Kevin Drum

Following up on my earlier post about drug price negotiation:

"Price controls." This is an odd usage. What Medicare is planning to do is just the opposite: they want to negotiate the price of drugs, the way you do in a free market, instead of being forced by law to pay whatever drug providers tell them to. It's a cap on public subsidies, not a cap on prices.

And there's another common blind spot at work here. Medicare boosts prescription drug spending in the US by about half. This is all taxpayer funded, and it hugely expands the prescription drug market since much of it would be unaffordable if seniors were left on their own. So what's the idea here? That the government should massively subsidize drugs with no questions asked? That hardly seems tenable.

Price controls in a free market might be—well, not demonic, but maybe bad policy. But that's not what we have here. A true free market in elderly health care would involve seniors paying for all medical care, including prescription drugs, out of pocket. Short of that, you can't have it both ways. If you want public subsidies in order to spur pharma R&D, you have to accept some limits on how much taxpayers are asked to contribute. That's both democracy and the free market at work.

Last Friday, in the wake of Joe Biden's miserable debate performance, Axios ran this blind quote:

Annie, Ashley and Anthony create a protective bubble around POTUS. He's staffed so closely that he's lost all independence. POTUS relies on staff to nudge him with reminders of who he's meeting, including former staffers and advisers who Biden should easily remember without a reminder from Annie.

Goodness. Who are these people?

Anthony is Anthony Bernal, a longtime aide to Jill Biden. The New York Post says he is Joe Biden's "Rasputin," complete with this picture to make sure you get the point:

Ashley is Ashley Williams, a Biden staffer so obscure she doesn't have a Wikipedia page. Even I have a Wikipedia page.

And Annie is Annie Tomasini, another longtime member of Biden world who was recently promoted to become one of his deputy chiefs of staff.

This seems like an unlikely trio to be running the White House, but not so unlikely that they've escaped the notice of James Comer, the room temperature IQ congressman who spent years trying to impeach Biden. He has subpoenaed all three in yet another effort to weaponize the House Oversight Committee:

Our research indicates that these are the three people that have been pulling the strings for quite some time in the White House. These are the three people that have been trying to cover up the fact that Joe Biden hasn’t been mentally or physically able to perform the job of president.... These three people, their names keep popping up as the gatekeepers, in addition to Hunter Biden.

"Our research" is apparently Comer's name for "an anonymous quote in Axios."

These guys just can't quit. Ever since Newt Gingrich radicalized Congress, Republicans have used oversight committees as brass knuckles to bludgeon Democratic presidents. They did it to Bill Clinton. They did it to Obama. They did it to Hillary Clinton. And they're doing it to Biden.

And why not? Going after Clinton probably gave us George Bush. Going after Hillary probably got us Donald Trump. Going after Biden has a good prospect of giving us Trump yet again. Gingrich may have been a vicious SOB, but that doesn't mean his politics of personal destruction don't work.

An op-ed in the Wall Street Journal today says that Joe Biden's plan to have Medicare negotiate drug prices via the Inflation Reduction Act is a disaster. Tyler Cowen links with the following comment: "It is worth noting this kind of academic research has not been effectively rebutted, rather what you usually hear in response is a bunch of snarky comments about Big Pharma and the like."

I don't have the PhD necessary to credibly rebut academic research, but I'm going to take a crack at this anyway, entirely free of snark. First, with apologies, here's a fairly long excerpt from the op-ed:

The law’s price controls are likely to raise annual out-of-pocket costs for 3.5 million Medicare beneficiaries who take price-controlled medicines, according to an analysis commissioned by the Pharmaceutical Research and Manufacturers of America.... Its mandated changes [have] already reduced the number of Medicare drug plans from which seniors can choose and increased the average premiums they pay. This year, the number of stand-alone Part D plans available to seniors dropped by 11%.... That drop is 25% since Donald Trump’s final year in office. In addition, premiums for Part D plans are up 21%.

....The law’s price controls will also deter companies from developing new medicines. A study I co-authored estimated that 135 fewer drugs will come to market through 2039 because of the Inflation Reduction Act.

....Dozens of life-sciences companies have announced cuts to their research and development pipelines because of the 2022 law. These announcements have come in earnings calls and filings with the Securities and Exchange Commission—where deliberate misstatements would expose executives to civil and criminal penalties—so they can’t be chalked up to political posturing.

