Yale University and Northwestern University
The United States is one of only two countries in the world where it is legal for pharmaceutical companies to advertise their products directly to consumers. Critics of the practice say that it can lead to unnecessary demand for more expensive products and could be a contributing factor to rising medical costs. The American Medical Association called for a ban on such ads in 2015 and the National Academies of Science recommended ways to discourage the practice in a 2017 report. But advertising drugs to consumers can potentially help inform the public about treatments for health conditions and, in this way, raise awareness and prevent illness and disease.
- Spending by pharmaceutical companies on direct-to-consumer advertising has been on the rise, representing over $5 billion in 2016, up from around $3 billion in 2012 and $1 billion in 1998.
- Advertising can serve a positive informational role, giving potential consumers a new awareness of medical conditions and available treatments.
- Yet advertising might instead serve to persuade existing customers to switch from one drug to another brand: drug advertising can be a type of "arms race" between competing pharmaceutical companies, which end up paying for TV ads just to defend the market share for their branded product.
- Our research finds that drug ads do impact demand for the products. When political advertising went up during the 2008 presidential election cycle, it reduced the number of ads showing for the statin drugs Crestor and Lipitor and, subsequently, the number of prescriptions sold for these drugs decreased in the markets impacted. Moreover, we found that while advertising for one drug can reduce the sales of its competitor, it can also lead to an increase of sales for non-advertised drugs in the same class.
Drug ads are expensive and pharmaceutical companies are spending hefty sums advertising certain drugs. Evidence indicates that such advertising does indeed lead to increases in drug sales, some of which happen at the expense of a competitor's product. But, by expanding the patient population, advertising can also lead to social benefits. A consumer that starts taking statins is much less likely to have a heart attack. And heart attacks are expensive to treat. We find that the benefits of getting these patients on statins far outweigh the costs of the statin ads themselves and were larger even than the costs of all direct-to-consumer drug advertising added together in the year of our study.
Mintz Levin, Ferris, Glovsky and Popeo, PC and Fletcher School, Tufts University
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The term "chain migration" is currently being used to describe a process in which one legal immigrant can generate many new admissions by sponsoring his or her relatives — each of whom, in turn, leads to even more immigrants. While immigrants admitted on the basis of family ties constitute the largest share of new permanent residents each year, the potential for an ever-expanding chain is constrained.
- The number of legal permanent residents admitted each year to the United States has averaged roughly 1 million persons over the past decade, with family-based migration accounting for about two thirds annually. In addition, roughly 140,000 legal permanent resident cards go to employment-sponsored immigrants and 55,000 are awarded via the diversity lottery each year.
- There are two broad categories of family-based immigration visas: immediate relatives of U.S. citizens and those classified under a family-preference system (see chart). There are no numerical limits to the visas available for spouses, minor children and parents of adult U.S. citizens.
- Visa categories under the "Family-Preference System" have been effectively capped at 226,000 visas per year for the last two decades and there can be no more than 7 percent of the visas going to people from one country. As a result, there are long wait times, of years or even decades, for many family-based immigrant visas, which vary by country. For example, the visa applications being processed in January 2018 for siblings of U.S. citizens born in the Philippines were filed more than 23 years ago.
- Many of the family-based categories available for immigration require the sponsor to be a U.S. citizen. The naturalization process, which allows legal permanent residents to acquire U.S. citizenship, generally takes about five years — adding an additional time lapse to the wait times for permanent residents who would like to bring in a parent or a sibling.
- People who wish to sponsor a relative must provide evidence they can financially support both their own family and that of the sponsored relative at an annual income generally no less than 125 percent of the federal poverty level. Before they can be approved, the person applying for the visa is subject to extensive background and security checks and must also have an in-person interview at a U.S. Consulate overseas or at a U.S. Customs and Immigration Service field office in the United States.
Under current immigration law, U.S. citizens or lawful permanent residents cannot directly obtain family-based visas for distant relatives; they cannot directly apply for a visa for a cousin, uncle, grandparent or other extended-family member. Statutory limits on family-preference categories, as well as substantial backlogs, severely limit family-based immigration, especially from countries like Mexico, China, India and the Philippines. For all these reasons, it is very difficult to bring family members to the United States – the chain, to the extent that it exists, is short and difficult to forge.
Financial Markets and Financial Policy
Financial Markets and Financial Policy
The volatility in the stock market in the first week of February 2018 stands in stark contrast to unusually low volatility throughout 2017. This volatility has raised concerns about the relationship between the value of stocks and household wealth, and, more generally, what these market gyrations mean for overall economic performance.
- Stock market indices have had a long positive run since the Great Recession. Viewed in the context of this long and sustained rise, the fluctuations of the past week are modest (see chart). The percentage change in an index is a better gauge of aggregate stock market performance than the changes in the index’s level or its “points”.
- Today’s stock prices reflect what investors are willing to pay for all of the expected future dividends that a company will pay to its shareholders. Even in the absence of news about future corporate profits, share prices can rise or fall purely on the basis of what investors today are willing to pay for those profits.
