Category: Economics

Patents, Pollution, and Pot

In recent years, new research has significantly increased my belief that air pollution has substantial negative effects on productivity, IQ and health (see previous posts). Research in the field is exploding which means that there must also be more false positives. Consider two recent papers. The first, The Real Effect of Smoking Bans: Evidence from Corporate Innovation by Gao et al. finds that smoking prohibition increased patenting!

We identify a positive causal effect of healthy working environments on corporate innovation, using the staggered passage of U.S. state-level laws that ban smoking in workplaces. We find a significant increase in patents and patent citations for firms headquartered in states that have adopted such laws relative to firms headquartered in states without such laws. The increase is more pronounced for firms in states with stronger enforcement of such laws and in states with weaker preexisting tobacco controls. We present suggestive evidence that smoke-free laws affect innovation by improving inventor health and productivity and by attracting more productive inventors.

But the second, Do Firms Get High? The Impact of Marijuana Legalization on Firm Performance, Corporate Innovation, and Entrepreneurial Activity by Wang et al. finds that marijuana legalization increased patenting!

We find that state-level marijuana legalization has a positive financial impact on firms, likely by affecting firms’ human capital. Firms headquartered in marijuana-legalizing states receive higher market valuations, earn higher abnormal stock returns, improve employee productivity, and increase innovation. Exploiting firm level inventor data, we directly test the human capital channel and find that post legalization, firms retain inventors that become more productive and recruit more innovative talents from out of state. We also find that marijuana-legalizing states experience an increase in the number of new startups and venture capital investments.

Would anyone have been surprised if these two papers had shown exactly the opposite results? Indeed, there is some evidence that nicotine is solid cognitive enhancer and Tyler recently argued, on the basis of good evidence, that pot makes people dumb. Is it a coincidence that anti-cigarette and pro-pot papers appear as the country moves in this direction? Social desirability bias also applies to research. So no knock on either paper but I am unconvinced. As I like to say, trust literatures not papers.

Hat tip: The excellent Kevin Lewis.

The vaccine makers have solved for the equilibrium

GSK has made a corporate decision that while it wants to help in public health emergencies, it cannot continue to do so in the way it has in the past. Sanofi Pasteur has said its attempt to respond to Zika has served only to mar the company’s reputation. Merck has said while it is committed to getting its Ebola vaccine across the finish line it will not try to develop a vaccine that protects against other strains of Ebola and the related Marburg virus.

Drug makers “have very clearly articulated that … the current way of approaching this — to call them during an emergency and demand that they do this and that they reallocate resources, disrupt their daily operations in order to respond to these events — is completely unsustainable,” said Richard Hatchett, CEO of CEPI, an organization set up after the Ebola crisis to fund early-stage development of vaccines to protect against emerging disease threats.

Hatchett and others who plan for disease emergencies worry that, without the involvement of these types of companies, there will be no emergency response vaccines.

Here is more from Helen Branswell, you can follow her on Twitter here on the evolving coronavirus situation, she is maybe the single best follow on that topic?

Extending the Race between Education and Technology

There is a new and updated take on this topic by Autor, Goldin, amd Katz:

The race between education and technology provides a canonical framework that does an excellent job of explaining U.S. wage structure changes across the twentieth century. The framework involves secular increases in the demand for more-educated workers from skill-biased technological change, combined with variations in the supply of skills from changes in educational access. We expand the analysis backwards and forwards. The framework helps explain rising skill differentials in the nineteenth and twenty-first centuries, but needs to be augmented to illuminate the recent convexification of education returns and implied slowdown in the growth of the relative demand for college workers. Increased educational wage differentials explain 75 percent of the rise of U.S. wage inequality from 1980 to 2000 as compared to 38 percent for 2000 to 2017.

Emphasis added, here is the full NBER working paper.  For background, here is my old NYT column on their earlier work on this topic.

