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Article Artículo

Thomas Friedman Hurts Himself Again Playing With Economics

Thomas Friedman, who once said that Germany would demand Greeks work like Germans as a condition of bailout funds (Greeks now work many more hours on average), allowed his column to stray into economics again today. Not surprisingly, he gets some of the big things wrong.

He starts by going after Donald Trump. While Trump has said many things on economic issues that bear little relationship to reality, Friedman attacks him on one that does. Friedman recounts an interview in which Trump said that he would provide universal health care insurance. Trump is then asked how he will pay for it. Friedman presents Trump's answer along with his own comment:

"'The government’s gonna pay for it. But we’re going to save so much money on the other side. But for the most [part] it’s going to be a private plan and people are going to be able to go out and negotiate great plans with lots of different competition with lots of competitors, with great companies — and they can have their doctors, they can have plans, they can have everything.'

"I just love that last line: 'They can have their doctors, they can have plans, they can have everything!'"

The irony of Friedman's comment is that Trump's claim is not far from being true, if the United States were to adopt a more efficient health care system. The United States pays more than twice as much per person for its health care as other wealthy countries, with little obvious benefit in terms of outcomes.

The World Bank put U.S. annual per person spending at $9,150 in the years 2006–2010. By comparison, Canada spends $5,700, Germany spends $5,000, and the United Kingdom spends $3,600. This enormous gap suggests that the United States could cover the uninsured and pay for it by eliminating the waste in its system.

Dean Baker / November 12, 2015

Article Artículo

Intellectual Property

United States

Dangerous Thoughts on Alternative to Government Granted Patent Monopolies on Drugs

I was impressed to see the strong reaction to my blog post comparing the productivity of the research done by the Drugs for Neglected Diseases Initiative (DNDI) and research by the pharmaceutical industry supported by patent monopolies. Commentators here and elsewhere insisted that such comparisons were “idiocy” and possibly even dangerous. Many insisted that my explicit assertion that this was not an apples to apples comparison was inadequate, even though I noted important differences in the $2.6 billion in costs attributed to the pharmaceutical industry to develop a new drug with the expenses incurred by DNDI in developing new treatments.

Apparently, in their view making any comparison between the efficiency of the research done by the pharmaceutical industry and other biomedical research is inappropriate. It is understandable that people who profit from the current system of patent monopoly supported drug research might hold that view, but the rest of us who pay for this research in the form of artificially high drug prices must ask these sorts of questions.

First, of course the research supported by government granted patent monopolies and the research done by DNDI is qualitatively different. The drug industry is looking for patentable products from which it can profit; DNDI is doing research that is directly intended to have the greatest possible impact on public health. The question is, on a per dollar basis, which route is a more effective way to promote public health.

Improving public health is the point of biomedical research, not developing new drugs as several commentators seem to believe. The question is whether it is better to spend $2.6 billion developing a drug based on a new chemical entity through patent supported research or to spend this money in areas like developing new treatments with existing drugs, promoting better diets and exercise, or developing new drugs through alternative financing mechanisms.

The comparison between the $2.6 billion estimate of the industry’s cost for developing a new drug and the output from DNDI is informative on this topic, although far from conclusive. (If anyone has any research demonstrating the superior efficiency of patent monopoly financed drug research, I would appreciate the references.)

In fact, the comparison is overly generous to the industry since we pay four or five dollars in higher drug prices for every dollar we get of patent financed research. We are on a path to spend more than $400 billion this year on prescription drugs. If these drugs were sold in a free market without patents or other protections the cost would almost certainly be less than one-fifth this amount. In some cases, the gap in costs between the patent-protected price and the free market price is more than one hundred to one. Sovaldi sells in the United States for $84,000 per treatment. A generic version is available in Bangladesh for less than $1,000. Drugs are almost always cheap to manufacture and distribute, it is patent monopolies that make them expensive.

Dean Baker / November 10, 2015

Article Artículo

Workers

The Unemployment Rate and the Search for Work

The latest jobs report from the Bureau of Labor Statistics shows that the unemployment rate fell to 5.0 percent last month. This is the same rate as from the beginning of the recession in December 2007, and is also the CBO’s estimate of the long-term natural rate of unemployment.

There’s good reason to think that the unemployment rate is overstating the strength of today’s economy. This is because people only count as unemployed if they have actively searched for work within the past four weeks. If workers become discouraged over their job prospects and stop looking for work, the unemployment rate falls. A better measure of the labor market wouldn’t show the economy gaining strength due to the fact that workers were becoming depressed with their job prospects.

One way of correcting for this problem is to ask what the unemployment rate would be if people hadn’t given up the search for work. Normally, we’d expect people to not be working if they are older and retired or young and in school. However, there’s little reason to think that people aged 25 to 54 should have suddenly stopped searching for work for any reason other than discouragement over job prospects.

CEPR and Nicolas Buffie / November 10, 2015

Article Artículo

Tyler Cowen on the Progressivity of Obamacare

Tyler Cowen had a piece in the NYT arguing that the mandates in Obamacare may be painful for many moderate-income people who don't qualify for subsidies and don't value the insurance. This is true, but it is also true of almost any policy that would be designed to help low- and moderate-income people.

First, the basic point is that the mandate requires people to buy insurance who might not have otherwise if the law didn't require it. If we give these people credit for acting rationally, they would choose to pay necessary medical expenses out of pocket and to rely on emergency room care rather than pay for an insurance premium. In this case, the mandate is effectively a tax that can be a substantial burden on households who are over the cutoff for subsidies at 350 percent the poverty level. (That would be $41,200 for a single person, $71,300 for a family of three.)

