The media are really going overboard in telling us the days of the free market are over with Biden’s new economic policies. President Biden has quite explicitly implemented policies intended to reshape the direction of the economy, pushing clean energy and more domestic production of advanced semiconductors and other products. He also has reinvigorated anti-trust policy, which was largely shelved by his predecessors.
But the idea that the policies of the last four decades were somehow a matter of just leaving things to the market is a grotesque lie that no person remotely familiar with economic policy should be repeating.
The Finance Industry Cesspool
I will reverse the usual course of my diatribe here and start with the financial sector. Suppose back in 2008-09 we let the market work its magic when Citigroup, Bank of America, and other financial giants were effectively bankrupted by their own greed and stupidity. We would have a radically downsized financial sector, with many fewer people earning seven and eight-figure salaries at banks. (No, we would not have had a Second Great Depression. Keynes taught us how to prevent a depression: spend money.)
We would also have a much smaller financial sector if we taxed sales of stocks, bonds, and derivatives like we taxed sales of clothes, cars, and furniture. It is the power of the financial industry, not the free market, that tells us that these financial transactions should be exempted from the sales taxes that apply to just about everything else we buy.
There is also nothing “free market” about the special tax treatment that some of the richest people in the country get when they have “carried interest” income as partners in hedge funds or private equity funds. Nor is it the free market when these funds prey on public pension funds, promising high returns that they rarely deliver.
“Free Trade” is a Story for Children and Elite Pundits
The “free trade” deals of the last forty years had little to do with free trade. We did want to remove trade barriers on manufactured goods, in order to subject our manufacturing workers to direct competition with low-paid workers in the developing world. This had the predicted effect of costing us millions of manufacturing jobs, and substantially reducing the pay of the jobs that remained.
But we could have made the focus of free trade removing barriers that protected doctors, dentists, and other highly paid professionals from competition with their lower paid counterparts in the developing world. This would have had the effect of reducing jobs and pay for U.S. born professionals.
For some reason, this was never a part of our “free trade” agreements. We could speculate this was because the people deciding on trade policy were far more likely to have friends and family members who are highly paid professionals than friends and family members who were autoworkers or textile workers, but that would be rude. In any case, this part of “free trade” deals was about a having a freer trade in a particular sector of the economy, where the predicted and actual effect was to drive down the pay of non-college educated workers.
Patent and Copyright Monopolies
The other really big part of our free trade deals was to make patent and copyright monopolies, and related protections, longer and stronger. It is incredibly Orwellian that these government-granted monopolies are somehow discussed as being the free market.
And their impact is not some small sideshow. We will spend over $550 billion this year on prescription drugs. If drugs sold in a free market, without patents or related protections, the cost would almost certainly be less than $100 billion. The difference of $450 billion is more than four times the annual food stamp budget. It’s more than half of what we spend on the military each year. It comes to more than $3,000 a family.
If we projected out over ten years, and accounted for growth in spending, it would be close to $6 trillion. That is six times President Biden’s widely touted infrastructure program.
And, it has a huge impact on inequality. The people who benefit from these monopolies are many of the country’s richest people. Bill Gates is the poster child. He would likely still be working for a living if the government didn’t threaten to arrest people who copy Microsoft software without his permission.
Just since the pandemic, we created five Moderna billionaires by paying the company to develop vaccines and then letting them keep control over the vaccines. Don’t try to tell us that is the free market.
By my calculation we transfer over $1 trillion a year to the beneficiaries of patent and copyright monopolies, compared to a situation where items like drugs, medical equipment, computer software and other items sold at their free market price. This is around 40 percent of all after-tax corporate profits.
Why the Free Market Lie?
I could on at great length laying out other areas where the government has structured the market in ways that redistribute income upward. (See Rigged; it’s free.) It should be obvious to anyone at all familiar with economic policy over the last four decades that it was not about the free market — it was about structuring the economy in ways that made the rich richer.
It is understandable that the proponents of these policies would like to claim it was just the free market. After all, it sounds much better to tell the public, the vast majority who are losers from these policies, that “the market creates both winners and losers,” as opposed to saying, “we’re implementing polices to transfer money from you to us.”
But why do people who oppose these policies go along with the hoax? There apparently is a big market for this sort of pretending in major media outlets, but it would be nice if we could get more reality-based policy discussions.
The media are really going overboard in telling us the days of the free market are over with Biden’s new economic policies. President Biden has quite explicitly implemented policies intended to reshape the direction of the economy, pushing clean energy and more domestic production of advanced semiconductors and other products. He also has reinvigorated anti-trust policy, which was largely shelved by his predecessors.
But the idea that the policies of the last four decades were somehow a matter of just leaving things to the market is a grotesque lie that no person remotely familiar with economic policy should be repeating.
The Finance Industry Cesspool
I will reverse the usual course of my diatribe here and start with the financial sector. Suppose back in 2008-09 we let the market work its magic when Citigroup, Bank of America, and other financial giants were effectively bankrupted by their own greed and stupidity. We would have a radically downsized financial sector, with many fewer people earning seven and eight-figure salaries at banks. (No, we would not have had a Second Great Depression. Keynes taught us how to prevent a depression: spend money.)
We would also have a much smaller financial sector if we taxed sales of stocks, bonds, and derivatives like we taxed sales of clothes, cars, and furniture. It is the power of the financial industry, not the free market, that tells us that these financial transactions should be exempted from the sales taxes that apply to just about everything else we buy.
There is also nothing “free market” about the special tax treatment that some of the richest people in the country get when they have “carried interest” income as partners in hedge funds or private equity funds. Nor is it the free market when these funds prey on public pension funds, promising high returns that they rarely deliver.
“Free Trade” is a Story for Children and Elite Pundits
The “free trade” deals of the last forty years had little to do with free trade. We did want to remove trade barriers on manufactured goods, in order to subject our manufacturing workers to direct competition with low-paid workers in the developing world. This had the predicted effect of costing us millions of manufacturing jobs, and substantially reducing the pay of the jobs that remained.
