Bloomberg New Economy: Curing a Virus With Authoritarianism [feedly]

Further evidence of authoritarian political conclusions being drawn by liberal billionaires, if reluctantly, and hesitantly.

Yet, the post hints at profound questions about democracy's ability to manage a crisis where vast  structural and existential damage requires vast change and increased public -- state -- direction and controls over the economy, public health,  and political life. The Republican party began giving up on democracy under Roosevelt, whom they hated, and whose hate he welcomed.  Eisenhower slowed the party's surrender. 

But Johnson's civil rights legislation - the last upward legacy of the New Deal era -- was followed by the corruptions of Nixon: the cynical, racist Southern -- "save the Dixiecrat Confederacy" Strategy; followed by the assassinations of the Kennedys and King (I think we know who did that); followed by the "wars on drugs" (which did nothing to stop drugs, indeed increased their distribution, but disenfranchised millions of African Americans); followed by the mortal national wounds from the debacle of Vietnam ---  the poisoned fruit  of global corporate "world domination" imperialism.

The Republican contempt for democratic norms accelerated under Reagan, with ever closer ties to utra-right, racist and fascist-minded movements, some under the cover of fake Christianity. It was mostly funded by billionaires. 

The divisions had a big impact on Democrats too. Under Clinton the Democratic Party leadership gave up the New Deal coalition as "unwinnable" -- a democratic coalition that successfully managed a world wide crisis WITHOUT major recourse to authoritarian models. Hope instead was placed in new capital centers, especially high-tech and entertainment.  But that has proven to be a vain and illusory escape from defending against blatant attacks on the path of "a more perfect union"

The weakening of unions and assaults on civil rights, and rising inequality, spread ever deeper, and in sync.  Corporate elites, including the liberal ones, pleaded for the "necessity" of further vast accumulations of wealth to "reproduce the system" [Reginald Jones, Chair of GE in the 70's -- the "most profitable corporation in the world"]. Vicious assaults on the franchise of African Americans and the poor became Republican doctrine. The decades of anti-communist, anti-liberation fraudulent covers for militarization gave rise to a military establishment no longer dependentt on democratic declarations of war, or drafts -- viable only for foreign policies that HAVE WIDE PUBLIC SUPPORT. Taxpayers were broadly lied to about savage and brutal colonial and neo-colonial extraction regimes, which led to military and covert subversions of actual democratic movements across the world.

And now Trump - more the product than the cause of American decline. I submit the crossroads we approach now -- in a pandemic which has exposed the profound depth of our corruption -- will destroy this union if the Republican party as presently composed and led, is not outlawed and repressed. There is now no more common ground between the two parties that there was in 1858 between the Repubican Party and the treasonous slavocracy Democratic party of that time.

It is inevitable that in big crises, the state becomes bigger and more authoritarian. It can be temporary, and democracy can be restored, but only if a renewed foundation of national unity can be defined and sustained. 

Of large nations, China has been the most successful in this crisis, and is a one party state. Bourgeois voices assume that is the same as "authoritarian".  That certainly applies to some regimes. But not all. The US was a one party state through the revolution and the civil war. What happens down the road from here is not determined.

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Bloomberg New Economy: Curing a Virus With Authoritarianism
https://www.bloomberg.com/news/newsletters/2020-08-15/bloomberg-new-economy-curing-a-virus-with-authoritarianism

The campaign against plague in the Middle Ages "marked a moment in the emergence of absolutism," writes Yale University historian Frank M. Snowden in "Epidemics and Society: From the Black Death to the Present." Ever since then, autocrats have used epidemics as an excuse to tighten control over their subjects.

The basic tools they deploy have hardly changed, including quarantine and sanitary cordons. And their playbook has remained remarkably consistent: Seize control of the economy, drastically restrict the movement of people and authorize forcible detentions. Authoritarians generally figure that traumatized populations will give them credit for taking resolute action. Indeed, history shows that citizens and civic leaders rarely resist.

Covid-19 represents a new moment in this march of state power. In an era of Artificial Intelligence-enabled digital surveillance, governments around the world have been unable to resist the temptation to intrude more deeply into the lives of their citizens, as always justifying their draconian actions in the name of conquering a mortal threat.

