Category: Economics

Patents are Not the Problem!

For the last year and a half I have been shouting from the rooftops, “invest in capacity, build more factories, shore up the supply lines, spend billions to save trillions.” Fortunately, some boffins in the Biden administration have found a better way, “the US supports the waiver of IP protections on COVID-19 vaccines to help end the pandemic.”
Waive IP protections. So simple. Why didn’t I think of that???

Patents are not the problem. All of the vaccine manufacturers are trying to increase supply as quickly as possible. Billions of doses are being produced–more than ever before in the history of the world. Licenses are widely available. AstraZeneca have licensed their vaccine for production with manufactures around the world, including in India, Brazil, Mexico, Argentina, China and South Africa. J&J’s vaccine has been licensed for production by multiple firms in the United States as well as with firms in Spain, South Africa and France. Sputnik has been licensed for production by firms in India, China, South Korea, Brazil and pending EMA approval with firms in Germany and France. Sinopharm has been licensed in the UAE, Egypt and Bangladesh. Novavax has licensed its vaccine for production in South Korea, India, and Japan and it is desperate to find other licensees but technology transfer isn’t easy and there are limited supplies of raw materials:

Virtually overnight, [Novavax] set up a network of outside manufacturers more ambitious than one outside executive said he’s ever seen, but they struggled at times to transfer their technology there amid pandemic travel restrictions. They were kicked out of one factory by the same government that’s bankrolled their effort. Competing with larger competitors, they’ve found themselves short on raw materials as diverse as Chilean tree bark and bioreactor bags. They signed a deal with India’s Serum Institute to produce many of their COVAX doses but now face the realistic chance that even when Serum gets to full capacity — and they are behind — India’s government, dealing with the world’s worst active outbreak, won’t let the shots leave the country.

Plastic bags are a bigger bottleneck than patents. The US embargo on vaccine supplies to India was precisely that the Biden administration used the DPA to prioritize things like bioreactor bags and filters to US suppliers and that meant that India’s Serum Institute was having trouble getting its production lines ready for Novavax. CureVac, another potential mRNA vaccine, is also finding it difficult to find supplies due to US restrictions (which means supplies are short everywhere). As Derek Lowe said:

Abolishing patents will not provide more shaker bags or more Chilean tree bark, nor provide more of the key filtration materials needed for production. These processes have a lot of potential choke points and rate-limiting steps in them, and there is no wand that will wave that complexity away.

Technology transfer has been difficult for AstraZeneca–which is one reason they have had production difficulties–and their vaccine uses relatively well understood technology. The mRNA technology is new and has never before been used to produce at scale. Pfizer and Moderna had to build factories and distribution systems from scratch. There are no mRNA factories idling on the sidelines. If there were, Moderna or Pfizer would be happy to license since they are producing in their own factories 24 hours a day, seven days a week (monopolies restrict supply, remember?). Why do you think China hasn’t yet produced an mRNA vaccine? Hint: it isn’t fear about violating IP. Moreover, even Moderna and Pfizer don’t yet fully understand their production technology, they are learning by doing every single day. Moderna has said that they won’t enforce their patents during the pandemic but no one has stepped up to produce because no one else can.

The US trade representative’s announcement is virtue signaling to the anti-market left and will do little to nothing to increase supply.

What can we do to increase supply? Sorry, there is no quick and cheap solution. We must spend. Trump’s Operation Warp Speed spent on the order of $15 billion. If we want more, we need to spend more and on similar scale. The Biden administration paid $269 million to Merck to retool its factories to make the J&J vaccine. That was a good start. We could also offer Pfizer and Moderna say $100 a dose to produce in excess of their current production and maybe with those resources there is more they could do. South Africa and India and every other country in the world should offer the same (India hasn’t even approved the Pfizer vaccine and they are complaining about IP!??) We should ease up on the DPA and invest more in the supply chain–let’s get CureVac and the Serum Institute what they need. We should work like hell to find a substitute for Chilean tree bark. See my piece in Science co-authored with Michael Kremer et. al. for more ideas. (Note also that these ideas are better at dealing with current supply constraints and they also increase the incentive to produce future vaccines, unlike shortsighted patent abrogation.)

Bottom line is that producing more takes real resources not waving magic patent wands.

