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The Future of the Pharmaceutical Industry: Beyond Government-Granted Monopolies

March 6, 2019

Patent monopolies on prescription drugs raise their price by one or two orders of magnitude above the free market price. In this way, they are equivalent to tariffs of several thousand percent or even tens of thousands of percent. Just as tariffs lead to economic distortions, and provide incentives for corruption, so do patent monopolies on prescription drugs. We continually see evidence of this as drug companies are routinely found to make payoffs to keep generics out of the market, promote their drugs for uses for which they are inappropriate, and conceal evidence they are less effective than claimed, or even harmful.  The enormous distortions from patent monopolies mean that there are large potential gains from  working around them. This working paper discusses four mechanisms for getting drug prices closer to free market levels with actions at the state or local level or by private actors.

Working Paper A Progressive Trade Policy

November 1, 2018

Donald Trump's trade wars have forced many of us to re-examine what we hope to see in trade policy. At least in rhetoric, he has made the trade deficit front and center on his trade agenda. Many of us have argued that the trade deficit has been a major factor in the loss of relatively high-paying manufacturing jobs. For this reason, there are some grounds for being sympathetic to Trump's approach. However, in other areas, like his promotion of intellectual property rights and his demands on rules for the digital economy, he is diametrically opposed to progressive goals in trade policy.This essay examines these issues in some detail. It makes three main points:The benefits from reducing the trade deficit, while still substantial, are not nearly as large as the damage caused by running large deficits in prior decades.There is no reason that progressives should want stronger protections for intellectual property in trade deals. It is not "our" property at stake, but rather the property of large US corporations. We should be thinking about class, not country.Rules on a digital economy need serious attention. We all have come to recognize the risks that social media outlets like Facebook and Twitter can present to democratic debate. Countries should not be deprived of the means to protect themselves from false stories being spread over these networks.While Trump's trade agenda is not one that most progressives will choose to embrace, he has helped to open up the debate on these issues and increase the likelihood that trade may be set on a more progressive path than the one followed over the last four decades.  

Working Paper: Is Intellectual Property the Root of All Evil? Patents, Copyrights, and Inequality

October 2, 2018

This paper raises three issues on the relationship between intellectual property and inequality. The first is a simple logical point. Patents, copyrights, and other forms of intellectual property are public policy. They are not facts given to us by the world or the structure of technology somehow. While this point should be self-evident, it is rarely noted in discussions of inequality or ways to address it.

Voluntary Part-Time Employment and the Affordable Care Act: What Do Workers Do With Their Extra Time?

October 1, 2018

The main purpose of the Affordable Care Act (ACA) was to extend health insurance coverage to more individuals. Another potential benefit of the ACA, however, was to free up workers to find jobs that better fit their needs, by ending their dependence on employer-provided health insurance. There is considerable evidence indicating that before the implementation of the ACA, many workers stayed in jobs that they otherwise would have left solely because they needed the health insurance provided by the employer. This was likely to be especially true of workers with children, workers who either have a disability or have a family member with a disability, and older workers. By increasing access to insurance outside of employment, either through Medicaid or the health care exchanges, the ACA made it easier for workers to get jobs that better fit their needs.There was a substantial increase in voluntary part-time employment in the years immediately after the main provisions of the ACA took effect, which is evidence of this effect on the labor market. The rise in voluntary part-time employment was largest among young people and was especially pronounced for young women.This study uses data from the American Time Use Survey (ATUS) to assess how people voluntarily employed part-time use the time freed up from work. The ATUS relies on detailed time diaries compiled by respondents to determine how people use their time.

The Housing Bubble and the Great Recession: Ten Years Later

September 1, 2018

It is ten years since we were at the peak of the financial crisis — the collapse of Lehman Brothers, an investment bank. This sent tremors throughout the world, and media outlets began talking about a return of the Great Depression. While the fear generated by politicians and media was able to get enough support for saving the financial industry, the country was left to deal with the painful fallout from a collapsed housing bubble. Millions lost their homes and jobs. Even a decade later, by some measures, most notably prime-age employment rates, the labor market has still not recovered.This discussion makes several points concerning the bubble and its collapse. First and foremost, it argues that the primary story of the downturn was a collapsed housing bubble, not the financial crisis. Prior to the downturn, the housing bubble had been driving the economy, pushing residential construction to record levels as a share of GDP. The housing wealth effect also led to a consumption boom. The saving rate reached a record low. When the bubble burst, it was inevitable that these sources of demand would disappear and there were no easy options for replacing them, except very large government budget deficits.

The Availability of Data from Clinical Trials: The Case of Crohn's Disease

June 7, 2018

The United States spent an estimated $540 billion on prescription drugs and medical equipment in 2017 ($450 billion on prescription drugs alone). Clinical trials which evaluate prescription drugs and new devices prior to their entrance on the market are usually financed and sometimes even carried out by the company holding the intellectual property rights to the technology in question. This is problematic for several reasons. There is an obvious incentive to conceal or underreport trial data which could be harmful to a drug's sales potential or reputation.Our study seeks to briefly characterize the data made available through in order to better understand what information is available to prescribers and investigators not involved in the marketing of the drug or device. In doing so, we underscore the potentially enormous value of publicly funding clinical trials in terms of both patient safety and economic cost.