A security guard carrying a rifle monitors a shopper, left, exiting a disinfection channel installed at the entrance of a shopping mall in Manila on May 16.Photographer: Ted Aljibe/AFP

This week in the New Economy

Alibaba and Xiaomi get into Hong Kong's benchmark index.
Venezuela boosts oil exports even as production plummets.
And the U.S. seized Iranian tankers carrying fuel to Venezuela.
Elite Thai visa program aims to lure expats seeking virus haven.
South Africa plans a building boom to spur virus recovery.
 

"The overlap of these two global disruptions—the epidemiological and the technological—will shape the next few years of global history," writes Nicholas Wright, a medical doctor and neuroscientist who works on emerging technologies and global strategy at University College London and Georgetown University Medical Center.

Beyond the lingering health effects on its victims, as well as the economic scars, the lasting legacy of the novel coronavirus is likely to be a permanent erosion of civil liberties.

Israel, for instance, has tapped into troves of secret mobile phone data collected for counterterrorism purposes to fight the virus. Singapore requires visitors to wear tracking devices. South Korea uses credit card data to triangulate the movement of its citizens. Meanwhile, the state of Karnataka in India demands hourly selfies from those in quarantine.

Taiwan had previously merged its national health insurance database with its customs and immigration database, a system that is now generating real-time alerts among patients seeking treatment based on travel history.

Volunteers measure temperatures and scan health codes for residents of Jilin City, China, on May 17.Photographer: Barcroft Media

And China, where the Covid-19 outbreak originated, has seized upon the pandemic to add to its existing state surveillance.

In dealing with the crisis, the scholars Sheena Chestnut Greitens and Julian Gewirtz note that Chinese leaders have fused the concepts of public health and national security. This effort, in Chinese Communist Party-speak, is known as "fangkong," or "prevent and control." Local public security bureaus have been helping companies develop health-monitoring apps, and then making use of the data these apps spew out—everything from body temperatures to social contacts—to profile citizens in minute detail.

State capacity of this kind is growing around the world, in large part thanks to China's efforts to export surveillance technology to countries from Central Asia to Africa that have signed up to its "Belt and Road" infrastructure-building project.

"Democracies must develop a clear and distinct vision for the future relationship between health and security so that China's approach does not become the world's," write Greitens and Gewirtz.

It is true however that surveillance is an essential tool of public health, and some restrictions on individual freedoms are necessary to prevent the spread of infection and save lives.

That said, it's far easier for governments to grab power under cover of an epidemic than for citizens to claw it back once the threat recedes. For this reason, the United Nations Office of the High Commissioner for Human Rights has warned that emergency measures implemented to combat Covid-19 should be time-limited, "the least intrusive to achieve the stated public health goals" and include safeguards "to ensure return to ordinary laws as soon as the emergency situation is over."

The plagues of the Middle Ages, notes Yale's Snowden, usually killed more than half of their victims, giving rise to the cliche that too few survived to bury the dead. Covid-19 has been far less deadly, but the political impact could be just as profound.

Once this pandemic is conquered, the first priority will be rolling back the state.


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Millions of workers are relying on unemployment insurance benefits that are being stalled and slashed [feedly]

Millions of workers are relying on unemployment insurance benefits that are being stalled and slashed
https://www.epi.org/blog/millions-of-workers-are-relying-on-unemployment-insurance-benefits-that-are-being-stalled-and-slashed/

Last week 1.3 million workers applied for unemployment insurance (UI) benefits. More specifically, 832,000 applied for regular state unemployment insurance (not seasonally adjusted), and 489,000 applied for Pandemic Unemployment Assistance (PUA). Some headlines this morning are saying there were 963,000 UI claims last week, but that's not the right number to use. Instead, our measure includes PUA, the federal program that is supporting millions of workers who are not eligible for regular UI, such as the self-employed. We also use not seasonally adjusted data, because the way Department of Labor (DOL) does seasonal adjustments (which is useful in normal times) distorts the data right now.

