GLP-1 Weight-Loss Drugs Keep Getting Cheaper: Thank Competition

By Gale Pooley of Cato. Excerpt:

"When Wegovy’s one-of-a-kind treatment debuted in 2021, a month’s supply cost $1,349. At the time, blue-collar employees were earning an average of $26.12 an hour, putting the time-price at 51.65 hours per month, or more than six days’ wages.

Employer insurance plans balked, and the government’s health programs were barred from covering weight-loss drugs unless there was a specified medical complication. More than half of American adults (137 million) meet the medical criteria to benefit from the FDA’s approved uses of GLP-1s: the cost of covering them all is enormous.

Even with mostly cash payers, demand outstripped supply, putting Wegovy on the FDA’s drug-shortage list. With that designation came a legal path for pharmacies to compound the product themselves, and offer lower-priced alternatives through telehealth and cash-pay programs.

Two years later, a second major company gained FDA approval for an injectable drug for chronic weight management. Eli Lilly’s Zepbound is pharmacologically different, but its effects are similar and it competes for the same patients and insurer budgets. The list price undercut Wegovy, at $1,060.

Here’s where things really get interesting.

Eli Lilly knew few of the potential beneficiaries of its medication would qualify for the medication through their insurers. So it offered a special $550 cash price for patients whose insurance didn’t cover GLP-1s. In 2024, it launched LillyDirect: a direct-to-consumer, cash-pay distribution for its competing product. Direct-to-consumer cash-pay pathways allowed patients to bypass asking “which drug does my insurance cover?” and forced manufacturers to compete in a more retail-like environment.

And compete they did. Novo Nordisk introduced its own cash-pay option for Wegovy — NovoCare. Its lowest dose was priced at $499/month. In April 2025, with the FDA’s shortage resolved and still facing innumerable gray-market and privately compounded copies of semaglutide, Wegovy’s price was reduced again, to make the authentic brand more price-competitive for patients, who Novo knew could easily switch. Standard self-pay injectable Wegovy dropped to $349/month, with a $199/month introductory offer.

In response, Eli Lilly cut Zepbound’s cash pricing, offering the typical maintenance dose for $299 by December 2025. Prescribers and patients became more comfortable switching between major branded therapies that filled essentially the same medical need. That increased the price pressure on drugmakers who were accustomed to negotiating with insurer formularies and formal rebate systems.

Almost immediately after Zepbound’s price reduction, the FDA approved an oral formulation of Wegovy. Clinical trials show the once-a-day pill is almost as effective as the injectable, and the pill form expands the available market to include patients unwilling to self-inject GLP-1s.

Today, the oral maintenance dose of brand-name Wegovy costs $299 a month for self-paying patients. Self-pay pricing for injectable Wegovy settled at $349. Fifty percent of sales of both Wegovy and Zepbound are direct exchanges with cash-paying patients.

Our “average” blue-collar worker from 2021 is now earning $32.53/hour. The time price of his monthly weight-loss treatment has fallen by 75 to 80 percent.

Over the same period, according to BLS reports, hospital services have risen 26.6 percent, and medical care prices, 12.9 percent. Overall consumer inflation (CPI) has increased 22.5 percent."

Schumpeterian Profits in the American Economy: Theory and Measurement

By William D. Nordhaus.

"The present study examines the importance of Schumpeterian profits in the United States economy. Schumpeterian profits are defined as those profits that arise when firms are able to appropriate the returns from innovative activity. We first show the underlying equations for Schumpeterian profits. We then estimate the value of these profits for the non-farm business economy. We conclude that only a minuscule fraction of the social returns from technological advances over the 1948-2001 period was captured by producers, indicating that most of the benefits of technological change are passed on to consumers rather than captured by producers."

Creative Destruction in a Nutshell

From Alex Tabarrok of Marginal Revolution. 

"A good figure from the Nobel Prize Foundation’s Scientific Background to the Mokyr, Aghion and Howitt Nobel. The figure shows that firm exit rates and job destruction rates are positively correlated with growth in labor productivity; creative destruction in a nutshell."

