Make It Work

In his State of the Union address, President Barack Obama made it clear that he intends to devote considerable energy to solving the unemployment problem. The following excerpt from Dean Baker's False Profits: Recovering from the Bubble Economy describes four innovative programs that would create jobs and benefit the economy in the long run. Over at TAPPED, economic experts will share their own progressive ideas for getting people back to work.

The country having to endure long periods of high unemployment is wholly unnecessary for the simple reason that we know how to prevent it. Ever since John Maynard Keynes, we understood that high unemployment, as occurred in the Great Depression or what we are experiencing in the housing crash recession, is caused by a lack of demand in the economy. The way to address high unemployment is to create demand. In other words, the answer was and still is to throw money at the problem.

The government can usefully spend money on a long list of items to boost employment during the downturn. In fact, the downturn provides an opportunity to experiment with new programs because the constraints of scarcity do not apply and taking risks that might not otherwise be justified makes sense. In other circumstances, risky projects might come at the expense of spending what we know to be valuable, or might require higher taxes, but the present goal should be to find ways to generate demand in the economy. That goal gives our country an extraordinary opportunity to be adventurous.

Subsidies for Public Transportation

People in the United States take more than ten billion trips on public transportation each year. Using public transportation has enormous environmental benefits. Not only does it consume much less energy, but by not driving, public transportation users are also reducing congestion, and therefore reducing the amount of energy wasted in traffic jams. The government can encourage public transit and get money into the pockets of the people who use it (disproportionately low- and moderate-income people) by offering a one-dollar subsidy to local transit agencies for each trip taken. The condition for receiving the subsidy would be that these agencies fully pass on the subsidy in lower fares to the riders.

Internet-Age Support for Writers, Artists, and Other Creative Workers

The New Deal included both a federal arts project and a federal writers project. These programs employed thousands of young artists and writers. A creative stimulus package can extend this idea for the Internet Age. Suppose Congress voted to make $10 billion a year available for state and local governments to support various types of creative and artistic work, in the fields of music, movies, writing, even journalism. The one condition for the support would be that all material produced with the funding be freely available in the public domain.

The advantage of a stipulation of this sort is that it is entirely self-enforcing. Funding recipients would have to be registered on a centralized list available on the Web, which would mean they could not receive copyright protection for any work produced in the period covered by the grants. If people ignored this prohibition and sought copyright protection anyhow, their copyrights would be meaningless: they would be unable to take action against anyone who ignored the copyright and freely reproduced the material.

The basic idea is simple: the government subsidizes creative work once, not twice. Creative workers could either turn to this system of public funding, or they could get copyright protection, but they would not be able to do both.

Funding for the Development of Open Source Software

In addition to putting up money for supporting creative and artistic work that is placed in the public domain, the government can also create a fund to develop open source software that would be placed in the public domain or subject to “copyleft” protection. This fund can be used to further

develop and simplify open source operating systems such as Linux, as well other forms of free software. The payoffs from this spending would be enormous. Imagine that every computer buyer in the world would be able to get a computer and have a free operating system, as well as almost all the software that they would ever use. This fund could save consumers an average of more than $200 per computer. With sales of computers at close to 20 million a year, the savings in the United States alone could easily exceed the cost of supporting software development.

Publicly Fund Clinical Drug Trials

The current system of patent-supported drug research leads to bad research and bad medicine. A direct result of government-granted patent monopolies is that prescription drugs are often incredibly expensive. Drugs that would sell in a competitive market for three to four dollars per prescription instead can sell for hundreds or even thousands of dollars per prescription due to patent protection. Such huge markups can make drugs unaffordable for low- and moderate-income families, and impose an enormous burden on the economy. The United States is projected to spend more than $300 billion a year on prescription drugs by 2012, nearly 2 percent of GDP. These drugs would probably cost no more than $30 billion in the absence of patent protection.

Most of the alternatives to patent-supported drug research would involve direct commitments of public funding. The obvious place to begin is by creating a system of publicly funded clinical trials. Such a system could be established fairly quickly by taking advantage of the existing infrastructure for conducting clinical trials. Only the source of funding for the trials would change.

The government could contract out with pharmaceutical companies or independent testers to carry through clinical trials under long-term contracts, about 10 to 12 years. The contracts would be renewable, contingent on the performance of the testers. The major difference between tests financed with public funds and the tests performed under the current system is that all the results would be fully public and available to all researchers as soon as practical. The prime contractors would be free to subcontract, and likely would, but the rules on openness would carry over to all subcontractors. In addition, the government would pay much lower prices for the drugs for which it funded the clinical tests. Clinical trials account for more than half the cost of developing new drugs, so the industry could easily get by with much lower prices if it no longer had to cover the costs of clinical trials. If the contractors bought up rights at the point of testing, any new drugs could be sold as generics, with no patent protection whatsoever.

At this point, few people in Congress are actively discussing further stimulus. Congress has underestimated the severity of this downturn all along, passing a stimulus package in 2008 that everyone now concedes was inadequate. When Congress again realizes its mistake about the 2009 stimulus package, interest in a paid-time-off tax credit might grow as the quickest and best way to get the economy back to full employment. From False Profits: Recovering from the Bubble Economy © 2009 by Dean Baker. Reprinted with permission from PoliPointPress, LLC, Sausalito, CA (

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