You may have gathered that I am angry. I am indeed angry that the people in power think they can solve real problems on the cheap and at someone else’s expense. This is not serious. I am also angry that they are sending the wrong message about business, profits and capitalism. So let me end on positive note. Like the Apollo program and Dunkirk, the creation of the mRNA vaccines by Pfizer and Moderna should be lauded with Nobel prizes and major movies. Churchill called the rescue at Dunkirk a “miracle of deliverance,” well the miracle of Moderna will rescue many more. Not only was a vaccine designed in under a year, an entirely new production process was set up to produce billions of doses to rescue the world. The creation of the mRNA vaccines was a triumph of science, logistics, and management and it was done at a speed that I had thought possible only for past generations.

I am grateful that greatness is still within our civilization’s grasp.

Addendum: Lest I be accused of being reflexively pro-patent, do recall the Tabarrok curve.

The New Era of Unconditional Convergence

Here is a new paper by Dev Patel Justin Sandefur, and Arvind Subramanian:

The central fact that has motivated the empirics of economic growthnamely unconditional divergenceis no longer true and has not been so for decades. Across a range of data sources, poorer countries have in fact been catching up with richer ones, albeit slowly, since the mid-1990s. This new era of convergence does not stem primarily from growth moderation in the rich world but rather from accelerating growth in the developing world, which has simultaneously become remarkably less volatile and more persistent. Debates about a middle-income trap also appear anachronistic: middleincome countries have exhibited higher growth rates than all others since the mid-1980s.

Here is the entire paper.  My general conclusion is that no particular model of convergence, or lack thereof, is correct, and it simply all depends on the historical period.

How to beat Paul Graham and put him in his place

Paul writes me:

I remember you wrote an article about the intersection of cryptocurrency and philanthropy, so if you haven’t heard about it yet you’d probably be interested in the new “Save Thousands of Lives” NFT being sold by a nonprofit we funded.

They run programs in India to teach new moms to take care of their babies at home. They’re amazingly effective (not surprising since they’re using the most powerful force in the world as leverage) and have the lowest cost per life saved of any nonprofit I know: $1235. And that is conservatively estimated; in reality it’s even lower.

You can read about it here: http://paulgraham.com/nft.html

I’d really appreciate it if you could help publicize this project. I bid the reserve price, but I really want to get into a bidding war with a cryptobillionaire, because the higher the price goes, the more lives get saved.

OK people, now you know how to beat Paul Graham…

My Conversation with Daniel Carpenter, on regulation and also the FDA

Here is the audio, video, and transcript, I found it a very substantive and also illuminating episode.  Carpenter is very, very smart and also very well-informed historically.  Here is part of the summary:

Daniel Carpenter is one of the world’s leading experts on regulation and the foremost expert on the US Food and Drug Administration. A professor of Government at Harvard University, he’s conducted extensive research on regulation and government organizations, as well as on the development of political institutions in the United States. His latest book Democracy by Petition: Popular Politics in Transformation, details the crucial role petitions played in expanding the franchise and shaping modern America.

Here is an excerpt from the non-FDA section, much of which focuses on (non-FDA) regulation:

COWEN: What kinds of records should the Postal Service keep about itself?

CARPENTER: [laughs] Great question. There’s a whole set of things that they don’t since the Griswold decision and since the First Amendment decisions. They don’t keep as much records of what goes through the mail. They can’t prohibit things like pornography, contraception.

I guess it depends on what you mean by “itself.” I would start with the idea that basic privacy restrictions, which governed the postal system as much through norm as by law in the 19th century and early 20th century, should govern the system.

It’s a crime if I were to walk past your mailbox and open your letter. I’m committing a federal crime, but there were also norms that seals were not to be broken, things like that. I do think whichever way the Postal Service goes — and it’s quite possible that you could imagine an electronic platform for the US postal system — I think basic privacy restrictions have to be guaranteed.

Actually, in some respects, I think we need to know a fair amount about what postal workers do without, say, calling for Amazon tracking. But if we think that postal workers are misplacing ballots or not providing birth control pills or something like that, then we should probably have some way of picking up on that kind of nefarious behavior.

In the FDA section I got mad at him, the first (but not last?) time that has happened in a CWT, do read or listen to the whole section, the two of us really had at it!  Here is a tiny sliver from it:

COWEN: But shouldn’t there be a button within the FDA that can be pushed, where the FDA goes into a kind of wartime mode?

I don’t want to misrepresent Carpenter by an ill-chosen excerpt, so please do digest his full set of replies.  Recommended.

Are women making progress in academic economics?

