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It’s not vaccine nationalism, it’s vaccine idiocy

September 25, 2020 3 comments

from Dean Baker

Last week an official with China’s Center for Disease Control and Prevention (CDC) said that the country may have a vaccine available for widespread distribution by November or December. This would almost certainly be at least a month or two before a vaccine is available for distribution in the United States, and possibly quite a bit longer.

While we may want to treat statements from Chinese government officials with some skepticism, there is reason to believe that this claim is close to the mark. China has reported giving its vaccines to more than 100,000 people. In addition to giving it to tens of thousands of people enrolled in clinical trials, it also has given them to front line workers, such as medical personal, through an emergency use authorization.

This may not have been a good policy, since these workers faced the safety risks associated with a vaccine that has only undergone limited testing, but it does mean that a large number of people have now been exposed to China’s leading vaccine candidates. If there were serious side effects, it would be hard for China to bury evidence of large numbers of adverse reactions. If no such evidence surfaces, we can assume that bad reactions to the vaccines were either rare and/or not very serious. Read more…

Trade wars are class wars: even more than Klein and Pettis say

September 19, 2020 2 comments

from Dean Baker

I have long enjoyed reading Matthew Klein’s columns in the Financial Times and elsewhere. They are invariably insightful and I have learned much from them. I am less familiar with Michael Pettis’ work, but I have liked what I have read. Therefore, I expected a lot from their book, Trade Wars are Class Wars, and I was not disappointed.

The basic point is that the major trade imbalances in the world over the last four decades have been driven by the suppression of wage growth, with income being redistributed from labor to capital. This has led to shortfalls in aggregate demand that countries try to offset by having trade surpluses. The main actors in that picture are China and Germany.

In the Klein-Pettis view, the U.S. has also suffered from this upward redistribution, although it has taken a somewhat different form, since the country has run persistent trade deficits over this period. While I largely agree with this framing, I have some minor quibbles with the story they lay out and one very large one.

In the minor quibble category, Klein and Pettis (KP) criticize Trump adviser Peter Navarro for focusing on the bilateral trade deficits the United States runs with China and other countries. I have no stake in defending Peter Navarro, but at least some of us who are concerned about the trade deficit with China have argued that the U.S. should be pressing China to raise the value of its currency relative to the dollar. Read more…

Are corporate CEOs worth $20 million?

September 1, 2020 1 comment

from Dean Baker

This simple and important question does not get anywhere near the attention it deserves. And, just to be clear, I don’t mean are they worth $20 million in any moral sense. I am asking a simple economics question; does the typical CEO of a major company add $20 million of value to the company that employs them or could they hire someone at, say one-tenth of this price ($2 million a year) who would do just as much for the company’s bottom line?

This matters not only because a thousand or so top executives of major corporations might be grossly overpaid. The excessive pay of CEOs has a huge impact on pay structures throughout the economy. If the CEO is getting $20 million it is likely the chief financial officer (CFO) and other top tier executives are getting in the neighborhood of $8-12 million. The third echelon may then be getting paid in the neighborhood of $2 million. Read more…

Should we be more worried about the economy?

August 21, 2020 5 comments

from Dean Baker

We are really in an unprecedented period where the economy is trying to recover from the shutdowns of April and May while being faced with partial shutdowns due to the resurgence of the pandemic in large parts of the country. We are struggling to make sense of data, which often has a substantial lag. We are still getting data from July even as we are in the last weeks of August. Furthermore, when we have large monthly changes, the picture at the end of July could have been very different than the beginning of the month.

The Opportunity Insights program at Harvard University is trying to help navigate the storm with its Economic Tracker. This provides much more current data on a variety of measures by relying on various industry sources. The latest picture is not good.

Starting with the one I find most troubling, their source on job posting shows a huge falloff in August. Nationally, we are almost back to the lows reached in May.

Read more…

Financing drug development: What the pandemic has taught us

August 19, 2020 3 comments

from Dean Baker

We are still very much in the middle of the pandemic, with the U.S. seeing tens of thousands of new infections daily, and the world experiencing hundreds of thousands of new infections. However, it is not too early to look at areas where we need to reevaluate public policy, most importantly in financing the research and development of new drugs and vaccines.

