• Health and Social ProgramsLos Programas Sociales y de Salud
Since coming to Washington more than three decades ago, I have spent much of my time working on retirement income. The biggest part of that story was defending Social Security, which leaders in both parties were anxious to cut. This defense was largely successful, as the efforts to privatize it in the 1990s and under President Bush were beaten back, and the efforts at cuts often focused on the annual cost of living adjustment, were similarly derailed.
Defending Social Security was crucial, both because tens of millions of people depend on it for most or all of their income, but also because it was a model social program. The administrative costs are minimal, with the total program’s costs coming to less than 0.6 percent of annual benefits, with the costs of the retirement program alone coming to less than 0.4 percent of benefits. By comparison, the fees from private 401(k)s run in the neighborhood of 15 to 20 percent of annual retirement benefits.
There is also very little fraud in the program. The Washington Post, which has long been one of the leading advocates for cutting Social Security in both its opinion and news sections, once devoted a major investigative piece to exposing the fact that 0.006 percent of benefit payments went to dead people, more than half of which were later recovered. It lately decried Social Security as a “mess” in the headline to a full-page article.
I always felt that it was essential to defend Social Security because it could serve as a model for other programs, like universal Medicare or child care. But, as necessary as Social Security is, I also recognized the need to have some additional retirement income for much of the population.
Supplements to Social Security
The traditional story about retirement income was that it was a three-legged stool. Workers were supposed to have Social Security as their core retirement income. In addition, they should have a workplace pension, and also personal savings. That story could reasonably accurately describe the situation of millions of middle-class workers in the years after World War II to the 1990s, but in recent decades the other two legs of this stool have been largely removed.
Traditionally defined benefit pensions (DB) have been eliminated mainly in the private sector. While current retirees can still often count on income from DB pensions, this will be less true going forward. And, most middle-income and moderate-income households have little by way of traditional savings to help support them in retirement. Also, the story of a middle-class household reaching retirement with a paid off mortgage is far less common today than four decades ago.
All of this pointed to the need for some supplement to Social Security. For the lowest income workers, it is not plausible that they will be able to accumulate substantial savings for retirement. People struggling to pay the rent are not going to have tens of thousands stashed away in retirement accounts. The best solution here is an increase in benefits for low-paid workers.
There have been many proposals for increased benefits for lower income workers over the years, some of which had some bipartisan support. For example, giving surviving spouses 75 percent of the joint benefit (compared to the current 66.7 percent, which is often the case now), would be a substantial benefit boost to many of the elderly, generally women. This change can be structured in a way where the cost would be minimal, while providing more than a 12 percent increase in the income of many people who can really use it. There have been many Republicans who have indicated support for this sort of benefit change, although sometimes paring it with cuts that make it unacceptable.
Anyhow, while increased benefits for lower paid workers can drastically improve their well-being in retirement, substantial increases in benefits for middle income workers would be costly. A Social Security program that, by itself, allowed middle-income workers to sustain their living standards in retirement would have to be close to twice the size of the current program. That does not look very feasible.
For this reason, many of us have sought to create a simple low-cost voluntary retirement program that would supplement Social Security. The idea was to make it easy and cheap for workers to save for retirement.
The strategy takes advantage of one of the clearest findings from behavioral economics. When it comes to voluntary retirement plans, workers will overwhelmingly go with a default option. If they are automatically enrolled in a plan, with the option to disenroll, many more workers will stay with the retirement plan than if they have to make the decision to actively enroll in the plan. This is true even when there is money on the table in the form of a matching contribution from an employer.
For this reason, the idea was to make enrollment the default option. If workers decided that it was more important that they have the money to meet current expenses, they just have to opt out of their retirement plan.
That is the simple part. The cheap part was to have a low-cost plan available to all workers. Many 401(k)s and IRA(s) rip-off their participants. Average fees for 401(k)s are in the range of 1.0 percent a year for the company managing the account, with fees for the funds in the account sometimes adding another 1.0 percentage point.
If that seems trivial, consider that a middle-income person can easily accumulate $70,000 in a retirement account towards the end of their working life-time. Imagine paying $1,400 a year, to someone you don’t know, for essentially doing nothing. Taken over a working lifetime, a middle-income worker can easily be throwing $20,000 in the toilet (i.e. providing income to the financial sector) in excess account fees. This is money that will come directly out of their retirement savings.
For this reason, we felt that it was essential that the retirement accounts be coupled with a low-cost investment option. The dream for many of us pushing on this issue is that workers would be able to buy into the Federal Employees’ Thrift Saving Plan, which has fees in the neighborhood of 0.1 percent on its accounts, including the fees charged for individual funds.
The State-by-State Strategy
With action at the federal level largely blocked, the focus was on getting states with relatively progressive governors and legislatures to take the lead in both requiring employers to offer workers retirement accounts and to give them a low-cost option. The simple route for the latter was to open up the retirement system for the state’s public sector workers to workers for private employers.
This did not mean co-mingling funds; public sector employees’ pensions would not be affected. The plan was simply to take advantage of the expertise available in the public pension funds to allow workers in the private sector the same investment options. The administrative costs of the state plans are in general far lower than for private sector 401(k)s, so this meant substantial savings for workers.
Several states went this route, notably, Illinois led the way in 2018 with its Secure Choice program, with New York and California also implementing comparable programs. As it is, a large share of the nation’s workers now lives in a state where most employers are required to enroll workers in retirement plans managed by the government’s public employee pension system unless they offer their own plan.
Secure 2.0 Makes Default Accounts National
In order to ensure that all workers have a decent living standard in retirement it is necessary to have a national program. The Secure 2.0 Act provisions in the omnibus spending go a very long way in this direction. They will require employers with more than ten workers to put at least 3.0 percent of their pay in a retirement fund each year for their workers. The amount will rise by a percentage point each year, until it hits 10 percent.
This is an optional contribution on the part of the employee, they can choose to have this money in their paycheck, if they would prefer to have the money now. In effect, this is just changing the default option. They will be saving, unless they choose not to, rather than the current situation where they have to make a conscious choice to save for retirement.
Another provision in the bill makes the savers’ credit fully refundable. This is a federal tax credit that matched contributions to retirement accounts by low- and moderate-income workers. The problem was that it was not refundable so most of the people with an income low enough to qualify couldn’t benefit since they didn’t owe any income tax. The Secure 2.0 Act provisions fix this so these workers can get the credit even if they don’t owe any income tax.
The Secure 2.0 Act provisions are a big victory, but they don’t address the cost half of the picture. It would be great if, as part of this bill, every worker had the option to have their money invested through the Federal Thrift Savings Plan. Unfortunately, this is not the case. Workers will have to use private insurance companies and brokerages. This means much of their money will be diverted to the Wall Street types.