- There are many potential explanations for why investors could be changing their views about stock prices. For instance, an expectation of higher interest rates might impact stock prices in part because higher interest rates will raise borrowing costs for companies and tend to slow economic growth. But while these are reasonable explanations, no one can say for sure why stock prices first fell so much on Monday, and then recovered a large part of their losses the next day.
- “Price-earnings” (P/E) ratios, one measure of how “expensive” stocks are, are high by historical standards, exceeding their values during any historical episodes other than the period just before the 1929 market crash and during the technology boom of the early 2000s. However, during the dot-com boom, before they fell back market-wide, P/E ratios reached levels that are significantly higher than what we are observing today.
Stock markets are extremely useful for allocating capital to companies with investment opportunities, and for giving households tools for investing their money. But it is important to realize that the stock market, while it serves the economy, is not the entire economy. Moderate declines in stock price indexes are not a catastrophe and do not indicate an imminent downturn or recession. While stock prices are important, the extreme level of focus on the minute-to-minute performance of the stock market comes, at least in part, because these measures are available at a minute-to-minute frequency. Other measures of economic performance, for example unemployment, inflation, and national income, are only available at lower frequency. While these measures don’t seem to provide the same visceral stimulation as watching stock prices fluctuate at high frequency, they are equally important indicators of how our economy is doing.
Robert M. La Follette School, University of Wisconsin-Madison
Sales of U.S. agricultural products abroad are responsible for 20 percent of U.S. farm income, supporting more than one million American jobs on and off the farm. The three biggest buyers of American agricultural products are China, Canada, and Mexico. Yet trade with these three countries faces heightened uncertainty.
- Exports of agricultural products from the United States to the rest of the world amounted to $131 billion in 2016, with almost half of the total accounted for by Canada ($20.5 billion), Mexico ($17.3 billion), and China ($20.7 billion). Agricultural exports of grains and livestock represented almost 40 percent of the $177.6 billion total value added of agriculture in that year.
- Renegotiation of the North American Free Trade Agreement (NAFTA) is underway, with the threat of withdrawal on the table. Withdrawal from NAFTA would cause Mexican and Canadian tariff rates on U.S. agricultural commodities to rise and export quantities would decline. The effects would likely be quite uneven across states. The map depicts the exposure of each state to agricultural trade with Canada and Mexico as a percentage of the states' total agricultural exports (see chart).
- The United States has started a series of investigations of unfair practices leveled against China, some of which have already resulted in the imposition of new tariffs. If the U.S. undertakes measures deemed to be in violation of WTO procedures, then China would be entitled to retaliation. And, retaliatory tariffs tend to target sectors where exports comprise a large portion of total production and where producers are politically influential.
Policies under consideration by the Administration threaten to spark moves to restrict imports from the United States. Tariffs have just been implemented on goods originating from Korea and China, with further action possible. Retaliation could be aimed at U.S. agricultural exports to those countries. Withdrawal from NAFTA would result in reduced agricultural exports to Mexico and Canada. Neither of these outcomes would help the farm sector. And, while neither of these actions has resulted in tariffs against U.S. exports thus far, the uncertainty that they have introduced has, according to anecdotal evidence, spurred Mexico to diversify their suppliers (at the expense of American exports), and Canada to pursue alternative free trade agreements.
The recently enacted federal tax legislation levies a tax on the endowment income of colleges and universities with large endowments.
- The endowment income tax imposes a tax of 1.4 percent of the net investment income of institutions of 500 or more full-time equivalent students with large endowments.
- The ambiguity of the bill means that it is impossible to accurately determine which colleges and universities will pay the tax now and, say, over the next decade. But, with a few assumptions, one can get an idea of 23 institutions that are at highest-risk of paying the tax (see chart). Thirteen more fall into a high risk category and an additional 17 face moderate risk. (Click here for a full listing of schools).
- One stated rationale for the law is to encourage schools to lower their prices and offer more generous aid. The affected schools’ “sticker price” of upwards of $70,000 is clearly unaffordable for many, if not most, students and their families. But the schools already have generous financial aid policies and are unlikely to reduce their sticker price as a result.
- Another plausible rationale is to generate tax revenue that can help offset tax cuts introduced elsewhere. Yet the amount of tax that is likely to be collected is small. Over the next decade, the tax would generate perhaps $3 billion in revenue. This would offset 0.2 percent of the $1.5 trillion in total recently enacted tax cuts.
- The endowment income tax, like the cap on the deductibility of state and local taxes, has disproportionate effects on institutions located in states that have voted for the Democratic candidate in recent presidential elections (“blue states”).
(This is an interactive graph. Hovering over the dots reveals institution names.)
The effects of the endowment tax remain unclear given the ambiguity in its wording. But the likely revenues raised from this tax are minuscule when considered in the context of the overall reduction in tax receipts or the size of the federal budget. Also, the tax is unlikely to affect the sticker price of a college education or to alter financial aid offered by those institutions affected by the tax. When plausible economic justifications for a change in tax policy fail, political considerations become a more credible explanation for their enactment. This seems to be the case regarding the higher education endowment income tax.