The accepted wisdom in policy circles has been, that while the government can finance basic research, we need to rely on government-granted patent monopolies to pay for the actual development and testing of new drugs. The argument is that we want private companies to compete to develop new and better drugs, with the rents earned from their patent monopolies compensating them for the cost of research and testing, as well as compensating them for the risk that they will not develop a marketable drug.

The logic of this position relied on the claim that somehow government financing of the later stages of research and testing is essentially the same thing as throwing money in the toilet. Read more…

More thoughts on the post-pandemic economy

August 12, 2020 2 comments

from Dean Baker

I have written before on the post-pandemic economy and how it should actually provide enormous opportunities, but it is worth clarifying a few points. First and most importantly, there is an important measurement issue with GDP that people will need to appreciate.

It is often said that GDP is not a good measure of well-being, we see this in a very big way in the post-pandemic period. It is likely that many of the changes in behavior forced by the pandemic, first and foremost telecommuting, will be enduring.

Most immediately, this will show up as a sharp drop in GDP. We will be consuming much less of the goods and services associated with commuting to and from work. This means that we will be driving less. That means we will be buying less gas and needing fewer cars, car parts, and car repair services. We’ll also need less auto insurance. In addition, there will be many fewer taxi or Uber trips, as well as trips on busses, trains, and other forms of public transportation. Read more…

USA record 32.9 percent drop in GDP

July 30, 2020 5 comments

from Dean Baker

The saving rate hit a record 25.7 percent level in the first quarter, indicating that few of the pandemic checks were spent

The Gross Domestic Product (GDP) shrank at a record 32.9 percent annual rate in the second quarter. While almost all the major categories of GDP fell sharply, a 43.5 percent drop in consumption of services was the largest factor, accounting for 22.9 percentage points of the drop in the quarter. Nonresidential fixed investment also fell sharply, dropping at a 27.0 percent annual rate. Residential investment fell at a 38.7 percent annual rate.

The plunge in service consumption was expected, since this was the segment of the economy hardest hit by the shutdowns. Within services, health care, food services and hotels, and recreation were the biggest factors reducing growth by 9.5 percentage points, 5.6 percentage points, and 4.7 percentage points, respectively.

Spending on health care services fell at a 62.7 percent annual rate in the quarter. This was due to people putting off a wide range of medical and dental checkups and procedures, which far more than offset the care needed by coronavirus patients. The annual rate of decline for food and hotel services was 81.2 percent and for recreation services 93.5 percent. Read more…

Thoughts on Zachary Carter’s The Price of Peace

July 27, 2020 3 comments

from Dean Baker

I just finished reading Carter’s book and I will agree with the general assessment. It is an outstanding book that brings together much useful material on the life and influence of Keynes.

While I am of course familiar with Keynes’ history and the history of Keynesianism, there is much that I learned here. In particular, I am impressed with the importance he gives Joan Robinson in spreading the ideas of Keynes, especially to followers from the United States.

When I first start taking economics, I hugely appreciated Robinson’s writing. She both did very important analytic work, especially her pathbreaking analysis of imperfect competition, but was also tremendously witty in her popular writing. I will always remember her great comment on unemployment (paraphrasing): “The only thing worse than being exploited by capital is not being exploited by capital.”

Anyhow, I am happy to see her given the starring role in the spread of Keynesian thought, especially given that, as a woman, she had a huge amount to overcome in a field that was, and is, tremendously sexist. Read more…

The $24 an hour minimum wage

July 23, 2020 16 comments

from Dean Baker

The push for a $15 an hour minimum wage has developed considerable political momentum over the last decade. It is a very real possibility that we will see legislation imposing a national minimum wage of $15 an hour by 2024 if Joe Biden wins the election this fall.

That would be a great thing, it would mean a large increase in pay for tens of millions of workers, but it is still very modest compared to what the minimum wage would be if it had kept pace with productivity growth. As is often mentioned, the purchasing power of the minimum wage hit its peak in 1968, at roughly $12 an hour in today’s dollars. However, productivity (output per hour work) has more than doubled over the last 52 years.[1]

This means that if the minimum wage had kept pace with productivity growth it would be over $24 an hour today. Furthermore, if we go out four years to 2024, and we see normal inflation and productivity growth, a productivity adjusted minimum wage in that year would be almost $27 an hour, nearly twice the $15 an hour target.

