A front-page NYT piece warned that Trump may actually carry through on his threat to pull out of NAFTA. In recounting the fallout from a collapse of the agreement, the paper tells readers:
“If the deal does fall apart, the United States, Canada and Mexico would revert to average tariffs that are relatively low — just a few percent in most cases. But several agricultural products would face much higher duties. American farmers would see a 25 percent tariff on shipments of beef, 45 percent on turkey and some dairy products, and 75 percent on chicken, potatoes and high fructose corn syrup sent to Mexico.”
The tariffs reported for agricultural exports to Mexico are the pre-NAFTA level. Mexico would not necessarily raise its tariffs to these levels since it would mean large price increases to their consumers. Governments usually don’t like to impose large taxes on their citizens, especially just before an election. (Mexico has a presidential election next summer.) While it is worth pointing out the past history of tariffs on these items and that Mexico would certainly have the right to raise them to pre-NAFTA levels, the NYT’s assumption that it would raise tariffs by this amount is unwarranted.
A front-page NYT piece warned that Trump may actually carry through on his threat to pull out of NAFTA. In recounting the fallout from a collapse of the agreement, the paper tells readers:
“If the deal does fall apart, the United States, Canada and Mexico would revert to average tariffs that are relatively low — just a few percent in most cases. But several agricultural products would face much higher duties. American farmers would see a 25 percent tariff on shipments of beef, 45 percent on turkey and some dairy products, and 75 percent on chicken, potatoes and high fructose corn syrup sent to Mexico.”
The tariffs reported for agricultural exports to Mexico are the pre-NAFTA level. Mexico would not necessarily raise its tariffs to these levels since it would mean large price increases to their consumers. Governments usually don’t like to impose large taxes on their citizens, especially just before an election. (Mexico has a presidential election next summer.) While it is worth pointing out the past history of tariffs on these items and that Mexico would certainly have the right to raise them to pre-NAFTA levels, the NYT’s assumption that it would raise tariffs by this amount is unwarranted.
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In an NYT Upshot piece on innovation in health care, Aaron Carroll and Austin Frakt argue that the U.S. subsidizes other countries health care by paying higher prices for prescription drugs. This is far from obvious.
Since the U.S. grants patent monopolies and then puts no checks on prices, brand drugs do cost far more here than elsewhere, but that doesn’t mean that other countries are not paying enough to support innovation. The price of patent-protected brand drugs is on average around ten times their free market price. In Europe and Canada, prices are around half the U.S. price which means they are around five times the free market price.
This gap between the patent-protected price in other wealthy countries and the free market price should be more than enough to support the research done by the pharmaceutical industry. (They claim to spend around $50 billion a year on research directly. Even adding in what they pay to buy up other companies only gets to around $100 billion, a bit more than 20 percent of annual U.S. spending on drugs.)
European levels of spending may not be sufficient to support the marketing and profits of the U.S. industry, but that speaks more to the inefficiency of the U.S. industry, not the failure of other countries to pay for research. It is also worth noting that without the perverse incentives created by patent monopolies, the research process would almost certainly be more efficient.
There would be no incentive to spend money researching duplicative drugs simply to share in the patent rents of a breakthrough drug. This doesn’t mean that it is not desirable to have multiple drugs for a specific condition, but the priority of developing a second, third, or fourth drug for a condition where an effective treatment already exists is almost certainly lower than developing a drug for a condition for which no effective treatment exists. Ending the reliance on patent-supported research would also take away the incentive for drug companies to misrepresent the safety and effectiveness of their drugs.
In an NYT Upshot piece on innovation in health care, Aaron Carroll and Austin Frakt argue that the U.S. subsidizes other countries health care by paying higher prices for prescription drugs. This is far from obvious.
Since the U.S. grants patent monopolies and then puts no checks on prices, brand drugs do cost far more here than elsewhere, but that doesn’t mean that other countries are not paying enough to support innovation. The price of patent-protected brand drugs is on average around ten times their free market price. In Europe and Canada, prices are around half the U.S. price which means they are around five times the free market price.
