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.

This is the implication of its analysis of likely Covid deaths and infections in India. Its central estimate assumes a case fatality rate of 0.3. This means that for every thousand people who get infected, three will die.

There have been roughly 600,000 reported deaths from Covid since the pandemic began. If this is 0.3 percent of the people who contracted the disease, then 200,000,000 people in the United States have been infected.

This is the implication of its analysis of likely Covid deaths and infections in India. Its central estimate assumes a case fatality rate of 0.3. This means that for every thousand people who get infected, three will die.

There have been roughly 600,000 reported deaths from Covid since the pandemic began. If this is 0.3 percent of the people who contracted the disease, then 200,000,000 people in the United States have been infected.

Larry Summers has a column in the Washington Post warning about inflationary risks to the economy, due to what he considers an excessively large recovery package from the Biden administration. Summers notes the extraordinarily high rate of inflation in the first quarter and warns us that worse is ahead if corrective measures are not taken soon.

Starting with the inflation that we have seen to date, it is important to remember that this follows the very low rate of inflation we saw in the pandemic. Much of this is just catch up.

The overall Consumer Price Index (CPI) jumped 0.8 percent in April. That sounds scary, but it is up just 3.1 percent since February of 2020, which translates into a 2.6 percent annual rate of growth. The core index, which excludes food and energy prices, is up just 2.5 percent since before the pandemic started, translating into a 2.2 percent annual rate of increase.

We can see a similar story in many of the sectors that were hard hit by the pandemic. Hotel prices jumped 8.8 percent in April, but are still almost 6.0 percent below the level of February 2020. Airfares rose 10.2 percent in April, but are 17.7 percent below their pre-pandemic level.

Everyone knew these big price jumps were coming, so they really should not be cause for panic. We did get an unexpected hit with a 0.5 percent jump in new car prices and an extraordinary 10.0 percent jump in used car prices. (The latter added 0.3 percentage points to the CPI inflation rate for April.)

But these rises were not due to an excessively large stimulus package, they were the result of a shortage of semi-conductors caused by a fire in a plant in Japan. As we are able to produce more semi-conductors later this year, or early in 2022, new car prices will come back down. Used car prices may fall earlier if many people take advantage of high current prices to sell their old cars.

We will have to see how prices move in the months ahead, but Summers is apparently worried that we have to act quickly to stem inflation. He tells us:

“It is possible that the Fed could contain inflationary pressures by raising interest rates without damaging the economy . . . The history here is not encouraging. Every time the Fed has hit the brakes hard enough to slow growth meaningfully, the economy has gone into recession.”

Hmmm, that’s not the history I know. The Fed raised the federal funds rate from 3.0 percent in February of 1994 to 6.0 percent in March of 1995. We didn’t get a recession until March of 2001. It raised rates from 2.0 percent in December of 2004 to 5.25 in July of 2006. We did get a recession a year and a half later at the end of 2007, but this was more obvious due to the collapse of the housing bubble than the Fed’s rate hikes.

More recently, the Fed raised rates from 0.0 in December of 2015 to 2.2 percent in December of 2018. We did get a recession more than a year later, but this seemed to have more to do with the pandemic than the Fed’s rate hikes.

In short, the history doesn’t look quite like Summer’s claims. The Fed has frequently raised rates, with the stated goal and effect of slowing the economy, without bringing on recessions. There is no obvious reason that it can’t do so again if the evidence indicates that inflation is becoming a serious problem.

While we know the data is quirky right now due to pandemic and the bounce back as the economy restarts, as a first approximation, inflation is going to be equal to the rate of wage growth minus the rate of productivity growth. Wage growth has been healthy through the recession, but wages have not risen rapidly enough to give much grounds for concern about inflation.

In the period from February of 2020 to April of this year, the average hourly wage has risen 5.8 percent, which translates into a 5.0 percent annual rate. That sounds fast, but this number is skewed upward by the loss of many low-paying jobs in restaurants and other areas. Taking the average of the last three months (February, March, April) with the prior three months (November, December, January), wages have risen at just a 3.1 percent annual rate.

The Employment Cost Index (ECI) gives us a better measure since it holds the mix of jobs constant and also includes the cost of benefits, such as health care and pensions. This rose 2.6 percent from the first quarter of 2020 to the first quarter of 2021.

In the first quarter of the year, the ECI did rise at a somewhat faster 0.9 percent rate, which translates into a 3.6 percent annual rate of growth. That doesn’t sound too scary since much of this is catch-up following rises of 0.5 percent and 0.7 percent in the prior two quarters.

But to translate this rate of increase in wages into inflation, we need to know that rate of productivity growth. That had averaged just 1.0 percent from the fourth quarter of 2009 to the fourth quarter of 2019. However, in the last four quarters productivity growth has accelerated sharply.

Productivity increased by 4.1 percent from the first quarter of 2020 to the first quarter of 2021. Productivity data are notoriously erratic, but if the economy can sustain just a 2.0 percent rate of productivity growth going forward, that would mean that wages could grow at a 4.0 percent annual rate and still hit the Fed’s inflation target of 2.0 percent.

Our ability to predict productivity growth is not good, but it doesn’t seem implausible that the pandemic has forced businesses to make changes that have led to increases in productivity. So, the idea we could be on a faster productivity path for at least the next several years should not seem far-fetched.

In fact, I recall just reading somewhere about a speed-up in productivity growth. Oh yeah, the first paragraph of Summer’s piece concludes with the sentence: “Wages and productivity growth are increasing.”  

Larry Summers has a column in the Washington Post warning about inflationary risks to the economy, due to what he considers an excessively large recovery package from the Biden administration. Summers notes the extraordinarily high rate of inflation in the first quarter and warns us that worse is ahead if corrective measures are not taken soon.

Starting with the inflation that we have seen to date, it is important to remember that this follows the very low rate of inflation we saw in the pandemic. Much of this is just catch up.

The overall Consumer Price Index (CPI) jumped 0.8 percent in April. That sounds scary, but it is up just 3.1 percent since February of 2020, which translates into a 2.6 percent annual rate of growth. The core index, which excludes food and energy prices, is up just 2.5 percent since before the pandemic started, translating into a 2.2 percent annual rate of increase.

We can see a similar story in many of the sectors that were hard hit by the pandemic. Hotel prices jumped 8.8 percent in April, but are still almost 6.0 percent below the level of February 2020. Airfares rose 10.2 percent in April, but are 17.7 percent below their pre-pandemic level.

Everyone knew these big price jumps were coming, so they really should not be cause for panic. We did get an unexpected hit with a 0.5 percent jump in new car prices and an extraordinary 10.0 percent jump in used car prices. (The latter added 0.3 percentage points to the CPI inflation rate for April.)

But these rises were not due to an excessively large stimulus package, they were the result of a shortage of semi-conductors caused by a fire in a plant in Japan. As we are able to produce more semi-conductors later this year, or early in 2022, new car prices will come back down. Used car prices may fall earlier if many people take advantage of high current prices to sell their old cars.

We will have to see how prices move in the months ahead, but Summers is apparently worried that we have to act quickly to stem inflation. He tells us:

“It is possible that the Fed could contain inflationary pressures by raising interest rates without damaging the economy . . . The history here is not encouraging. Every time the Fed has hit the brakes hard enough to slow growth meaningfully, the economy has gone into recession.”

Hmmm, that’s not the history I know. The Fed raised the federal funds rate from 3.0 percent in February of 1994 to 6.0 percent in March of 1995. We didn’t get a recession until March of 2001. It raised rates from 2.0 percent in December of 2004 to 5.25 in July of 2006. We did get a recession a year and a half later at the end of 2007, but this was more obvious due to the collapse of the housing bubble than the Fed’s rate hikes.

More recently, the Fed raised rates from 0.0 in December of 2015 to 2.2 percent in December of 2018. We did get a recession more than a year later, but this seemed to have more to do with the pandemic than the Fed’s rate hikes.

In short, the history doesn’t look quite like Summer’s claims. The Fed has frequently raised rates, with the stated goal and effect of slowing the economy, without bringing on recessions. There is no obvious reason that it can’t do so again if the evidence indicates that inflation is becoming a serious problem.

While we know the data is quirky right now due to pandemic and the bounce back as the economy restarts, as a first approximation, inflation is going to be equal to the rate of wage growth minus the rate of productivity growth. Wage growth has been healthy through the recession, but wages have not risen rapidly enough to give much grounds for concern about inflation.

In the period from February of 2020 to April of this year, the average hourly wage has risen 5.8 percent, which translates into a 5.0 percent annual rate. That sounds fast, but this number is skewed upward by the loss of many low-paying jobs in restaurants and other areas. Taking the average of the last three months (February, March, April) with the prior three months (November, December, January), wages have risen at just a 3.1 percent annual rate.

The Employment Cost Index (ECI) gives us a better measure since it holds the mix of jobs constant and also includes the cost of benefits, such as health care and pensions. This rose 2.6 percent from the first quarter of 2020 to the first quarter of 2021.

In the first quarter of the year, the ECI did rise at a somewhat faster 0.9 percent rate, which translates into a 3.6 percent annual rate of growth. That doesn’t sound too scary since much of this is catch-up following rises of 0.5 percent and 0.7 percent in the prior two quarters.

But to translate this rate of increase in wages into inflation, we need to know that rate of productivity growth. That had averaged just 1.0 percent from the fourth quarter of 2009 to the fourth quarter of 2019. However, in the last four quarters productivity growth has accelerated sharply.

Productivity increased by 4.1 percent from the first quarter of 2020 to the first quarter of 2021. Productivity data are notoriously erratic, but if the economy can sustain just a 2.0 percent rate of productivity growth going forward, that would mean that wages could grow at a 4.0 percent annual rate and still hit the Fed’s inflation target of 2.0 percent.

Our ability to predict productivity growth is not good, but it doesn’t seem implausible that the pandemic has forced businesses to make changes that have led to increases in productivity. So, the idea we could be on a faster productivity path for at least the next several years should not seem far-fetched.

In fact, I recall just reading somewhere about a speed-up in productivity growth. Oh yeah, the first paragraph of Summer’s piece concludes with the sentence: “Wages and productivity growth are increasing.”  

People in policy debates are not supposed to question the desirability of patent monopolies as a mechanism for financing the development of new drugs and vaccines. After all, why ask a question that could jeopardize the profits of some of the world’s largest corporations? But, since I live out in Southern Utah, far away from the great centers of policy debate, I thought I would ask the question in reference to vaccines against Covid.

To be specific, suppose that instead of funneling money into drug companies to subsidize the patent monopoly financed system, we instead use this money, and added more to it, for the purpose of fully prefunding the development of vaccines. The condition of accepting funding is that all the work would be fully open-source.

This means that all the findings would be posted on the web, so that researchers around the world could build on them. It also means that any patents would be in the public domain so that any manufacturers, anywhere in the world, could produce the vaccines developed through this system, if they had the necessary expertise. The requirement for openness would also apply to the results of clinical trials, so it would be possible for researchers to know which vaccines were most effective for specific demographic groups and against which variants of the virus.

This system would require some sort of international agreement on sharing research costs. While agreements can take time to work out, getting the numbers exactly right should not have been an impediment. In the context of a worldwide pandemic costing millions of lives and trillions of dollars of lost output, it is not a big deal if the United States or China pays 25 percent too much or too little. The simplest course would be to agree to rough numbers with a commitment to re-examine the issue down the road.

The Open Source Alternative

Having raised the idea of open source research in various contexts over the last year or so, I realize that many people are not familiar with the concept. The basic idea is that the research is fully open, and posted on the web as soon as practical, so that any researcher in the world can read it and build on it.

I have had people ask me why anyone would do research if they had to immediately share the results, rather than secure a patent. The answer is that they are getting paid for it. This is in fact the reason the vast majority of researchers are doing their work now. For the typical scientist at Moderna, Pfizer, or Merck it doesn’t matter whether these companies are making their money through ownership of a patent monopoly or through a government contract. They get a paycheck every month either way. (I recognize that many scientists may actually be concerned about controlling a pandemic and saving lives, but I am not expecting that motivation to be a replacement for money in a paycheck.)

If the government is paying for research, it can impose the condition that everything must be open-source. If a company doesn’t like the deal, it doesn’t have to take it. That’s pretty simple.

This is a big deal with the current crop of vaccines being used, especially the mRNA vaccines. In addition to having already paid for much of the basic research developing mRNA technology through NIH, the government also paid for the cost of developing and testing Moderna’s vaccine.

Many people have pointed out that Moderna had invested in developing a platform that allowed them to be able to quickly turnaround and design a vaccine against the coronavirus. There is some truth to this. Arguably the government would have had to make some additional payment to Moderna, and likely other drug companies to get them to make all the information about their vaccines, and their production process, fully public.[1]

It would take some serious analysis to get a good estimate of a fair payment, but to put a rough cap on what we would be looking at, in the case of Moderna, it would almost certainly be less than $2 billion, and likely considerably lower with other manufacturers working with less novel processes. (The Oxford-Astra Zeneca vaccine was developed almost entirely with public money, so there should not have been a need for any substantial payments to make it fully open-source.)

