Month: November 2016

Making American Great Again–The FDA

Does Donald Trump want to streamline the FDA and speed new drugs to patients? The Washington Post thinks that it can read the tea leaves:

A single sentence in President-elect Donald Trump’s health-care platform sends a strong hint to the drug and medical device industry that they may have an easier time getting their products on the market under his administration.

“Reform the Food and Drug Administration, to put greater focus on the need of patients for new and innovative medical products,” his health plan states.

On the face of it, the bullet point may seem almost bland, but efforts to integrate patients’ preferences and encourage innovation often result in proposals aimed at speeding up the process for getting new medicines on the market by easing regulations. Critics argue that such efforts can erode standards that are in place to protect patients from drugs that don’t work and might even be harmful.

“The language … is industry code for deregulation and reducing of safety standards,” said Robert Weissman, president of Public Citizen, a consumer watchdog.

There is plenty of evidence that the FDA is too slow (see, for example, here, here, here and here) so I would support such a move. Senators Cruz and Lee proposed a reciprocity bill last term under which drugs approved in other developed countries would quickly be approved here; perhaps such a bill could find renewed interest in a Trump administration (Economists also support the idea of reciprocity.)

On the other hand, Trump has expressed support for Medicare being allowed to negotiate drug prices which is tantamount to price controls given the size of Medicare and that is potentially a disaster. Price controls could significantly reduce research and development in the pharmaceutical industry and end up greatly adding to the invisible graveyard. Trump’s advisers would seem to lean towards streamlining the FDA process rather than imposing price controls but it’s difficult to be certain.

Trump probably won’t much reverse the current clean energy policies

The reality is that clean energy has been booming in the United States for a whole bunch of reasons that don’t have much to do with climate change. Things such as health, security and innovation, which lead to high levels of support amongst Republicans – yes, Republicans – for harnessing the power of American water, wind and sun.

Those federal tax credits for wind and solar? They were passed last December by a Republican Congress with bipartisan support. Revoking them would require a legislative effort that may not be looked upon kindly by the many Republican lawmakers who have renewable energy manufacturing and development in their states. Lawmakers like Senator Chuck Grassley, an Iowa Republican, who said this summer: “If he wants to do away with it, he’ll have to get a bill through Congress, and he’ll do it over my dead body.” He won’t be the only one: looking across the country – and the electoral map – the top-10 wind-energy producing congressional districts are represented by Republicans.

Besides, much of the renewable energy boom has been driven by state policy. You might recall that back when he was governor of Texas, George W. Bush passed legislation requiring utilities to buy renewable energy.

It led to a building boom that has made the state the largest producer of wind power in the United States. Iowa, South Dakota, Kansas, Oklahoma and North Dakota lead the United States in the proportion of electricity generated by wind, and all are led by Republican governors. Ditto North Carolina, which trails only California in the development of new solar projects.

Up in New Hampshire, which also went for Mr. Trump, the newly elected Republican governor won on a platform that included support for the Northern Pass transmission line, which would move clean hydroelectricity from Quebec into New Hampshire and the New England power grid.

…Down in Florida, as Floridians delivered their support to Trump, they also voted to maintain unlimited opportunities for the expansion of rooftop solar. There are hundreds of state-level policies in red states and blue states that aren’t going to disappear, and they are driving significant investment in clean energy.

Just last year, the United States saw $56-billion (U.S.) in clean-energy investment, second only to China. That kind of investment creates a lot of jobs: Almost 210,000 Americans are now employed in the solar industry, double the 2010 figures. This represents more people than those employed in oil and gas extraction. The U.S. Bureau of Labor notes that wind turbine technician is the fastest-growing occupation in the country. Would Mr. Trump put these good jobs in jeopardy? Doubtful.

Looking at dollars and cents – and customers’ wallets – it’s also worth highlighting that the unsubsidized cost of wind and solar just keeps falling, down 61 per cent and 82 per cent respectively, between 2009 and 2015.

I’m not arguing those policies are good, bad, or “not nearly enough.”  The main point is simply that most of them are unlikely to change.

That is from The Globe and Mail, much more at the link, via Dina Pomeranz.

Don’t use measured gdp as a way to evaluate stimulus plans

That is my recent Bloomberg column, here is one bit:

Measured GDP just doesn’t capture the relevant trade-offs for evaluating government spending. For instance, a lot of U.S. workers are producing organizational capital. They work on business plans, building client lists, developing marketing strategies, cultivating customer relations and performing other future-oriented activities common to service-sector enterprises. On any given day, most of us are not churning out additional widgets.

