an alien concept.[1]

Anyhow, if we committed $10 billion for open research, presumably we would want comparable commitments (adjusted for size and wealth) from other countries. For example, Germany, which has an economy that is roughly one fifth the size of the U.S. economy, would be expected to commit to paying $2 billion to support open research. China would also be expected to make a commitment that was comparable relative to its GDP, although as a much poorer country (on a per person basis), perhaps the commitment would only be half as large relative to its economy.

If we had leadership in the United States that was committed to pursuing a path of open research, then presumably it would be possible to quickly work out a deal that countries were reasonably satisfied with. It doesn’t matter that a deal may not make everyone perfectly happy. Lots of things are happening in the pandemic and the responses are far from perfectly fair. Such is life.

Anyhow, in this world of open research, if it turned out that China’s vaccines were showing more promise earlier than the ones developed by Pfizer and Moderna and other U.S. companies, we would be able to manufacture and mass distribute their vaccines, as soon as the Food and Drug Administration (FDA) approved them. No one would need permission from China since the research was open, and anyone could manufacture the vaccines who had the capability.

Just to be clear, using a Chinese vaccine does not mean accepting China’s safety standards. The FDA would make its own determination of a vaccine’s safety and effectiveness based on the data from the clinical trials. If it could not be confident that the data supported approval, then it would not be granted, just as is the case with any domestic vaccine or drug.

If we had gone this route, if the Chinese vaccines are shown to be safe and effective before the vaccines developed by U.S. companies, we would not be left waiting. If China, or any other country had a vaccine, we would as well. This system still leaves a problem for developing countries who lack manufacturing capabilities, but at least intellectual property concerns would not be preventing people from getting a vaccine or treatment.

 

Open Research and Inequality

It is hard to understand how, not just mainstream Democrats, but even progressive leaders like Senators Bernie Sanders, Elizabeth Warren, and Representative Alexandra Ocasio-Cortez, were not pushing for an open research response to the pandemic. This almost certainly would have given us a vaccine more quickly.

However, an open research approach to the pandemic also could have been a very important model for biomedical research more generally. If we went a route of financing research upfront and putting all patents in the public domain, it could save us $400 billion a year on prescription drug spending. This comes to more than $3,000 per household. It is more than twice the size of the Trump tax cut. This is real money.

Patent monopolies also have a lot to do with inequality. We are often told that technology is a big part of the story of upward redistribution over the last four decades. While this story is frequently exaggerated, insofar as it is true, it is because we have designed patent and copyright laws so that some people can get very rich at the expense of everyone else. Bill Gates would still be working for a living if the government did not give Microsoft patent and copyright monopolies on its software.

It is more than a bit bizarre that political figures who devote so much effort to combatting inequality look the other way when we design a pandemic health care research plan that both slows research progress and gives more money to those at the top.

It’s fine to have progressive taxes, but it is even better to structure the market so that we don’t have so much inequality in the first place. If the minimum wage had kept pace with productivity since its 1968 peak, it would be $24 an hour today. That would be a hugely different world.

While it would be great if we could raise the minimum wage to $24 an hour, we can’t do that without changing many of the rules that allow so much income to be redistributed upward. The current system of patents and copyrights is a really big part of that story. In the case of the pandemic, it is not just leading to inequality, it is also costing people’s health and their lives. Progressives should be paying attention.    

[1] I discuss in chapter 5 of Rigged how this sort of system can be structured in a more systematic way (it’s free). But in the context of dealing with the pandemic emergency, the arrangements would have to be somewhat ad hoc, as is already the case with Operation Warp Speed.

The business press routinely gives us stories of employers complaining about labor shortages. This Reuters piece on struggling auto suppliers is the latest example.

The piece does tell us the suppliers have tried the one proven remedy for labor shortages, higher wages, but the data don’t support the claim. According to the graph in the article, the average hourly wage rose from $26.80 in January of 2019 to $28.20 in August. This amounts to a 5.2 percent increase over one and two-thirds years or a 3.1 percent annual rate. That is almost exactly the economy-wide average for the rate of wage growth in the pre-pandemic period. (It’s lower than the current rate.) In other words, auto suppliers are not raising wages especially rapidly, which is likely the reason they are having trouble getting workers.

The business press routinely gives us stories of employers complaining about labor shortages. This Reuters piece on struggling auto suppliers is the latest example.