 

Creative Destruction

See Creative Destruction by Richard Alm and W. Michael Cox. Excerpt:

"Joseph Schumpeter
(1883–1950) coined the seemingly paradoxical term “creative destruction,” and generations of economists have adopted it as a shorthand description of the free market’s messy way of delivering progress. In Capitalism, Socialism, and Democracy (1942), the Austrian economist wrote:

The opening up of new markets, foreign or domestic, and the organizational development from the craft shop to such concerns as U.S. Steel illustrate the same process of industrial mutation—if I may use that biological term—that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one. This process of Creative Destruction is the essential fact about capitalism. (p. 83)

Although Schumpeter devoted a mere six-page chapter to “The Process of Creative Destruction,” in which he described capitalism as “the perennial gale of creative destruction,” it has become the centerpiece for modern thinking on how economies evolve."

But also see this link which suggests that the idea goes back even before Schumpeter to other scholars: Creative Destruction in Economics: Nietzsche, Sombart, Schumpeter by Hugo Reinert and Erik S. Reinert.

"Abstract

This paper argues that the idea of ‘creative destruction’ enters the social sciences by way of Friedrich Nietzsche. The term itself is first used by German economist Werner Sombart, who openly acknowledges the influence of Nietzsche on his own economic theory. The roots of creative destruction are traced back to Indian philosophy, from where the idea entered the German literary and philosophical tradition. Understanding the origins and evolution of this key concept in evolutionary economics helps clarifying the contrasts between today’s standard mainstream economics and the Schumpeterian and evolutionary alternative."

Related posts:

The Power of Creative Destruction (That is the title of a book co-authored by Philippe Aghion, one of this this year's winners of the Nobel Prize in economics) (2025)

Marginal Revolution has great posts on this year's winners of the Nobel Prize in economics (Philippe Aghion, Peter Howitt and Joel Mokyr): This is a prize for economic growth & creative destruction (2025)

A Nobel for human progress

By Ryan Young of CEI.

"This year’s economics Nobel Prize went to three students of the two most important questions in economics: Why have living standards in rich countries improved 30-fold since the 19^th century? And how can that process continue and expand to developing countries?

One half of the prize was awarded to the economic historian Joel Mokyr, whose work emphasizes the role of both technology and culture in the Great Enrichment.

The other half of this year’s prize was split between Philippe Aghion and Peter Howitt, whose work focuses on CEI favorite Joseph Schumpeter’s idea of creative destruction.

Mokyr, the economic historian, has written several books on the early Industrial Revolution that, on the surface, appear to be about technology. But technology alone is not enough to create mass prosperity.

Mokyr argues technology must be paired with pro-innovation cultural values. Even the greatest inventions cannot improve lives unless people are open to using them. If innovators are social pariahs, they may not have any incentive to invent in the first place. Their inventions may also be repressed, or risk Luddite-style revolts.

This was the argument in his first book, 1990’s The Gifts of Athena. In more refined form, it is also the thesis of Mokyr’s most recent book, 2017’s A Culture of Growth, which I reviewed here.

In 1992, Aghion and Howitt created a mathematical model of creative destruction. This is the idea that progress happens when new technologies displace old ones or when new businesses supplant unprofitable ones. In with the computer; out with the typewriter, for example.

For 30 years, theirs has been the workhorse model for researchers interested in how progress happens. Not only have Aghion and Howitt done their own research using their model, but their prize is also in part for enabling other scholars’ work. This sort of meta-contribution deserves more frequent recognition.

In an average year in America, between one-seventh and one-sixth of all jobs are destroyed. But in most years, more jobs are created and the number of total jobs grows. New technologies create at least as many jobs as they destroy, year after year, and generation after generation. This churning process, or creative destruction, is why people today are richer than their grandparents were. Otherwise we’d all still be farmers.

The unemployment rate in 1776’s agricultural economy wasn’t that different from our modern high-tech economy. But the living standards have increased at least 30-fold. It’s not the number of jobs that matters for living standards, so much as what value those jobs create.

The labor market’s biggest threats are from bad policy choices – trade protectionism, industrial policy, and inflationary monetary policy – not from innovation.

The creative destruction process that Aghion and Howitt have modeled ensures that people are continually improving how they use their human, physical, and financial capital.

Zombie companies use up labor and resources that could be put to better use. The price of creating a car industry is the destruction of the horse-and-buggy industry, for example. It’s a tradeoff, but the creation is well worth the destruction. Slowing down that process in the name of tradition or stability means slowing or even stopping the Great Enrichment.