Astonishingly high numbers of workers continue to claim UI, and we are still 12.9 million jobs short of February employment levels. And yet, Senate Republicans allowed the across-the-board $600 increase in weekly UI benefits—the most effective economic policy crisis response so far—to expire.

In an unserious move of political theater, the Trump administration has proposed starting up an entirely new system of restoring wages to laid-off workers through executive order (EO). But even in their EO wishlist, the Trump administration would slash the federal contribution to enhanced unemployment benefits in half, to $300. This inaction and ongoing uncertainty is causing significant economic pain for workers who have lost their job during the pandemic and their families. It also causes an administrative hassle for state agencies that have already struggled immensely to process the huge number of claims early in the pandemic and implement the new UI protections in the CARES Act. Since the states with the least stable UI systems also have the highest populations of Black and Latinx people, existing inequalities will likely deepen even further by both the cutoff of supplementary benefits and the increased chaos introduced by having presidential EOs pretend to stand in for the legislative action that is needed.

Cutting UI benefits is directly harmful not just to the individual workers who rely on them, but to the economy as a whole. The additional $600 in benefits allowed for a large amount of spending, sustaining these workers' effective demand for goods and services even in the face of joblessness. If the Trump administration gets their way and these benefits are cut in half, it would cause such a large drop in spending that it would cost us 2.6 million jobs over the next year.

During the pandemic, Black and brown communities have suffered disproportionately on the front lines and in the unemployment lines. Black women in essential occupations are paid less than white men for doing the same vital work. At the same time, Black and Hispanic workers have seen higher unemployment rates than white workers in this recession, meaning they are disproportionately harmed by the cut to UI benefits. These communities, and Black women in particular, should be centered in policy solutions.

Some have argued that the additional benefits create a disincentive for workers to return to the workforce. However, studies—including one conducted by Yale economists—found no evidence that recipients of more generous benefits were less likely to return to work. Further, there are millions more unemployed workers than job openings, meaning millions will remain jobless no matter what they do. In short, the primary constraint on job growth in the near term is depressed demand for workers, not workers' incentives. In any case, our top priority as a country should be protecting the health and safety of workers and our broader communities by paying workers to stay home when they feel safer not working in person (or feel their families' welfare is improved by them not working in the pandemic), whether that means working from home some or all of the time, using paid leave, or claiming UI benefits. The recent spikes in coronavirus cases across the country—and subsequent re-shuttering of certain businesses—show the devastating costs of reopening economic sectors prematurely.

Figure A combines the most recent data on both continuing claims and initial claims to get a measure of the total number of people either receiving or planning to receive unemployment benefits as of August 8. DOL numbers indicate that right now, 29.7 million workers are either on unemployment benefits, have been approved and are waiting for benefits, or have applied recently and are waiting to get approved. But importantly, Figure A provides an upper bound on the number of people "on" UI, for two reasons: (1) Some individuals may be being counted twice. Regular state UI and PUA claims should be non-overlapping—that is how DOL has directed state agencies to report them—but some individuals may be erroneously counted as being in both programs; (2) Some states are likely including some back weeks in their continuing PUA claims, which would also lead to double counting (the discussion around Figure 3 in this paper covers this issue well).

Figure A

Figure B shows continuing claims in all programs over time (the latest data are for July 25). Continuing claims are 26.6 million above where they were a year ago. However, the above caveat about potential double counting applies here too, which means the trends over time should be interpreted with caution.

Figure B

As the pandemic drags on, many workers are facing long-term joblessness. The number of people claiming Pandemic Emergency Unemployment Compensation (PEUC), the 13 additional weeks of benefits available to workers who have exhausted the 26 weeks of regular benefits, increased by 67,000 during the week of July 25. However, it is clear that even this 13 week extension is not enough to meet the needs of many workers, and policymakers should extend it even further. As evidence of this, the Extended Benefits program, which provides an additional 13 weeks of benefits after PEUC, had a 56,000 increase in claimants during the week of July 25. There are now 126,000 workers claiming Extended Benefits, the highest number so far this recession, and every state meets the high unemployment threshold that is required for these benefits to kick into effect. Congress must not allow another crucial provision to lapse.