The piece does tell us the suppliers have tried the one proven remedy for labor shortages, higher wages, but the data don’t support the claim. According to the graph in the article, the average hourly wage rose from $26.80 in January of 2019 to $28.20 in August. This amounts to a 5.2 percent increase over one and two-thirds years or a 3.1 percent annual rate. That is almost exactly the economy-wide average for the rate of wage growth in the pre-pandemic period. (It’s lower than the current rate.) In other words, auto suppliers are not raising wages especially rapidly, which is likely the reason they are having trouble getting workers.

This recession has been very different from prior recessions. Most prior recessions were caused by the Fed jacking up interest rates to fight inflation, which sinks the housing and auto sectors. The last two recessions were driven by the collapse of bubbles that were driving the economy (stocks and housing). This recession is due to the pandemic, which has whacked personal services that are especially likely to spread the disease, such as restaurants, hotels, and gyms.

This has meant that a very different group of workers is being hit with unemployment. Historically, manufacturing and construction, two relatively high-paid sectors were the hardest hit. (Manufacturing is no longer a relatively high-paying sector.) The sectors now being hard-hit are relatively low-paying. While there is always some skewing in layoffs in a downturn, with the last hired, and lowest paid, generally being the first to go, the skewing in this recession is far more pronounced. We are not only seeing the lower-paid workers in each sector losing their jobs, but we are also seeing large-scale layoffs in the lowest-paid sectors.

This shows up clearly if we look at the trends in the average hourly wage. The chart below shows the trends in the year-over-year change in the average hourly wage in the Great Recession and Pandemic Recession.

Source: Bureau of Labor Statistics.

As can be seen, there is a sharp jump in wage growth reported in April. This was due to the mass layoffs associated with the shutdowns. The year-over-year pace slowed to 4.5 percent in August and September, which is still 1.5 percentage points above the pre-recession pace. (Wage growth had actually slowed slightly before the recession, from 3.5 percent to 3.0 percent, in spite of the extraordinarily low unemployment rate.)

There is no remotely comparable uptick in wage growth in the Great Recession. There was a modest uptick in wage growth when the economy collapsed in the fall of 2008 following the Lehman bankruptcy. Year-over-year wage growth had been around 3.8 percent in the summer of 2008. It peaked at 4.7 percent in January but then settled down to 4.0 percent by April, only slightly above the summer pace.

Before anyone gets the idea that recessions are good for wage growth, it is worth looking at wage growth in 2010 and 2011. It slowed sharply over the course of 2010, ending the year at 1.4 percent. It bottomed out at just 1.0 percent in April of 2011. The slow wage growth in the weak labor market following the Great Recession is most of the story of the redistribution from wages to profits in the last four decades. The wage share had been recovering in the last five years, but we can expect that story to be reversed if the unemployment rate remains high as we recover from the pandemic recession.

This recession has been very different from prior recessions. Most prior recessions were caused by the Fed jacking up interest rates to fight inflation, which sinks the housing and auto sectors. The last two recessions were driven by the collapse of bubbles that were driving the economy (stocks and housing). This recession is due to the pandemic, which has whacked personal services that are especially likely to spread the disease, such as restaurants, hotels, and gyms.

This has meant that a very different group of workers is being hit with unemployment. Historically, manufacturing and construction, two relatively high-paid sectors were the hardest hit. (Manufacturing is no longer a relatively high-paying sector.) The sectors now being hard-hit are relatively low-paying. While there is always some skewing in layoffs in a downturn, with the last hired, and lowest paid, generally being the first to go, the skewing in this recession is far more pronounced. We are not only seeing the lower-paid workers in each sector losing their jobs, but we are also seeing large-scale layoffs in the lowest-paid sectors.

This shows up clearly if we look at the trends in the average hourly wage. The chart below shows the trends in the year-over-year change in the average hourly wage in the Great Recession and Pandemic Recession.

Source: Bureau of Labor Statistics.

As can be seen, there is a sharp jump in wage growth reported in April. This was due to the mass layoffs associated with the shutdowns. The year-over-year pace slowed to 4.5 percent in August and September, which is still 1.5 percentage points above the pre-recession pace. (Wage growth had actually slowed slightly before the recession, from 3.5 percent to 3.0 percent, in spite of the extraordinarily low unemployment rate.)

