Daily Blog

Drug Companies Rake It In

    This report was actually out a week ago but I just came on it--it's from the smart folks over at the Center for Economic and Policy Research:

Pharmaceutical companies are making billions in excess profits under the new Medicare drug benefit, according to a report by the Center for Economic and Policy Research. In the first year of the Medicare Part D program, Pfizer will make $1.2 billion in excess profits on Lipitor and $585 million on Zoloft; Wyeth will make nearly $1 billion on Protonix; and Merck will make $1.6 billion on Zocor.

The report, "The Origins of the Doughnut Hole: Excess Profits on Prescription Drugs,"  by economist Dean Baker, calculated the difference between the average cost of 20 common drugs used by seniors and the cost when obtained through the Veterans Administration. It found excess profits totaling more than $7 billion in the first year of the program. The study also calculated prices for prescription drugs such as Actonel, Aricept, Celebrex, Fosamax, Nexium, Norvasc, Plavix, Prevacid, Toprol XL, and Xalatan. To read the report, see: http://www.cepr.net/publications/part_d_drug_profits_2006_08.pdf

The Heat's on...Republicans

    Must have been the heat...or the pile of work...or both...but the daily post slipped by until now. But,  as someone who spent a couple of years back...well, a while ago...waiting on tables, this caught my eye.

WASHINGTON (AP) -- Tip money earned by waitresses in Las Vegas, manicurists in Hollywood and bartenders in Seattle is on the table in the nation's capital as lawmakers scrap over an election-year minimum wage bill.

Nevada, California and Washington are among seven states where workers get to keep their tips on top of getting paid their state's full minimum wage. In other states, tip-earning workers get paid less and make up the difference with tips.

A provision in GOP-written minimum wage legislation passed by the House and under consideration this week by the Senate could change the law in those seven states -- the others are Montana, Alaska, Minnesota and Oregon. It would deal a pay cut of $3 or more an hour to thousands of waiters, bellhops and hairdressers in those states, according to Democrats and labor groups.

    The Republicans never stop. Despite the fact that the Democrats still don't have a compelling vision that has stuck in the voters' minds, people are so fed up with the Republicans that the Democrats might actually win back Congress because the Republicans keep trying to push measures that seem so off-the-wall.

More on Immorality

    A couple of days ago, I wrote about the immoral bill that the House passed, linking the estate tax to the hike in the minimum wage. As Harry Reid is pointing out, in threatening to launch a filibuster in the Senate, the estate tax cut will cost taxpayers $300 billion. The truth is that if the rich get yet another tax break, each of us will end up paying for the cut--either through higher taxes or cuts in programs. That's the irony of this linkage--pretend like you are giving slightly more money to the working poor and, at the same time, slip them a tax increase that they won't notice.

The Immoral Link

    I've got something to say about the attempt to link the minimum wage hike and the estate tax cut...and will do so later, if you want to check back, probably, egads, tonight! Running wild this a.m.

    UPDATE: this was really the height of Republican gall--linking the passage of the hike in the minimum wage cut to a cut in the estate tax. Amazing logic: people who are struggling to make ends meet won't get a little more money until we give a very small number of the very rich another tax break (maybe 3,500 families in the entire country, including the secret cabal of 18 of the superwealthy who have been underwriting the attack on the estate tax). Only in America.

Why People Feel Strapped

    From the Economic Policy Institute:

Real hourly wages rose 0.2% in June, reversing a three month slide from March through May.  Over the first two quarters of this year, both real hourly wage and weekly earnings have been flat, according to today’s report from the Bureau of Labor Statistics.

Despite growing more quickly in recent months, the real wages of most workers continue to lag inflation on a yearly basis.  Inflation was up by 4.3% over the past year, leading to 0.6% fall in real hourly wages.  Thanks to increased hours, weekly earnings were essentially unchanged over the past year, (0.1%).

The workforce whose wages are covered in today’s report represents about 80% of the private sector workforce, and by dint of their non-managerial status, these are not the managers and executives whose compensation packages have been soaring over the past few years.  In fact, compared to November 2001, when the current expansion began, both their hourly and weekly earnings are unchanged in real terms (hourly, down 0.4%; weekly, 0%).  Over this same period, productivity is up 15%.  Clearly, this growth has not done much to lift the living standards of the broad majority.