Here is a new paper by Donna K. Ginther and Shulamit Kahn:

This study uses data from Academic Analytics to examine gender differences in promotion to associate professor in economics. We found that women in economics were 15% less likely to be promoted to associate professor after controlling for cumulative publications, citations, grants and grant dollars. In contrast, we found no significant gender differences in promotion in other fields including biomedical science, physical science, political science, mathematics and statistics, and engineering. We separated the sample by the research intensity of institutions and found suggestive evidence that these results were being driven by less research-intensive institutions.

What is the best model for understanding this result?  The “ol’ boys’ network” matters more at lower-tier institutions?  Something else?  There doesn’t seem to be a gender tenure penalty at higher-ranked research institutions.

How would actual alien spacecraft influence asset prices?

Primarily as an exercise, I thought about that question for a while, and here is part of my answer in a Bloomberg column:

If you know you are being watched, what exactly do you wish to buy more of? I would bet on defense stocks to rise, whether or not there is much we can do to defend ourselves against this alien presence.

Of course investors could not be sure that these alien drone probes will merely observe us forever. They might be observing with the purpose of rendering judgment. If they are offended by our militaristic tendencies, the quality of our TV shows and our inability to adopt the cosmopolitan values of “Star Trek” over the next 30 years, maybe they will zap us into oblivion. But that kind of systematic risk is hard to insure against. After such an act of obliteration, neither gold nor Bitcoin will do you any good.

My main prediction is that alien UFOs will be bullish for the dollar. The U.S. government seems most closely connected to the UFO phenomenon, for whatever reason. (Maybe its pilots fly more sallies and record better data?) In any case, if alien UFOs become more likely, an informational advantage would accrue to the federal government. And the dollar already has a tradition as a safe haven currency…

Most of us would get used to the idea of alien presence without quite believing in it. As The New Yorker makes clear, many Americans believed in alien-origin UFOs after World War II, as did many American policymakers. It might have spurred greater interest in the space program and science fiction, but it didn’t affect most aspects of American life, nor did it seem to drive markets.

Never underestimate the capacity of markets, like humans, to adapt. Just as many of the strangest parts of our lives can come to seem normal, so Wall Street can find a way to do business with just about anybody — aliens included.

I do full, literally mean everything stated in the column.  But the piece also has (at least) two esoteric meanings — can you guess what they are?

We Will Get to Herd Immunity in 2021…One Way or Another (Revisited)

On January 20 I wrote:

By July it will all be over. The only question is how many people have to die between now and then?

Youyang Gu, whose projections have been among the most accurate, projects that the United States will have reached herd immunity by July, with about half of the immunity coming from vaccinations and half from infections. Long before we reach herd immunity, however, the infection and death rates will fall. Gu is projecting that by March infections will be half what they are now and by May about one-tenth the current rate. The drop will catch people by surprise just like the increase. We are not good at exponentials. The economy will boom in Q2 as infections decline.

Those US predictions look quite good. March infections were a little more than half what they were around Jan. 20. May infections at 1/10th the rate may be a bit optimistic but it’s early.

I was reminded of this by Kevin Drum’s excellent post on shortage porn and the chip shortage in particular which seems to be due to little more than a mistaken belief that the pandemic in the US would last into the summer and beyond:

Last night, for example, 60 Minutes ran a segment about the shortage of chips for cars and videogames and whatnot. And why is there a shortage of chips? Is it because we’ve outsourced everything to the wily Chinese folks on Taiwan? You’d think so after inhaling Lesley Stahl’s inane reporting, except for the fact that she inadvertently allowed the chairman of Taiwanese chipmaker TSMC a brief moment to give the game away: “In March, 2020, as COVID paralyzed the U.S., car sales tumbled, leading automakers to cancel their chip orders. So TSMC stopped making them.”

Oh. So it has nothing to do with Taiwanese fabs vs. American fabs or global supply constraints or any of that. Nor is it related to a possible invasion of Taiwan or the fact that Intel may or may not have made good decisions about its future business. It’s because American car companies cancelled their chip orders and never bothered to reinstate them. Then in December, when car sales “unexpectedly” began to rebound, they panicked and realized what they had done. You’d think these guys had never done an economic forecast or used an MRP system before in their lives.

Anyway, be prepared for hundreds of stories like this. For each one, be careful to ignore the details and instead focus on the big picture. In about 90% of them, it will be the same: they didn’t plan for the pandemic to ever end, and now they’re paying the price.

