Macro Roundup

Auerbach/Kotlikoff fire up their FTA model again to look at lifetime marginal net tax rates, findings are pretty shocking, “…One in four low-wage workers face marginal net tax rates above 70 percent, effectively locking them into poverty. Over half face remaining lifetime marginal net tax rates above 45 percent. The richest 1 percent also face a high median lifetime marginal tax rate – roughly 50 percent…..”

In paper they don’t attempt to measure the response to these disincentives, just seek to measure the scale of the disincentives (to work)

“….The U.S. has a plethora of federal and state tax and benefit programs, each with its own work incentives and disincentives. This paper uses the Fiscal Analyzer (TFA) to assess how these policies, in unison, impact work incentives. TFA is a life-cycle, consumption-smoothing program that incorporates household borrowing constraints and all major federal and state fiscal policies. We use TFA in conjunction with the 2016 Federal Reserve Survey of Consumer Finances to calculate Americans’ remaining lifetime marginal net tax rates…. calculate how much each household is able to consume, on an expected (average) basis over each household’s potential survival paths. Then compare this remaining expected lifetime spending with the corresponding amount the household can expect to spend were it to earn more either on a temporary (current year) or permanent (through retirement) basis. Subtracting 1 from the ratio of the difference in present value spending to the present value change in human wealth tells us the household’s remaining lifetime marginal net tax rate…. Our findings are striking. One in four low-wage workers face marginal net tax rates above 70 percent, effectively locking them into poverty. Over half face remaining lifetime marginal net tax rates above 45 percent. The richest 1 percent also face a high median lifetime marginal tax rate – roughly 50 percent. Double taxation matters. The overall median lifetime marginal net tax rate is 43.2 percent compared with an overall current-year marginal net tax rate of 37.6 percent. We also find remarkable dispersion in both lifetime and current ear marginal net tax rates, particularly among the poor, and major differences in marginal and average net taxation across states, providing typical households a large incentive to relocate to another state….state-specific tax and benefit provisions produce major differences across states in marginal and average tax rates. Indeed, a typical household can raise its lifetime living standard by as much as 8.1 percent simply by moving states…..”

David Altig, Alan Auerbach, Laurence Kotlikoff, Elias Ilin, Victor Ye, “Marginal Net Taxation of Americans’ Labor Supply,” National Bureau Of Economic Research, May 5, 2020, https://www.nber.org/papers/w27164

Figured cited in WSJ, note they don't define "succeed" or “innovation projects” seems hokey

"... Nearly 80% of CEOs and their direct reports say that less than half of all innovation projects at their organization succeed, according to a survey released today from Broadridge Financial Solutions, Inc. (NYSE:BR), a global Fintech leader, and G100 Network...."

Jon Turek, "The Global Savings Glut, a Modern Policy Failure,"Cheap Cinvexity, May 18, 2020, https://jonturek.blogspot.com/2020/05/the-global-savings-glut-modern-policy.html

“…Overall: These all seem to be separate macroeconomic imbalances. Slowing global trade, high savings, low r*, EM flows. However, the umbrella in which they all seem to fit under is the world outlined above, a world that saves too much. And what is interesting from both a trading and a macroeconomic point of view, a lot of this was just a policy choice. Getting out of the pandemic, there are two outcomes for the private sector. One, a liquidity crisis turning into a solvency crisis, or they are saved and develop a massive savings impulse after this ends. This is why all these plans for fiscal involve some sort of debt forgiveness or socializing necessary costs. Policy will be pushed, whether it knows it or not, to "free" private sector balance sheets…”

new Jordà/Taylor suggests Central Banks are rate takers, not makers, central bank policy explains less than half the variation in interest rates the rest is a function of productivity growth and demography (and some other factors)

"....Interest rates in major advanced economies have drifted down and in greater unison over the past few decades. A country’s rate of interest can be thought of as reflecting movements in the global neutral rate of interest, the domestic neutral rate, and the stance of monetary policy. Only the latter is controlled by the central bank. Estimates from a state space New Keynesian model show that central bank policy explains less than half of the variation in interest rates. The rest of the time, the central bank is catching up to trends dictated by productivity growth, demography, and other factors outside of its control.....wider forces can permeate interest rate settings through the drift of the natural real rate of interest, or r*, at both local and global levels..... From 1985, and for the last 30 years, we find a common, declining r* in all countries; previously r* had been rising, especially in the 1970s. The finding is not new in itself, but now confirmed even in a model with term premiums. We find that all economies have a strong common global component in their r* measure. They also have a strong common global component in two subcomponents of r*. The first of these is attributable to potential output growth and the second captures other latent factors. Each explains about half the global variation in r*. The term premiums vary much less and have been relatively stable in the last 30 years or so...." We find that all economies have a strong common global component in their output gap measure gap. They also have a strong common global component in their policy measure stance. Despite the focus of much empirical and theoretical work on the local economy determinants of stance, we find that most of the variation in short rates is not accounted for by stance at all. Rather, over the long run, variation in the local and world paths of the natural rate is considerable. We find a cross-country convergence of both gap and stance, which have seen falling dispersion since 1970. But for stance this was not monotonic, as policy dispersion rose to high levels from the late 1970s to the early 1990s. This is intuitive, given the chaotic nature of monetary policy execution from the collapse for Bretton Woods to the start of inflation targeting…”

Martin Wolf, "Why inflation might follow the pandemic,"Financial Times, May 19, 2020, https://www.ft.com/content/cdae43be-9901-11ea-adb1-529f96d8a00b

“…But this time it really is different. In the past two months, US M2, a measure that includes demand, savings and deposits for fixed amounts of time, and Divisia M4, a broader index that weights components by their role in transactions, both show large jumps in growth.If one is a monetarist, like Tim Congdon, the combination of constrained output with rapid monetary growth forecasts a jump in inflation. But it is possible that the pandemic has lowered the velocity of circulation: people may hold this money, not spend it.But one cannot be certain. I will not forget the almost universally unexpected surge in inflation in the 1970s. This could happen again… The chances of inflation may have risen. But they are still modest….”

