Under ‘Approval Voting,’ St. Louis Voters Rally Behind Two Progressive Potential Mayors

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On Tuesday, St. Louis voters cast 25,000 more votes for their next mayor than there were ballots cast. This wasn’t due to fraud but rather the implementation of “approval voting” for the city’s primary, which allows voters to vote for each candidate they’d be willing to support in office, rather than select just one.

St. Louis voters gave a thumbs up to approval voting in November with Proposition D. Under approval voting, the candidate with the most votes still wins. But each person casting a ballot is permitted to put a check next to each candidate they support, not just the one they support the most. Ultimately the candidate that has been approved by the greatest number of voters is declared the winner.

In St. Louis, the proposition implemented approval voting for city primaries, with the top two winners facing off again for a final vote. On Tuesday, City Treasurer Tishaura Jones and Alderman Cara Spencer took first and second place in a field of four. They will run off against each other in April to determine who will be the city’s next mayor. According to the city, 44,538 ballots were cast, but there were 69,607 votes for a mayoral candidate. So on average, each voter selected 1.5 choices for mayor.

The Center for Election Science, a nonpartisan nonprofit organization pushing for the implementation of approval voting where possible, supported the grassroots effort to pass Prop. D, and Aaron Hamlin, the group’s executive director, tells Reason the election seems to have gone smoothly.

“We’ve been listening to reports as they’re coming out and the overwhelming response we see is that it’s easy to use,” Hamlin tells Reason. “A number of folks on Twitter expressed relief that they don’t  have to split their votes.”

Indeed, Jones and Spencer both ran as progressive reformers with a slate of typical urban left policy proposals. Hamlin notes that in the past, the two of them would end up splitting St. Louis’s vote, often along racial lines. Voters will still have to decide between the two of them in April, but they may be happier that a progressive is winning the nomination either way.

The election reforms in St. Louis also stripped the race of partisan labels, but in reality three of the candidates were registered Democrats (including both Jones and Spencer) and one was a registered Republican. There were no third-party candidates in the primary, and so St. Louis voters will have two Democrats to choose from in the run-off in April. By contrast, in 2017, both the Libertarian and Green parties had candidates on the ballot, and there were two other independent candidates.

Hamlin says that the lack of third-party candidates this year is not a reflection of the inherent nature of approval voting. The way St. Louis implemented approval voting was specific to how local activists decided to push it. Hamlin believes that approval voting will help Libertarian, Green, or other third-party voters, so long as they have ballot access.

“One of the really big perks is that it captures support for newer and third-party candidates,” Hamlin says. “This is a reform that third parties should get behind.”

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Joe Biden, Senate Dems Want To Reduce the Number of Six-Figure Households Getting $1,400 ‘Relief’ Checks. Progressives Are Furious.

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President Joe Biden and Senate Democratic leaders have agreed to a compromise version of their $1.9 trillion spending bill that modestly lowers the income ceiling for receiving a $1,400 relief check.

Single-filers making $75,000 a year would still get the full $1,400, reports the Associated Press, but that amount will fall to zero for individuals making $80,000 or more. Joint-filers earning up to $150,000 would also get the full check. Couples earning more than $160,000 would get nothing. The slightly more generous spending bill passed by the House earlier this week excludes single-filers earning $100,000 or more, and couples earning $200,000.

The changes, reports the Washington Post‘s Jeff Stein, would reduce the sticker price of the “relief” bill by about $12 billion.

The idea behind restricting the number of employed, six-figure earners getting government support is to shore up the support of Senate moderates. “I think it’s an appropriate way of bringing this to a successful conclusion,” Sen. Michael Bennett, one such moderate, (D–Colo.) told The Los Angeles Times.

Progressives, of the right- and left-wing variety, are less pleased with the changes, saying they deprive needed benefits from hard-working members of the upper-middle class.

“Amazes me that Democrats can find millions to shovel to abortion providers, millions for ‘environmental justice,’ billions for blue state bailouts—but they continue to water down direct relief to working people,” said Sen. Josh Hawley (R–Mo.) on Twitter.

“Further ‘targeting’ or ‘tightening’ eligibility means taking survival checks away from millions of families who got them last time,” Rep. Pramila Jayapal (D–Wash.), chair of the Congressional Progressive Caucus, told the Post earlier this week. “That’s bad policy and bad politics too.”

Fretting that families pulling down six-figure incomes will suffer if they don’t receive an additional $1,400 has been a mainstay of Democratic messaging on their spending bill.

“You know, [Biden] believes a married couple—let’s say they’re in Scranton, just for the sake of argument; one is working as a nurse, the other as a teacher—making $120,000 a year should get a check,” said White House Press Secretary Jen Psaki last month. “When one in seven American families don’t have enough food to eat, we need to make sure people get the relief they need and are not left behind.”

“The juxtaposition between families who do not have enough food as a category of people that Biden wants his stimulus to help and a two-earner family with a solid six-figure income is more than a little jarring,” wrote Reason‘s Peter Suderman at the time, noting that this hypothetical family isn’t missing meals for lack of government aid.