Mokyr, Aghion, and Howitt ask big questions and get big answers. They are the worthiest Nobel recipients in years. They differ from 2019’s laureates, who also work in the development economics subfield, but with a different approach: ask small questions and get small answers.

Theirs is the approach of middle managers telling other people how to do their jobs, or of management consultants writing people-pleasing reports. Too much of development economics today is social desirability bias masquerading as a research program.

One of the papers cited in the 2019 Nobel prize was the finding that having students in Kenya spend more days in school, and spending more money on their textbooks, does not improve their test scores. That is useful information, but it is also the sort of thing that educators on the ground can figure out on their own.

The problem with education in developing countries is not a lack of advice from outside experts. It is that educators in many countries are not allowed to figure out those sorts of things on their own, let alone act on them. It is a problem of permission and dignity, not just resources.

Development is an ongoing process, not an end result. Mokyr, Aghion, and Howitt get that. Many other laureates do not. Nor do leaders at the World Bank and the IMF, many economists at top-five departments, and in many years, the Nobel prize committee.

People in developing countries don’t need better test scores so much as they need ongoing, market-tested improvement processes that are always adapting, changing, and experimenting. That is how you get better school test scores. It is also how poor countries become rich. Enable the process, and the results will follow.

Enabling the process is also the hardest part. It is a cultural issue, not a question of this or that micro-policy, such as students spending enough days in school or spending a certain amount on their textbooks. The origin of human progress is a bigger question than economists from the Harvard-Princeton-MIT mold are typically trained to ask. But it’s right up Mokyr, Aghion, and Howitt’s alley.

When people value openness, cooperation, and innovation, they work to enrich themselves and others. When people fear change and over-value tradition, the result is stagnation and decline.

If you want better results, you need better institutions. And if you want better institutions, you need cultural values that allow those institutions to operate.

Mokyr, Aghion, and Howitt are part of a long mainline tradition in economics that includes deserving would-be laureates such as Deirdre McCloskey, Peter Boettke, and William Easterly. It includes fellow laureates Elinor Ostrom, Douglass North, and Vernon Smith. And it goes back through F.A. Hayek, Frederic Bastiat, and all the way back to Adam Smith.

A well-chosen award ennobles both the recipient and the award itself. The more Nobels awarded in this mainline humanist tradition, and the fewer in the Paul Samuelson economist-as-technician tradition, the better for the prize’s prestige.

Postscript: Mokyr in particular has influenced the work we do at CEI. CEI founder Fred Smith cited him in a piece about the intersection of science, technology, and environmental policy. Iain Murray and I cited him in our Traders of the Lost Ark paper about trade policy in the first Trump administration. My review of A Culture of Progress is here."

Free Trade and Dynamic Efficiency

By Arnold Kling. 

"…for the economy to function well, you don’t just need good property rights, you also need what we could call, somewhat vaguely, “economic freedoms.” You need labor mobility; you need to get rid of guilds; you need to get rid of monopolies, both local and global; you need to get rid of all kinds of regulations; and above all, you need free trade.  And if you don’t have that, you’re going to end up in a society that will not be able to grow. —Joel Mokyr¹

The usual case for free trade is not the best case for free trade.  The usual case is based on static efficiency, meaning making better use of a fixed set of resources.  Economists use the term comparative advantage to describe how, if humans choose to specialize and trade with one another, each can end up better off than if they produce everything for themselves.

But trade has an even more important role to play in what economists have come to call dynamic efficiency, which is the ability of an economy to exploit innovation and increase living standards over time.  This dynamic efficiency is a central concern of the economists who shared the 2025 Nobel Prize:  Philippe Aghion, Peter Howitt, and Joel Mokyr.

Aghion and Howitt explored the process that Joseph Schumpeter famously labeled creative destruction.  One hundred years after Schumpeter, we see that process all the time in the realm of computers, communications technology, and software.  Mainframe computers were displaced by personal computers and the Internet, landline phones were displaced by smartphones and cellular communication, and artificial intelligence now threatens to upend many industries.

Mokyr was recognized for his study of economic history, particularly the Industrial Revolution.  He pointed out that technology improves through a virtuous cycle in which practical inventions inspire curiosity, leading to scientific discovery, enabling improvements to practical inventions.  

Mokyr also emphasized how the process of innovation and growth can be stifled by protectionism. It is dynamic efficiency that is stymied when barriers to trade are erected.  That is an important lesson that today’s policy makers seem reluctant to learn.