Wolf mentions Goodhart's analysis we’ve looked at (he disagrees)

“…This paper describes the stylized facts characterizing periods of exceptionally large capital inflows in a sample of 70 middle- and high-income countries over the last 35 years. We identify 155 episodes of large capital inflows and find that these events are typically accompanied by an economic boom and followed by a slump. Moreover, during episodes of large capital inflows capital and labor shift out of the manufacturing sector, especially if the inflows begin during a period of low international interest rates. However, accumulating reserves during the period in which capital inflows are unusually large appears to limit the extent of labor reallocation. Larger credit booms and capital inflows during the episodes we identify increase the probability of a sudden stop occurring during or immediately after the episode. In addition, the severity of the post-inflows recession is significantly related to the extent of labor reallocation during the boom, with a stronger shift of labor out of manufacturing during the inflows episode associated with a sharper contraction in the aftermath of the episode….”

Gianluca Benigo,, Nathan Converse, and Luca Fornaro, “Large Capital Inflows, Sectoral Allocation, and Economic Performance.” International Finance Discussion Papers, 2015, https://www.federalreserve.gov/econresdata/ifdp/2015/files/ifdp1132.pdf

“…In 1980, more than 80% of the country was white, and whites accounted for about eight in ten students at Harvard, Yale, and Princeton. Today, less than 65% of the country is white, and it's non-whites who now account for a majority at all three of those institutions….”

California: 40 percent white; 38 percent Hispanic 14 percent Asian; 6.6 percent black; 13.6 percent Asian.

Texas: 45 percent white; 38 percent Hispanic; 12 percent black; 4 percent Asian.

Michigan: 76 percent white; 14.2 percent black; 4.4 percent Hispanic; 2.4 percent Asian.

How America's Top Colleges Reflect (and Massively Distort) the Country's Racial Evolution

In the last 30 years, the country has become steadily more racially diverse -- and so have many American colleges. In 1980, more than 80% of the country was white, and whites accounted for about eight in ten students at Harvard, Yale, and Princeton. Today, less than 65% of the country is white, and it's non-whites who now account for a majority at all three of those institutions.

The four graphs below compare national racial composition averages in 1980, 1990, 2000, and 2010 to six elite universities: three top-flight private schools in the northeast -- Harvard, Yale, and Princeton -- and three top-flight public schools across the country -- the University of Michigan, the University of Texas, and the University of California, Berkeley.* (University data comes from the National Center for Education Statistics. National data comes from the Census.) It is notable that the data below starts in 1980, two years after the Supreme Court ruled in Regents of the University of California vs. Baake that race could not exclude a candidate but could serve as one of many factors in college admissions.

There are any number of conclusions various people could draw from the data -- the under-representation of blacks is, of course, striking; some might say the flattening out of Asians at elite private schools suggests an unofficial quota system -- but I'll let the graphs speak for themselves. This post isn't meant to be a polemic, but rather a starting point, a primary source.

Derek Thompson, “How America’s Top Colleges Reflect (and Massively Distort) the Country’s Racial Evolution,”The Atlantic, January 23, 2013, https://www.theatlantic.com/national/archive/2013/01/how-americas-top-colleges-reflect-and-massively-distort-the-countrys-racial-evolution/267415/

“…The share of births to unwed mothers stands at 40 percent—up from 5 percent in 1960. We estimate that nearly half of births start as an unwed pregnancy, including two-thirds of first births to women under 30….Three times as many births today are from unwed pregnancies than in the early 1960s, and only 9 percent of these pregnancies are followed by a shotgun marriage—down from 43 percent in the early 1960s…..”

Scott Winship, “Love, Marriage, And The Baby Carriage: The Rise In Unwed Childbearing.” Joint Economic Committee, December 2017, https://www.lee.senate.gov/public/_cache/files/3a6e738b-305b-4553-b03b-3c71382f102c/love-marriage-and-the-baby-carriage.pdf

New paper out that characterizes top incomes in the US (everyone from Auerbach to Zucman commented on draft) paper finds the super rich earn their money. as of 2014, most income at the top is non wage income, the primary source of which is business income. these profits accrue to working-age owners of closely-held, mid-market firms in skill-intensive industries. Private business profit falls by three-quarters after owner retirement or premature death!

“…Have the idle rich replaced the working rich at the top of the U.S. income distribution? Using tax data linking 11 million firms to their owners, this paper finds that entrepreneurs who actively manage their firms are key for top income inequality. Most top income is non-wage income, a primary source of which is private business profit. These profits accrue to working-age owners of closely-held, mid-market firms in skill-intensive industries. Private business profit falls by three-quarters after owner retirement or premature death. Classifying three-quarters of private business profit as human capital income, we find that most top earners are working rich: they derive most of their income from human capital, not physical or financial capital. The human capital income of private business owners exceeds top wage income and top public equity income. Growth in private business profit is explained by both rising productivity and a rising share of value added accruing to owners….”

Smith, Matthew, Danny Yagan, Owen Zidar, and Eric Zwick. January 2019. “Capitalists in the Twenty-First Century.” National Bureau of Economic Research.https://www.nber.org/papers/w25442

Summers’ core case for Secular Stagnation (2014)

“…In my remarks today, I want to take up these issues—secular stagnation, the idea that the economy re-equilibrates; hysteresis, the shadow cast forward on economic activity by adverse cyclical developments; and the significance of the zero lower bound for the relative efficacy of monetary and fiscal policies. I shall argue three propositions. First, as the United States and other industrial economies are currently configured, simultaneous achievement of adequate growth, capacity utilization, and financial stability appears increasingly difficult. Second, this is likely to be related to a substantial decline in the equilibrium or natural real rate of interest. Third, addressing these challenges requires different policy approaches than are represented by the current conventional wisdom….”

Summers, Lawrence. February 2014. US Economic Prospects: Secular Stagnation, Hysteresis, and the Zero Lower Bound. Business Economics.http://larrysummers.com/wp-content/uploads/2014/06/NABE-speech-Lawrence-H.-Summers1.pdf

“…In the postwar era, developed economies have experienced two substantial trends in the net capital share of aggregate income: a rise during the last several decades, which is well known, and a fall of comparable magnitude that continued until the 1970s, which is less well known. Overall, the net capital share has increased since 1948, but once disaggregated this increase turns out to come entirely from the housing sector: the contribution to net capital income from all other sectors has been zero or slightly negative, as the fall and rise have offset each other.Several influential accounts of the recent rise emphasize the role of increased capital accumulation, but this view is at odds with theory and evidence: it requires empirically improbable elasticities of substitution, and it presumes a correlation between the capital-income ratio and capital share that is not visible in the data. A more limited narrative that stresses scarcity and the increased cost of housing better fits the data. These results are clarified using a new, multisector model of factor shares….”