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Enlighten Radio:Talkin Socialism: Unemployment -- what is the cure?

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Blog: Enlighten Radio
Post: Talkin Socialism: Unemployment -- what is the cure?
Link: https://www.enlightenradio.org/2020/08/talkin-socialism-unemployment-what-is.html

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Let’s call it what it is. We’re in a Pandemic Depression. [feedly]

Let's call it what it is. We're in a Pandemic Depression.
https://www.washingtonpost.com/opinions/lets-call-it-what-it-is-were-in-a-pandemic-depression/2020/08/09/3904faf4-d8e5-11ea-aff6-220dd3a14741_story.html?utm_source=feedly&utm_medium=referral&utm_campaign=wp_opinions

It must be clear to almost everyone by now that the sudden and sharp economic downturn that began in late March is something more than a severe recession. That label was, perhaps, justifiable for the 2007-2009 Great Recession, when unemployment reached a peak of 10 percent. It isn't now.

"This situation is so dire that it deserves to be called a 'depression' — a pandemic depression," write economists Carmen Reinhart and Vincent Reinhart in the latest issue of Foreign Affairs. "The memory of the Great Depression has prevented economists and others from using that word."

It's understandable. People don't want to be accused of alarmism and making a bad situation worse. But this reticence is self-defeating and ahistoric. It minimizes the gravity of the crisis and ignores comparisons with the 1930s and the 19th century. That matters. If the hordes of party-goers had understood the pandemic's true dangers, perhaps they would have been more responsible in practicing social distancing.

Full coverage of the coronavirus pandemic

Even after the July jobs report, when the unemployment rate fell from June's 11.1 percent to 10.2 percent, the labor market remains dismal. Here are comparisons with February, the last month before the pandemic was fully reflected in job statistics: The number of employed fell by 15.2 million; the unemployed rose by 10.6 million; and those not in the labor force increased by 5.5 million.

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Opinion | Eviction in a pandemic: Experts warn of unprecedented crisis without federal relief

Without federal intervention, experts warn of an unprecedented wave of evictions in the coming months, more devastating than the 2008 foreclosure crisis. (Joy Sharon Yi/The Washington Post)

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"The nineteenth and early twentieth centuries were filled with depressions," write the husband-and-wife Reinharts. Among economists, they are heavy hitters. She is a Harvard professor, on leave and serving as the chief economist of the World Bank; he was a top official at the Federal Reserve and is now chief economist at BNY Mellon.

What's clear is that the Pandemic Depression resembles the Great Depression of the 1930s more than it does the typical post-World War II recession. To simplify slightly: The typical postwar slump occurred when the Fed raised interest rates to reduce consumer price inflation. They lowered rates to stimulate growth.

By contrast, both the Great Recession and the Pandemic Depression had other causes. The Great Recession reflected runaway real estate and financial speculation and their adverse effects on the banking system. The Pandemic Depression occurred when infection fears and government mandates led to layoffs and an implosion of consumer spending.

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The collateral damage has been huge. Small businesses accounted for 47 percent of private-sector jobs in 2016, estimates the Small Business Administration. Many have failed or will fail because they lacked the cash to survive a lengthy shut down. In a new study, economist Robert Fairlie of the University of California at Santa Cruz reports an 8 percent drop in the number of small businesses from February to June. Among African Americans, the decline was 19 percent; among Hispanics, 10 percent.

As federal unemployment benefits expire, tell us what this means for you and your family

In one respect, the Reinharts have underestimated the parallels between the today's depression and its 1930s predecessor. What was unnerving about the Great Depression is that its causes were not understood at the time. People feared what they could not explain. The consensus belief was that business downturns were self-correcting. Surplus inventories would be sold; inefficient firms would fail; wages would drop. The survivors of this brutal process would then be in a position to expand.

This view rationalized patience and passivity. Just wait; things will get better. When they didn't, anxiety and discontent mounted. There was an intellectual void. Modern scholarship has filled the void. If — at the time — government had been more aggressive, preventing bank failures and embracing larger budget deficits to stimulate spending, the economy wouldn't have collapsed. The Great Depression wouldn't have been so great.