For our  2011 book, Invisible Wealth,² Nick Schulz and I were fortunate to be able to include an interview by Nick with Mokyr, as well as interviews with other proponents of dynamic efficiency, including Douglass North, Robert Fogel, and Paul Romer.  Given his recent recognition with the Nobel Prize, the themes from that interview are worth revisiting.

Mokyr argues that the Enlightenment included a rebellion against economic protectionism.  

I argue in my book that one of the things that happens in eighteenth-century Europe is a reaction against what we today would call, in economic jargon, “rent-seeking,” and that this, to a great extent, is what the Enlightenment was all about…It was about freedom of religion, tolerance, human rights—it was about all of those things. But it was also a reaction against mercantilism…

Adam Smith isn’t, you know, as original as people sometimes give him credit for…All these people were saying essentially the same thing: we need to get rid of guilds, monopolies, all kinds of restricted regulatory legislation.  And above all, you need free trade, both internal—which Britain had but the Continent did not—and international….

…when you look at the few places in Europe where the Enlightenment either didn’t penetrate or was fought back by existing interests, those are exactly the countries that failed economically.  You think of Spain and Russia, above all.  (p. 119–120)

Mokyr argued that ideas spread through the circulation of people.

Much of the communication about technology is in fact through personal transmission…You can only learn so much from books, even now.  (p. 122)

Tacit knowledge is acquired in person.

Mokyr warned that protectionist interests always lurk within a prosperous society.

Looking back at the record, it is quite clear that nobody has held technological leadership for a very long time. The reason for that is primarily that technology creates vested interests, and these vested interests have a stake in trying to stop new technologies from kicking them out in the same way that they kicked out the previous generation…And they have all kinds of mechanisms.  One is regulation, in the name of safety or in the name of the environment or in the name of protection of jobs.  They will try to fend off the new to protect the human and physical capital embedded in the old technology.  (p. 123)

Without the pressure of international trade, an industry can stagnate.

Let’s look at the American automobile industry in the 1950s.  Absolutely zero technological change…in the late 1960s they were still making things like the Vega and the Pinto, which were the worst cars ever made…

But then something happened: the Japanese showed up…the Japanese made better cars from better materials.  They made them cheaper.  The cars lasted longer. And guess what? Today’s American cars are far, far better than they were in the late 1950s to early 1970s—not because Americans couldn’t have done it earlier, but because openness forced them to do it. (p. 126)

Today in America, many politicians are listening to the siren song of the restrictionists.  Industrial policy, which means protectionism, is popular.  Globalization and neoliberalism are bad words.  

But if the past is any guide, anti-globalization is going to degenerate into crude special-interest politics.  Instead of dynamic efficiency, we will end up with economic stagnation.  The 2025 Nobel Laureates can remind us of that."

We owe our modern standard of living to innovations enabled by free-market capitalism

That is from the Amazon summary of The Power of Creative Destruction: Economic Upheaval and the Wealth of Nations by Philippe Aghion, Céline Antonin & Simon Bunel (Philippe Aghion is one of this this year's winners of the Nobel Prize in economics).

"Inequality is on the rise, growth stagnant, the environment in crisis. Covid seems to have exposed every crack in the system. We hear calls for radical change, but the answer is not to junk our economic system but to create a better form of capitalism.

An ambitious reappraisal of the foundations of economic success that shows a fair and prosperous future is ours to make, The Power of Creative Destruction draws on cutting-edge theory and hard evidence to examine today’s most fundamental economic questions: what powers growth, competition, globalization, and middle-income traps; the roots of inequality and climate change; the impact of technology; and how to recover from economic shocks. We owe our modern standard of living to innovations enabled by free-market capitalism, it argues, but we also need state intervention―with checks and balances―to foster economic creativity, manage social disruption, and ensure that yesterday’s superstar innovators don’t pull the ladder up after them." 

Free Markets Are Monopoly Busters

Competition does the work that regulators can’t—especially in a technological age.

By David R. Henderson. Excerpts:

"The Aluminum Company of America (Alcoa) was an amazing success. Although Greenspan didn’t give the numbers about its growth, economist Joseph Schumpeter had done so in his 1942 classic, Capitalism, Socialism, and Democracy.

