{"id":3167,"date":"2017-06-30T07:54:22","date_gmt":"2017-06-30T07:54:22","guid":{"rendered":"https:\/\/mint.10yearsafterthecrash.com\/?p=3167"},"modified":"2019-07-14T16:47:51","modified_gmt":"2019-07-14T16:47:51","slug":"he-who-pays-the-piper","status":"publish","type":"post","link":"https:\/\/www.themintmagazine.com\/he-who-pays-the-piper\/","title":{"rendered":"He who pays the piper"},"content":{"rendered":"

Baker: his message struggles to be heard because a lot of money goes into calling the other tune. <\/em><\/p>\n

Dean Baker explains how calls for a new type of market \u2013 one that doesn\u2019t offer a choice of death or bankruptcy \u2013 are hard to hear over a well-funded establishment band. <\/strong><\/p>\n

Technocrats are forming policy in a way that most people don’t really understand. The Mint asked economist and author, Dean Baker, whether this was his view of how politicians and their economic advisors are rigging the US economy? \u201cExactly,\u201d he says.<\/p>\n

A \u201ccombination of theories people don’t understand,\u201d and people acting in their self- interest is, according to Baker, behind policy decisions in the US since 1980 that have made ordinary people unemployed and burdened them with unnecessary costs. \u201cThis is conscious policy,\u201d Baker says. The Federal Reserve board, \u2013 the US central bank \u2013 has, he says, run \u201cunnecessarily high unemployment rates\u201d under an inflation-curbing rationale.<\/p>\n

\u201cThe cost of that was that people at the middle and bottom of the wage distribution were more likely to be unemployed, and also saw much lower wage growth. And this is a period where we saw a big upward redistribution in wage income,\u201d says Baker.<\/p>\n

Hence the title of his latest book \u2013 Rigged.<\/p>\n

\u201cI’m an economist, I know the literature, I know the people who work in central banks,\u201d says Baker. He summarises their outlook: \u201cMany of them really believe that inflation’s this horrible threat and we have to keep unemployment rates high, because if the unemployment rates were lower, very soon we’d have double digit inflation like we did back in the ’70s.\u201cThe people in control, they we’re more concerned about inflation and less concerned about the idea that we just kept a lot of people from having jobs.\u201d<\/p>\n

He elaborates: \u201cI think it’s badly mistaken. The question is, what are your priorities? Are you prepared to take a risk of higher inflation if that means more people will have jobs and higher wages for those at the middle and bottom? I would say, \u2018”Yeah, let’s do that\u2019.”<\/p>\n

According to Baker, many among the voting public have \u201czero understanding\u201d of this, as do a lot of members of Congress. \u201cI’ve talked to members of Congress. A lot of them are looking at me like, \u2018What are you talking about?\u2019 They’re not economists. There’s very little understanding that when the Federal Reserve board raises interest rates, they’re trying to keep people from having jobs.\u201d<\/p>\n

In Rigged, Baker asserts that the US economy is structured to serve the wealthy and powerful. He says patent and copyright legislation illustrates his point: \u201cIn the past four decades, we’ve made patent and copyright legislation much stronger and longer. So more money is going to the people who own patents and copyrights, and coming from the rest of us.\u201d<\/p>\n

The impact that patents have on the cost of living is, Baker says, demonstrated in prescription drug costs. He calculates that 2% of US GDP will be spent on prescription drugs this year \u2013 some US$440 bn. Take out patent costs and that falls to US$80 bn he says.<\/p>\n

\u201dWe give government-granted monopolies to drug companies that allow them to charge very high prices for their drugs\u201d<\/p><\/blockquote>\n

\u201dWe give government-granted monopolies to drug companies that allow them to charge very high prices for their drugs,\u201d Baker says. That’s a bigger story in the US because we give patent monopolies and we say you can charge whatever you feel like. You don’t do that in the UK and in Europe.<\/p>\n

\u201cSo that’s money coming out of the pockets of middle class people, lower class people or indirectly through insurers, through their employer, government, whatever. Someone’s paying that price. And it’s going to the people who own the patents. And it’s a very, very large amount of money.\u201d<\/p>\n

\u201cThis is something that, remarkably, gets very little discussion in policy debates on income inequality. That’s unfortunate because it’s a really, big deal, certainly in the US. And this is a matter of public policy,\u201d he says.<\/p>\n

Baker\u2019s tone borders on incredulous when he relates the responses he gets from economists to his questioning of existing copyright and patents: \u201cThey’re looking at me like, \u2018What are you talking about? These are given by God,\u2019 \u201d he says.<\/p>\n

\u201cThe point I make is, well no, patents are created by government; copyrights are created by government; and the length and breadth of these is set in law.\u201d<\/p>\n