9-11 Didn't Stop Corporate Greed

    Here's a stunning example of the way in which corporations and rich people reaped huge windfalls in the wake of 9-11 even as people died. While ordinary people may have lost money in the post-9-11 decline of the stock market, executives made off like bandits. Kudos to The Wall Street Journal for this story, though it's a pity that it was stuck on into the Saturday newspaper. I'm excerpting the beginning of the article, though it's worth reading the entire piece (but it's subscription only):

Executive Pay: The 9/11 Factor As stocks sank after the attacks, scores of companies rushed to issue options to top officials. Some reaped millions.

By CHARLES FORELLE, JAMES BANDLER and MARK MAREMONT

On Sept. 21, 2001, rescuers dug through the smoldering remains of the World Trade Center. Across town, families buried two firefighters found a week earlier. At Fort Drum, on the edge of New York's Adirondacks, soldiers readied for deployment halfway across the world. Boards of directors of scores of American companies were also busy that day. They handed out millions of bargain-priced stock options to their top executives.

A Wall Street Journal analysis shows how some companies rushed, amid the post-9/11 stock-market decline, to give executives especially valuable options. The grants set recipients up for millions of dollars in profit if the shares recovered. Here are examples of some grants made in September 20012.

The terrorist attack shut the U.S. stock market for days. When it reopened Sept. 17, stocks skidded more than 14% over five days, in the worst full week for the Dow Jones Industrial Average since Germany invaded France in May 1940. But for recipients of options, the lower their company's stock price when options are awarded the better, since the options grant a right to buy shares at that price for years to come. The grants set recipients up for millions of dollars in profit if the shares recovered.

A Wall Street Journal analysis shows how some companies rushed, amid the post-9/11 stock-market decline, to give executives especially valuable options. A review of Standard & Poor's ExecuComp data for 1,800 leading companies indicates that from Sept. 17, 2001, through the end of the month, 511 top executives at 186 of these companies got stock-option grants. The number who received grants was 2.6 times as many as in the same stretch of September in 2000, and more than twice as many as in the like period in any other year between 1999 and 2003.

Ninety-one companies that didn't regularly grant stock options in September did so in the first two weeks of trading after the terror attack. Their grants were concentrated around Sept. 21, when the market reached its post-attack low. They were worth about $325 million when granted, based on a standard method of valuing stock options.

The 91 companies included such corporate icons as Home Depot Inc., Black & Decker Corp. and UnitedHealth Group Inc. It included two companies directly touched by the tragedy. Merrill Lynch & Co., across the street from the Twin Towers, lost three employees. On Sept. 24, Merrill granted its president options to buy more than 750,000 shares, at a price 15% below the pre-attack level. At Teradyne Inc. in Boston, an employee delayed a business trip until Sept. 11 to attend a son's soccer game and died on American Flight 11. Teradyne that month gave its CEO more than 600,000 options at a price enabling him to buy stock at 24% below its pre-attack level.

At Stryker Corp., a Michigan maker of orthopedic products, onetime stock-option-committee member John Lillard said he didn't regret the decision to award options nine days after the attack. "If you believe the company is going to do well, and here is an external event that is affecting the market and you've made a decision to reward executives, you go ahead with it," Mr. Lillard said. "Life goes on."

There's nothing illegal about granting options after the market plunges. But acting so quickly after a national tragedy drove down stocks shows the eagerness of some companies to increase their executives' potential wealth. These grants also offer important new fodder for an already fractious debate over what constitutes the proper use of options in executive compensation.

Dozens of companies are under investigation for possibly backdating option grants to a day when the stock was lower, a practice that could mean the companies have made false disclosures and perhaps reported financial results incorrectly. Other companies are being investigated on suspicion of timing options grants ahead of good corporate news.

Good Economy...But No Jobs!

    This is such a goofy first couple of praragraphs in today's New York Times story headlined "Fast Growth In Economy After 9/11." :

New York City’s economy bounced back after Sept. 11 with surprising speed and is much healthier now than its slow-growing job market indicates, according to a report released yesterday by the Federal Reserve Bank of New York.