That is likely a big factor in how the Secure 2.0 provisions got added to the Omnibus bill. While it is great that workers will have more savings for retirement, this bill can mean big money for the financial industry. If the bill increases retirement assets by $1 trillion after ten years (defined contribution plans already have over $6 trillion in assets), it will mean over $10 billion a year in fees for the industry, if the average cost of an account is 1.0 percent of assets. If it is 1.5 percent, adding in the fees for individual funds, that would come to $15 billion a year in fees.
On the other hand, if everyone had the option to invest in the Federal Thrift Savings Plan, we would likely see much of the $6 trillion in assets currently managed by the industry begin to migrate to the federal plan. After all, not that many people are so enamored of insurance companies that they would be willing to throw away thousands of dollars to keep them happy. In that story, they would have more than $60 billion in annual fees at risk, real money even in Washington.
If neo-liberals actually care about efficiency, as they profess, they would be all over this one. After all, the money saved by having a more efficient retirement system would swamp the money involved in tariffs on steel and other things that get them excited. But no one expects neo-liberals to be consistent.
Allowing people to opt into the Federal Thrift Savings Plan should be an ongoing demand for progressives going forward. The industry will be prepared to kill to prevent this from happening, but they lack a serious argument. After all, we can steal a line from their Social Security privatization efforts, “what’s wrong with giving people a choice?”
The State-by-State Strategy
The passage of the Secure Act 2.0 provisions is also a vindication of the state-by-state strategy that progressives have been pursuing for the last quarter century when action at the national level seems blocked. This has been done with increases to the minimum wage, paid sick days and family leave, support for child care, and a number of other areas.
This strategy is effective in both directly providing benefits to large numbers of people, especially in large states like California and New York, and also making policies seem feasible to much of the country. Many of us have been in the habit of pointing to policies successfully implemented in places like Germany, France, or Denmark, but to much of the country we might just as well be talking about Mars. When we can point to a state that has a $15 minimum wage or paid family leave, it sounds like a plausible option for the country.
In the case of the Secure Act 2.0 provisions, many states had already implemented similar bills without the catastrophic effects that businesses often claim will result from progressive legislation. This could give members of Congress confidence that businesses can easily deal with the requirements in the bill.
It also may be good for many companies since offering a retirement plan may help them retain good workers. It’s true that businesses already have this option, but as behavioral economics teaches us, people may often not do what is best for them.
Anyhow, this is one more vindication of the strategy to pursue policies at the state, or even local level, when the prospects for federal action seem bleak. (Yes, I do talk about this in Rigged [it’s free].) It is nice to see a victory here – a good holiday present for tens of millions of workers who stand to benefit.
Since coming to Washington more than three decades ago, I have spent much of my time working on retirement income. The biggest part of that story was defending Social Security, which leaders in both parties were anxious to cut. This defense was largely successful, as the efforts to privatize it in the 1990s and under President Bush were beaten back, and the efforts at cuts often focused on the annual cost of living adjustment, were similarly derailed.
Defending Social Security was crucial, both because tens of millions of people depend on it for most or all of their income, but also because it was a model social program. The administrative costs are minimal, with the total program’s costs coming to less than 0.6 percent of annual benefits, with the costs of the retirement program alone coming to less than 0.4 percent of benefits. By comparison, the fees from private 401(k)s run in the neighborhood of 15 to 20 percent of annual retirement benefits.
There is also very little fraud in the program. The Washington Post, which has long been one of the leading advocates for cutting Social Security in both its opinion and news sections, once devoted a major investigative piece to exposing the fact that 0.006 percent of benefit payments went to dead people, more than half of which were later recovered. It lately decried Social Security as a “mess” in the headline to a full-page article.
I always felt that it was essential to defend Social Security because it could serve as a model for other programs, like universal Medicare or child care. But, as necessary as Social Security is, I also recognized the need to have some additional retirement income for much of the population.
Supplements to Social Security
The traditional story about retirement income was that it was a three-legged stool. Workers were supposed to have Social Security as their core retirement income. In addition, they should have a workplace pension, and also personal savings. That story could reasonably accurately describe the situation of millions of middle-class workers in the years after World War II to the 1990s, but in recent decades the other two legs of this stool have been largely removed.
Traditionally defined benefit pensions (DB) have been eliminated mainly in the private sector. While current retirees can still often count on income from DB pensions, this will be less true going forward. And, most middle-income and moderate-income households have little by way of traditional savings to help support them in retirement. Also, the story of a middle-class household reaching retirement with a paid off mortgage is far less common today than four decades ago.
All of this pointed to the need for some supplement to Social Security. For the lowest income workers, it is not plausible that they will be able to accumulate substantial savings for retirement. People struggling to pay the rent are not going to have tens of thousands stashed away in retirement accounts. The best solution here is an increase in benefits for low-paid workers.
There have been many proposals for increased benefits for lower income workers over the years, some of which had some bipartisan support. For example, giving surviving spouses 75 percent of the joint benefit (compared to the current 66.7 percent, which is often the case now), would be a substantial benefit boost to many of the elderly, generally women. This change can be structured in a way where the cost would be minimal, while providing more than a 12 percent increase in the income of many people who can really use it. There have been many Republicans who have indicated support for this sort of benefit change, although sometimes paring it with cuts that make it unacceptable.
Anyhow, while increased benefits for lower paid workers can drastically improve their well-being in retirement, substantial increases in benefits for middle income workers would be costly. A Social Security program that, by itself, allowed middle-income workers to sustain their living standards in retirement would have to be close to twice the size of the current program. That does not look very feasible.
For this reason, many of us have sought to create a simple low-cost voluntary retirement program that would supplement Social Security. The idea was to make it easy and cheap for workers to save for retirement.
The strategy takes advantage of one of the clearest findings from behavioral economics. When it comes to voluntary retirement plans, workers will overwhelmingly go with a default option. If they are automatically enrolled in a plan, with the option to disenroll, many more workers will stay with the retirement plan than if they have to make the decision to actively enroll in the plan. This is true even when there is money on the table in the form of a matching contribution from an employer.
For this reason, the idea was to make enrollment the default option. If workers decided that it was more important that they have the money to meet current expenses, they just have to opt out of their retirement plan.
That is the simple part. The cheap part was to have a low-cost plan available to all workers. Many 401(k)s and IRA(s) rip-off their participants. Average fees for 401(k)s are in the range of 1.0 percent a year for the company managing the account, with fees for the funds in the account sometimes adding another 1.0 percentage point.
If that seems trivial, consider that a middle-income person can easily accumulate $70,000 in a retirement account towards the end of their working life-time. Imagine paying $1,400 a year, to someone you don’t know, for essentially doing nothing. Taken over a working lifetime, a middle-income worker can easily be throwing $20,000 in the toilet (i.e. providing income to the financial sector) in excess account fees. This is money that will come directly out of their retirement savings.