This naturally raises the question: why is the government, and maybe its economic advisors, contributing to what Baker sees as a rigging of the patent system? He asserts that economics in fact offers little to support current patent laws and the bias in those laws comes down to lobbying and the power of special interest groups.<\/p>\n

The issues with patents extend beyond pharmaceuticals, says Baker. In high-tech industries, the US has increased copyright protection from 45 years four decades ago to 95 years today. \u201cWe’ve been extending protections in ways that redistribute income upward, and again, this was not the market,\u201d Baker says.<\/p>\n

And copyrights too have been extended, Baker explains: once in the 1970s and again in the 1990s. In a \u201ckind of funny\u201d twist, the primary reason \u2013 the proximate cause \u2013 for the extensions was the approaching end to Disney\u2019s copyright on Mickey Mouse. And they were extended retroactively. \u201cin aAll seriousness,\u201d says Baker.<\/p>\n

While he accepts the rationale behind copyright, Baker questions strongly the logic behind applying it to something created 95 years ago. \u201cHow does it make sense to do it retroactively? Everyone who made Mickey Mouse, everyone who was involved in making Mickey Mouse, they’re long since dead, s. So you couldn’t get an economist to argue for that. At least not one that wasn’t on Disney’s payroll. But Disney has the power, they’re able to do it,\u201d says Baker.<\/p>\n

Baker says there are questions hanging over the logic behind current patent and copyright law. But he says it is ground where economists rarely tread and few are on top of it.<\/p>\n

Why?<\/p>\n

\u201cThere’s no money on the other side. The pharmaceutical industry is prepared to give money to think tanks, to economists that are willing to say how great drug patents are, and make them longer, make them stronger.\u201d<\/p>\n

So is Baker saying researchers who have an interest in policies that favour the richest attract funding? \u201cExactly.\u201d<\/p>\n

“the powerful become more powerful, so they get to rig the system better to get more power”<\/p><\/blockquote>\n

Baker proposes that public money is used to pay for the research upfront \u2013 probably at the clinical stage research \u2013 so the approved drug can be sold at its free market price.<\/p>\n

He argues for a substantial extension to the $30 bn a year spent in the US on biomedical research through its National Institutes of Health. At the same time, he concedes that handing full responsibility for research to a government agency is \u201cprobably not the best mechanism\u201d. He anticipates and rehearses the arguments: \u201cPeople say, \u2018Oh, the government can’t do it,\u2019 I go, you could pay private companies. But they’re gonna tell me that if the government’s paying the private company as opposed to Pfizer or Merck paying the private company it won’t work? That\u2019s just absurd.\u201d<\/p>\n

He sees the aim as setting up competition. So a pharmaceutical firm could, as now, develop, patent and produce its own drug but risk that it might end up competing with a generic product, emerging from publicly funded research, that’s every bit as good.<\/p>\n

And while he is convinced that upfront public funding of research is right for prescription drugs, he accepts that there are other products and services where patents \u2013 probably shorter and weaker than existing ones \u2013 \u201cmight well be the most efficient mechanism.\u201d<\/p>\n

Baker says his criticism of patents raises vocal questioning from other economists. He proffers his explanation in which he refers to \u201cgrad school\u201d free market economics and equates the price hike imposed by the patent holder to a 10,000% protectionist tariff: \u201cThey look at me like I’m speaking nonsense. They go, \u2018bBut it’s a patent.\u2019 And I go: the market doesn’t care what you call it. It has the same effect.\u201d<\/p>\n

However, he says countering the patent scheme is always going to meet fierce resistance. \u201cThe pharmaceutical industry, when you start talking anything about patents, they go nuts. They’re very powerful, and they’re not about to be pushed by the wayside,\u201d says Baker.<\/p>\n

Baker sees a mix of lobbying by powerful interests and the movement of money to encourage particular perspectives, creating tough resistance to progressive thinking on behalf of the less powerful. Clearly out of that, grows a picture in which the powerful become more powerful, so they get to rig the system better to get more power. And on it goes. So is a rigged system itself is an inevitable outcome of capitalism? And is this edifice insurmountable?<\/p>\n

Baker asks a different question. He sees the task ahead less as one of climbing over the edifice and more as rebuilding it. And this is where he says progressive economics has missed a trick.<\/p>\n

He challenges the idea that capitalism as it is now is a given. With that viewpoint, he says progressive economists have focused on reining in \u201cthe worst evils of capitalism\u201d but maintain that capitalism is the \u201cbasic story\u201d and government must counter its worst parts.<\/p>\n

“Well no, the basic story isn’t given. We could have radically different types of capitalism,” Baker says.<\/p>\n

\u201cI think there’s an enormous amount to be gained, certainly in the US, but in other countries as well, by changing the structures of the market so that you get more equal outcomes rather than the gross inequality that we see today.<\/p>\n