Something similar is occurring today. The interaction between medicine and economics often baffles. Is this a health-care crisis or an economic crisis? Before the New Deal in the 1930s, national leaders followed the conventional wisdom of the day — doing little. Similarly, leaders now are following today's conventional wisdom, which is to spend lavishly. Will this work or will the explosion of government debt ultimately create a new sort of crisis?

The language of the past increasingly fits the conditions of the present. The many busts of the 19th century have long been referred to as "depressions" — for example, in the late 1830s, the 1870s and the 1890s. The accepted reality at the time was that mere mortals had little control over economic events. We thought we had moved on, but maybe we haven't.

The implications for the economic outlook are daunting. In their essay, the Reinharts distinguish between an economic "rebound" and an economic "recovery." A rebound implies positive economic growth, which they consider likely, but not enough to achieve full recovery. This would equal or surpass the economy's performance before the pandemic. How long would that take? Five years is the Reinharts' best guess — and maybe more.

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Struggling Families and Economy Need Robust, Bipartisan COVID Relief Agreement [feedly]

Struggling Families and Economy Need Robust, Bipartisan COVID Relief Agreement
https://www.cbpp.org/research/economy/struggling-families-and-economy-need-robust-bipartisan-covid-relief-agreement

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Trump Executive Order Doesn’t Extend Eviction Ban, Won’t Help the Millions Struggling to Pay Rent [feedly]

Trump Executive Order Doesn't Extend Eviction Ban, Won't Help the Millions Struggling to Pay Rent
https://www.cbpp.org/blog/trump-executive-order-doesnt-extend-eviction-ban-wont-help-the-millions-struggling-to-pay-rent

Despite the President's claims, his executive order (EO) does not extend the expired federal ban on evictions or provide more funds to tenants or landlords to cover lost rent payments. In fact, the EO doesn't do anything that would immediately help people pay their rent and avoid evictions — though Administration officials are recklessly claiming that renters are now protected from evictions. That must be particularly concerning for the likely millions of people struggling to pay rent in August.

The EO claims to help renters who have suffered income or job loss due to COVID-19 and the resulting economic recession. The EO, however, merely asks federal agencies to "consider" and "review" if measures to halt evictions are needed; it does not specify what actions agencies can take to halt them. It also directs the Housing and Urban Development and Treasury departments to identify available funds to provide rent relief, singling out landlords, affordable housing developers, public housing authorities, and federal grant recipients for assistance. But without congressionally approved funding, it's unclear what funds they can redistribute to protect these recipients, let alone renters.

Some 21 percent of all adult renters were behind on their rent in July, the most recent data show. That's before the eviction moratorium and enhanced unemployment benefits, enacted under the CARES Act of March, expired. Without these protections, a wave of evictions may be imminent, experts fear.

The nation faces serious rental housing problems that this executive order doesn't solve. Instead, policymakers should take a comprehensive approach to address them adequately. Such an approach would include:

• Housing vouchers to provide long-term housing stability. State and local housing agencies are well positioned to identify individuals and families facing the greatest risks of eviction or homelessness and to provide them with rental vouchers that will help them to remain stably housed for the long term. These agencies can provide emergency housing vouchers to 500,000 at-risk households over the next year, at a five-year cost of about $26 billion. (The House-passed Heroes Act includes $1 billion for this purpose, and both House and Senate legislation, H.R. 7084 and S. 4164, would provide $10 billion.)
• Homelessness assistance. State and local agencies need more funds to expand safe, non-congregate shelter options for people experiencing homelessness, revamp their facilities to prevent the spread of the virus, and provide services to help people remain housed and avoid homelessness. The CARES Act provides $4 billion for these purposes, but analysts have concluded that an additional $11.5 billion will be needed to expand these efforts during the pandemic.
• Eviction prevention. Policymakers should extend the federal eviction moratorium while also providing help paying past, current, and future rent. They should provide significant funding through the Emergency Solutions Grant program for short- and medium-term rental assistance to help people stay in their homes, avoid accumulating housing-related debt (without leaving landlords responsible for unpaid rent), and avoid evictions when federal, state, and local moratoriums expire.
• Supplemental funding for rental assistance programs. Income losses among currently assisted households are raising subsidy costs, and many housing agencies will have to cut the number of households they assist if they don't get more funding to cover these costs. We estimate the need for at least $1 billion to address shortfalls in the Housing Choice Voucher program, along with additional funds for public housing and other programs.

