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Why do economists have such a hard time imagining open source biomedical research?

April 9, 2020 1 comment

from Dean Baker

It seems more than a bit bizarre, but in a discussion of alternative to patents for financing the development of new drugs and vaccines, publicly funded open-source research is not mentioned.  This is peculiar since so much of the research into treatments and vaccines for the coronavirus are in effect being open-sourced, with researchers posting results as soon as they are available. Advance, open-sourced funding would mean that any new drugs or vaccines that are developed could be sold as cheap generics from the first day they are available.

It is also bizarre that economists have such a hard time envisioning open source research, since all of our research is essentially open source. Economists are paid by universities and think tanks. Extraordinary work can qualify for a Nobel Prize, which is a big chunk of money, but the vast majority of economists get the bulk of their income from ongoing funding streams, where they are expected to produce research that will be widely available.

Perhaps economists believe that this route has not been effective in supporting good research in economics. This could explain their reluctance to envision open source research in biomedical innovation and elsewhere.

The shape of the recovery: Those who tell don’t know

April 1, 2020 4 comments

from Dean Baker

There have been a number of pieces in major news outlets telling us what the recovery will look like from this recession. Most have been pretty negative. The important thing to know about these forecasts is that the people making these forecasts don’t have a clue what they are talking about.

The shape of recovery will depend first and foremost on the extent to which the coronavirus is contained or is treatable, areas in which most of our prognosticators have zero expertise. I can think of a scenario in which we have a very robust recovery.

Suppose that in three months we have developed treatments to the point that the disease is not much more deadly than the standard u. In that case, we would look to restart the economy while trying to protect the most vulnerable segments of the population. Read more…

Can coronavirus force policy types to think clearly about intellectual property?

March 13, 2020 2 comments

from Dean Baker

It will be hard to decide the most Trumpian moment in his dealing with the coronavirus pandemic, but my nomination is Trump’s meeting with executives from several pharmaceutical companies, where he discussed developing a vaccine. According to Trump, he asked them to “speed it up,” and they said that they would.

The idea that Trump’s admonition to hasten the development of a vaccine would have any impact on these companies’ efforts is too loony to envision for anyone outside of Trumpland. These companies have every incentive in the world to move as quickly as possible to develop a vaccine. It can be hugely profitable for them to be the first company with an effective vaccine and I’m sure at least some of them also care about public health.

In this context, Trump’s urgings probably had about the same impact as the advice to “keep breathing.” It’s sound advice, but you don’t really need someone to tell you.

Anyhow, it is not just Donald Trump who has cloudy thinking about the development of vaccines, it’s pretty much the whole policy elite. In this situation we have a worldwide health crisis, with more than 100,000 people already affected and many tens of millions threatened. In this context, developing a vaccine as quickly as possible should be a top priority for the whole world. Read more…

How many times do the drug companies have to be paid for their research?

March 11, 2020 6 comments

from Dean Baker

That’s what readers of this Politico piece on efforts to restrict patent monopoly pricing of a coronavirus vaccine as a quid pro quo for government funding must be wondering. One might think that if the taxpayers put up money for the research then they have already paid for it, and therefore no patent monopolies would be involved. The vaccine would sell as a cheap generic and drug companies would make profits from it in the same way that manufacturers of paper clips and plastic cups make profits.

But, that is far too simple for our Washington policy types. Even though the government puts up the research money, the government still has to grant the drug companies patent monopolies, and then beg them not to charge us too much money for the vaccines they developed with our money.

Too bad no one in Washington policy debates believes in the free market.

Coronavirus, the stock market, and the economy

March 8, 2020 Leave a comment

from Dean Baker

Many people have become very concerned about the economy because of the stock market’s plunge in the last two weeks. While the spread of the coronavirus gives us very good reason to worry about the state of the economy, the plunge in in the stock market does not. In fact, those folks who are very concerned about wealth inequality can celebrate because the wealth of the top 1 percent has just dropped by around 10 percent, while the wealth of the bottom 50 percent has barely been touched. (I tend to focus on income inequality, in large part for this reason.)

Anyhow, the stock market does not generally provide us with very good insight into the future of the economy, except when it looks like more of the same. It’s sort of like hearing the weather forecaster tell you it’s sunny, as you step outside into the sunlight. You didn’t really need them for this purpose. When it comes to telling about the storm just around the corner, the stock market is a much worse predictor than weather forecasters.

We don’t have to look to ancient history to see this point. In October of 2007 the S&P 500 hit what was at the time a record high. That was less than two months before the beginning of the worst recession since the Great Depression. The stock market did not give us much warning on that one. Read more…

The coronavirus could wreck the economy. These steps would help limit the damage

March 2, 2020 1 comment

from Dean Baker and Jared Bernstein

Though we don’t yet know the extent of its threat, a widespread coronavirus epidemic in the United States is increasingly possible. In addition to the downright scary health consequences, we think the virus will quickly do serious damage to the U.S. economy, reducing growth in at least the first half of this year, pushing up unemployment and possibly ending the historically long expansion. And we’re far from alone.