Indeed, one feature of the halting recovery from the pandemic is that higher-income earners have done pretty well. Employment rates of those earning $60,000 or more are actually a little higher now than they were at the beginning of 2020. Job opportunities for lower-income workers, many of who once had jobs in the forcibly shuttered retail and restaurant industries, have declined sharply.

The debate that moderates and populists are having over the income ceiling suggests that this is not actually a relief bill, but just an “American wish list,” as Sen. Chuck Schumer (D–N.Y.) described it today.

Democratic legislators, both moderate and progressive, are using COVID-19 as an excuse to push for spending priorities that have nothing to do with the pandemic. Government spending more than it absolutely must (and far more than it can claw back in taxes) will likely have serious fiscal consequences further down the road, particularly when added to the $4 trillion in pandemic-related spending already approved by Congress.

But who knows when that bill will come due? In the meantime, Congress is going to keep plucking that COVID chicken.

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Lessons of Covid-19 for Reward Alternatives to Patents

Ordinarily, pharmaceutical companies are motivated by the prospect of profits from legally guaranteed exclusivity, provided either by the patent system or the FDA. Life-savings drugs are priced aggressively, leading to familiar debates about whether the costs are worth the benefits in promoting innovation. Covid-19 vaccines enjoy at least the possibility of patent protection, but companies like Moderna have pledged not to enforce their patent rights during the pandemic. Meanwhile, the companies are charging governments bargain basement prices for the vaccines they produce. Researchers have estimated the value of a vaccine at between 5% and 15% of global wealth, but pharmaceutical companies will receive nowhere near that much. Moderna’s market capitalization, for example, is only around $54 billion, while global wealth is around $360 trillion.

While the vaccine companies deserve kudos, self-interest is presumably playing a significant role. Moderna will surely make money on its vaccines, but much of the company’s value is likely attributable to the possibility that its mRNA and other technology will be useful for diseases besides Covid-19. This may help explain why the vaccine companies were willing to part with vaccine so cheaply. The demonstration that their vaccine platform can be safe is valuable. The goodwill that the vaccine companies earn with the public, and at least as importantly with drug regulators around the world, may be worth a lot too. The vaccine companies may also have suspected that they would not be granted Emergency Use Authorization if they did not promise to distribute their vaccines relatively cheaply. There is little sense in developing a vaccine for a pandemic if the government will slow-walk approval.

The result is that the incentives for vaccine development more closely resemble those of grants and rewards rather than those typically afforded by the patent system. The grants were the ex ante funding, from sources like Operation Warp Speed, and the rewards came in the form of government contracts, plus earned goodwill, after vaccines proved successful. Of course, it’s nothing new for governments to purchase drugs. Benjamin Roin has argued persuasively that even though prizes and reward systems of intellectual property are often seen as alternatives to the patent system, in fact various government purchasing and subsidy arrangements amount to de facto prize and reward systems that act as complements to our patent and regulatory exclusivities. Can we then draw any conclusions about prize or reward systems from the Covid-19 experience?

One tempting conclusion might be that intellectual property is unnecessary or that government should take patents, paying considerably less than what the patentees could earn on the market. For example, Hannah Brennan, Amy Kapczynski, Christine Monahan, and Zain Rizvi have urged the government to use 28 U.S.C. § 1498 to involuntarily license various pharmaceuticals. The government would be required to reimburse the pharmaceutical companies, but Brennan et al. urge a payment formula based on risk-adjusted research and development costs that, they say, would result in much lower revenue for the pharmaceutical companies. More radically still, one might imagine abolishing the patent size and creating a reward system in its place. Jamie Love, for example, has argued for a system in which a fixed amount of money is devoted annually to pharmaceutical innovation. Supporters of such systems might point out that the non-patent rewards during the Covid-19 pandemic were sufficient to lead to the development of vaccines and that if the pharmaceutical companies instead had set prices at their profit-maximizing value, the vaccines would have been much more expensive.

In my view, Covid-19 cuts in the opposite direction, for three reasons. First, governmental funding of COVID-19 was way too low, as Alex Tabarrok has repeatedly pointed out. If profits, from whatever source, had been at all proportional to the benefits provided, the population would likely have been vaccinated by now. The elasticity of supply of vaccines is not zero. Sure, the vaccine companies have worked very hard at producing vaccines, starting their supply chains much earlier than would have been the case with a typical vaccine. But if they had invested ten or a hundred times more money, writing incentive-laden contracts with their own suppliers, the supply chain would have responded. The U.S. government has just now brokered a deal between Merck and Johnson & Johnson for the former to produce the latter’s vaccine. With enough incentives, the market could have produced such a deal without any government interference. More importantly, it could have done so long ago, so that the new capacity would already be available, instead of anticipated in several months, after there will already be enough vaccine capacity for the United States. Meanwhile, vaccine manufacturers have built new factories. With enough incentives, they could have built more such factories. Those factories may be competing for other supply chain inputs, but government spending commensurate with the challenge could have generated much more supply. If a patent prize or reward system requires the government to be sensible in allocating an appropriate amount of money ex ante, the fact that the United States invested too little money does not inspire great confidence. And the rest of the world, other than Israel, was even more short-sighted.