Note that for the most recent rise in inequality across 2000-2017, most of it has happened within educational groups.  The less polite way of putting that — my words not those of the authors — is that the real marginal product of education is explaining less of the variation in earnings, or in other words the higher earners are drawing upon something they are not getting at school.

Students of the “education as signaling” debate also should note that, due to these results, now a) signaling is more relevant for your early wage offer, and b) signaling is less relevant for your eventual wage profile, which in fact is now more determined by your personal level of skill.

My chat with Brendan Fitzgerald Wallace

He interviewed me, here is his description: “My conversation with economist, author & podcaster Tyler Cowen covering everything from: 1) Buying Land on Mars (for real) 2) Privatizing National Parks 3) Setting up aerial highways in the sky for drone delivery 4) Buying Greenland 5) London post Brexit 6) Universal Basic Income 7) Why Los Angeles is “probably the best city in North America” 8) How real estate can combat social isolation & loneliness 9) Cyber attacks on real estate assets and national security implications. 10) The impacts, positive and negative of Climate Change, on real estate in different geographies. 11) Other esoteric stuff…..”.

Here is the conversation, held in Marina del Rey at a Fifth Wall event.

From Bret Stephens

In October, Brian Riedl of the Manhattan Institute tallied the costs of Mr. Sanders’s policy goals. By his calculations, the federal government would double in size. Half the American work force would be employed by the government, Mr. Riedl writes. Government spending as a percent of G.D.P. would rise to 70 percent (in Sweden, it’s less than 50 percent). The 15.3 percent payroll tax would hit 27.2 percent to help pay for Medicare for All. Total additional outlays would reach $97.5 trillion on top of the nearly $90 trillion the federal, state and local governments are projected to spend over the next decade.

Here is the full NYT column.  #TheGreatForgetting, #moodaffiliation.

Dracula on Gratitude

I enjoyed the Dracula mini-series on Netflix–it’s smart, stylish and a fresh take. Also, at just three episodes, it’s satisfying without requiring a huge time investment.

Dracula has some pointed commentary on contemporary mores, including economics. After sleeping for a hundred years he finds himself in an ordinary home and speaks to the owner, Kathleen:

D: You’re clearly very wealthy.

K: Wealthy?

D: Yes. Well, look at all this stuff. All this food. The moving picture box. And that thing outside, Bob calls it um, a car. And this treasure trove is your house!

K: It’s a dump.

D: Kathleen, I’ve been a nobleman for 400 years. I’ve lived in castes and palaces among the richest people of any age. Never….never! Have I stood in greater luxury than surrounds me now. This is a chamber of marvels. There isn’t a king, or queen or emperor that I have ever known or eaten who would step into this room and ever agree to leave it again.

I knew the future would bring wonders. I did not know it would make them ordinary.

My spring 2020 Industrial Organization reading list and syllabus

It is long, do note that many topics are covered in the other half of the class, I tried to put this beneath the fold, but today WordPress software is not cooperating…

  1. Productivity

American Economic Review Symposium, May 2010, starts with “Why do Firms in Developing Countries Have Low Productivity?” runs pp.620-633.

Nicholas Bloom, Raffaella Sadun, and John Van Reenen, “Recent Advances in the Empirics of Organizational Economics,” http://cep.lse.ac.uk/pubs/download/dp0970.pdf.

Serguey Braguinsky, Lee G. Branstetter, and Andre Regateiro,The Incredible Shrinking Portuguese Firm,” http://papers.nber.org/papers/w17265#fromrss. 

Bloom, Nicholas, Raffaella Sadun, and John Van Reenen. “Management as a Technology?” National Bureau of Economic Research working paper 22327, June 2016.

David Lagakos, “Explaining Cross-Country Productivity Differences in Retail Trade,” Journal of Political Economy, April 2016, 124, 2, 1-49.

Dani Rodrik, “A Surprising Convergence Result,” http://rodrik.typepad.com/dani_rodriks_weblog/2011/06/a-surprising-convergence-result.html, and his paper here http://www.hks.harvard.edu/fs/drodrik/Research%20papers/The%20Future%20of%20Economic%20Convergence%20rev2.pdf

Tyler Cowen, The Complacent Class, chapter four, “Why Americans Stopped Creating,” 2017.