This gap between the patent-protected price in other wealthy countries and the free market price should be more than enough to support the research done by the pharmaceutical industry. (They claim to spend around $50 billion a year on research directly. Even adding in what they pay to buy up other companies only gets to around $100 billion, a bit more than 20 percent of annual U.S. spending on drugs.)
European levels of spending may not be sufficient to support the marketing and profits of the U.S. industry, but that speaks more to the inefficiency of the U.S. industry, not the failure of other countries to pay for research. It is also worth noting that without the perverse incentives created by patent monopolies, the research process would almost certainly be more efficient.
There would be no incentive to spend money researching duplicative drugs simply to share in the patent rents of a breakthrough drug. This doesn’t mean that it is not desirable to have multiple drugs for a specific condition, but the priority of developing a second, third, or fourth drug for a condition where an effective treatment already exists is almost certainly lower than developing a drug for a condition for which no effective treatment exists. Ending the reliance on patent-supported research would also take away the incentive for drug companies to misrepresent the safety and effectiveness of their drugs.
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PRI had an interview with NYT reporter Steve Erlanger on the situation in Catalonia in which he said that Spain had pretty much recovered from the recession and debt crisis. That’s not what the data say.
According to the data from the OECD, the employment rate for prime-age workers (ages 25–54) is still down by almost 5 percentage points from its pre-crisis peak. For young people (ages 15–24), it has fallen by 20.0 percentage points from 39.4 percent to 19.4 percent. In the United States, this sort of drop off in employment rates would mean that an additional 10 million people are out of work.
This deterioration in the economy may have some connection to the unhappiness of the people in Catalonia with the Spanish government.
PRI had an interview with NYT reporter Steve Erlanger on the situation in Catalonia in which he said that Spain had pretty much recovered from the recession and debt crisis. That’s not what the data say.
According to the data from the OECD, the employment rate for prime-age workers (ages 25–54) is still down by almost 5 percentage points from its pre-crisis peak. For young people (ages 15–24), it has fallen by 20.0 percentage points from 39.4 percent to 19.4 percent. In the United States, this sort of drop off in employment rates would mean that an additional 10 million people are out of work.
This deterioration in the economy may have some connection to the unhappiness of the people in Catalonia with the Spanish government.
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The NYT had an interesting article about an effort to make a number of cancer drugs available in several African countries at generic prices. This will make many treatments that are extremely expensive in the United States affordable for these countries. As the piece notes, the Indian drug manufacturer intends to sells many of the pills at 50 cents each and infusions for $10. The prices in the United States could be close to one hundred times as high, as was the case with many AIDS drugs and the hepatitis C drug Sovaldi.
This is a great story for the people who will now be able to get treatment. It also drives home the simple and obvious point: drugs are almost invariably cheap to produce. They are expensive because we give drug companies patents and other types of monopolies.
This is done to to give them an incentive to carry on research. It is an incredibly backward and wasteful way for the government to finance research. It would be great if we paid for the research upfront and allowed drugs to be sold at their free market price rather than trying to find ways to extract money from people suffering from serious illnesses, or to force them to pressure governments or their insurers to cough up the money.
The NYT had an interesting article about an effort to make a number of cancer drugs available in several African countries at generic prices. This will make many treatments that are extremely expensive in the United States affordable for these countries. As the piece notes, the Indian drug manufacturer intends to sells many of the pills at 50 cents each and infusions for $10. The prices in the United States could be close to one hundred times as high, as was the case with many AIDS drugs and the hepatitis C drug Sovaldi.
This is a great story for the people who will now be able to get treatment. It also drives home the simple and obvious point: drugs are almost invariably cheap to produce. They are expensive because we give drug companies patents and other types of monopolies.