Second, Covid reinforces what has long been apparent, that pharmaceutical research is highly risky, with the vast majority of research efforts ultimately failing. Covid-19 vaccines have been quite successful, but there have still been many failures, such as that of Sanofi and GlaxoSmithKline. Brennan et al. are not oblivious to considerations of risk and would insist that the government should reimburse pharmaceutical companies for their risk-adjusted R&D. But there is a danger that the government will underestimate risk. Hindsight bias may make it seem that a successful drug was destined for success from the beginning. Moreover, the government may focus more on spending narrowly targeted toward the particular problem, rather than spending to create the company and infrastructure that then were able to address the problem. Most of the value provided by the pharmaceutical companies was provided before the pandemic, and absent the pandemic, investors in companies like Novavax would have been empty-handed. A risk-adjustment allocation may place too little emphasis on dangers of wasted investment long in the past, when companies and facilities were created. Completely ex post rewards set by the government also might be set too low.

Third, when the government decides how much a pharmaceutical company should be reimbursed for its efforts, it may tend to place too little emphasis on non-R&D investments. Love, for example, has criticized pharmaceutical companies for “wasteful spending on marketing.” That may often be the case, but Covid-19 at least has helped illustrate the importance of pharmaceutical competencies in clinical trials, in production, and in scaling up inventions. As has been pointed out before, Moderna’s vaccine was invented by January 13, 2020. The challenge was not invention but all of the subsequent steps. And one might wonder whether some of the logistics of rolling out the vaccine would have been smoother if the pharmaceutical companies were charged with distribution and paid based on a reasonable measure of lives saved. If the patent system were replaced with a reward system, the government would likely shortchange non-R&D contributions, just as it has not relied on pharmaceutical companies or big businesses to get the produced vaccines into arms.

The knock on governmental reward systems has always been that the government might shortchange inventors, once their inventions are complete. The famous story used to illustrate this tendency is that of John Harrison, who invented a timepiece that could be used by navigators to determine longitude but was not awarded all of a promised prize. My colleague Jonathan Siegel argues that in fact Harrison was fairly treated, as the Board of Longitude reasonably interpreted the statute creating the prize. After all, Harrison invented a single timepiece, not a production line that could churn out timepieces that could be used to solve the longitude problem. Ultimately, the episode may show both that government rewards will be too low relative to their social value and that a benefit of reward systems is that they can take into account a range of considerations, not only the occurrence of an invention but also efforts by the inventor and others that contribute to effective commercialization and distribution.

It is possible to imagine a reward system that could only increase innovation and that could provide incentives for the diverse contributions needed to bring successful drugs and other inventions to market. In my own writing on patent rewards, I have argued for an optional system. The government would create a fund, committing some amount of money ex ante, but inventors would be able to choose between exploiting patents and seeking money from the fund. If the government puts too little money in the fund, we’d be no worse off than in the absence of the fund, and probably a little bit better off, because those most likely to take advantage of it would be those who have contributions that are hard to monetize through patents. The experience with Covid-19 suggests to me that the government probably would put too little money in such a fund. That’s not a reason to give up on prize and reward alternatives to patents (for my review of the literature on this topic, see here), but it highlights that any design for a reward system cannot rely entirely on governmental grace to set an appropriate compensation level.

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Under ‘Approval Voting,’ St. Louis Voters Rally Behind Two Progressive Potential Mayors

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On Tuesday, St. Louis voters cast 25,000 more votes for their next mayor than there were ballots cast. This wasn’t due to fraud but rather the implementation of “approval voting” for the city’s primary, which allows voters to vote for each candidate they’d be willing to support in office, rather than select just one.

St. Louis voters gave a thumbs up to approval voting in November with Proposition D. Under approval voting, the candidate with the most votes still wins. But each person casting a ballot is permitted to put a check next to each candidate they support, not just the one they support the most. Ultimately the candidate that has been approved by the greatest number of voters is declared the winner.

In St. Louis, the proposition implemented approval voting for city primaries, with the top two winners facing off again for a final vote. On Tuesday, City Treasurer Tishaura Jones and Alderman Cara Spencer took first and second place in a field of four. They will run off against each other in April to determine who will be the city’s next mayor. According to the city, 44,538 ballots were cast, but there were 69,607 votes for a mayoral candidate. So on average, each voter selected 1.5 choices for mayor.

The Center for Election Science, a nonpartisan nonprofit organization pushing for the implementation of approval voting where possible, supported the grassroots effort to pass Prop. D, and Aaron Hamlin, the group’s executive director, tells Reason the election seems to have gone smoothly.

“We’ve been listening to reports as they’re coming out and the overwhelming response we see is that it’s easy to use,” Hamlin tells Reason. “A number of folks on Twitter expressed relief that they don’t  have to split their votes.”

Indeed, Jones and Spencer both ran as progressive reformers with a slate of typical urban left policy proposals. Hamlin notes that in the past, the two of them would end up splitting St. Louis’s vote, often along racial lines. Voters will still have to decide between the two of them in April, but they may be happier that a progressive is winning the nomination either way.

