Here are some of the economics-related stories grabbing headlines this week:
- If you’ve read a newspaper, magazine, or economics-oriented blog post in the last few weeks, you’ve probably seen the name Thomas Piketty. He’s a French economist whose 685-page tome Capital in the 21st Century was released in English just last month. There’s no telling how many people have actually read the book from start to finish, or have even cracked the cover, but having a view on Piketty seems to be de rigueur these days. In a nutshell, Piketty’s main observation is that wealth becomes concentrated when the rate of return on capital exceeds the rate of economic growth. What makes Piketty’s work groundbreaking isn’t this statement of the fairly obvious, but rather the hundreds of years worth of economic data he uses to explore its implications. Most of our economic data doesn’t go beyond the early 20th century; Piketty’s longer-term view demonstrates that the economic experience of the several decades following World War II, which we think of as “normal,” was actually fairly exceptional—the result of one-time factors such as the population boom, the convergence Western economies, and the rise of the welfare state. While Piketty’s argument clearly has political implications, he’s wary of hasty assumptions: He’s critical of lazy thinking on both the left and the right, and he argues that inequality is not intrinsically a bad thing—only if it is achieved unjustly. Whether that’s the case in the current episode of income and wealth concentration is something he explores in the book. Piketty also offers a scathing critique of economists—especially in the U.S.—who he says all too often strive for the appearance of “scientificity” while failing to address the “complex questions posed by the world we live in.” Piketty’s work is ground breaking, and it could be a game-changer in the study of economics. But books can take on a life of their own—especially when people’s ideas about them are based on hearsay.
- Food waste is an increasingly serious economic and environmental issue. That’s according to a New York Times article this week that looks at steps NGOs, retailers and consumers worldwide are taking to reduce their food waste. The U.N. estimates that about one third of the food produced in the world is never consumed. A 2012 study by the National Resources Defense Council offers an even grimmer statistic for the U.S., where about 40 percent of the food supply is lost through waste. That amounts to $165 billion annually. The cost is even greater when you consider that producing that food takes up 10 percent of the nation’s energy budget, 50 percent of the land, and 80 percent of the freshwater consumed, according to the same NRDC study. Meanwhile, efforts are underway in places like California, New York and Massachusetts to channel food waste into energy. Municipal composting programs are also popping up around the country. One hurdle in implementing these programs is collecting all that food waste: Households will have to learn to separate their food scraps from their garbage, along with their paper, plastic, and glass. An odorless composting pail might come in handy.
- Investors love pharmaceutical companies because they have almost unlimited pricing power, says James Surowiecki in the New Yorker this week. While many new product prices drop over time, brand-name pharmaceutical prices tend to rise, and that means big profits for biotech firms. That’s because prices for brand-name drugs that are still under patent aren’t set by free market forces: The biggest buyer in the pharmaceutical market is the federal government, but it is legally prohibited from negotiating prices, and even insurance companies don’t wield enough power to get lower prices on popular drugs. “Price restrictions have always been a political non-starter,” says Surowiecki, “but at some point the math of the situation will be hard to resist.” Fears of such restrictions may explain the 20 percent drop in the Nasdaq Biotech Index since its end-February peak. While a recent Wall Street Journal article sites concerns among analysts that biotech stocks are overvalued, others say pharmaceutical companies are still undervalued, because investors have not adequately factored in the increased demand for drugs as the population ages and people live longer. While shareholders reap the benefits of drug companies’ pricing power, will taxpayers continue to foot the bill?