Bernanke: Unemployment Stunting Economic Growth

By Brandon Kosters - Talk Radio News Service

Fed Chairman Ben Bernanke delivered his Semi-annual Monetary Policy Report to Congress today. Bernanke predicted an unemployment rate between 7-7.5 % by the end of 2012, and a GDP increase of 3-3.5% by the end of this year, with marginal increases over the course of the next two years.

He said that inflation is currently less than 1%, and does not expect it to increase signifigantly over the course of the next two years.

Bernanke expressed concern over the nation’s current high unemployment rate of 9.5%, and the degree to which it has limited household spending.

Bernanke added that in addition to its immediate adverse effects, short-term unemployment can easily lead to long-term unemployment, as workers’ skills “erode,” and certain skill-sets become economically obsolete.

Do pharmaceutical companies hate sick children?

Mustargen treats rare cancers, Cosmegen treats kidney disease and Matulane treats Hogdkins lymphoma. These miracle drugs have one thing in common. According to calculation from the Pharmaceutical Reseach in Management and Economics (PRIME) Institute, the prices of these drugs have seen increases as high as 8,000 percent.

The Joint Economic Committee held a hearing to examine the skyrocketing prices of certain prescription drugs and its impacts. U.S. Senator Amy Klobuchar (D-Minn.) said that she first became aware of the aggressive pricing practices when she found out the price for a drug used to treat patent ductus arteriosis (PDA), a disorder which prevents holes from healing in the hearts of infants, had increased substantially. According to Klobuchar, Ovation Pharmaceuticals acquired the rights to the drug and increased the price from $100 to $1,875 per three one-milligram units. Klobuchar pointed out that the price charged in the U.S. is 44 times higher than in Canada with no justification for the huge price disparity. Klobuchar also noted that Ovation Pharmaceuticals had been invited to participate in the hearing but had declined the offer.

Madeline Carpinelli, a research fellow at the PRIME Institute at the University of Minnesota, said that ‘extraordinary’ price increases for drug products have been observed in recent years. Carpinelli said that an ‘extraordinary’ price increase is a change of more than 100 percent at a single point in time with some ranging to more than 10,000 percent. Carpinelli emphasized that brand-name drug prices are growing at more than two and a half times the rate of general inflation.

Dr. Alan Goldbloom, president and Chief Executive Officer of Minnesota Children’s Hospital, discussed the drug Indocin used to treat PDA. According to Goldboom, when Ovation Pharmaceuticals bought exclusive rights to Indocin, the price for one unit of it jumped from $108 to $1,500 which is a 1,278 percent increase. Goldbloom was quick to point out that Indocin has been used for more than three decades as standard initial treatment so the dramatic price increase could not be attributed to the high cost of research and development. He also said that there are no other manufacturers of Indocin which means Ovation has a monopoly and can use it as a price-gouge.

Danielle Foltz, the mother of an infant diagnosed with Infantile Spasms, discussed the hurdles faced when trying to obtain the appropriate medication, Acthar gel, for her child. According to Foltz, Questcor Pharmaceuticals had raised the price per vial of the drug from $1,000 to over $30,000. Foltz had read that Questcor promised no child who truly needed the treatment would go without. When she called Questcor, she was told that the approval process would take three days without the guarantee of a positive outcome. Foltz said she was fortunate that their insurance covered her child’s treatment but she also noted that the price of Acthar gel is continuing to escalate.

Global food prices up 43 percent

The Senate Foreign Relations Committee held a hearing on “Responding to the Global Food Crisis,” focusing in particular on U.S. agricultural investment in foreign nations and how the development of corn-based ethanol and other biofuels have contributed to the rise in food prices.

Edward Lazear, chairman for the Council of Economic Advisors, said that global food inflation was 43 percent during the 12 months ending in March 2008. He emphasized that Americans spend less than 14 percent of total expenditures on food, while Africans spend about 43 percent and for the poorest populations in Sub-Saharan Africa subsisting on less than one dollar per day, this figure may be as high as 70 percent.

Lazear testified that wheat prices have increased 123 percent, soybeans 66 percent, corn 37 percent, and rice 36 percent. Emerging market consumption, he said, has increased by 45 percent from 2001 to 2007 compared to 1991 to 2000, and that this increase in demand accounts for about 18 percent of the rise in food prices. Other factors, he said, are adverse weather conditions that destroy crops and to a smaller degree, ethanol production. He said that the world’s ethanol production accounts for approximately 13 percent of this year’s 37 percent increase in corn prices, and since corn makes up a small fraction of the International Monetary Fund’s Global Food Index, it is responsible for only about 1.2 percent of the year’s 43 percent total global food price increase.

U.S. Agency for International Development Administrator Henrietta Fore testified that the world’s one billion poorest people are living on one U.S. dollar per day, and that while Africa and Asia suffer most from this kind of poverty, Haiti is also facing a crisis. She also said that three-quarters of the world’s poorest people living on less than 50 cents per day are located in Africa. She advocated changing trade policies that present barriers to food supply and said that U.S. agricultural investment would be “enormously positive.” She mentioned that “even short term hunger” can “unalterably” affect a child through increased risk for disease, cognitive and developmental malfunction, and early death.

Sen. Richard Lugar (R-IN) said that people in nearly 40 countries face food shortages and potential civil unrest as a result. In 1980, he said, agricultural projects accounted for 30 percent of World Bank spending, whereas in 2007 that number was less than 13 percent. Along with Chairman Joe Biden (D-DE), he called for a “second Green Revolution” to increase agricultural research, development, and investment in order to augment yield per acre of crops by improving techniques. He said such an initiative would “benefit developed and developing countries alike,” as would removing trade barriers and tariffs. He also said that ethanol research cannot be curtailed because of its contribution to food price increases because it would put additional pressure on oil prices, which he emphasized is already at $120 per barrel.

IMF economists address the housing crisis

At a discussion on the Housing Crisis and Lessons for Monetary Policy at the Brookings Institute today, International Monetary Fund Economic Counselor and Director Simon Johnson predicted a “mild contraction” in the U.S. economy this year followed by a “relatively slow recovery” next year. Johnson discussed the link between housing and mortgage finance and said that the link between monetary policy and housing is stronger because of recent governmental intervention in the current crisis.

IMF Senior Economist Roberto Cardarelli said that over the last four quarters, residential investment has contributed 56% to the decline in U.S. GDP, “and by that standard, we are very much in a recession environment in the United States.” Cardarelli said another cause for concern is the impact of housing prices on the decline in consumption, which further stunts economic growth. He also emphasized that inflation rates need to change in order to stabilize inflation and minimize loss.