Ufuk Akcigit and Sina T. Ates, “Ten Facts on Declining Business Dynamism and Lessons from Endogenous Growth Theory,” NBER working paper 25755, April 2019.

Syerson, Chad “What Determines Productivity?” Journal of Economic Literature, June 2011, XLIX, 2, 326-365. 

Michael Kremer, “The O-Ring Theory of Economic Development,” Quarterly Journal of Economics, August 1993, 108, 3, 551-575.

Song, Jae, David J. Price, Fatih Guvenen, and Nicholas Bloom. “Firming Up Inequality,” Federal Reserve Bank of Minneapolis working paper 750, April 2018.  Do not bother with the very long appendix.

Nicholas Bloom, Raffaella Sadun, and John Van Reenen, the slides for “Americans do I.T. Better: US Multinationals and the Productivity Miracle,” http://www.people.hbs.edu/rsadun/ADITB/ADIBslides.pdf, the paper is here http://www.stanford.edu/~nbloom/ADIB.pdf but I recommend focusing on the slides. 

Tyler Cowen and Ben Southwood, “Is the rate of scientific progress slowing down?”, https://docs.google.com/document/d/1cEBsj18Y4NnVx5Qdu43cKEHMaVBODTTyfHBa8GIRSec/edit 

Patrick Collison and Michael Nielsen, “Science is Getting Less Bang for its Buck,” Atlantic, November 16, 2018, https://www.theatlantic.com/science/archive/2018/11/diminishing-returns-science/575665/ 

Decker, Ryan and John Haltiwanger, Ron S. Jarmin, and Javier Miranda. “Where Has all the Skewness Gone?  The Decline in High-Growth (Young) Firms in the U.S. National Bureau of Economic Research working paper 21776, December 2015.

Furman, Jason and Peter Orszag. “A Firm-Level Perspective on the Role of Rents in the Rise in Inequality.” October 16, 2015.

 

2. Competition and monopoly

Bresnahan, Timothy F. “Competition and Collusion in the American Automobile Industry: the 1955 Price War,” Journal of Industrial Economics, 1987, 35(4), 457-82.

Asker, John, “A Study of the Internal Organization of a Bidding Cartel,” American Economic Review, (June 2010), 724-762.

Tim Sablik and Nicholas Trachter, “Are Markets Becoming Less Competitive?” Economic Brief, Federal Reserve Bank of Richmond, June 2019.

Susanto Basu, “Are Price-Cost Markups Rising in the United States? A Discussion of the Evidence,” Journal of Economic Perspectives, Summer 2019, 33, 3, 3-22.

Esteban Rossi-Hansberg, Pierre-Daniel Sarte, and Nicholas Trachter, “Diverging Trends in National and Local Concentration,” NBER Working Paper 25066, Septemmber 2018.

David Autor, David Dorn, Lawrence Katz, Christina Patterson, John Van Reenen, “The Fall of the Labor Share and the Rise of Superstar Firms,” https://economics.mit.edu/files/12979, make sure you get the Oct. 2019 version, not the earlier NBER paper.

Whinston, Michael D., “Antitrust Policy Toward Horizontal Mergers,” Handbook of Industrial Organization, vol.III, chapter 36, see also chapter 35 by John Sutton.

Jan De Loecker and Jan Eeckhout, “The Rise of Market Power and its Macroeconomic Implications,” http://www.janeeckhout.com/wp-content/uploads/RMP.pdf.  My comment on it is here: https://marginalrevolution.com/marginalrevolution/2017/08/rise-market-power.html and see also me on intangible capital, https://marginalrevolution.com/marginalrevolution/2017/09/intangible-investment-monopoly-profits.html.

Chang-Tai Hsieh and Esteban Rossi-Hansberg, “The Industrial Revolution in Services, September 20, 2019, on-line.

