Author Archive

Yes folks, Omicron can be blamed on patent monopolies

December 4, 2021 1 comment

from Dean Baker

The development of the new variant, which was first discovered in South Africa, can be attributed to our failure to open-source our vaccines and freely transfer technology, contrary to claims from the pharmaceutical industry and its political allies. Their big talking point is that South Africa currently has more vaccines than it can effectively use at the moment.

This claim ignores two important points. The first is that we really don’t know where this strain originated. It was first identified in South Africa in part because its screening system happened to catch it. South Africa then did the responsible thing and reported to the world that it had uncovered a new variant.

This doesn’t mean that the Omicron variant originated in South Africa. It has been identified in samples taken in the Netherlands several days before its discovery in South Africa. The variant was also identified in a sample in Nigeria that was taken in October. Since we are not sure where it originated at this point, it’s not clear that South Africa’s current ability to deliver vaccines has much relevance to the development of the omicron variant.

But a second point is even more important. The development of variants depends on the extent of the spread of the virus. The more people who get COVID-19, the more opportunity the virus has to mutate. Read more…

In fighting COVID-19, intellectual property, not antitrust, is the real problem

November 30, 2021 1 comment

from Dean Baker

Former New York Times reporter Donald McNeil had an interesting Medium piece on how antitrust law could be impeding the development of effective treatments for COVID-19. McNeil argued that COVID-19 treatments that were developed by Pfizer and Merck, and are now in the final stages of testing, may work best when taken together.

He argues that this may be the case because the drugs use two fundamentally different mechanisms for attacking the virus. By using the two in combination, we would be maximizing the likelihood that at least one would be effective. This has been the approach followed with effective H.I.V. drugs, as well as Hepatitis C treatments.

McNeil argues that the reason combinations are not pursued is because of antitrust laws. If, instead of competing with their different drugs, two giant drug manufacturers, like Pfizer and Merck, were to collaborate to produce the best possible treatment for COVID-19, they would be risking an antitrust action from the government or competing drug companies. McNeil recommends waiving antitrust rules when lifesaving medications are involved.

While that would clearly be desirable in this case, it is worth stepping back a minute. Let’s imagine Read more…

Weekend Read – Imagine if stopping climate change was more important than making climate change billionaires

November 20, 2021 2 comments

from Dean Baker

We are still getting through a worldwide pandemic that has taken tens of millions of lives. While we did develop effective vaccines, they were not produced and distributed quickly enough to prevent enormous loss of life. This is a tragedy that should force us to ask how we could have done better.

On the other side, some people did manage to get enormously rich from the pandemic. Specifically, those who had patent monopolies on the mRNA vaccines did very well, as the stock prices of both Pfizer and Moderna soared during the pandemic. Back in April, Forbes identified 40 people who became billionaires as a direct result of their ownership of stock in companies that were profiting off the pandemic. Three of these were from Moderna alone. The number has surely grown, as the stock market has gone up further in the last seven months.

The reason why the Moderna billionaires might be especially upsetting is that so much of what they did was with government funding. The development of mRNA technology, beginning in the early 1980s, was accomplished almost entirely on the government’s dime. While Moderna did do further research to develop a foundation for producing vaccines, the money to actually develop and test Moderna’s vaccine came entirely from the government through Operation Warp Speed. The government also signed a large advance purchase agreement, which would have required it to pay for several million Moderna vaccines, even if other vaccines were superior.

In spite of all this government assistance, Moderna was allowed to gain control over key patents and other intellectual property claims. It can therefore restrict the distribution of its vaccine and charge whatever price it chooses.

In short, we structured the relationship with Moderna so that it was able to profit enormously. Read more…

The media discover real wages

November 12, 2021 4 comments

from Dean Baker

Those of us who have spent decades trying to call attention to the situation of ordinary workers, and their stagnant wages over the last four decades, are glad to see the media’s newfound interest in real wages (the difference between wage growth and price growth). They have been anxious to highlight the fact that inflation has exceeded the rate of wage growth over the last year.

While that is unfortunate, it is also the case that this is not unusual. Here’s the picture over the last four decades.

Source: Bureau of Labor Statistics.