Matthew Rognlie, 2015. “Deciphering the Fall and Rise in the Net Capital Share: Accumulation or Scarcity?” Brookings Papers on Economic Activity.https://www.brookings.edu/bpea-articles/deciphering-the-fall-and-rise-in-the-net-capital-share/

"...Most investors in technology companies squander vast sums by reacting to short-term jitters or global jolts rather than concentrating on the staying power of those emerging enterprises on the right side of history. And for the founders and chief executives of all of the current billion-dollar “unicorns” there is another abiding message.Almost all of today’s technology juggernauts formed before about 2008 required smallish amounts of capital. Google, for example, consumed only $8m before turning profitable. Maybe this means that sooner or later a new class of company will come into vogue — a rare species known as the profitable unicorn....."

The writer is chairman of Sequoia Capital and co-author with Sir Alex Ferguson of ‘Leading’. Views expressed are his own. Sequoia Capital persons hold interests in certain companies mentioned

And for the founders and chief executives of all of the current billion-dollar “unicorns” there is another abiding message. Almost all of today’s technology juggernauts formed before about 2008 required smallish amounts of capital. Google, for example, consumed only $8m before turning profitable. Maybe this means that sooner or later a new class of company will come into vogue — a rare species known as the profitable unicorn.

Most investors in technology companies squander vast sums by reacting to short-term jitters or global jolts rather than concentrating on the staying power of those emerging enterprises on the right side of history.

Finally, a note about two other themes that jump out of this listing: patience and profits.

Woe betide the management of any western technology company that underestimates the challenge posed by the vast number of emerging Chinese competitors, fuelled by an ambition and work regimen that is hard to match in Europe and the US.

Perched in a clump as the fourth, fifth and sixth most valuable technology companies of the day are Alibaba, Tencent and Baidu. This threesome is now worth $409bn — testament not just to how much China has progressed in a decade and a half but a harbinger of the next several decades as the country places increasing emphasis on spawning its own technology.

Several of today’s most valuable technology companies did not even exist in 2000. Facebook, LinkedIn and Twitter together have a collective corporate history of only 33 years. Even Google and Salesforce were barely smudges on the horizon in 2000. These companies now have a combined value of about $850bn. Beyond some of the customised systems they operate in their own datacentres, and in Google’s case, some sideline activities such as its Nexus phones and Chrome notebooks, none of these companies sully their hands with anything as taxing as hardware. They have thrived from the artful deployment of software, in particular the “cloud based” variant, and — for Facebook, LinkedIn, Twitter (and Google’s YouTube service) — organising and collating the contributions of their users.

Now a word from sunnier climes. Fifteen companies that were together worth less than $10bn in 2000 are now among the world’s 50 top technology companies as measured by market capitalisation, with a combined worth of $2.1tn. (Had Amazon been included, rather than being classified as a retailer, this number would have swollen by another $250bn). Apple, which even in 2000 was viewed as little more than a curiosity, has risen in value from $6bn to $659bn. A few themes jump out of this listing: the power of novelty, the shift towards China, the benefits of patience and the virtues of capital efficiency.

For the class of 2000, the sharpest property price declines have been in the deteriorating neighbourhoods of systems, hardware and semiconductors. This is because of the continuing decline in the cost of computing, the rise of open-source software, the move to the “cloud” and the emergence of huge datacentres where companies such as Amazon, Google and Facebook are designing their own approaches.

In 2000, Nortel sported a market value of $209bn that, like those of its classmates, had been bloated by the enthusiasm of the era; it has since gone bankrupt. While other members of this corporate bracket have avoided that ignominy, their long-term stock charts present bleak pictures. Cisco’s market value has faded from $403bn to $144bn; Intel’s from $288bn to $161bn; and EMC’s from $218bn to $51bn.

Only one, Microsoft, has a market capitalisation that is higher than in 2000. One extraordinary aspect of this meltdown is that it did not occur, as some might suspect, in the much ballyhooed dotcom wonder companies of yesteryear. Instead it was a blight that affected most of what were once considered blue-chip technology holdings.

First, the bad news. The 15 technology companies with the largest market capitalisations in 2000 have been decimated — losing about $1.35tn, or roughly 60 per cent, of their combined market value.

The San Francisco-based buyout firm Francisco Partners recently published a delicious analysis relevant to anyone wondering about what the future holds for technology stocks. It is a bulletin in which both pessimists and optimists can find hope and it offers a helpful perspective for those wondering about the current valuations of technology companies.

The fall and rise of technology juggernauts

The fall and rise of technology juggernauts

https://next.ft.com/content/6b859714-99ba-11e5-9228-87e603d47bdc

Moritz, Michael, "The fall and rise of technology juggernauts,"Financial Times, December 4, 2015. Available at:https://next.ft.com/content/6b859714-99ba-11e5-9228-87e603d47bdc