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Financing Drug Development: What the Pandemic Has Taught Us [feedly]

Financing Drug Development: What the Pandemic Has Taught Us
http://feedproxy.google.com/~r/beat_the_press/~3/493uekfibIQ/

We are still very much in the middle of the pandemic, with the U.S. seeing tens of thousands of new infections daily, and the world experiencing hundreds of thousands of new infections. However, it is not too early to look at areas where we need to reevaluate public policy, most importantly in financing the research and development of new drugs and vaccines.

The accepted wisdom in policy circles has been, that while the government can finance basic research, we need to rely on government-granted patent monopolies to pay for the actual development and testing of new drugs. The argument is that we want private companies to compete to develop new and better drugs, with the rents earned from their patent monopolies compensating them for the cost of research and testing, as well as compensating them for the risk that they will not develop a marketable drug.

The logic of this position relied on the claim that somehow government financing of the later stages of research and testing is essentially the same thing as throwing money in the toilet. The industry acknowledges the value of the research funded by the National Institutes of Health (NIH), and in fact is the biggest lobbyist for it. But they say that if NIH were to move downstream and actually finance the development of drugs and do clinical trials, they would turn into a bunch of bureaucratic bozos who couldn't do anything right.[1]

The behavior of the government in this pandemic seems to indicate that this is not the case. The government, through Operation Warp Speed, is directly funding the research on vaccines, as the research takes place. This is most visible with Moderna, the country's leading contender to develop a vaccine. The government paid $483 million to Moderna for pre-clinical research and Phase 1 and 2 testing. It then coughed up another $472 million to cover the cost of phase 3 testing.   

If any policy types thought this direct government funding of the research and development of a vaccine was just throwing money in the toilet, they have not been very visible in expressing this view over the last four months. It is true that Moderna will also get a patent monopoly, allowing it to collect even more money for its effort, but the direct funding from the government is clearly the key here. This funding paid for the research and testing. It also meant that the government took all the risk. If Moderna's vaccine turns out to be ineffective, the government will be out the money, not Moderna.

Since policy types can apparently accept that when the federal government directly pays for the development and testing of new drugs and vaccines it is not the same as throwing the money into the toilet, maybe we can move forward and ask the next question as to how efficient direct public funding is relative to patent monopoly financed research. The issue here is how much the government would have to spend on advanced funding to get the same results as we see with patent monopoly financed research.

Before considering what the ratio of relative effectiveness might be, it is worth getting some idea of what is at stake. We will spend over $500 billion in 2020 for drugs that would almost certainly cost us less than $100 billion in a free market without patent monopolies or other forms of exclusivity.[2] It is rare that drugs are actually expensive to manufacture and distribute. The drugs that sell for tens of or even hundreds of thousands of dollars for a year's treatment would typically sell for just a few hundred dollars if they were sold in a free market without patents or related protections. The potential savings of $400 billion a year come to more than $3000 per household.

In exchange for this $400 billion in higher drug prices, we get around $90 billion in research spending by the industry. These numbers are shown in the figure below, along with the $40 billion annual budget (pre-pandemic) for the National Institutes of Health. This is an understatement of federally funded bio-medical research, since we spend several billion more through Biomedical Advanced Research and Development Authority (BARDA) and other government agencies. 

These figures are shown below along with the $60.4 billion that we spent on food stamps (SNAP) in 2019. The food stamp budget is included as a point of reference since many people in policy debates seem to believe that our spending on food stamps is a really big deal.

Source: Author's calculations: see text.

 

 

 

Anyhow, the basic story is that we come out ahead with publicly funded research if it is at least one quarter as productive as patent monopoly supported research. In other words, if four dollars of direct publicly funded research is at least good as one dollar of patent supported research, we would be better off switching to a system of publicly supported research.