As can be seen, there are many periods in which wage growth has not kept with inflation. Read more…

Weekend read – Combatting Global Warming: The Solution to China’s Demographic “Crisis”

November 5, 2021 7 comments

from Dean Baker

There have been numerous news articles in recent years telling us that China faces a demographic crisis. The basic story is that the market reforms put in place in the late 1970s, together with the country’s one-child policy, led to many fewer children being born in the last four decades. As a result, the number of current workers entering retirement exceeds the size of the cohorts entering the workforce, leading to a stagnant or declining workforce. This is supposed to be a crisis.

I used the word “supposed” because it is not in any way obvious that a declining workforce is any sort of crisis. We see shifts of population all the time, which can lead many cities or regions to have a decline in their population or workforce, even if the country as a whole does not. That doesn’t necessarily mean a crisis for the areas losing population unless of course the population decline is due to the loss of a major employer.

A drop in the growth rate of the workforce, or an actual decline, will likely mean slower GDP growth, but so what? A country’s standard of living is determined by its income per capita (along with many other factors), not its absolute level of GDP. India’s GDP is almost eight times Denmark’s, but Denmark is the far richer country. The reason is that India has more than two hundred times as many people. Read more…

In the U.S. between 1989 and 2020, spending on prescription drugs rose from 0.6 percent of GDP to 2.4 percent of GDP

October 23, 2021 2 comments

from Dean Baker

That simple point might have been worth mentioning in an article reporting on efforts by Democrats to rein in prescription drug costs since 1989. The current level of spending of roughly $500 billion a year comes to more than $1,500 for every person in the country. Annual spending on prescription drugs is roughly one and a half times as much as the proposed spending in President Biden’s Build Back Better proposal.

It’s also worth noting that this piece repeatedly refers to Democrats’ efforts to “control” drug prices. This is inaccurate. The government already controls drug prices by granting companies patent monopolies and related protections. As a result, drug companies can charge prices that are often several thousand percent above the free market price. In the absence of these protections, we would likely be spending less than $100 billion a year on drugs, for a saving of $400 billion annually.

The point is that it is not necessary to have the government intervene to bring prices down. We could have the government not intervene, or intervene less, to avoid allowing drug companies to charge such high prices.

Rich jerks in space

October 21, 2021 4 comments

from Dean Baker

As a big fan of the original Star Trek, I have to confess that it was kind of neat to see Captain Kirk actually go into space. But there is a real issue here about the silly games of the super-rich that is worth some thought.

There have been numerous stories and papers about the huge increase in the wealth of the super-rich since the pandemic began. Virtually all of this is due to the run-up in the stock market during this period. Part of that is bounce back, the S&P 500 lost almost one-third of its value between its pre-pandemic peak in February of 2020 and its pandemic trough a month later. If we want to tell a really dramatic story we can start at the pandemic trough and take the rise in the stock market from March 20th.

But even if we are being serious, there has been an extraordinary runup in the stock market in the last twenty months. The S&P 500 is more than one-third higher than its pre-pandemic peak.

There are several different explanations for this increase. One is simply that low-interest rates generally boost stock prices. Interest rates did plummet during the pandemic shutdown, with the 10-year Treasury rate falling from a bit over 1.8 percent in February of 2020 to lows of under 0.6 percent last summer. As a general rule, lower interest rates will mean higher stock prices.

But this explanation will not go too far: the interest rate on 10-year Treasury bonds is currently over 1.6 percent. The gap between a 1.8 percent pre-pandemic Treasury yield and the current 1.6 percent yield could only explain a small portion of the rise in the stock market.

A second possibility is Read more…

If this is a wage-price spiral, why are profits soaring?

October 17, 2021 4 comments

from Dean Baker

That’s the question millions are asking, even if economic reporters are not. The classic story of a wage price spiral is that workers demand higher pay, employers are then forced to pass on higher wages in higher prices, which then leads workers to demand higher pay, repeat.

We are seeing many stories telling us that this is the world we now face. A big problem with that story is the profit share of GDP has actually risen sharply in the last two quarters from already high levels.

Baker Oct.

