All Things Economic

Someone in the "Craziest thing I've read" thread just brough up the national debt saying that there is "$20 trillion on the credit card..." Actually it's over $30 trillion. Here are a few other interesting Debt metrics.

~The US national debt is not only the largest on the planet but exceeds the second largest, Japan's, by a factor of 3.

~The US national debt is larger than the combined GDPs of Japan, China, Germany and India

~The current US Debt to GDP ratio, 138% is a record. By comparison the debt to GDP ratio was 119% at the end of World War II, a record that held until 2020 when the ratio hit 129%

~Our Debt to GDP ratio is, however, not a record. That distinction goes not to Greece as I would have guessed, but to Japan, whose ratio is 260%

~In fact our Debt to GDP ratio puts us in eleventh place. In second and third place behind Japan are Sudan (212%) and Greece (210%).

~ The average American taxpayer's share of the national debt is $240,569

~The average American citizen's share is $90,612

~According to the FHA the average home mortgage last year, by contrast, was $190,000

~A little good news: To be fair, the public share of the national debt is $23.6 trillion. The remaining 20% is intra governmental debt

~ Now for the really bad news: At current extremely low interest rates, debt service on the National Debt is costing about $305 billion per year or 5% of the budget. That's about to change for the worse.

Have a great weekend!

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I meant it in both senses of the word.

Certainly there are benefits to a college education to the individual, and society as a whole, from an economic perspective. Increased wages, improved productivity, etc.

But more importantly, education is a societal good that can also be measured economically. An educated populace is more socially cohesive, which also improve the economy.

What is the cost of the trucker convoy in Canada? Hundreds of millions of dollars on each side of the border. Not to mention the increasing division in society, which will lead to more cost.

Can this situation be completely laid at the feet of education? No. But it would certainly help if people were taught critical thinking skills...

I should say in the sense I understood you to be using it, as a noun, it is not subject to economic analysis. You could say that society "values" education in the verb usage sense of appraising its market worth. What I understood you to be suggesting is not a market appraisal but a moral or philosophical one.

In other words, individuals or institutions within society could indeed "value" education objectively by calculating its direct cost including student input and government subsidies, and then measure that against some objective economic standard. Present capitalized value of its additive effect on lifetime earning potential for example. I took you to mean that society, in the sense of the whole, or our national community, doesn't take into account the intangible benefits of an educated populace. Intangibles being, by definition opaque to economic insight.

LOL.

I disagree.

Value is not a concept subject to economic analysis. It's subjective.

OK.

How much is an educated populace worth?

May have to disagree on that one. My point was about cost not value. Its costs are increasing too rapidly.

The subject is really too deep to get into here.

I am more familiar with Cslifornia funding, but I would wager that additional funding is skewed towards categorical funding, which must be used for a specific purpose or group.

But I still think my point stands. As a country, we don't value education. That ripples through the entire system.

@TBR

I believe that's an overly broad generalization.

I am most familiar with the University of Washington, where I have supported scholarships for over 15 years. While it's true that State funding has declined from just over 70% of the budget to just under 40% over the last 20 years (source: UW 2022 adopted budget document), the total budget has increased from $5.9 billion in 2014 to $8.33 billion in 2022 (Source: UW office of planning and budgeting). That budget is increasing by roughly 4.5% annually which significantly exceeds inflation over the same period.

I think you are missing my point.

Budgets for public colleges are not going up. Students are being asked to pay a larger share of the cost because states continue to cut funding.

So we have changed our view of education from a public good that should be supported by tax dollars to a private good, which shouldn't.

@TBR

I have always noticed a similarity between the runaway cost of health care and education in our country. My take is that both are due to our society's focus on paying for these services rather than containing their costs. Though subsidized insurance on the one hand, and subsidized debt, plus direct grants, on the other. Consequently there is an increasingly large percentage of GDP being thrown at both with a resulting vicious circle response, economically speaking.

Neither, presently, strike me as an economically sustainable model.