But we could have made the focus of free trade removing barriers that protected doctors, dentists, and other highly paid professionals from competition with their lower paid counterparts in the developing world. This would have had the effect of reducing jobs and pay for U.S. born professionals.
For some reason, this was never a part of our “free trade” agreements. We could speculate this was because the people deciding on trade policy were far more likely to have friends and family members who are highly paid professionals than friends and family members who were autoworkers or textile workers, but that would be rude. In any case, this part of “free trade” deals was about a having a freer trade in a particular sector of the economy, where the predicted and actual effect was to drive down the pay of non-college educated workers.
Patent and Copyright Monopolies
The other really big part of our free trade deals was to make patent and copyright monopolies, and related protections, longer and stronger. It is incredibly Orwellian that these government-granted monopolies are somehow discussed as being the free market.
And their impact is not some small sideshow. We will spend over $550 billion this year on prescription drugs. If drugs sold in a free market, without patents or related protections, the cost would almost certainly be less than $100 billion. The difference of $450 billion is more than four times the annual food stamp budget. It’s more than half of what we spend on the military each year. It comes to more than $3,000 a family.
If we projected out over ten years, and accounted for growth in spending, it would be close to $6 trillion. That is six times President Biden’s widely touted infrastructure program.
And, it has a huge impact on inequality. The people who benefit from these monopolies are many of the country’s richest people. Bill Gates is the poster child. He would likely still be working for a living if the government didn’t threaten to arrest people who copy Microsoft software without his permission.
Just since the pandemic, we created five Moderna billionaires by paying the company to develop vaccines and then letting them keep control over the vaccines. Don’t try to tell us that is the free market.
By my calculation we transfer over $1 trillion a year to the beneficiaries of patent and copyright monopolies, compared to a situation where items like drugs, medical equipment, computer software and other items sold at their free market price. This is around 40 percent of all after-tax corporate profits.
Why the Free Market Lie?
I could on at great length laying out other areas where the government has structured the market in ways that redistribute income upward. (See Rigged; it’s free.) It should be obvious to anyone at all familiar with economic policy over the last four decades that it was not about the free market — it was about structuring the economy in ways that made the rich richer.
It is understandable that the proponents of these policies would like to claim it was just the free market. After all, it sounds much better to tell the public, the vast majority who are losers from these policies, that “the market creates both winners and losers,” as opposed to saying, “we’re implementing polices to transfer money from you to us.”
But why do people who oppose these policies go along with the hoax? There apparently is a big market for this sort of pretending in major media outlets, but it would be nice if we could get more reality-based policy discussions.
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It’s been hard to miss the screaming on the Internet because Dr. Peter Hotez has refused to debate RFK Jr. over vaccine safety. I think Farhad Manjoo did a good job laying out the case against Dr. Hotez debating Kennedy in a column last week.
But I think there is a more fundamental question worth asking. What exactly is the point of the outrage that these people and their Internet swarm are swirling up?
We know the rhetoric – they want to beat up the Big Pharma shills. That all sounds great except the immediate target of their anger, Dr. Hotez, is about as far from a Big Pharma shill as you can get. Dr. Hotez has devoted his career to developing low-cost vaccines, that are open-source.
This means that anyone anywhere in the world can produce them. He has deliberately used simple technologies, so that it would not be necessary to have expensive manufacturing facilities to produce them. This means that billions of people in poor countries, who would not be able to afford the patent-protected vaccines produced by Big Pharma, can afford Dr. Hotez’s vaccines.
While for the most part their markets would not overlap, to some extent there will be people who would otherwise get a vaccine from Big Pharma, but instead get the cheaper vaccine developed by Dr. Hotez and his colleagues.
In principle, many more people, including people in wealthy countries, could take advantage of the low-cost vaccines developed by Dr. Hotez. For example, instead of paying over $100 for the Moderna or Pfizer boosters against Covid, for less than $5 people in the United States could be getting shots of Corbevax, the vaccine developed by Dr. Hotez and his colleagues.
I said “could be,” because the vaccine has not been approved by the FDA. Even though more than 100 million people have received Corbevax in India and Indonesia, the FDA still requires a U.S. based clinical trial to approve the vaccine.
If the RFK/Rogan/Musk outrage gang really wanted to nail Big Pharma, they would be pushing the FDA to approve Dr. Hotez’s vaccine, rather than trashing him. In fact, Mr. Musk could even pull out some pocket change and pay for the clinical trials, if this is really what is needed to get Corbevax approved.
The issue with Big Pharma goes way beyond Corbevax or vaccines. We get hugely ripped off by the drug companies because the government grants them patent monopolies and related protections. This allows them to charge outlandish prices for the drugs that people need for their health or even their life.
We will spend over $550 billion this year for drugs that would likely sell for under $100 billion in a free market without patent monopolies. The difference of $450 billion comes to more than $3,400 a year for every household in the country. Think of that as the Big Pharma tax.
But it’s worse than just a tax that comes out of your paycheck every two weeks. This is a tax that the industry hits people with when they are in bad health. People with cancer, with multiple sclerosis, and with a wide variety of other diseases often find themselves having to struggle to get tens or hundreds of thousands of dollars for the drugs they need to sustain their health.
This can still be the case even when they have good insurance. Insurers aren’t happy to pay huge prices for drugs and they make patients jump through all sorts of hoops to get expensive drugs covered. And, even when insurers do pay for the drug, patients may still face co-pays that are a huge burden for anyone who is not a Kennedy, a Rogan, or a Musk.
It doesn’t have to be this way. If we paid for the research upfront as we did with Moderna’s Covid vaccine, in almost all cases drugs would be cheap.[1] We would be talking about paying tens or hundreds of dollars, instead of tens or hundreds of thousands of dollars.
If the government paid for the research in advance, and then let all new drugs be sold as cheap generics, we would also eliminate the problem that the Kennedy-Rogan-Musk gang are hyperventilating over. Drug companies would no longer have a huge incentive to lie to get people to use their products.