For this reason, we felt that it was essential that the retirement accounts be coupled with a low-cost investment option. The dream for many of us pushing on this issue is that workers would be able to buy into the Federal Employees’ Thrift Saving Plan, which has fees in the neighborhood of 0.1 percent on its accounts, including the fees charged for individual funds.
The State-by-State Strategy
With action at the federal level largely blocked, the focus was on getting states with relatively progressive governors and legislatures to take the lead in both requiring employers to offer workers retirement accounts and to give them a low-cost option. The simple route for the latter was to open up the retirement system for the state’s public sector workers to workers for private employers.
This did not mean co-mingling funds; public sector employees’ pensions would not be affected. The plan was simply to take advantage of the expertise available in the public pension funds to allow workers in the private sector the same investment options. The administrative costs of the state plans are in general far lower than for private sector 401(k)s, so this meant substantial savings for workers.
Several states went this route, notably, Illinois led the way in 2018 with its Secure Choice program, with New York and California also implementing comparable programs. As it is, a large share of the nation’s workers now lives in a state where most employers are required to enroll workers in retirement plans managed by the government’s public employee pension system unless they offer their own plan.
Secure 2.0 Makes Default Accounts National
In order to ensure that all workers have a decent living standard in retirement it is necessary to have a national program. The Secure 2.0 Act provisions in the omnibus spending go a very long way in this direction. They will require employers with more than ten workers to put at least 3.0 percent of their pay in a retirement fund each year for their workers. The amount will rise by a percentage point each year, until it hits 10 percent.
This is an optional contribution on the part of the employee, they can choose to have this money in their paycheck, if they would prefer to have the money now. In effect, this is just changing the default option. They will be saving, unless they choose not to, rather than the current situation where they have to make a conscious choice to save for retirement.
Another provision in the bill makes the savers’ credit fully refundable. This is a federal tax credit that matched contributions to retirement accounts by low- and moderate-income workers. The problem was that it was not refundable so most of the people with an income low enough to qualify couldn’t benefit since they didn’t owe any income tax. The Secure 2.0 Act provisions fix this so these workers can get the credit even if they don’t owe any income tax.
The Secure 2.0 Act provisions are a big victory, but they don’t address the cost half of the picture. It would be great if, as part of this bill, every worker had the option to have their money invested through the Federal Thrift Savings Plan. Unfortunately, this is not the case. Workers will have to use private insurance companies and brokerages. This means much of their money will be diverted to the Wall Street types.
That is likely a big factor in how the Secure 2.0 provisions got added to the Omnibus bill. While it is great that workers will have more savings for retirement, this bill can mean big money for the financial industry. If the bill increases retirement assets by $1 trillion after ten years (defined contribution plans already have over $6 trillion in assets), it will mean over $10 billion a year in fees for the industry, if the average cost of an account is 1.0 percent of assets. If it is 1.5 percent, adding in the fees for individual funds, that would come to $15 billion a year in fees.
On the other hand, if everyone had the option to invest in the Federal Thrift Savings Plan, we would likely see much of the $6 trillion in assets currently managed by the industry begin to migrate to the federal plan. After all, not that many people are so enamored of insurance companies that they would be willing to throw away thousands of dollars to keep them happy. In that story, they would have more than $60 billion in annual fees at risk, real money even in Washington.
If neo-liberals actually care about efficiency, as they profess, they would be all over this one. After all, the money saved by having a more efficient retirement system would swamp the money involved in tariffs on steel and other things that get them excited. But no one expects neo-liberals to be consistent.
Allowing people to opt into the Federal Thrift Savings Plan should be an ongoing demand for progressives going forward. The industry will be prepared to kill to prevent this from happening, but they lack a serious argument. After all, we can steal a line from their Social Security privatization efforts, “what’s wrong with giving people a choice?”
The State-by-State Strategy
The passage of the Secure Act 2.0 provisions is also a vindication of the state-by-state strategy that progressives have been pursuing for the last quarter century when action at the national level seems blocked. This has been done with increases to the minimum wage, paid sick days and family leave, support for child care, and a number of other areas.
This strategy is effective in both directly providing benefits to large numbers of people, especially in large states like California and New York, and also making policies seem feasible to much of the country. Many of us have been in the habit of pointing to policies successfully implemented in places like Germany, France, or Denmark, but to much of the country we might just as well be talking about Mars. When we can point to a state that has a $15 minimum wage or paid family leave, it sounds like a plausible option for the country.
In the case of the Secure Act 2.0 provisions, many states had already implemented similar bills without the catastrophic effects that businesses often claim will result from progressive legislation. This could give members of Congress confidence that businesses can easily deal with the requirements in the bill.
It also may be good for many companies since offering a retirement plan may help them retain good workers. It’s true that businesses already have this option, but as behavioral economics teaches us, people may often not do what is best for them.
Anyhow, this is one more vindication of the strategy to pursue policies at the state, or even local level, when the prospects for federal action seem bleak. (Yes, I do talk about this in Rigged [it’s free].) It is nice to see a victory here – a good holiday present for tens of millions of workers who stand to benefit.
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One not so good item in the package of retirement fund provisions in the omnibus funding bill raises the age for mandatory distributions from retirement accounts from 72 to 75. This is phased in over a decade, but it does go up immediately to 73 in 2023. It had already been raised from 70.5 years to 72 years in 2019.
The mandatory distribution requirement is based on life expectancy at your current age. This means, for example, if your life expectancy at 72 is ten years, then you have to withdraw (and pay taxes) on roughly 10 percent of the money in your IRA or 401(k). The actual calculations are somewhat more complicated, but this is the basic story.
Anyhow, the ostensible justification for raising the age for mandatory withdrawals was that people are worried about outliving their retirement funds. It is important to realize that this is not really the issue with mandatory withdrawals.
The mandate doesn’t require that people spend the money from their accounts, it just requires they pay taxes on them. This means, for example, if someone had $70,000 in their retirement account (roughly the median for account holders in their sixties, which is a bit more than half the population), and their required distribution was 10 percent, they would have to pull $7,000 out of their account.
They could put this $7,000 into another investment account, they would just have to pay taxes on this money as though it were normal income. The vast majority of retirees would be paying a tax rate of 10 or 12 percent, which means they would owe $700 to $840 in taxes. The rest of the money could be invested for their later years.
Since they would have to pay taxes on their money when they pulled it out in any case, the only loss is the potential investment income from their tax payments. That is not likely to be a major factor in determining whether they will outlive their retirement savings.
There are of course people in higher tax brackets, especially among those in a position to defer withdrawals from their retirement accounts. For someone in the top 37 percent tax bracket, deferring withdrawals can mean large savings. But it is unlikely that these people are actually worried about outliving their retirement accounts.