@VA

When I used that term "orphan drug" I had the notion that it wasn't spot on. Thanks for the clarification. There is a need for government support of the manufacture of vaccines (like MMR for example) that are ongoing and have margins that are just not attractive to companies without such support. I don't blame the drug companies. They aren't any more nonprofits any more than, say, tech companies.

My interest in drug company business models came from being a stock investor. Originally an accidental one. Back in the day, when companies actually sent out annual reports, I read them to a degree I no longer do now that they are on line. The ins and outs of patent expiration and generic competition was pretty openly discussed under " strategic risk" and "business outlook. Speaking of accidents and "in and outs"... Viagra was an interesting story. It was originally patented as a substance of interest in treating angina, at which it flopped. But not before completing safety trials. When it was found to stimulate blood flow to an alternate organ, it had a "leg up" as far as the approval timeline process. Though the peak of its most firm sales (sorry, can't resist) occurred, if I recall, before it went off patent. I think the flaccidity was due to some stiff competition from Tadalafil.

current: that's not quite what an "orphan drug" is. Orphan drug status are for treatments for rare conditions with low financial potential, where market exclusivity is granted not only the drug, but treatment for the condition.

While this seems shitty, it isn't when you understand how drug development works. Ever notice that when a drug for a previously untreated condition comes out, not long after a number of competitors show up shortly afterwards? Think Viagra first and all the others that came later. Think of all the statin drugs. What happens is that one company bears all the work surrounding the research and design of a drug, and if it's successful, other companies develop analogues which do more or less the same thing, but are different enough to skirt the patent protection. These short-cut projects ("me too" drugs) are much more efficient because the first-in-class developer did much of the heavy lifting.

This isn't a problem for a condition with a large market such as ED or cardiovascular disease, but who is going to go through the $300 million effort for a rare condition with a $70 million annual potential, only to see a competitor "me too" the rug out from under you 18 months later? Thus these conditions get no attention and are thus "orphans".

But what if the FDA said that me-too drugs are not allowed for at least 10 years? Well, that has more potential.

Orphan drug status can be overturned if a competitor comes up with one that isn't just a competitor but is so much better that it renders the original obsolete.

"I would prefer that the discussion was more about "debt relief" than "debt forgiveness" for the reason that I think it's generally bad public policy to completely remove the economic consequences of bad decision making."

I would prefer that the discussion was more around whether education is a public good or a private good.

States have been starving education for decades.

I graduated high school pre-Prop 13 in California. We had a full slate of summer school courses, which allowed me to graduate in three years. Can't do that now.

In regards to higher education, when my mom went to community college in the 1970s, there was no tuition. All she had to pay for was books and a parking pass. She transferred to San Diego State, and paid $100 a semester.

When I went in the 1990s, community college was $18 a unit, or about $200 a semester. San Diego State was $900, and graduate school at UCLA was $1,300 a quarter.

Now community college is $46 a unit, or $550 a semester, and $3,000 at SDSU.

So the discussion, IMHO, is why it costs 30 times more to go to SDSU now than in the late 1970s.

Typically, vaccines are considered "orphan drugs" and not money makers for big pharma. Partly this is because their lifespans are either perpetual or measured in decades. It will be interesting to see if the potential of mRNA vaccines to make new "blockbuster" drugs changes this historical view. The typical lifespan of a blockbuster drug is seven to twelve years in the US. The patent life of a drug is 17 years, but that's from identification of the compound. Then there are phase 1, 2, and three trials before approval and these typically take years. The life span of commercial viability can be extended a few years by the fact that there are often process patents on the manufacturing of the compounds which are obtained later, after the compound is identified. Once those expire, most drug companies either abandon the field to the more competitive generic manufacturers or enter into brand licensing agreements with same.

Interestingly, the emergency use authorization process for strategically important drugs like the Covid vaccines can dramatically reduce the approval time (or at least time to sales and income) and consequently dramatically increase the economic return period for the drug. Given the shape of the revenue curve which increases substantially over time, this should have a huge effect on the lifetime earning potential of the drug since the total revenue - the area under the curve - increases toward the back end.