The economic challenges posed by the virus are unique in that they are already hitting supply and demand. The former refers to the inability of workers to go to work, because of quarantines either at their jobs or their kids’ schools, along with disruptions to the global flow of goods to retailers and factories. The latter refers to reduced spending at restaurants, movie theaters, stores, etc. Consider, for example, the many trips, vacations and conferences already being canceled. Add to that the chance that millions of workers without paid leave could lose paychecks, and you begin to get a sense of the sudden shock to commerce.

Read more…

Do stockholders look forward to a decade of very low returns?

February 25, 2020 2 comments

from Dean Baker

In spite of completely missing the crash of the stock bubble in 2000-2002 and the housing bubble in 2007-2010, people tend to think that the big actors in the stock market have great insight into the economy’s prospects. While I won’t claim to have a crystal ball that predicts the future of the economy (I had warned of both of those crashes), I did learn arithmetic in third grade.

There are some simple and important statements we can make about future stock returns, based on nothing more than arithmetic and the generally accepted projections for the economy’s performance. The basic story is that if we accept the projections for future profit growth from the Congressional Budget Office, or other official forecasters, then we are almost certain to see a decade of extraordinarily low returns to stockholders.

Real returns will almost certainly be less than 5.0 percent annually. This compares to a long period average of close to 7.0 percent. And this assumes no plunge in the market over the decade. Of course, if the market does plunge, real returns will be considerably lower.

The reason that returns will almost certainly be low in the next decade is that stock prices are high. Read more…

We shouldn’t have to beg Mark Zuckerberg to respect democracy

February 15, 2020 12 comments

from Dean Baker

Last month George Soros had a New York Times column arguing that Mark Zuckerberg should not be running Facebook. (Does the NYT reserve space on its opinion page for billionaires?) The gist of Soros’ piece is that Zuckerberg has made a deal with Trump. He will allow all manner of outrageous lies to be spread on Facebook to benefit Trump’s re-election campaign. In exchange, Trump will defend Zuckerberg from efforts to regulate Facebook.

Soros is of course right. Zuckerberg has said that Facebook will not attempt to verify the accuracy of the political ads that it runs. This is a greenlight for any sleazebag to push the most outrageous claims that they want in order to further the election of their favored candidate.

This will almost certainly benefit Donald Trump’s re-election, since the one area where he can legitimately take credit is in pushing outlandish lies. No one has pushed more lies more effectively than Donald Trump. The free rein promised by Zuckerberg is a re-election campaign contribution of enormous value.

While Soros is right on the substance of the issue, he is wrong to focus on the personality of Mark Zuckerberg. It would be good if we had a responsible forward-thinking person, who cared about the future of democracy, running Facebook, but that is not the normal course of things in a capitalist economy. Read more…

We can develop new drugs without patent monopolies # 54,217

February 12, 2020 5 comments

from Dean Baker

It is often said that intellectuals have a hard time dealing with new ideas. This is perhaps nowhere better demonstrated with the fixation with patent monopolies as the primary mechanism for financing the development of new drugs.

Bloomberg gave us a beautiful example of this narrow mindedness with a column from Max Nisen on the possibility that China may require the compulsory licensing of a patent on a drug developed by Gilead, in order to produce a treatment for the Coronavirus. A compulsory license means that sacrificing the monopoly Gilead had expected, which means it will only get a small fraction of the revenue it might have otherwise anticipated. Nisen is concerned that this lost revenue will reduce expected profit in the future, meaning that companies like Gilead would have much less incentive in developing cures for epidemics like the Coronavirus.

While drug companies do operate to make a profit, the part of the story that Nisen misses is that the profit does not have to be gained through patent monopolies. Suppose that the U.S. and other governments put up research funding, which private corporations like Gilead could bid on based on their expertise and track record. In this case, a condition of the research is that all patents would be in the public domain (the companies were already paid for their work) and all results would be fully public as soon as practical. Read more…

The left becomes center: financial transactions taxes and beyond

February 10, 2020 5 comments

from Dean Baker

Last week, Antonio Weiss, along with co-author Laura Kawano, released a paper advocating a financial transactions tax (FTT). I have long been an advocate of FTTs, so I’m always glad to see another paper making the case.

However, what made this paper especially noteworthy is Weiss’s background. Weiss had been a top Treasury official under President Obama, and previously a partner at the investment bank, Lazard, so he is not the sort of person who would typically be expected to support a FTT.

Even more striking is the fact that the paper was published by the Hamilton Project at the Brookings Institution. The founder and main funder of the Hamilton Project is Robert Rubin. Rubin has a long career in the financial sector, including top positions at both Goldman Sachs and Citigroup.