Here’s a quote from his footnote about Alcoa:

From 1890 to 1929 the price of the basic product of this single seller [Alcoa] fell to about 12 percent or, correcting for the change in the price level (B.L.S. index of wholesale prices), to about 8.2 percent. Output rose from 30 metric tons to 103,400. Protection by patent ceased in 1909.

That means that Alcoa’s aluminum output over those thirty-nine years increased by over 344,665 percent! This amounts to a compounded annual rate of increase of 23 percent. Keep in mind that economists’ objection to monopoly is that the monopolist sells too little and charges too much. But a 91.8 percent fall in the price over that time, along with a 344,665 percent increase in output, suggests, to put it mildly, that restriction of output and monopoly prices were not a problem."

"What’s astounding, though, is Judge Hand’s reasoning about how he thought it had tried to monopolize. In one of the most quoted paragraphs ever from an antitrust decision, Judge Hand stated:

It was not inevitable that it should always anticipate increases in the demand for ingot and be prepared to supply them. Nothing compelled it to keep doubling and redoubling its capacity before others entered the field. It insists that it never excluded competitors; but we can think of no more effective exclusion than progressively to embrace each new opportunity as it opened, and to face every newcomer with new capacity already geared into a great organization, having the advantage of experience, trade connections, and the elite of personnel.

In short, Alcoa kept anticipating increases in demand for aluminum and kept increasing capacity so that it could meet that demand."

"Google put substantial resources over the years into building its metadata. Why should it be forced to share these data with rivals? Judge Mehta, an obviously ambitious lawyer, probably put effort into building a list of contacts who would help him get his current job. He was competing against others who didn’t have access to his data. Would Judge Mehta think it fair for a court to order him to share his list? Also, making Google share its index will signal to future companies that they may have to share their data with rivals. That will reduce the incentive to build such indexes in the future."

"Schumpeter saw it differently. In a chapter titled “The Process of Creative Destruction,” he wrote:

But in capitalist reality as distinguished from its textbook picture, it is not that competition [price competition] which counts but the competition from the new commodity, the new technology, the new source of supply, the new type of organization (the largest scale unit of control for instance)—competition which commands a decisive cost or quality advantage and which strikes not at the margins of the profits and the outputs of the existing firms but at their foundations and their very lives.

He went on to write, “It is hardly necessary to point out that competition of the kind we now have in mind acts not only when in being but also when it is merely an ever-present threat. It disciplines before it attacks.”"

"On May 19, 1975, fully six years after the IBM case was filed, it went to trial. Here’s what Historyofinformation.com says:

After thousands of hours of testimony (testimony of over 950 witnesses, 87 in court, the remainder by deposition), and the submission of tens of thousands of exhibits, on January 8, 1982, the antitrust case US v. IBM was withdrawn on the grounds that the case was “without merit.”"

"Competition was already undercutting IBM’s dominant position. IBM’s flagship computer was the System/360. In the 1960s, the midrange 360 was priced at about $246,000, which is $2.5 million in today’s dollars. IBM had quit marketing the 360 at the end of 1977." 

"within a few years after the case was dropped. We got cheap desktop computers that sold for less than 1 percent of the 360’s price." 

Netscape’s Lessons for AI Mania

Today’s innovators are market darlings, but not all of them will make it

By Andy Kessler. Excerpts:

"The initial public offering was filed at $14. Everyone wanted shares"

"the stock popped to $74, ending the day at $58." 

"it was 30 years ago this week, Aug. 9, 1995." 

"It took General Dynamics Corp. 43 years to become a corporation worth today’s $2.7 billion in the stock market. It took Netscape Communications Corp. about a minute.”"

"For investors, it was a new sky-is-the-limit internet era, and long-duration investing became standard. Growth was more important than profit. Funky ideas got funded. Money accelerated innovation as investors were willing to fund losses. Speculation roared and momentum lured in new and late investors. No one wanted to miss out on the next big thing."

"In 1999 dot-com mania saw 480 companies go public, raising $62 billion—most, like Pets.com, with flimsy prospects."

"Netscape was free for individual users, but corporations paid a license fee."

"Every company put up a website, but this enabled search engines like Google to crawl distant computers and run ads against search results, hurting magazines and broadcasters. Craigslist ran classified ads online, killing many local newspapers. E-commerce sites like Amazon devastated much of retail."