The election reforms in St. Louis also stripped the race of partisan labels, but in reality three of the candidates were registered Democrats (including both Jones and Spencer) and one was a registered Republican. There were no third-party candidates in the primary, and so St. Louis voters will have two Democrats to choose from in the run-off in April. By contrast, in 2017, both the Libertarian and Green parties had candidates on the ballot, and there were two other independent candidates.

Hamlin says that the lack of third-party candidates this year is not a reflection of the inherent nature of approval voting. The way St. Louis implemented approval voting was specific to how local activists decided to push it. Hamlin believes that approval voting will help Libertarian, Green, or other third-party voters, so long as they have ballot access.

“One of the really big perks is that it captures support for newer and third-party candidates,” Hamlin says. “This is a reform that third parties should get behind.”

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Joe Biden, Senate Dems Want To Reduce the Number of Six-Figure Households Getting $1,400 ‘Relief’ Checks. Progressives Are Furious.

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President Joe Biden and Senate Democratic leaders have agreed to a compromise version of their $1.9 trillion spending bill that modestly lowers the income ceiling for receiving a $1,400 relief check.

Single-filers making $75,000 a year would still get the full $1,400, reports the Associated Press, but that amount will fall to zero for individuals making $80,000 or more. Joint-filers earning up to $150,000 would also get the full check. Couples earning more than $160,000 would get nothing. The slightly more generous spending bill passed by the House earlier this week excludes single-filers earning $100,000 or more, and couples earning $200,000.

The changes, reports the Washington Post‘s Jeff Stein, would reduce the sticker price of the “relief” bill by about $12 billion.

The idea behind restricting the number of employed, six-figure earners getting government support is to shore up the support of Senate moderates. “I think it’s an appropriate way of bringing this to a successful conclusion,” Sen. Michael Bennett, one such moderate, (D–Colo.) told The Los Angeles Times.

Progressives, of the right- and left-wing variety, are less pleased with the changes, saying they deprive needed benefits from hard-working members of the upper-middle class.

“Amazes me that Democrats can find millions to shovel to abortion providers, millions for ‘environmental justice,’ billions for blue state bailouts—but they continue to water down direct relief to working people,” said Sen. Josh Hawley (R–Mo.) on Twitter.

“Further ‘targeting’ or ‘tightening’ eligibility means taking survival checks away from millions of families who got them last time,” Rep. Pramila Jayapal (D–Wash.), chair of the Congressional Progressive Caucus, told the Post earlier this week. “That’s bad policy and bad politics too.”

Fretting that families pulling down six-figure incomes will suffer if they don’t receive an additional $1,400 has been a mainstay of Democratic messaging on their spending bill.

“You know, [Biden] believes a married couple—let’s say they’re in Scranton, just for the sake of argument; one is working as a nurse, the other as a teacher—making $120,000 a year should get a check,” said White House Press Secretary Jen Psaki last month. “When one in seven American families don’t have enough food to eat, we need to make sure people get the relief they need and are not left behind.”

“The juxtaposition between families who do not have enough food as a category of people that Biden wants his stimulus to help and a two-earner family with a solid six-figure income is more than a little jarring,” wrote Reason‘s Peter Suderman at the time, noting that this hypothetical family isn’t missing meals for lack of government aid.

Indeed, one feature of the halting recovery from the pandemic is that higher-income earners have done pretty well. Employment rates of those earning $60,000 or more are actually a little higher now than they were at the beginning of 2020. Job opportunities for lower-income workers, many of who once had jobs in the forcibly shuttered retail and restaurant industries, have declined sharply.

The debate that moderates and populists are having over the income ceiling suggests that this is not actually a relief bill, but just an “American wish list,” as Sen. Chuck Schumer (D–N.Y.) described it today.

Democratic legislators, both moderate and progressive, are using COVID-19 as an excuse to push for spending priorities that have nothing to do with the pandemic. Government spending more than it absolutely must (and far more than it can claw back in taxes) will likely have serious fiscal consequences further down the road, particularly when added to the $4 trillion in pandemic-related spending already approved by Congress.

But who knows when that bill will come due? In the meantime, Congress is going to keep plucking that COVID chicken.

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Lessons of Covid-19 for Reward Alternatives to Patents

Ordinarily, pharmaceutical companies are motivated by the prospect of profits from legally guaranteed exclusivity, provided either by the patent system or the FDA. Life-savings drugs are priced aggressively, leading to familiar debates about whether the costs are worth the benefits in promoting innovation. Covid-19 vaccines enjoy at least the possibility of patent protection, but companies like Moderna have pledged not to enforce their patent rights during the pandemic. Meanwhile, the companies are charging governments bargain basement prices for the vaccines they produce. Researchers have estimated the value of a vaccine at between 5% and 15% of global wealth, but pharmaceutical companies will receive nowhere near that much. Moderna’s market capitalization, for example, is only around $54 billion, while global wealth is around $360 trillion.