This is done to to give them an incentive to carry on research. It is an incredibly backward and wasteful way for the government to finance research. It would be great if we paid for the research upfront and allowed drugs to be sold at their free market price rather than trying to find ways to extract money from people suffering from serious illnesses, or to force them to pressure governments or their insurers to cough up the money.
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By Josh Bivens, Research Director, Economic Policy Institute
Dean Baker, Co-Director, Center for Economic and Policy Research
Michael Madowitz, Economist, Center for American Progress
A consistent drumbeat in Donald Trump’s campaign for the presidency was a promise that he would stand up for the American working class against financial elites who had rigged policy to enrich themselves, a message that clearly resonated with some voters. He has reneged on this commitment in virtually every area of public policy, including providing better health care coverage than Obamacare, crafting better trade agreements, making sure tax cuts go to the middle class, and standing up for workers’ rights at work.
This month, workers who supported Trump may see another betrayal. It has been reported that Trump may pick Kevin Warsh, who married into a billionaire family, to replace Janet Yellen as the next Chair of the Federal Reserve Board of Governors (BOG). Decisions made by the Fed’s BOG are extraordinarily important for American workers. In recent years, pressure has built for the Fed to begin applying the brake to America’s economic recovery by raising interest rates. The rationale for this is that the Fed must slow growth to tamp down inflationary pressures. Warsh has consistently been on the side advocating for slowing growth to fight inflation. But these inflationary pressures appear nowhere in either wage or price data. And if the Fed hits the brake prematurely, millions of Americans could lose opportunities to work, and tens of millions could see smaller wage increases.
One underappreciated aspect of raising interest rates is that they will put upward pressure on the value of the U.S. dollar, and this stronger dollar will make U.S. exports less competitive on world markets while making foreign imports cheaper to American consumers. This will in turn lead to rising trade deficits which stunt growth in manufacturing employment. Warsh knows about this argument, but he just doesn’t really care.
“I would say that the academy’s view, the broad view of folks at the IMF and economics departments at elite universities, is that if only the dollar were weaker, then somehow we’d be getting this improvement in GDP arithmetic, we’d have an improvement in exports and we’d be getting much closer to trend. That’s not a view I share. My own views are that having a stable currency, now more than ever, provides huge advantages to the U.S. The U.S. with the world’s reserve currency is a privilege, but it is a privilege that we can’t just look to history to remind us of; it’s a privilege we have to earn and continually re-earn. And so it does strike me that those that think that dollar weakness, made possible by QE as one channel for QE, is the way to achieve these vaunted objectives are going to be sorely disappointed.”
The effect of a high dollar in worsening the trade deficit is not just something that people at the IMF and in elite universities say; it is well-established in the data. Warsh doesn’t offer any evidence to counter the widely accepted view that a high dollar leads to a larger trade deficit, he just says that he doesn’t like it.
This blithe waving-away of clear evidence that a rising dollar will lead to larger trade deficits and displace American manufacturing jobs is par for the course when it comes to Warsh’s views of globalization. He is an ardent proponent of trade agreements that expose American workers to fierce global competition but provide even greater protection for corporate profits, protections that come at the expense of policymaking autonomy and democratic accountability in the poorer trading partners of the United States. As a Fed governor, he proclaimed fhat the Fed had a role in weighing in to support trade deals like NAFTA and the Trans-Pacific Partnership, departing from the general view that the Fed should restrict its scope to issues directly related to the conduct of monetary policy.
A Warsh nomination for Fed chair would be a perfect example of how the financial sector capture of the Federal Reserve has hamstrung the economic leverage and bargaining power of low- and middle-wage workers. Finance hates inflation and doesn’t especially care if the unemployment rate is unnecessarily high. As a result, the Fed has for decades greatly overweighted its mandate to avoid above-target inflation while underweighting its mandate to pursue maximum employment. Part of the fallout of this frequently too-tight stance of monetary policy has been chronic trade deficits which have cost the country millions of manufacturing jobs. And while growing evidence shows that America’s stance towards globalization in recent decades has privileged the interests of corporations over typical workers, Warsh wants the Fed to be an advocate for doubling-down on this failed approach.