There is no remotely comparable uptick in wage growth in the Great Recession. There was a modest uptick in wage growth when the economy collapsed in the fall of 2008 following the Lehman bankruptcy. Year-over-year wage growth had been around 3.8 percent in the summer of 2008. It peaked at 4.7 percent in January but then settled down to 4.0 percent by April, only slightly above the summer pace.

Before anyone gets the idea that recessions are good for wage growth, it is worth looking at wage growth in 2010 and 2011. It slowed sharply over the course of 2010, ending the year at 1.4 percent. It bottomed out at just 1.0 percent in April of 2011. The slow wage growth in the weak labor market following the Great Recession is most of the story of the redistribution from wages to profits in the last four decades. The wage share had been recovering in the last five years, but we can expect that story to be reversed if the unemployment rate remains high as we recover from the pandemic recession.

One of the main goals of Obamacare was to make insurance affordable for people with health problems. Insurers are happy to insure healthy people. People in good health have few claims, so essentially they are just sending a check to the insurer every month. It’s a good deal if you can get it.

But it’s a very different story if you have serious health issues. For these people, insurers actually have to cough up the money. In the good old days, before the Affordable Care Act (ACA), insurers would either refuse to insure people with serious health conditions altogether (e.g. cancer survivors, heart disease, diabetes) or add large supplements to their premiums.

The ACA prohibited insurers from discriminating against people based on their health condition. They could charge different premiums by age, but they couldn’t turn anyone down because of their health, and they had to charge everyone the same rate. This means that a 60-year-old with three heart attacks would pay the same premium as a 60-year-old who is a serious marathon runner.

Donald Trump has repeatedly said that he wants to get rid of the ACA and is currently pushing a case before the Supreme Court that would end it if he wins. While he says that he wants to preserve protections for people with pre-existing conditions, he has introduced no legislation that would have this effect or even outlined a plan for protecting people with health problems.

For this reason, it is reasonable to ask how much money people should expect to pay for their insurance if they have a health problem and Trump gets his way and eliminates the ACA. The chart below gives some very ballpark numbers.

Source: Author’s calculations, see text.

The starting point here is the average unsubsidized premium under Obamacare. The average premium cost for the middle tier silver plan is $1,212 a month currently, or 14,544 a year. This is averaged over all age groups, so people in their 20s and 30s would pay less, while people in their 50s  and 60s would pay more. This also refers to the unsubsidized rate. Moderate income people, and even most middle-income people, are eligible for subsidies under the ACA. (Low-income people are eligible for Medicaid, which was substantially expanded by the ACA. This expansion will be reversed if Trump wins his Supreme Court case.)

The question then is how much people with health problems can expect to pay if the ACA’s protections for people with pre-existing conditions are ended. This requires somewhat of a shot in the dark since part of the answer will depend on state regulations. If state regulations don’t prohibit turning down people, insurers are likely to simply refuse to cover people with serious health problems like heart disease or cancer.  They also would look to charge different rates depending on the specific condition. A former athlete with a bad knee would pay more than a person with no health issues, but a person with multiple sclerosis would likely pay more than a person with a bad knee.

One way to get a sense of the additional premiums is to look at the high-risk pools that many states had before the ACA. These pools allowed people with health conditions to get insured, but typically at a substantial cost relative to people in good health. The pools also were typically subsidized by the state. In a 2010 article James Capretta and Tom Miller report that in some states the premiums in the high-risk pools were more than double the average premium outside the pools. We can use this doubling as a rough guess as to what premiums would be for people with health issues without any sort of subsidy. (The base premium would also be somewhat lower if we would exclude people with health issues from the pool. On the other hand, people with very severe health issues would almost certainly face even higher premiums, in the absence of any subsidy.)

Using the doubling scenario, the average premium would be $2,424 a month or $29,088 a year. As with the ACA premiums, we would expect premiums for people with health issues to be somewhat lower for those in their 20s and 30s and higher for people in their 50s and 60s. And, with no new legislation, there would be no federal subsidies for anyone, once Obamacare was ended.

 

One of the main goals of Obamacare was to make insurance affordable for people with health problems. Insurers are happy to insure healthy people. People in good health have few claims, so essentially they are just sending a check to the insurer every month. It’s a good deal if you can get it.

But it’s a very different story if you have serious health issues. For these people, insurers actually have to cough up the money. In the good old days, before the Affordable Care Act (ACA), insurers would either refuse to insure people with serious health conditions altogether (e.g. cancer survivors, heart disease, diabetes) or add large supplements to their premiums.

