Transcripts For CSPAN2 Dean Baker Discusses Rigged 20170212

CSPAN2 Dean Baker Discusses Rigged February 12, 2017

[laughter] so without further ado i will go ahead and let him take the stage. Everybody, dean baker. [applause] thank you. I do like my dogs. I three well, i had three dobermans. Im here to talk about my book rigged which kind of is, things have been talking about for at least a couple of decades in economics. And i had a chance to put this together. Just to put it simply as possible. The main theme of the book is, we have had this huge upward distribution of income over the last four decades it is really not arguable at this point. It has been documented in a number of ways. You probably heard about the great book capital which really talks about wealth but in any case there are a number of good reports, solid data, documenting this huge upward distribution of income. One of my favorites, this is actually it showed that if you look at the United States and you look at the bottom half of the income distribution, it basically has gotten nothing since 1980. I will not stand by little or nothing. I know many that jump off it means if you count this into that, no. Its positive. The point is you have had for decades in which we have had substantial economic growth, substantial innovation and a large share of the public that has almost nothing to show for it. So is not really an arguable point. The question is why is that . In the conventional view among economists and certainly owes him on policy people, well, it just happens. That was technology. My feel bad about it. I kinda make a joke about this but on the one hand we have liberals who feel bad and the conservatives say thats good, we want more. So in both cases they see it as being something that happened. And the main point of my book is no, its not something that happened, it is something we did. And what i want to go through his three major areas. The first is globalization. Talk about trade, the impact of globalization on workers in the United States. The second one is the Federal Reserve board. And the basic point is that the Federal Reserve board is hugely important in affecting both the number of jobs in the economy and wages workers get. The therapist patents. That my son really weird. Why direct care about patents . They are huge amount of money. And the fact that a lot of people, including economist type people, do not seem to know that is really incredible. And it really speaks an enormous fail on in the economics profession. Starting with the story of globalization. The classic story is told as well. You know we just happened to be the case that theres all these people in the developing world willing to work for very low wages, very poor in they undercut all of our steelworkers and autoworkers. And that is just the way of the world. We have to get used if you dont have a College Degree or education you cant compete in the world economy. And again, we can be good liberals and feel bad about those workers who lost their jobs in ohio, pennsylvania and other places we can say too bad folks. When i want to say about that is the story is fundamentally wrong. And it is wrong in about every respect. The place rest of the book i pick up anything that we saw that in the primaries in march. I attribute this ai first saw this where they set Bernie Sanders is the enemy of the worlds poor. In the basic story, Bernie Sanders thing you know look to protect jobs for manufacture want to think this is been the story of development by china and the rest of the developing world. They got those jobs and led to him getting out of extreme poverty and we should really be very happy about that. And Bernie Sanders as their enemy. This is fundamentally wrong for a number of reasons. First off the idea that we had to displace workers in pennsylvania and ohio to accommodate the world sport in china and the developing world is fundamentally wrong. First off, the basic theory, the economic theory that i learned in grad school and i do not think it is change that much, youre supposed to have money going from rich countries to poor countries. Your spouse have rich capital from rich to poor countries. Then that would mean we would be running trade surpluses with those countries. They would be using the money, they will be bowing to build up their infrastructure, their Capital Stock and at the same time they would be able to support the Living Standards of their population. And that actually happened in the 1990s. We actually saw the rich countries as a whole with large trade surpluses, if you add in japan and europe they had large trade surpluses particularly countries like vietnam, malaysia, they are running very large trade deficits. I have a graph my positions you have a situation where south korea and malaysia would be richer than the United States on average if they continued that rate of growth. And they didnt. They often say this is the root of all evil after the financial crisis in 1997, developing countries began to run large surpluses. The story was a thought that you teammate large amount of reserves. The reason was if they lost in the financial crisis, nonno greenspan at summers and rubin imposed very harsh terms of these countries. They did not have to deal with after that. It was just my Lesson Learned in east asia but in latin america, south asia. Basically anyone in a position that came later reserves in the developing world did so after 1997. What that meant was these countries instead of running trade deficits borrowing money from the countries were net lenders. As a very perverse story. So the people argued for the current system, they were the enemies of the world poor, not Bernie Sanders. We can look at that. 1990 and 1997. You can ignore but that is not reality. The second point about this, a lot of people in developing world are happy to work for one dollar an hour instead of what they would do competing with factory workers in michigan ohio and all that. That is true. Guess what . There are a lot of really smart people in developing world that will be happy to train his doctors, lawyers, and high standards. They would be happy to work in the United States for lower pay in our doctors lawyers and other professionals. It is very difficult to do because we have a lot of protectionism for doctors, dentists and other professions. You get arrested if you Practice Medicine in the United States without having completed us residency programs. We want to assure high standards for our doctors. But nothing anyone can tell me with a straight face that you have confident doctors in germany and france. None of whom have passed the us residency program. This is called protectionism. And as a result our doctors on average get paid more than 250,000 a year. If you compare that to canada, germany and other countries is about twice as much. We pay a really huge prospect. The difference between what with power doctors, what we pay doctors in germany, france and other countries comes to about 100 billion a year. That is real money. It comes to about 700 per person. Im sorry, 300 per person for every person in the country. That is real money. And that is protectionism. But we never get that talked about. We do not hear about the ama being there because it is not even on the agenda. Let me mention one last point in terms of trade and globalization. A big part of our trade deals especially in the Transpacific Partnership. A big part have been 180 degrees has been about patented and copyright protections. And understand, those give incentives. With those of protectionism. And they create huge distortions in the market. And i focus on prescription drugs but you have situations where drugs would be cheap in the free market. Their athey are cheap to manufacture. You can get an oncall generic in india for 200. High quality, this the same sort of thing you get here so it is not you getting cheap stuff that will kill you. It is the same drug. That is equivalent to a 40,000 percent tariff. Invariably when i said to people especially commerce they look at me and say that is a patent. You can call it anything you like. It has the same impact on the market. And to give you an idea of the impact in the United States, will put that offer not because i will come back to patents in a minute. But the point here is that we may poor people in the developing world pay lots of money for things that would otherwise be very cheap. In other words, let them buy drugs and free market, if we let them buy software and free market, they would save large amounts of money. The friends of poor people in the developing world should be 100 percent opposed to things like Transpacific Partnership and for that matter the trips part of the wto requires them to pay patent protected prices for a lot of items that would otherwise be able to get at the free market prices. Okay secondary, again i read this with people you know educated people not grabbing someone off the street. In any case, i will talk about the Federal Reserve thats really interesting. It really matters a huge deal. How many people he knows that the fed raised Interest Rates in december . Okay good. I was so distraught by this because they raised Interest Rates in december. What did they do that . To slow the economy. And im not giving you any secrets. They say it. Its not like im reading their minds or whatever that was the reason. There were the job market is getting too tight. And you go okay, so you raise the point, Interest Rates by quarter point. On the point is this the end of the world but clearly the direction slows the economy. So lets say slows the economy, by 10 percent. At the end of the year you talk to somewhere around 150,000 fewer jobs in the economy. Now lets think about donald trump carrier show in indiana. How many jobs are at stake there . 700. With 2000 times as many in the state with a small Interest Rate hike that the fence, no paid attention to this. Very few people did while donald trump, 700 jobs in indiana good thing for those people. But you know, that got a huge amount of attention. The point is that the fed has a large control of jobs in the economy. The aone of the measures i have looked at, did a book a few years ago p1 of the measures we looked at was the gap between the measure of the level of unemployment. They come out awe look at the actual rate of unemployment and the measure. So we nothing theyre gone theyre just saying is a nonbiased measure. So they came out with a measure and if you look at that, the period from 1947 to 1980, on rz Unemployment Rate is about half percentage point below their measure. If you look from 1980 to 2012 it was four percent above. Even after 2007 it was still two thirds of a percentage point higher. So when it means is we had much more restrictive policy. High rates of unemployment by policy. You know the feds, if we talked with people that they all have the argument. They are concerned about inflation. But the point is they placed much more effort on containing inflation in the period since 1980 then prior to 1980. An additional point that we make in the book and i emphasize this in this book, it is not just to downsize the economy. So if they restrain demand in the economy so even Unemployment Rate of five percent rather than four percent, is not just that the economy is little smaller. It has huge distribution effects. We analyze this. We find that part of this is a very strong racial component to it. So we get it done by a percentage point will get the Unemployment Rate for africanamericans done by two percentage points. It is not a law currently but is a very strong relationship. The flipside of that, if we have the Unemployment Rate one percent higher than it is to percent for africanamericans. For africanamerican teens it is 61. So thats what we are putting out of work. Also hispanics it is about and a half to 1. So another story is the wage story. So as we talk about less educated workers, workers without College Degrees. Those are the