Nevertheless, he accepts that there must be a force of change.<\/p>\n

\u201cCertainly people with power are going to try to use their power to make their power even greater. I think that’s absolutely true. I guess the question is: is there an option to change the system, in terms of structuring before tax distribution of income.? I think there is and that it just opens up way more opportunities.<\/p>\n

\u201cThere’s enormous respect for market outcomes in the US so when people talk about redistributive policies, they go: \u2018Oh, you want to penalise the winners?. You’re gonna help all those losers out,\u2019 and that’s a really big obstacle.<\/p>\n

\u201cI think that the pharmaceutical industry is an industry that can end up in the same situation as the tobacco industry has, where it really is thought to be a villain”<\/p><\/blockquote>\n

Baker accepts that the current situation is not going his way. But he draws confidence from recent radical changes in the mores of the West \u2013 particularly towards the rights of women and homosexual and transgender people and, arguably more pertinent, smoking.<\/p>\n

\u201cTwenty years ago, if you suggested that you would have, in the US and really much of the rest of the world, same sex marriage, people would have thought you were nuts. That was just considered such a far- out position.\u201d<\/p>\n

And Baker points to the overhaul in attitudes to smoking as a demonstration that powerful interest groups can be pushed back when ordinary people are informed and motivated. \u201cYou’ve seen an incredible change in a very short period of time. And you know, the tobacco industry, these were big, powerful companies. So it wasn’t as though people were beating up on some little guys. They got some of the biggest companies in the world and really had to beat them into retreat,\u201d says Baker.<\/p>\n

\u201cAnd that’s one of the reasons I’m not discouraged in the economic realm, or at least nearly economic realm.<\/p>\n

\u201cI think that the pharmaceutical industry is an industry that can end up in the same situation as the tobacco industry has, where it really is thought to be a villain and, I think, accurately so.<\/p>\n

\u201cAs I say, I think we have other ways, better ways, to finance research, but the idea that you’re going to, in effect, hold someone hostage and say, \u2018Hey, we want $200,000 or your wife, your husband, your kid’s gonna die.\u2019 I think we can beat them on that.\u201d<\/p>\n

His tone and vigour in challenging situations where he sees unfairness has roots in his early years. Baker grew up in an affluent part of north Chicago where he says there was a level of integration of white and black that was \u201ca real rare case.\u201d But the plight of black people in the US was clear to him when he was quite young: \u201cMy mother would talk about that, and I won’t say she was a big radical or anything, she wasn’t, but she did feel strongly about civil rights, and did bring home to me: \u2018Look, blacks don’t have the same rights just ’cause they’re black.\u2019 That did strike me as horrible. I remember that from when I was five or six.\u201d<\/p>\n

More recently, Baker is widely credited with having predicting the crash of the United States housing bubble, in 2007. He warned about the approaching crisis and related government policies in media interviews from 2002 to 2005.<\/p>\n

Later he opposed the US government bailout of Wall Street banks on the basis that the only people who stood to lose from their collapse were their shareholders and wealthy bosses. He ridiculed the US elite for favoring the bailout joking: “How do you make a DC intellectual look less articulate than Sarah Palin being interviewed by Katie Couric? That’s easy. You ask them how failure to pass the bailout will give us a Great Depression.”<\/p>\n

Back to today, he thinks his arguments in Rigged and other work is \u201cmaking some headway.\u201d<\/p>\n

But.<\/p>\n

\u201cIt’s a real, real uphill battle because it’s a different way of thinking about things. People \u2013 here I’m thinking of people who consider themselves progressives \u2013 they’re still very much inclined to think of the tax and transfer world. But I talk about the upward redistribution of income, and a lot of people are recognising that it was is driven by policy. There is an appreciation of the fact that we have markets structured in a way that leads to the level of inequality that we’re seeing. It’s not something that just happened.\u201d<\/p>\n

The different way of thinking Baker talks of has, by his account to The Mint, been misunderstood by politicians, economists conventional and progressive, and ordinary people. He has made clear his appreciation of the need to project his ideas in accessible language as reflected in the title of his current book: \u201cWe’ve got to live with the people we have out there, and if we’re not communicating with them, fine, you can call them stupid if it makes you feel good. But it’s our problem.\u201d<\/p>\n

With Donald Trump and Jeremy Corbyn each decrying the political systems around them as rigged, Baker is, it seems, using a word that resonates with both ends of the political spectrum. If people get it, they might buy it. But first they\u2019ve got to hear it and, as Baker emphasises, there\u2019s a lot of money going into calling the other tune.
\n[END BODY COPY]\n[BIOG BOX]\nDean Baker is an American macroeconomist and co-founder, with Mark Weisbrot, of the Centre for Economic and Policy Research in Washington DC. He is credited as being one of the first economists to have identified the US housing bubble that led to the 20017-08 crisis.
\n[END BIOG BOX]\n","protected":false},"excerpt":{"rendered":"

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