chairmen of the top VC firm in the valley

James E. Bessen, "Information Technology and Industry Concentration," Boston Univ. School of Law, Law and Economics Research Paper, June 2019, https://papers.ssrn.com/sol3/papers.cfm"...It is sometimes argued that information technology “levels the playing field” by providing inexpensive tools to small and young firms. This paper finds that much of the impact of IT may be to tilt the playing field in favor of those firms who are able to use it most effectively. The use of IT systems is strongly associated with industry concentration across a wide range of sectors.Moreover, the magnitude of the link between industry IT systems use and concentration is large enough to account for much of the recent rise in industry concentration. Instrumental variable regressions provide some support for the notion that this relationship is causal, consistent with a view that IT generates a growing gap between the most productive firms and the rest.This view is further supported by evidence that IT systems use is associated with enhanced performance of the top firms within each industry. IT systems use is associated with relatively greater plant size among the top four firms, with relatively greater revenue per employee at these firms, and with higher firm operating margins, especially for the largest firms. These findings suggest that IT contributes to a widening productivity gap between the top firms and the rest, driving an increase in industry concentration. On the other hand, the observed increases in concentration are fairly modest. There are, of course, well known examples where IT facilitates highly concentrated markets as with Amazon’s dominance in e-commerce. These cases may be described as “winner-take-all” markets. But the markets in this study show much lower levels of concentration and relatively small increases. While economies of scale or network effects might be at play in the markets studied here, it appears that there are limits to such scale effects. These are “winnertake-a-bit-more” markets. Perhaps more narrowly defined markets would be more likely to exhibit “winner-take-all” competition, but the market definitions used here from the Economic Census (at the 6-digit NAICS and higher level of aggregation) are the markets that have raised concern about growing concentration. The findings of this paper suggest that much of the recent rise in industry concentration and much of the rise in firm operating margins can be attributed to the deployment of proprietary IT systems. A general decline in competition might also play a role in rising concentration and profits, but the evidence found here regarding competition is mixed. Merger and acquisition activity seems unrelated to industry concentration and the residual time trend in operating margins is negative once intangible investments are taken into account. On the other hand, greater Federal regulation is associated with higher operating margins, although this effect is substantially smaller than the role of IT systems.Overall, the analysis here suggests that the recent overall rise in industry concentration is not mainly the result of anticompetitive activity that should worry antitrust authorities. Indeed, IT systems use appears to bring real social economic benefits in terms of greater output per worker even if it does raise industry concentration. While there may be other reasons to question antitrust policies (see, for instance, Kwoka 2012), the general rise in industry concentration does not appear to raise troubling issues for antitrust enforcement at this point by itself. However, the evidence about the role of IT in raising industry concentration does broach another concern. Why aren’t the productivity gains from IT shared more broadly beyond the top firms? Increasingly, it seems, top performing firms utilize new technologies productively while their rivals do not. Concentration appears to be rising because of “barriers to technology” if not actually barriers to entry. More research is needed to understand exactly how IT is related to the growing productivity gap. Top firms might be able to use patents and trade secrets to prevent the spread of new knowledge. Or perhaps, instead, top firms are better able to recruit and develop talented managers and workers skilled at working with the new systems. Whatever the cause, the issue is important because the slow diffusion of new technologies might be related to sluggish aggregate productivity growth (Decker et al. 2017). Also, growing disparity in firm productivity might be related to growing inter-firm wage inequality. But the policies to address these issues, whether antitrust or other, depend very much on the diagnosis...."

“…. Between-firm wage dispersion is found to be significantly and positively correlated to the overall wage dispersion across workers and its evolution over time. Most of the between-firm wage variance is driven by differences in pay across firms within sectors rather than by differences in average wages across sectors. There has been a steady increase in wage inequality, measured as the 90-10 wage ratio, driven mainly by an increased dispersion in the lower tail (50-10 ratio); the divergence of the upper tail (90-50 ratio) only happens in the service sector and only since 2005…. Similarly, we find that dispersion in productivity, whether measured as real value added per worker (labour productivity) or as multi-factor productivity (MFP), has also significantly increased in the last decade. Most of the increase is driven by within-sector productivity differentials across firms, rather than by cross-sectoral differences. Similar dynamics of increase at the bottom throughout the entire period and at the top only after 2005 are also present in the productivity data, which might point to a link between the co-evolution of wage and productivity dispersions…. Wage dispersion is linked to increasing differences between high and low productivity firms, even controlling for the sectors’ skill composition. Firm-level correlation between wages and productivity is systematically weaker at the top and at the bottom of the productivity distribution….Both globalisation, as indicated by measures of greater openness, greater import penetration and greater export intensity at the sectoral level, and digitalisation, measured by more intense use of ICT capital at the sectoral level, are associated with higher wage divergence, and tend to strengthen the link between productivity and wage dispersion within sectors and countries over time….Finally, the report provides some preliminary analysis of the impact of policies and institutions on the link between wage inequality and productivity dispersion focusing on minimum wage, employment protection legislation, trade union density, and coordination in wage setting. The results point to a positive link between higher minimum wages, unionisation, EPL, coordination in wage setting, and reduced wage inequality, but usually accompanied by a weaker link between productivity and wages, especially for more centralised wage bargaining. On the contrary, over time, the minimum wage tends to strengthen the link between productivity and wage dispersion…”

Giuseppe Berlingieri, Patrick Blanchenay, and Chiara Criscuolo, “The Great Divergence,” Organisation for Economic Co-operation and Development (OECD), May 12, 2017, http://www.oecd-ilibrary.org/science-and-technology/the-great-divergence-s_953f3853-en

"... In Europe...Nearly half of workers toil in firms with fewer than 50 employee..."

Economist Staff, "Politicians in America and Europe scramble to help small firms,"The Economist, May 2, 2020, https://www.economist.com/finance-and-economics/2020/05/02/politicians-in-america-and-europe-scramble-to-help-small-firms
Politicians in America and Europe scramble to help small firms

Randy hathcock appeared to be out of options. The time had come for the owner of h&t Truss Mill, a construction company in Arkadelphia, Arkansas, to decide how many of his 16 employees to sack. The pandemic had led to orders drying up. Then a lifeline appeared. The Paycheck Protection Programme (ppp), a scheme administered by America’s Small Business Administration, promised enough to cover two-and-a-half months of wages. It was “an answer to our prayers”, says Mr Hathcock. If he retains his staff for two years, the $161,200 loan turns into a grant.

Voters abhor bail-outs when they involve airlines and Wall Street, but seem altogether happier to provide succour to the likes of Mr Hathcock and Main Street. Politicians in America and Europe have all the more reason to help: small and medium-sized businesses (smes) have been clobbered by the pandemic, even more so than their larger peers. Fully 60% of people who worked for businesses with fewer than ten employees in America at the start of the year have since been fired, according to one study. In Britain, seven in ten firms managed by their owners say they have lost over half their revenue.

Even as the share prices of listed titans have perked up—the s&p 500 index of large American stocks is up by 31% since its nadir on March 23rd—small firms are becoming ever more uncertain about their prospects. Most have cash buffers that stretch to weeks, not years. Roughly half of American entrepreneurs do not expect business to recover within two years, according to a survey by academics at Oxford, Princeton and Yale universities (see chart 1).

Schemes like theppp should help. But rich-country bail-out schemes that were put together in a rush are experiencing sharp teething pains. As a result, lifelines that are generous on paper have been less so in practice. Aid has not reached the most distressed firms, and has been hogged by larger smes savvy enough to navigate the bail-out bureaucracy, if not by even bigger businesses (see article).

America and Europe have adopted similar strategies to preserve the fabric of their economies. First help smes cut cash outgoings quickly, for example by delaying tax deadlines or even reversing past payments. Then find ways to lend or grant cash so that companies make it through the lockdown.

In Europe, the fastest way for businesses to cut costs has been to lay off workers temporarily. Britain and all members of the European Union now have temporary-unemployment schemes that allow firms to cut staff hours, sometimes to zero. Workers receive benefits in lieu of most of their salary. When lockdowns are lifted, they will go back to their old jobs. That limits the disruption to both their livelihoods and their employers’ prospects.