Read more…

The preventable horrors of the pandemic and the short case for open research

October 12, 2021 3 comments

from Dean Baker and Arjun Jayadev

 The Covid 19 pandemic is once again at an inflection point– with cases now falling sharply in most of the world. The current pandemic may be coming under control, but after millions of preventable deaths,  this is very far from a success story and it is as good  a time as any to take a hard look at our failings, especially with regard to our management of knowledge

Across the world, the number of Covid infections are declining: the United States numbers are finally falling after the Delta variant sent it soaring in the late summer; India-perhaps the hardest hit country in the world where cases peaked at more than 400,000 a day in early May, is now reporting just over 20,000 cases daily, the equivalent of 5,000 a day in the United States. Similar declines can be seen in countries around the world.

This drop worldwide is due to a combination of both the spread of vaccines and, perhaps more importantly, natural immunity arising out of many infections.  According to a New York Times article, for example, the number of infections in India as of early May was likely close to 540 million, when the official count was just 27 million. Since the pandemic was still in full force in the country at the time, an extrapolation would imply 750 to 800 million infections, close to 60 percent of the country’s population.

While such widespread infections might help to contain the pandemic, it came with a horrible human cost.  While the official number of deaths is around 450,000, researchers have estimated likely death tolls in the range of 1.6 million to almost 6 million in urban areas along according to one study. There is a similar story throughout the developing world, where the actual number of infections and deaths hugely exceed the already devastating official statistics.

That this death toll has occurred, even when the world is (rightly) celebrating the rapid development of effective vaccines, means that we have failed badly in getting these vaccines distributed widely around the world. Crucially, this has been a failure of political will, not the lack of capacity to produce and distribute vaccines. Read more…

Big Pharma fights back

September 30, 2021 2 comments

from Dean Baker

The Democrats have proposed paying for part of President Biden’s Build Back Better plan with $500 billion in savings on what the government will pay prescription drug companies through Medicare and other public programs over the next decade. The country currently pays the pharmaceutical industry over $500 billion annually for its products. If we look at spending over the next decade, and like the news media, ignore that it’s over ten years, we would say that we will give the pharmaceutical industry $7 trillion, double the projected cost of Biden’s agenda.

Naturally, no one expects to be able to get $50 billion a year out of the hide of a huge industry without a serious fight. The pharmaceutical companies surely have all their lobbyists working overtime courting members of Congress (primarily Democratic members) whose votes are needed to pass legislation allowing for Medicare to negotiate the prices it pays. They are also flooding the airwaves with ads telling us the horrors that would face us if the industry got lower profits. Read more…

Paul Krugman, going green in China, and the which way is up problem in economics

September 28, 2021 8 comments

from Dean Baker

Paul Krugman’s column this morning raises the issue of whether China is on the edge of seeing a real estate bubble burst, in the same way that Japan saw its real estate and stock bubble burst in 1990. Krugman points out that this did lead to slower growth for Japan, but it was not an economic catastrophe, as it still saw rises in GDP, relative to its working age population, that were comparable to the U.S. (I would add that one reason why Japan did not see more GDP growth is that, unlike the U.S., it had a sharp reduction in the length of the average work year over the last three decades. This means workers were taking some of the benefits of productivity growth in more leisure time rather than higher income.)

Krugman points out that China is seeing a similar demographic story, where its working age population is shrinking and there is no longer a massive migration of people from the countryside to the cities, as well over 60 percent of the population already lives in urban areas. He argues that this will lead to major problems for China, since it currently spends over 40 percent of GDP on investment, compared to just over 20 percent in the U.S. His point is that there will be much less need for investment with a shrinking workforce and slower growth in the size of cities. Read more…

Evil doers: the pharmaceutical industry and the pandemic

September 20, 2021 5 comments

from Dean Baker  

Now that George W. Bush is back in the news with his attacks on the Trumpist insurrectionists, it might be worth reviving one of the great lines of his presidency. After the September 11th attack, when Bush decided to go after not just the terrorists who planned the hijackings, but all sorts of people around the world he didn’t like, he lumped them together as “evil doers.” That may not be the most eloquent phrase, but it works well as a description of the modern pharmaceutical industry.

Some may find this description of the pharmaceutical industry abhorrent, after all they develop life-saving drugs and vaccines, most recently the vaccines against the coronavirus which have saved millions of lives. But the industry’s story line gives us a very incomplete picture of what it does and how.