For these higher income people, this provision is simply one more way to reduce their tax obligations, as were provisions in the bill that raised caps on contributions. Since very few people were contributing at the current caps, raising the caps is simply a way for high income people to shelter more of their income from taxation.
These giveaways to high income people may have been a price worth paying for the other changes in retirement provisions, such as making the savers credit fully refundable so that low income people can benefit, and also requiring most employers to contribute to their workers’ retirement. However, we should be clear that these provisions are designed so that they will only benefit a small group of people at the top of the income distribution. They are not about making it less likely that middle income people will outlive their retirement savings.
One not so good item in the package of retirement fund provisions in the omnibus funding bill raises the age for mandatory distributions from retirement accounts from 72 to 75. This is phased in over a decade, but it does go up immediately to 73 in 2023. It had already been raised from 70.5 years to 72 years in 2019.
The mandatory distribution requirement is based on life expectancy at your current age. This means, for example, if your life expectancy at 72 is ten years, then you have to withdraw (and pay taxes) on roughly 10 percent of the money in your IRA or 401(k). The actual calculations are somewhat more complicated, but this is the basic story.
Anyhow, the ostensible justification for raising the age for mandatory withdrawals was that people are worried about outliving their retirement funds. It is important to realize that this is not really the issue with mandatory withdrawals.
The mandate doesn’t require that people spend the money from their accounts, it just requires they pay taxes on them. This means, for example, if someone had $70,000 in their retirement account (roughly the median for account holders in their sixties, which is a bit more than half the population), and their required distribution was 10 percent, they would have to pull $7,000 out of their account.
They could put this $7,000 into another investment account, they would just have to pay taxes on this money as though it were normal income. The vast majority of retirees would be paying a tax rate of 10 or 12 percent, which means they would owe $700 to $840 in taxes. The rest of the money could be invested for their later years.
Since they would have to pay taxes on their money when they pulled it out in any case, the only loss is the potential investment income from their tax payments. That is not likely to be a major factor in determining whether they will outlive their retirement savings.
There are of course people in higher tax brackets, especially among those in a position to defer withdrawals from their retirement accounts. For someone in the top 37 percent tax bracket, deferring withdrawals can mean large savings. But it is unlikely that these people are actually worried about outliving their retirement accounts.
For these higher income people, this provision is simply one more way to reduce their tax obligations, as were provisions in the bill that raised caps on contributions. Since very few people were contributing at the current caps, raising the caps is simply a way for high income people to shelter more of their income from taxation.
These giveaways to high income people may have been a price worth paying for the other changes in retirement provisions, such as making the savers credit fully refundable so that low income people can benefit, and also requiring most employers to contribute to their workers’ retirement. However, we should be clear that these provisions are designed so that they will only benefit a small group of people at the top of the income distribution. They are not about making it less likely that middle income people will outlive their retirement savings.
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• Globalization and TradeGlobalización y comercioInequalityLa DesigualdadIntellectual PropertyPropiedad IntelectualUnited StatesEE. UU.
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• Economic Crisis and RecoveryCrisis económica y recuperación
I have been seeing various posts on Twitter from Republican politicians saying how Joe Biden’s inflation is devastating families as we approach the holidays. Of course, it would be amazing if we didn’t have some discomfort given a worldwide pandemic and a major war in Europe, but we can’t expect that Republican politicians would know about such things.
In any case, it is worth seeing the extent to which the data support the Republicans’ tale of hardship. It doesn’t look like the consumption data from the National Income and Product Accounts agree with them. Here’s the picture for real per capita non-health care consumption through the third quarter of 2022.
Source: Bureau of Economic Analysis and author’s calculations.
As can be seen, non-health care consumption, after falling during the worst period of the pandemic, jumped up in 2021, putting it well above its pre-pandemic trend. In the third quarter of this year, real per capita non-health care consumption was 2.3 percent above its pre-pandemic trend. That doesn’t look like a story of hardship.
We do have to ask about distribution, but it doesn’t seem this is simply a story of the Elon Musks of the world living even higher on the hog. As Arin Dube and David Autor have documented, wage growth since the pandemic has been most rapid for those at the bottom end of the wage distribution, and has outpaced inflation for roughly the bottom 40 percent of the distribution.
It is worth commenting on my use of non-health care consumption. Health care is tricky as a category of consumption. What we care about is health, not the number of doctors visits or medical tests we receive.
Spending on health care has slowed sharply since the pandemic. It is not clear why this is the case. If people are substituting telemedicine and home diagnostics for in-person visits and laboratory tests, this could lead to substantial savings. Whether or not it means worse outcomes remains to be seen.
In any case, it is unambiguously the case that people are consuming more non-health care items this holiday season than they would have reason to expect before the pandemic. The Republicans’ grinch routine is just play acting.
I have been seeing various posts on Twitter from Republican politicians saying how Joe Biden’s inflation is devastating families as we approach the holidays. Of course, it would be amazing if we didn’t have some discomfort given a worldwide pandemic and a major war in Europe, but we can’t expect that Republican politicians would know about such things.
In any case, it is worth seeing the extent to which the data support the Republicans’ tale of hardship. It doesn’t look like the consumption data from the National Income and Product Accounts agree with them. Here’s the picture for real per capita non-health care consumption through the third quarter of 2022.
Source: Bureau of Economic Analysis and author’s calculations.
As can be seen, non-health care consumption, after falling during the worst period of the pandemic, jumped up in 2021, putting it well above its pre-pandemic trend. In the third quarter of this year, real per capita non-health care consumption was 2.3 percent above its pre-pandemic trend. That doesn’t look like a story of hardship.
We do have to ask about distribution, but it doesn’t seem this is simply a story of the Elon Musks of the world living even higher on the hog. As Arin Dube and David Autor have documented, wage growth since the pandemic has been most rapid for those at the bottom end of the wage distribution, and has outpaced inflation for roughly the bottom 40 percent of the distribution.
It is worth commenting on my use of non-health care consumption. Health care is tricky as a category of consumption. What we care about is health, not the number of doctors visits or medical tests we receive.
Spending on health care has slowed sharply since the pandemic. It is not clear why this is the case. If people are substituting telemedicine and home diagnostics for in-person visits and laboratory tests, this could lead to substantial savings. Whether or not it means worse outcomes remains to be seen.
In any case, it is unambiguously the case that people are consuming more non-health care items this holiday season than they would have reason to expect before the pandemic. The Republicans’ grinch routine is just play acting.
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I was having an exchange with an old friend on Mastodon (yes, I’m there now @[email protected]), in which I was arguing that the best way to get alternatives to the current patent system was to have examples of successful drugs developed without relying on patent monopolies. Of course, there are great historical examples, like the development of insulin as a treatment for diabetes or the polio vaccine, but it would be good to have one from the current century.