As far as the $2 billion figure for buying full rights to open-source Moderna’s technology, it had a market capitalization of around $9 billion before the pandemic. Paying the company $2 billion for the technology directly related to producing the coronavirus vaccine would mean giving them almost 25 percent of the value of the company for this one specific line of work. (Alternatively, we can envision paying $9 billion to buy the company, and then selling off the components that are not directly related to producing a coronavirus vaccine.)

If Moderna was reluctant to sell its rights for $2 billion (or some comparable sum) the government could attempt to go around the company and simply pay its top researchers and engineers large sums (e.g. $1 million a month) to share their knowledge with the world. The government would also have to agree to cover all legal fees and settlements that could result from any subsequent suits by Moderna.

It is worth noting the logic of open-source, which would actually make $2 billion sound very generous. Suppose that other manufacturers but not Moderna, agreed to a buy out of rights and do future work as open-source. This would mean first, that Moderna would need to come up with the billion dollars that the federal government paid to cover its development costs and Phase 3 clinical trials.

Even more importantly, Moderna would know that as soon as its vaccine had been through the testing and approval process, it would be competing with other vaccines, which may be every bit as effective, and selling as cheap generics. In addition, it would be having a very difficult time getting the necessary inputs, since the federal government would be using the Defense Production Act to steer all the inputs in short supply to produce the vaccines developed by companies that agreed to open-source their work.

Also, the government could throw a large monkey wrench into Moderna’s plans by demanding harsh terms for the use of a NIH patent that is essential to the vaccine. The government’s rights to this patent could guarantee that Moderna would not be making big profits by refusing to come to terms.

Many people have argued that these sorts of terms would destroy incentives for drug companies to develop vaccines in the future. This claim is difficult to understand.[2] Presumably drug companies undertake investment with an understanding of both risks of failure and expected payoffs. No one is proposing a situation where the drug companies would not be making a profit from the development of the vaccines for Covid. The issue is simply whether they would get a super-bonanza from having developed a vaccine against a pandemic. This path takes away the super-bonanza.

So, if we think about the incentive structure going forward, if governments just handed out patent monopolies, including on research that they had paid for, then drug companies could incorporate in their planning that there is maybe a one in fifty or one in a hundred chance that there will be a pandemic in the relevant time-frame for their investment. If we pursue the route of forcing open-source development, then the drug companies will not incorporate the low-probability prospect of a pandemic super-bonanza in their planning. We should be able to live with that.

 

The Impact on Production

It would be difficult to determine how much vaccine production could have increased if we had gone the route of open-source research and international cooperation, but it is likely that the gains would have been substantial. First and foremost, sharing of technology would have allowed for it to be replicated widely. If all the information needed to produce the Pfizer, AstraZeneca, or Sinopharm vaccines were posted on the web, then any company anywhere in the world with expertise in production of vaccines or related items could start converting or building a factory.

BioNTech, Pfizer’s German partner, bought a Novartis plant in the middle of September of 2020. It converted the plant to producing its mRNA vaccines. It now expects to be able to produce 250 million doses in the first half of 2021, and have an annual production rate of 750 million a year. This indicates a very rapid rate of turnaround. The Novartis plant was already a sophisticated manufacturing facility, so this surely saved some time, but there are other sophisticated facilities around the world which are not now being used to produce Covid vaccines.

If there had been a clear international commitment to producing vaccines, even with the risk that some might prove ineffective or unneeded, this sort of conversion could have happened much sooner and with other facilities simultaneously. It would be an enormous risk for an individual company to spend hundreds of millions of dollars to convert a factory to produce a vaccine that may ultimately not be used. However, this risk is trivial for a government spending trillions of dollars to sustain its population through the pandemic. In fact, the purchase and conversion of the Novartis plant actually was funded by the German government.

Also, while the mRNA vaccines have proved to be the most effective in stopping the spread, there are several other vaccines that have been approved by various governmental regulatory agencies. These other vaccines use different technologies, which should mean more facilities could be used and they would not be competing for inputs. Even if their effectiveness rate is somewhat lower, vaccines that are 70 to 90 percent effective will still enormously slow the spread. Also, these other vaccines have advantages over the mRNA vaccines in that they do not have to be frozen, and, the case of the Johnson and Johnson vaccine, only require one shot.

If we had gone this route of full international governmental commitment, we also could have acted to remove bottlenecks in production. As the industry has repeatedly pointed out, many of the inputs for vaccines are in short supply. According to Thomas Cueni, the director general of the International Federation of Pharmaceutical Manufacturers and Associations, there is a major shortage of items like syringes and vials that is impeding the effort to vaccinate the world. (This assertion can be found at 21.10 here.) While even the best coordinated efforts may not be able to remove all bottlenecks, surely we could have produced an adequate supply of syringes and vials one year into the pandemic.

The other side of this sort of international commitment and open-sourcing is that we almost certainly would have developed more innovations in the production process. Pfizer reported in February that its engineers had figured out a way to alter their production process to cut the time needed almost in half. They also discovered that it was not necessary to super-freeze the vaccine at minus 94 degrees Fahrenheit. It can instead be stored in a normal freezer for up to two weeks, which hugely eases the distribution process.

If Pfizer’s production technology had been open-sourced early in 2020, it seems hard to imagine that no engineer in the world could have discovered the route to improve efficiency before February of 2021. There presumably are other ways to make its technology more efficient, which its engineers have not yet discovered. There would be a similar story with the other vaccine manufacturers. Also, if Pfizer had open-sourced its technology, it would be surprising if someone somewhere had not discovered it wasn’t necessary to super-freeze the vaccine before March of this year. In fact, the company did not even realize that its vials contained enough material for six shots rather than five (a 20 percent increase), for more than a full month after they were being widely distributed.  

 

The Benefits in Lives and Money

There clearly were, and undoubtedly still are, huge potential gains from open-sourcing the technologies used to produce the Covid vaccines and key inputs, as well as internationalizing the production process. If this had been done when the pandemic was first recognized, we could have hugely increased the pace of vaccine output and gotten the pandemic under control more quickly. Given the possibilities for converting and building more facilities, as well as increasing the efficiency of the existing facilities, we can envision that we would have two or three times the number of vaccines as we do today. This would have had an enormous impact on lives and the economy.

To get some idea of how a doubling of available vaccines might have impacted the course of the pandemic, it is worth remembering that the worst wave in Europe and the United States was hitting in January and February, just as vaccines were starting to be distributed. By January 15th, 3.2 percent of the population in the United States, or 10.5 million people had received at least one shot. This was a period in which the number of infections was averaging more than 230,000 a day and deaths were over 3,400 a day.

If we had twice the available vaccines, and had a competent delivery system (this was still during the Trump presidency), we would have had 21 million people vaccinated at that point. This would have covered all of our health care workers and the bulk of our older and most vulnerable population. Of course, many of these people would have only had one shot, which means they don’t have the full benefit of the vaccine, but the number of people getting seriously ill and dying would have been sharply reduced.

By March 1 we had vaccinated 15.2 percent of the population or 50.2 million people. If we had twice the number of vaccines available, we would have vaccinated 30.4 percent of the population, or 100.4 million people. At this point we would have enough vaccines to fully cover older people and others at risk. We were still seeing almost 70,000 cases a day at that point and 2,000 deaths. With this higher level of vaccination, the point actually reached at the start of April, the number of infections and deaths would be correspondingly lower. By the start of April, the number of infections was averaging just over 60,000 a day and the number of deaths had dropped below 1,000 a day.

If we maintained a doubling of our actual rate, by the end of March, almost 60 percent of the population, more than 195 million people, would have been vaccinated. (On May 22, we are at 48.6 percent.) At this point, increasing vaccination is a question of persuading vaccine resistant people to get the shot, it is not an issue of supply. While it would be necessary to maintain a stockpile, additional production could be given to other countries. We also could envision that the economy would have been largely reopened by the beginning of last month.

There is a similar story in Europe, which also saw its infections peak in January and February. In mid-January, France was seeing 17,000 cases a day, and almost 400 deaths, Italy averaged 16,000 cases and almost 500 deaths, and the UK over 50,000 cases and almost 1,100 deaths. The share of the population that was vaccinated as of January 15th in France, Italy, and the UK was 0.6 percent, 1.9 percent, and 5.3 percent, respectively. Doubling these rates would still only allow for a small share of highly vulnerable people to be vaccinated in France and Italy. In the UK, a 10.6 percent share would largely cover its health care workers and older population.

By March 1, these percentages had risen to 4.6 percent for France, 5.1 percent for Italy, and 30.2 percent for the UK. Doubling these figures would largely cover health care workers and the older population in France and Italy, and would imply that virtually anyone who wanted a shot in the UK had one.

The hardest hit countries in the developing world, India and Brazil, could have benefitted hugely from a more rapid rollout of vaccines. India hit its peak infection rates of just under 400,000 a day around May 10th. Its reported deaths averaged over 4,000 a day. (These figures are almost certainly gross understatements, as testing is limited and many Covid deaths are going unreported.)

On May 1, 9.2 percent of its population was vaccinated. If it had doubled this figure, 18.4 percent of the population would have been vaccinated, a share that would be large enough to substantially slow the spread and protect the most vulnerable segments of the population. In addition, with countries like the U.S. and UK having largely saturated demand by late March, vaccines could have been re-allocated, at essentially zero risk, to help India cope with the pandemic.

Brazil saw a peak of infections and deaths somewhat earlier. Its infections peaked at more than 75,000 a day in mid-March, with deaths averaging over 3,000 a day in early April. (There is also serious under-reporting in Brazil.) Its vaccination rate was 4.5 percent on March 16th. A doubling to 9.0 percent would have allowed the country to cover its health care workers and most vulnerable population. As with India, Brazil could have benefitted from vaccines being reallocated from the U.S., U.K. and other countries that had satiated demand by the end of the month.

It would be interesting to see a more careful calculation on the reduction in infections and deaths that would have resulted from a doubling of the production rate of vaccines, but it clearly would have been substantial. This is without even considering questions of reallocations between countries, like should health care workers and older people in developing countries be vaccinated before young healthy people in the United States and Europe.

There also is the over-riding question of the risk of the development of a vaccine resistant strain. While it may not be easy to get a good estimate of the probability that a vaccine resistant strain will develop in the months and years ahead, the costs are clearly catastrophic. Even if the existing vaccines can be adjusted to make them effective against a new strain, we will see many months of infections, deaths, and shutdowns, until the new vaccine can be tested and produced and distributed in sufficient quantity to protect the bulk of the population. Countries that have largely succeeded in vaccinating their populations should be willing to pay a large price to avoid this risk.

 

Big Gains from Overcoming Inertia

Anyone who has spent any time in Washington policy debates knows that inertia is an incredibly powerful force. Really bad policies can survive for decades just because it’s much easier to leave things as they are than to change them.

This is clearly true for our system of patent monopoly financing of prescription drugs and vaccines. The pandemic is a full out emergency that should have led us to do everything possible to stem its spread as quickly as possible, coordinating as much as possible with other countries (even Russia and China) in a genuine international effort.

Unfortunately, that was certainly not the agenda of the Trump administration. The result was many unnecessary infections and deaths, and enormous economic waste. While we are some distance down the road now, we can still gain from taking the path of openness and cooperation.

[1] This would also be the case with manufacturers of inputs for vaccines, who would have both patents and industrial secrets connected with their production process. The government would have to be buy these rights in order to make them fully open-source.

[2] My own view is that we should move away from patent monopoly financing for the development of new drugs and vaccines and switch to direct open-source funding (see Rigged, chapter 5 [it’s free]), but that is beside the point.

People in policy debates are not supposed to question the desirability of patent monopolies as a mechanism for financing the development of new drugs and vaccines. After all, why ask a question that could jeopardize the profits of some of the world’s largest corporations? But, since I live out in Southern Utah, far away from the great centers of policy debate, I thought I would ask the question in reference to vaccines against Covid.

To be specific, suppose that instead of funneling money into drug companies to subsidize the patent monopoly financed system, we instead use this money, and added more to it, for the purpose of fully prefunding the development of vaccines. The condition of accepting funding is that all the work would be fully open-source.

This means that all the findings would be posted on the web, so that researchers around the world could build on them. It also means that any patents would be in the public domain so that any manufacturers, anywhere in the world, could produce the vaccines developed through this system, if they had the necessary expertise. The requirement for openness would also apply to the results of clinical trials, so it would be possible for researchers to know which vaccines were most effective for specific demographic groups and against which variants of the virus.

This system would require some sort of international agreement on sharing research costs. While agreements can take time to work out, getting the numbers exactly right should not have been an impediment. In the context of a worldwide pandemic costing millions of lives and trillions of dollars of lost output, it is not a big deal if the United States or China pays 25 percent too much or too little. The simplest course would be to agree to rough numbers with a commitment to re-examine the issue down the road.

The Open Source Alternative

Having raised the idea of open source research in various contexts over the last year or so, I realize that many people are not familiar with the concept. The basic idea is that the research is fully open, and posted on the web as soon as practical, so that any researcher in the world can read it and build on it.

I have had people ask me why anyone would do research if they had to immediately share the results, rather than secure a patent. The answer is that they are getting paid for it. This is in fact the reason the vast majority of researchers are doing their work now. For the typical scientist at Moderna, Pfizer, or Merck it doesn’t matter whether these companies are making their money through ownership of a patent monopoly or through a government contract. They get a paycheck every month either way. (I recognize that many scientists may actually be concerned about controlling a pandemic and saving lives, but I am not expecting that motivation to be a replacement for money in a paycheck.)