Generic drug companies do make profits, but they make profits in the same way that companies selling shovels and paper clips make profits. They charge a normal markup over their costs. They are not charging $30,000 for a drug that costs them a couple hundred dollars to manufacture and distribute. They will not try paying off researchers, doctors, and politicians to sell more prescriptions when they are making $5 or $10 a prescription, as opposed to the situation today when they can make one hundred times this amount.
It would be great if we interest the Kennedy-Rogan-Musk crew in a policy that would actually do something about Big Pharma abuses, but they apparently just want to yell. This is the standard operating procedure among the Trump right-wing these days.
Starting at the bottom, Donald Trump always claims that he is the savior of the ordinary working person against the elites. But his big project when he got into office in 2017 was passing a huge tax cut for the richest people in the country and large corporations. That really taught those elites a thing or two.
And, as far as the infrastructure he promised, we got lots of “infrastructure weeks,” but no infrastructure. Trump also promised us a “terrific healthcare plan” to replace Obamacare. We are still waiting for that terrific healthcare plan, but the rich got their tax cut the first year of the Trump presidency.
Anyhow, we keep seeing the Kennedy-Rogan-Musk show again and again in slightly different forms. The idea is to distract everyone from policies that could actually benefit ordinary people with inflammatory rhetoric that is unconnected to reality. They demonize people who in many cases deserve demonization, the drug companies in this case. But when it comes to policies that will actually help ordinary people, and rein in the bad guys, well — don’t look for this crew. They are too busy hyperventilating nonsense.
[1] After paying Moderna more than $900 million for developing and testing its vaccine, the Trump administration also incredibly let them keep control of the vaccine, creating five Moderna billionaires by the summer of 2021.
It’s been hard to miss the screaming on the Internet because Dr. Peter Hotez has refused to debate RFK Jr. over vaccine safety. I think Farhad Manjoo did a good job laying out the case against Dr. Hotez debating Kennedy in a column last week.
But I think there is a more fundamental question worth asking. What exactly is the point of the outrage that these people and their Internet swarm are swirling up?
We know the rhetoric – they want to beat up the Big Pharma shills. That all sounds great except the immediate target of their anger, Dr. Hotez, is about as far from a Big Pharma shill as you can get. Dr. Hotez has devoted his career to developing low-cost vaccines, that are open-source.
This means that anyone anywhere in the world can produce them. He has deliberately used simple technologies, so that it would not be necessary to have expensive manufacturing facilities to produce them. This means that billions of people in poor countries, who would not be able to afford the patent-protected vaccines produced by Big Pharma, can afford Dr. Hotez’s vaccines.
While for the most part their markets would not overlap, to some extent there will be people who would otherwise get a vaccine from Big Pharma, but instead get the cheaper vaccine developed by Dr. Hotez and his colleagues.
In principle, many more people, including people in wealthy countries, could take advantage of the low-cost vaccines developed by Dr. Hotez. For example, instead of paying over $100 for the Moderna or Pfizer boosters against Covid, for less than $5 people in the United States could be getting shots of Corbevax, the vaccine developed by Dr. Hotez and his colleagues.
I said “could be,” because the vaccine has not been approved by the FDA. Even though more than 100 million people have received Corbevax in India and Indonesia, the FDA still requires a U.S. based clinical trial to approve the vaccine.
If the RFK/Rogan/Musk outrage gang really wanted to nail Big Pharma, they would be pushing the FDA to approve Dr. Hotez’s vaccine, rather than trashing him. In fact, Mr. Musk could even pull out some pocket change and pay for the clinical trials, if this is really what is needed to get Corbevax approved.
The issue with Big Pharma goes way beyond Corbevax or vaccines. We get hugely ripped off by the drug companies because the government grants them patent monopolies and related protections. This allows them to charge outlandish prices for the drugs that people need for their health or even their life.
We will spend over $550 billion this year for drugs that would likely sell for under $100 billion in a free market without patent monopolies. The difference of $450 billion comes to more than $3,400 a year for every household in the country. Think of that as the Big Pharma tax.
But it’s worse than just a tax that comes out of your paycheck every two weeks. This is a tax that the industry hits people with when they are in bad health. People with cancer, with multiple sclerosis, and with a wide variety of other diseases often find themselves having to struggle to get tens or hundreds of thousands of dollars for the drugs they need to sustain their health.
This can still be the case even when they have good insurance. Insurers aren’t happy to pay huge prices for drugs and they make patients jump through all sorts of hoops to get expensive drugs covered. And, even when insurers do pay for the drug, patients may still face co-pays that are a huge burden for anyone who is not a Kennedy, a Rogan, or a Musk.
It doesn’t have to be this way. If we paid for the research upfront as we did with Moderna’s Covid vaccine, in almost all cases drugs would be cheap.[1] We would be talking about paying tens or hundreds of dollars, instead of tens or hundreds of thousands of dollars.
If the government paid for the research in advance, and then let all new drugs be sold as cheap generics, we would also eliminate the problem that the Kennedy-Rogan-Musk gang are hyperventilating over. Drug companies would no longer have a huge incentive to lie to get people to use their products.
Generic drug companies do make profits, but they make profits in the same way that companies selling shovels and paper clips make profits. They charge a normal markup over their costs. They are not charging $30,000 for a drug that costs them a couple hundred dollars to manufacture and distribute. They will not try paying off researchers, doctors, and politicians to sell more prescriptions when they are making $5 or $10 a prescription, as opposed to the situation today when they can make one hundred times this amount.
It would be great if we interest the Kennedy-Rogan-Musk crew in a policy that would actually do something about Big Pharma abuses, but they apparently just want to yell. This is the standard operating procedure among the Trump right-wing these days.
Starting at the bottom, Donald Trump always claims that he is the savior of the ordinary working person against the elites. But his big project when he got into office in 2017 was passing a huge tax cut for the richest people in the country and large corporations. That really taught those elites a thing or two.
