Baker: his message struggles to be heard because a lot of money goes into calling the other tune.
Dean Baker explains how calls for a new type of market – one that doesn’t offer a choice of death or bankruptcy – are hard to hear over a well-funded establishment band.
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? “Exactly,” he says.
A “combination of theories people don’t understand,” 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. “This is conscious policy,” Baker says. The Federal Reserve board, – the US central bank – has, he says, run “unnecessarily high unemployment rates” under an inflation-curbing rationale.
“The 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,” says Baker.
Hence the title of his latest book – Rigged.
“I’m an economist, I know the literature, I know the people who work in central banks,” says Baker. He summarises their outlook: “Many 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.“The 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.”
He elaborates: “I 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, ‘”Yeah, let’s do that’.”
According to Baker, many among the voting public have “zero understanding” of this, as do a lot of members of Congress. “I’ve talked to members of Congress. A lot of them are looking at me like, ‘What are you talking about?’ 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.”
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: “In 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.”
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 – some US$440 bn. Take out patent costs and that falls to US$80 bn he says.
”We give government-granted monopolies to drug companies that allow them to charge very high prices for their drugs”
”We give government-granted monopolies to drug companies that allow them to charge very high prices for their drugs,” 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.
“So 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.”
“This 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,” he says.
Baker’s tone borders on incredulous when he relates the responses he gets from economists to his questioning of existing copyright and patents: “They’re looking at me like, ‘What are you talking about? These are given by God,’ ” he says.
“The 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.”
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.
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. “We’ve been extending protections in ways that redistribute income upward, and again, this was not the market,” Baker says.
And copyrights too have been extended, Baker explains: once in the 1970s and again in the 1990s. In a “kind of funny” twist, the primary reason – the proximate cause – for the extensions was the approaching end to Disney’s copyright on Mickey Mouse. And they were extended retroactively. “in aAll seriousness,” says Baker.
While he accepts the rationale behind copyright, Baker questions strongly the logic behind applying it to something created 95 years ago. “How 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,” says Baker.
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.
Why?
“There’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.”
So is Baker saying researchers who have an interest in policies that favour the richest attract funding? “Exactly.”
“the powerful become more powerful, so they get to rig the system better to get more power”
Baker proposes that public money is used to pay for the research upfront – probably at the clinical stage research – so the approved drug can be sold at its free market price.
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 “probably not the best mechanism”. He anticipates and rehearses the arguments: “People say, ‘Oh, the government can’t do it,’ 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’s just absurd.”
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.
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 – probably shorter and weaker than existing ones – “might well be the most efficient mechanism.”
Baker says his criticism of patents raises vocal questioning from other economists. He proffers his explanation in which he refers to “grad school” free market economics and equates the price hike imposed by the patent holder to a 10,000% protectionist tariff: “They look at me like I’m speaking nonsense. They go, ‘bBut it’s a patent.’ And I go: the market doesn’t care what you call it. It has the same effect.”
However, he says countering the patent scheme is always going to meet fierce resistance. “The 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,” says Baker.
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?
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.
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 “the worst evils of capitalism” but maintain that capitalism is the “basic story” and government must counter its worst parts.
“Well no, the basic story isn’t given. We could have radically different types of capitalism,” Baker says.
“I 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.
Nevertheless, he accepts that there must be a force of change.
“Certainly 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.
“There’s enormous respect for market outcomes in the US so when people talk about redistributive policies, they go: ‘Oh, you want to penalise the winners?. You’re gonna help all those losers out,’ and that’s a really big obstacle.
“I 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”
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 – particularly towards the rights of women and homosexual and transgender people and, arguably more pertinent, smoking.
“Twenty 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.”
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. “You’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,” says Baker.
“And that’s one of the reasons I’m not discouraged in the economic realm, or at least nearly economic realm.
“I 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.
“As 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, ‘Hey, we want $200,000 or your wife, your husband, your kid’s gonna die.’ I think we can beat them on that.”
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 “a real rare case.” But the plight of black people in the US was clear to him when he was quite young: “My 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: ‘Look, blacks don’t have the same rights just ’cause they’re black.’ That did strike me as horrible. I remember that from when I was five or six.”
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.
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.”
Back to today, he thinks his arguments in Rigged and other work is “making some headway.”
But.
“It’s a real, real uphill battle because it’s a different way of thinking about things. People – here I’m thinking of people who consider themselves progressives – 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.”
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: “We’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.”
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’ve got to hear it and, as Baker emphasises, there’s a lot of money going into calling the other tune.
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Dean 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.
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