If Trump was serious about unrigging the rules of the American economy and globalization to help American workers, Warsh would not be in the running to be Fed chair. He both lacks the stature and the competence for the position. The clear choice is to re-appoint Janet Yellen, a chair with a solid track record as Trump himself has repeatedly acknowledged.
By Josh Bivens, Research Director, Economic Policy Institute
Dean Baker, Co-Director, Center for Economic and Policy Research
Michael Madowitz, Economist, Center for American Progress
A consistent drumbeat in Donald Trump’s campaign for the presidency was a promise that he would stand up for the American working class against financial elites who had rigged policy to enrich themselves, a message that clearly resonated with some voters. He has reneged on this commitment in virtually every area of public policy, including providing better health care coverage than Obamacare, crafting better trade agreements, making sure tax cuts go to the middle class, and standing up for workers’ rights at work.
This month, workers who supported Trump may see another betrayal. It has been reported that Trump may pick Kevin Warsh, who married into a billionaire family, to replace Janet Yellen as the next Chair of the Federal Reserve Board of Governors (BOG). Decisions made by the Fed’s BOG are extraordinarily important for American workers. In recent years, pressure has built for the Fed to begin applying the brake to America’s economic recovery by raising interest rates. The rationale for this is that the Fed must slow growth to tamp down inflationary pressures. Warsh has consistently been on the side advocating for slowing growth to fight inflation. But these inflationary pressures appear nowhere in either wage or price data. And if the Fed hits the brake prematurely, millions of Americans could lose opportunities to work, and tens of millions could see smaller wage increases.
One underappreciated aspect of raising interest rates is that they will put upward pressure on the value of the U.S. dollar, and this stronger dollar will make U.S. exports less competitive on world markets while making foreign imports cheaper to American consumers. This will in turn lead to rising trade deficits which stunt growth in manufacturing employment. Warsh knows about this argument, but he just doesn’t really care.
“I would say that the academy’s view, the broad view of folks at the IMF and economics departments at elite universities, is that if only the dollar were weaker, then somehow we’d be getting this improvement in GDP arithmetic, we’d have an improvement in exports and we’d be getting much closer to trend. That’s not a view I share. My own views are that having a stable currency, now more than ever, provides huge advantages to the U.S. The U.S. with the world’s reserve currency is a privilege, but it is a privilege that we can’t just look to history to remind us of; it’s a privilege we have to earn and continually re-earn. And so it does strike me that those that think that dollar weakness, made possible by QE as one channel for QE, is the way to achieve these vaunted objectives are going to be sorely disappointed.”
The effect of a high dollar in worsening the trade deficit is not just something that people at the IMF and in elite universities say; it is well-established in the data. Warsh doesn’t offer any evidence to counter the widely accepted view that a high dollar leads to a larger trade deficit, he just says that he doesn’t like it.
This blithe waving-away of clear evidence that a rising dollar will lead to larger trade deficits and displace American manufacturing jobs is par for the course when it comes to Warsh’s views of globalization. He is an ardent proponent of trade agreements that expose American workers to fierce global competition but provide even greater protection for corporate profits, protections that come at the expense of policymaking autonomy and democratic accountability in the poorer trading partners of the United States. As a Fed governor, he proclaimed fhat the Fed had a role in weighing in to support trade deals like NAFTA and the Trans-Pacific Partnership, departing from the general view that the Fed should restrict its scope to issues directly related to the conduct of monetary policy.