Such short-time working schemes, which originated in Germany and spread continent-wide after the global financial crisis, were once the purview of big firms, says Stefano Scarpetta of the oecd, a policy adviser to rich countries. Now they have been opened to smes. The take-up has been rapid. Nearly 11m French workers, or roughly half the salaried workforce, are temporarily unemployed. In Germany, more than 700,000 firms have applied.

America has no such federal scheme (though some states have smaller programmes in place). Hence theppp. But the $349bn originally allocated to the programme ran out just 13 days after it was launched on April 3rd. On April 27th a further $310bn approved by Congress became available; the demand crashed the Small Business Administration’s systems. “It’s been all hands on deck trying to get the loans approved,” says Darrin Williams, the boss of Southern Bancorp, a Mississippi-delta lender, which helped unlock theppp riches for Mr Hathcock. Even once firms’ applications have been approved, delays in receiving the cash are common.

European countries have also looked to direct cash to small firms—and faced similar delays. In Britain, Germany and Italy, among others, the smallest firms (or self-employed workers) have received handouts reasonably promptly. Bigger smes are entitled to low-interest loans, typically covering three months of payroll. Doling these out has proved tricky.

To ensure the money did not end up going to businesses with no hope of paying it back, bankers were roped in to assess potential recipients. Governments agreed to shoulder 70-90% of potential loan losses, limiting the downside for banks. Still, lending figures have underwhelmed. In Spain after five weeks only €13.4bn ($14.6bn) out of €100bn in state guarantees earmarked for smes have been tapped. Britain managed to allocate a meagre £4.1bn ($5.1bn) by April 28th. From early May it will join Germany in offering some loans that are completely underwritten by the state. Bankers can distribute cash without having to worry about the creditworthiness of the borrower.

There will still be suspicions that the money is flowing into the wrong pockets. A study by researchers at the University of Chicago finds that smes in the bits of America where activity had fallen most were only half as likely to receiveppp funds as those in the least-disrupted places.

In Europe, finding ways to help smes is economically essential. Nearly half of workers toil in firms with fewer than 50 employees (see chart 2). But many of the most troubled companies are in Spain or Italy, which have been hit especially hard by covid-19, and where governments have little fiscal space to fund large-scale bail-outs. That imbalance has raised complaints that firms in the European Union do not really compete in a single market.

Given the rush, it is perhaps not much of a surprise that neither America’s nor Europe’s schemes have achieved all that policymakers hoped. Europe’s short-timework schemes will preserve employment—but at huge cost, and at the risk of keeping employees in jobs that ought to disappear. America is now dishing out money more decisively, but unemployment there has soared (see Free Exchange), in no small part owing to Main Street’s woes. Back in January, roughly half of all small firms had at least three employees on their books. By April, a similar share had none.

“…This paper presents direct measures of capital costs, equal to the product of the required rate of return on capital and the value of the capital stock. The capital share, equal to the ratio of capital costs and gross value added, does not offset the decline in the labor share. Instead, a large increase in the share of pure profits offsets declines in the shares of both labor and capital. Industry data show that increases in concentration are associated with declines in the labor share….”

Simcha Barkai, “Declining Labor and Capital Shares,” London Business School, 2016, https://home.uchicago.edu/~barkai/doc/BarkaiDecliningLaborCapital.pdf

great paper, in short rolling back the technological frontier is hard, and getting harder!

Moore's law is a great example, Red Queens Run....

"...The striking fact, shown in Figure 4, is that research effort has risen by a factor of18 since 1971. This increase occurs while the growth rate of chip density is more or less stable: the constant exponential growth implied byMoore’s Law has been achieved only by a massive increase in the amount of resources devoted to pushing the frontier forward. Assuming a constant growth rate for Moore’s Law, the implication is that research productivity has fallen by this same factor of 18, an average rate of 6.8 percent per year. If the null hypothesis of constant research productivity were correct, the growth rate underlying Moore’s Law should have increased by a factor of 18 as well. Instead, it was remarkably stable.Put differently, because of declining research productivity, it is around 18 times harder today to generate the exponential growth behind Moore’s Lawthan it was in 1971...We find thatresearch productivity for the aggregate U.S. economy has declined by a factor of 41 since the 1930s, an average decrease of more than 5% per year... A key assumption of many endogenous growth models is that a constant number of researchers can generate constant exponential growth. We show that this assumption corresponds to the hypothesis that the total factor productivity of the idea production function is constant, and we proceed to measure research productivity in many different contexts.Our robust finding is that research productivity is falling sharply everywhere we look.Taking the U.S. aggregate number as representative,research productivity falls in half every 13 years — ideas are getting harder and harder to find. Put differently, just to sustain constant growth in GDP per person, the U.S. must double the amount of research effort searching for new ideas every 13 years to offset the increased difficulty of finding new ideas.This analysis has implications for the growth models that economists use in our own research, like those cited in the introduction. The standard approach in recent years employs models that assume constant research productivity, in part because it is convenient and in part because the earlier literature has been interpreted as being inconclusive on the extent to which this is problematic. We believe the empirical work we have presented speaks clearly against this assumption. A first-order fact of growth empirics is that research productivity is falling sharply. Future work in the growth literature should determine how best to understand this fact. One possibility is the semi-endogenous growth models discussed in the preceding section. These models have important implications. For example, they have a “Red Queen” prediction in which we have to run faster and faster to maintain constant exponential growth. If the growth rate of research inputs were to slow, this could cause economic growth itself to slow down. It is possible that this contributes to the global slowdown in productivity growth during the past fifteen years. One way in which the overall interpretation of the evidence in this paper could be wrong is if there is indeed declining research productivity in every sector, but the entire increase in aggregate R&D occurs in making quality/productivity improvements for individual varieties. The separate idea production function for producing new varieties could then exhibit constant research productivity if in fact the research going to create new varieties is not increasing over time. While this is conceptually possible, it seems unlikely. We do not have any growth models in the literature that suggest this could occur in an equilibrium in which there is population growth. Why, despite a growing population and constant research productivity, would the equilibrium allocation feature a constant number of researchers creating new varieties? Nevertheless, this loophole is one that future research may wish to consider. Alternatively, there are other possible explanations for declining research productivity. Incumbent firms may be shifting to “defensive” R&D to protect their market position, and this could cause research productivity to decline; Dinopoulos and Syropoulos (2007) provide a model along these lines. Or perhaps declines in basic research spending (potentially related to the U.S. decline in publicly-funded research as a share of GDP) have negatively impacted overall research productivity. Clearly this would have important policy implications. That one particular aspect of endogenous growth theory should be reconsidered does not diminish the contribution of that literature. Quite the contrary. The only reason models with declining research productivity can sustain exponential growth in living standards is because of the key insight from that literature: ideas are nonrival. And if research productivitywere constant, sustained growth would actually not require that ideas be nonrival; Akcigit, Celik and Greenwood (2016b) show that fully rivalrous ideas in a model with perfect competition can generate sustained exponential growth in this case. Our paper therefore clarifies that the fundamental contribution of endogenous growth theory is not that research productivity is constant or that subsidies to research can necessarily raise growth. Rather it is that ideas are different from all other goods in that they do not get depleted when used by more and more people. Exponential growth in research leads to exponential growth in At. And because of nonrivalry, this leads to exponential growth in per capita income...."