Klein, Benjamin and Leffler, Keith. “The Role of Market Forces in Assuring Contractual Performance.”  Journal of Political Economy 89 (1981): 615-641.

Breit, William. “Resale Price Maintenance: What do Economists Know and When Did They Know It?” Journal of Institutional and Theoretical Economics (1991).

Bogdan Genchev, and Julie Holland Mortimer. “Empirical Evidence on Conditional Pricing Practices.” NBER working paper 22313, June 2016.

Sproul, Michael.  “Antitrust and Prices.”  Journal of Political Economy (August 1993): 741-754.

McCutcheon, Barbara. “Do Meetings in Smoke-Filled Rooms Facilitate Collusion?”  Journal of Political Economy (April 1997): 336-350.

Crandall, Robert and Winston, Clifford, “Does Antitrust Improve Consumer Welfare?: Assessing the Evidence,”  Journal of Economic Perspectives (Fall 2003), 3-26, available at http://www.brookings.org/views/articles/2003crandallwinston.htm.

FTC, Bureau of Competition, website, http://www.ftc.gov/bc/index.shtml, an optional browse, perhaps read about some current cases and also read the merger guidelines.

Parente, Stephen L. and Prescott, Edward. “Monopoly Rights: A Barrier to Riches.”  American Economic Review 89, 5 (December 1999): 1216-1233.

Demsetz, Harold.  “Why Regulate Utilities?”  Journal of Law and Economics (April 1968): 347-359.

Armstrong, Mark and Sappington, David, “Recent Developments in the Theory of Regulation,” Handbook of Industrial Organization, chapter 27, also on-line.

Shleifer, Andrei. “State vs. Private Ownership.” Journal of Economic Perspectives (Fall 1998): 133-151.

Xavier Gabaix and David Laibson, “Shrouded Attributes, Consumer Myopia, and Information Suppression in Competitive Markets,”http://papers.ssrn.com/sol3/papers.cfm?abstract_id=728545.

Strictly optional, most of you shouldn’t read this: Ariel Pakes and dynamic computational approaches to modeling oligopoly:

http://www.economics.harvard.edu/faculty/pakes/files/Pakes-Fershtman-8-2010.pdf

http://www.economics.harvard.edu/faculty/pakes/files/handbookIO9.pdf

 

III. Economics of Tech

 

Farrell, Joseph and Klemperer, Paul, “Coordination and Lock-In: Competition with Switching Costs and Network Effects,” Handbook of Industrial Organization, vol.III, chapter 31, also on-line.

Weyl, E. Glenn. “A Price Theory of Multi-Sided Platforms.” American Economic Review, September 2010, 100, 4, 1642-1672.

Gompers, Paul and Lerner, Josh. “The Venture Capital Revolution.” Journal of Economic Perspectives (Spring 2001): 145-168.

Paul Graham, essays, http://www.paulgraham.com/articles.html, to browse as you find useful or not.

Acemoglu, Daron and Autor, David, “Skills, Tasks, and Technologies: Implications for Employment and Earnings,” http://econ-www.mit.edu/files/5607

Robert J. Gordon and Ian Dew-Becker, “Unresolved Issues in the Rise of American Inequality,” http://www.people.fas.harvard.edu/~idew/papers/BPEA_final_ineq.pdf

Browse through the first issue of Nakamoto.com on blockchain governance, read (or not) as you find useful.

 

IV. Organization and capital structure

 

Ronald Coase and Oliver Williamson on the firm, if you haven’t already read them, but limited doses should suffice.

Gibbons, Robert, “Four Formal(izable) Theories of the Firm,” on-line at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=596864.

Van den Steen, Eric, “Interpersonal Authority in a Theory of the Firm,” American Economic Review, 2010, 100:1, 466-490.

Lazear, Edward P. “Leadership: A Personnel Economics Approach,” NBER Working Paper 15918, 2010.