There are actually good reasons for thinking that on a per dollar basis government funding would be more efficient. First and foremost, the government could make it a condition of funding that all results are posted on the Internet as quickly as practical. This would allow researchers to quickly learn from each other's work, building on successes and not wasting effort pursuing dead ends. This was the practice with the Bermuda Principles in the Human Genome Project. This sort of open-research in the early days after the coronavirus was first discovered led to much more rapid progress than would ordinarily be the case.

The other major reason why publicly funded, open-source, research is likely to be more efficient on a per dollar basis is that there would be no incentive to develop copycat drugs as a way of sharing patent rents. While it is often desirable to have more than one drug to treat a specific condition, since some patients may respond poorly to an initial drug or it could have harmful side effects, trying to engineer around a patent will generally not be a productive use of resources from a social standpoint. If research funding was being paid upfront, with no patent rents to compete over, there would be no incentive to develop a duplicative drug, except where there was a medical reason. 

This raises another reason for believing that direct funding of research will lead to better health outcomes than our current system of patent monopoly financing. When drug companies can sell their drugs at patent monopoly prices they have an enormous incentive to promote their drug even in circumstances where it may not be the best treatment for a specific medical condition. This means that they have a reason to conceal evidence that their drugs may not be as effective as claimed or could even be harmful.

We saw this story with the opioid crisis, where several major pharmaceutical companies are alleged to have misled doctors and the public about the addictiveness of their new generation of opioids. Unfortunately, this is not an exception. There have been many instances where drug companies paid large settlements over allegations that they deliberately misled doctors and patients about the safety and effectiveness of their drugs.

In the absence of patent monopolies, no one would have any substantial incentive to make misleading claims about the quality of drugs. Furthermore, since all the research and test results would be fully public, they would likely not be able to get away with false claims even if they tried.

There is one additional source of waste that would be eliminated if we directly funded the research and allowed drugs to be sold at free market prices. We would not need insurance to cover drug costs. When drugs can cost, hundreds, thousands, or even tens of thousands of dollars, people need insurance to cover this potential expense. However, if most drugs sold for ten or twenty dollars per prescription, insurance would not really be needed. (Lower income people would still need assistance in paying for drugs.)

Since insurers take on average 20 to 25 percent of health care spending to cover their administrative costs and profits, having drugs sell at free market prices would save us tens of billions annually on insurance costs. This also has to be factored into any comparison of the relative efficient of direct public funding and patent monopoly financing.

If we do consider direct public financing of research, the Trump administration has not provided us with the best model. We don't want companies selected through a closed door process with no clear criteria. My ideal model would be to have companies contracting for large sums to pursue research in specific areas for a substantial period of time. For example, a company may get a contract for $20 billion over a twelve-year period to pursue research for new drugs to treat liver cancer.

This sort of long-term contracting should insulate companies for political pressure, since once a contract was granted, they could not lose the funding, barring outright fraud or other serious forms of malfeasance. The awarding and renewal of contracts would be based on clear and fully public criteria. (This system is described more fully in chapter 5 of Rigged.)  

It will be a long jump from where we are now to a system of open-source publicly financed biomedical research, but we opened the door for this switch with the financing of treatments and vaccines for the coronavirus. Once we acknowledge that direct public funding of the development of new drugs is not the same thing as throwing money into the toilet, then we can start asking questions about the relative effectiveness of direct public funding and patent supported research.

This seems to raise uncomfortable questions for many people in policy debates. They, and their friends and family, tend to be among the group of people who benefit from patent and copyright monopolies in drugs and other areas. However, if we want to have serious policy discussions, and not just protect existing patterns of inequality, government-granted patent and copyright monopolies have to be on the table.

[1] This view persists in spite of the fact that many important drugs have actually been developed on NIH grants and the agency has financed hundreds of clinical trials.

[2] There are a variety of mechanisms other patent monopolies that allow drug companies to have exclusive rights to sell a drug. The most important of these is data exclusivity, which prohibits generic manufacturer from relying on the test data from a brand drug to show that a chemically equivalent drug is safe and effective.

The post Financing Drug Development: What the Pandemic Has Taught Usappeared first on Center for Economic and Policy Research.

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