Nicholas Bloom, Charles Jones, John Van Reenen, Michael Webb, "Are Ideas Getting Harder to Find?" National Bureau of Economic Research, 6 September 2017, http://www.nber.org/papers/w23782

“…The fall of labor’s share of GDP in the United States and many other countries in recent decades is well documented but its causes remain uncertain. Existing empirical assessments typically rely on industry or macro data, obscuring heterogeneity among firms. In this paper, we analyze micro panel data from the U.S. Economic Census since 1982 and document empirical patterns to assess a new interpretation of the fall in the labor share based on the rise of “superstar firms.” If globalization or technological changes push sales towards the most productive firms in each industry, product market concentration will rise as industries become increasingly dominated by superstar firms, which have high markups and a low labor share of value-added. We empirically assess seven predictions of this hypothesis: (i) industry sales will increasingly concentrate in a small number of firms; (ii) industries where concentration rises most will have the largest declines in the labor share; (iii) the fall in the labor share will be driven largely by reallocation rather than a fall in the unweighted mean labor share across all firms; (iv) the between-firm reallocation component of the fall in the labor share will be greatest in the sectors with the largest increases in market concentration; (v) the industries that are becoming more concentrated will exhibit faster growth of productivity; (vi) the aggregate markup will rise more than the typical firm’s markup; and (vii) these patterns should be observed not only in U.S. firms, but also internationally. We find support for all of these predictions…..”

David Autor, David Dorn, Lawrence Katz, Christina Patterson, John Van Reenen, “The Fall of the Labor Share and the Rise of Superstar Firms,“ Quarterly Journal Of Economics, October 2019, https://economics.mit.edu/files/12979

“…China’s emergence as a great economic power has induced an epochal shift in patterns of world trade. Simultaneously, it has challenged much of the received empirical wisdom about how labor markets adjust to trade shocks. Alongside the heralded consumer benefits of expanded trade are substantial adjustment costs and distributional consequences. These impacts are most visible in the local labor markets in which the industries exposed to foreign competition are concentrated. Adjustment in local labor markets is remarkably slow, with wages and labor-force participation rates remaining depressed and unemployment rates remaining elevated for at least a full decade after the China trade shock commences. Exposed workers experience greater job churning and reduced lifetime income.At the national level, employment has fallen in U.S. industries more exposed to import competition, as expected, but offsetting employment gains in other industries have yet to materialize. Better understanding when and where trade is costly, and how and why it may be beneficial, are key items on the research agenda for trade and labor economists….”

Autor, David, David Dorn, and Gordon Hanson. “The China Shock: Learning from Labor Market Adjustment to Large Changes in Trade.” National Bureau Of Economic Research, January 2016, http://www.nber.org/papers/w21906

“….In this paper, we aim to bring the debate on the global productivity slowdown - which has largely been conducted from a macroeconomic perspective - to a more micro-level. We show that a particularly striking feature of the productivity slowdown is not so much a lower productivity growth at the global frontier, but rather rising labour productivity at the global frontier coupled with an increasing labour productivity divergence between the global frontier and laggard (non-frontier) firms. This productivity divergence remains after controlling for differences in capital deepening and mark-up behaviour, suggesting that divergence in measured multi-factor productivity (MFP) may in fact reflect technological divergence in a broad sense. This divergence could plausibly reflect the potential for structural changes in the global economy - namely digitalisation, globalisation and the rising importance of tacit knowledge - to fuel rapid productivity gains at the global frontier. Yet, aggregate MFP performance was significantly weaker in industries where MFP divergence was more pronounced, suggesting that the divergence observed is not solely driven by frontier firms pushing the boundary outward. We contend that increasing MFP divergence - and the global productivity slowdown more generally - could reflect a slowdown in the diffusion process.This could be a reflection of increasing costs for laggard firms of moving from an economy based on production to one based on ideas. But it could also be symptomatic of rising entry barriers and a decline in the contestability of markets. We find the rise in MFP divergence to be much more extreme in sectors where pro-competitive product market reforms were least extensive, suggesting that policy weaknesses may be stifling diffusion in OECD economies….”

Andrews, Dan, Chiara Criscuolo, and Peter Gal. “The Global Productivity Slowdown, Technology Divergence and Public Policy: A Firm Level Perspective.” Brookings Papers on Economic Activity, September 27, 2016.https://www.brookings.edu/wp-content/uploads/2016/08/andrews-et-al.pdf

“…This paper studies the effect of top tax rates on inventors' international mobility since 1977. We put special emphasis on “superstar” inventors, those with the most abundant and most valuable patents. We use panel data on inventors from the United States and European Patent Offices to track inventors' locations over time and combine it with international effective top tax rate data. We construct a detailed set of proxies for inventors' counterfactual incomes in each possible destination country including, among others, measures of patent quality and technological fit with each potential destination. Exploiting the differential impact of changes in the top tax rate on inventors of different qualities,we find that superstar top 1% inventors are significantly affected by top tax rates when deciding where to locate. The elasticity to the net-of-tax rate of the number of domestic superstar inventors is relatively small, around 0.03, while the elasticity of the number of foreign superstar inventors is around 1. Inventors who work in multinational companies are more likely to take advantage of tax differentials. On the other hand, if the company of an inventor has a higher share of its research activity in a given country, the inventor is less sensitive to the tax rate in that country….”

Ufuk Akcigit, Salomé Baslandze, Stefanie Stantcheva, "Taxation and the International Mobility of Inventors," National Bureau Of Economic Research, October 2015, https://www.nber.org/papers/w21024

this is a hell of a Churchill quote“,,, medal glitters, but it also creates a shadow….”