The idea that the minimum wage would keep pace with productivity should not seem far-fetched. It actually did follow productivity growth fairly closely in the first three decades in which we had a national minimum wage, from 1938 to 1968. This did not lead to soaring unemployment. In 1968 the unemployment rate averaged 3.5 percent. So, the idea that the minimum wage track productivity growth should not be far-fetched. Read more…

The stock market and MMT: the Dow Is not your friend

July 16, 2020 3 comments

from Dean Baker

It is standard for economic reporters to treat higher stock prices as good news. A rising stock market is often touted in the same way that job gains or GDP growth are touted, as evidence of a stronger economy.

This can be true. When the economy is growing at a healthy pace, the stock market is usually rising also. But the link is far more tenuous than is generally recognized. The market is in principle a measure of expected future profits. Policies that redistribute income from workers or taxpayers, such as anti-union laws or a corporate tax cut, would be expected to lead to a rising stock market, even if they did not spur economic growth.

But even beyond this direct redistributive issue, there is another sense in which a rising stock market can be bad for the 90 percent of the population that doesn’t own much stock (this includes 401(k)s). Higher stock prices encourage rich people to spend more money.

To see why this is an issue we need to pull out our MMT or Keynesian handbook. (MMT is essentially Keynes. That is not an insult; the term “modern monetary theory” is taken from the Keynes’ Treatise on Money.) To my view, the main takeaway from MMT is that the limit on the government’s ability to spend is inflation. This goes against the line pushed by the deficit hawks, that we have to worry about the government borrowing too much, because at some point lenders will be unwilling to lend us money. Read more…

Combating the political power of the rich

July 11, 2020 5 comments

from Dean Baker

I have written many times that I thought the focus on wealth inequality, as opposed to income inequality, was misplaced. There are many practical, political, and legal problems associated with taxing wealth that are considerably smaller when we talk about altering the economic structures that redistribute so much income upward.

But beyond the issue of whether inequalities of income or wealth are more easily tackled, there is also a very strange argument for focusing on wealth that is based on its impact on political power. The argument is that people like the Koch brothers or Mark Zuckerberg can gain enormous political power as a result of their immense wealth. Therefore, if we believe in democracy, we have to bring such outsized fortunes down to earth.

It is certainly true that the rich and very rich enjoy enormous political power under our current system, but it does not follow that attacking their wealth is the most effective way to restore a more functional democracy. To see this point, just imagine the most optimistic plausible scenario. Read more…

Is it impossible to envision a world without patent monopolies?

July 6, 2020 7 comments

from Dean Baker

Apparently at the New York Times the answer is no. Elisabeth Rosenthal, who is a very insightful writer on health care issues, had a column this morning warning that we may face very high prices for a coronavirus vaccine. She points out that this is in spite of the fact that the government is paying for much of the cost of the research. Rosenthal then argues we should adopt a system of price controls or negotiations, as is done in every other wealthy country.

While her points are all well-taken, the amazing part is that she never considers the simplest solution, just don’t give the companies patent monopolies in the first place. The story here is the government is paying for most of the research upfront. While does it have to pay for it a second time by giving the companies patent monopolies.

There is no reason that the government can’t simply make it a condition of the funding that all research findings are fully open and that any patents will be in the public domain so that any vaccines will be available as a cheap generic from the day it comes on the market. Not only does this ensure that a vaccine will be affordable, it will likely mean more rapid progress, since all researchers will be able to immediately learn from the success or failures of other researchers.

It is amazing that this obvious route is not being considered in public debate. Government-granted patent and copyright monopolies are one of the main ways in which we generate inequality. Bill Gates would still be working for a living without them.

At a time when the country is newly focused on racial inequality, it is striking that reducing the importance of the factors that generate inequality in the first place is not even up for discussion. This is fitting with the good old “White Savior” theory of politics.

Rather than changing the government-created structures that generate inequality, they would rather have the beneficent government push policies that reverse some of the inequality government structures created in the first place. I suppose this route is more appealing to the liberal psyche, but it ignores economic reality, and also at the end of the day, is likely to be less effective politically.