The rise of research teams in economics

Solo authorship represented 80 percent of economics papers in 1960 and 65 percent in 1990, but then solo-authorship fell out of the majority in 2005 and represents only 26 percent of economics papers today (as measured by the right-hand axis). To put it another way, in 1950, there were 1.2 authors per economics paper. Average team size reached 2.0 for the first time in 2010. By 2018, team size averaged 2.7 (as shown on the left-hand axis). The jump in average team size in economics papers over the last ten years is greater than the jump over the prior half-century.

Here is more from Benjamin F. Jones.  For higher impact papers, the trend is even more striking.

Concentration in product markets

Here are some new results:

This paper uses new data to reexamine trends in concentration in U.S. markets from 1994 to 2019. The paper’s main contribution is to construct concentration measures that reflect narrowly defined consumption-based product markets, as would be defined in an antitrust setting, while accounting for cross-brand ownership, and to do so over a broad range of consumer goods and services. Our findings differ substantially from well established results using production data. We find that 42.2% of the industries in our sample are “highly concentrated” as defined by the U.S. Horizontal Merger Guidelines, which is much higher than previous results. Also in contrast with the previous literature, we find that product market concentration has been decreasing since 1994. This finding holds at the national level and also when product markets are defined locally in 29 state groups. We find increasing concentration once markets are aggregated to a broader sector level. We argue that these two diverging trends are best explained by a simple theoretical model based on Melitz and Ottaviano (2008), in which the costs of a firm supplying adjacent geographic or product markets falls over time, and efficient firms enter each others’ home product markets.

That is a new NBER working paper by C. Lanier Benkard, Ali Kurukoglu, and Anthony Lee Zhang.  It is very supportive of recent research by Estaben Rossi-Hansberg (here and here, with co-authors) that market concentration simply has not been going up in recent times.

New results on Work From Home

By Jose Maria Barrero, Nicholas Bloom, and Steven J. Davis, there are several points of note, with emphasis added by this author:

COVID-19 drove a mass social experiment in working from home (WFH). We survey more than 30,000 Americans over multiple waves to investigate whether WFH will stick, and why. Our data say that 20 percent of full workdays will be supplied from home after the pandemic ends, compared with just 5 percent before. We develop evidence on five reasons for this large shift: better-than-expected WFH experiences, new investments in physical and human capital that enable WFH, greatly diminished stigma associated with WFH, lingering concerns about crowds and contagion risks, and a pandemic-driven surge in technological innovations that support WFH. We also use our survey data to project three consequences: First, employees will enjoy large benefits from greater remote work, especially those with higher earnings. Second, the shift to WFH will directly reduce spending in major city centers by at least 5-10 percent relative to the pre-pandemic situation. Third, our data on employer plans and the relative productivity of WFH imply a 5 percent productivity boost in the post-pandemic economy due to re-optimized working arrangements. Only one-fifth of this productivity gain will show up in conventional productivity measures, because they do not capture the time savings from less commuting.

Here is the link to the NBER working paper.

The American economy circa 2021

Spending on cars and trucks is 15.1 percent higher than it would have been on the 2019 trajectory; spending on furnishings and durable household equipment is 16.6 percent higher; and spending on recreational goods is a whopping 26 percent higher.

Altogether, durable goods spending is running $348.5 billion higher annually than it would have been in that alternate universe, as Americans have spent their stimulus checks and unused travel money on physical items.

The housing sector is experiencing nearly as big a surge. Residential investment was 14.4 percent above its prepandemic trend, representing $90 billion a year in extra activity. And that was surely constrained by shortages of homes to sell, and lumber and other materials used to make them. It is poised to soar further in coming months, based on forward-looking data like housing starts.

Another bright spot is business investment in information technology. The tech industry has been comparatively unscathed by the crisis. Spending on information processing equipment in the first quarter was 23 percent higher than its prepandemic trend, and investment in software 7.4 percent higher.

But:

Spending on transportation services remains 23 percent below its prepandemic trend, recreation services 31 percent, and restaurants and hotels 19 percent.

Those three sectors alone represent $430 billion in “missing” economic activity — largely equivalent, it’s worth noting, to the combined shift of economic activity toward durable goods and residential real estate.

A corollary shows up in trade data. Services exports are down 26 percent compared with the prepandemic trend, which reflects in significant part the freeze-up in global travel.

Here is the full NYT story.