While the vaccine companies deserve kudos, self-interest is presumably playing a significant role. Moderna will surely make money on its vaccines, but much of the company’s value is likely attributable to the possibility that its mRNA and other technology will be useful for diseases besides Covid-19. This may help explain why the vaccine companies were willing to part with vaccine so cheaply. The demonstration that their vaccine platform can be safe is valuable. The goodwill that the vaccine companies earn with the public, and at least as importantly with drug regulators around the world, may be worth a lot too. The vaccine companies may also have suspected that they would not be granted Emergency Use Authorization if they did not promise to distribute their vaccines relatively cheaply. There is little sense in developing a vaccine for a pandemic if the government will slow-walk approval.

The result is that the incentives for vaccine development more closely resemble those of grants and rewards rather than those typically afforded by the patent system. The grants were the ex ante funding, from sources like Operation Warp Speed, and the rewards came in the form of government contracts, plus earned goodwill, after vaccines proved successful. Of course, it’s nothing new for governments to purchase drugs. Benjamin Roin has argued persuasively that even though prizes and reward systems of intellectual property are often seen as alternatives to the patent system, in fact various government purchasing and subsidy arrangements amount to de facto prize and reward systems that act as complements to our patent and regulatory exclusivities. Can we then draw any conclusions about prize or reward systems from the Covid-19 experience?

One tempting conclusion might be that intellectual property is unnecessary or that government should take patents, paying considerably less than what the patentees could earn on the market. For example, Hannah Brennan, Amy Kapczynski, Christine Monahan, and Zain Rizvi have urged the government to use 28 U.S.C. § 1498 to involuntarily license various pharmaceuticals. The government would be required to reimburse the pharmaceutical companies, but Brennan et al. urge a payment formula based on risk-adjusted research and development costs that, they say, would result in much lower revenue for the pharmaceutical companies. More radically still, one might imagine abolishing the patent size and creating a reward system in its place. Jamie Love, for example, has argued for a system in which a fixed amount of money is devoted annually to pharmaceutical innovation. Supporters of such systems might point out that the non-patent rewards during the Covid-19 pandemic were sufficient to lead to the development of vaccines and that if the pharmaceutical companies instead had set prices at their profit-maximizing value, the vaccines would have been much more expensive.

In my view, Covid-19 cuts in the opposite direction, for three reasons. First, governmental funding of COVID-19 was way too low, as Alex Tabarrok has repeatedly pointed out. If profits, from whatever source, had been at all proportional to the benefits provided, the population would likely have been vaccinated by now. The elasticity of supply of vaccines is not zero. Sure, the vaccine companies have worked very hard at producing vaccines, starting their supply chains much earlier than would have been the case with a typical vaccine. But if they had invested ten or a hundred times more money, writing incentive-laden contracts with their own suppliers, the supply chain would have responded. The U.S. government has just now brokered a deal between Merck and Johnson & Johnson for the former to produce the latter’s vaccine. With enough incentives, the market could have produced such a deal without any government interference. More importantly, it could have done so long ago, so that the new capacity would already be available, instead of anticipated in several months, after there will already be enough vaccine capacity for the United States. Meanwhile, vaccine manufacturers have built new factories. With enough incentives, they could have built more such factories. Those factories may be competing for other supply chain inputs, but government spending commensurate with the challenge could have generated much more supply. If a patent prize or reward system requires the government to be sensible in allocating an appropriate amount of money ex ante, the fact that the United States invested too little money does not inspire great confidence. And the rest of the world, other than Israel, was even more short-sighted.

Second, Covid reinforces what has long been apparent, that pharmaceutical research is highly risky, with the vast majority of research efforts ultimately failing. Covid-19 vaccines have been quite successful, but there have still been many failures, such as that of Sanofi and GlaxoSmithKline. Brennan et al. are not oblivious to considerations of risk and would insist that the government should reimburse pharmaceutical companies for their risk-adjusted R&D. But there is a danger that the government will underestimate risk. Hindsight bias may make it seem that a successful drug was destined for success from the beginning. Moreover, the government may focus more on spending narrowly targeted toward the particular problem, rather than spending to create the company and infrastructure that then were able to address the problem. Most of the value provided by the pharmaceutical companies was provided before the pandemic, and absent the pandemic, investors in companies like Novavax would have been empty-handed. A risk-adjustment allocation may place too little emphasis on dangers of wasted investment long in the past, when companies and facilities were created. Completely ex post rewards set by the government also might be set too low.

Third, when the government decides how much a pharmaceutical company should be reimbursed for its efforts, it may tend to place too little emphasis on non-R&D investments. Love, for example, has criticized pharmaceutical companies for “wasteful spending on marketing.” That may often be the case, but Covid-19 at least has helped illustrate the importance of pharmaceutical competencies in clinical trials, in production, and in scaling up inventions. As has been pointed out before, Moderna’s vaccine was invented by January 13, 2020. The challenge was not invention but all of the subsequent steps. And one might wonder whether some of the logistics of rolling out the vaccine would have been smoother if the pharmaceutical companies were charged with distribution and paid based on a reasonable measure of lives saved. If the patent system were replaced with a reward system, the government would likely shortchange non-R&D contributions, just as it has not relied on pharmaceutical companies or big businesses to get the produced vaccines into arms.