Measuring the Inflation Rate: Is Housing Different?

June 1, 2018

This paper argues that the Federal Reserve should also consider removing the shelter component from the core inflation indexes it uses in assessing the state of the economy. The reason is that the shelter component is also not moved by the same dynamics as most of the items in the indices. This has not generally mattered in prior years, since inflation in the shelter components has not differed much from the inflation rate in the rest of the core. However, this is no longer true. Over the last four years, a core inflation rate that excludes shelter would be more than 0.5 percentage points lower than the standard core in the CPI and more than 0.3 percentage points lower in the PCE.

Does Tax Deductibility Affect CEO Pay? The Case of the Health Insurance Industry

March 22, 2018

This paper tests whether pay fell for CEOs at health insurers in the years after the ACA deductibility cap went into effect. We control for revenue growth, profit growth, increase in market value, and other variables likely to affect CEO pay. Our key findings are:There is no evidence that limiting the deductibility of CEO pay for health insurers lowered this pay relative to other industries, after controlling for other determinants of pay.The failure of reduced deductibility to slow growth in CEO pay in the health insurance sector relative to other sectors means that the TCJA provisions are unlikely to significantly affect CEO pay more widely.The assertion that rapid growth in CEO pay in recent decades has simply reflected shareholders rationally rewarding excellent performance by executives is flawed. It can hardly be rational for shareholders to ignore tax changes that make CEOs significantly more expensive to them. Instead, shareholders' failure to respond to the increasing expense of CEO pay strongly supports the view that weaknesses in corporate governance have failed to discipline the growth of CEO pay.To restrain growth in CEO pay we need reforms to improve corporate governance and give shareholders more power over corporate executives.

State Payroll Taxes: A Tool for States to Circumvent the Republican Tax Plan

February 13, 2018

The new tax law sharply limits the deduction for state and local taxes (SALT) when calculating federal taxes by capping the deduction at $10,000. While this will not affect most taxpayers, it will affect a substantial number of taxpayers in relatively high tax states like California and New York. This paper suggests an employer-side payroll tax as a tool that states can use to shield most of the tax revenue that otherwise would have been collected through formerly deductible income or sales taxes.

The Wealth of Households: An Analysis of the 2016 Survey of Consumer Finance

October 31, 2017

This paper presents new data on the wealth of households by age cohort from the 2016 Survey of Consumer Finances (SCF). It shows that the rebound in the prices of homes and equities helped grow households' net wealth from 2013 lows. Nevertheless, the gains were disproportionately concentrated in the wealthiest households, with the top 2 percent increasing their share by 3 percentage points.

The Impact of Low Unemployment Rates on Disadvantaged Groups

October 12, 2017

This paper compares employment rates by gender, race and ethnicity, and educational attainment from 2013 to 2015 in the 20 metro areas with the lowest unemployment rates and the 20 metro areas with the highest unemployment rates to get some measure of the disproportionate gains to disadvantaged groups from low unemployment.The analysis in this paper strongly supports the view that relatively disadvantaged groups have been the major beneficiaries of recent declines in unemployment. In all cases, the gains for whites — and especially college-educated whites — were limited. This suggests that if the unemployment rate is allowed to fall further, there can be large additional benefits in employment, hours, and wages for the most disadvantaged groups in the labor force.

The Full Employment Mandate of the Federal Reserve: Its Origins and Importance

July 1, 2017

As we approach the 40th anniversary of the landmark Humphrey-Hawkins Act, this report underscores how the Federal Reserve's full employment mandate has made the Fed more accountable to working people. The report first traces the historical origins of the full employment mandate and highlights the pivotal but little-known role racial justice activists played in its creation. From the 1930s and through the rise of the civil rights movement, racial justice activists including Coretta Scott King, called for a coordinated federal effort to attain full employment. They envisioned an economy where every person who seeks employment can secure a job. King joined Congressional leaders Augustus Hawkins and Hubert Humphrey in eventually passing the landmark 1978 Full Employment and Balanced Growth Act (Humphrey-Hawkins) which legally required the Fed to pursue maximum employment.The report then turns to Federal Reserve monetary policy in the 1990's which offers an instructive model of what a full employment economy can look like. This real-world case study from our recent history shows that when labor markets tighten, workers begin to see broad-based wage gains, and persistent economic inequalities are reduced. Finally, the report underscores the continued importance of the full employment mandate today while providing an overview of proposed policies to eliminate or significantly curtail its effectiveness. In light of these findings, this report calls on Federal Reserve policymakers to use all tools at their disposal to fully realize the Fed's full employment mandate. Members of Congress must publicly affirm the importance of full employment while committing to reject any efforts to weaken or eliminate the full employment mandate. In particular, the Senate must reject nominees to the Board of Governors who have called for the narrowing of the Fed's mandate or who support policies that would undermine the Fed's ability to pursue full employment.