Month: October 2021

Americans pay far more for prescription drugs than anyone in the world. This is because the drug companies, most of whom have their headquarters here, have persuaded enough members of Congress to accept their argument that the enormous implicit subsidy is the price that has to be paid for innovation. Is the argument accurate?

No. Most of the innovations we are paying for with artificially inflated prices are incremental advances on existing drugs that make little or no difference in the big picture. We could use the Covid drugs as a template and offer huge bonuses for new drugs that actually matter, while paying actual market prices for the others. Wouldn’t that make more sense?

There isn’t one, of course, which is the point. It’s easy to focus exclusively on Manchin and what he is or isn’t doing, but he’s only one vote. Even Susan Collins appears to be content to turn the planet into a French Fry if it wins the GOP some votes in the near future.

Any failure to approve meaningful climate legislation will damage our reputation with the rest of the world—most notably, with the EU, which at some point is likely to adopt carbon adjustment regulations that will effectively keep American products out of Europe. Are we really willing to injure both our relationship with our allies and our thriving export industries in order to save a relative handful of coal and oil jobs?

Probably.

Joe Manchin wants to save money on the child credit by means testing. Several left-leaning commentators have raised valid objections to means testing, including: the extra paperwork is expensive and deters genuinely needy applicants; the ceiling creates a work disincentive: and means testing turns the program into “welfare,” which is easy for the GOP to stigmatize and cut. So when, in general terms, is it appropriate to use means testing?

The tests should be as follows;

1. How many people, as a percentage of the population, use the subsidized service?
2. How difficult is it to get by without the service?
3. How severe is the existing market failure?

The best example of a program that should be universal, applying these criteria, is health care. The best example of a program that should be means tested is higher education, without which millions of people do just fine.

Here is where the factions stand on the regulation of markets:

1. CLs: Markets lead to an efficient use of resources and thus create prosperity. Even more importantly, they represent freedom from a government that is always itching to overreach. Regulations should be kept to an absolute minimum.
2. CDs: While markets create wealth, they do not always distribute it in a manner which is consistent with the overall public interest. Regulation and taxes are required at times to protect workers, families, and retirees from capitalists.
3. PBPs: We’re more pro-business than pro-market. We hate excessive and arbitrary taxes and regulations, but we have no problems with subsidies, and don’t even think about going after our rents.
4. Reactionaries: Markets are fine, as long as they further the interests of white Christian workers. When they stray from that fundamental purpose, government action is required.

Historically, the PBP position has prevailed within the GOP. Whether that will continue in a party that is now dominated by the Reactionaries is a big question for the future.

If you can somehow get past the conceptual problems with secession, you must still confront a series of difficult practical issues. How do you divide the family silver? What happens to the nation’s debts? In particular, what do you do with the armed forces and entitlement trust funds?

Debts could be shared either on the basis of population or GDP. Public lands would be returned to the states. The military would present serious questions, however, as a disproportionate number of bases and personnel come from the RSA. Some of those assets would have to be transferred to the USA. How that would work, I have no idea.

The RSA states, for the most part, are net beneficiaries from government transfers. If entitlement trust funds were divided on the basis of GDP, the new RSA programs would go broke very quickly, and major cuts would be required. That is less of a problem than you might think, however. The leaders of the RSA would eagerly embrace the concept of a tiny welfare state dominated by the wishes of the white and wealthy. The USA would aspire to be Denmark; the RSA would use Central American banana republics as a template.

There has been a fair amount of chatter about secession since the 2020 election. Is it a plausible solution to the problems facing a severely divided nation?

I did a post setting out general criteria for secession in 2017. Applying those criteria to America, this is what you get:

1. Sensible boundaries: While the RSA (Reactionary States of America) would be a reasonably compact and solid block, the USA would be split into two widely separated areas. In addition, purple states would be up for grabs. There is no obvious solution to either of these problems.
2. History of independence: Texas was, for a few years, an independent state. Parts of the RSA were included in the Confederacy. A few of the RSA states were sovereign states of a sort prior to the ratification of the Constitution. That’s it, and it isn’t enough to pass the test.
3. Separate culture: There are differences, of course, but the real differences are between urban and rural residents within states. National media and massive migrations have also limited the differences between the USA and the RSA. This test isn’t met, either.

In addition, there are enormous practical issues that would have to be resolved to permit a national split. I will address these in my next post.

Polls show that a substantial majority of Americans support raising taxes on the wealthy. The tax increase supported by the Democratic leadership has already been watered down, however, and may fail altogether. Why?

It’s tempting to attribute this to campaign donations, and they undoubtedly are part of the picture, but the story is bigger than that. There are two other considerations. First, even some Democrats buy into the dollar store economy, either because it has been beaten into their skulls over the last 40 years, or because it can help them get re-elected. Second, the kinds of people who run for office and win are largely the kind of people who want to avoid tax increases. If the local car dealer calls you to complain about the impacts of legislation on him, you are likely to listen to him, even if your politics are different, if you went to the same schools and play golf at the same country club. It is a simple matter of identification.

