Ever since the current recession hit in 2008 and 2009, it was apparent that conservative, laissez faire economics wouldn't work. The right's recommendations for cutting taxes and allowing consumer and business spending to drive recovery were doomed to deepen and lengthen the recession for a decade. In Lord Keynes' apt phrase, cutting taxes during a recession amounts to pushing on a string. Businesses and consumers appropriately try to curtail spending in tough times and the federal government constitutes the only entity with enough liquidity to prime the recovery pump.
Yet the spending program proposed by President Obama and enacted by Congress was inadequate for stimulating a faster, more robust recovery. Calls for a larger spending program capable of stimulating business demand and rehiring fell on deaf ears at the White House and ran into the Tea Party's reactionary ideology. On the administration's side the failure resulted from a timid, basically conservative president who was obstinately determined to court favor from intractably hostile Republicans.
As 2013 plods through its fourth quarter, economic recovery remains the slowest of any post-World War II recession. Amidst this frustration resulting from Know-Nothing Republicans in Congress and a weak, ineffectual president, there comes news from Great Britain (see here) of an approach that has pumped money into the UK's economy without increasing deficit spending.
It appears that in Britain, as in the US, banks and other financial service companies were a principal cause of the recession. In the UK this came about because these companies improperly sold tens of billions of pounds of insurance and other financial products to customers for several years.
Unlike the US, however, where the White House economic team was in Wall Street's pocket, justice officials in Britain vigorously prosecuted the banks and extracted billions of dollars in penalties and fines from them. According to the Wall Street Journal, that "has provided a bit of a boost for the moribund British economy, creating tens of thousands of new jobs to handle the claims and putting more cash in people's pockets."
According to an investment strategist at one of the London banks, the large fines to the banks are "actually more powerful than quantitative easing," the US Federal Reserve's bond-buying approach for putting money into the economy. By extracting and dispersing fines, "You're giving directly to households who will spend it." According to his reckoning, the British approach has increased the disposable income of consumers there by 1.5% since 2011.
As a result, while new car registration elsewhere in Europe hit a 20-year low this spring, in Britain the flow of reparations to consumers from the banks has created a significant increase in new car purchases.
The US Justice Department could have replicated some of that progress here by aggressively prosecuting and fining investment banks. President Obama's economic team of shills prevented that from happening and, as a result, they made the administration misplay the most important issue it faced. But a bit of hope for redemption remains.
Instead of adequately addressing the principal issue of the economy and jobs when he first took office, President Obama chose to reform the health care system, an important issue but one that required less immediate action. Given his abject failure to make major reforms elsewhere, this effort to improve access and quality in healthcare, while also containing costs, has become his signature accomplishment. That means he remains receptive to suggestions for burnishing that effort and, just as important, he is not in bed with pharma and other manufacturers the way he is with CEOs at JP Morgan and Goldman Sachs.
Given this political reality, Obama's Justice Department can advance health care by reducing the power of its most consistent violator (see here), while boosting the economy in the process. Instead of extracting $3 billion fines from Big Pharma, as occurred last year in a government settlement with GlaxoSmithKline, the Justice Department should use the Foreign Corrupt Practices Act and other statutes to make the Big Caps each pay fines in excess of $10 billion. Any patients who paid for prescriptions during the period of infractions would be eligible to receive damage awards.
In short, the government should discontinue its slap-on-the-wrist efforts that fail to make pharma find its lost moral compass. A genuine disgorgement of profits could more effectively accomplish that purpose while also aiding the economic recovery. Such a policy would avoid deficit spending even as it appeals to the right's biblical notions of moral hazards. Here at last is an area where pharma can do some real good for the country, over and above drug development.
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