My overall impression is that Pfizer and Moderna are "doing well by doing good." Good for them.

@8-Inch

I am somewhat torn over the college debt forgiveness debate. It sounds from your description like there are particularly egregious practices involved in the cases being forgiven. There is also IMO a way too comfy relationship between for profit colleges, lenders and the Federal Student Loan authorities. There is also too much deference given to not-for-profit colleges as these may be simply organizations that economically benefit faculty rather than stockholders.

I do like the concept that there should be an enforceable metric between the potential earning value of a degree and the total debt accrual allowed for that degree. Otherwise the situation is nothing short of predatory. On the other hand, I have a very hard time forgiving people for some of the stupidity involved in their decisions regarding the accrual of said debt. It's hard to fathom how someone can rack up $100,000 in debt to obtain a liberal arts degree that, with sufficient on the job training, qualifies them to work at Starbucks.

I would prefer that the discussion was more about "debt relief" than "debt forgiveness" for the reason that I think it's generally bad public policy to completely remove the economic consequences of bad decision making.

VA - So it's kind of what I thought. Between the heathcare costs and other economic impact, anything that helps us get back on track is money well spent. It does seem like a lot when you see billions, as mentioned, but it makes more sense when you factor in the scale of the impact (i.e. billions vs trillions of $$$).

Also, I believe $34B was the gross # too. I'm sure the net, though substantial, is quite a bit less.

Some of the money for the vaccines was put up by governments. Some such as Pfizer went it alone and fronted approximately $5 billion to develop it and build the capital equipment to make it on a large scale.

$34 billion sounds like a lot of money, until you consider that the cumulative economic damage to the world is estimated to have been$12-$24 trillion so far, about 1/3 of that in the US.

Compared to now trillions we have spent on additional health care costs and government programs like stimulus and unemployment, aside from the overall economic damage, a few billion to mitigate said damage doesn't sound so bad, does it?

Was reading something (link below) about how companies making vaccines were looking at making $34B in pre-tax profit from the Covid vaccines. Was thinking that the government gets to tax that profit, but then they are the ones putting up the money in the first place I'd think.

Anyway, lots complain about the Big Pharma profits, but interested more in the economics behind this. I get why the vaccine makers would be motivated to push the vaccines, but it's less clear what (if any) financial motivation the US government has for this. Hopefully this stays more on economics and less on conspiracy theories.

For example, does it result in people (particularly healthcare subsidized ones) needing less healthcare, so it become more of a wash?

reliefweb.int/report/world/pfizer-biontech-and-moderna-making-1000-profit-every-second-while-world-s-poorest#:~:text=Based%20on%20company%20financial%20statements,or%20%2493.5%20million%20a%20day.

Washington (CNN)The Education Department announced Wednesday that it has canceled another $415 million in federal student loan debt owed by nearly 16,000 borrowers who were misled by for-profit colleges.

It's the latest effort by the Biden administration to cancel student loan debt for borrowers who may already be eligible for debt relief but are still waiting for their paperwork to be processed. The agency has been chipping away at a backlog of forgiveness claims left over from the Trump administration that had been filed under a policy known as borrower defense to repayment.

Under US Education Secretary Miguel Cardona, the department has canceled about $2 billion in borrower defense claims from more than 107,000 individuals to date.

"The Department remains committed to giving borrowers discharges when the evidence shows their college violated the law and standards," Cardona said in a statement.

In other news, the Ten-Year Treasury yield hit two percent yesterday based on higher than expected inflation numbers. Even though inflation expectations seem to be inflating themselves almost weekly these days. The head of the St. Louis Fed also mentioned that he was considerably more hawkish now on inflation and would like to see a 100 basis point (1%) increase in the discount rate enacted over the next three Fed meetings (that is by June). This would require at least one 50 basis point increase, something that has not happened since 2000.