The most obvious example, that really deserves a hell of a lot more attention than it is getting, is the Covid vaccine developed by Peter Hotez and Maria Elena Botazzi at the Center for Vaccine Development at Texas Children’s Hospital. This vaccine was developed using grants in the single digit millions. Unlike the mRNA vaccines developed by Pfizer and Moderna, it uses a long-established technology. It is also completely open-sourced; the technology is fully public and there are no patents or other restrictions preventing its manufacture anywhere in the world.
The vaccine, called Corbevax, is cheap and easy to produce, costing less than $2 per shot. By contrast Pfizer and Moderna charged close to $20 a shot for the initial round of inoculations. They are looking to charge considerably more for subsequent booster rounds. This is in spite of the fact that the U.S. government paid close to $900 million for the development and testing of Moderna’s vaccine, in addition to supporting the development of mRNA technology for decades.
Like the mRNA vaccines, Corbevax is highly effective in preventing serious illness and death. It has been administered to more than 70 million people in India and also is being used in several other developing countries.
Corbevax is an important example of a vaccine being developed without needing government-granted patent monopolies. To be clear, medical researchers need to be compensated for their work. We can’t count of all researchers being as dedicated as doctors Hotez and Botazzi in their commitment to protecting the public’s health.
However, it is absurd to imagine that we cannot get effective research without the allure of great riches promised by the current system. (Moderna’s vaccine created at least five billionaires.) We already have the National Institutes of Health (NIH), which produces great research by paying people decent salaries, but not minting billionaires.
Most of NIH’s funding goes to more basic research rather than actually developing drugs or vaccines, but there is no reason in principle that public money could not be used for downstream research as well as basic research. We might structure a system differently for downstream research. I have argued for long-term contracts, similar to what the Defense Department uses for developing weapon systems, which would be subject to review/renewal periodically (see Rigged, chapter 5 [it’s free].)
While the specific structure is important (we want to make sure a publicly funded system is operating as efficiently as possible), the key issue is establishing the possibility of an alternative to patent monopoly financing of drug development. Towards this end, we need more facts on the ground. We need, one, two, many Corbevaxes.
Sam Bankman-Fried made “effective philanthropy” famous, as giving away money to good causes was the ostensible rationale for the multi-billion dollar crypto scam he was operating. It’s not clear if there are actually any effective philanthropists among the billionaire class. But, if such a creature exists, there could hardly be a better use of their money then demonstrating the feasibility of directly funded open-source drug development. If the next great cancer drug sells for a few hundred dollars, instead of a few hundred thousand, it will be hard to ignore.
At the end of the day, we do of course need governments to pick up the tab, but the potential savings are enormous, perhaps as much as $400 billion a year ($3,000 per family). Getting rid of patent monopolies for drugs would also be a huge factor reducing inequality, as we would not be draining the pockets of ordinary workers to create more Moderna billionaires.
But most importantly, new drugs would be cheap. People in the United States and around the world would be able to afford drugs sold at free market prices, rather than patent monopoly prices. And, that would be great.
I was having an exchange with an old friend on Mastodon (yes, I’m there now @[email protected]), in which I was arguing that the best way to get alternatives to the current patent system was to have examples of successful drugs developed without relying on patent monopolies. Of course, there are great historical examples, like the development of insulin as a treatment for diabetes or the polio vaccine, but it would be good to have one from the current century.
The most obvious example, that really deserves a hell of a lot more attention than it is getting, is the Covid vaccine developed by Peter Hotez and Maria Elena Botazzi at the Center for Vaccine Development at Texas Children’s Hospital. This vaccine was developed using grants in the single digit millions. Unlike the mRNA vaccines developed by Pfizer and Moderna, it uses a long-established technology. It is also completely open-sourced; the technology is fully public and there are no patents or other restrictions preventing its manufacture anywhere in the world.
The vaccine, called Corbevax, is cheap and easy to produce, costing less than $2 per shot. By contrast Pfizer and Moderna charged close to $20 a shot for the initial round of inoculations. They are looking to charge considerably more for subsequent booster rounds. This is in spite of the fact that the U.S. government paid close to $900 million for the development and testing of Moderna’s vaccine, in addition to supporting the development of mRNA technology for decades.
Like the mRNA vaccines, Corbevax is highly effective in preventing serious illness and death. It has been administered to more than 70 million people in India and also is being used in several other developing countries.
Corbevax is an important example of a vaccine being developed without needing government-granted patent monopolies. To be clear, medical researchers need to be compensated for their work. We can’t count of all researchers being as dedicated as doctors Hotez and Botazzi in their commitment to protecting the public’s health.
However, it is absurd to imagine that we cannot get effective research without the allure of great riches promised by the current system. (Moderna’s vaccine created at least five billionaires.) We already have the National Institutes of Health (NIH), which produces great research by paying people decent salaries, but not minting billionaires.
Most of NIH’s funding goes to more basic research rather than actually developing drugs or vaccines, but there is no reason in principle that public money could not be used for downstream research as well as basic research. We might structure a system differently for downstream research. I have argued for long-term contracts, similar to what the Defense Department uses for developing weapon systems, which would be subject to review/renewal periodically (see Rigged, chapter 5 [it’s free].)
While the specific structure is important (we want to make sure a publicly funded system is operating as efficiently as possible), the key issue is establishing the possibility of an alternative to patent monopoly financing of drug development. Towards this end, we need more facts on the ground. We need, one, two, many Corbevaxes.
Sam Bankman-Fried made “effective philanthropy” famous, as giving away money to good causes was the ostensible rationale for the multi-billion dollar crypto scam he was operating. It’s not clear if there are actually any effective philanthropists among the billionaire class. But, if such a creature exists, there could hardly be a better use of their money then demonstrating the feasibility of directly funded open-source drug development. If the next great cancer drug sells for a few hundred dollars, instead of a few hundred thousand, it will be hard to ignore.
At the end of the day, we do of course need governments to pick up the tab, but the potential savings are enormous, perhaps as much as $400 billion a year ($3,000 per family). Getting rid of patent monopolies for drugs would also be a huge factor reducing inequality, as we would not be draining the pockets of ordinary workers to create more Moderna billionaires.
But most importantly, new drugs would be cheap. People in the United States and around the world would be able to afford drugs sold at free market prices, rather than patent monopoly prices. And, that would be great.
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It is getting almost as bad as propaganda from an authoritarian regime. We keep hearing major news outlets tell us that inflation is whacking lower-income families. The Washington Post did it yesterday in an editorial demanding more rate hikes from the Fed to throw people out of work.
Lower-income people, like everyone else, are paying more for food, gas, and rent. The argument is that these items are a larger share of the budget of lower-income people, so they are hit harder by inflation than higher-income households.
The problem with telling this simple story is that wages have been growing most rapidly at the bottom end of the wage distribution, substantially outpacing inflation since the start of the pandemic. Also, in a tight labor market, more people are likely working in many households. They are also more likely to be able to find a job that has lower commuting costs or might allow them to work part-time to deal with child care or family needs.