Government stimulus, on the other hand, usually is oriented toward concrete outputs such as roads and bridges or military hardware. It’s more like old-style manufacturing.

Stimulus therefore pulls workers out of producing organizational capital. In the short run, measured GDP goes up, yet the economy may or may not be doing better overall, especially in the longer run.

And this:

In Keynesian theory, fiscal policy only works well if you use it in down times and pay off the bill during a boom. Trump seems ready to do the opposite by upping spending as the economy approaches full employment. After that? Recent history suggests that many countries switch back to austerity precisely when they shouldn’t. That is a reality proponents of “spend more now” have to reckon with, and it means stimulus can bring a bigger contraction in the future than the boost it gives today.

For years, I have been reading about evidence that the 2009 fiscal stimulus promoted by the administration of President Barack Obama was good for the American economy. Study after study shows that it boosted GDP across a two- to three-year time horizon, as indeed it did. Furthermore, some parts of the stimulus truly were beneficial, for instance the aid to state and local governments that limited the need for temporary layoffs. But a serious evaluation of the Obama stimulus, and its longer-term consequences, remains to be done.

There is much more at the link.

Music apps are for the birds

Do birds prefer classical music, opera, or heavy metal? As with humans, it’s likely a matter of personal preference, and one art project is offering our feathered friends a chance to communicate their preferences to us.

PandoraBird: Identifying the Types of Music That May Be Favored by Our Avian Co-Inhabitants,” by artist Elizabeth Demaray in collaboration with computer scientist Ahmed Elgammal and Rutgers University’s Art and Artificial Intelligence Laboratory, appears as a simple, blue bird feeder. It functions, however, like its eponymous music streaming and recommendation service: while it plays songs, a camera module connected to a Raspberry Pi computer photographs and identifies specific species, as well as tracks how long each bird stays. If a bird feeds until the end of a tune, the system will select another one with similar qualities such as rhythm and melody. Demaray is attempting to build a database of the songs preferred by our wild, feathered friends and eventually present a music-discovery service for birds.

That is from Claire Voon, writing about PandoraBird, currently found in Brooklyn.  The pointer is from Ted Gioia.

Monday assorted links

Making America Great Again–Infrastructure

In this post I put aside the negatives of a Trump presidency and focus on some of the positive things that President Trump could do that are still consistent with his stated goals and ideology.

First, and most obviously, infrastructure development. Trump has said he wants to invest a trillion dollars in infrastructure, mostly through public-private partnerships (PPP). As I said in Launching the Innovation Renaissance we need more and better airports, for example. Ironically, New York Governor Andrew Cuomo’s $4 billion PPP to replace LaGuardia’s Terminal B which has as a leading partner Swedish multinational Skansa, is an important model. Around the world there are a number of other successful examples of airport PPPs including in India, Australia, New Zealand, Canada and South Africa.

Fortunately, the FAA already has an airport privatization program. To date, the program has had only limited success but the tools are in place if Trump wants to push.

Governments eager for cash sometimes structure PPPs with big up front payments and low future payments. Trump could find such a bargain tempting as it would let him raise cash and encourage building today while pushing low future revenues decades into the future. Bear in mind, however, that when someone such as Paul Krugman says that now is the time to invest because interest rates are low, a corollary is that is now is the time to sell because asset prices are high.

Speaking of air travel, Trump seems like just the person to Make America Boom Again and he could do it with a small directive to the FAA to drop the ban on supersonic aircraft and replace it with a reasonable noise standard.

We also desperately need an update to our electricity grid. We have more blackouts than any other developed nation. It is a national embarrassment when millions of US residents our thrown into the dark by grid failures.

Improving the grid is not just an economic issue it’s an issue of national security. Our grid is under constant low-level attack, and some of these attacks are likely probes for an attack similar to that which brought down the Ukrainian power grid.

Electricity infrastructure, it’s worth noting, is less amenable to PPPs than airports because it’s more difficult to monetize quality improvements and the grid by its nature involves many externalities so I think Trump is relying too much on PPPs. Newt Gingrich, however, is a big proponent of improving the grid and he may help convince Trump to invest public funds.