This sort of argument would also apply to a program like Social Security. There are many people who can reasonably expect that they will not enjoy long retirements based on the age at which parents and other relatives have died. Social Security also provides survivors benefits for spouses and dependent children. In addition, it provides disability benefits. But if a person with a short life expectancy does not have children, or they have grown, and either does not have a spouse or the spouse would be entitled to comparable benefits based on their own work history, Social Security will not provide this person with a very good expected payback. We may or may not feel bad about requiring this person to contribute to Social Security, but it is essentially the same sort of dilemma that Cowen raises about Obamacare.

Dean Baker / November 09, 2015

Article Artículo

The Fed and the Economy: What We Think and What We Want

As the debate over a Fed interest rate hike heats up, it is worth noting an important distinction between the types of issues being debated. On the one hand there is a debate over what is likely to happen in a scenario in which the Fed soon begins raising interest rates and one in which it does not. On the other hand there is debate over what we want to see happen.

The first question has to do with the likelihood that we will see more rapid wage growth and more rapid inflation if the Fed holds off compared to a scenario in which it starts raising rates. Looking to the 1990s, many of us see the possibility that wages could grow considerably more rapidly without any substantial uptick in inflation. (There was strong real wage growth in the last year due to a plunge in energy prices, but no one expects that to be repeated. Real wage growth in the year ahead will depend on stronger nominal wage growth.)

Since productivity growth has been incredibly weak in recent years, the possibility of stronger real wage growth will depend at least in part on a return of more normal productivity growth, at least in the range of 1.5–2.0 percent. (Where are the robots when we need them?) There is a story that productivity growth may be in part endogenous. This would mean that in a tighter labor market firms have more incentive to economize on labor. Also, in a tighter labor market workers move from low paying, low productivity jobs to higher paying, higher productivity jobs.

There are clear differences among economists in their views on the extent to which a tighter labor market will first translate into higher wage growth, and secondly how much this will translate into higher inflation. However, there is also a difference on what we might want to see. There was a massive shift from wages to profits at the start of the recession. The weakness of the labor market allowed employers to keep pretty much all of the gains in productivity in 2008–2011.

This is a sharp departure from the rise in inequality that we saw in the prior three decades. That was pretty much entirely a story of redistribution of labor income. Money went from assembly line workers and retail clerks to doctors and lawyers, Wall Street bankers, and CEOs.

Dean Baker / November 07, 2015

Article Artículo

Haiti

Latin America and the Caribbean

World

Haiti Announces Preliminary Election Results, but Race Far From Settled

Haiti’s Provisional Electoral Council (CEP) announced preliminary results from the October 25 presidential elections yesterday evening, showing the government-backed Jovenel Moïse and former state construction company director Jude Célestin in the top two places, paving the way for a face-off between the two candidates in the second round of the elections scheduled for December 27.

Of the roughly 1.6 million Haitians who voted (roughly 26 percent of registered voters), Moïse received 32.8 percent of the vote while Célestin received 25.3 percent, according to the preliminary results announced by the CEP. Moïse Jean-Charles, an opposition leader, received 14.3 percent to finish in third while Dr. Maryse Narcisse of the Fanmi Lavalas party of twice-ousted Jean Bertrand Aristide came in fourth with just over 7 percent of the vote.

After violence and fraud plagued first-round legislative elections in August, more than 73 percent of registered voters stayed home on election day this time - a similar rate as what was seen in the flawed 2010 presidential elections, but far below turnout in previous presidential elections such as in 2000 and 2006, which was closer to 60 percent.

Nearly as soon as the CEP press conference ended, many leading candidates, including Jude Célestin, denounced the results and pledged to mobilize supporters in the coming days against what they allege was massive fraud in favor of the government. Small protests erupted around the capital and one supporter of Jean-Charles was killed outside of his party’s headquarters. The party has blamed the Haitian police for the death.

On Friday, all of the top four candidates held morning press conferences to state their position on the results. Jovenel Moïse, of the ruling PHTK party, was the only one not to question the results announced by the CEP. Célestin, together with seven other presidential candidates, had sent a letter to the CEP days before results were announced, denouncing massive fraud in the elections and calling for an independent commission to investigate. “We are working on this with all the candidates because we are all saying the same thing: 'This is not the people's vote and they are trying to steal the vote of the population,’” the Associated Press reported Célestin as saying at this morning’s press conference. Afterwards, supporters of his party, LAPEH, began protesting throughout the capital.

Followers of Jean-Charles’ Pitit Dessalines platform and Narcisse’s Fanmi Lavalas party also took to the streets. Haitian police have responded with tear gas to break up the protests, which are expected to continue over the coming days.

The fraud allegations have been wide-ranging but many have focused on the problem with political party monitors; some 900,000 accreditation passes were distributed before the election which may have allowed monitors to place fraudulent votes. Local observers and party representatives have denounced a black market that developed for the passes in the days leading up to the vote, with passes going for as much as $30, and as little as $2 on election day. In the West department, where over 40 percent of registered voters live, these monitors accounted for upwards of 50 percent of voters, according to observer groups.

The day before results were announced, a local observer group noted that a lack of transparency and other problems at the tabulation center where votes are counted, “helped create a general atmosphere of suspicion and generate legitimate fears that the reality of the ballot boxes or the expression of the will of the people are being altered, in whole or in part.”

In a statement released today, the group of presidential candidates termed the announced results “unacceptable,” and again called for an independent commission to investigate fraud. The announced results only reinforce the perception that “those who vote decide nothing,” the candidates said in the statement. The group characterized the current process as a “dangerous return to the past” when dictators organized elections and warned that it “threatens the stability of the country.”

Jake Johnston / November 07, 2015