Philipp Ager, Leonardo Bursztyn, Hans-Joachim Voth, “Killer Incentives: Status Competition and Pilot Performance during World War II,”The National Bureau of Economic Research, December 2016, http://www.nber.org/papers/w22992

“…Fighter pilots in wartime are subject to substantial principal-agent problems. To fulfill their duty, they have to risk death. How can they be motivated to do so? We study the role of awards and of status competition. We collect and compile new, detailed data on monthly victory scores of over 5,000 German pilots during World War II.Our results suggest that awards may have been an important incentive. Crucially, we find evidence of status competition: When the daily bulletin of the German armed forces mentioned the accomplishments of a particular fighter pilots, his former peers perform markedly better. Outperformance is differential across skill groups. The best pilots try harder, score more, and die no more frequently when a former squadron peer is mentioned; average pilots try win only very few additional victories, but die at a markedly higher rate.Our results suggest that the incentive effects of nonfinancial rewards can beambiguous in settings where both risk and output affect aggregate performance….”

whole paper is interesting

“…Far from sudden “eureka” moments, innovation is nearly always a gradual process that proceeds by incremental steps. It is a team sport: There is no individual who can be credited with inventing the computer or the internet. The introduction of short-strawed wheat that revolutionized Asian agriculture in the 1960s, resulting in the defeat of famine, was driven by Manzoor Bajwa in Pakistan and M.S. Swaminathan in India. But they got the idea from Norman Borlaug in Mexico, who got it from Burton Bayles, who got it from Orville Vogel, who got it from Cecil Salmon, who got it from Gonjirô Inazuka in Japan, who got it from…at this point the trail runs cold. Once started, innovation is so inexorable it looks inevitable: 21 different people had the idea of the lightbulb independently. Many people besides the Google founders came up with search engines in the 1990s. Yet, paradoxically, innovation is impossible to predict. Almost nobody foresaw the usefulness and profitability of search engines. The first half of the 20th century brought dramatic changes in transport, the second half in communication. The switch was not the result of policy: Innovation cannot easily be forced…”

Matt Ridley, "Innovation Can’t Be Forced, but It Can Be Quashed,"Wall Street Journal, May 15, 2020, https://www.wsj.com/articles/innovation-cant-be-forced-but-it-can-be-quashed-11589555004

Innovation Can’t Be Forced, but It Can Be Quashed

The Covid-19 pandemic reveals that far from living in an age of incessant technological change, we have been neglecting innovation in exactly the areas where we most need it. Faced with a 17th-century plague, we are left to fall back mainly on the 17th-century response of quarantine and closing the theaters.

It is commonplace today to say that innovation is speeding up, but like much conventional wisdom, it is wrong. Some innovation is speeding up, certainly, but some is slowing down. Take speed itself. In my lifetime of more than sixty years, I have seen little or no improvement in the average speed of travel. Congestion on the roads and at airports has in many cases increased the scheduled travel time between two points. A modern airliner, with its high-bypass engines and less-swept wings, is designed to save fuel by going more slowly than a Boeing 707 did in the 1960s. The record for the fastest manned plane, 4,520 miles an hour, was set by the X-15 rocket plane in 1967 and remains unbroken. Boeing 747s are still flying half a century after they were launched. Concorde, the only supersonic passenger plane, is history.

Moreover, recent decades have seen innovation stalled or rejected in a number of technologies. Nuclear power has been unable to roll out plans for new reactor designs. Genetic modification of crops was effectively rejected by Europe. The flow of new pharmaceutical drugs has slowed to a trickle. Ride-sharing apps have been banned in many cities. As the investor Peter Thiel has pointed out, innovation is now largely a digital phenomenon, because bits are lightly regulated and atoms heavily regulated. On all sides we hear arguments that innovation threatens jobs, the environment, privacy and democracy.

Of immediate relevance to the current emergency, the development of vaccines has languished in the 21st century as an orphan technology, insufficiently encouraged by governments and ignored by the private sector. New vaccines are rarely profitable. By the time a company develops one for a new epidemic, the worst may be over. Last year Wayne Koff, president of the Human Vaccines Project, warned that the world was poorly prepared for a pandemic because vaccine development “is an expensive, slow and laborious process, costing billions of dollars, taking decades, with less than a 10% rate of success.”

It is not just vaccines. Throughout the economy, with the exception of the digital industry, the West is experiencing an innovation famine. The Austrian economist Joseph Schumpeter’s “perennial gale of creative destruction” has been replaced by the gentle breezes of rent-seeking. Two recent books argue that big companies in cozy cahoots with big government increasingly shy away from change, sheltered against competition by regulation and intellectual property rights. In “The Captured Economy” (2017), Brink Lindsey and Steven M. Teles make the case that to the extent that incomes have been stagnating and opportunities for social mobility drying up, the cause is not too much innovation but too little. In “The Innovation Illusion” (2016), Fredrik Erixon and Bjorn Weigel argue that Western economies have “developed a near obsession with precautions that simply cannot be married to a culture of experimentation.”

Innovation relies upon freedom to experiment and try new things, which requires sensible regulation that is permissive, encouraging and quick to give decisions. By far the surest way to rediscover rapid economic growth when the pandemic is over will be to study the regulatory delays and hurdles that have now been hastily swept aside to help innovators in medical devices and therapies, and to see whether such reforms could be applied to other parts of the economy too.

A big obstacle to innovation is the slow pace of regulatory licensing. One 2012 study found that a medical device takes around 21 months to get through the regulatory process in the U.S., from application to market, and 70 months in Germany. In the specific case of the Stratos implantable pacemaker, it took 14 months in the U.S., 40 months in France and 70 months in Italy.

There is nothing new about resistance to innovation. In 1662, William Petty, a pioneering economist, medical professor and land speculator, lamented that “the poor inventor runs the gauntloop of all petulant wits,” with everybody trying to stop him from succeeding. At the time, King Charles II, lobbied by the brewing industry, was trying to ban a novel drink called coffee because it caused fake news. “As for coffee, tea and chocolate,” the king pronounced, “I know no good they do; only the places where they are sold are convenient for persons to meet in, sit half day and discourse with all companies that come in of State matters, talking of news and broaching of lies.”