"With today’s flurry to invest in any company that can spell AI, Netscape’s biggest lesson is that nothing lasts forever. AOL bought Netscape in 1998 for $4.2 billion in stock. AOL’s peak value reached $222 billion in December 1999, and in January 2000 it bought Time Warner for $182 billion. The dot-com boom peaked a month later, and the merger was a massive failure. AOL stopped supporting Netscape browsers in 2008. In 2015 AOL was sold to Verizon for peanuts, and in 2021, along with the remains of Yahoo, it was sold to private-equity firm Apollo." 

AI’s Threat to Google Just Got Real

Drop in search traffic is a reminder technological advancement can displace long-established tech giants

By Dan Gallagher of The WSJ. Excerpt:

"Google may not be such a hard habit to break after all. 

A senior Apple executive said Wednesday that Google searches over the Safari web browser fell over the last two months. “That has not happened in over 20 years,” Eddie Cue, Apple’s senior vice president of services, said on the witness stand during the penalty trial phase of the Justice Department’s antitrust lawsuit against Google. Cue attributed the drop to a growing number of people using generative AI services such as ChatGPT and Perplexity." 

From the Rust Belt to the Ports: A Warning About Extortive Union Demands

Not all labor unions are ‘pro-worker.’ With 36 ports striking today, the International Longshoremen Association is threatening other jobs, “I will cripple you, and you have no idea what that means."

By Liya Palagashvili of Mercatus. 

"In general, labor unions are meant to be a force for good, providing a much-needed voice and representation for workers in negotiations with their employers. However, challenges arise when bargaining demands become unreasonable or unfair–perhaps the demands from the labor union are too high or the company’s offer is unreasonably low. 

Labor unions can turn into “villains” when their demands become excessive and extortive. 

This is why the International Longshoremen Association (ILA), the only labor union controlling all ports across the entirety of the east coast, is facing a public backlash for demanding “a total ban on the automation of cranes, gates and container movements that are used in the loading or loading of freight at 36 US ports.” This demand is in addition to other requests on compensation – for example, significantly higher wages and benefits packages. 

As many have pointed out, companies have already agreed to offer reasonably higher compensation packages to port workers–increasing wages by nearly 50%, tripling employer contributions to employee retirement plans, strengthening health care options, and even retaining the current language around automation and semi-automation. 

However, in order to force companies to meet their unreasonable demands on the use of technology and even higher compensation packages, the ILA is threatening the country by locking down 36 ports on the east coast with more than 45,000 workers on strike starting today. Economists have already discussed the severe negative effects consequences this will have on supply chains, prices, and even jobs for Americans in other sectors. But perhaps the best illustration of how American workers will be worse off during these port strikes comes from the ILA union President:

“When my men hit the streets from Maine to Texas, every single port locked down. You know what's going to happen? I'll tell you. First week, be all over the news every night, boom, boom, second week. Guys who sell cars can't sell cars, because the cars ain't coming in off the ships. They get laid off. Third week, malls are closing down. They can't get the goods from China. They can't sell clothes. They can't do this. Everything in the United States comes on a ship. They go out of business. Construction workers get laid off because the materials aren't coming in. The steel's not coming in. The lumber's not coming in. They lose their job.”

This interview highlights the trade-offs that any pro-worker agenda must grapple with (as I’ve discussed in a previous post). When the ILA threatens to cripple other jobs in the economy, it is illustrating that not all labor unions are synonymous with being ‘pro-worker.’ Indeed, the ILA is okay with other workers in America losing their jobs in order to pay for the excessive demands of this select group of workers. This is hardly an inspiring message to join the American labor movement. 

Of course, companies are right to reject the excessive demands, especially on a *total* ban of automation. Making U.S. ports worse-off is not a winning strategy for workers, and especially not for U.S. port workers. 

If there is a total ban on automation, cargos will be redirected to more efficient and lower cost ports as east coast ports become less efficient and more costly compared to other ports that welcome technological advancements. Over time, the 36 east coast ports that are stuck in the Stone Age will see less business, slower employment growth, more lay-offs, and some may even close down completely. 

Blocking technological advancements is not only bad for the East Coast ‘Stone Age’ port workers, but it’s also bad for America’s competitive edge. Asian and Middle Eastern ports which do welcome technology will continue to grow faster in the long run compared to the U.S. ports. For those who sympathize with MAGA goals, banning technological advancements on U.S. ports is a great “American Last” strategy. 

