Adverse Economic Consequences of Ideology Driven, Ill Informed or Not Voting

Vijay K. Mathur

“A man without a vote is a man without protection.” 

 Lyndon B. Johnson

Ill-informed voters and low voter turnout, aside from threatening democratic values, often end up electing politicians who decide on policies that result in adverse economic consequences for most Americans. Pew Research reports that in the 2016 presidential election 61.4% of the voting age population in the U.S. voted, the same as in 2012.

In Utah, the 2016 voter turnout was an impressive 82%. Republicans in the Utah Legislature have had a supermajority since 1992. This supermajority of Republicans in both state Houses is surprising, since only 45% of the voters are declared Republicans. Unaffiliated declared voters are 37% and only 13% are Democrats, according to www.elections.utah.gov. Hence it is more likely that voters in Utah are driven by their conservative ideology and political spin on policy stands, rather than by party affiliation.

Alexander Field states in the December, 2017 Journal of Economic Literature, “ An ideology is an integrated system of belief about how the world should be, how the world is, and how new evidence about the state should be interpreted and used.” Note, ideology clouds independent judgment since it is subject to an ideological interpretation of facts and logic.

Hence, elected by ideology, Utah legislators know that their status is secured. Therefore they were emboldened to change the voters’ recently passed propositions on Medicaid and medical marijuana. The changes will reduce the expansion of Medicaid, thus depriving health care benefits to thousands of Utahns. The state monopoly in medical marijuana will create barriers to entry in production resulting in higher prices. This is the cost voters will pay for electing people on ideological grounds and making ill-informed decisions on politicians.

Nationally, the most alarming fact is that voters who suffer the most from unfavorable economic policies have the lowest voting record. Voting percentages increase with education and income. Blacks and Hispanics have lower percentages than non-Hispanic whites. Young voters (18-29 years of age) vote less than voters of age 45 years and older, according to the Census Bureau. US.. government economic policies reflect this tilt in voting patterns, favoring older, wealthy and white voters.

Most voters old and young, low income and middle class, complain about wealth and income inequality. However, despite promises, the 2017 tax cut primarily benefited corporations and the rich. The research by Professors Emmanuel Saez and Gabriel Zucman, reported by David Leonhardt of The New York Times, shows that the richest 400 households paid less average tax rate (23%) in 2017 as compared to 1950 (70%) and 1980 (47%). The middle class and poor barely benefited from the tax cut.

Trade policies of the current administration are also economically detrimental to small farmers and workers in the industrial belt, most of whom voted for President Donald Trump. The Republican majority in the Senate and President Trump have also tried to dismantle the Affordable Care Act (Obamacare), that primarily provides health care benefits to lower income Americans. Voting also affects the choice of politicians who, for example, care about preservation of national parks, cleaner environment and policies to deal with climate change, skills training for unemployed workers, housing affordability and assistance in paying college debt.

Only 63.3% of women voters voted in the 2016 election (the same as in 2012). It did not help their causes dealing with child-bearing rights, childcare, early childhood education, parental leave and real income security. Randall Akee and other coauthors in the March 2018 American Economic Review find that an increase in household income has significant effect on children’s personality traits, emotional well-being, behavioral health, educational attainment and other beneficial adult outcomes.

Voters’ apathy by not voting or by ill-informed voting causes perils for democracy also, because policy decisions are made to please donors and partisans driven by their agenda and/or ideology. Democracy promotes economic stability, as Dan Rodrik finds in his study published in the American Economic Review in May 2000. Economic stability is vital for economic growth, employment, and the vitality of financial and labor markets. We are witnessing this instability in the Trump administration and its adverse consequences.

American voters must get over their excuses for not voting or for ill-informed voting. Voting by the missing one-third of voters and better informed voters could change things like registration barriers, gerrymandering, placement of voting facilities and voting days; complaints will not resolve such issues. As Louis L’Amour states, “ To make democracy work, we must be a nation of participants, not simply observers. One who does not vote has no right to complain.”