Hansom cab operators in London furiously denounced the introduction of the umbrella for offering shelter to rain-soaked pedestrians. Margarine was subjected to a decadeslong smear campaign from the dairy industry. Musicians’ unions delayed the playing of recorded music on the radio. The Horse Association of America for many years fought a rear-guard action against the tractor, and the natural-ice harvesting industry frightened people with scares about the safety of refrigerators. You may laugh, but the same happens today: Incumbent vested interests, overcautious regulators, opportunistic activists and rent-seeking patent holders combine to oppose or delay almost every innovation.

There is no good evidence that patents are helpful, let alone necessary, in encouraging innovation.

Surprisingly, there is no good evidence that patents are helpful, let alone necessary, in encouraging innovation. A 2002 study by Josh Lerner, an economist at Harvard Business School, looked at 177 cases of strengthened patent policy in 60 countries over more than a century, finding that “these policy changes did not spur innovation.” James Watt, Samuel Morse, Guglielmo Marconi, the Wright brothers and many others wasted the best years of their lives in court defending their intellectual property, when they might have been busy developing new devices.

The expiration of patents often results in a burst of innovation, as with 3-D printing, where the recent lapse of three key patents has resulted in notable improvements in quality and a drop in price. The historian Anton Howes, of the Royal Society of Arts in London, points out that the French government bought out Louis Daguerre’s patent for photography in 1839 and made the technology freely available, unleashing a burst of creative innovation. Dr. Howes argues, “As we look to fight coronavirus and any future pandemics, we should perhaps consider which patents—for antivirals, vaccines, ventilators and other hygienic equipment—might be bought out in order to remove…innovation bottlenecks.”

What is innovation and how is it best encouraged? Policy makers tend to assume it is the result of clever people having clever thoughts in ivory towers. But science is just as often the fruit as the seed of technology, and invention is different from innovation. To illustrate the difference, Charles Townes, who won the Nobel Prize for the physics behind the laser in 1964, was fond of telling the story of a beaver and a rabbit looking up at the Hoover Dam. “No, I didn’t build it myself,” says the beaver. “But it’s based on an idea of mine.” Discoverers and inventors often feel they get too little credit or profit from a good idea, forgetting just how much effort was needed to turn that idea into a workable, affordable innovation that actually delivered benefits to people.

Thomas Edison understood better than anybody that trial and error is the key to turning an invention into a useful innovation. In developing the nickel-iron battery, his employees undertook 50,000 experiments. Developing a new technology, he famously said, is 1% inspiration and 99% perspiration. Jeff Bezos makes the same point: “Being wrong might hurt you a bit, but being slow will kill you. If you can increase the number of experiments you try from a hundred to a thousand, you dramatically increase the number of innovations you produce.” It turns out that continuous tinkering to develop and refine a better product is much more important than protecting what you’ve already created.

Once started, innovation is so inexorable it looks inevitable, yet it’s nearly impossible to predict.

Far from sudden “eureka” moments, innovation is nearly always a gradual process that proceeds by incremental steps. It is a team sport: There is no individual who can be credited with inventing the computer or the internet. The introduction of short-strawed wheat that revolutionized Asian agriculture in the 1960s, resulting in the defeat of famine, was driven by Manzoor Bajwa in Pakistan and M.S. Swaminathan in India. But they got the idea from Norman Borlaug in Mexico, who got it from Burton Bayles, who got it from Orville Vogel, who got it from Cecil Salmon, who got it from Gonjirô Inazuka in Japan, who got it from…at this point the trail runs cold.

Once started, innovation is so inexorable it looks inevitable: 21 different people had the idea of the lightbulb independently. Many people besides the Google founders came up with search engines in the 1990s. Yet, paradoxically, innovation is impossible to predict. Almost nobody foresaw the usefulness and profitability of search engines. The first half of the 20th century brought dramatic changes in transport, the second half in communication. The switch was not the result of policy: Innovation cannot easily be forced.

Given this unpredictability, politicians should rethink the incentives for innovation. One option is to expand the use of prizes, to replace reliance on grants, subsidies and patents. Britain’s famous Longitude Prize, offered in 1714 for accurately measuring longitude at sea, elicited a solution from an unexpected direction: accurate and robust clocks made by a humble clockmaker, John Harrison. Similar serendipity happens today. One study of the online problem-sharing forum known as Innocentive, where organizations can reward crowdsourced solutions to problems that baffle them, found that “the further the focal problem was from the solvers’ field of expertise, the more likely they were to solve it.” Teflon, Kevlar and the Post-it Note are all examples of useful things developed by people looking for something completely different.

The Nobel Prize-winning economist Michael Kremer came up with a concept called the Advance Market Commitment that would fine-tune prizes as incentives to innovate. In 2007, the Gates Foundation committed $1.5 billion to a prize fund to find a vaccine for Pneumococcus bacteria for use in developing countries, where no pharmaceutical company could make money from it. But rather than just winning a lump sum for meeting the goal, companies were assured that if they succeeded, they would win a contract that paid out for 10 years at a good price. The prize money effectively topped up the sum received by the pharmaceutical firm for every vaccine sold. The result of the auction was three good vaccines, costing $2 per dose, which have been given to 150 million children, saving 700,000 lives.

The world would benefit from more innovation, and it need not be high-tech. Consider just one remarkable development that has saved millions of lives from malaria in recent decades: the insecticide-treated mosquito net.

In June 1983, in the West African country of Burkina Faso, a group of French and Vietnamese scientists together with African colleagues began an experiment. They installed mosquito nets in 36 huts specially equipped with mosquito traps. Half the nets were treated with the insecticide permethrin and half had holes torn in them to simulate the wear and tear of everyday life. For five months, volunteers slept in the huts, while every mosquito that entered or tried to leave the huts was collected, dead or alive. The results showed that the presence of a permethrin-treated net, whether intact or torn, repelled mosquitoes, reducing the number entering the huts by about 70% and increasing the rate at which the insects left the hut from 25% to 97%.

This simple, careful experiment proved to be a breakthrough in the control of malaria in Africa. Supported by the Gates Foundation, impregnated bednets first started to be used on a wide scale in 2003, and that very year malaria mortality began to decline. According to a recent study in the journal Nature, insecticide-treated mosquito nets account for 70% of the six million lives saved world-wide from malaria in recent years, twice as high a percentage as antimalarial drugs and insecticide sprays put together. Globally, the death rate from malaria has halved since 2003.

Dealing with Covid-19 has forcibly reminded governments of the value of innovation. But if we are to get faster vaccines and treatments—and better still, more innovation across all fields in the future—then innovators need to be freed from the shackles that hold them back.