Per the NYT, climate change is exacerbating severe water management issues in West Virginia, but the residents would rather live with floods than give up their forlorn dreams of a return of the coal industry. What should be done with these people?

As with vaccine and mask mandates, in a perfect world, the punishment would fit the crime. Parents who refuse to let their kids wear masks in school should be required to educate them privately at their own expense. Employees with minimal contact with the public should lose their health insurance; workers with more public exposure should be fired. And as to climate change deniers who style themselves rugged individuals, they should be left without any public assistance when the disaster arrives. That’s justice.

It won’t happen, of course, but it should. Abortion opponents should pay higher taxes to deal with the myriad of social problems arising from the births of millions of unwanted children, too.

The great would-be emperor Xi

Wants to put Taiwan under his knee.

It’s a glittering prize,

So don’t be surprised

If there’s war in the South China Sea.

Paul Krugman is appalled by the thought that an industry which represents a tiny percentage of GDP, even in West Virginia, has enough clout to prevent meaningful action on climate change. He’s right, of course. Why is this happening?

I saw this during last year’s Kentucky Senate campaign. To millions of voters, coal mining doesn’t mean black lung, fires, and more powerful hurricanes; it means traditional values, male camaraderie, strength, self-reliance, and prosperity. Even without climate change regulation, coal mining is effectively dead in West Virginia, but the happy aftertaste lingers, and is politically potent.

Persuading the public that hanging on to the glorious past is going to be a long and difficult task. Unfortunately, it is time we don’t have. Manchin and McConnell will have plenty to answer for in the not-so-distant future.

It’s time to discuss climate change.

What the right has to say is deranged.

But the voters will say

We should live for today

So maybe it isn’t so strange.

Given the constraints imposed by our political system, there are two reasonably plausible alternatives to the dollar store economy. The right-wing populist alternative would consist of steep tariffs, subsidies for dying industries, erratic regulation allegedly in the public interest, and tax cuts focused more on workers than capitalists. The left-wing alternative is the one that Biden is pursuing today. It features more regulations, higher taxes for business, plenty of support from the Fed, legal assistance to labor in its battles with capital, and a significantly expanded welfare state. The idea is to increase the size of the middle class, to push up demand, and to accommodate large wage increases in our existing economy.

The right-wing alternative has been tried in many countries in the past. It is a proven loser, because it sacrifices cutting edge industries and jobs for the industries of the past, makes your economy less competitive on a global basis, and hurts domestic consumers. The Biden alternative has never been tried under anything like the current conditions. Most of the Democratic Party supports it, but Manchin and Sinema are, at best, lukewarm. Their objective appears to be to keep the dollar store economy, but to sand down some of its rough edges. Who will win this tug of war? I make no predictions on that one.

The biggest loser in the dollar store economy unquestionably has been the blue collar worker. With few assets to his name, he has to rely on his wages, which have been held down by technological change, the availability of cheap overseas labor, and capital-friendly legislation and regulations. Male workers using physical strength and skills in particular have lost money and status in the evolving knowledge-based economy. The only silver lining in this dismal picture has been low prices, which give the worker a safety valve of sorts; hence, the popularity of dollar stores and the title of this series.

Given their numbers and struggles, blue collar workers are the principal battlefield in American elections. The Democrats promise more power and higher wages; the GOP offers culture wars, scapegoats, and nostalgia. Neither side has won a complete victory at this point. The outcome of the 2024 election will probably ride on Biden’s ability to improve the lives of workers, and to persuade them to give him the credit.

To the reactionary right, the enemy isn’t the one percent, which consists of scrappy, hard-working businessmen who create wealth and try only to keep as much of their just desserts for themselves. No, the primary driver of rising inequality in America is the ten percent: professionals who look down on the less educated, marry each other, live in gated communities, and seek unfair advantages for their kids. They’re the self-seeking, undeserving establishment that must be overthrown. They’re the big winners from the dollar store economy.

It’s a popular narrative, but the facts—at least in monetary terms—do not bear it out. The numbers show that professionals have managed to break even over the last forty years—nothing more. Their earnings have remained fairly stagnant, and while their investments have done well, they have far fewer assets than the one percent, so the benefits they have received from hefty corporate profits and low interest rates have been fairly limited. In addition, the internet is a threat to their traditional business practices; it provides consumers with low-cost alternatives to their services, but does not increase revenues.

In short, professionals are not, in fact, the primary beneficiaries of the dollar store economy—capitalists are.

To a CD, a fetus (even a fertilized egg) is a human being with a soul, and to kill it is murder. To a Reactionary, abortion facilitates the sexual freedom of women, which is an affront to God and a mortal threat to the traditional male-dominated social order. To a liberal, abortion is tied to both freedom and equality for women. They aspire to a kind of secular, tolerant, multi-cultural democracy that is reviled by the right.

Abortion is such a divisive issue because the ideological stakes for each of these factions could not be higher; they tread on ground that is not negotiable. The other message here is that Justice Ginsburg’s critique of the legal reasoning behind Roe has a lot of merit, because her argument that the decision should have been based on equal protection instead of a vague right to privacy has a basis in the text of the Fourteenth Amendment and reflects the real sociopolitical objectives of the left, as described above.