Labor market data shows that there are 100,000 fewer private-sector jobs in the city than there were five years ago. But the report, which offers an analysis of the economic effects of 9/11 over the past five years, showed that the city has been recovering at least as fast as the nation by other measures. Most notably, average incomes have been rising faster for city residents than for other Americans, it states.

    Errrr...you meant to say, I gather, that the rich are getting richer even if there are not jobs for people? The story is saved a bit later by a quote from a colleague here in NYC:

James A. Parrott, chief economist at the Fiscal Policy Institute, a liberal watchdog group, said most of the income gains have gone to wealthier residents, and have not been shared by the typical city worker.

He said that the average overall income increase masks the fact that hourly wages of most residents have been declining since 2002, when adjusted for inflation. “If you look at family costs and energy costs and the cost of health care, I’d be hard-pressed to make the case that real living standards are rising for average New Yorkers,” Mr. Parrott said. “The polarization trend if anything is more pronounced in New York City than it is nationwide.”

An Easy Guide

    I suspect the debate over the minimum wage will keep percolating here and there. So, the Economic Policy Institute has just updated its guide on the issue. Check it out.

India Not Economic Paradise

    For those of us who have endured Tom Friedman's endless babble about the wonders of the economy of India, it was a welcome read on the paper's op-ed section today to see an account that gives a different view. Entitled "The Myth of India," author Pankaj Mishra makes the critical point that it is basically the elites in India and the U.S. (read: Friedman) who see India as a rising success story.

    While Mishra betrays a hint of a belief in the power of the free-market ("there are much better reasons to expect that India will in fact vindicate the twin American ideals of free markets and democracy that neither Latin America nor post-communist countries — nor, indeed, Iraq — have fulfilled."), he is far more sobering about where the reality lies:

But the increasingly common, business-centric view of India suppresses more facts than it reveals. Recent accounts of the alleged rise of India barely mention the fact that the country's $728 per capita gross domestic product is just slightly higher than that of sub-Saharan Africa and that, as the 2005 United Nations Human Development Report puts it, even if it sustains its current high growth rates, India will not catch up with high-income countries until 2106.

Nor is India rising very fast on the report's Human Development index, where it ranks 127, just two rungs above Myanmar and more than 70 below Cuba and Mexico. Despite a recent reduction in poverty levels, nearly 380 million Indians still live on less than a dollar a day.

Malnutrition affects half of all children in India, and there is little sign that they are being helped by the country's market reforms, which have focused on creating private wealth rather than expanding access to health care and education. Despite the country's growing economy, 2.5 million Indian children die annually, accounting for one out of every five child deaths worldwide; and facilities for primary education have collapsed in large parts of the country (the official literacy rate of 61 percent includes many who can barely write their names). In the countryside, where 70 percent of India's population lives, the government has reported that about 100,000 farmers committed suicide between 1993 and 2003.

    Here's hoping Friedman reads his own paper and not just his own hype. The fact is India, like many other "wonders" of globalization is powered by a sea of low-wage workers, not a broadly-shared prosperity for the vast majority of people. Come to think of it, that sounds like what's happening in the U.S., too.

 

Who's Your Daddy?

    If the question is asked of the United States, guess what, the rest of the world owns this country, thanks to the mounting trade deficit. This little summary sent out by our friends at the Economic Policy Institute has a pretty sobering first paragraph:

Mounting trade deficits have caused the United States to incur rapidly growing obligations to foreign investors. To finance the nation's trade deficits, the United States must sell off more of its assets to foreign investors or reduce the stock of U.S. assets held overseas.  According to the data in the latest report from the Bureau of Economic Analysis, the U.S. net international investment position (NIIP) deteriorated sharply from 1985 through 2005, as the asset sales necessary to finance trade deficits transformed the United States from the world's strongest international asset position to the world's largest liability position.

    In English, yikes. The biggest problem is that much of the way the U.S. finances this debt is via treasury bonds. At some point, foreign investors will want a better return on the debt they purchase--which will force interest rates higher. It will not make for a pretty picture.