And, as far as the infrastructure he promised, we got lots of “infrastructure weeks,” but no infrastructure. Trump also promised us a “terrific healthcare plan” to replace Obamacare. We are still waiting for that terrific healthcare plan, but the rich got their tax cut the first year of the Trump presidency.
Anyhow, we keep seeing the Kennedy-Rogan-Musk show again and again in slightly different forms. The idea is to distract everyone from policies that could actually benefit ordinary people with inflammatory rhetoric that is unconnected to reality. They demonize people who in many cases deserve demonization, the drug companies in this case. But when it comes to policies that will actually help ordinary people, and rein in the bad guys, well — don’t look for this crew. They are too busy hyperventilating nonsense.
[1] After paying Moderna more than $900 million for developing and testing its vaccine, the Trump administration also incredibly let them keep control of the vaccine, creating five Moderna billionaires by the summer of 2021.
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Of course, the New York Times did not headline a piece this way, but that would have been a more accurate headline of an article it ran last weekend discussing a turn away from “neo-liberal” policies. As I pointed out in a quick Twitter thread, that piece misrepresented a set of policies that have the effect of redistributing income upward as “free market” policies.
This is wrong in a way that is very convenient for the proponents of these policies. The massive upward redistribution of income in the last four decades is not really a debatable point. However, as a political matter, it is far more salable to say that this upward redistribution was the result of the forces of technology and globalization than of policies designed to make the rich richer.
While it should be obvious that the policies of this period were not “free market” (the free market doesn’t give us government-granted patent and copyright monopolies), it seems totally obligatory in media outlets to insist that they are. This was the case in prior decades when publications like the New York Times and Washington Post were pushing these policies, and it apparently is still standard policy when governments seem to be moving away from these policies.
While it’s obvious why the people who benefitted from this upward redistribution would insist that the causes were the natural forces of globalization and technology, it is difficult to understand why opponents of these policies largely accept this framing. This matters not just as a matter of attributing blame but also in designing better policies going forward.
For example, while it may be a good policy to subsidize the development of more advanced computer chips and the spread of clean technologies, it will matter hugely who gets control of the intellectual products created due to these subsidies. The government created at least five Moderna billionaires by paying the company nearly $1 billion to develop a COVID vaccine and then letting it keep control of the distribution of the vaccine.
It could have insisted that, as a condition of getting the money, all the technology would be in the public domain. This would mean that Moderna would get no patent monopolies or related protections, and its non-disclosure agreements for its employees would not be binding.
As I point out in the tweet thread, who gets rich is not a result of the market but how we structure the market. If we are going to design good policy, we have to recognize that the structure of the market is literally up for grabs; it is not a question of whether the government is going to intervene to alter market outcomes.
I know this point can’t be made in the NYT or other major media outlets, but why are so few progressives interested in this obvious fact?
Of course, the New York Times did not headline a piece this way, but that would have been a more accurate headline of an article it ran last weekend discussing a turn away from “neo-liberal” policies. As I pointed out in a quick Twitter thread, that piece misrepresented a set of policies that have the effect of redistributing income upward as “free market” policies.
This is wrong in a way that is very convenient for the proponents of these policies. The massive upward redistribution of income in the last four decades is not really a debatable point. However, as a political matter, it is far more salable to say that this upward redistribution was the result of the forces of technology and globalization than of policies designed to make the rich richer.
While it should be obvious that the policies of this period were not “free market” (the free market doesn’t give us government-granted patent and copyright monopolies), it seems totally obligatory in media outlets to insist that they are. This was the case in prior decades when publications like the New York Times and Washington Post were pushing these policies, and it apparently is still standard policy when governments seem to be moving away from these policies.
While it’s obvious why the people who benefitted from this upward redistribution would insist that the causes were the natural forces of globalization and technology, it is difficult to understand why opponents of these policies largely accept this framing. This matters not just as a matter of attributing blame but also in designing better policies going forward.
For example, while it may be a good policy to subsidize the development of more advanced computer chips and the spread of clean technologies, it will matter hugely who gets control of the intellectual products created due to these subsidies. The government created at least five Moderna billionaires by paying the company nearly $1 billion to develop a COVID vaccine and then letting it keep control of the distribution of the vaccine.
It could have insisted that, as a condition of getting the money, all the technology would be in the public domain. This would mean that Moderna would get no patent monopolies or related protections, and its non-disclosure agreements for its employees would not be binding.
As I point out in the tweet thread, who gets rich is not a result of the market but how we structure the market. If we are going to design good policy, we have to recognize that the structure of the market is literally up for grabs; it is not a question of whether the government is going to intervene to alter market outcomes.
I know this point can’t be made in the NYT or other major media outlets, but why are so few progressives interested in this obvious fact?
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People routinely tout Biden’s efforts to bring back manufacturing jobs as a way to rebuild the middle class and reduce inequality. Whatever the motives, there is not much reason to believe that it will have this effect.
When the United States opened up its market to freer trade in manufactured goods, through trade deals like NAFTA and admitting China to the WTO, manufacturing workers had a substantial pay premium over workers in the rest of the private sector. This was largely because manufacturing was much more highly unionized than other parts of the private sector.
However, this is no longer true. In 2022, 7.8 percent of manufacturing workers were unionized, compared to 6.0 percent for the private sector as a whole. As a result, the pay premium for workers in manufacturing has largely disappeared.
This means that there is little reason to believe that manufacturing jobs will be good-paying jobs, unless they are unionized. While the Biden administration has tried to push measures that increase the probability that the jobs created by his policies will be union jobs, it is not clear that they will be effective. In that case, the manufacturing jobs created producing semiconductors or clean energy may be little better than other jobs that workers might have taken.
The other side of this picture is that the owners of the companies getting the subsidies, in addition to well-placed high-end workers, are likely to put lots of money in their pocket as a result of Biden’s policies. Moderna provides an excellent example of what can happen. The government paid for the company to develop a Covid vaccine, and then allowed the company to maintain control of the vaccine. The result was that we created five Moderna billionaires by the summer of 2021.