Probably the best way to think about the pharmaceutical industry is to imagine an incredibly corrupt fire department. Most of the money that the fire department gets to buy new trucks and other equipment goes right into the pockets of the department’s commissioner and his closest friends. The department may still do its job in the sense that they rush to fires and rescue people trapped by flames, but it costs way more than it should.

The fire department may even occasionally start fires itself so that they can be heroes in putting them out and rescuing potential victims.

Read more…

Alternative to Mankiw’s view on tax incentives and work: maybe Europeans want more free time

September 16, 2021 6 comments

from Dean Baker

Greg Mankiw warned New York Times readers about the dangers of adopting the Biden agenda and moving more towards a European-style welfare state. In his piece, titled “Can America Afford to be a Major Welfare State,” Mankiw noted:

“Compared with the United States, G.D.P. per person in 2019 was 14 percent lower in Germany, 24 percent lower in France and 26 percent lower in the United Kingdom.

“Economists disagree about why European nations are less prosperous than the United States. But a leading hypothesis, advanced by Edward Prescott, a Nobel laureate, in 2003, is that Europeans work less than Americans because they face higher taxes to finance a more generous social safety net.”

While Prescott and Mankiw attribute the gap in annual work hours between Europe and the United States to the disincentive created by higher European taxes, there is an alternative explanation: Europeans workers may just want to have more leisure time and they have the political power to impose their will.

Supporting this view is the fact that the European welfare states all mandate far more paid time off than the United States. Germany mandates that workers get 20 days a year of paid vacation, in addition to 13 paid holidays. The Netherlands also mandates 20 days of paid vacation, in addition to 9 paid holidays. Demark mandates 25 days of paid vacation and 9 paid holidays. These countries also all mandate paid sick leave and paid family leave. Read more…

The $26 an Hour Minimum Wage

August 24, 2021 9 comments

from Dean Baker

That may sound pretty crazy, but that’s roughly what the minimum wage in the United States would be today if it had kept pace with productivity growth since its value peaked in 1968. And, having the minimum wage track productivity growth is not a crazy idea. The national minimum wage did in fact keep pace with productivity growth for the first 30 years after a national minimum wage first came into existence in 1938.

Dean Aug 2021

Furthermore, a minimum wage that grew in step with the rapid rises in productivity in these decades did not lead to mass unemployment. The year-round average for the unemployment rate in 1968 was 3.6 percent, a lower average than for any year in the last half century. 

Read more…

Life at the bottom in Joe Biden’s America – 2 charts

August 16, 2021 3 comments

from Dean Baker

With the economy facing substantial bottlenecks, and the continuing spread of the pandemic, it is worth taking a quick look at how lower paid workers have been faring. Nominal wages have been rising rapidly for workers at the bottom of the pay ladder in recent months. This has allowed workers in the lowest paying jobs to see substantial increases in real wages, in spite of the uptick in inflation the last few months.

Here’s the picture in retail for production and non-supervisory workers. Note that real wages were actually somewhat lower in 2018 than they had been in 2002. (These numbers are 1982-1984 dollars, so multiply by about 2.6 to get current dollars.) They did rise in 2018 and 2019, due to a tightening of the labor market, as well as minimum wage hikes at the state and local  level. The impact of the pandemic and the recovery has been a big net positive. Real wages in the sector are roughly 4.6 percent higher than the level of two years ago, a 2.3 percent annual real wage gain. Read more…

The delta variant is scary, but it won’t sink the economy

July 27, 2021 10 comments

from Dean Baker

In recent days, major fear has been evident in financial markets and elsewhere that the delta variant of the coronavirus will spread widely and be a considerable impediment to continued economic growth: On Monday, the Dow tumbled 700 points, for example.

At least based on trends we’ve seen so far, these fears appear to be unfounded.

It is highly unlikely that the delta variant will lead to shutdowns of major sectors of the economy, of the sort we saw last spring and summer. The basic story is that in the states where the variant is causing the most infections and deaths, governors and other public officials are resistant to taking steps to contain the pandemic, especially if they carry an economic cost. So most economic enterprises will continue to do business, if not always at full capacity.

These states may face a public-health crisis but probably not an economic one. Meanwhile, the states where political leaders have been more responsive to public health concerns have far higher vaccination rates, and therefore the delta variant is not likely to pose a major health threat. Businesses therefore will continue to operate at a brisk pace.