The Disastrous J&J Pause

We were told that the J&J pause was necessary to prevent vaccine hesitancy. I never understood the certainty people expressed on this point, even people who were relatively good on other issues. In anycase, as the excellent Daniel Bier argues, the best explanation for the data right now is that the J&J pause increased vaccine hesitancy.

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Could the plunge timing have been a coincidence? Perhaps the eager had already gotten their vaccinations, leaving only the less eager and more hesitant. Maybe. But note that younger people were getting vaccinated rapidly before the pause and at increasing rates in line with the rates of the older people who had been vaccinated before them. But then the vaccination rates of the young plummeted, just as for the old. In other words, the plunge started in all age groups at the same time but at very different levels of vaccination. The similar timing across age groups is easy to explain if it was the J&J pause (everyone saw the pause at the same time) but it requires multiple coincidences to explain why every age group would reach their hesitancy point at different levels of vaccination but at the same time.

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My view is that neither the CDC nor the FDA should be playing psychological games with the public. Just give it to us straight. In this case, since there was never much doubt that the J&J vaccine was much safer than COVID, a bulletin to physicians would have been appropriate to the circumstances. We don’t know for certain what would have happened under that counterfactual (although the data from Britain v. Europe on the AZ pause suggest a bulletin would not have generated the same hesitancy) but it would have been the right decision on the evidence.

See Bier’s tweet thread for further breakdown of the data.

Let’s not raise the capital gains tax

That is the topic of my latest Bloomberg column, the vitriol of the Twitter response of course confirms my point.  Here is one excerpt:

First and foremost, any system of taxation is about values. And a much higher rate of capital taxation would undermine some of America’s core values.

A society’s values and its tax regime have to be mutually compatible or they will undermine each other. So the first question about a taxation system is which values it promotes.

The values that the U.S. should prioritize are a valorization of wealth, the encouragement of saving, and the encouragement of children. People may disagree with these priorities — in fact, they disagree quite strenuously! — but for me, it’s important to know whether a proposed tax reform supports or weakens these values. This is a more important consideration than economic calculations of “deadweight loss.”

And:

Values are all the more important for taxation because America is a nation of immigrants. Which is the better message to potential new arrivals? Should it be “America is a great country to get really rich”? Or “Americans are pretty egalitarian, so they won’t let the wealthy get too rich”?

The first message is far preferable — and this is true even if you personally hold fairness to be an important value. It is more important to encourage ambition in those newly arrived to the U.S., if only to take in creative (and yes, sometimes greedy) people who will help solve America’s social problems. Immigrants are responsible for so many of this country’s best and most successful startups.

And note this:

It may well be true that the U.S. has more efficient ways of encouraging ambition and wealth accumulation than the current approach to capital gains taxation. But to make that argument, advocates of the higher capital gains rate need to say what else they would do to boost the valorization of American wealth. Somehow, however, such explanations are never forthcoming — because this debate really is about a clash of values, not just efficiency, and one side wants to lower the status of accumulated wealth.

Like Godot, I will wait forever for an alternative proposal on this matter.  p.s.:

Only a few weeks ago, the prevailing opinion was that it was fine for the federal government to spend an additional $1.9 trillion, because at current margins, deficits don’t matter. Maybe so. But that nonchalance is now mysteriously absent. That too is a sign that, for most people, the values represented by any decision about taxation are paramount.

Of course, if you are doing the comparative statics, the wealthier and more open the rest of the world, the more American should favor its innovators to an extreme.  So the tax on innovation should be falling over time, not rising.

India Authorizes Any Vaccine Authorized by a Stringent Regulator

Mint: In a move that could potentially pave the way for Pfizer and Johnson & Johnson’s covid-19 vaccines in India, the Centre on Tuesday said it would allow the granting of emergency licensure for vaccines that have received authorization in the US, UK, Europe, Japan or from the World Health Organization (WHO).

This is good news and a smart move. But what’s frustrating is that Pfizer was the first company to apply for an EUA from India in December of 2020 but India demanded that they conduct a clinical study on the Indian population and Pfizer pulled its application. In other words, India could have had a third vaccine approved and in use but “vaccine nationalism” reared its ugly head. Only now, as the bodies burn in the streets, has the Indian government acknowledged that the FDA and the EMA are reasonably careful judges of safety and efficacy.

It’s true that the cold storage requirements make the Pfizer vaccine somewhat difficult to use in India’s villages but it would have been fine to use in the major cities.

Naturally, the FDA and the EMA should also recognize each other as peer regulators.