An important byproduct of improving our electricity grid would be to improve the prospects for solar and wind power. Solar and wind are intermittent and cost effective in only some parts of the country. The better our transmission lines, however, the more useful these sources of energy become. Indeed, it might be time to begin work on a global super-grid. I could see Trump going for this (just don’t call it a hemispheric open market).

Trump also seems like just the guy to support nuclear energy. Molten salt reactors are very safe and can be much smaller than traditional reactors. These types of reactors were invented in the United States but China is rapidly developing the technology. President Trump don’t let China drink our milkshake! By the way, these types of nuclear reactors pair well with renewables because they can ramp up or down to fill in the intermittent nature of  solar and wind. Nuclear power also pairs beautifully with hydrogen.

The first new nuclear plant in decades just started producing power for commercial use last month. Trump should cut the ribbon at an opening ceremony. It would be a great signal that America is not afraid of technology, that we can still build, and that we can responsibly deal with climate change while increasing the power that drives American civilization.

The panel data great stagnation and also student debt edition, courtesy Justin Weidner

Yes it supports what many of us have been saying for what is now quite a few years:

Using panel data on individual labor income from 1957 to 2013, we document two empirical facts about the distribution of lifetime income in the United States. First, we show that from the cohort that entered the labor market in 1968 to the one entered in 1983, three-quarters of U.S. workers did not experience any increase in lifetime income. Further, during the same period, median lifetime income actually declined by 10-20% for men but increased by 20-30% for women, yet the latter increase was not enough to offset the decline for males because of the very low lifetime income of the earlier cohorts of females. Accounting for rising employer provided health and retirement benefits partly mitigates these findings, but does not overturn them. Much of these changes across cohorts that we document come from the large changes in starting income levels (i.e., at age 25) across cohorts. Based on partial life-cycle income observed for cohorts that are currently in the labor market, the stagnation of lifetime incomes is unlikely to reverse. Second, turning to inequality in lifetime incomes, we find that it has increased significantly within each gender group, but the closing lifetime gender gap has kept overall lifetime inequality virtually flat.

That is from forthcoming work by Justin Weidner, Fatih Guvenen, Greg Kaplan, and Jae Song.  Right now I am looking at Weidner’s site, his job market paper (pdf) is also quite interesting:

I demonstrate that rise in debt since 1990 has contributed to income stagnation, lowering affected graduates’ income by 1.9\% on average. Because it does not distort occupational choices, an income contingent repayment scheme would increase income for constrained graduates by 3.5% on average.

I look forward to following his work in years to come.

*Arrival*

I’ve never seen a movie before where I wanted to yell at the screen “It’s called the Coase theorem!”, and furthermore with complete justification.  There is plenty of social science in this film, including insights from Thomas Schelling and the construction and solution of some non-cooperative games, mostly by introducing a more dynamic method of equilibrium selection.  There are homages to Childhood’s End, 2001, Close Encounters, Interstellar, Buddhism, Himalayan Nagas, Eastern Orthodox, the theology of the number 12, and more.  It’s hard to explain without spoiling the plot, but definitely recommended and maybe the best Hollywood movie so far this year.  Nice sonics too.

Sunday assorted links

1. Will Trump seek to change the Fed? (NYT)

2. Robin Hanson on what is the real botttleneck for innovation.  And Robin tells you to stop obsessing over the election and think big.

3. How to liberate Wu-Tang Clan music (NYT).

4. Interpretive frameworks and the election.

5. “…the protracted struggle over the mode of selecting an executive was but a continuation of the struggle that marked the debate on the composition of the legislature.”  Read Shlomo Slomin on the origins of the electoral college (pdf), no it wasn’t just about slavery and don’t be fooled by the (partisan) literature suggesting the contrary.  Slavery was just one issue of many behind the evolution of the institution.

6. Freddie says: “It doesn’t matter if you should have to change. You do have to change. Or else you have to accept the irrelevance of what you do.”  I think we’re going to find that a whole set of commentators suddenly have become irrelevant and uninteresting.

7. Are Yale economics students fragile snowflakes?

The coalition for diversity whose diversity did diversity just win?

There are many types of diversity.  Diversity of occupation, diversity of musical taste, diversity of outlook, diversity of residence, and of course varying kinds of racial and ethnic diversity.  You could list thousands of kinds of diversity.

The original thinking behind the Electoral College was that geographic diversity was important.  The Founding Fathers were not majoritarian, but rather they believed in placing special weight on diversity of this kind.  The prevailing view was “if too many (geographically) diverse voices veto you, you can’t get elected, not even with a majority of the votes.”  That view was a strange and perhaps unlikely precursor of today’s veto rights/PC approach on campus, but there you go.