I don't really understand what difference it makes who "makes" the stuff in a brand. The brand is owned by the brand owner, period. They are responsible for both the perception of the brand, which relies at least partly on quality, and the underlying quality control. If they fail in that, the brand suffers, and that falls on the bottom line of the brand owner even more than on the manufacturer who has at least the possibility of pawning of their junk on someone else. As a manufacturer I've never understood the argument otherwise. This is an argument that gets continually less meaningful IMO as manufacturing becomes more globally integrated.

The examples I used years ago to express this to a legislative committee considering what I viewed as a silly "authenticity" labeling rule was as follows: Consider the Apple iPhone. It may be assembled by, contain components made by, even be built in total by, Foxconn. So whose phone is it? Apple's or Foxconn's? Obviously a rhetorical question. But then consider the following statement which might appear on the back of such a phone: "iPhone 13. Apple Inc. Cupertino California. Made in China." Is there anything wrong with that statement? Any intent to mislead anyone?

I don't really care personally if the labeling isn't deceptive. I generally trust Costco to sell quality stuff and am happy to pay less for many, but not all, of their Kirkland branded products.

But Sony and Samsung make stuff that is used in other products.

Costco doesn't make anything with the Kirkland label on it. They repackage stuff other people make and sell it as their own.

BTW, the original Price Club is only a couple of miles away from me. The chain later merged with Costco, and the rest is history...

Sol Price is almost entirely responsible for revitalizing one of the most depressed neighborhoods in San Diego, City Heights...

"They don't really make much of anything."

Like a lot of major corps. The small guys can't compete, so the make the internal components for the big guys.

Sony was one of the biggest for decades..... Then Samsung caught up with their asses.

I'll never... Probably never.... Buy anything with Sony on it ever again.

Interesting and uncharacteristically excellent article in Newsweek on the Chinese housing market and the debt related debt crisis.:

"'It would take a middle-class couple 47 years to buy a small apartment—about 90 square meters—in Beijing or Shanghai if both husband and wife were able to save 100% of their salaries for the purchase,' Anne Stevenson-Yang of J Capital Research tells Newsweek.

'Want to Buy a House in a Big Chinese City?" asked the Sixth Tone website late last month. "Try Winning the Lottery First.'

Real estate prices in China are out of whack, so the market is "frozen," with buyers and sellers far apart. As a result, the number of transactions in recent months has fallen. Prices month-to-month are starting to come down, as well. Total sales of the country's top 100 developers plunged 39.6% year-on-year by value last month.

Stevenson-Yang, also the author of China Alone: The Emergence From and Potential Return to Isolation, reports in Forbes that around 30 Chinese cities are refusing to register transactions at prices below government-set levels.

'The model on which the real estate boom is based is unsustainable,' said George Soros at a Hoover Institution webinar on January 31.

Unsustainability is an emergency for China. The real estate sector accounts for an unusually high 25% to 30% of Chinese gross domestic product. Moody's last July estimated that between 70% to 80% of the household wealth of the Chinese people is in real estate.

An 'economic crisis,' as Soros suggests, is coming. Trapped by strong currency walls—the renminbi is not convertible on the capital account—the Chinese people cannot readily invest in foreign assets. They have few places to put cash inside China, so they purchase apartments. Apartments, as a result, have for many become more than just investments; they are stores of value, similar to paper currency or gold coins.

Many apartments across China—the ones infamously dark at night—have in fact been sold by developers, but remain vacant. They are in the hands of first-time owners, who do not rent them out because that would result in a diminution of value.

Ultimately, prices have to come down to levels people can afford. As Stevenson-Yang's example from the leading Chinese cities shows, the drop will be large. Incomes, artificially suppressed by Beijing for more than four decades, cannot support current real estate prices.

Property developers are starting to default, especially since last September. The most prominent of these is Evergrande Group, which has accumulated a staggering $305 billion in liabilities. About a dozen other developers have not met bond and other obligations since then, either.

Behind China's currency wall, Chinese officials believe they have time to unwind the 'debt bomb,' avoiding a sharp correction in prices. But the hope for recovery is illusory. As Stevenson-Yang tells Newsweek, 'when investment slows, as is happening now, property cannot recover.'"

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