Structuring globalization to redistribute income upward

June 30, 2020 1 comment

from Dean Baker

The Washington Post ran a piece on how patterns of globalization may be changed due to the pandemic. It is more than a bit confused in not distinguishing short-term effects from long-term effects and its inability to distinguish between problems caused by fiscal policy and policies caused by the fallout from the pandemic.

The headline for the piece on the Post’s homepage is “Covid-19 is erasing decades of economic gains achieved through globalization.” The subhead is “The way we travel, work, consume, invest, interact, migrate, cooperate on global problems and pursue prosperity has likely been changed for years to come.”

Literally nothing in the piece supports the claim in the headline and insofar as items in the piece support the subhead it is at least as likely to be positive as negative. The gist of the piece is that we have seen a massive reduction in trade and travel as a result of the pandemic. While some of this may prove to be permanent, the piece gives us no reason to believe that the bulk of trade will not return to normal once the pandemic has been brought under control, either with effective treatments or with a vaccine.

In terms of travel, any enduring effect is likely to be largely positive. An enormous amount of resources is now wasted on business travel and conventions that can be just as effectively performed on-line. This realization will free up a large amount of resources for more productive uses, such as health care, child care, and stopping global warming. Of course, less travel by itself will be a big help in reducing worldwide  greenhouse gas emissions. Read more…

More thoughts on the recession, stimulus, and recovery

June 29, 2020 6 comments

from Dean Baker

As we get more data in, it seems increasingly likely that we are looking at a horrible and prolonged recession, not a complete economic collapse of Great Depression proportions. The May employment report showed a substantial bounce back in employment, with jobs up by more than 2.5 million from the April level. Retail sales had a huge 17.7 percent jump in May, by far the largest on record, although they are still 6.1 percent below the May 2019 level.

Mortgage applications also show a considerable degree of confidence about the future, with both refinancing and purchase mortgages soaring. Mortgage applications for refinancing are up more than ten-fold from year-ago levels, while purchase applications are up 268.6 percent to the highest level in more than 11 years. The latter is far more important for the economy since it implies people are buying homes, which typically lead to the purchase of new appliances and spending on renovations.

These data, and a variety of surveys of consumers and businesses, do not show an economy in collapse. At the same time, there is little reason to believe that we will see a robust rebound to anything resembling normal. We lost 22 million jobs between February and April. Even if we had seven more months adding jobs back at the May rate, we would still be down by more than 2 million jobs from the pre-pandemic level. And, we are not likely to see seven more months with job growth anything like May’s pace, without some very serious fiscal stimulus.

new paper from Raj Chetty and co-authors provides some interesting insights on the problem the economy faces. Read more…

Great time for a vacant property tax

June 26, 2020 3 comments

from Dean Baker

I have long been a big fan of a vacant property tax. As the old saying goes, you tax what you want less, and why would we want vacant properties. This is especially likely to be relevant in many high-priced cities where the demand for commercial real estate is likely to go through the floor due to an increase in telecommuting.

As cities mull many types of tax increases to deal with pandemic caused budget shortfalls, a vacant property tax should stand out as a productive alternative. The economy would be best-served by having landlords quickly recognize that their property is not worth as much as it use to be, and therefore lower rents to keep it occupied. This will be good for keeping old businesses and supporting new ones, since rent is major expense for most businesses, especially small businesses.

At the end of the day, recognizing reality is likely to be good for  landlords, since they don’t  make money on vacant property.  Of course landlords are often not very good at economics. Both Donald Trump and Jared Kushner are major property owners.

Patents and the Pandemic, again

June 20, 2020 4 comments

from Dean Baker

I know I have been pounding on this a lot, but it is important and there is a lot of money at stake. All we need (okay, maybe not all) is some clear thinking.

The Washington Post had a good piece this week talking about how a company set up by a hedge fund, with no background or expertise in pharmacology, arranged to get rights to a drug that was developed by researchers at Emory University on a $16 million contract with the government. The drug, EIDD-2801, is thought to be a potential treatment for the coronavirus. Shortly after arranging to buy the rights to the drug, the company turned around and sold them to Merck, presumably for a substantial profit.

The piece highlights how some companies are likely to profit off government-funded research, often while contributing little or nothing to developing effective vaccines or treatments. We also face the likelihood that any vaccines or treatments that are developed will be sold at high prices by companies that were granted patent monopolies.