If the government is paying for research, it can impose the condition that everything must be open-source. If a company doesn’t like the deal, it doesn’t have to take it. That’s pretty simple.

This is a big deal with the current crop of vaccines being used, especially the mRNA vaccines. In addition to having already paid for much of the basic research developing mRNA technology through NIH, the government also paid for the cost of developing and testing Moderna’s vaccine.

Many people have pointed out that Moderna had invested in developing a platform that allowed them to be able to quickly turnaround and design a vaccine against the coronavirus. There is some truth to this. Arguably the government would have had to make some additional payment to Moderna, and likely other drug companies to get them to make all the information about their vaccines, and their production process, fully public.[1]

It would take some serious analysis to get a good estimate of a fair payment, but to put a rough cap on what we would be looking at, in the case of Moderna, it would almost certainly be less than $2 billion, and likely considerably lower with other manufacturers working with less novel processes. (The Oxford-Astra Zeneca vaccine was developed almost entirely with public money, so there should not have been a need for any substantial payments to make it fully open-source.)

As far as the $2 billion figure for buying full rights to open-source Moderna’s technology, it had a market capitalization of around $9 billion before the pandemic. Paying the company $2 billion for the technology directly related to producing the coronavirus vaccine would mean giving them almost 25 percent of the value of the company for this one specific line of work. (Alternatively, we can envision paying $9 billion to buy the company, and then selling off the components that are not directly related to producing a coronavirus vaccine.)

If Moderna was reluctant to sell its rights for $2 billion (or some comparable sum) the government could attempt to go around the company and simply pay its top researchers and engineers large sums (e.g. $1 million a month) to share their knowledge with the world. The government would also have to agree to cover all legal fees and settlements that could result from any subsequent suits by Moderna.

It is worth noting the logic of open-source, which would actually make $2 billion sound very generous. Suppose that other manufacturers but not Moderna, agreed to a buy out of rights and do future work as open-source. This would mean first, that Moderna would need to come up with the billion dollars that the federal government paid to cover its development costs and Phase 3 clinical trials.

Even more importantly, Moderna would know that as soon as its vaccine had been through the testing and approval process, it would be competing with other vaccines, which may be every bit as effective, and selling as cheap generics. In addition, it would be having a very difficult time getting the necessary inputs, since the federal government would be using the Defense Production Act to steer all the inputs in short supply to produce the vaccines developed by companies that agreed to open-source their work.

Also, the government could throw a large monkey wrench into Moderna’s plans by demanding harsh terms for the use of a NIH patent that is essential to the vaccine. The government’s rights to this patent could guarantee that Moderna would not be making big profits by refusing to come to terms.

Many people have argued that these sorts of terms would destroy incentives for drug companies to develop vaccines in the future. This claim is difficult to understand.[2] Presumably drug companies undertake investment with an understanding of both risks of failure and expected payoffs. No one is proposing a situation where the drug companies would not be making a profit from the development of the vaccines for Covid. The issue is simply whether they would get a super-bonanza from having developed a vaccine against a pandemic. This path takes away the super-bonanza.

So, if we think about the incentive structure going forward, if governments just handed out patent monopolies, including on research that they had paid for, then drug companies could incorporate in their planning that there is maybe a one in fifty or one in a hundred chance that there will be a pandemic in the relevant time-frame for their investment. If we pursue the route of forcing open-source development, then the drug companies will not incorporate the low-probability prospect of a pandemic super-bonanza in their planning. We should be able to live with that.

 

The Impact on Production

It would be difficult to determine how much vaccine production could have increased if we had gone the route of open-source research and international cooperation, but it is likely that the gains would have been substantial. First and foremost, sharing of technology would have allowed for it to be replicated widely. If all the information needed to produce the Pfizer, AstraZeneca, or Sinopharm vaccines were posted on the web, then any company anywhere in the world with expertise in production of vaccines or related items could start converting or building a factory.

BioNTech, Pfizer’s German partner, bought a Novartis plant in the middle of September of 2020. It converted the plant to producing its mRNA vaccines. It now expects to be able to produce 250 million doses in the first half of 2021, and have an annual production rate of 750 million a year. This indicates a very rapid rate of turnaround. The Novartis plant was already a sophisticated manufacturing facility, so this surely saved some time, but there are other sophisticated facilities around the world which are not now being used to produce Covid vaccines.

If there had been a clear international commitment to producing vaccines, even with the risk that some might prove ineffective or unneeded, this sort of conversion could have happened much sooner and with other facilities simultaneously. It would be an enormous risk for an individual company to spend hundreds of millions of dollars to convert a factory to produce a vaccine that may ultimately not be used. However, this risk is trivial for a government spending trillions of dollars to sustain its population through the pandemic. In fact, the purchase and conversion of the Novartis plant actually was funded by the German government.

Also, while the mRNA vaccines have proved to be the most effective in stopping the spread, there are several other vaccines that have been approved by various governmental regulatory agencies. These other vaccines use different technologies, which should mean more facilities could be used and they would not be competing for inputs. Even if their effectiveness rate is somewhat lower, vaccines that are 70 to 90 percent effective will still enormously slow the spread. Also, these other vaccines have advantages over the mRNA vaccines in that they do not have to be frozen, and, the case of the Johnson and Johnson vaccine, only require one shot.

If we had gone this route of full international governmental commitment, we also could have acted to remove bottlenecks in production. As the industry has repeatedly pointed out, many of the inputs for vaccines are in short supply. According to Thomas Cueni, the director general of the International Federation of Pharmaceutical Manufacturers and Associations, there is a major shortage of items like syringes and vials that is impeding the effort to vaccinate the world. (This assertion can be found at 21.10 here.) While even the best coordinated efforts may not be able to remove all bottlenecks, surely we could have produced an adequate supply of syringes and vials one year into the pandemic.

The other side of this sort of international commitment and open-sourcing is that we almost certainly would have developed more innovations in the production process. Pfizer reported in February that its engineers had figured out a way to alter their production process to cut the time needed almost in half. They also discovered that it was not necessary to super-freeze the vaccine at minus 94 degrees Fahrenheit. It can instead be stored in a normal freezer for up to two weeks, which hugely eases the distribution process.

If Pfizer’s production technology had been open-sourced early in 2020, it seems hard to imagine that no engineer in the world could have discovered the route to improve efficiency before February of 2021. There presumably are other ways to make its technology more efficient, which its engineers have not yet discovered. There would be a similar story with the other vaccine manufacturers. Also, if Pfizer had open-sourced its technology, it would be surprising if someone somewhere had not discovered it wasn’t necessary to super-freeze the vaccine before March of this year. In fact, the company did not even realize that its vials contained enough material for six shots rather than five (a 20 percent increase), for more than a full month after they were being widely distributed.  

 

The Benefits in Lives and Money

There clearly were, and undoubtedly still are, huge potential gains from open-sourcing the technologies used to produce the Covid vaccines and key inputs, as well as internationalizing the production process. If this had been done when the pandemic was first recognized, we could have hugely increased the pace of vaccine output and gotten the pandemic under control more quickly. Given the possibilities for converting and building more facilities, as well as increasing the efficiency of the existing facilities, we can envision that we would have two or three times the number of vaccines as we do today. This would have had an enormous impact on lives and the economy.

To get some idea of how a doubling of available vaccines might have impacted the course of the pandemic, it is worth remembering that the worst wave in Europe and the United States was hitting in January and February, just as vaccines were starting to be distributed. By January 15th, 3.2 percent of the population in the United States, or 10.5 million people had received at least one shot. This was a period in which the number of infections was averaging more than 230,000 a day and deaths were over 3,400 a day.

If we had twice the available vaccines, and had a competent delivery system (this was still during the Trump presidency), we would have had 21 million people vaccinated at that point. This would have covered all of our health care workers and the bulk of our older and most vulnerable population. Of course, many of these people would have only had one shot, which means they don’t have the full benefit of the vaccine, but the number of people getting seriously ill and dying would have been sharply reduced.

By March 1 we had vaccinated 15.2 percent of the population or 50.2 million people. If we had twice the number of vaccines available, we would have vaccinated 30.4 percent of the population, or 100.4 million people. At this point we would have enough vaccines to fully cover older people and others at risk. We were still seeing almost 70,000 cases a day at that point and 2,000 deaths. With this higher level of vaccination, the point actually reached at the start of April, the number of infections and deaths would be correspondingly lower. By the start of April, the number of infections was averaging just over 60,000 a day and the number of deaths had dropped below 1,000 a day.

If we maintained a doubling of our actual rate, by the end of March, almost 60 percent of the population, more than 195 million people, would have been vaccinated. (On May 22, we are at 48.6 percent.) At this point, increasing vaccination is a question of persuading vaccine resistant people to get the shot, it is not an issue of supply. While it would be necessary to maintain a stockpile, additional production could be given to other countries. We also could envision that the economy would have been largely reopened by the beginning of last month.

There is a similar story in Europe, which also saw its infections peak in January and February. In mid-January, France was seeing 17,000 cases a day, and almost 400 deaths, Italy averaged 16,000 cases and almost 500 deaths, and the UK over 50,000 cases and almost 1,100 deaths. The share of the population that was vaccinated as of January 15th in France, Italy, and the UK was 0.6 percent, 1.9 percent, and 5.3 percent, respectively. Doubling these rates would still only allow for a small share of highly vulnerable people to be vaccinated in France and Italy. In the UK, a 10.6 percent share would largely cover its health care workers and older population.

By March 1, these percentages had risen to 4.6 percent for France, 5.1 percent for Italy, and 30.2 percent for the UK. Doubling these figures would largely cover health care workers and the older population in France and Italy, and would imply that virtually anyone who wanted a shot in the UK had one.

The hardest hit countries in the developing world, India and Brazil, could have benefitted hugely from a more rapid rollout of vaccines. India hit its peak infection rates of just under 400,000 a day around May 10th. Its reported deaths averaged over 4,000 a day. (These figures are almost certainly gross understatements, as testing is limited and many Covid deaths are going unreported.)

On May 1, 9.2 percent of its population was vaccinated. If it had doubled this figure, 18.4 percent of the population would have been vaccinated, a share that would be large enough to substantially slow the spread and protect the most vulnerable segments of the population. In addition, with countries like the U.S. and UK having largely saturated demand by late March, vaccines could have been re-allocated, at essentially zero risk, to help India cope with the pandemic.

Brazil saw a peak of infections and deaths somewhat earlier. Its infections peaked at more than 75,000 a day in mid-March, with deaths averaging over 3,000 a day in early April. (There is also serious under-reporting in Brazil.) Its vaccination rate was 4.5 percent on March 16th. A doubling to 9.0 percent would have allowed the country to cover its health care workers and most vulnerable population. As with India, Brazil could have benefitted from vaccines being reallocated from the U.S., U.K. and other countries that had satiated demand by the end of the month.

It would be interesting to see a more careful calculation on the reduction in infections and deaths that would have resulted from a doubling of the production rate of vaccines, but it clearly would have been substantial. This is without even considering questions of reallocations between countries, like should health care workers and older people in developing countries be vaccinated before young healthy people in the United States and Europe.

There also is the over-riding question of the risk of the development of a vaccine resistant strain. While it may not be easy to get a good estimate of the probability that a vaccine resistant strain will develop in the months and years ahead, the costs are clearly catastrophic. Even if the existing vaccines can be adjusted to make them effective against a new strain, we will see many months of infections, deaths, and shutdowns, until the new vaccine can be tested and produced and distributed in sufficient quantity to protect the bulk of the population. Countries that have largely succeeded in vaccinating their populations should be willing to pay a large price to avoid this risk.

 

Big Gains from Overcoming Inertia

Anyone who has spent any time in Washington policy debates knows that inertia is an incredibly powerful force. Really bad policies can survive for decades just because it’s much easier to leave things as they are than to change them.

This is clearly true for our system of patent monopoly financing of prescription drugs and vaccines. The pandemic is a full out emergency that should have led us to do everything possible to stem its spread as quickly as possible, coordinating as much as possible with other countries (even Russia and China) in a genuine international effort.

Unfortunately, that was certainly not the agenda of the Trump administration. The result was many unnecessary infections and deaths, and enormous economic waste. While we are some distance down the road now, we can still gain from taking the path of openness and cooperation.

[1] This would also be the case with manufacturers of inputs for vaccines, who would have both patents and industrial secrets connected with their production process. The government would have to be buy these rights in order to make them fully open-source.

[2] My own view is that we should move away from patent monopoly financing for the development of new drugs and vaccines and switch to direct open-source funding (see Rigged, chapter 5 [it’s free]), but that is beside the point.

Washington Post budget reporters have a game where they try to write things in a way that none of their readers have any clue what they are talking about. According to rumors, they give a prize each year to the reporter who does the best job in providing zero information to readers.

Today’s piece on the proposals on infrastructure being exchanged by President Biden and a group of Republicans in the Senate is a leading contender. It told us that President Biden lowered his request from $2.3 trillion to $1.7 trillion. By contrast, the Senate Republicans are proposing $800 billion.

The piece never bothered to tell readers the number of years over which this money would be spent. Eight is the magic number — but hey, everyone knows that, right?

