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

February 15, 2020 11 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 4 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…

Blame the policies, not the robots

October 26, 2019 14 comments

from Jared Bernstein and Dean Baker

The claim that automation is responsible for massive job losses has been made in almost every one of the Democratic debates. In the last debate, technology entrepreneur Andrew Yang told of automation closing stores on Main Street and of self-driving trucks that would shortly displace “3.5 million truckers or the 7 million Americans who work in truck stops, motels, and diners” that serve them. Rep. Tulsi Gabbard (Hawaii) suggested that the “automation revolution” was at “the heart of the fear that is well-founded.”

When Sen. Elizabeth Warren (Mass.) argued that trade was a bigger culprit than automation, the fact-checker at the Associated Press claimed she was “off” and that “economists mostly blame those job losses on automation and robots, not trade deals.”

In fact, such claims about the impact of automation are seriously at odds with the standard data that we economists rely on in our work. And because the data so clearly contradict the narrative, the automation view misrepresents our actual current challenges and distracts from effective solutions. Read more…

Taxing financial transactions is more strategic than taxing high wealth

October 11, 2019 16 comments

from Dean Baker

Presidential candidate Joe Biden is considering to propose a financial transactions tax as part of his campaign for the Democratic nomination, according to a recent report from The Washington Post. This is big news for those of us who have long advocated such a tax.

Sen. Bernie Sanders has taken the lead on this issue among presidential candidates, including a financial transactions tax — also known as an FTT — as part of his plan for making college tuition free. Several other candidates also support a financial transactions tax, but if the Democratic Party’s leading centrist candidate endorses the tax, it would mark a new degree of acceptance within the mainstream of political debate.

Interestingly, Sen. Elizabeth Warren is not among those supporting a financial transactions tax. This is certainly not due to a reluctance to challenge the interests of the wealthy. Senator Warren has proposed an ambitious wealth tax that would tax wealth above $1 billion at the rate of 3 percent a year. While there are good reasons for wanting to tax the very rich, a financial transactions tax is almost certainly a better economic policy and would have much better political prospects. Read more…

There is no economic justification for drilling in the Arctic Wildlife Refuge

September 30, 2019 1 comment

from Dean Baker

Earlier this month, the U.S. Department of the Interior released its final environmental impact study on plans to drill for oil and gas in the Arctic National Wildlife Refuge (ANWR). While the study noted environmental risks, it gave the go-ahead for drilling in this incredibly sensitive area.

This summer, my small town of Kanab, Utah, agreed to sell water to a frac sand mine and processing plant that would be operating just over 10 miles from Zion National Park. The county planning commission also approved a conditional use permit that would allow the mine to go forward.

What both of these actions have in common is that they are gratuitous acts of environmental destruction. This is not a story of tough trade-offs between the environment and the economy.

Those do exist in the world. It would be great for the environment to cut our fossil fuel consumption by 50 percent tomorrow, but that would devastate the economy, costing many jobs. But neither drilling in the ANWR nor frac sand mining near Zion will provide any great benefit to the economy. Nor would we suffer much, if any, negative economic impact by stopping these plans. They damage treasured landscapes for no good reason. Read more…

Rigged: How globalization and the rules of the modern economy were structured to make the rich richer

September 12, 2019 3 comments

from Dean Baker

Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich RicherThe richest 1% have done extraordinarily well over the last four decades. But income has stagnated for the majority. This was not an accident. It was by design.

My book, Rigged, highlights five areas where US policies were deliberately structured to redistribute income upwards.

  1. IP laws were strengthened, making patent & copyright monopolies longer and stronger

This hugely increased the share of GDP that goes to sectors like pharmaceuticals, medical equipment, computers, and software. And it made stakeholders in these sectors hugely wealthy.

But it was unnecessary. Alternative mechanisms for financing innovation and creative work – such as direct public funding for pharmaceutical research, with new drugs selling as generics – would not have led to the same sort of upward redistribution.v Read more…

Combatting global warming and austerity

September 10, 2019 4 comments

from Dean Baker

In the United States, proposals for a Green New Deal have been getting considerable attention in recent months as activists have pressed both members of Congress and Democratic presidential candidates to support aggressive measures to combat global warming. There clearly is much more that we can and must do in the immediate future to prevent enormous damage to the planet.

However, major initiatives in the United States to combat global warming will almost certainly require some increases in taxes. There is likely some slack in the U.S. economy (perhaps we’ll see more slack as a result of Donald Trump’s misfires in his trade war), but a major push involving hundreds of billions of dollars of additional annual spending (2-3 percent of GDP) will almost certainly necessitate tax increases. This doesn’t mean we shouldn’t move quickly to take steps to save the planet, but these steps will have some cost.

In contrast, most of Europe is in a situation where it could easily make large commitments toward increased spending on clean energy, mass transit, and conservation at essentially no economic cost. In fact, a Green New Deal Agenda in Europe is likely to lead to increased employment and output. The big difference is that Europe is much further from facing constraints on its economy. It has plenty of room to expand output and employment without seeing inflation become a problem.  Read more…

Government-granted patent monopolies are driving up drug prices

September 9, 2019 5 comments

from Dean Baker

Most of the leading Democratic presidential contenders have put forward a plan to reduce drug prices. But for some reason, none of them have embraced the simple idea of not making drugs expensive in the first place. Specifically, none of the contenders have proposed moving away from the current system of financing the research and development of new drugs through government-granted patent monopolies.

The point is a simple one that should be obvious to people in policy debates. Drugs are almost invariably cheap to manufacture. Drugs that sell as generics, with free-market competition, are rarely expensive. The drugs that cost tens or hundreds of thousands of dollars annually are almost always subject to patent monopolies or some related form of government protection.

If all drugs were sold in a free market, individual patients would not have to struggle to pay for the drugs they need and there would be enormous savings to the economy. We will spend roughly $460 billion in 2019 on prescription drugs. In a free market, these drugs would likely sell for less than $80 billion.

The annual savings of $380 billion is almost 1.9 percent of GDP. It is more than five times the annual food stamp budget. In other words, it is a significant savings. Read more…

Austerity-obsessed Europe could combat climate change without raising taxes

September 3, 2019 9 comments

from Dean Baker

In the United States, there has been much attention given to the various proposals for a Green New Deal. While there have been legitimate questions about paying for a large push to reduce greenhouse gas emissions, many accept the need for such measures for the survival of the planet.

However, there has been less attention paid to the failure of European countries to act in this area, in spite of the fact that a substantial program would be virtually costless for Europe. There has been far more attention paid to the politics around Brexit in the United Kingdom than to the important question of how Europe will address global warming.

Just to be clear, the European countries have been far better global citizens in this area than the United States. Their per-person emissions are roughly half as much as the United States. Furthermore, many European countries have already taken aggressive measures to promote clean energy and encourage conservation.

But in the battle to slow global warming, simply doing better than the United States is not good enough. The European Union can and must do more to reduce its greenhouse gas emissions. Read more…