One way to assess how these things balance out is to look at what has happened to homeownership rates. More homeownership is not always better, as some of us warned during the housing bubble years, but people who have the option to buy a home generally choose to do so.
Contrary to the propaganda coming from the media, homeownership rates have actually risen rapidly since the pandemic for households with incomes below the median, as shown below. (The big jump in 2020, which was partially reversed, is likely due to a skewing in responses, as the pandemic sent response rates plummeting.)
Source: Census Bureau (Table 8).
Homeownership rates have also risen for Black and Hispanic households and those headed by someone under age 35. It is more than a bit bizarre that the media have been almost uniformly insisting that these are horrible times for lower-income people despite data that say the opposite.
It is getting almost as bad as propaganda from an authoritarian regime. We keep hearing major news outlets tell us that inflation is whacking lower-income families. The Washington Post did it yesterday in an editorial demanding more rate hikes from the Fed to throw people out of work.
Lower-income people, like everyone else, are paying more for food, gas, and rent. The argument is that these items are a larger share of the budget of lower-income people, so they are hit harder by inflation than higher-income households.
The problem with telling this simple story is that wages have been growing most rapidly at the bottom end of the wage distribution, substantially outpacing inflation since the start of the pandemic. Also, in a tight labor market, more people are likely working in many households. They are also more likely to be able to find a job that has lower commuting costs or might allow them to work part-time to deal with child care or family needs.
One way to assess how these things balance out is to look at what has happened to homeownership rates. More homeownership is not always better, as some of us warned during the housing bubble years, but people who have the option to buy a home generally choose to do so.
Contrary to the propaganda coming from the media, homeownership rates have actually risen rapidly since the pandemic for households with incomes below the median, as shown below. (The big jump in 2020, which was partially reversed, is likely due to a skewing in responses, as the pandemic sent response rates plummeting.)
Source: Census Bureau (Table 8).
Homeownership rates have also risen for Black and Hispanic households and those headed by someone under age 35. It is more than a bit bizarre that the media have been almost uniformly insisting that these are horrible times for lower-income people despite data that say the opposite.
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It’s more than a bit bizarre that until Elon Musk bought Twitter, most policy types apparently did not see a risk that huge platforms like Facebook and Twitter could be controlled by people with a clear political agenda. While just about everyone had some complaints about the moderation of these and other commonly used platforms, they clearly were not pushing Fox News-style nonsense.
With Elon Musk in charge, that may no longer be true. Musk has indicated his fondness for racists and anti-Semites, and made it clear that they are welcome on his new toy. He also is apparently good with right-wing kooks making up stories about everything from Paul Pelosi to Covid vaccines. (Remember, with Section 230 protection, Musk cannot be sued for defaming individuals and companies by mass-marketing lies, only the originators face any legal liability.)
If the hate and lies aren’t enough to make Twitter unattractive to the reality-based community, the right-wing crazies are putting together their lists of people to be purged. We don’t know who they will come up with, and what qualifies in their mind for banishment. We also don’t know whether the self-proclaimed free-speech absolutist Elon Musk will go along, but there certainly is a risk that Musk will want to keep his friends happy.
In that case, Twitter may go the way of Truth Social and Parlor, which would be unfortunate, but probably better than having a massive social media platform subject to Elon Musk’s whims. But we should still be asking how we can get in a situation where one right-wing jerk can have so much power?
The Problem of Media Concentration Is Not New
The Musk problem is hardly new. After all, Rupert Murdoch has been broadcasting his imaginary world to the country for decades, highlighting pressing national issues like the War on Christmas and President Obama’s tan suit.
But the problem goes well beyond Murdoch. Media outlets are owned and controlled by rich people and/or large corporations. They exist first and foremost to make money. While there are some cases where owners may genuinely have a commitment to using their news outlet to serve the public, for example, the Sulzberger family, which has controlled the New York Times for more than a century, these are the exceptions.
And, even with the exceptions, their perception of the public good is an extremely wealthy person’s perception of the public good. That may not be the same as the perception of an average working person struggling to get by.
As far as for-profit enterprises, news outlets have to be concerned about getting advertising. That may make them less likely to report news that will reflect poorly on major advertisers. That means things like both siding the role of the fossil fuel industry in global warming, or downplaying the windfall that corporations got from Trump’s 2017 tax cut.
This ownership structure could reasonably cause us to question the neutrality of news from outlets like CNN (owned by AT&T), ABC (owned by Disney), or NBC (owned by GE). But Musk’s takeover of Twitter takes the problem a step further. The viewership of each of the networks’ news shows numbers in the single digit millions. Twitter has almost 80 million active users in the United States. This means it matters much more if Twitter is taken over by a right-wing jerk than your average television network.
Alternatives to Corporate Control
Even though the media are incredibly important in shaping people’s view of the world, there has been remarkably little attention to the issue from most liberals or progressives. There are some small, and poorly funded, organizations, like Fairness and Accuracy in Reporting and Media Matters, which do focus on the issue. And there are a few prominent intellectuals who have written on the topic, like Rick McChesney, Dan Froomkin, and Jay Rosen, but for the most part, the issue of media control gets little attention from the left of center.
Ironically, campaign finance reform, which is almost certainly an exercise in futility given recent Supreme Court rulings, gets far more attention. The absurdity of the focus on campaign finance reform should be apparent to anyone who gives the issue a moment’s thought.
Suppose through some miracle Congress passed, and the Supreme Court upheld, a bill that limited billionaires’ abilities to buy political ads for their favorite candidate. Is anything going to stop these billionaires from buying up newspapers and television stations and running the ads supporting their favored candidates as news stories?
There is no remotely satisfying answer to that question, and it is ridiculous that campaign finance reformers haven’t recognized this fact. Limiting campaign spending by rich people will do nothing if we don’t do something to limit their ability to influence public opinion through the media.
Fortunately, there are some ideas for challenging the control the rich have over the media. The basic story is that we are not going to be able to prevent the rich from buying and owning media outlets. Instead, we will have to go the other way and allow the non-rich to have a voice.[1]
The idea is that we can give every person some amount of money (e.g. $100 to $200) to support the media outlet(s), or possibly a broader category of creative workers, of their choice. This system could be modeled along the lines of the charitable contribution tax deduction, where the government draws out general conditions for being eligible to receive the funds.
This means that the government specifies the types of organizations that can qualify to receive the funds. In the case of the charitable deduction, an organization has to indicate that it’s a church, it provides food for the poor, or does something else that qualifies it to be a charitable organization.
The government doesn’t try to determine whether it’s a good church or whether the food it provides is high quality, the only question is whether the organization does what it claims. A similar policy could be applied to the recipients of funds allocated through this system. (In my view, I would make not getting copyright protection a condition of getting funding – the government gives you one subsidy, not two – but that is the sort of issue that could be resolved down the road.)