A bit of additional context would also have been helpful. For example, Biden’s latest proposal is a bit less than 0.8 percent of GDP. It is just over a quarter of what the Pentagon is projected to spend over this period. On a per person basis, it comes to around $640 a year.

This is the sort of context that would appear in the article if the point was to inform readers. Apparently that is not the case.

Washington Post budget reporters have a game where they try to write things in a way that none of their readers have any clue what they are talking about. According to rumors, they give a prize each year to the reporter who does the best job in providing zero information to readers.

Today’s piece on the proposals on infrastructure being exchanged by President Biden and a group of Republicans in the Senate is a leading contender. It told us that President Biden lowered his request from $2.3 trillion to $1.7 trillion. By contrast, the Senate Republicans are proposing $800 billion.

The piece never bothered to tell readers the number of years over which this money would be spent. Eight is the magic number — but hey, everyone knows that, right?

A bit of additional context would also have been helpful. For example, Biden’s latest proposal is a bit less than 0.8 percent of GDP. It is just over a quarter of what the Pentagon is projected to spend over this period. On a per person basis, it comes to around $640 a year.

This is the sort of context that would appear in the article if the point was to inform readers. Apparently that is not the case.

Paul Krugman’s column today commented on the recent data showing continuing low fertility rates, which is likely to mean a stagnant or declining working age population in future years. Krugman points out that this is no big deal; Japan and Europe have been living with declining working age populations and have managed just fine.

But he does point out that a declining working age population is likely to lead to lower rates of investment and therefore creates a risk of “secular stagnation,” a sustained period of inadequate demand in the economy. To counter this problem, Krugman recommends large-scale public investment programs along the lines proposed by President Biden but considerably larger. 

All this seems very much on the mark, but it is worth contrasting this with the concerns raised by the deficit hawks for the last four decades. Their concern was always that when the baby boomers retired they would still be consuming things, but there would not be enough workers to produce the goods. This was a story of too much demand and too little supply. That is a story of inflation.

In other words, the concern that the deficit hawks have been raising forever is the complete opposite of the problem that the economy is likely to face as the economy ages. Instead of having too much demand, it looks like we will have too little demand. We will actually need the government to run large deficits to keep the economy close to full employment.

Not only were the deficit hawks wrong about the magnitude of the problem, but they were also wrong about the direction. As the old saying goes, “economists are not very good at economics.”

 

Paul Krugman’s column today commented on the recent data showing continuing low fertility rates, which is likely to mean a stagnant or declining working age population in future years. Krugman points out that this is no big deal; Japan and Europe have been living with declining working age populations and have managed just fine.

But he does point out that a declining working age population is likely to lead to lower rates of investment and therefore creates a risk of “secular stagnation,” a sustained period of inadequate demand in the economy. To counter this problem, Krugman recommends large-scale public investment programs along the lines proposed by President Biden but considerably larger. 

All this seems very much on the mark, but it is worth contrasting this with the concerns raised by the deficit hawks for the last four decades. Their concern was always that when the baby boomers retired they would still be consuming things, but there would not be enough workers to produce the goods. This was a story of too much demand and too little supply. That is a story of inflation.

In other words, the concern that the deficit hawks have been raising forever is the complete opposite of the problem that the economy is likely to face as the economy ages. Instead of having too much demand, it looks like we will have too little demand. We will actually need the government to run large deficits to keep the economy close to full employment.

Not only were the deficit hawks wrong about the magnitude of the problem, but they were also wrong about the direction. As the old saying goes, “economists are not very good at economics.”

 

I realize that it’s hard for reporters at the country’s leading newspaper to stay on top of the news, but this major piece (four reporters) on vaccinating the world should get a Pulitzer for ignorance. The topic of the piece is vaccinating the world, which should be number one on any serious person’s list of priorities right now.

This is not just a humanitarian point, which should be an incredibly big deal by itself. The idea of millions of preventable deaths in the developing world, and hundreds of millions of avoidable infections, should be enough to get any reasonable person’s attention.

But beyond the humanitarian issue, there is the simple common sense point that the more the virus spreads, the greater the likelihood that a vaccine-resistant strain will develop. This possibility should have everyone terrified. Can anyone in their right mind want to see a whole new round of infections, deaths, and lockdowns, as we wait for a new vaccine to be developed, tested, produced, and then distributed in mass quantities?

I don’t know what the risk of a vaccine-resistant strain developing is, but it is clearly not zero. And, it is obviously greater the more the pandemic is allowed to spread unchecked. So the claim that we have a strong interest in vaccinating the world is not really debatable.

But the place where this NYT piece goes seriously off the rails is that it completely ignores the vaccines developed by Russia and China. Both countries have developed vaccines that have been proven effective against the coronavirus. The test results from the Russian vaccine show it to be between the mRNA vaccines and the Astra Zeneca vaccines in effectiveness. There have been a range of test results reported from the Chinese vaccines (the manufacturers have not been very transparent), but there is substantial evidence that they are effective in slowing the spread and radically reducing hospitalizations and deaths.

There have already been hundreds of millions of doses of the Russian vaccine produced and China claims that it will be able to produce billions of doses of its vaccines this year. Anyone who is serious in talking about getting the world vaccinated must include the production of these vaccines in their calculations.

This brings up the second point this piece misses. If we want to get the world vaccinated, we need to open-source the technologies. This doesn’t mean just having Pfizer and Moderna’s engineers whispering into the ears of a select group of engineers to allow them to replicate their technology.

It means making the production technology fully open so that engineers everywhere in the world can examine it, and most importantly, look for ways to improve it. We also want to do this with the production technology for inputs that are in short supply, and we want the manufacturers of Russia’s and China’s vaccines to do the same.

The logic here follows the idea that more minds working on a problem are better than fewer minds. Earlier this year, Pfizer reported that its engineers developed a way to cut its production time nearly in half. They also discovered that its vaccine did not have to be super-frozen at temperatures below minus 90 degrees Fahrenheit, it can instead be stored in a normal freezer for up to two weeks.

Unless we think that Pfizer’s engineers are the only people in the world capable of improving its production process, it is likely that we will see further useful innovations if the technology were open to engineers all around the world. The same applies to the production technology of the other vaccines as well as inputs in short supply.

We should also want the technology for producing the Russian and Chinese vaccines open-sourced. I don’t know if they would agree to this, but it is certainly worth trying.

Getting the world vaccinated is a huge task and it addresses the greatest immediate crisis facing the world. It would be good if the NYT could take off its Cold War blinders to address the issue in a serious way.

I realize that it’s hard for reporters at the country’s leading newspaper to stay on top of the news, but this major piece (four reporters) on vaccinating the world should get a Pulitzer for ignorance. The topic of the piece is vaccinating the world, which should be number one on any serious person’s list of priorities right now.

This is not just a humanitarian point, which should be an incredibly big deal by itself. The idea of millions of preventable deaths in the developing world, and hundreds of millions of avoidable infections, should be enough to get any reasonable person’s attention.

But beyond the humanitarian issue, there is the simple common sense point that the more the virus spreads, the greater the likelihood that a vaccine-resistant strain will develop. This possibility should have everyone terrified. Can anyone in their right mind want to see a whole new round of infections, deaths, and lockdowns, as we wait for a new vaccine to be developed, tested, produced, and then distributed in mass quantities?

I don’t know what the risk of a vaccine-resistant strain developing is, but it is clearly not zero. And, it is obviously greater the more the pandemic is allowed to spread unchecked. So the claim that we have a strong interest in vaccinating the world is not really debatable.

But the place where this NYT piece goes seriously off the rails is that it completely ignores the vaccines developed by Russia and China. Both countries have developed vaccines that have been proven effective against the coronavirus. The test results from the Russian vaccine show it to be between the mRNA vaccines and the Astra Zeneca vaccines in effectiveness. There have been a range of test results reported from the Chinese vaccines (the manufacturers have not been very transparent), but there is substantial evidence that they are effective in slowing the spread and radically reducing hospitalizations and deaths.

There have already been hundreds of millions of doses of the Russian vaccine produced and China claims that it will be able to produce billions of doses of its vaccines this year. Anyone who is serious in talking about getting the world vaccinated must include the production of these vaccines in their calculations.

This brings up the second point this piece misses. If we want to get the world vaccinated, we need to open-source the technologies. This doesn’t mean just having Pfizer and Moderna’s engineers whispering into the ears of a select group of engineers to allow them to replicate their technology.

It means making the production technology fully open so that engineers everywhere in the world can examine it, and most importantly, look for ways to improve it. We also want to do this with the production technology for inputs that are in short supply, and we want the manufacturers of Russia’s and China’s vaccines to do the same.

The logic here follows the idea that more minds working on a problem are better than fewer minds. Earlier this year, Pfizer reported that its engineers developed a way to cut its production time nearly in half. They also discovered that its vaccine did not have to be super-frozen at temperatures below minus 90 degrees Fahrenheit, it can instead be stored in a normal freezer for up to two weeks.

Unless we think that Pfizer’s engineers are the only people in the world capable of improving its production process, it is likely that we will see further useful innovations if the technology were open to engineers all around the world. The same applies to the production technology of the other vaccines as well as inputs in short supply.

We should also want the technology for producing the Russian and Chinese vaccines open-sourced. I don’t know if they would agree to this, but it is certainly worth trying.

Getting the world vaccinated is a huge task and it addresses the greatest immediate crisis facing the world. It would be good if the NYT could take off its Cold War blinders to address the issue in a serious way.

Jerome Powell’s term as chair of the Federal Reserve Board does not end until next January, but the debate on his reappointment has already begun. It would be good for the economy if Powell were reappointed and if Biden announced this decision as soon as possible.

In making the case for Powell, it is important to understand how much he has moved the Fed from where it has been in prior decades. I have long been in battles with the Fed over its willingness to raise interest rates, slowing growth and killing jobs, in order to head off the risk of higher inflation. It viewed its legal mandate for high employment as an afterthought, at best.

Powell has turned this around. He has quite explicitly said that he wants to have the economy run hot, pushing it as far he can without kicking off inflation. He has embraced the idea that many of us on the left had long maintained: low levels of unemployment disproportionately benefit those most disadvantaged in the labor market.

When the unemployment rate is low, Blacks, Latinos, people with disabilities, and people with criminal records are more able to find jobs. Employers don’t have the option to discriminate; these are the workers who are available.

Low rates of unemployment also give workers at the middle and bottom of the income distribution the bargaining power to obtain wage gains. We have seen this pattern repeatedly in the last four decades.

When the unemployment rate has been relatively high, for example in most of the 1980s, the early 1990s, the Great Recession, and the slow recovery that followed, real wages for most workers were stagnant. However, when the labor market tightened, in the late 1990s or in the four years before the pandemic, workers were able to secure wage gains in line with productivity growth. (This was the main focus of two books I wrote with Jared Bernstein.)  

While this view may seem like common sense – why not run the economy in a way that as many people as possible can have jobs – it is a world away from where the Fed has been in the not distant past, where the view was that the Fed had to focus on inflation. I recall being in a meeting in early 1994 with Alan Blinder and Janet Yellen (yes, that Janet Yellen), who were both recently appointed members of the Fed’s Board of Governors.

The immediate issue was that the unemployment rate was falling to the 6.0 percent level that was generally viewed as the point where inflation would begin to spiral upward. My colleagues and I were trying to convince Blinder and Yellen to hold off on raising rates and slowing the economy since we thought the risks of inflation were small relative to the benefit from millions of people being able to get jobs.

We weren’t able to move them. I will always recall arguing with Blinder that since we didn’t know for sure the impact of lower unemployment on inflation, it was worth taking the risk. Blinder responded that the Fed was legally mandated to pursue price stability. I pointed out that the Humphrey-Hawkins legislation, which was then still in effect, required the Fed to target 4.0 percent unemployment.

Blinder, who was one of most liberal and decent people to ever sit on Fed’s board, responded by saying that no one takes that mandate seriously. I then said that he doesn’t have to take the mandate for price stability seriously either, to which he said “yes, I do.”

Later that year, Blinder actually got caught up in a mini-scandal for suggesting that the Fed could act to boost employment when the economy was facing a recession. A major New York Times article implied that this was a major break with Fed policy since Blinder’s comments indicated that the Fed would not just be focused on inflation.

Anyhow, having a chair who sees the Fed’s priority as running the labor market as hot as possible without triggering inflation is a very different world. The change in views reflects a lot of work over the decades trying to impress on the Fed the importance of getting to full employment. Most notably, the Fed Up Coalition, consisting of labor and community groups, of which Ady Barkan was a lead organizer, played a major role in swaying the Fed. Janet Yellen, who was then chair of the Fed, met with the group several times, as did other board members and district bank presidents. They seemed to take our arguments seriously.

Yellen, and even her predecessor Ben Bernanke, had certainly moved the Fed from its inflation obsession, but Powell still took a qualitative leap forward. In saying that it is the Fed’s responsibility to have a tight labor market and get the unemployment rate as low as possible, he has totally reversed the Fed’s priorities. Having won a huge battle on economic policy, progressives should be anxious to defend our victory.

Powell and Regulation

Many people have pointed out that Powell has not been good in regulating the financial sector, which is another important responsibility of the Fed. This criticism is valid, but it really needs to be put in some context.