And now for the rebuttal:

• The Pharmaceutical Research and Manufacturers of America—PhRMA—is an industry lobbying group. It's not snark to say that their estimates can't really be taken seriously.
• The number of standalone Part D plans is indeed down, but that's because seniors have defected in droves to Medicare Advantage plans:
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• Likewise, it's true that premiums are up in standalone plans—though by less than the amount Social Security is up—but premiums in MA plans are both lower and decreasing:
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• Negotiation of drug prices doesn't begin until 2026. It's implausible that it's had any effect yet.
• In any case, drug companies already negotiate prices in virtually every country in the world and also with private insurance companies in the US. The addition of very limited and modest price negotiations for Medicare is, perhaps, more than a drop in the bucket, but not a lot more. It's really not possible to rigorously forecast how this is going to affect drug introductions into the far future.
• IRA also penalizes firms that raise certain drug prices by more than inflation. However, the penalty for the vast majority of drugs is zero, and the remainder are almost all less than 1%.
• The author of the op-ed is Tomas Philipson, a dedicated longtime movement conservative who was chair of the CEA under Donald Trump. Before IRA even passed, he warned that it would produce "losses" of nearly $4 trillion per year. That's 15% of GDP! This is implausible in the extreme and speaks poorly of Philipson's other claims.
• The idea that CEOs are super honest on earnings calls due to fear of criminal penalties is—I promised not to be snarky, didn't I? But this is just laughable. Come on, man.
• Objective estimates of pharma R&D show it climbing through 2023 and projected to keep climbing for the next five years.
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Philipson is an accomplished economist, so it's vanishingly unlikely that any of this is an accident. He failed to adjust premiums for inflation. He failed to mention Medicare Advantage. He took PhRMA and CAHC data at face value instead of citing academic studies. He failed to explain how much drug price negotiation was likely to affect worldwide pharma revenue. He made a laughable claim about how virtuous pharma CEOs are on earnings calls and ignored serious evidence about R&D spending.

There's just nothing here. It's a sodden stew of exaggerations, cherry picking, ideology, and a few outright lies. This is, unfortunately, par for the course for the Journal editorial page.

This is Hilbert rolling around on our front porch. He's the true rolling cat in the family. Charlie rolls around sometimes and tolerates having his tummy rubbed, but Hilbert adores having his tummy rubbed. All you have to do is reach out and get close and he immediately starts up a roaring purr.

Here's an interesting thing. Samuel Perry recently posted a chart from his 2022 book about Christian nationalism. It basically asks if you'd be OK with manipulating election laws to ensure that your side has an easier time winning. By far the biggest agreement came from Christian nationalists:

Curiously, the second highest agreement came from their exact opposites, atheists. Apparently both ends of the religion spectrum feel under threat from our current electoral system.

The least likely to approve of fiddling with elections is those who don't just pay little attention to the news, but don't even know if they follow the news. That's some serious ignorance.

Yesterday I mentioned in passing the Producer Price Index. Here's the latest:

PPI is the inflation rate of inputs to consumer goods. It's what corporations pay for the raw materials used to make the stuff they sell to us.

As you can see, for a full two years PPI has averaged less than it did before the pandemic. At the same time, hourly earnings were only slightly higher than they were before the pandemic:

During this entire time companies continued to raise prices even though there was little justification for it. They just did it to see how much they could get away with.

This is from John Wahl, the chair of the Alabama Republican Party:

The mainstream media wants us to think of ourselves as a democracy because that leads to socialism.... Even our Republican elected officials call us a democracy far too often, and we are not.

This is interesting, but not for the obvious reason. What's interesting is that it really ought to be true. There are way more low-income voters than rich people, so it should be easy and common for them to band together and soak the rich as a way of providing themselves with more bennies.

And to some extent this does happen, more in some countries than others. But what's remarkable is how little it happens. Every adult gets to vote in America, but it's hard to convince low and middle income voters to unite for something as simple and useful as universal health care, let alone free universities or childcare for all. As for really soaking the rich, forget it. Nobody in the world is serious about it. Hyper egalitarian Sweden has more billionaires per capita than the US. The current richest person on earth, with a net worth of $200 billion, hails from social democratic France. In Switzerland, being rich is practically the national religion.

The inability to turn democracy into socialism is a longtime puzzle. When World War I started, socialist leaders were shocked to find that class solidarity vanished instantly to be replaced with patriotic nationalism. It was, in a way, the original version of What's the Matter with Kansas? Why did the proles all join up to fight a war for wealthy interests? Why do so many low-income Americans vote for a party that's so clearly an arm of the rich? In both cases, it was because class interests are surprisingly fragile compared to culture, religion, country, family, and race.