This sort of system could provide a large amount of money to sustain media organizations that are not owned by rich people. For example, if the credit were $200, and 10 million people chose to support a specific television network with their full credit, the organization would have $2 billion a year to cover its operating expenses. That is roughly equal to CNN’s annual operating revenue.
This credit could create enormous opportunities for the non-rich to finance newspapers/websites, television stations, and other outlets that could compete with the current ones owned and controlled by billionaires. This path also has the great benefit that it could put adopted piecemeal, with states and even local governments, giving their residents the opportunity to support new types of news outlets.
If enough people could gain support for this type of program, they could get a more progressive state, like California or Massachusetts to pave the way, or a city like San Francisco or Seattle. Just as the movement for a higher minimum wage has spread from successes in these places, the same could happen with a tax credit system to support alternative media.
Fun with Elon Musk and Twitter
Even if it proves to be possible to advance a tax credit system to support alternatives to the billionaires’ media, we still have the problem of massive platforms like Facebook and Twitter being owned by rich people, who can essentially do what they want in accordance with their whims. The big problem here is the issue of network effects.
The idea of network effects is that people benefit from being part of a massive network since they want to be able to see what a large number of other people are posting, and they may hope that a large number of people will see what they post. These effects can be exaggerated. For example, the overwhelming majority of users will never have their Facebook pages or Twitter posts viewed by more than a small number of people. Nonetheless, they are real. This makes it hard to dislodge a Facebook or Twitter, once it has become dominant.
One route to go is to make the playing field less hospitable to large platforms. This can be done by removing Section 230 protections for websites that either sell advertising or personal information. This means that the big platforms could be held liable for defamatory material that they circulated over their platform.
In this scenario, if election deniers wrote posts on Twitter saying that Dominion voting machines had switched votes from Trump to Biden, Elon Musk could be sued by Dominion for defamation, just as Fox News is now being sued. The same would apply to the vaccine deniers claiming that Pfizer and Moderna vaccines have killed huge numbers of people.
Taking away Section 230 protection from these platforms would not just help large actors. As it stands now, if some racist asshole started posting on their Facebook page that a restaurant owned by Blacks or Asians had poisoned their family and sent them to the hospital, the restaurant owner would have no legal recourse against Facebook. They could sue the racist, who may not have much money, but they could not even force Facebook to take down the post.
By contrast, if a television station or newspaper had allowed the person to speak or printed a letter to the editor along the same lines, they would face liability. They could be forced to issue a correction to avoid being named in a defamation suit.
There are clearly complications with going this route. A platform with billions of posts daily could not be expected to monitor posts in advance for potentially defamatory material. This problem has been solved (imperfectly) with copyright, under the Digital Millennium Copyright Act (DMCA), by requiring platforms to remove violating material in a timely manner after being notified by the copyright holder.
There could be a similar requirement for Internet sites. The evidence from the DMCA is that websites are overly cautious and err on the side of removing material even when the claim of violation is extremely weak. That may also prove to be the case with Internet platforms like Facebook and Twitter when it comes to allegedly defamatory material, but that is in part the point.
Part of the point of removing Section 230 protection from sites that rely on advertising or selling personal information is to put them at a disadvantage relative to sites that rely on subscriptions or donations to stay in business. In that case, people could count on posting material on a smaller site that might be removed by Facebook or Twitter. This would give sites operating on an alternative model a large advantage relative to the current Internet giants.
In any case, taking away Section 230 protection would clearly raise costs for the major Internet platforms. Given that Twitter was already struggling even before Elon Musk took it over, this sort of increase in costs would clearly be a serious blow.
Undoubtedly, changing the law on Section 230 protection would hurt some other sites as well. While some could probably switch over to a subscription model relatively easily, others may find it difficult. Sites will of course develop new modes of operation. For example, a site like Airbnb could require users to sign away their right to sue for defamation as a condition of usage.
As a practical matter, it is impossible to guarantee that there will be no negative outcomes from this change, just as is true of every policy that actually does anything in the world. The question is whether some number of sites either being seriously downsized, or going out of business altogether, is a price worth paying to prevent rich jerks from being able to operate huge platforms according to their whims.
To my view, it would be worth the price, but your mileage may vary. In any case, it is distressing to see we are now in a situation where this is the reality, not just a hypothetical one. It speaks volumes about the quality of intellectual debate in this country, that this possibility apparently caught so many of our leading policy types by surprise.
It’s more than a bit bizarre that until Elon Musk bought Twitter, most policy types apparently did not see a risk that huge platforms like Facebook and Twitter could be controlled by people with a clear political agenda. While just about everyone had some complaints about the moderation of these and other commonly used platforms, they clearly were not pushing Fox News-style nonsense.
With Elon Musk in charge, that may no longer be true. Musk has indicated his fondness for racists and anti-Semites, and made it clear that they are welcome on his new toy. He also is apparently good with right-wing kooks making up stories about everything from Paul Pelosi to Covid vaccines. (Remember, with Section 230 protection, Musk cannot be sued for defaming individuals and companies by mass-marketing lies, only the originators face any legal liability.)
If the hate and lies aren’t enough to make Twitter unattractive to the reality-based community, the right-wing crazies are putting together their lists of people to be purged. We don’t know who they will come up with, and what qualifies in their mind for banishment. We also don’t know whether the self-proclaimed free-speech absolutist Elon Musk will go along, but there certainly is a risk that Musk will want to keep his friends happy.
In that case, Twitter may go the way of Truth Social and Parlor, which would be unfortunate, but probably better than having a massive social media platform subject to Elon Musk’s whims. But we should still be asking how we can get in a situation where one right-wing jerk can have so much power?
The Problem of Media Concentration Is Not New
The Musk problem is hardly new. After all, Rupert Murdoch has been broadcasting his imaginary world to the country for decades, highlighting pressing national issues like the War on Christmas and President Obama’s tan suit.
But the problem goes well beyond Murdoch. Media outlets are owned and controlled by rich people and/or large corporations. They exist first and foremost to make money. While there are some cases where owners may genuinely have a commitment to using their news outlet to serve the public, for example, the Sulzberger family, which has controlled the New York Times for more than a century, these are the exceptions.
And, even with the exceptions, their perception of the public good is an extremely wealthy person’s perception of the public good. That may not be the same as the perception of an average working person struggling to get by.
As far as for-profit enterprises, news outlets have to be concerned about getting advertising. That may make them less likely to report news that will reflect poorly on major advertisers. That means things like both siding the role of the fossil fuel industry in global warming, or downplaying the windfall that corporations got from Trump’s 2017 tax cut.