First, there is a seriously wrong myth about the Great Recession, which sees it as the result of failed regulation, that needs to be corrected. There were indeed many failures in regulation in the years before the Great Recession, but the problem was the collapse of a housing bubble that was driving the economy.

The distinction is important because the regulation story implies that we needed super-sleuths to uncover the fraudulent loans in the sub-prime market or the flood of credit default swaps being issued on mortgage backed securities by AIG and others. These abuses surely fed the bubble, but the bubble was sitting there in plain sight for anyone paying attention, and most importantly, it was easy to see that it was driving the economy.

We had an unprecedented run-up in house sale prices with no remotely corresponding increase in rents. And, this was occurring while vacancy rates were hitting record levels, which is hard to reconcile with claims that prices were being driven by the fundamentals of the market.

It was also easy to see that the bubble was driving the economy, as residential construction was hitting record shares of GDP. In addition, the wealth created by the bubble also led to a consumption boom, as homeowners were spending based on the ephemeral housing wealth created by the bubble. This could easily be seen in the GDP data published by the Commerce Department every quarter.

 

When the bubble burst, it was inevitable that we would face a serious recession, as there was no obvious source of demand that was going to replace the construction and consumption demand generated by the bubble.

To prevent the disaster of the Great Recession, we didn’t need the Fed to get into weeds of regulation. We needed a Fed that recognized the risk of a bubble that was driving the economy instead of cheering it on, as Greenspan largely did until he stepped down in 2006.

Bubbles are not dependent on bad finance.  The stock bubble in the late 1990s, whose collapse gave us the recession in 2001, did not depend to any substantial extent on credit. People put up their own money to buy ridiculously priced shares of stock.

The collapse of bubbles also doesn’t necessarily lead to a recession. This is only the case if the bubble was actually driving the economy, as was the case with the stock bubble in the 1990s and the housing bubble in the 2000s. If the $1 trillion market for Bitcoin collapsed completely tomorrow, we probably would not even be able to find its impact in the GDP data. (I discuss this issue in more detail here.)

Anyhow, even if bad regulation weren’t responsible for the Great Recession, we still should want a well-regulated financial system. There are three important reasons why regulation matters.

First, much of finance, for example subprime house and car loans or fees for financial services, is predatory. Contracts and loans are often designed deceptively so customers don’t realize the full costs and risks. Banks and other financial companies usually target low and moderate income people and people of color with these products.

Second, the financial sector is a major source of inequality. Many of the country’s biggest fortunes were made in the financial sector. We can debate how much money a person should get when they are responsible for a genuinely useful innovation, like an important drug or new software, but it’s hard to see a way to justify someone getting very rich off subprime mortgages.

The third reason regulation is important is that a bloated financial sector is inefficient. The financial sector provides an important service; it allocates capital and facilitates payments. But we should want this to be done with as few resources as possible. We should think of finance like we think of the trucking industry – we need to get goods from point A to point B – but we want as few people and trucks employed in this process as possible.

The same applies to the financial sector. The sector has quintupled relative to the size of the economy over the last five decades, with little obvious benefit. If we can limit the bloat with regulation, that makes the sector and the economy more efficient.

For these reasons, we should want a well-regulated financial sector and there are certainly grounds for criticism of Powell on this front. However, the more obvious target here would be finding a good vice-chair for regulation. The term of the current vice-chair, Randal Quarles, ends in October. It will be important to replace him with someone who takes regulation more seriously.

 

Other Issues: Climate and Cities

 

Some have complained that Powell has not made climate a factor in Fed policy. There also have been complaints that the municipal lending facility he created in the recession was barely used.

These complaints are not really fair to Powell or the Fed. It would be great to have a central bank that actively promoted clean energy and sought to penalize fossil fuel companies, but this is not a power that has been given to the Fed by Congress. While it can arguably do this with the power it has, it would be virtually certain to lose this power very quickly if it went this route.

We can be quite certain that every Republican in Congress would be up in arms if the Fed were to pursue this path, as would likely be the case with many Democrats. If this had happened with Donald Trump in the White House, we would also have the executive branch out for Powell’s head. It is hard to see the value in pursuing a policy that is virtually certain to be cut off before it can have any real impact and likely to lead to a Fed with much less autonomy.  

The same applies with lending to cities. In fact, the Fed’s policies led to a sharp reduction in the interest rates on municipal bonds between February and April of last year. The ability to borrow at lower interest rates helped many cities get through the pandemic. However, there were cities with bad credit ratings that benefitted less from the drop in interest rates.

It would have been great if Powell could have tossed these cities a lifeline by lending at well below market rates, but here too we have to look to the reaction from Congress. The Republicans in Congress, along with Donald Trump, were quite explicit in their efforts to keep “Democrat” cities from getting money. Had Powell tried to use the Fed as a backdoor, they would not have sat by and twiddled their thumbs helplessly. Again, they would have gone gunning for Powell and the Fed, and they would have likely succeeded in reining in the lending and weakening the Fed.

In both of these cases, we can argue whether the Fed had the legal authority to do more, but as a practical matter, it almost certainly would have been blocked in these efforts. The Fed’s main responsibility is the state of the macroeconomy, and I find it hard to argue that Powell should have put the Fed’s ability to be effective here at risk to pursue initiatives that were virtually certain to be shut down quickly.

 

Why Powell and Why Now

While Powell had brought about a remarkable shift in Fed policy, it could be argued that others, most notably Fed Governor Lael Brainard, could carry this shift forward as well or better. There are several reasons why ditching Powell would be a risky strategy.

Most importantly, Powell would have the best chance of getting confirmed by the Senate. The Republicans have made it fairly explicit that their agenda for the Biden presidency is sabotage. If Biden wants to appoint a Fed chair committed to full employment, they will look to block them. We can assume that all 50 Republican senators will vote no, on almost anyone that Biden puts forward. That means that if any of the centrist Democrats decide to get cute, Biden doesn’t have a Fed chair.

Powell has a huge advantage in this area in that he already secured the vote of almost every Republican in the Senate when Trump nominated him in 2017. (There were only four no votes from Republicans.) There are few limits to Republican shamelessness. Many may decide that if Biden wants Powell, then they don’t, but clearly the person Trump picked to be Fed chair has a better chance of winning their support than anyone else Biden might put forward.

There is also the question of the Fed chair’s authority at the Fed. Decisions on monetary policy are not made by the chair alone but rather by the Fed Open Market Committee (FOMC), which includes the other six governors and the twelve district bank presidents, five of whom vote at any given meeting. The chair usually gets their way, but they typically negotiate and work out compromises with the other members of the FOMC.

Powell, as the incumbent chair, would have much more authority in this situation than a new person just stepping into the position. There are still many inflation hawks among the district bank presidents. Powell will be much better situated to keep the priority on full employment than any possible replacement.

In terms of announcing his reappointment soon, Biden should want to do what he can to remove uncertainty and shore up Powell’s position in coming months. We know that the Republicans will do everything in their power to stir up fears of runaway inflation and to undermine the Fed’s authority. If Biden can give him a clear endorsement now, it would help Powell’s effort to keep the focus on full employment.

We know that there will be areas with jumps in prices due to a bounce back from pandemic drops or temporary shortages, as we saw in the April CPI report. We need the Fed to be able to look at the data clearly and respond accordingly. Powell will be most able to do this if there is no doubt about his reappointment.

This should be an easy one for Biden. He will be reappointing a chair with a proven track record. And, he can show his willingness to be bipartisan by handing over one of the most powerful positions in government to a Republican.

Jerome Powell’s term as chair of the Federal Reserve Board does not end until next January, but the debate on his reappointment has already begun. It would be good for the economy if Powell were reappointed and if Biden announced this decision as soon as possible.

In making the case for Powell, it is important to understand how much he has moved the Fed from where it has been in prior decades. I have long been in battles with the Fed over its willingness to raise interest rates, slowing growth and killing jobs, in order to head off the risk of higher inflation. It viewed its legal mandate for high employment as an afterthought, at best.

Powell has turned this around. He has quite explicitly said that he wants to have the economy run hot, pushing it as far he can without kicking off inflation. He has embraced the idea that many of us on the left had long maintained: low levels of unemployment disproportionately benefit those most disadvantaged in the labor market.

When the unemployment rate is low, Blacks, Latinos, people with disabilities, and people with criminal records are more able to find jobs. Employers don’t have the option to discriminate; these are the workers who are available.

Low rates of unemployment also give workers at the middle and bottom of the income distribution the bargaining power to obtain wage gains. We have seen this pattern repeatedly in the last four decades.

When the unemployment rate has been relatively high, for example in most of the 1980s, the early 1990s, the Great Recession, and the slow recovery that followed, real wages for most workers were stagnant. However, when the labor market tightened, in the late 1990s or in the four years before the pandemic, workers were able to secure wage gains in line with productivity growth. (This was the main focus of two books I wrote with Jared Bernstein.)  

While this view may seem like common sense – why not run the economy in a way that as many people as possible can have jobs – it is a world away from where the Fed has been in the not distant past, where the view was that the Fed had to focus on inflation. I recall being in a meeting in early 1994 with Alan Blinder and Janet Yellen (yes, that Janet Yellen), who were both recently appointed members of the Fed’s Board of Governors.

The immediate issue was that the unemployment rate was falling to the 6.0 percent level that was generally viewed as the point where inflation would begin to spiral upward. My colleagues and I were trying to convince Blinder and Yellen to hold off on raising rates and slowing the economy since we thought the risks of inflation were small relative to the benefit from millions of people being able to get jobs.

We weren’t able to move them. I will always recall arguing with Blinder that since we didn’t know for sure the impact of lower unemployment on inflation, it was worth taking the risk. Blinder responded that the Fed was legally mandated to pursue price stability. I pointed out that the Humphrey-Hawkins legislation, which was then still in effect, required the Fed to target 4.0 percent unemployment.

Blinder, who was one of most liberal and decent people to ever sit on Fed’s board, responded by saying that no one takes that mandate seriously. I then said that he doesn’t have to take the mandate for price stability seriously either, to which he said “yes, I do.”

Later that year, Blinder actually got caught up in a mini-scandal for suggesting that the Fed could act to boost employment when the economy was facing a recession. A major New York Times article implied that this was a major break with Fed policy since Blinder’s comments indicated that the Fed would not just be focused on inflation.

Anyhow, having a chair who sees the Fed’s priority as running the labor market as hot as possible without triggering inflation is a very different world. The change in views reflects a lot of work over the decades trying to impress on the Fed the importance of getting to full employment. Most notably, the Fed Up Coalition, consisting of labor and community groups, of which Ady Barkan was a lead organizer, played a major role in swaying the Fed. Janet Yellen, who was then chair of the Fed, met with the group several times, as did other board members and district bank presidents. They seemed to take our arguments seriously.

Yellen, and even her predecessor Ben Bernanke, had certainly moved the Fed from its inflation obsession, but Powell still took a qualitative leap forward. In saying that it is the Fed’s responsibility to have a tight labor market and get the unemployment rate as low as possible, he has totally reversed the Fed’s priorities. Having won a huge battle on economic policy, progressives should be anxious to defend our victory.

Powell and Regulation

Many people have pointed out that Powell has not been good in regulating the financial sector, which is another important responsibility of the Fed. This criticism is valid, but it really needs to be put in some context.

First, there is a seriously wrong myth about the Great Recession, which sees it as the result of failed regulation, that needs to be corrected. There were indeed many failures in regulation in the years before the Great Recession, but the problem was the collapse of a housing bubble that was driving the economy.

The distinction is important because the regulation story implies that we needed super-sleuths to uncover the fraudulent loans in the sub-prime market or the flood of credit default swaps being issued on mortgage backed securities by AIG and others. These abuses surely fed the bubble, but the bubble was sitting there in plain sight for anyone paying attention, and most importantly, it was easy to see that it was driving the economy.

We had an unprecedented run-up in house sale prices with no remotely corresponding increase in rents. And, this was occurring while vacancy rates were hitting record levels, which is hard to reconcile with claims that prices were being driven by the fundamentals of the market.

It was also easy to see that the bubble was driving the economy, as residential construction was hitting record shares of GDP. In addition, the wealth created by the bubble also led to a consumption boom, as homeowners were spending based on the ephemeral housing wealth created by the bubble. This could easily be seen in the GDP data published by the Commerce Department every quarter.

 

When the bubble burst, it was inevitable that we would face a serious recession, as there was no obvious source of demand that was going to replace the construction and consumption demand generated by the bubble.

To prevent the disaster of the Great Recession, we didn’t need the Fed to get into weeds of regulation. We needed a Fed that recognized the risk of a bubble that was driving the economy instead of cheering it on, as Greenspan largely did until he stepped down in 2006.

Bubbles are not dependent on bad finance.  The stock bubble in the late 1990s, whose collapse gave us the recession in 2001, did not depend to any substantial extent on credit. People put up their own money to buy ridiculously priced shares of stock.

The collapse of bubbles also doesn’t necessarily lead to a recession. This is only the case if the bubble was actually driving the economy, as was the case with the stock bubble in the 1990s and the housing bubble in the 2000s. If the $1 trillion market for Bitcoin collapsed completely tomorrow, we probably would not even be able to find its impact in the GDP data. (I discuss this issue in more detail here.)

Anyhow, even if bad regulation weren’t responsible for the Great Recession, we still should want a well-regulated financial system. There are three important reasons why regulation matters.