But this is only the beginning of the problem with the U.S. government’s approach for developing a vaccine or treatments for the pandemic. Read more…

The sure way to end concerns about China’s “theft” of a vaccine: Make it open

May 22, 2020 4 comments

from Dean Baker

In the last couple of weeks both the New York Times and National Public Radio have warned that China could steal a vaccine against the coronavirus, or at least steal work in the U.S. done towards developing a vaccine. Both outlets obviously thought their audiences should view this as a serious concern.

As I wrote previously, it is not clear why those of us who don’t either own large amounts of stock in drug companies or give a damn about Donald Trump’s ego, should be upset about the prospect of China “stealing” a vaccine. Concretely, if China gained knowledge from labs in the United States that allowed it to develop and produce a vaccine more quickly, this would mean that hundreds of millions of people might be protected against a deadly disease more quickly than would otherwise be the case. If China made this vaccine available to people in the developing world, then the numbers could be in the billions.

Sounds pretty scary, right? Read more…

Corruption and the Pandemic Bailout

May 17, 2020 12 comments

from Dean Baker

Neil Irwin had an interesting New York Times piece on how concerns about moral hazard in the bailout may damage the recovery. The gist of the article is that the fear that bad actors will be wrongly rewarded will prevent us from spending enough money to get the economy back on its feet. Irwin’s point is very important, but it does require some further examination.

We might agree for example, that it is silly to oppose an airline bailout because it will help shareholders if the bailout will also save tens of thousands of jobs. The priority should be to preserve jobs and, as much as possible, keep viable corporations intact through this crisis. This is not only to keep employment as high as possible during the crisis but also to preserve the basis for a strong recovery.

But let’s put some meat on the bones here. If we stay with the case of an airline bailout (which actually had some pretty good terms for workers, that were imposed as a result of pressure from industry unions), let’s imagine that the airlines planned to use much of their bailout money to pay out dividends to shareholders. Suppose that they plan to continue to pay CEOs salaries in the neighborhood of $20 million a year. And, they have plans to lay off a large portion of their workforce. Read more…

Fixing the bailout scammers: The Ten Percent Solution

May 6, 2020 7 comments

from Dean Baker

The pandemic crisis created a rare economic opportunity. In effect, the whole economy was thrown up for grabs, with the winners and losers determined by who had the political power to get a nice bailout. Needless to say, those who were already rich got the big handouts, those at the bottom got crumbs, if anything at all.

Suppose we had let the market work its magic on the airlines, on the hotel chains, the restaurant chains, the aircraft industry (i.e. Boeing), and on the oil industry. With few exceptions, the big actors in these sectors would all have been bankrupt. The companies would have been reorganized, with the ones that were otherwise viable being restructured. Debtors would take large haircuts only collecting a fraction of what they had been owed. Shareholders would be wiped it, losing trillions of dollars of equity. Many top executives would likely been sent packing, and would no longer be able to count on paychecks in the millions or tens of millions.

Of course, things didn’t turn out this way because almost no one in policy circles actually believes in the market. That’s just something they tell children and liberal policy wonks. The people in power believe in using the government to give themselves as much money as possible. Usually they can do this through structuring the market so that money flows upward.  Read more…

More thoughts on a wealth tax and alternatives

May 1, 2020 10 comments

from Dean Baker

Last week the Boston Review (BR) published an exchange on a wealth tax that included a proposal from Berkeley economists Emmanuel Saez and Gabriel Zucman, with a number of responses, including one from me. I was critical of the proposal for both political reasons and because I think avoidance and evasion will be massive problems.

On the political side, in addition to the difficulty of getting a wealth tax through Congress, there is the virtual certainty that the current Supreme Court will rule it unconstitutional. This is not an abstract question of whether a wealth tax should be viewed as constitutional. I realize that many legal scholars have argued that such a tax is not inconsistent with the power to tax granted to Congress by the constitution. This is a very concrete question as to whether the current Supreme Court would rule that a wealth tax is constitutional. I don’t think anyone with a straight face could argue that it would.

We can of course talk about various plans to pack the court, either by adding new justices or through some rotation scheme of judges across federal courts. These may be interesting and worthwhile strategies to pursue against a corrupt court, but if we’re thinking of a timeline of a presidential term in which we hope to get important legislation passed, they are not likely to be helpful.  Read more…