Oyer, Paul and Schaefer, Scott, “Personnel Economics: Hiring and Incentives,” NBER Working Paper 15977, 2010.

Tyler Cowen chapter on CEO pay in big Business, to be distributed.

Ben-David, Itzhak, and John R. Graham and Campbell R. Harvey, “Managerial Miscalibration,” NBER working paper 16215, July 2010.

Glenn Ellison, “Bounded rationality in Industrial Organization,” http://cemmap.ifs.org.uk/papers/vol2_chap5.pdf 

Miller, Merton, and commentators.  “The Modigliani-Miller Propositions After Thirty Years,” and comments, Journal of Economic Perspectives (Fall 1988): 99-158.

Myers, Stewart. “Capital Structure.” Journal of Economic Perspectives (Spring 2001): 81-102.

Hansemann, Henry.  “The Role of Non-Profit Enterprise.” Yale Law Journal (1980): 835-901.

Kotchen, Matthew J. and Moon, Jon Jungbien, “Corporate Social Responsibility for Irresponsibility,” NBER working paper 17254, July 2011.

Strictly optional but recommended for the serious: Ponder reading some books on competitive strategy, for MBA students.  Here is one list of recommendations: http://www.linkedin.com/answers/product-management/positioning/PRM_PST/20259-135826

Furman, Jason. ”Business Investment in the United States: Facts, Explanations, Puzzles, and Policy.” Remarks delivered at the Progressive Policy Institute, September 30, 2015, on-line at https://m.whitehouse.gov/sites/default/files/page/files/20150930_business_investment_in_the_united_states.pdf.

Scharfstein, David S. and Stein, Jeremy C.  “Herd Behavior and Investment.”  American Economic Review 80 (June 1990): 465-479.

Stein, Jeremy C. “Efficient Capital Markets, Inefficient Firms: A Model of Myopic Corporate Behavior.” Quarterly Journal of Economics 104 (November 1989): 655-670.

 

V. Sectors: finance, health care, education, international trade, others 

Gorton, Gary B. “Slapped in the Face by the Invisible Hand: Banking and the Panic of 2007,” http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1401882, published on-line in 2009. 

Erel, Isil, Nadault, Taylor D., and Stulz, Rene M., “Why Did U.S. Banks Invest in Highly-Rated Securitization Tranches?” NBER Working Paper 17269, August 2011. 

Healy, Kieran. “The Persistence of the Old Regime.” Crooked Timber blog, August 6, 2014.

More to be added here, depending on your interests.

The economics of pandemic preparation

That is the topic of my latest Bloomberg column, here is one short excerpt:

…most of the vaccine-making capacity against a new virus would be concentrated in a few multinationals, and much of that activity occurs outside the U.S. If a pandemic were to become truly serious, politics might intervene and prevent the export of doses of the vaccine, no matter what the price.

The economic case for free trade is entirely sound. But here is one case where the U.S. government should take the initiative to support a domestic vaccine industry — because that trade is unlikely ever to be free.

And if you think the market will provide the solution, consider that potential suppliers may fear being hit with price caps, IP confiscations, or other after-the-fact “takings” by the U.S. government. So it is important to think now about how to create the right structures for the eventual creation of treatments and cures.

In the meantime, wash your hands!  Nonetheless, so far the smart money still ought to bet that this one will evolve into less virulent forms, and it already seems that a disproportionate number of the people dying are quite old.

Marginal Revolution University video for Anna Schwartz

It is excellent, one of my favorite MRU videos to date:

Here is some text from the release email:

The second episode of Women In Economics is out today! Join Harvard’s Claudia Goldin, UC Berkeley’s Christina Romer, and more on an insightful, engaging look at Anna Jacobson Schwartz’s life and achievements.

Did you know that Anna graduated from high school at 15?

Or that her dissertation couldn’t be published because of paper rationing during World War II? Yet despite this setback, she went on to coauthor one of the most important books about monetary policy and the Great Depression. Because of her work, she was hailed as one of the leading monetary economists of the 20th century by the end of her career!