So Wahl doesn't really have anything to worry about. America is a democracy, but all that does is provide a modest counterweight to the interests of the rich. They're the ones who still provide the marching orders.

Tonight's press conference was plainly not the catastrophe the CNN debate was. That said, it's unlikely that Joe Biden quieted fears about his mental capacity. Earlier in the day he introduced President Volodymyr Zelenskyy as President Putin before catching himself. A minute into the press conference he talked about how he wouldn't have selected Vice President Trump as his running mate unless she was qualified. Later on, talking about foreign policy in the Pacific, he referred to "Australia, New Zealand, Japan, Australia—I already mentioned Australia." He had some trouble calling on reporters, clearly not trusting himself to say their full names sometimes. He was halting at times and had trouble pulling words from memory.

But he basically had his facts straight and showed a good understanding of the issues—certainly better than Donald Trump ever does. It was a competent but not barn burning performance, and it probably won't change any minds one way or the other.

Chris Hayes responds to today's good inflation news:

I don't seriously disagree with any of this, but there's an irony here. The single biggest contributor to Biden's good economy was the CARES Act, the $3.5 trillion rescue package passed in April 2020 and signed by.......Donald Trump.

It was the perfect Keynesian stimulus: big, broad, and put in place with lightning speed before the recession could take hold. But Trump has trouble taking credit for it because his base doesn't like the idea of either Keynesian stimulus or social welfare supports. And it did blow up the deficit.

It's deeply unfortunate that we won't learn the right lesson from this stimulus. It was politically possible only because the March 2020 recession was very sudden and plainly caused by the pandemic. This gave Republicans cover to support it.

The same kind of stimulus could also stop a normal recession in its tracks, but Republicans would never permit it. Early on they'd fight over whether we were really in a recession yet. They would insist on tax cuts instead of spending. They would nickel and dime everything for fear of de-incentivizing work. They would scream about the deficit and its impact on inflation.

COVID put all that to the side. It was obvious why people were out of work and it had nothing to do with laziness. It was obvious we needed to act fast: speed was more important than getting every detail right. It was obvious that inflation wasn't an immediate problem. It was obvious that we needed to put money in people's pockets, not promise them a tax cut in a year's time.

It worked, and there were no real downsides. The subsequent inflationary surge was due to supply shortages, not stimulus. People went back to work as soon as the economy recovered. And the recovery proceeded nicely with the same old taxes as before.

We could do this for every recession if we had the political will. We could especially do it if we had the political will to raise taxes and moderate spending during expansions, thus building up a surplus to be used later. Unfortunately, political will is in even shorter supply than usual these days. It takes a massive, once-a-century pandemic to goad us into doing what's right.

POSTSCRIPT: As an aside, I'm not as big a fan of Jerome Powell as Chris is. Powell has been OK, but I continue to think he overreacted on interest rates. It's possible that the economy needed a little reining in, but there was never any need to push rates so high to battle inflation, which came down of its own accord when supply shortages eased.

A couple of years ago it was fashionable among CEOs to blame bad results on supply chain disruptions, even in cases where supply chains clearly had nothing to do with it. Later on, they blamed price hikes on inflation long after the Producer Price Index had settled down to normal. Today, the go-to excuse for poor results is "inflation weary" customers:

For the past few years as prices soared, many consumers kept buying affordable treats like Doritos and Lay’s in lieu of bigger-ticket splurges such as restaurants, concerts or travel. But now, they are limiting their spending in all areas, said Jamie Caulfield, PepsiCo’s chief financial officer.

Sales volume for PepsiCo’s Frito-Lay North America business dropped 4% in the latest quarter, the company said. “There is a cohort of consumers that have become more price conscious,” Caulfield said. “They’re looking for more deals to get more for their money.”

This isn't rocket science. We actually have data on how much consumers are spending, and the Commerce Department releases a new edition every month. Here it is:

I don't know if consumers are weary of inflation—though it would be a little odd if they were, since the CPI has been hovering around 3% for over a year. This might be too high for the Fed but it's more-or-less unnoticeable to ordinary consumers.

But whether they are or not, consumer spending has been increasing at a rock-steady rate ever since the economy bounced back from COVID. It's just flatly untrue that consumers are "limiting their spending in all areas." If PepsiCo's sales of Doritos last quarter were disappointing, they need to find a different excuse for it.