Elon Musk is another great example. Tesla benefitted hugely in its early days from Obama administration loans at below market interest rates. It is also benefitting hugely from subsidies to electric cars. As a result, we have made Elon Musk the richest person the planet.
For whatever reason, maintaining control of the technology that the government funds is literally never mentioned in discussions of industrial policy and inequality. While it would be possible for the government to make the technology open-source (no government-granted patent monopolies or non-disclosure agreements for technology) as a condition of getting the money, this is not on anyone’s agenda in Washington.
Perhaps it is good that people are at least talking about inequality these days, but it doesn’t seem like there is much interest in doing anything about it.
People routinely tout Biden’s efforts to bring back manufacturing jobs as a way to rebuild the middle class and reduce inequality. Whatever the motives, there is not much reason to believe that it will have this effect.
When the United States opened up its market to freer trade in manufactured goods, through trade deals like NAFTA and admitting China to the WTO, manufacturing workers had a substantial pay premium over workers in the rest of the private sector. This was largely because manufacturing was much more highly unionized than other parts of the private sector.
However, this is no longer true. In 2022, 7.8 percent of manufacturing workers were unionized, compared to 6.0 percent for the private sector as a whole. As a result, the pay premium for workers in manufacturing has largely disappeared.
This means that there is little reason to believe that manufacturing jobs will be good-paying jobs, unless they are unionized. While the Biden administration has tried to push measures that increase the probability that the jobs created by his policies will be union jobs, it is not clear that they will be effective. In that case, the manufacturing jobs created producing semiconductors or clean energy may be little better than other jobs that workers might have taken.
The other side of this picture is that the owners of the companies getting the subsidies, in addition to well-placed high-end workers, are likely to put lots of money in their pocket as a result of Biden’s policies. Moderna provides an excellent example of what can happen. The government paid for the company to develop a Covid vaccine, and then allowed the company to maintain control of the vaccine. The result was that we created five Moderna billionaires by the summer of 2021.
Elon Musk is another great example. Tesla benefitted hugely in its early days from Obama administration loans at below market interest rates. It is also benefitting hugely from subsidies to electric cars. As a result, we have made Elon Musk the richest person the planet.
For whatever reason, maintaining control of the technology that the government funds is literally never mentioned in discussions of industrial policy and inequality. While it would be possible for the government to make the technology open-source (no government-granted patent monopolies or non-disclosure agreements for technology) as a condition of getting the money, this is not on anyone’s agenda in Washington.
Perhaps it is good that people are at least talking about inequality these days, but it doesn’t seem like there is much interest in doing anything about it.
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For better or worse (worse in my view), President Biden has not done much to restrict drilling for new oil and gas. As a result, we are now producing more than when Donald Trump was in the White House. Nonetheless, there are still many people who want to blame Biden’s restrictions for the high price of oil.
Well, none of these claims make any sense. Biden has not done much to restrict the price of oil; we are producing more oil now than under Trump, and oil is not expensive. To see the last point, I adjusted the price of oil (West Texas Intermediate) for the inflation we have seen since 2000, using the GDP deflator.[1]
As can be seen, oil prices were somewhat lower at times in the last twenty-three years. They were lower at the start of the George W. Bush administration, but higher through most of his second term. They plunged in the Great Recession, but then were higher than the current level through the rest of President Obama’s first term.
Oil prices then fell sharply towards the end of the Obama administration, as a flood of fracked oil came on line. Oil prices then rise under Trump, passing the current level in 2018 and then falling again in 2019. Oil prices plunged with the pandemic shutdown, but then soared with the reopening and the Russian invasion of Ukraine.
They have now fallen back to a level that is below where they have been for most of the first two decades of this century. In spite of the widespread whining of Republican politicians about high oil prices, they are actually lower now than for roughly half the time that George W. Bush was in the White House.
For better or worse (worse in my view), President Biden has not done much to restrict drilling for new oil and gas. As a result, we are now producing more than when Donald Trump was in the White House. Nonetheless, there are still many people who want to blame Biden’s restrictions for the high price of oil.
Well, none of these claims make any sense. Biden has not done much to restrict the price of oil; we are producing more oil now than under Trump, and oil is not expensive. To see the last point, I adjusted the price of oil (West Texas Intermediate) for the inflation we have seen since 2000, using the GDP deflator.[1]
As can be seen, oil prices were somewhat lower at times in the last twenty-three years. They were lower at the start of the George W. Bush administration, but higher through most of his second term. They plunged in the Great Recession, but then were higher than the current level through the rest of President Obama’s first term.
Oil prices then fell sharply towards the end of the Obama administration, as a flood of fracked oil came on line. Oil prices then rise under Trump, passing the current level in 2018 and then falling again in 2019. Oil prices plunged with the pandemic shutdown, but then soared with the reopening and the Russian invasion of Ukraine.
They have now fallen back to a level that is below where they have been for most of the first two decades of this century. In spite of the widespread whining of Republican politicians about high oil prices, they are actually lower now than for roughly half the time that George W. Bush was in the White House.
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• JobsTrabajosUnited StatesEE. UU.WorkersSector del trabajo
National Public Radio’s All Things Considered show had a piece on a bill that would make current national child labor standards apply to children working on farms. Currently, children as young as 12 can legally work in agriculture. The bill under consideration would impose the same rules for child labor on farms as apply to the rest of the economy.
At one point the piece gives a comment from Kristi Boswell, a Trump administration agriculture official, complaining that the bill would prevent people like her relatives from working on their family’s farm and learning the business. As the piece subsequently points out, this is not an issue since the bill has an exemption for family workers.
Since Ms. Boswell’s comment obviously misrepresented the issue, the question is why NPR felt the need to present it to listeners. The piece ran for just three minutes. In that context, there is no obvious reason why it should give opponents of the bill the time to make a blatantly false excuse for opposing the bill. If it could not find anyone to give an honest objection to the bill, it should have told its listeners of that fact and left it at that.
