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April 1, 2022
The March jobs report came out this morning and, once again, it was terrific. The economy added 431,000 jobs in March, and the figures for January and February were revised upward by 95,000. The U.S has added 1.7 million jobs between January and March, and unemployment is near an all-time low of 3.6%. As employment has risen, employers have had to raise wages to get workers. So, wages are up 5.6% for the year that ended in February.
Inflation in the U.S. is the highest it’s been in 40 years at 7.9%, but those high numbers echo other developed countries. In the 19 countries that use the euro, inflation rose by an annual rate of 7.5% in March, the highest level since officials began keeping records for the euro in 1997. Russia’s war on Ukraine, which is driving already high gasoline prices upward, and continuing supply chain problems are keeping inflation numbers high.
“America's economic recovery from the historic shock of the pandemic has been nothing short of extraordinary,” CNN’s Anneken Tappe wrote today. The nation is “on track to recover from the pandemic recession a gobsmacking eight years sooner than it did following the Great Recession.”
These numbers matter not just because they show the U.S. coming out of the pandemic, but because they prove that Biden’s approach to the economy works. The key to this economic recovery was the American Rescue Plan, passed in March 2021 without a single Republican vote, that dedicated $1.9 trillion to helping the economy recover from the pandemic shutdowns. The vote on the American Rescue Plan indicated the dramatic difference in the way Democrats and Republicans believe the economy works.
After the Depression hit, in the 1930s, Democrats argued that the way to build the economy was for the government to make sure that workers and consumers had the resources to buy products and services. Raising wages, providing a basic social safety net, and improving education would enable the “demand side” of the economy to buy the goods that would employ Americans and increase productivity. Democrats regulated businesses, imposing rules on employers, and funded their programs with taxes that fell on Americans according to their ability to pay.
When this system pulled the country out of the Depression and funded the successful military mobilization of World War II, members of both parties embraced it. Once in office, Republican Dwight D. Eisenhower called for universal health insurance and backed the massive $26 billion Federal-Aid Highway Act of 1956 to build an initial 41,000 miles of roads across the United States, an act that provided jobs and infrastructure. To pay for these programs, he supported the high taxes of the war years, with the top marginal income bracket pegged at 91%.
“Our underlying philosophy,” said a Republican under Eisenhower, “is this: if a job has to be done to meet the needs of people, and no one else can do it, then it is a proper function of the federal government.” Americans had, “for the first time in our history, discovered and established the Authentic American Center in politics. This is not a Center in the European sense of an uneasy and precarious mid-point between large and powerful left-wing and right-wing elements of varying degrees of radicalism. It is a Center in the American sense of a common meeting-ground of the great majority of our people on our own issues, against a backdrop of our own history, our own current setting and our own responsibilities for the future.”
But Republicans since the 1980s have rejected that “Authentic American Center” and argued instead that the way to build the economy is by putting the weight of the government on the “supply side.” That is, the government should free up the capital of the wealthy by cutting taxes. Flush with cash, those at the top of society would invest in new industries that would, in turn, hire workers, and all Americans would rise together. Shortly after he took office, President Ronald Reagan launched government support for “supply side economics” with the first of many Republican tax cuts.
But rather than improving the living standards of all Americans, supply side economics never delivered the economic growth it promised. It turned out that tax cuts did not generally get reinvested into factories and innovation, but instead got turned into financial investments that concentrated wealth at the top of the economic ladder. Still, forty years later, Republicans have only hardened in their support for tax cuts. They insist that any government regulation of business, provision of a social safety net, or promotion of infrastructure is “socialism” because it infringes on the “freedom” of Americans to do whatever they wish without government interference.
The conflict between these two visions came to the fore yesterday, when 193 Republicans voted against lowering the copays for insulin, the drug necessary to keep the 30 million Americans who live with diabetes alive. Twelve Republicans joined all the Democrats to pass the bill. The price of insulin has soared in the U.S. in the past 20 years while it has stayed the same in other developed countries. A vial of insulin that cost $21 in 1999 in the U.S. cost $332 in 2019. Currently, insulin costs ten times more in the United States than in any other developed country.
According to the nonprofit academic medical center Mayo Clinic, the cost of insulin has skyrocketed because people need it to live, there is a monopoly on production, there is no regulation of the cost, and there are companies that profit from keeping prices artificially high.
While all drug prices are high, the reasons that pharmaceutical companies have given for the high pricing of other drugs do not apply to insulin. The drug is more than 100 years old, so there are no development costs. The cost is not a result of free market forces, since the jump in cost does not track with inflation. Indeed, insulin operates in a system that is the opposite of the free market: because people need insulin to survive, they cannot simply decide not to buy it if the price gets too high.
According to experts, there are currently only three clear options to bring down the price if the companies won’t. The government could negotiate with pharmaceutical companies on prices, as every other western country does, but the influence of drug companies in Congress makes such a measure hard to pass. We could shift the cost of the high prices onto insurers: employers and the government, which pays for healthcare through Medicare, Medicaid, the Veterans Administration, and so on. Or we can keep shifting the cost to the consumers.
Democrats wrote a much more sweeping proposal to lower a range of drug costs into the Build Back Better bill that Senate Republicans killed, and say they want to continue to push for the government to be able to negotiate with drug companies. At the same time, they say, we cannot wait any longer to make insulin affordable for the diabetics who need it. So House Democrats and 12 House Republicans have passed a law regulating the cost that consumers—who will die if they don’t get insulin—have to pay for the product. That cap will shift the cost onto insurers, including the government.
The insurance industry opposed the measure, saying it would not actually bring down costs and might create higher premiums as insurers have to cover the costs consumers won’t. Most Republicans opposed the measure, saying it would give the government too much say in healthcare. The Republican members on the House Committee on Ways and Means said it was a “socialist drug pricing scheme from [the Democrats’] failed radical tax and spending spree.”