A Warsh nomination for Fed chair would be a perfect example of how the financial sector capture of the Federal Reserve has hamstrung the economic leverage and bargaining power of low- and middle-wage workers. Finance hates inflation and doesn’t especially care if the unemployment rate is unnecessarily high. As a result, the Fed has for decades greatly overweighted its mandate to avoid above-target inflation while underweighting its mandate to pursue maximum employment. Part of the fallout of this frequently too-tight stance of monetary policy has been chronic trade deficits which have cost the country millions of manufacturing jobs. And while growing evidence shows that America’s stance towards globalization in recent decades has privileged the interests of corporations over typical workers, Warsh wants the Fed to be an advocate for doubling-down on this failed approach.
If Trump was serious about unrigging the rules of the American economy and globalization to help American workers, Warsh would not be in the running to be Fed chair. He both lacks the stature and the competence for the position. The clear choice is to re-appoint Janet Yellen, a chair with a solid track record as Trump himself has repeatedly acknowledged.
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A Washington Post article on government subsidies for oil and gas production might have misled readers on the importance of these subsidies for global warming. The article focuses on the finding of a new report that almost half of projected new production in the U.S. would not be profitable without various tax and other subsidies. This finding has less importance for global warming that the piece implies.
First, it applies to future, not current production. Once a well has been dug, it is generally reasonably cheap to keep it in production. Output will decline as the oil or gas becomes depleted. But the immediate impact of removing subsidies would be minimal.
The second point is that it assumes the price of oil remains at its current level of $50 a barrel. As the piece notes, if oil prices rise to $70 a barrel (they had recently been over $100), then the subsidies would have far less impact on profitability. I have no crystal ball, so I’m not projecting higher prices. My guess is they are more likely to go lower than higher, given the many areas with substantial potential to increase production and the rapid growth of electric car production, but certainly no one can rule out substantially higher oil prices in the future, in which case the subsidies will not be of much consequence.
The third point is that the impact of U.S. production on global warming will be very limited. The story here is that, without the subsidies, cheaper foreign oil and gas will displace more expensive U.S. produced oil and gas. Increased U.S. consumption of foreign fossil fuels will lead to somewhat higher world prices. This will both provide incentives for more production elsewhere and also lead to somewhat reduced consumption worldwide as people conserve energy and switch to cleaner sources.
In this way, reduced U.S. production can be thought of as equivalent to imposing a modest carbon tax. That’s a good thing, but it will not have a large impact on the future course of global warming. And just to be clear, subsidizing the fossil fuel industry is really stupid policy.
A Washington Post article on government subsidies for oil and gas production might have misled readers on the importance of these subsidies for global warming. The article focuses on the finding of a new report that almost half of projected new production in the U.S. would not be profitable without various tax and other subsidies. This finding has less importance for global warming that the piece implies.
First, it applies to future, not current production. Once a well has been dug, it is generally reasonably cheap to keep it in production. Output will decline as the oil or gas becomes depleted. But the immediate impact of removing subsidies would be minimal.
The second point is that it assumes the price of oil remains at its current level of $50 a barrel. As the piece notes, if oil prices rise to $70 a barrel (they had recently been over $100), then the subsidies would have far less impact on profitability. I have no crystal ball, so I’m not projecting higher prices. My guess is they are more likely to go lower than higher, given the many areas with substantial potential to increase production and the rapid growth of electric car production, but certainly no one can rule out substantially higher oil prices in the future, in which case the subsidies will not be of much consequence.
The third point is that the impact of U.S. production on global warming will be very limited. The story here is that, without the subsidies, cheaper foreign oil and gas will displace more expensive U.S. produced oil and gas. Increased U.S. consumption of foreign fossil fuels will lead to somewhat higher world prices. This will both provide incentives for more production elsewhere and also lead to somewhat reduced consumption worldwide as people conserve energy and switch to cleaner sources.
In this way, reduced U.S. production can be thought of as equivalent to imposing a modest carbon tax. That’s a good thing, but it will not have a large impact on the future course of global warming. And just to be clear, subsidizing the fossil fuel industry is really stupid policy.
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