First, much of finance, for example subprime house and car loans or fees for financial services, is predatory. Contracts and loans are often designed deceptively so customers don’t realize the full costs and risks. Banks and other financial companies usually target low and moderate income people and people of color with these products.

Second, the financial sector is a major source of inequality. Many of the country’s biggest fortunes were made in the financial sector. We can debate how much money a person should get when they are responsible for a genuinely useful innovation, like an important drug or new software, but it’s hard to see a way to justify someone getting very rich off subprime mortgages.

The third reason regulation is important is that a bloated financial sector is inefficient. The financial sector provides an important service; it allocates capital and facilitates payments. But we should want this to be done with as few resources as possible. We should think of finance like we think of the trucking industry – we need to get goods from point A to point B – but we want as few people and trucks employed in this process as possible.

The same applies to the financial sector. The sector has quintupled relative to the size of the economy over the last five decades, with little obvious benefit. If we can limit the bloat with regulation, that makes the sector and the economy more efficient.

For these reasons, we should want a well-regulated financial sector and there are certainly grounds for criticism of Powell on this front. However, the more obvious target here would be finding a good vice-chair for regulation. The term of the current vice-chair, Randal Quarles, ends in October. It will be important to replace him with someone who takes regulation more seriously.

 

Other Issues: Climate and Cities

 

Some have complained that Powell has not made climate a factor in Fed policy. There also have been complaints that the municipal lending facility he created in the recession was barely used.

These complaints are not really fair to Powell or the Fed. It would be great to have a central bank that actively promoted clean energy and sought to penalize fossil fuel companies, but this is not a power that has been given to the Fed by Congress. While it can arguably do this with the power it has, it would be virtually certain to lose this power very quickly if it went this route.

We can be quite certain that every Republican in Congress would be up in arms if the Fed were to pursue this path, as would likely be the case with many Democrats. If this had happened with Donald Trump in the White House, we would also have the executive branch out for Powell’s head. It is hard to see the value in pursuing a policy that is virtually certain to be cut off before it can have any real impact and likely to lead to a Fed with much less autonomy.  

The same applies with lending to cities. In fact, the Fed’s policies led to a sharp reduction in the interest rates on municipal bonds between February and April of last year. The ability to borrow at lower interest rates helped many cities get through the pandemic. However, there were cities with bad credit ratings that benefitted less from the drop in interest rates.

It would have been great if Powell could have tossed these cities a lifeline by lending at well below market rates, but here too we have to look to the reaction from Congress. The Republicans in Congress, along with Donald Trump, were quite explicit in their efforts to keep “Democrat” cities from getting money. Had Powell tried to use the Fed as a backdoor, they would not have sat by and twiddled their thumbs helplessly. Again, they would have gone gunning for Powell and the Fed, and they would have likely succeeded in reining in the lending and weakening the Fed.

In both of these cases, we can argue whether the Fed had the legal authority to do more, but as a practical matter, it almost certainly would have been blocked in these efforts. The Fed’s main responsibility is the state of the macroeconomy, and I find it hard to argue that Powell should have put the Fed’s ability to be effective here at risk to pursue initiatives that were virtually certain to be shut down quickly.

 

Why Powell and Why Now

While Powell had brought about a remarkable shift in Fed policy, it could be argued that others, most notably Fed Governor Lael Brainard, could carry this shift forward as well or better. There are several reasons why ditching Powell would be a risky strategy.

Most importantly, Powell would have the best chance of getting confirmed by the Senate. The Republicans have made it fairly explicit that their agenda for the Biden presidency is sabotage. If Biden wants to appoint a Fed chair committed to full employment, they will look to block them. We can assume that all 50 Republican senators will vote no, on almost anyone that Biden puts forward. That means that if any of the centrist Democrats decide to get cute, Biden doesn’t have a Fed chair.

Powell has a huge advantage in this area in that he already secured the vote of almost every Republican in the Senate when Trump nominated him in 2017. (There were only four no votes from Republicans.) There are few limits to Republican shamelessness. Many may decide that if Biden wants Powell, then they don’t, but clearly the person Trump picked to be Fed chair has a better chance of winning their support than anyone else Biden might put forward.

There is also the question of the Fed chair’s authority at the Fed. Decisions on monetary policy are not made by the chair alone but rather by the Fed Open Market Committee (FOMC), which includes the other six governors and the twelve district bank presidents, five of whom vote at any given meeting. The chair usually gets their way, but they typically negotiate and work out compromises with the other members of the FOMC.

Powell, as the incumbent chair, would have much more authority in this situation than a new person just stepping into the position. There are still many inflation hawks among the district bank presidents. Powell will be much better situated to keep the priority on full employment than any possible replacement.

In terms of announcing his reappointment soon, Biden should want to do what he can to remove uncertainty and shore up Powell’s position in coming months. We know that the Republicans will do everything in their power to stir up fears of runaway inflation and to undermine the Fed’s authority. If Biden can give him a clear endorsement now, it would help Powell’s effort to keep the focus on full employment.

We know that there will be areas with jumps in prices due to a bounce back from pandemic drops or temporary shortages, as we saw in the April CPI report. We need the Fed to be able to look at the data clearly and respond accordingly. Powell will be most able to do this if there is no doubt about his reappointment.

This should be an easy one for Biden. He will be reappointing a chair with a proven track record. And, he can show his willingness to be bipartisan by handing over one of the most powerful positions in government to a Republican.

Jonathan Cohn is one the country’s best health care reporters. I’ve learned much over the years from reading his work in the New Republic and the Huffington Post, as well as Sick, his earlier book on the health care system.

For this reason, I was somewhat disappointed by his book on the passage of Obamacare and the subsequent effort by the Republicans to destroy it. The main reason is that Cohn wrote a different book than what I had expected. The overwhelming focus of the book is on the politics of the Affordable Care Act (ACA). Relatively little space is given to the substantive impact of the reforms and the debates around them.

I suppose you can’t blame an author for writing the book they wanted to write as opposed to the one I wanted them to write, so I will make a few comments about the book Cohn wrote and then get to some of the things I would have liked to see him discuss more.

The Book Cohn Wrote

First off, to be clear, Cohn has done an outstanding job of profiling the key players and describing their impact on the ACA, both in terms of their personal perspectives and their political agenda. He also tries hard to be fair to all involved, something which is difficult when many of the actors make it clear that their agenda is simply sabotage.

He also does a very good job of conveying the drama around the bill’s passage, a passage with no votes to spare in the Senate and perhaps one in the House.[1] The period leading up to the passage of the bill also included the death of Senator Ted Kennedy, for decades one of the leaders of the fight for national health care insurance, and then his replacement in the Senate by a Republican, who managed to catch the Massachusetts Democratic Party by surprise.

This resulted in the absurd situation where this massive bill never had a conference committee to hammer out differences between the House and Senate versions. Since the Democrats had lost their filibuster proof majority in the Senate, the only way that they could get the bill through Congress was to have the House pass the Senate bill unchanged. This situation made a far from perfect bill even less perfect, and it also created some of the legal issues that had to be battled out in several court cases.

In the news to me category, Cohn reports that several of Obama’s top advisers wanted him to abandon the ACA when the route to passage looked difficult. It is to Obama’s credit that he insisted on pushing forward. House Speaker Nancy Pelosi also comes off very well in the book. Her skills as a vote counter and arm-twister are well-known, but Cohn recounts in some detail the various deals she had to put together to get her majority in the House.

However, this is also an area where I will express some skepticism. When a member of the House faces a vote that would be politically difficult in their district, it’s common for them to tell the leadership that they will have their vote if it is needed, but would rather vote against the measure. 

There were 39 Democrats that voted against the bill on the key House vote. It is certainly possible that some of these had pledged to be yes votes if Pelosi needed them. I have no idea if that was the case, but Pelosi would certainly not force one of her members to take a politically dangerous vote if it were not needed. Cohn doesn’t raise this question. It would not hugely change the picture if Pelosi had four or five potential votes in reserve, but it would mean that the passage wasn’t quite as much of a nail biter as it appeared.   

There are some other places where more questions like this could be asked. For example, Obama’s chief of staff Rahm Emanuel struck a deal that was very favorable to the pharmaceutical industry. Was the issue that he could not have gotten more concessions out of them on pricing or that he did not want to?

There is also a question of whether he could not have secured some funding, say a few billion a year from the National Institutes of Health (NIH) budget, to support the actual development of new drugs, not just the more basic research typically funded by NIH. This funding would be comparable to the funding that Moderna received to develop a vaccine through Operation Warp Speed, except instead of giving companies a patent in addition to the government funding, the drugs developed would be in the public domain, and all the research would be fully open-source. This means that we might get some new breakthrough cancer drug selling for a few hundred dollars, instead of tens of thousands.

Okay, I realize that the question of experimenting with alternative research funding for prescription drugs and medical equipment was on no one’s agenda, but it is reasonable to ask “why not?” If we can’t talk about reallocating 0.1 percent of the country’s health care budget to a once in a generation health care reform, when can we talk about it?[2]

It’s also worth pressing the issue of the $1 trillion ten year cost limit (less than 0.6 percent of GDP) that Obama imposed on the bill, which he later lowered to $900 billion. Obama seemed to believe that this limit would win him goodwill for his fiscal prudence from Republicans or at least the media. It seems to have gained him nothing.

If there were another $100 billion in the bill, it could have been used to have larger subsidies in the exchange. With roughly 12 million people in the exchanges, an extra $10 billion a year would allow for a boost to subsidies that averaged $850 a person. This would have made insurance in the exchanges considerably more affordable.

Cohn does raise this issue, but it certainly could have been given more extensive treatment. It was perhaps the biggest unforced error the Obama administration made in pushing the bill.  

 

The Book I Wish Cohn Had Written

The focus of The Ten Year War is clearly on the politics around the passage of the ACA and the subsequent effort to repeal it. I would have liked to see more attention to the policy questions around the bill and some of the resulting debate.

 

What Happened to the Young Invincibles?

I recall a painful debate over the “young invincibles,” the question of whether young healthy people would buy insurance in the exchanges. By some accounts, the whole future of the program depended on the decision of healthy people in their twenties and thirties.

This debate was painful, because it was nonsense. The key issue for the exchanges was whether healthy people would buy into the exchanges, it didn’t matter whether they were young or not. The basic point here is straightforward: we can think of the premiums people pay effectively as a tax. The oldest pre-Medicare age group (ages 55 to 64) pay premiums that were three times as much as the youngest group.

Younger people on average have health care costs that are less than one third as high as this older group, meaning that they did face somewhat of a penalty. But, the fact is that most people in this older age group, like most young people, are healthy and have low medical expenses. This means that for every healthy older person in the exchanges, insurers collect three times as much as they do for healthy younger people, and they pay out the same in benefits – little or nothing.

What mattered for the program was skewing by health, not by age. This point was demonstrated in a simple analysis by the Kaiser Family Foundation. This analysis showed that even an extreme skewing by age would only raise costs by 2.4 percent. A more plausible skewing was unlikely to raise costs of the program by even one percent.

The question of what the young invincibles would do was highlighted endlessly as the exchanges were becoming operational in 2014. The Heritage Foundation sponsored an Obamacare card burning, where young people were burning mock Obamacare cards to show their contempt for the exchanges. (This was a takeoff of draft card burning during the Vietnam War years. Also, there were no Obamacare cards.)

I remember once being in an e-mail exchange with a group of young lefty Medicare for All supporters. They were threatening that they would not sign up for the exchanges. I explained the arithmetic to them and said I really didn’t care from the standpoint of the program, but it was probably a good idea for them to get insurance. Anyhow, I think it would have been worth spending a page or two on this silliness that played such an important role in the debate at the time.  

 

Where’s the Skin in the Game?

In the same vein, I don’t recall the expression “skin in the game” appearing anywhere in the book. There were certainly many on the Obama team who felt that it was important for patients to pick up a portion of the tab in order to control costs. The idea was that if insurers, or the government, paid the full bill, then people would use too much health care. On the other hand, if we could make patients pay 20 percent, or some significant share, they would be good “consumers” of health care and shop for better prices.

There was a great study a few years back that looked at people’s decisions on where to get non-emergency lower body MRIs. The reason this was a good test, is that lower body MRIs are a standardized product. This isn’t like looking for a cardiologist or a brain surgeon, who may have a range of skills for specific conditions. The study found that almost no one did comparative shopping, they went with referrals from their doctors.

If people aren’t going to comparison shop for lower body MRIs, it’s hard to believe that they will do comparison shopping for any other medical need they face. In other words, there is very little value in forcing people to have skin in the game.

I will qualify this view slightly. I know many people pushing for Medicare for All believe it is important that people not pay anything for their care, that money should not be an obstacle to seeing a doctor.

A doctor, or any health professional’s time, is valuable. We should not want people using it frivolously. To my view, it makes sense to require modest payments to encourage people to think twice before going to the doctor.

The model I envision is something along the lines of the five cent fee that is required in many states to get a plastic bag at the grocery store. This is not going to discourage anyone from getting a bag when they really need it for their groceries, but the evidence shows that it enormously reduces the demand for plastic bags.