For those who may seem unconvinced of this future reality, look no further than the case study of the Rust Belt’s economic deterioration in the second half of the 20th century. 

A Warning to Port Workers: How Excessive Labor Union Demands Ruined the Rust Belt

A new study published in Journal of Political Economy showed that excessive demands from strong unions, which led to a high frequency of strikes in the Rust Belt region between 1950-2020, are one of the main reasons for the decline in manufacturing employment in the Rest Belt during that time period. 

Rust Belt manufacturing industries had, by far, the highest rates of work stoppages from strikes in the United States. According to CPS data from the Bureau of Labor Statistics, between the years 1973 and 1980, 48.1% of workers were union members in Rust Belt manufacturing compared to 28.4% among manufacturing workers in the rest of the country. As the economists note, “While unionization rates in manufacturing were around twice as high in the Rust Belt as outside, rates of work stoppages were about seven times as high in the Rust Belt. In other words, labor relations were particularly fraught among unions concentrated in the Rust Belt.”

During this time, the compensation package demands were also higher than usual as compared to the demands in other regions. 

So what happened? Excessive union demands, strikes, and work stoppages led to lower average rates of investment and productivity growth by Rust Belt firms relative to those in the rest of the country. Over time, employment moved from the Rust Belt to the rest of the country. 

This is common sense. Rust Belt firms faced increasing labor costs and reduced productivity, forcing many to either downsize or relocate to regions with less union influence and lower labor costs. 

Overall, these labor union conflicts accounted for 55% of the decline in the Rust Belt's share of U.S. manufacturing employment, leading to its economic deterioration throughout the second half of the 20th century. 

Many might sensibly ask, “but what about the impact of China and globalization on the Rust Belt?” The study accounted for this as well, finding that trade had a secondary, negative effect on the Rust Belt. As they write (pg. 2783):

Rising imports have virtually no employment effect until the mid-1970s, and the losses are concentrated in the 1980s and 1990s. This suggests that international forces at best played a supporting role in the Rust Belt’s decline in the latter part of the time period and likely had little to do with the large secular decline in the region’s employment share that occurred in the first 3 decades after the end of World War II.

The Rust Belt case study is a perfect example of when unions go too far, leading to worse worker outcomes in the long-run. 

Other studies also show that unions which moderate demands to avoid pushing firms out of business or reducing employment are more likely to persist over time. This moderation creates a balance between gains for workers and ensuring the firm’s survival, benefiting both parties in the long run.

Port Automation: Yes, Some Port Jobs Will be Lost, but Fear Not

Economists agree that real wage growth is feasible when there are technological developments that make workers more productive, like how our generation experienced the ‘computerization’ of white collar jobs, or when the construction industry started using construction vehicles and other machines. These developments are welcomed because they enhance the skills of workers, making them more productive and allowing them to increase their output for any given hour. 

Take a look at this video on how automation in Chinese ports have made port workers more productive, transforming the nature of their tasks from physically opening and closing gates to sitting behind a computer screen to direct port activity. 

The concern that automation might mean certain types of jobs will be lost is real. What this typically means is that some or many of the port workers will go into completely different types of roles in the same industry (e.g. the Chinese case where they are behind the computer screen), or they will enter into other expanding industries where their skill sets are in demand. 

It’s not uncommon for entire types of tasks or roles to be lost. What many neglect to understand is that technological advancements will either expand the same industries and/or create entirely new jobs that never existed before. For example, there are no more workers in the video tape industry today, but there are thousands in the streaming industry. Economists call this “creative destruction”--old jobs are destroyed, new jobs are created. 

While outdated, I’ve always liked this piece on how to understand job destruction and job creation from a historical perspective. Here is a job destruction list of some jobs that have been significantly reduced or completely eliminated since the start of the 20th century. 

And here is a job creation list showcasing the expansion and creation of new jobs since the 20th century (at the time of this report, the authors used jobs in 2002). Notice, for example, there were zero electricians, auto mechanics, and airplane pilots and mechanics. Today, there are hundreds of thousands of them. 

While some jobs were eliminated, more jobs were created and the economy grew overall. This is all part of a healthy, dynamic process in our economy. 

So yes, some port jobs in the future may be reduced, but that’s not bad for workers in the long-run. The economy expands with technological advancements, enabling the creation of new jobs and industries in the process."