Between his jobs at these two Wall Street behemoths, Rubin held top positions in the Clinton administration, serving as both head of the National Economic Council and Treasury Secretary. There is probably no one who has been more visibly associated with the idea of giving the financial sector free rein than Mr. Rubin. For this reason, it is really remarkable that a paper advocating a FTT would come out of the Hamilton Project. Read more…

Technology, patents, and inequality: an explanation that even economists can understand

January 30, 2020 2 comments

from Dean Baker

It is popular for people, especially economist-type people, to claim that technology has been a major driver of the increase in inequality over the last four decades. This view is very convenient for those on the winning side of the inequality divide, since it implies that the growth in inequality was largely an organic process independent of government policy. Inequality might be an unfortunate outcome, but who would be opposed to the advance of technology?

However convenient the technology driving inequality story might be, it falls down on even the most simple examination of its logic. To take an example that has often been used, there is a concern that displacing workers with robots will lead to a transfer of income from workers to the people who own the robots.

While this comment is often treated as presenting the basic problem created by technology, in fact it does the exact opposite. “Owning” the robot is not a technical relationship, it is a legal one, and therefore one that depends on our laws.  Read more…

Reducing the health-care tax

January 21, 2020 5 comments

from Jared Bernstein and Dean Baker

One of most enduring, economically and socially damaging, downright frustrating facts about life in the United States is how expensive health care is here. Not only does U.S. health care cost far more than in other advanced economies, but compared with the nations that spend less, we have worse or equivalent health outcomes. In fact, U.S. life expectancy now lags behind that of all the advanced economies.

An MRI scan that cost $1,400 here went for $450 in Britain and $190 in Holland. Thirty tablets of a drug to reduce the risk of blood clots (Xarelto) cost $380 here, $70 in Britain, $80 in Switzerland and $60 in Holland. Hospital admission for angioplasty is $32,000 here, $15,000 in Australia, $12,000 in Britain, $7,000 in Switzerland, $6,000 in the Netherlands.

Add to those differences the latest outrage in health-care costs: surprise medical billing, when even well-insured patients can wake up from surgery finding that they owe thousands of dollars, because someone treating them while they were unconscious was out of their insurance network.

Read more…

Free college and pay-by-the-mile auto insurance

January 7, 2020 6 comments

from Dean Baker

Recently, Washington Post columnist Catherine Rampell reported on the negative reactions of college presidents to the idea of free public college. The context was a media dinner with a dozen college presidents, most of whom were leading non-flagship public schools, according to Rampell.

The presidents were asked if they thought it was likely that the government would adopt free college along the lines proposed by presidential candidates Senators Bernie Sanders and Elizabeth Warren. Rampell reports that no one raised their hand. When asked whether they thought free college was a good idea, again, no one raised their hand.

The negative response to the proposal of free college from a group of college presidents, assumed to be authorities on the issue, was presented as evidence that it is a policy without merit. But my experience on a completely difference issue — the case of pay-by-the-mile auto insurance – offers an alternative perspective. Read more…

Greenhouse gas emissions and the right to dump sewage on your lawn

December 20, 2019 9 comments

from Dean Baker

In debates over protecting the environment, and especially global warming, it is standard practice to refer to the pro-protection side as being in favor of government regulation and the anti-protection side as being pro-free market. This is nonsense and it is nonsense in a way that strongly benefits the enemies of environmental protection.

There is a simple way to think about environmental protection. If I build a home and want to dispose of my sewage in the cheapest possible way, I will just dump it on my neighbor’s lawn. Environmental regulation means having the government say that I can’t do this.

It is bizarre that somehow the prohibition of dumping my sewage on my neighbor’s lawn is treated as government regulation interfering in the market. The government is protecting my neighbor’s property. Prohibiting me from dumping sewage on her lawn is not really different from prohibiting me from building an addition that takes up half of her lot. In both cases, the government is not acting to interfere with the market, it is acting to protect the property rights that are the foundation of the market. Read more…

General Trump’s strange offensive in his trade war

December 13, 2019 15 comments

from Dean Baker

Just when many policy types thought that Donald Trump was about to wind down his trade war with China and work out a deal, he announced that he was in no rush to reach an agreement. He said that he might wait until after the election next year, boasting about the “massive” amount of money he was pulling in from his tariffs.

In addition to his China attack, Trump also imposed tariffs on steel and aluminum from Argentina and Brazil, complaining that they were manipulating their currencies. Moreover, his administration announced plans to put a tariff as high as 100 percent on wine and cheese imported from France in retaliation for France’s plans to tax internet services. This tax will largely hit U.S. tech giants like Google and Facebook.