National Public Radio’s All Things Considered show had a piece on a bill that would make current national child labor standards apply to children working on farms. Currently, children as young as 12 can legally work in agriculture. The bill under consideration would impose the same rules for child labor on farms as apply to the rest of the economy.
At one point the piece gives a comment from Kristi Boswell, a Trump administration agriculture official, complaining that the bill would prevent people like her relatives from working on their family’s farm and learning the business. As the piece subsequently points out, this is not an issue since the bill has an exemption for family workers.
Since Ms. Boswell’s comment obviously misrepresented the issue, the question is why NPR felt the need to present it to listeners. The piece ran for just three minutes. In that context, there is no obvious reason why it should give opponents of the bill the time to make a blatantly false excuse for opposing the bill. If it could not find anyone to give an honest objection to the bill, it should have told its listeners of that fact and left it at that.
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• Food PricesInflationUnited StatesEE. UU.
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It is really painful to see the regular flow of pieces debating whether AI will lead to mass unemployment. Invariably, these pieces are written as though the author has taken an oath that they have no knowledge of economics whatsoever.
The NYT gave us the latest example on Sunday, in a piece debating how many jobs will be affected by AI. As the piece itself indicates, it is not clear what “affected by AI” even means.
What percent of jobs were affected by computers? The answer would probably be pretty close to 100 percent, if by “affected” we mean in some way changed. If by affected, we mean eliminated, then we clearly are talking about a much smaller number.
Thinking of AI like we did about computers is likely a good place to start. First of all, we should remember that there were predictions of massive layoffs and unemployment from computers and robots for decades. This did not happen.
In fact, we have a measure of the extent to which computers, robots, and other technology are displacing workers. It’s called “productivity growth,” and the Labor Department gives us data on it every quarter.
Productivity is the measure of the value of output that a worker can produce an hour. We expect this to increase through time as we get better equipment and software, we learn how to do things better, and workers get more educated.
For the last two centuries, productivity growth has been a normal feature of the U.S. economy, and in fact, most normally functioning economies around the world. This is the basis for rising living standards through time. It is the reason that we can feed our whole population, and still export food, even with just around 1.0 percent of the workforce in agriculture, as opposed to more than 50 percent in the 19th century.
The big question is the rate at which productivity grows. Productivity growth has actually been pretty slow in recent years. It averaged just 1.3 percent annually since 2006. By contrast, it averaged close to 3.0 percent in the quarter century from 1947 to 1973.
Rather than being a period of mass unemployment and declining living standards, the rapid productivity growth in that period was associated with widespread improvements in living standards. We went from depression era living standards in 1947 to a prosperous middle-class society by the end, as ordinary workers were able to afford to buy houses and cars, and send their kids to college.
We should think of the promise of AI in the same way. The first paragraph in the NYT piece warns/promises:
“In 2013, researchers at Oxford University published a startling number about the future of work: 47 percent of all United States jobs, they estimated, were ‘at risk’ of automation ‘over some unspecified number of years, perhaps a decade or two.’”
That warning is pretty vague but let’s say that we could use AI to eliminate 47 percent of current jobs over two decades. If we held GDP constant over this period, that would roughly correspond to the 3.0 percent annual productivity growth we saw during the post-World War II boom. And, just as we saw high levels of employment through the post-war boom (unemployment got down to 3.0 percent in 1969), we could maintain high employment if the economy had the same sort of rapid growth that we had in that quarter century. That will be a policy choice not an issue determined by technology.
Will Prosperity be Shared?
In the post-war boom the benefits from productivity growth were widely shared. To be clear, not everyone was doing great. Blacks were openly discriminated against, and virtually excluded from many better-paying jobs. The same was true of women, as the barriers were just beginning to come down. But the gains from productivity growth went well beyond just a small elite at the top.
Whether that happens with AI and related technologies will depend on how we as a society choose to structure the rules around AI. One reason why Bill Gates and others in the tech industry became incredibly rich was that the government granted patent and copyright protection for computer software. That was a policy choice. If we did not have these government-granted monopolies, Bill Gates would probably still be working for a living. (Okay, maybe he would be collecting his Social Security by now.)
These monopolies serve a purpose, they provide an incentive to innovate, but it’s not clear they have to be as long and as strong as is currently the case. Also, there are other ways to provide incentives. For example, the government can pay for people to do the work, as it did when it paid Moderna roughly a $1 billion to develop and test its Covid vaccine. Of course, the government also gave Moderna control over the vaccine, allowing the company’s stock to generate five Moderna billionaires in a bit over a year.
It is not hard to envision routes through which AI can lead to widespread prosperity in a way comparable to what we saw in the post-war boom. Suppose that we don’t have government-granted monopolies restricted access to the technology, so that it can be freely used.
In that world, I could likely go to a medical technician (someone trained in performing clinical tests and entering data), who could plug various test results into an AI system, and it would tell me if I have heart problem, kidney problem, or anything else. Rather than seeing a highly paid physician, I could have most of my health care needs met with this technology and a reasonably compensated medical professional, who may get less than one-third of the pay of a doctor.
There would be a similar story with legal assistance. Certainly, for standard legal processes, like preparing a will or even arranging a divorce, AI would likely be up to the task. Even in more complicated cases, AI could likely prepare a brief, which a lawyer could evaluate and edit in a fraction of the time it would take them if they were working from scratch.
People have pointed out that AI makes mistakes. There have been many instances where we have heard of AI systems inventing facts that are not true or citing sources that don’t exist. This is a real problem, but presumably one that will be largely fixed in the not distant future. We shouldn’t imagine that AI systems will ever be perfect, but the number of errors they make will surely be reduced as the technology is developed further.
In addition, it is important to remember that humans also make errors. There are few of us that cannot recall a serious mistake that a doctor made in diagnosing or treating our own condition or a close family member. A world without mistakes does not exist and cannot be the basis of comparison. We need AI to be at least as good as the workers it is displacing, but that doesn’t mean perfect.