Similarly, if we charged a ten or fifteen dollar fee to see a doctor, as opposed to having it be completely free, it will likely get people to think twice before going, without preventing people with serious health issues from getting the care they need. That isn’t really a skin in the game story; it’s just asking people to think twice.[3]   

Okay, that’s all a sidebar, but this is another case where a big item in the policy debate turned out to be largely silly. Skin in the game is not an effective way to control costs.

 

Slowing Health Care Cost Growth Can Pay for Biden’s Big Agenda

There is an incredibly important story on costs that has gone largely unnoticed. Health care cost growth has slowed dramatically in the years since Obamacare passed. In 2009, the Centers for Medicare and Medicaid Services projected that in 2019 we would spend $4.5 trillion, or 19.3 percent of GDP, on health care. In fact, we spent $3.8 trillion, or 17.7 percent of GDP, on health care in 2019. The difference of 1.6 percent of GDP is almost half of the military budget. It is roughly equal to the combined amount that President Biden is requesting for his infrastructure and American Families Plan. In short, it is real money.

Health care costs slowed sharply in the years following the passage of the ACA. This has meant that we have much more money for other things, as health care has risen only slightly as share of GDP. This is even though we had a substantial aging of the population over this period.

The ACA certainly is not responsible for all of this slowdown in health care costs. There has been a comparable slowing in most other wealthy countries. Also, the slowdown began before most of the elements of the ACA had gone into effect, so it is hard to give the credit exclusively to the program.

Nonetheless, there can be zero doubt that if costs had gone in the opposite direction, we would be hearing about it nonstop. If there had been some factor, unrelated to the ACA, that had led health care costs worldwide to accelerate, Obamacare certainly would have been blamed.

For this reason, it is very hard to understand why the Obama administration was not more anxious to tout the slowdown in costs that took place under Obama’s watch. It is a big deal and people should know about it.

 

The Affordable Care Act Was Family Friendly

Another item in this vein is the impact of Obamacare on the labor market. Prior to the passage of the ACA, there was a considerable literature on the phenomena of health care related job lock. The issue was that most workers got their health care insurance through their employer. If people with health conditions or family members with health conditions lost or left their jobs they risked losing health care insurance. Insurers would either refuse to issue insurance to someone with a health condition, or they would charge very high rates that would make it unaffordable.

By prohibiting insurers from discriminating based on pre-existing conditions, the ACA largely ended this problem. As a result, we should have expected to see more people leaving jobs with health insurance for jobs where they may not be getting insurance through their employer.

There is some evidence that this sort of shift did happen. In 2014, the first year of the ACA’s Medicaid expansion and the full operation of the exchanges, the share of the employed working part-time by choice rose 0.2 percentage points. While this is a very modest rise, for women with children the increase was 0.8 percentage points. For women with three or more children the increase was 1.4 percentage points. And, we also found, to no one’s surprise, that women working part-time spend more time providing care for family members.

Since part-time work generally does not provide health care insurance, this is consistent with the story that the ACA allowed workers to find jobs that better fit their needs, rather than staying at a job because of health insurance. For some reason the Obama administration never chose to highlight this effect of the ACA.

I should also add a difficult to quantify aspect of Obamacare. Those of us who are fortunate enough to have reasonably good paying jobs that provide insurance know that we are one health crisis away from losing both our job and our insurance. Even for this fortunate segment of the labor market, a debilitating injury or illness is likely to eventually lead to job loss. And, after a period of time, to loss of insurance.

The ACA provides a backup so that even in that situation we are likely to still be able to get insurance, either through Medicaid or through the subsidies provided to people in the exchanges. In effect, the ACA provides insurance that people can get insurance. Perhaps not many people appreciate this fact, but when you do work on the topic (and have a family member with health issues), it matters a great deal.

 

Conclusion

To sum up the book I wanted Cohn to write, there was a lot of silliness in the debate around Obamacare, but the program’s benefits have actually been undersold. As our current president rightly said, it is a big f**king deal. And, in important ways it is a bigger f**king deal than most people recognize, even its supporters. I wish this book had done more to make that clear.

 

 

[1] One Republican, Joseph Cao of Louisiana, voted for the bill in the House, but he waited until after all the votes were in, and it was clear that the bill had passed, to switch his vote from no to yes. He has publicly said that he would not have voted for the bill if his vote would have been decisive.

[2] I outline my proposal for direct public funding of research in chapter 5 of Rigged (it’s free).

[3] For low income people even a ten dollar fee can be a substantial cost. There are mechanisms that can address this. For example, they can be issued a $200 card at the start of each year, with the unused money going into a retirement account.  

Jonathan Cohn is one the country’s best health care reporters. I’ve learned much over the years from reading his work in the New Republic and the Huffington Post, as well as Sick, his earlier book on the health care system.

For this reason, I was somewhat disappointed by his book on the passage of Obamacare and the subsequent effort by the Republicans to destroy it. The main reason is that Cohn wrote a different book than what I had expected. The overwhelming focus of the book is on the politics of the Affordable Care Act (ACA). Relatively little space is given to the substantive impact of the reforms and the debates around them.

I suppose you can’t blame an author for writing the book they wanted to write as opposed to the one I wanted them to write, so I will make a few comments about the book Cohn wrote and then get to some of the things I would have liked to see him discuss more.

The Book Cohn Wrote

First off, to be clear, Cohn has done an outstanding job of profiling the key players and describing their impact on the ACA, both in terms of their personal perspectives and their political agenda. He also tries hard to be fair to all involved, something which is difficult when many of the actors make it clear that their agenda is simply sabotage.

He also does a very good job of conveying the drama around the bill’s passage, a passage with no votes to spare in the Senate and perhaps one in the House.[1] The period leading up to the passage of the bill also included the death of Senator Ted Kennedy, for decades one of the leaders of the fight for national health care insurance, and then his replacement in the Senate by a Republican, who managed to catch the Massachusetts Democratic Party by surprise.

This resulted in the absurd situation where this massive bill never had a conference committee to hammer out differences between the House and Senate versions. Since the Democrats had lost their filibuster proof majority in the Senate, the only way that they could get the bill through Congress was to have the House pass the Senate bill unchanged. This situation made a far from perfect bill even less perfect, and it also created some of the legal issues that had to be battled out in several court cases.

In the news to me category, Cohn reports that several of Obama’s top advisers wanted him to abandon the ACA when the route to passage looked difficult. It is to Obama’s credit that he insisted on pushing forward. House Speaker Nancy Pelosi also comes off very well in the book. Her skills as a vote counter and arm-twister are well-known, but Cohn recounts in some detail the various deals she had to put together to get her majority in the House.

However, this is also an area where I will express some skepticism. When a member of the House faces a vote that would be politically difficult in their district, it’s common for them to tell the leadership that they will have their vote if it is needed, but would rather vote against the measure. 

There were 39 Democrats that voted against the bill on the key House vote. It is certainly possible that some of these had pledged to be yes votes if Pelosi needed them. I have no idea if that was the case, but Pelosi would certainly not force one of her members to take a politically dangerous vote if it were not needed. Cohn doesn’t raise this question. It would not hugely change the picture if Pelosi had four or five potential votes in reserve, but it would mean that the passage wasn’t quite as much of a nail biter as it appeared.   

There are some other places where more questions like this could be asked. For example, Obama’s chief of staff Rahm Emanuel struck a deal that was very favorable to the pharmaceutical industry. Was the issue that he could not have gotten more concessions out of them on pricing or that he did not want to?

There is also a question of whether he could not have secured some funding, say a few billion a year from the National Institutes of Health (NIH) budget, to support the actual development of new drugs, not just the more basic research typically funded by NIH. This funding would be comparable to the funding that Moderna received to develop a vaccine through Operation Warp Speed, except instead of giving companies a patent in addition to the government funding, the drugs developed would be in the public domain, and all the research would be fully open-source. This means that we might get some new breakthrough cancer drug selling for a few hundred dollars, instead of tens of thousands.

Okay, I realize that the question of experimenting with alternative research funding for prescription drugs and medical equipment was on no one’s agenda, but it is reasonable to ask “why not?” If we can’t talk about reallocating 0.1 percent of the country’s health care budget to a once in a generation health care reform, when can we talk about it?[2]

It’s also worth pressing the issue of the $1 trillion ten year cost limit (less than 0.6 percent of GDP) that Obama imposed on the bill, which he later lowered to $900 billion. Obama seemed to believe that this limit would win him goodwill for his fiscal prudence from Republicans or at least the media. It seems to have gained him nothing.

If there were another $100 billion in the bill, it could have been used to have larger subsidies in the exchange. With roughly 12 million people in the exchanges, an extra $10 billion a year would allow for a boost to subsidies that averaged $850 a person. This would have made insurance in the exchanges considerably more affordable.

Cohn does raise this issue, but it certainly could have been given more extensive treatment. It was perhaps the biggest unforced error the Obama administration made in pushing the bill.  

 

The Book I Wish Cohn Had Written

The focus of The Ten Year War is clearly on the politics around the passage of the ACA and the subsequent effort to repeal it. I would have liked to see more attention to the policy questions around the bill and some of the resulting debate.

 

What Happened to the Young Invincibles?

I recall a painful debate over the “young invincibles,” the question of whether young healthy people would buy insurance in the exchanges. By some accounts, the whole future of the program depended on the decision of healthy people in their twenties and thirties.

This debate was painful, because it was nonsense. The key issue for the exchanges was whether healthy people would buy into the exchanges, it didn’t matter whether they were young or not. The basic point here is straightforward: we can think of the premiums people pay effectively as a tax. The oldest pre-Medicare age group (ages 55 to 64) pay premiums that were three times as much as the youngest group.

Younger people on average have health care costs that are less than one third as high as this older group, meaning that they did face somewhat of a penalty. But, the fact is that most people in this older age group, like most young people, are healthy and have low medical expenses. This means that for every healthy older person in the exchanges, insurers collect three times as much as they do for healthy younger people, and they pay out the same in benefits – little or nothing.

What mattered for the program was skewing by health, not by age. This point was demonstrated in a simple analysis by the Kaiser Family Foundation. This analysis showed that even an extreme skewing by age would only raise costs by 2.4 percent. A more plausible skewing was unlikely to raise costs of the program by even one percent.

The question of what the young invincibles would do was highlighted endlessly as the exchanges were becoming operational in 2014. The Heritage Foundation sponsored an Obamacare card burning, where young people were burning mock Obamacare cards to show their contempt for the exchanges. (This was a takeoff of draft card burning during the Vietnam War years. Also, there were no Obamacare cards.)

I remember once being in an e-mail exchange with a group of young lefty Medicare for All supporters. They were threatening that they would not sign up for the exchanges. I explained the arithmetic to them and said I really didn’t care from the standpoint of the program, but it was probably a good idea for them to get insurance. Anyhow, I think it would have been worth spending a page or two on this silliness that played such an important role in the debate at the time.  

 

Where’s the Skin in the Game?

In the same vein, I don’t recall the expression “skin in the game” appearing anywhere in the book. There were certainly many on the Obama team who felt that it was important for patients to pick up a portion of the tab in order to control costs. The idea was that if insurers, or the government, paid the full bill, then people would use too much health care. On the other hand, if we could make patients pay 20 percent, or some significant share, they would be good “consumers” of health care and shop for better prices.

There was a great study a few years back that looked at people’s decisions on where to get non-emergency lower body MRIs. The reason this was a good test, is that lower body MRIs are a standardized product. This isn’t like looking for a cardiologist or a brain surgeon, who may have a range of skills for specific conditions. The study found that almost no one did comparative shopping, they went with referrals from their doctors.

If people aren’t going to comparison shop for lower body MRIs, it’s hard to believe that they will do comparison shopping for any other medical need they face. In other words, there is very little value in forcing people to have skin in the game.

I will qualify this view slightly. I know many people pushing for Medicare for All believe it is important that people not pay anything for their care, that money should not be an obstacle to seeing a doctor.

A doctor, or any health professional’s time, is valuable. We should not want people using it frivolously. To my view, it makes sense to require modest payments to encourage people to think twice before going to the doctor.

The model I envision is something along the lines of the five cent fee that is required in many states to get a plastic bag at the grocery store. This is not going to discourage anyone from getting a bag when they really need it for their groceries, but the evidence shows that it enormously reduces the demand for plastic bags.

Similarly, if we charged a ten or fifteen dollar fee to see a doctor, as opposed to having it be completely free, it will likely get people to think twice before going, without preventing people with serious health issues from getting the care they need. That isn’t really a skin in the game story; it’s just asking people to think twice.[3]   

Okay, that’s all a sidebar, but this is another case where a big item in the policy debate turned out to be largely silly. Skin in the game is not an effective way to control costs.

 

Slowing Health Care Cost Growth Can Pay for Biden’s Big Agenda

There is an incredibly important story on costs that has gone largely unnoticed. Health care cost growth has slowed dramatically in the years since Obamacare passed. In 2009, the Centers for Medicare and Medicaid Services projected that in 2019 we would spend $4.5 trillion, or 19.3 percent of GDP, on health care. In fact, we spent $3.8 trillion, or 17.7 percent of GDP, on health care in 2019. The difference of 1.6 percent of GDP is almost half of the military budget. It is roughly equal to the combined amount that President Biden is requesting for his infrastructure and American Families Plan. In short, it is real money.

