Patents And Inequality

Dean Baker’s The End of Loser Liberalism: Making Markets Progressive is available for free download on the CEPR website. I recommend you get your hands on a copy. Until then, let me leave you with this thought:

Finally, the number of patents has exploded in the last three decades, as patent protection has become both easier to obtain and stronger. Patent monopolies allow firms to charge far more than the competitive market price for their products. This price advantage can be seen most clearly in the case of prescription drugs. In 2010, spending on prescription drugs amounted to almost 2 percent of GDP, compared to less than half a percent in 1980. The higher expenditures are almost entirely a function of patent protection. Then, as now, drugs are cheap to produce, and it is only patent monopolies that make them expensive to buy. The main beneficiaries of patent protection are invariably more highly educated workers. A recent study of wealthy countries by the Organization for Economic Cooperation and Development (OECD) found that the number of patents per capita was the most important factor determining the extent to which income was redistributed upward from those at the middle and bottom to those at the top over the last three decades.

The general idea is that we shouldn’t accept the view that a world of parasitic finance, asymmetrical globalization, government-sponsored intellectual property monopolies, and Fed engineered wage-suppression constitutes a “free market” outcome relative to which the left wants redistribution.