This ownership structure could reasonably cause us to question the neutrality of news from outlets like CNN (owned by AT&T), ABC (owned by Disney), or NBC (owned by GE). But Musk’s takeover of Twitter takes the problem a step further. The viewership of each of the networks’ news shows numbers in the single digit millions. Twitter has almost 80 million active users in the United States. This means it matters much more if Twitter is taken over by a right-wing jerk than your average television network.
Alternatives to Corporate Control
Even though the media are incredibly important in shaping people’s view of the world, there has been remarkably little attention to the issue from most liberals or progressives. There are some small, and poorly funded, organizations, like Fairness and Accuracy in Reporting and Media Matters, which do focus on the issue. And there are a few prominent intellectuals who have written on the topic, like Rick McChesney, Dan Froomkin, and Jay Rosen, but for the most part, the issue of media control gets little attention from the left of center.
Ironically, campaign finance reform, which is almost certainly an exercise in futility given recent Supreme Court rulings, gets far more attention. The absurdity of the focus on campaign finance reform should be apparent to anyone who gives the issue a moment’s thought.
Suppose through some miracle Congress passed, and the Supreme Court upheld, a bill that limited billionaires’ abilities to buy political ads for their favorite candidate. Is anything going to stop these billionaires from buying up newspapers and television stations and running the ads supporting their favored candidates as news stories?
There is no remotely satisfying answer to that question, and it is ridiculous that campaign finance reformers haven’t recognized this fact. Limiting campaign spending by rich people will do nothing if we don’t do something to limit their ability to influence public opinion through the media.
Fortunately, there are some ideas for challenging the control the rich have over the media. The basic story is that we are not going to be able to prevent the rich from buying and owning media outlets. Instead, we will have to go the other way and allow the non-rich to have a voice.[1]
The idea is that we can give every person some amount of money (e.g. $100 to $200) to support the media outlet(s), or possibly a broader category of creative workers, of their choice. This system could be modeled along the lines of the charitable contribution tax deduction, where the government draws out general conditions for being eligible to receive the funds.
This means that the government specifies the types of organizations that can qualify to receive the funds. In the case of the charitable deduction, an organization has to indicate that it’s a church, it provides food for the poor, or does something else that qualifies it to be a charitable organization.
The government doesn’t try to determine whether it’s a good church or whether the food it provides is high quality, the only question is whether the organization does what it claims. A similar policy could be applied to the recipients of funds allocated through this system. (In my view, I would make not getting copyright protection a condition of getting funding – the government gives you one subsidy, not two – but that is the sort of issue that could be resolved down the road.)
This sort of system could provide a large amount of money to sustain media organizations that are not owned by rich people. For example, if the credit were $200, and 10 million people chose to support a specific television network with their full credit, the organization would have $2 billion a year to cover its operating expenses. That is roughly equal to CNN’s annual operating revenue.
This credit could create enormous opportunities for the non-rich to finance newspapers/websites, television stations, and other outlets that could compete with the current ones owned and controlled by billionaires. This path also has the great benefit that it could put adopted piecemeal, with states and even local governments, giving their residents the opportunity to support new types of news outlets.
If enough people could gain support for this type of program, they could get a more progressive state, like California or Massachusetts to pave the way, or a city like San Francisco or Seattle. Just as the movement for a higher minimum wage has spread from successes in these places, the same could happen with a tax credit system to support alternative media.
Fun with Elon Musk and Twitter
Even if it proves to be possible to advance a tax credit system to support alternatives to the billionaires’ media, we still have the problem of massive platforms like Facebook and Twitter being owned by rich people, who can essentially do what they want in accordance with their whims. The big problem here is the issue of network effects.
The idea of network effects is that people benefit from being part of a massive network since they want to be able to see what a large number of other people are posting, and they may hope that a large number of people will see what they post. These effects can be exaggerated. For example, the overwhelming majority of users will never have their Facebook pages or Twitter posts viewed by more than a small number of people. Nonetheless, they are real. This makes it hard to dislodge a Facebook or Twitter, once it has become dominant.
One route to go is to make the playing field less hospitable to large platforms. This can be done by removing Section 230 protections for websites that either sell advertising or personal information. This means that the big platforms could be held liable for defamatory material that they circulated over their platform.
In this scenario, if election deniers wrote posts on Twitter saying that Dominion voting machines had switched votes from Trump to Biden, Elon Musk could be sued by Dominion for defamation, just as Fox News is now being sued. The same would apply to the vaccine deniers claiming that Pfizer and Moderna vaccines have killed huge numbers of people.
Taking away Section 230 protection from these platforms would not just help large actors. As it stands now, if some racist asshole started posting on their Facebook page that a restaurant owned by Blacks or Asians had poisoned their family and sent them to the hospital, the restaurant owner would have no legal recourse against Facebook. They could sue the racist, who may not have much money, but they could not even force Facebook to take down the post.
By contrast, if a television station or newspaper had allowed the person to speak or printed a letter to the editor along the same lines, they would face liability. They could be forced to issue a correction to avoid being named in a defamation suit.
There are clearly complications with going this route. A platform with billions of posts daily could not be expected to monitor posts in advance for potentially defamatory material. This problem has been solved (imperfectly) with copyright, under the Digital Millennium Copyright Act (DMCA), by requiring platforms to remove violating material in a timely manner after being notified by the copyright holder.
There could be a similar requirement for Internet sites. The evidence from the DMCA is that websites are overly cautious and err on the side of removing material even when the claim of violation is extremely weak. That may also prove to be the case with Internet platforms like Facebook and Twitter when it comes to allegedly defamatory material, but that is in part the point.
Part of the point of removing Section 230 protection from sites that rely on advertising or selling personal information is to put them at a disadvantage relative to sites that rely on subscriptions or donations to stay in business. In that case, people could count on posting material on a smaller site that might be removed by Facebook or Twitter. This would give sites operating on an alternative model a large advantage relative to the current Internet giants.
In any case, taking away Section 230 protection would clearly raise costs for the major Internet platforms. Given that Twitter was already struggling even before Elon Musk took it over, this sort of increase in costs would clearly be a serious blow.
Undoubtedly, changing the law on Section 230 protection would hurt some other sites as well. While some could probably switch over to a subscription model relatively easily, others may find it difficult. Sites will of course develop new modes of operation. For example, a site like Airbnb could require users to sign away their right to sue for defamation as a condition of usage.
As a practical matter, it is impossible to guarantee that there will be no negative outcomes from this change, just as is true of every policy that actually does anything in the world. The question is whether some number of sites either being seriously downsized, or going out of business altogether, is a price worth paying to prevent rich jerks from being able to operate huge platforms according to their whims.
To my view, it would be worth the price, but your mileage may vary. In any case, it is distressing to see we are now in a situation where this is the reality, not just a hypothetical one. It speaks volumes about the quality of intellectual debate in this country, that this possibility apparently caught so many of our leading policy types by surprise.
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