The knock on governmental reward systems has always been that the government might shortchange inventors, once their inventions are complete. The famous story used to illustrate this tendency is that of John Harrison, who invented a timepiece that could be used by navigators to determine longitude but was not awarded all of a promised prize. My colleague Jonathan Siegel argues that in fact Harrison was fairly treated, as the Board of Longitude reasonably interpreted the statute creating the prize. After all, Harrison invented a single timepiece, not a production line that could churn out timepieces that could be used to solve the longitude problem. Ultimately, the episode may show both that government rewards will be too low relative to their social value and that a benefit of reward systems is that they can take into account a range of considerations, not only the occurrence of an invention but also efforts by the inventor and others that contribute to effective commercialization and distribution.

It is possible to imagine a reward system that could only increase innovation and that could provide incentives for the diverse contributions needed to bring successful drugs and other inventions to market. In my own writing on patent rewards, I have argued for an optional system. The government would create a fund, committing some amount of money ex ante, but inventors would be able to choose between exploiting patents and seeking money from the fund. If the government puts too little money in the fund, we’d be no worse off than in the absence of the fund, and probably a little bit better off, because those most likely to take advantage of it would be those who have contributions that are hard to monetize through patents. The experience with Covid-19 suggests to me that the government probably would put too little money in such a fund. That’s not a reason to give up on prize and reward alternatives to patents (for my review of the literature on this topic, see here), but it highlights that any design for a reward system cannot rely entirely on governmental grace to set an appropriate compensation level.

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Colombia Is Giving Legal Status to Migrants Fleeing Venezuela

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In 2019, Deveís Hernandez couldn’t earn enough in Venezuela to keep his wife and two daughters fed, no matter how much he worked. So he spent the last of his savings on a series of bus trips from Puerto La Cruz, a small city on the northeastern coast, to Cúcuta, on the Colombian-Venezuelan border. He took up the gauntlet of a lawless frontier and left his homeland behind in hopes of building a better future.

By the time he crossed the border informally via a smuggling path controlled by criminals, his earthly possessions consisted of two pairs of shoes, a Captain America backpack, the clothes on his back, and a few pairs of socks.

From there he walked about 400 miles to the Colombian capital, Bogota, where he found a job in a recycling center. For a year, he worked under the table for about $9 a day, a bit less than the minimum wage in Colombia, which is $260 a month. He has been saving ever since to send for his family. “I won’t make my daughters walk the trochas,” he says, using the slang term for dangerous smuggling paths on the border.

So when President Iván Duque announced at the end of February that Colombia would extend full resident status to the almost 2 million Venezuelan migrants in Colombia as well as a path to citizenship, Hernandez was elated.

“This means I can finally get a real job,” he says. “With luck, I won’t have to live off scraps.” He also hopes the measures will make it considerably easier to enroll his daughters in school when they arrive, an issue he has worried about since he lacks even basic paperwork for identification purposes.

Hernandez is one of 5.4 million Venezuelans that the United Nations estimates have fled their country due to violence, insecurity and threats; a collapsed economy; and a lack of food, medicine, and essential services. The International Monetary Fund expects that number to nearly double, to 10 million, by the end of 2023. As of January 2020, more than 1.7 million of those migrants were currently in Colombia.

Colombia will soon be offering migrants a full welcome. Duque’s announcement means Colombia will give nearly 2 million immigrants—almost 5 percent of Colombia’s total population—the ability to work legally and have access to education and health care systems. Those who register with the government will be put on a path to full citizenship.

Colombia’s choice stands in sharp contrast to the United States, where migrants from Central America must wait months on the Southern border in squalid conditions, where mass deportations (even amid a pandemic) are commonplace, and where even immigrants who have lived in the country for 20 years might find themselves ripped away from their families and banished from their new homeland for simply being in the wrong place at the wrong time.

As politicians in the United States talked of border walls and anchor babies while the government spent hundreds of millions of dollars for Immigration and Customs Enforcement (ICE) agents to stalk undocumented migrants, Colombia was conducting the largest open borders experiment the modern world has ever seen.

Since even before the Venezuelan collapse began in earnest in 2015, migrants needed only basic identification to enter Colombia. As former President Barack Obama, and successor Donald Trump, caged those trying to cross the U.S.-Mexico border, Colombia was officially welcoming a much larger quantity of refugees in comparison with its population—and with far less resources.

The United States has a GDP 60 times that of Colombia, despite having just over seven times the population. Colombia also has a poverty rate nearly four times that of the U.S., at 35.7 percent.

Yet, in sharp contrast with the U.S. and regional neighbors like Ecuador and Peru, Colombia kept its border open to Venezuelans until the arrival of the COVID-19 pandemic in March 2020. The Venezuelan exodus has been a rare real-life trial case of how mass migration affects host countries. And the data have shown that most of the anti-immigrant arguments heard in both countries couldn’t possibly be more wrong.

Economic prophecies of mass unemployment never came to pass. In fact, data from the Colombian central bank suggests that migration may have super-charged the Colombian economy, which experienced record growth between 2015 and 2020 before the pandemic crushed the economies of the entire region. Increased consumer demand, spending due to increased consumption, and a workforce that is often self-employed informally all contributed to a net positive effect on the Colombian economy.