AI and the Distribution of Income
We structured our economy over the last four decades so that most of the gains from the productivity growth over this period went to those at the top. Contrary to what is often asserted, most of the gains actually did not go to corporate profits, they went to workers at the top of the pay ladder, like CEOs and other top management, Wall Street types, highly paid tech workers, and doctors and lawyers and other highly paid professionals. These workers used their political power to ensure that the rules of the economy were designed to benefit them.
Whether or not that continues in the era of AI will depend on the power of these groups relative to less highly paid workers. Just to take an obvious example, doctors may use their political power to have licensing restrictions that prevent less highly trained medical professionals from making diagnoses and recommending treatments based on AI.
If that seems far-fetched, we already have laws that make it very difficult for even very well-trained foreign doctors from practicing in the United States. While the cry of “free-trade” was used to expose manufacturing workers to international competition, and thereby depress their pay, it almost never came up with doctors and other highly paid professionals.
Anyhow, we may well see a similar story with AI, where highly paid professionals use their political power to limit the uses of AI and ensure that it doesn’t depress their incomes. This also is an issue with ownership of the technology itself. If we don’t allow for strong patent/copyright monopolies in AI, and make non-disclosure agreements difficult to enforce, we can ensure the technology is more widely spread and cheap. This would mean that the gains are widely shared and not going to a relatively small group of Bill Gates types.
It is also important to understand how high incomes for a small group depress incomes for everyone else. Most of us don’t directly pay for our own health care. We have insurance provided by an employer or the government. However, insurers are not charities. (You knew that.)
If insurers have to pay out lots of money to doctors, then it will mean that our employers pay higher premiums, which they will look to take out of our paychecks. Alternatively, if the government is picking up the tab, there will be less money to pay for child tax credits, day care, and other good things.
Also, when the lawyers, doctors, tech workers and other would be beneficiaries from AI get high incomes, they buy bigger and more houses. That raises the cost of housing for everyone else. We can and should build more housing, but when you have a small segment of the population that has far money than everyone else, it is difficult to keep housing affordable for ordinary workers.
Anyhow, the point here is straightforward. Keeping down the pay for those at the top is not an issue of jealously. The more money that goes to the top, the less there is for everyone else, as long as we have not structured the rules in a way that takes away the incentive to be innovative and productive.
Fear the Rich, Not AI
The moral of the story is that there is nothing about AI technology that should lead to mass unemployment and inequality. If those are outcomes, it will be the result of how we structured the rules, not the technology itself. We need to keep our eyes on the ball and remember that structuring the rules is a policy choice.
And, one other point: those who want to structure the rules so that all the money goes to the top will want to say the problem is technology. It is much easier for them to tell the rest of us that they are rich and everyone else is not because of technology, rather than because they rigged the market. Keep that in mind, always.
It is really painful to see the regular flow of pieces debating whether AI will lead to mass unemployment. Invariably, these pieces are written as though the author has taken an oath that they have no knowledge of economics whatsoever.
The NYT gave us the latest example on Sunday, in a piece debating how many jobs will be affected by AI. As the piece itself indicates, it is not clear what “affected by AI” even means.
What percent of jobs were affected by computers? The answer would probably be pretty close to 100 percent, if by “affected” we mean in some way changed. If by affected, we mean eliminated, then we clearly are talking about a much smaller number.
Thinking of AI like we did about computers is likely a good place to start. First of all, we should remember that there were predictions of massive layoffs and unemployment from computers and robots for decades. This did not happen.
In fact, we have a measure of the extent to which computers, robots, and other technology are displacing workers. It’s called “productivity growth,” and the Labor Department gives us data on it every quarter.
Productivity is the measure of the value of output that a worker can produce an hour. We expect this to increase through time as we get better equipment and software, we learn how to do things better, and workers get more educated.
For the last two centuries, productivity growth has been a normal feature of the U.S. economy, and in fact, most normally functioning economies around the world. This is the basis for rising living standards through time. It is the reason that we can feed our whole population, and still export food, even with just around 1.0 percent of the workforce in agriculture, as opposed to more than 50 percent in the 19th century.
The big question is the rate at which productivity grows. Productivity growth has actually been pretty slow in recent years. It averaged just 1.3 percent annually since 2006. By contrast, it averaged close to 3.0 percent in the quarter century from 1947 to 1973.
Rather than being a period of mass unemployment and declining living standards, the rapid productivity growth in that period was associated with widespread improvements in living standards. We went from depression era living standards in 1947 to a prosperous middle-class society by the end, as ordinary workers were able to afford to buy houses and cars, and send their kids to college.
We should think of the promise of AI in the same way. The first paragraph in the NYT piece warns/promises:
“In 2013, researchers at Oxford University published a startling number about the future of work: 47 percent of all United States jobs, they estimated, were ‘at risk’ of automation ‘over some unspecified number of years, perhaps a decade or two.’”
That warning is pretty vague but let’s say that we could use AI to eliminate 47 percent of current jobs over two decades. If we held GDP constant over this period, that would roughly correspond to the 3.0 percent annual productivity growth we saw during the post-World War II boom. And, just as we saw high levels of employment through the post-war boom (unemployment got down to 3.0 percent in 1969), we could maintain high employment if the economy had the same sort of rapid growth that we had in that quarter century. That will be a policy choice not an issue determined by technology.
Will Prosperity be Shared?
In the post-war boom the benefits from productivity growth were widely shared. To be clear, not everyone was doing great. Blacks were openly discriminated against, and virtually excluded from many better-paying jobs. The same was true of women, as the barriers were just beginning to come down. But the gains from productivity growth went well beyond just a small elite at the top.
Whether that happens with AI and related technologies will depend on how we as a society choose to structure the rules around AI. One reason why Bill Gates and others in the tech industry became incredibly rich was that the government granted patent and copyright protection for computer software. That was a policy choice. If we did not have these government-granted monopolies, Bill Gates would probably still be working for a living. (Okay, maybe he would be collecting his Social Security by now.)