Each of these moves by themselves would seem a bit peculiar; taken together they are truly bizarre. This is similar to a general ordering randomly fired artillery shots. Some hit the opposing army, some hit civilian targets and some shoot backward at his own troops. There is very little sense in what Trump is doing here. Read more…

Simple economics that most economists don’t know

December 6, 2019 9 comments

from Dean Baker

Economists are continually developing new statistical techniques, at least some of which are useful for analyzing data in ways that allow us to learn new things about the world. While developing these new techniques can often be complicated, there are many simple things about the world that economists tend to overlook.

The most important example here is the housing bubble in the last decade. It didn’t require any complicated statistical techniques to recognize that house prices had sharply diverged from their long-term pattern, with no plausible explanation in the fundamentals of the housing market.

It also didn’t require sophisticated statistical analysis to see the housing market was driving the economy. At its peak in 2005 residential construction accounted for 6.8 percent of GDP. This compares to a long-run average that is close to 4.0 percent. Consumption was also booming, as people spent based on the bubble generated equity in their homes, pushing the savings rate to a record low.

The existence of the bubble and the fact that it was driving the economy could both be easily determined from regularly published government data, yet the vast majority of economists were surprised when the bubble burst and it gave us the Great Recession. This history should lead us to ask what other simple things economists are missing.

For this holiday season, I will give three big items that are apparently too simple for economists to understand. Read more…

China has hugely outgrown the U.S. under Trump

November 29, 2019 8 comments

from Dean Baker

This is one in the “whose is bigger?” category; which country has added the most to their GDP over the last three years. There is not any particular reason anyone should care about this, except that Donald Trump has made a big point of touting something about how no one says China will soon be the world’s largest economy anymore.

In fact, China’s economy surpassed the U.S. economy in 2015, using the purchasing power parity measure of GDP. This measure, in principle, uses a common set of prices for all goods and services for all countries’ output. Most economists consider it the best measure of the size of a country’s economy for most purposes.

China has continued to grow much faster the United States, meaning the gap between the economies is growing. China’s economy is currently more than 25 percent larger than the U.S. economy.

The graph below shows the growth in the two countries’ economies since 2016. Read more…

Should we have billionaires?

November 20, 2019 1 comment

from Dean Baker

The Democratic presidential campaign has taken a strange twist in recent days, with candidates being asked whether we should have billionaires. While there may be some grand philosophical questions at stake here, I will stick to more mundane economic ones. The real question is: How do you want the economy to work?

The basic story is that if we have a market economy, some people can get very rich. If we buy the right-wing story, the superrich got their money from their great contribution to society. If we look at it with clearer eyes, the superrich got their money because we structured the economy in a way that allowed them to get super rich.

In some cases, that can mean that they had important innovations that made large numbers of people better off. While many of us have complaints about how Steve Jobs ran Apple (e.g., exploitative labor practices in China and anti-poaching agreements with competitors for workers in the U.S.), he did produce products that people really wanted to buy. People really like iPhones, so in that sense, Jobs did contribute to making society better off.

By contrast, it is very hard to see the contributions that many of the superrich have made to improve society. The largest share of the superrich are in finance. Some of these wealthy financial types specialize in buying or selling stocks or commodities a short time ahead of the market, thereby pocketing large profits. Read more…

The United States is the world’s second largest economy: when it comes to climate change, it matters

November 7, 2019 4 comments

from Dean Baker

The New York Times has an article on the Trump administration’s decision to pull the United States out of the Paris Agreement on climate change. The first sentence wrongly describes the United States as “the world’s largest economy.” Actually China passed the United States as the world’s largest economy early in the decade. According to the I.M.F. its economy is now more than 25 percent larger than the U.S. economy. It is projected to be more than 50 percent larger by 2024.

This matters because China actually has moved aggressively to adopt clean energy. It is now by far the world leader in the use of solar and wind power and electric car sales. The fact that the Trump administration is determined not to cooperate in efforts to reduce greenhouse gas emissions is unfortunate, but the fact that the world’s actual largest economy is taking big steps to curb emissions is hugely important.

Mark Zuckerberg is a rich jerk

November 1, 2019 10 comments

from Dean Baker

Last week, New York Times columnist Timothy Egan had a piece headlined “Why Doesn’t Mark Zuckerberg Get It?” The piece then goes on to document how Facebook has become a medium for spreading lies and nonsense all over the world, that many ill-informed users have come to believe.

This is what Egan wants Zuckerberg to “get.” While it would be nice if Zuckerberg understood the problems created by Facebook, and took effective measures to address them, the problem with Egan’s piece is that there is no reason to expect that Zuckerberg would get this point.

Zuckerberg is not a political philosopher concerned about the public good. There is a zero evidence he is a deep thinker of any sort. He is a Harvard boy who stumbled into a good idea and had the necessary connections to get very rich from it: end of story. Read more…