Although migration did depress the wages of low-skilled workers slightly, according to the same labor force study, it had no negative effect on the employment rate. Economists suggest that the new law will allow skilled Venezuelans, such as teachers and engineers, to enter the Colombian job market that they were previously excluded from, as well as lower barriers for those who wish to start businesses.

The net economic impact of the migration has already been positive, and that trend is only likely to increase in the future as migrants move away from the informal job market.

Rumors of secure borders being necessary for security were similarly unfounded. Immigrants in both the United States and Colombia are less likely to commit crimes than natural-born citizens. In fact, their illegal status leaves them more vulnerable. Worldwide, migrants are more likely to be the victims of crime, and are less likely to report those crimes to the police.

“The U.S system leaves illegal immigrants living in fear,” Adam Solow, an immigration lawyer in Philadelphia told Reason by phone. “It’s effect is to create a second class citizenry who live in the shadows and can be exploited for their labor.”

For Hernandez, Colombia’s new law is a godsend. He now plans on sending for his wife and daughters, in addition to seeking a better job. “I haven’t only been exiled from [the] country,” he says. “I’ve been exiled from my family.”

In Colombia, at least, that second part is no longer true. The U.S should learn from Colombia’s experience that migration is not a threat to the nation, either economically or existentially, but rather an opportunity to invest in the country’s future. Humane immigration policy isn’t only the morally correct course of action, it is in our best interests.

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“This Is Unsustainable”: 2021 SPAC Issuance Will Surpass Entire 2020 Total Before End Of March

“This Is Unsustainable”: 2021 SPAC Issuance Will Surpass Entire 2020 Total Before End Of March

The last time we addressed the staggering SPAC bubble sweeping across US capital markets – and when we gave Matt Taibbi the mic to express his SPAC views in his uniquely trademark style –  was about ten days ago when citing Goldman data, we reported that we have reached a surreal, permanently high plateau where 5 new SPACs price ever single day so far in 2021, and that YTD, 144 SPACs have gone public raising a total of $44 billion.

Well in the 10 days since, it’s only gotten even more surreal with Goldman’s chief equity strategist David Kostin writing that SPAC issuance has exploded (even more) and a whopping 175 SPACs have raised $56 billion in IPO capital YTD, an average of $1.5 billion per trading day. As Kostin further notes, in February alone, 90 SPACs raised $32 billion in IPO capital the largest issuance month on record.

Remarkably, as even Kostin admits, “the blistering pace of issuance is likely unsustainable” however – just in case it is – he calculates that if the current pace of issuance persists, 2021 will surpass the 2020 full-year total before the end of March!

Some more fascinating data points:

  • 2021 has seen record deal announcements for SPACs.
  • 43 SPACs have announced acquisitions YTD totaling $123 billion in enterprise value, compared with the full-year 2020 total of $156 billion across 93 deals.
  • 66% of the $123 billion in announced deal EV is concentrated in Info Tech and Consumer Discretionary alone, reflecting a continued shift toward Growth among SPAC sponsors and investors.

Finally, not even Kostin can sustain himself in describing the SPAC boom by the three words that seem most appropriate…

  • Bigger: SPACs are seeking to merge with larger targets. On February 22nd, the largest SPAC acquisition ever was announced as Churchill Capital Corp IV stated its intention to purchase a stake in Lucid Motors at a pro forma equity valuation of $24 billion. The average 2021 announced SPAC target has an enterprise value of $2.9 billion compared with an average of $1.7 billion in 2020 and $832 million for the preceding decade. Larger average SPAC IPO capital raises ($400 mn in 2021 vs. $250 mn from 2010-19), smaller acquired stakes, and greater use of external financing (e.g LLCPIPEs) have contributed to the larger deal size.
  • Louder: SPACs could generate more than $700 billion in acquisition activity in the next two years. We estimate $103 billion in SPAC capital is actively searching for an acquisition target. The aggregate ratio of target enterprise value at merger announcement to associated SPAC capital has been 7x this year, a jump from 6x in 2020 and just 3x during the 2010s. If the YTD ratio were to hold, SPACs would acquire firms worth more than $700 billion of EV.
  • Faster: The SPAC life cycle is accelerating. Between 2010 and 2019, SPACs announced deals an average of 487 calendar days after the IPO. The average time shortened to 366 days for 2020 announcements and just 175 days thus far in 2021. Northern Star Investment Corp II was the quickest SPAC to find and announce a target, doing so less than a month after its IPO.

Finally, Goldman listed 20 active SPACs that trade at premiums of 17% to 47% above their IPO prices.

Tyler Durden
Wed, 03/03/2021 – 14:26

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Beige Book Escalates Inflation Warning: Sees Most Prices Rising “Moderately”, Some “Notably”

Beige Book Escalates Inflation Warning: Sees Most Prices Rising “Moderately”, Some “Notably”

“Most businesses remain optimistic regarding the next six to 12 months as Covid-19 vaccines become more widely distributed.,” according to the Beige Book based on information collected by the Fed’s 12 regional banks through Feb. 22.

However, price anxiety is starting to leak into the bland report.