people who are losing jobs. You know so if things get bad it tends not to be the manager that gets enough. It will be the waitstaff. Retail clerk, the manufacturer, the assembly line. Those are people that lose their jobs. And part of the stories in that book and i also emphasize in this book, if you look at patterns of wage growth over the last 40 years, the only time when he saw consistent strong wage growth for those in the middle and bottom of the income where the late 90s, years in which we so very low unemployment. So we got the Unemployment Rate down to four percent on average in 2000. That was when we saw a wage growth that was good. It was so much more rapid for those at the bottom. The 10 and 20 percentile. Then those of the middle and top. Things were going the right way. Well, the larger point here is when you have a fed reserve board committed to high rates of an employment with the idf any inflation that is downward pressure on wages and less educated workers. That was at the market, that was not god. It was a Federal Reserve board. The point is that is very much a policy choice. So to act like that was just something that happened, no. It is simply not true. Again, it was something we did. Again i make this point, they do this and if you ever talk, not that there are evil people but also is very sanitary that we do not want the economy to overheats. Like we are cooking a broth. Well i dont want the economy to overheat. But they are three people out of work and very few people realize that. I will add one more point and i will go on. We often had this argument about funimation, eliminating jobs and how we will see, they will not be jobs for less educated people because of automation. Now that may or not be true but one thing i can say is for the present it is clearly not the case. Two things to point to. One is, automation is productivity growth, it is not something new window exotic. Weve had it forever. And it is much more rapid in the 50s and 60s, periods of low unemployment and i should also say very good wage growth. Up and down the income ladder. So the idea that somehow we are seeing productivity growth, workers at the bottom of going to be screwed, no. Is nothing that does that. The other point is, you say wait a second, we are worried about automation. This really speaks to Economic Policy debates in the country. Were worried about automation destroying jobs at the same time that the fed thinks that the raise Interest Rates to destroy jobs. Im sorry that does not make sense. Either one of those could be true but they cannot both make sense. Obviously the feds dont think that this is going wrong so rapidly which is why they are raising Interest Rates. They want to have fewer people working so it is not that wage pressure, no inflation. The third area is patent policy. And i raise this all the time of economists. They invariably looking hug what he talking about . Well ill focus on prescription drugs because this is the area where this is a huge amount of money. We spend about 430 billion a year on prescription drugs. It is about 2. 3 percent gdp. I will give you metric used in the book, is a metric of comparison. What we spend on food stamps. You know i know a lot of conservatives like to beat up on food stamps. They talk about obamas foodstamp nation. It is the antipoverty program. We spent a bit over 70 billion a year on that. So we spend on prescription drugs six times we spent on food stamps. I just give you that as a metric. A lot of money is at stake there. How much will you spend if we snap our fingers and we got rid of patents and related protections . Almost invariably, the drugs were getting are cheap to produce. It is very rare that you have a drugs actually cost a lot of money to manufacture. So i gave you an example. This is a ratio of 400 to 1. That in the stream. But the ratio of 52 one, 101, that is not uncommon. Even 10 to 1, it doesnt mean you spend 43 billion a year for the drugs that we are currently spending 430 billion a year on. That is incredible. And the way i talk about this, it is the same way economists talk about tree protection. So for say want to put a 20 percent tax on steel. Everyone was a war that is been creating a gap between the market price and the protected price in your giving still companies incentive to pay off legislators and they will hire lawyers to extend this. All which is true. They might exaggerate but this is all true. Except when you have patents that raise the price not by 20 percent but by thousand percent. It is much more true. Drug companies have enormous incentive to go to congress and say we want stronger protections and they are pretty good at that. So they do that all the time. They misrepresent their research, push drugs for purposes where they may not be appropriate. If you turn on the tv, i dont want that too much t. V. But almost invariably see drug ads. I watched the news and that is an older audience but invariably see these drug ads. One of the tongue you equate i may not be that fond of ads but at least have some idea what im getting with the car. So i see these drug ads with dorothy hamill, the olympic figure skater was advertising. I dont know she still does it but she was advertising arthritis drugs. What information cannot possibly give me equate i mean i dont even know she takes it himself . She says i skate around i feel great now. And who cares . It is giving zero information. Obviously the drug company has done Marketing Research in their bedding that that will get me or someone suffering from arthritis to go to the dr. And say want to get this drug, i saw dorothy hamill. No it is not a good way to get medicine. Now they sometimes actually conceal evidence that these drugs are harmful. Any drug for arthritis brought by merck, turns out it can be very bad for people with heart conditions. And guess what else . A lot of people with arthritis also heart conditions. People died because of that. They

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