These monopolies serve a purpose, they provide an incentive to innovate, but it’s not clear they have to be as long and as strong as is currently the case. Also, there are other ways to provide incentives. For example, the government can pay for people to do the work, as it did when it paid Moderna roughly a $1 billion to develop and test its Covid vaccine. Of course, the government also gave Moderna control over the vaccine, allowing the company’s stock to generate five Moderna billionaires in a bit over a year.
It is not hard to envision routes through which AI can lead to widespread prosperity in a way comparable to what we saw in the post-war boom. Suppose that we don’t have government-granted monopolies restricted access to the technology, so that it can be freely used.
In that world, I could likely go to a medical technician (someone trained in performing clinical tests and entering data), who could plug various test results into an AI system, and it would tell me if I have heart problem, kidney problem, or anything else. Rather than seeing a highly paid physician, I could have most of my health care needs met with this technology and a reasonably compensated medical professional, who may get less than one-third of the pay of a doctor.
There would be a similar story with legal assistance. Certainly, for standard legal processes, like preparing a will or even arranging a divorce, AI would likely be up to the task. Even in more complicated cases, AI could likely prepare a brief, which a lawyer could evaluate and edit in a fraction of the time it would take them if they were working from scratch.
People have pointed out that AI makes mistakes. There have been many instances where we have heard of AI systems inventing facts that are not true or citing sources that don’t exist. This is a real problem, but presumably one that will be largely fixed in the not distant future. We shouldn’t imagine that AI systems will ever be perfect, but the number of errors they make will surely be reduced as the technology is developed further.
In addition, it is important to remember that humans also make errors. There are few of us that cannot recall a serious mistake that a doctor made in diagnosing or treating our own condition or a close family member. A world without mistakes does not exist and cannot be the basis of comparison. We need AI to be at least as good as the workers it is displacing, but that doesn’t mean perfect.
AI and the Distribution of Income
We structured our economy over the last four decades so that most of the gains from the productivity growth over this period went to those at the top. Contrary to what is often asserted, most of the gains actually did not go to corporate profits, they went to workers at the top of the pay ladder, like CEOs and other top management, Wall Street types, highly paid tech workers, and doctors and lawyers and other highly paid professionals. These workers used their political power to ensure that the rules of the economy were designed to benefit them.
Whether or not that continues in the era of AI will depend on the power of these groups relative to less highly paid workers. Just to take an obvious example, doctors may use their political power to have licensing restrictions that prevent less highly trained medical professionals from making diagnoses and recommending treatments based on AI.
If that seems far-fetched, we already have laws that make it very difficult for even very well-trained foreign doctors from practicing in the United States. While the cry of “free-trade” was used to expose manufacturing workers to international competition, and thereby depress their pay, it almost never came up with doctors and other highly paid professionals.
Anyhow, we may well see a similar story with AI, where highly paid professionals use their political power to limit the uses of AI and ensure that it doesn’t depress their incomes. This also is an issue with ownership of the technology itself. If we don’t allow for strong patent/copyright monopolies in AI, and make non-disclosure agreements difficult to enforce, we can ensure the technology is more widely spread and cheap. This would mean that the gains are widely shared and not going to a relatively small group of Bill Gates types.
It is also important to understand how high incomes for a small group depress incomes for everyone else. Most of us don’t directly pay for our own health care. We have insurance provided by an employer or the government. However, insurers are not charities. (You knew that.)
If insurers have to pay out lots of money to doctors, then it will mean that our employers pay higher premiums, which they will look to take out of our paychecks. Alternatively, if the government is picking up the tab, there will be less money to pay for child tax credits, day care, and other good things.
Also, when the lawyers, doctors, tech workers and other would be beneficiaries from AI get high incomes, they buy bigger and more houses. That raises the cost of housing for everyone else. We can and should build more housing, but when you have a small segment of the population that has far money than everyone else, it is difficult to keep housing affordable for ordinary workers.
Anyhow, the point here is straightforward. Keeping down the pay for those at the top is not an issue of jealously. The more money that goes to the top, the less there is for everyone else, as long as we have not structured the rules in a way that takes away the incentive to be innovative and productive.
Fear the Rich, Not AI
The moral of the story is that there is nothing about AI technology that should lead to mass unemployment and inequality. If those are outcomes, it will be the result of how we structured the rules, not the technology itself. We need to keep our eyes on the ball and remember that structuring the rules is a policy choice.
And, one other point: those who want to structure the rules so that all the money goes to the top will want to say the problem is technology. It is much easier for them to tell the rest of us that they are rich and everyone else is not because of technology, rather than because they rigged the market. Keep that in mind, always.
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Seems the NYT still can’t get access to the government’s data on consumption. It ran an article telling readers that demand for wedding rings has fallen. This is very plausibly explained by fewer people having met up during the pandemic, and therefore fewer people getting married. However, the subhead adds “Inflation and anxiety among shoppers haven’t helped.”
In spite of this astute diagnosis of the country’s economic ills by the NYT, the Commerce Department’s data tell a very different story. These data show that real (inflation-adjusted) sales of jewelry were 26.4 percent higher in the first quarter of 2023 than in the fourth quarter of 2019 (Line 62).
This seems like yet another case where the country’s media are determined to tell a horrible economy story, bravely refusing to let the data get in the way.
Seems the NYT still can’t get access to the government’s data on consumption. It ran an article telling readers that demand for wedding rings has fallen. This is very plausibly explained by fewer people having met up during the pandemic, and therefore fewer people getting married. However, the subhead adds “Inflation and anxiety among shoppers haven’t helped.”
In spite of this astute diagnosis of the country’s economic ills by the NYT, the Commerce Department’s data tell a very different story. These data show that real (inflation-adjusted) sales of jewelry were 26.4 percent higher in the first quarter of 2023 than in the fourth quarter of 2019 (Line 62).
This seems like yet another case where the country’s media are determined to tell a horrible economy story, bravely refusing to let the data get in the way.
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• COVID-19CoronavirusHealthcarePost-COVIDUnited StatesEE. UU.
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