We should expect this strong growth to continue (although the 7.6 percent rate is higher than we can expect to be sustained). The increased spread of the pandemic due to delta variant may shave a few tenths of a percentage point off our growth path, but it will not reverse it.

Before looking at the economics more closely, it is worth getting some perspective on the health risk posed by the delta variant, because public health and economics intersect. I am an economist, not an epidemiologist — and much is still subject to debate among the epidemiological experts — but it seems clear that a vaccinated population faces relatively little risk, even from delta.

Read more…

Patent monopolies, corruption, and the new Alzheimer’s drug

July 21, 2021 1 comment

from Dean Baker

It seems that no one in policy circles believes that people respond to incentives. How else can we explain this lengthy piece in the New York Times on the process by which the Food and Drug Administration (FDA) approved Aduhelm, a drug for treating Alzheimer’s disease.

The piece details how the clinical trials designed to determine its effectiveness were aborted, since it did not appear to be helping patients. Nonetheless, the FDA worked close with Biogen, the drug’s manufacturer, to find evidence that it might be effective in slowing cognitive decline. The FDA ended up approving the drug over the unanimous objection of its advisory panel. (There was one abstention.)

Incredibly, the piece never once mentions the role of government-granted patent monopolies in this outcome. Biogen was very anxious to get the drug approved because it intends to take advantage of this monopoly and charge $56,000 for a year’s treatment. Read more…

The drug companies are killing people

July 19, 2021 5 comments

from Dean Baker

I get to say this about the drug companies, now that President Biden has said that Facebook is killing people because it was allowing people to use its system to spread lies about the vaccines. There is actually a better case against the drug companies.

After all, they are using their government-granted patent monopolies, and their control over technical information about the production of vaccines, to limit the supply of vaccines available to the world. As a result, most of the population in the developing world is not yet vaccinated. And, unlike the followers of Donald Trump, people in developing countries are not vaccinated because they can’t get vaccines.

The TRIPS Waiver Charade

The central item in the story about speeding vaccine distribution in the developing world is the proposal put forward at the WTO last October (yes, that would be nine months ago), by India and South Africa, to suspend patents and other intellectual property rules related to vaccines, tests, and treatments for the duration of the pandemic. Since that time, the rich countries have been engaged in a massive filibuster, continually delaying any WTO action on the measure, presumably with the hope that it will become largely irrelevant at some point.

The Biden administration breathed new life into the proposal when it endorsed suspending patent rights, albeit just for vaccines. Read more…

Job growth under Biden and Trump

July 5, 2021 2 comments

from Dean Baker

Baker-job growth

Yes, it is that time of month again. As I always say, this sort of comparison is silly, since there are so many factors determining job growth that have nothing to do with the person in the White House. But, we all know that Trump and the Republicans would be touting this to the sky if the shoe were on the other foot.

So, here’s the latest, the economy has created more than 3 million jobs in the first five months of the Biden administration. It lost almost 2.9 million jobs in the four years of the Trump administration. Biden has now created more jobs than Trump lost.

Trains and population density: U.S. and Europe

July 3, 2021 5 comments

from Dean Baker

There are lots of silly comments that pass for great wisdom in elite circles. Steve Rattner gave us one of my favorites in his NYT column warning President Biden against putting too much money into reviving our system of train travel.

Rattner tells us:

“America is not Europe, with its dense population centers clustered reasonably close together.”

This is of course true, but in a totally trivial sense. The density of our population per mile of land is much lower than in Europe, especially if we include Alaska. But this is completely beside the point when it comes to trains. The issue is not building passenger lines from New York to Fairbanks, it’s about connecting cities that actually are reasonably close to together.

For example, Chicago is 790 miles from New York. By contrast, Berlin is 670 miles from Paris. If we stretch the trip to Warsaw the distance is over 1000 miles. And, we have many major cities in the Midwest that are closer to New York than Chicago, such as Cleveland, Detroit, and Cincinnati.

In short, if we think about the issue seriously, the difference in population density between the U.S. and Europe should not affect the feasibility of train service in the United States. As a practical matter, we have found it very difficult to build high speed rail for a variety of reasons that Rattner notes. We must address these problems if we are going to have viable passenger train service, but density is simply not the issue.

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