Mathur is former chairman and professor of Economics, Department of Economics, Cleveland State University, Cleveland, OH.  This article was published as opinion piece in the Standard Examiner, October, 31, 2019, Ogden, UT.

Escalating Drug Prices and Patent System Abuse

Vijay K. Mathur

High drug prices in the U.S. significantly contribute to the high cost of health care and health insurance. Rand Corporation found that in 2016 Americans spent $10,300 per person on health care, and 17% of that was on drugs. The U.S. has 5% of the world’s population but spends half of the total world expenditure on drugs. Such expenditure increase will lead to serious disruption in the health care system and in Americans’ lives.

The latest state data for 2014 shows that Utahns spent $784 per capita on prescription drugs and medical nondurables (PD&MN), one of the lowest amounts among states (Kaiser Family Foundation). That is 33% of the total per capita spending on health care, much larger than in some Scandinavian countries. However, using average growth rate of 1.8% per year for the decade 2004-2014, the 2014 per capita expenditure on PD&MN in Utah would increase to $857 in 2019.

The claim, by Budget Director Mick Mulvaney, that drug prices have fallen for the first time in 50 years is erroneous. The use of pharmaceutical drugs data from the Consumer Price Index is very unreliable, according to the National Bureau of Economic Research. In fact, the list prices of more than 3,000 drugs increased, and they decreased for only 117 drugs as cited by KFF on April 7, 2019.

Drug companies argue that the development of drugs is risky; 90% of drugs in clinical trials fail according to the Rand study. However, even though development of many new products is risky, industry R&D costs are exaggerated. In addition, risk is the hallmark of any innovation, development and market acceptance of resulting products. Moreover, Bloomberg in January 2015 ranked the U.S. sixth in innovation from the top after South Korea, Japan, Germany, Finland and Israel, countries with lower drug prices. Partly it reflects lower spending on R&D as a percent of the gross domestic product.

Patents provide incentives for innovations and risks involved in the development of drugs. Professors Adam Jaffe and Josh Lerner report in their book, "Innovation and its Discontents," that the modern patent system has existed since 1836, when it extended the 14-year term of the 1790 Act by seven more years. However, since 1995 patent law provides 20 years of protection from the time of filing the application. But it has many loopholes.

DrugPatentWatch reports that pharmaceutical companies earn 80% of their revenues from patented drugs’ monopoly. Monopoly increases prices by restricting quantity, hence earning enormous profits. Companies maintain their monopoly by manipulating the law, by new formulations, and by new administration of drugs. For example, simplifying doses, extended release versions and new methods of administering (oral dose or nasal spray) are some of the tactics to extend patents’ duration.

Deep-pocketed companies engage in lawsuits to block generic drugs competition or buy generic drug makers to suppress the promotion of generics and maintain their patented drugs monopoly. Robert Posen, Harvard Business School lecturer, suggested that innovations and granting of patents should be sped up by hiring more experts and adopting the “first to file” rule for the applications, rather than wasting time discovering who first came up with the idea. Also, “first to file” rule will reduce frivolous and costly lawsuits since the patent office will decide the first filing date. Granting extensions should be rare.

“Cross licensing”, where companies agree to license their patents to each other as a device to expedite innovation, has outlived its usefulness. It depresses competition by blocking entry, especially of new startups. Small companies face threats of expensive infringement lawsuits or unwillingness of large companies to enter “cross-licensing” agreements or face substantial royalties in any agreement, thus thwarting competition and increasing prices.

On June 10, Bloomberg Business Week reported that American drug companies Merck & Co and Bristol-Myers Squibb are facing stiff competition in prices in China from some Chinese companies that have patented their drugs to treat the same health conditions. For example, the drug Tuoyi by Shanghai Junshi Biosciences Co. to treat melanoma (skin cancer), sells for 1/3 less than the price for Merck’s drug Keytruda in China. Allowing importation of drugs and Medicare to negotiate lower drug prices to counter monopoly power will also deescalate prices in general.