We’re so excited to share Schwartz’s incredible story—click here to watch the video!

We’re also excited to announce our next video in our Women in Econ series, about Janet Yellen, will be released on March 8th. It will feature Yellen in her own words, along with Ben Bernanke and Christina Romer. Stay tuned!

Recommended.

Tomb Economics

The Mughals of Northern India are famous for their tombs, Humayun’s tomb in Delhi, Jahangir’s Tomb in Lahore and, of course, the Taj Mahal. Why so many tombs? Culture surely has something to do with it, although conservative Muslims tend to frown on tombs and ancestor worship as interference with the communication between man and God. Incentives are another reason.

Under the Mansabdari system which governed the nobility, the Mughal Emperor didn’t give perpetual grants of land. On death, all land that had been granted to the noble reverted back to the Emperor, effectively a 100% estate tax. In other words, land titling for the Mughal nobility was not hereditary. Since land could not be handed down to the next generation, there was very little incentive for the Mughal nobility to build palaces or the kind of ancestral homes that are common in Europe. The one exception to the rule, however, was for tombs. Tombs would not revert back to the Emperor. Hence the many Mughal tombs

Here is some lovely jali (stone lattice) work in Barber’s tomb in the Humayan tomb complex.

The Aga Khan Development Network has done some great restoration work on Isa Khan’s tomb, again in the Humayun’s tomb complex. Here’s  the ceiling and another piece of jali work.

Assessing State Capacity Libertarianism

Ryan Murphy and Colin O’Reilly suddenly have a 33 pp. (yes substantive) paper on my January 1 blog post on State Capacity Libertarianism (on speed, perhaps they have learned from a master).  Here is the abstract:

Cowen (2020) argues for a redirection of effort towards “State Capacity Libertarianism,” which keeps the core of policy proposals from libertarianism intact while emphasizing a select set of policies aimed at furthering economic growth. These policies center on the ability of the state to accomplish that which it sets out to accomplish, i.e. state capacity. This paper interprets Cowen’s proposal in terms of an interaction between economic freedom and state capacity. Using four measures of state capacity, it finds that state capacity and economic freedom are neither additive nor complementary. Rather, they are substitutes for one another. These results are uncomfortable for conventional libertarianism, for the advocates of state capacity, and for State Capacity Libertarianism itself. One measure of state capacity we use is a novel measure using data from the Varieties of Democracy dataset, which may be useful for researchers in other contexts.

I am very pleased (and flattered) they undertook this investigation.  In terms of response on the particulars, I would say that State Capacity Libertarianism is about living standard levels, not marginal growth rates holding per capita income constant (as they do), which tends to drain off the benefits of state capacity.  You can run into similar misspecification problems by regressing against growth rates for the particular American states, whereas again the levels ought to be central to the analysis.  I readily admit the levels are not easy to handle econometrically, mostly because (outside of some oil principalities) “all good things go together,” and the correct causal model is not well understood.

In any case, the debate will go on.

How economics has changed

Panel A illustrates a virtually linear rise in the fraction of papers, in both the NBER and top-five series, which make explicit reference to identification.  This fraction has risen from around 4 percent to 50 percent of papers.

And:

Currently, over 40 percent of NBER papers and about 35 percent of top-five papers make reference to randomized controlled trials (RCTs), lab experiments, difference-in-differences, regression discontinuity, event studies, or bunching…The term Big Data suddenly sky-rockets after 2012, with a more recent uptick in the top five.

Note that about one-quarter of NBER working papers in applied micro make references to difference-in differences. And:

The importance of figures relative to tables has increased substantially over time…

And about five percent of top five papers were RCTs in 2019.  Note also that “structural models” have been on the decline in Labor Economics, but on the rise in Public Economics and Industrial Organization.

That is all from a recent paper by Janet Currie, Henrik Kleven, and Esmee Zwiers, “Technology and Big Data are Changing Economics: Mining Text to Track Methods.”