The ACA prohibited insurers from discriminating against people based on their health condition. They could charge different premiums by age, but they couldn’t turn anyone down because of their health, and they had to charge everyone the same rate. This means that a 60-year-old with three heart attacks would pay the same premium as a 60-year-old who is a serious marathon runner.

Donald Trump has repeatedly said that he wants to get rid of the ACA and is currently pushing a case before the Supreme Court that would end it if he wins. While he says that he wants to preserve protections for people with pre-existing conditions, he has introduced no legislation that would have this effect or even outlined a plan for protecting people with health problems.

For this reason, it is reasonable to ask how much money people should expect to pay for their insurance if they have a health problem and Trump gets his way and eliminates the ACA. The chart below gives some very ballpark numbers.

Source: Author’s calculations, see text.

The starting point here is the average unsubsidized premium under Obamacare. The average premium cost for the middle tier silver plan is $1,212 a month currently, or 14,544 a year. This is averaged over all age groups, so people in their 20s and 30s would pay less, while people in their 50s  and 60s would pay more. This also refers to the unsubsidized rate. Moderate income people, and even most middle-income people, are eligible for subsidies under the ACA. (Low-income people are eligible for Medicaid, which was substantially expanded by the ACA. This expansion will be reversed if Trump wins his Supreme Court case.)

The question then is how much people with health problems can expect to pay if the ACA’s protections for people with pre-existing conditions are ended. This requires somewhat of a shot in the dark since part of the answer will depend on state regulations. If state regulations don’t prohibit turning down people, insurers are likely to simply refuse to cover people with serious health problems like heart disease or cancer.  They also would look to charge different rates depending on the specific condition. A former athlete with a bad knee would pay more than a person with no health issues, but a person with multiple sclerosis would likely pay more than a person with a bad knee.

One way to get a sense of the additional premiums is to look at the high-risk pools that many states had before the ACA. These pools allowed people with health conditions to get insured, but typically at a substantial cost relative to people in good health. The pools also were typically subsidized by the state. In a 2010 article James Capretta and Tom Miller report that in some states the premiums in the high-risk pools were more than double the average premium outside the pools. We can use this doubling as a rough guess as to what premiums would be for people with health issues without any sort of subsidy. (The base premium would also be somewhat lower if we would exclude people with health issues from the pool. On the other hand, people with very severe health issues would almost certainly face even higher premiums, in the absence of any subsidy.)

Using the doubling scenario, the average premium would be $2,424 a month or $29,088 a year. As with the ACA premiums, we would expect premiums for people with health issues to be somewhat lower for those in their 20s and 30s and higher for people in their 50s and 60s. And, with no new legislation, there would be no federal subsidies for anyone, once Obamacare was ended.

 

Economists and economic reporters all know that tariffs can lead to corruption. The idea is that if a government-imposed tariff raises the price of a product by 10-25 percent above the free market price, companies have a large incentive to find ways to avoid the tariff. This can mean reclassifying imports to get around the tariff or trying to curry favor with politicians to get exemptions. The New York Times and ProPublica have run several excellent pieces providing examples of such behavior (e.g. here, here, and here).

The reasonable takeaway from these stories is that tariffs should be applied sparingly and with clear purposes in mind. Indiscriminate use of tariffs is likely to lead to large-scale corruption, as corporations use their political power to gain special treatment.

We should be glad that reporters have actively worked to expose the abuses associated with the tariffs Donald Trump has imposed since coming into the White House. But what about the abuses associated with government-granted patent monopolies for prescription drugs? We literally never see a piece pointing out that patent protection creates an enormous incentive for corruption, in fact, one that is far larger than with the Trump tariffs.

Just to get some basic orientation, depending on the country and the product, Trump’s tariffs were generally between 10 and 25 percent. By contrast, government granted patent monopolies often raise the price of a protected drug by at least a factor of ten and often by a factor of one hundred or more. The impact of this protection is therefore equivalent to tariffs of 1,000 or 10,000 percent.

If we think that a tariff of 25 percent provides incentives for corruption, how can we not think that patent protection that is equivalent to tariffs of 1,000 or 10,000 percent provide grounds for corruption? That makes zero sense. Any numerate person who is concerned about the incentives for corruption created by Trump’s tariffs must be concerned about the incentives for corruption created by patent monopolies for prescription drugs.