Health care costs slowed sharply in the years following the passage of the ACA. This has meant that we have much more money for other things, as health care has risen only slightly as share of GDP. This is even though we had a substantial aging of the population over this period.

The ACA certainly is not responsible for all of this slowdown in health care costs. There has been a comparable slowing in most other wealthy countries. Also, the slowdown began before most of the elements of the ACA had gone into effect, so it is hard to give the credit exclusively to the program.

Nonetheless, there can be zero doubt that if costs had gone in the opposite direction, we would be hearing about it nonstop. If there had been some factor, unrelated to the ACA, that had led health care costs worldwide to accelerate, Obamacare certainly would have been blamed.

For this reason, it is very hard to understand why the Obama administration was not more anxious to tout the slowdown in costs that took place under Obama’s watch. It is a big deal and people should know about it.

 

The Affordable Care Act Was Family Friendly

Another item in this vein is the impact of Obamacare on the labor market. Prior to the passage of the ACA, there was a considerable literature on the phenomena of health care related job lock. The issue was that most workers got their health care insurance through their employer. If people with health conditions or family members with health conditions lost or left their jobs they risked losing health care insurance. Insurers would either refuse to issue insurance to someone with a health condition, or they would charge very high rates that would make it unaffordable.

By prohibiting insurers from discriminating based on pre-existing conditions, the ACA largely ended this problem. As a result, we should have expected to see more people leaving jobs with health insurance for jobs where they may not be getting insurance through their employer.

There is some evidence that this sort of shift did happen. In 2014, the first year of the ACA’s Medicaid expansion and the full operation of the exchanges, the share of the employed working part-time by choice rose 0.2 percentage points. While this is a very modest rise, for women with children the increase was 0.8 percentage points. For women with three or more children the increase was 1.4 percentage points. And, we also found, to no one’s surprise, that women working part-time spend more time providing care for family members.

Since part-time work generally does not provide health care insurance, this is consistent with the story that the ACA allowed workers to find jobs that better fit their needs, rather than staying at a job because of health insurance. For some reason the Obama administration never chose to highlight this effect of the ACA.

I should also add a difficult to quantify aspect of Obamacare. Those of us who are fortunate enough to have reasonably good paying jobs that provide insurance know that we are one health crisis away from losing both our job and our insurance. Even for this fortunate segment of the labor market, a debilitating injury or illness is likely to eventually lead to job loss. And, after a period of time, to loss of insurance.

The ACA provides a backup so that even in that situation we are likely to still be able to get insurance, either through Medicaid or through the subsidies provided to people in the exchanges. In effect, the ACA provides insurance that people can get insurance. Perhaps not many people appreciate this fact, but when you do work on the topic (and have a family member with health issues), it matters a great deal.

 

Conclusion

To sum up the book I wanted Cohn to write, there was a lot of silliness in the debate around Obamacare, but the program’s benefits have actually been undersold. As our current president rightly said, it is a big f**king deal. And, in important ways it is a bigger f**king deal than most people recognize, even its supporters. I wish this book had done more to make that clear.

 

 

[1] One Republican, Joseph Cao of Louisiana, voted for the bill in the House, but he waited until after all the votes were in, and it was clear that the bill had passed, to switch his vote from no to yes. He has publicly said that he would not have voted for the bill if his vote would have been decisive.

[2] I outline my proposal for direct public funding of research in chapter 5 of Rigged (it’s free).

[3] For low income people even a ten dollar fee can be a substantial cost. There are mechanisms that can address this. For example, they can be issued a $200 card at the start of each year, with the unused money going into a retirement account.  

The Republicans’ complaint of the day is that the $300 weekly supplements to unemployment insurance benefits, which were included in President Biden’s recovery package, are keeping people from working. The argument is that because many workers in low-paying jobs can get more money from not working than they get on their job, they are choosing not to work.

This is actually an issue that several economists explored, and they found little evidence for this sort of disincentive effect last summer, when the supplement was $600 a week. But before turning to these studies, it’s worth making a couple of points about the nature of unemployment insurance benefits.

First, only workers who lose their jobs can get benefits. Workers are not eligible if they quit their jobs because they don’t like the work or don’t like their boss. To be eligible they have to be laid off, and it has to be for economic reasons. If a worker is fired for cause, say for stealing from the workplace or harassing another employee, they are not eligible for benefits.

The other point is that workers receiving benefits have to be actively looking for work. If they turn down a job comparable to the one they lost, they lose their benefits. One feature that has been extraordinary in this recession is that a very large share of the unemployed report being on temporary layoffs. This means that they expect their employer to call them back to their job. In April, this share was 21.3 percent of the unemployed, but it had been as high as 77.9 percent last April at the peak of the shutdowns. (The share is typically less than 10 percent.) The reason this matters is that if an employer calls a worker back to work, they lose their benefits if they do not go back.

Now, we know these provisions of the program are not perfectly enforced. But the point is that anyone who is making the calculation to not return to work because they can get so much money by staying on unemployment insurance is violating the rules of the program. It is also worth noting that the supplemental benefits end in the first week of September, so this cannot be a long-term plan for them. Even if the benefits might look good relative to working today, that may not be the case a few weeks down the road as we get closer to the expiration point for the supplements.

Fortunately, we do not have to just speculate on how workers behave; we have actual data. Three separate studies examined the impact of the original supplements in the CARES Act passed at the start of April 2020. These supplements were $600 a week, twice the size of the current supplements. All three found that the $600 supplements had little impact on the employment levels during the period in which they were in effect. For example, a study by several economists at the University of Chicago and J.P. Morgan Chase found that employment was 0.2 to 0.4 percentage points lower as a result of the supplements. It is reasonable to assume that the effect of supplements that are half as large would be considerably smaller.

In short, it is not plausible that the generosity of unemployment insurance benefits are a major factor affecting employers’ ability to find workers. While there are some people who are undoubtedly opting to take advantage of the benefits rather than work, based on the evidence from these studies, this number is fairly small.

If the same share of population were working today as before the pandemic, another 8.3 million people would have jobs. The reason the vast majority of these people don’t have jobs today is because the jobs are not there, not because they are happily getting unemployment benefits. 

The Republicans’ complaint of the day is that the $300 weekly supplements to unemployment insurance benefits, which were included in President Biden’s recovery package, are keeping people from working. The argument is that because many workers in low-paying jobs can get more money from not working than they get on their job, they are choosing not to work.

This is actually an issue that several economists explored, and they found little evidence for this sort of disincentive effect last summer, when the supplement was $600 a week. But before turning to these studies, it’s worth making a couple of points about the nature of unemployment insurance benefits.

First, only workers who lose their jobs can get benefits. Workers are not eligible if they quit their jobs because they don’t like the work or don’t like their boss. To be eligible they have to be laid off, and it has to be for economic reasons. If a worker is fired for cause, say for stealing from the workplace or harassing another employee, they are not eligible for benefits.

The other point is that workers receiving benefits have to be actively looking for work. If they turn down a job comparable to the one they lost, they lose their benefits. One feature that has been extraordinary in this recession is that a very large share of the unemployed report being on temporary layoffs. This means that they expect their employer to call them back to their job. In April, this share was 21.3 percent of the unemployed, but it had been as high as 77.9 percent last April at the peak of the shutdowns. (The share is typically less than 10 percent.) The reason this matters is that if an employer calls a worker back to work, they lose their benefits if they do not go back.

Now, we know these provisions of the program are not perfectly enforced. But the point is that anyone who is making the calculation to not return to work because they can get so much money by staying on unemployment insurance is violating the rules of the program. It is also worth noting that the supplemental benefits end in the first week of September, so this cannot be a long-term plan for them. Even if the benefits might look good relative to working today, that may not be the case a few weeks down the road as we get closer to the expiration point for the supplements.

Fortunately, we do not have to just speculate on how workers behave; we have actual data. Three separate studies examined the impact of the original supplements in the CARES Act passed at the start of April 2020. These supplements were $600 a week, twice the size of the current supplements. All three found that the $600 supplements had little impact on the employment levels during the period in which they were in effect. For example, a study by several economists at the University of Chicago and J.P. Morgan Chase found that employment was 0.2 to 0.4 percentage points lower as a result of the supplements. It is reasonable to assume that the effect of supplements that are half as large would be considerably smaller.

In short, it is not plausible that the generosity of unemployment insurance benefits are a major factor affecting employers’ ability to find workers. While there are some people who are undoubtedly opting to take advantage of the benefits rather than work, based on the evidence from these studies, this number is fairly small.

If the same share of population were working today as before the pandemic, another 8.3 million people would have jobs. The reason the vast majority of these people don’t have jobs today is because the jobs are not there, not because they are happily getting unemployment benefits. 

Since the Biden administration announced its decision to support a motion at the WTO to waive patent rights on vaccines for the duration of the pandemic, we have been deluged with statements by experts telling us that this cannot possibly increase vaccine production. The argument is that everyone who can produce vaccines is already producing them. Furthermore, there are bottlenecks in the production process, so that even if another manufacturer was prepared to produce vaccines, they could not get the necessary materials.

There are two big problems with these claims. First, it’s not clear what these experts envision as the end date of the pandemic. Surely no new production can come on line tomorrow, and probably not even in the next few months, but unfortunately, we are almost certainly looking at a much longer time-frame for getting the world vaccinated.

At the current pace, we would be very lucky to get most of the world vaccinated by the end of 2022, and it could very well be much later. Are we supposed to believe that making the technology freely available could not lead to an increase in production in eight months or even a year down the road? It’s important to remember, there were no vaccines in March of 2020, yet several companies had the capacity to produce large quantities by November.

It would have been great if we had gone the route of open source technology when South Africa and India first proposed suspending intellectual property rules back in October. Better yet, we could have taken the pandemic seriously and gone this route from the beginning last March. But even where we are now, there is good reason to believe that we can hasten the process of vaccinating the world by freely transferring technology.

The other point is that the production process is not set in stone. Pfizer announced back in February that it discovered a way to cut its production time nearly in half. It also discovered that its vaccine did not need to be super-frozen at temperatures below minus 90 degrees Fahrenheit; instead it can be kept in a normal freezer for up to two weeks. This greatly eases the process of transporting and delivering the vaccine. It also discovered that a typical vial contains six doses rather than five, which implies 20 percent more doses.

The point is that Pfizer’s engineers have repeatedly found ways to improve its production and delivery process. It is hard to believe that if its technology were open-sourced for engineers all over the world to review, that not one of them could find a way to further improve its production process. And, even small improvements, say five percent or ten percent, imply enormous benefits in reduced infections and deaths, as well as economic benefits.

The same story would, of course, apply to Moderna and the other manufacturers. It also applies to the suppliers of inputs that are in short supply. It’s pretty hard to imagine that, if these technologies were fully open and available for experts everywhere to review, there would not be further improvements.   

In short, it seems very likely that if we really got open source technology for the production of vaccines and the necessary inputs, we would have substantially more vaccines available in the not-distant future. Given the enormous potential gains, that’s a pretty good argument for open-sourcing the key technologies.

Since the Biden administration announced its decision to support a motion at the WTO to waive patent rights on vaccines for the duration of the pandemic, we have been deluged with statements by experts telling us that this cannot possibly increase vaccine production. The argument is that everyone who can produce vaccines is already producing them. Furthermore, there are bottlenecks in the production process, so that even if another manufacturer was prepared to produce vaccines, they could not get the necessary materials.

There are two big problems with these claims. First, it’s not clear what these experts envision as the end date of the pandemic. Surely no new production can come on line tomorrow, and probably not even in the next few months, but unfortunately, we are almost certainly looking at a much longer time-frame for getting the world vaccinated.

At the current pace, we would be very lucky to get most of the world vaccinated by the end of 2022, and it could very well be much later. Are we supposed to believe that making the technology freely available could not lead to an increase in production in eight months or even a year down the road? It’s important to remember, there were no vaccines in March of 2020, yet several companies had the capacity to produce large quantities by November.

It would have been great if we had gone the route of open source technology when South Africa and India first proposed suspending intellectual property rules back in October. Better yet, we could have taken the pandemic seriously and gone this route from the beginning last March. But even where we are now, there is good reason to believe that we can hasten the process of vaccinating the world by freely transferring technology.

The other point is that the production process is not set in stone. Pfizer announced back in February that it discovered a way to cut its production time nearly in half. It also discovered that its vaccine did not need to be super-frozen at temperatures below minus 90 degrees Fahrenheit; instead it can be kept in a normal freezer for up to two weeks. This greatly eases the process of transporting and delivering the vaccine. It also discovered that a typical vial contains six doses rather than five, which implies 20 percent more doses.

The point is that Pfizer’s engineers have repeatedly found ways to improve its production and delivery process. It is hard to believe that if its technology were open-sourced for engineers all over the world to review, that not one of them could find a way to further improve its production process. And, even small improvements, say five percent or ten percent, imply enormous benefits in reduced infections and deaths, as well as economic benefits.

The same story would, of course, apply to Moderna and the other manufacturers. It also applies to the suppliers of inputs that are in short supply. It’s pretty hard to imagine that, if these technologies were fully open and available for experts everywhere to review, there would not be further improvements.   

In short, it seems very likely that if we really got open source technology for the production of vaccines and the necessary inputs, we would have substantially more vaccines available in the not-distant future. Given the enormous potential gains, that’s a pretty good argument for open-sourcing the key technologies.

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