Via Ilya Novak.

The economic policy of Elizabeth Warren

Jerry Taylor has made some positive noises about her on Twitter lately, as had Will Wilkinson in earlier times.  I genuinely do not see the appeal here, not even for Democrats.  Let’s do a quick survey of some of her core views:

1. She wants to ban fracking through executive order.  This would enrich Russia and Saudi Arabia, harm the American economy ($3.5 trillion stock market gains from fracking), make our energy supply less green, and make our foreign policy more dependent on bad regimes and the Middle East.  It is perhaps the single worst policy idea I have heard this last year, and some of the worst possible politics for beating Trump in states such as Pennsylvania.

2. Her private equity plan.  Making private equity managers personally responsible for the debts of the companies they acquire probably would crush the sector.  The economic evidence on private equity is mostly quite positive.  Maybe she would eliminate the worst features of her plan, but can you imagine her saying on open camera that private equity is mostly good for the American economy?  I can’t.

3. Her farm plan.  It seems to be more nationalistic and protectionist and also more permanent than Trump’s, read here.

4. Her tax plan I: Some of the wealthy would see marginal rates above 100 percent.

5. Her tax plan II: Her proposed wealth tax would over time lead to rates of taxation on capital gains of at least 60 to 70 percent, much higher than any wealthy country ever has succeeded with.  And frankly no one has come close to rebutting the devastating critique from Larry Summers.

6. Student debt forgiveness:  The data-driven people I know on the left all admit this is welfare for the relatively well-off, rather than a truly egalitarian approach to poverty and opportunity.  Cost is estimated at $1.6 trillion, by the way (is trillion the new billion?).  Furthermore, what are the long-run effects on the higher education sector?  Do banks lend like crazy next time around, expecting to be bailed out by the government?  Or do banks cut back their lending, fearing a haircut on bailout number two?  I am genuinely not sure, but thinking the question through does not reassure me.

7. College free for all: Would wreck the relatively high quality of America’s state-run colleges and universities, which cover about 78 percent of all U.S. students and are the envy of other countries worldwide and furthermore a major source of American soft power.  Makes sense only if you are a Caplanian on higher ed., and furthermore like student debt forgiveness this plan isn’t that egalitarian, as many of the neediest don’t finish high school, do not wish to start college, cannot finish college, or already reject near-free local options for higher education, typically involving community colleges.

8. Health care policy: Her various takes on this, including the $52 trillion plan, are better thought of as (vacillating) political strategy than policy per se.  In any case, no matter what your view on health care policy she has botched it, and several other Dem candidates have a better track record in this area.  Even Paul Krugman insists that the Democrats should move away from single-payer purity.  It is hard to give her net positive points on this one, again no matter what your policy views on health care, or even no matter what her views may happen to be on a particular day.

All of my analysis, I should note, can be derived internal to Democratic Party economics, and it does not require any dose of libertarianism.

9. Breaking up the Big Tech companies: I am strongly opposed to this, and I view it as yet another attack/destruction on a leading and innovative American sector.  I will say this, though: unlike the rest of the list above, I know smart economists (and tech experts) who favor some version of the policy.  Still, I don’t see why Jerry and Will should like this promise so much.

Those are some pretty major sectors of the U.S. economy, it is not like making a few random mistakes with the regulation of toothpicks.  In fact they are the major sectors of the U.S. economy, and each and every one of them would take a big hit.

More generally, she seems to be a fan of instituting policies through executive order, a big minus in my view and probably for Jerry and Will as well?  Villainization and polarization are consistent themes in her rhetoric, and at this point it doesn’t seem her chances for either the nomination, or beating Trump, are strong in fact her conditional chance of victory is well below that of the other major Dem candidates.  So what really are you getting for all of these outbursts?

When I add all that up, she seems to have the worst economic and political policies of any candidate in my adult lifetime, with the possible exception of Bernie Sanders (whose views are often less detailed).