And, we don’t have to look far. The immediate inspiration for this post is a NYT article on how Pfizer is playing along with Trump in touting his late October date for a vaccine because they hope it will win them favor in any proposals he puts forward to lower drug prices.

If folks are missing the point here, the article implies that Pfizer might push forward for a vaccine approval, before there is sufficient evidence to establish safety and effectiveness, because it hopes Trump will allow Pfizer to enjoy larger patent monopoly rents. So, given Trump’s control of the FDA, we could be getting a vaccine that is either not safe, or effective, or neither, because of Pfizer’s efforts to maximize patent rents. This is exactly the sort of rent-seeking our Econ 101 textbooks all predict.

And, this situation is far from rare. Although it is literally never reported this way, the opioid crisis is largely a story of abuse of patent monopolies. Purdue Pharma and other major opioid manufacturers have paid billions of dollars to settle suits alleging that they misled doctors about the addictiveness of their new generation of opioid painkillers. These companies had incentive to lie about the addictiveness of their drugs because they had government-granted monopolies. If their drugs were selling as generics, it is unlikely they would have made the same sort of effort to push them.

There are many other instances where drug companies have concealed information on the safety and effectiveness of their drugs. The cost from these lies, in poor health and unnecessary deaths, is enormous. Yet, it is never discussed in policy circles.

The refusal to consider the costs stemming from the abuses of patent monopolies would perhaps be more understandable, if there were no alternative mechanisms for financing the development of new drugs and vaccines. But we know this is not true, we just got some great examples with the pandemic.

Moderna, one of the leading contenders to develop a U.S. vaccine, had its research costs pretty much entirely picked by the government. We paid more than $400 million for the pre-clinical research and early phase clinical testing, and then kicked in another $450 million to cover the cost of its Phase 3 clinical tests. While we are — incredibly — still giving the company a monopoly on its vaccine, the fact is that the government basically picked up the full tab for its development costs.

There is no reason that we cannot do this in other circumstances, but without handing out a patent monopoly. In other words, the government can pick up the tab for developing and testing drugs for treating cancer, diabetes, AIDS, and other diseases. When a drug or vaccine goes through the FDA approval process, it can then be sold as a generic that any manufacturer could produce. (I describe a system for financing research in chapter 5 of Rigged [it’s free].)

This could knock $400 billion (five times the food stamp budget or half the military budget) off our annual bill for prescription drugs. It would also eliminate the incentives for corruption created by patent monopolies.

It would be great if we could one day have a serious debate over whether patent monopolies are the best way to finance the development of new drugs and vaccines. But to do so, we need to have a better informed public and policy audience. That means reporting on the corruption that results from patent monopolies, something that the media refuse to do for some reason.

Economists and economic reporters all know that tariffs can lead to corruption. The idea is that if a government-imposed tariff raises the price of a product by 10-25 percent above the free market price, companies have a large incentive to find ways to avoid the tariff. This can mean reclassifying imports to get around the tariff or trying to curry favor with politicians to get exemptions. The New York Times and ProPublica have run several excellent pieces providing examples of such behavior (e.g. here, here, and here).

The reasonable takeaway from these stories is that tariffs should be applied sparingly and with clear purposes in mind. Indiscriminate use of tariffs is likely to lead to large-scale corruption, as corporations use their political power to gain special treatment.

We should be glad that reporters have actively worked to expose the abuses associated with the tariffs Donald Trump has imposed since coming into the White House. But what about the abuses associated with government-granted patent monopolies for prescription drugs? We literally never see a piece pointing out that patent protection creates an enormous incentive for corruption, in fact, one that is far larger than with the Trump tariffs.

Just to get some basic orientation, depending on the country and the product, Trump’s tariffs were generally between 10 and 25 percent. By contrast, government granted patent monopolies often raise the price of a protected drug by at least a factor of ten and often by a factor of one hundred or more. The impact of this protection is therefore equivalent to tariffs of 1,000 or 10,000 percent.

If we think that a tariff of 25 percent provides incentives for corruption, how can we not think that patent protection that is equivalent to tariffs of 1,000 or 10,000 percent provide grounds for corruption? That makes zero sense. Any numerate person who is concerned about the incentives for corruption created by Trump’s tariffs must be concerned about the incentives for corruption created by patent monopolies for prescription drugs.

And, we don’t have to look far. The immediate inspiration for this post is a NYT article on how Pfizer is playing along with Trump in touting his late October date for a vaccine because they hope it will win them favor in any proposals he puts forward to lower drug prices.