In January, The Fed’s Beige Book reported that:

Almost all Districts saw modest price increases since the last report, with growth in input prices continuing to outpace that of finished goods and services.

A month later and, as milquetoast as the Beige Book always is, it would appear things have escalated:

On balance, nonlabor input costs rose moderately over the reporting period, with steel and lumber prices increasing notably

Specifically, The Fed noted that In many Districts, the rise in costs was widely attributed to supply chain disruptions and to strong overall demand. Transportation costs continued to increase, in part due to rising fuel costs and capacity constraints. Reports on pricing power were mixed, with some retailers and manufacturers affected by input cost increases reporting the ability to pass prices through, while many others were unable to raise prices. Several Districts reported anticipating modest price increases over the next several months.

Altogether, there were 166 mentions of “prices” (up from 144 in January), which fits with the surge in ISM survey prices…

Perhaps even more notably, there were 21 mentions of “disruptions” in February (compared to 9 in January)

Despite challenges from supply chain disruptions, overall manufacturing activity for most Districts increased moderately from the previous report

The February Beige Book had 101 mentions of the word “moderate” (slightly up from 99 in Jan) but “moderate” – which is an ‘escalation’ from “modest” – was used 73 times in Feb, considerably more than the 54 times in January.

Instances of “slow” have been falling for four straight months, and virus-related words appeared to drop in Feb after peaking in Jan.

Full Beige Book below:

Tyler Durden
Wed, 03/03/2021 – 14:15

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COVID Relief Showers States With 600% Of Lost Tax Revs, Turning Rescue Into Stimulus

COVID Relief Showers States With 600% Of Lost Tax Revs, Turning Rescue Into Stimulus

Joe Biden is giving so much money to states as part of the $1.9 trillion stimulus package that they’re set to receive approximately six times more money than estimated tax revenue shortfalls across the country, according to Bloomberg.

While the package carves out nearly $200 billion for state governments, the cumulative tax revenues which have disappeared in the current fiscal year are just $31 billion. “In other words, that money could make up for that loss and be plowed back into states’ economies, such as their own version of relief checks, infrastructure projects and more, depending on the federal guidelines around the aid.”

In short – states, assuming they don’t squander the funds (who are we kidding?), could play a pivotal role in accelerating the recovery – assuming the money actually stimulates jobs and/or ends up in the hands of consumers. The funds would also allow for the unwinding of various budgetary cuts which began last March, and are responsible for the elimination of more than 1.3 million state and local government jobs – which Bloomberg notes is “nearly twice as many as were lost after the last recession.”

Republicans, however, argue that some of the stimulus should be cut or shifted to other priorities which could have a more immediate impact than essentially giving states their own giant slush funds.

If the whole point of this bill is to stimulate economic activity, the federal government has ways of doing that, that may be more efficient than sending checks to state and local governments,” said Moody’s director of public sector research, which estimates that $56 billion is the actual price tag states need to cover shortfalls through 2022 after previously allocated aid is taken into account.

Bloomberg also notes that “the financial impact overall has been far smaller than initially feared when Covid last year sent the US economy into the deepest recession since World War II, which left governors nationwide braving for the gravest fiscal crisis of modern times.”

Deficits on that scale were averted after the federal government pushed through stimulus plans in March and again late last year, driving stocks to record highs and promising to increase collections of capital gains taxes. The magnitude of the shortfalls also reflects the unusually uneven nature of the recession: While lower paid service industry employees were thrown out of work, the highest earners who pay far more in state taxes were less affected because they were able to work from home.

The result has been in some cases dramatic. California, a state that’s heavily dependent on income-tax revenue from the highest earners, is seeing revenue collections run about 10% more than was anticipated in the budget for the fiscal year that will end in June. In Oregon, the pandemic-era revenue losses “pale in comparison” with those of previous recessions, forecasters wrote in a Feb. 24 dated report. -Bloomberg

There are notable exceptions, however – such as tourism-dependent Hawaii, which has seen revenues evaporate. The state’s revenue forecast has dropped around 19% from pre-pandemic expectations for fiscal 2021 according to Bloomberg. In New York, revenues are projected to be 11.7% below pre-pandemic forecasts.

That said, tax revenues are just one way to gauge the impact of the pandemic, and doesn’t account for increased cost. The toll may also be understated due to shifted tax deadlines, inflating revenue collections in various states. Moreover, $50 billion has been borrowed from the federal government so states can cover a deluge of jobless claims, while cities and counties have been begging for aid throughout the pandemic.

In total, the stimulus will allocate $350 billion to states and local governments struggling to operate amid sharply lowered tax forecasts. 

Republicans, particularly former President Donald Trump, have repeatedly called the carve-outs a “bailout” for poorly run Democratic strongholds. Even Mitt Romney (R-INO) called Biden’s plan “wasteful and harmful,” while moderate Democrats in the Senate are looking at potential cuts to state and local aid as they attempt to streamline the package.

JPMorgan CEO Jamie Dimon says the government “should be cautious about overdoing it,” adding “Get us through the problem, get the country growing, but try not to overdo it too much.”

Tyler Durden
Wed, 03/03/2021 – 13:57

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