I do readily admit this: Warren is a genius at exciting the egalitarian and anti-business mood affiliation of our coastal media and academic elites.

If you would like to read defenses of Warren, here is Ezra Klein and here is Henry Farrell.  I think they both plausibly point to parts of the Warren program that might be good (more good for them than for me I should add, but still I can grasp the other arguments on her behalf).  They don’t much respond to the point that on #1-8, and possibly #1-9, she has the worst economic and political policies of any candidate in my adult lifetime.

For Jerry and Will, I just don’t see the attraction at all.

That said, on her foreign policy, which I have not spent much time with, she might be better, so of course you should consider the whole picture.  And quite possibly there are other candidates who, for other reasons, are worse yet, not hard to think of some.  Or you might wish to see a woman president.  Or you might think she would stir up “good discourse” on the issues you care about.  And I fully understand that most of the Warren agenda would not pass.

So I’m not trying to talk you out of supporting her!  Still, I would like to design and put into the public domain a small emoji, one that you could add to the bottom of your columns and tweets.  It would stand in for: “Yes I support her, but she has the worst proposed economic policies of any candidate in the adult lifetime of Tyler Cowen.”

CEO pay in perspective how big is that rip-off anyway?

…the B-ratio I proposed here, measured as the CEO pay over the total payroll of the firm, relates CEO pay to the salary of each employee and may be the most relevant and informative figure on CEO pay as perceived by the firm’s employees themselves. How much a typical employee of the S&P500 firms implicitly “contributes” to the salary of his/her CEO? An amount of $273 on average or 0.5% of one’s salary, that is, one half of one percent on an individual salary basis.

That is from Marcel Boyer, via Alex T. and the mysterious v and Vincent Geloso.

Why isn’t downward competitive pressure on drug prices more effective?

Using current methods of inventing drugs, Borisy believes it will be possible to create new medicines that mimic the effects of existing big sellers, and bring them to market in a matter of years. Then EQRx will sell them to insurers and large hospital systems at a discount, displacing the innovators. Because its medicines will be cheaper to develop, EQRx will be able to make a handy profit despite these lower prices. The key question is whether health insurers and giant hospital systems have gotten desperate enough to want to shake up the system.

Quite simply, Borisy is going to invent and develop new drugs, and sell them for less money than the competition. He calls this “a radical proposition.” In any other sector, it would just be called “business.”

But the branded drug business is different, in part for structural reasons but also because people and doctors tend to be reticent to switch to a new medicine just because it’s cheaper. That has helped lead to dramatically higher prices.

Why, Borisy asks, have prices of, for instance, cancer drugs gone up eightfold over 20 years if the technology to make new medicines is steadily improving, and if we are, in fact, as he says, in “a golden age of biotech and pharmaceutical innovation”?

EQRx is his antidote. On Monday morning, the company is also announcing that it has raised $200 million from a bevy of top tech and biotech investors.

Over the next 10 years, Borisy said, he’d like for EQRx to start developing somewhere in the ballpark of 50 different experimental medicines. He wants the company to come out with its first medicine in five years, and to have 10 drugs within a decade.

Will this succeed?  Even if so, why did it take so long for this to happen?  The article offers this explanation:

There are multiple reasons creating a company like EQRx will be difficult. The idea of creating a “fast-follower” — a new drug that is much like an existing one — is anything but new. In fact, it has yielded some of the pharmaceutical industry’s biggest sellers. Lipitor followed several other cholesterol medicines to market, but became the best-selling drug in the world in the 2000s. Rheumatoid arthritis treatment Humira, the industry’s current best-seller, was introduced after two similar medicines, Remicade and Enbrel, were already on the market.

But fast-followers do not compete on price, because lowering price has not historically resulted in selling more units of a drug. Instead, the least successful medicine in a category will sometimes raise its price to make up for lost market share, and the best-sellers will often follow, raising their own prices.

Here is the full Matthew Herper piece, via Sarah Constantin.  Model this!