If folks are missing the point here, the article implies that Pfizer might push forward for a vaccine approval, before there is sufficient evidence to establish safety and effectiveness, because it hopes Trump will allow Pfizer to enjoy larger patent monopoly rents. So, given Trump’s control of the FDA, we could be getting a vaccine that is either not safe, or effective, or neither, because of Pfizer’s efforts to maximize patent rents. This is exactly the sort of rent-seeking our Econ 101 textbooks all predict.

And, this situation is far from rare. Although it is literally never reported this way, the opioid crisis is largely a story of abuse of patent monopolies. Purdue Pharma and other major opioid manufacturers have paid billions of dollars to settle suits alleging that they misled doctors about the addictiveness of their new generation of opioid painkillers. These companies had incentive to lie about the addictiveness of their drugs because they had government-granted monopolies. If their drugs were selling as generics, it is unlikely they would have made the same sort of effort to push them.

There are many other instances where drug companies have concealed information on the safety and effectiveness of their drugs. The cost from these lies, in poor health and unnecessary deaths, is enormous. Yet, it is never discussed in policy circles.

The refusal to consider the costs stemming from the abuses of patent monopolies would perhaps be more understandable, if there were no alternative mechanisms for financing the development of new drugs and vaccines. But we know this is not true, we just got some great examples with the pandemic.

Moderna, one of the leading contenders to develop a U.S. vaccine, had its research costs pretty much entirely picked by the government. We paid more than $400 million for the pre-clinical research and early phase clinical testing, and then kicked in another $450 million to cover the cost of its Phase 3 clinical tests. While we are — incredibly — still giving the company a monopoly on its vaccine, the fact is that the government basically picked up the full tab for its development costs.

There is no reason that we cannot do this in other circumstances, but without handing out a patent monopoly. In other words, the government can pick up the tab for developing and testing drugs for treating cancer, diabetes, AIDS, and other diseases. When a drug or vaccine goes through the FDA approval process, it can then be sold as a generic that any manufacturer could produce. (I describe a system for financing research in chapter 5 of Rigged [it’s free].)

This could knock $400 billion (five times the food stamp budget or half the military budget) off our annual bill for prescription drugs. It would also eliminate the incentives for corruption created by patent monopolies.

It would be great if we could one day have a serious debate over whether patent monopolies are the best way to finance the development of new drugs and vaccines. But to do so, we need to have a better informed public and policy audience. That means reporting on the corruption that results from patent monopolies, something that the media refuse to do for some reason.

Donald Trump boasts endlessly about the economic recovery and insists that people are doing great now. The numbers disagree.

We will get the last employment report before the election on Friday. The unemployment rate reported for August was 8.4 percent. We’ll see what happens on Friday, but we are not doing especially well compared to other countries. Here’s the picture.

Source: OECD.

As can be seen, the 8.4 percent August unemployment rate reported for August was well above the 2.9 percent rate reported for Japan, 3.4 percent rate for the United Kingdom, and 4.4 percent rate for Germany. (These are July rates, except for the UK, for which the OECD only has the May rate.) Denmark comes in at 6.0 percent and France at 6.9 percent. The U.S does come in better than Italy, which had a 9.7 percent unemployment rate, and Canada with a 10.2 percent unemployment rate.

In short, the economy has come back a long way from the middle of the shutdown in April, but it still has far to go. And workers in many other countries have done much better.

As Trump might say, numbers have been very bad to him.

Donald Trump boasts endlessly about the economic recovery and insists that people are doing great now. The numbers disagree.

We will get the last employment report before the election on Friday. The unemployment rate reported for August was 8.4 percent. We’ll see what happens on Friday, but we are not doing especially well compared to other countries. Here’s the picture.

Source: OECD.

As can be seen, the 8.4 percent August unemployment rate reported for August was well above the 2.9 percent rate reported for Japan, 3.4 percent rate for the United Kingdom, and 4.4 percent rate for Germany. (These are July rates, except for the UK, for which the OECD only has the May rate.) Denmark comes in at 6.0 percent and France at 6.9 percent. The U.S does come in better than Italy, which had a 9.7 percent unemployment rate, and Canada with a 10.2 percent unemployment rate.

In short, the economy has come back a long way from the middle of the shutdown in April, but it still has far to go. And workers in many other countries have done much better.

As Trump might say, numbers have been very bad to him.

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