Professors Jaffe and Lerner cogently state, “Thus, the patent system — intended to foster and protect innovation — is generating waste and uncertainty that hinders and threatens the innovative process.” I might add that it also destroys competition.

Mathur is former chairman and Professor of Economics, Department of Economics, Cleveland State University, Cleveland, Ohio.  This opinion piece was published in Standard Examiner, August 23, 2019, Ogden, UT.

The American Dream and happiness in America

Vijay K. Mathur

Recent research on Americans’ well-being and happiness is finding that the American dream is fading. These findings are at odds with some in the media parroting the current administration’s and its sympathizers’ announcements that the economy is very healthy with plentiful jobs, better than in past decades.

This apparent conflict between the macro data and the personal lives and perceptions of Americans about their well-being can only be understood if one looks beyond the macro data on unemployment and growth rates. For example, if businesses in Utah advertise for 100 job openings for part-time work and single moms fill those jobs at minimum wages and no benefits, the unemployment rate will drop. However, those single moms will not be very happy with their lives, especially when they have small children to support.

The 2019 World Happiness Report (WHR) uses Gallop World Poll from 2016-2018 to rank countries on a happiness measure. This survey uses a measure, “life evaluations”, where people in a country’s population are asked to put the status of their lives on a ladder with zero to 10 steps, where zero is the worst and 10 is the best. Each country is ranked based upon the average score from the survey for the measure “life evaluations”. Six variables, per capita GDP, social support, healthy life expectancy, freedom, generosity and absence of corruption, are used to explain the overall average score. The U.S. ranks 19 from the top out of 154 countries for the period 2016-2018.

The U.S. ranking has been declining over a period of time since the first WHR in 2012. The survey also collected data on positive affects and negative affects. Positive affects represent an average of previous day for happiness, laughter and enjoyment over the survey waves from three to seven years, and negative affects represent an average of previous day of worry, sadness and anger over the period of time. The U.S. ranks 35 on positive and 70 on negative affects from the top out of 156 countries.

A review essay by Davis Blanchflower and Andrew Oswald (BO) in “Journal of Economic Literature,” from June 2019, fills up some gaps on the overall happiness status of Americans. The authors present research findings of Carol Graham of Brookings Institution and draw certain other conclusions based on their data. Graham finds that mental well-being has become more unequal; Americans are suffering from lack of hope and are less optimistic; the poor have more stress, pain and lower life satisfaction as compared to the rich; Americans have lost confidence and hope for upward social mobility.

In addition BO find that Americans are facing psychological difficulties in mid-life. White Americans are less happy than black Americans despite wide financial gap between whites and blacks during 1972-2016. There is lower financial satisfaction and happiness among less educated. Depression, anxiety and suicide are more prevalent among whites than blacks. High-income inequality contributes to low life satisfactions.

Utah is one of the happiest states in the U.S. with a ranking of No. 2 from the top, even though it has a drug overdose death rate higher than the U.S. rate (www.druguse.gov) and one of the highest suicide rates (www.cgc.gov) among states in 2017. Some of the factors contributing to high overall happiness ranking are fewest working hours, high-income growth, low divorce rate and high level of safety.

The economic uncertainty among Americans plays a very dominant role in hope, life satisfactions, confidence and optimism. A June 2019 survey of a sample of 1116 adults, by AP NORC center and University of Chicago, finds that fewer adults have confidence in their ability to retire or pay an unexpected expense of $1,000. A quarter of adults do not have enough income to meet expenses. Economic opportunities are not widely shared. The American dream is becoming more distant for an increasing proportion of Americans.

Professor Angus Deaton, Nobel Prize winner in economics, appropriately states in his book, “The Great Escape,” “There is much to be said for equality of opportunity, and for not penalizing people for the success that comes from their own hard work. Yet, with other rich countries, and in spite of the popular belief in the American dream that anyone can succeed, the United States is in fact not particularly good at actually delivering equal opportunities.”

Mathur is former chairman and professor of Economics, Department of Economics, Cleveland State University, Cleveland, OH.  It was published as opinion article in Standard Examiner, July 23, 2019, Ogden, UT.