Democrats now control at least one legislative house in only 17 states, and the reach of the party is shrinking dramatically.  So by the 18th century standards of diversity, emphasizing geography, the Democratic coalition is remarkably non-diverse.  You can see how much of Hillary Clinton’s majority came from the two states of New York and California.  That also means the Republicans are not just a “Southern rump party,” as some commentators used to suggest.

If you think of education as serving a smoothing function, the less educated are in some ways considerably more diverse than the educated.

The Democratic Party today is more likely to stress the relevance of ethnic and racial diversity, if the talk is about diversity.  (Gender diversity too, but that requires its own post, maybe later to come.)  Non-Democrats are more likely to count other forms of diversity for more than the Democrats do.  I see Democrats as somewhat concentrated in particular cities and also in particular occupations, more than Republicans are.  There is nothing wrong with that, but it is another way in which Democrats are less diverse.

When it comes to views about the relevant forms of diversity, the views of non-Democrats are more diverse than the views of Democrats, I would hazard to guess.  A non-Democrat is more likely to focus on something other than racial and ethnic diversity, compared to a Democrat.

Correctly or not, many Americans do not think racial and ethnic diversity is the diversity that should command so much attention.  That is one place to start for understanding why so many 2012 Obama voters switched to Trump this time around, or maybe just stayed home.

A few days ago I saw figures that 29 percent of Latinos voted for Trump (possibly that number has been revised).  I suspect many of those voters do not see Latino vs. non-Latino as the diversity line that interests them most strongly.

I haven’t offered any criticism of the Democratic point of view on diversity, even though you may feel that my description of it is trying to lower its status.  (You are right, noting I don’t wish to defend the R. point of view, but the R view does not need as much status-lowering either.)  It may well be correct to have a less diverse view of diversity.  If you were to start with an argument for that view, you could cite the long history of American slavery and segregation, plus continuing racial wealth inequality, as reasons for focusing so much on one kind of diversity rather than others.

Still, when I speak with Democrats, and with Progressives in particular, they view themselves, as a kind of assumption, as the people concerned with diversity.  That is a significant cognitive mistake.

When Donald Trump was elected President of the United States, it was the forces of diversity — some diversities, many diversities — that won.

It was the people less concerned with diversity overall that lost.  Again noting that some important notions of diversity do cut the other way, most of all racial diversity.  And I do wish to stress that the presumptive argument for “diversity” simply isn’t there, although that conclusion is hard to swallow that if you have imbibed too much contemporary political rhetoric.

In fact, I view the amazing diversity of the election and the electorate as having gotten the better of us.  It is an example of how diversity can go wrong.

I believe that until Democrats and Progressives can grasp their lack of diversity intuitively, they will struggle to make their way forward in the new political climate of the United States.  They will not understand how anyone could view them as divisive, since they automatically think of diversity as being on their side, rather than something they oppose.

7.18-16
7.18-16

Arnold Kling on monopsony

Suppose that we accept as true the finding by Richard Freeman that the highest wages are paid at the most profitable firms. If there is a monopsony story there, I do not see how to tell it. A monopsonist would exploit its workers by paying low wages, so I would expect that if monopsony were prevalent then we would see the highest wages paid to the least profitable firms (the ones who are competitive in the labor market and cannot exploit their workers).

Arnold is right, here is the full link.  Labor market monopsony is on the verge of becoming an overrated idea.  To the extent monopsony is important in explain labor market phenomena, it is short-run monopsony, mostly because workers have extracted perks from the employer.  That can lead to opportunism and problems with contract renegotiation, but it is not a distributional problem per se.  Again, here is Adam Ozimek on monopsony.

Saturday assorted links

1. Mood, I am still looking for the affiliation.  Wait…I found it.

2. Are cult movies on the way out?

3. Markets in everything: Facebook buys black market passwords to keep you safe.

4. Forty old shipwrecks discovered in the Black Sea (NYT).

5. Options for health care coverage reform, redux, most of my 2013 post has held up quite well for today.  And update on Trump on Dodd-Frank.

6. Italy has a hedgehog hospital, and other good photos.

Kirkus Reviews praises *The Complacent Class*

An influential economist seeks to persuade readers that American citizens have gotten overly complacent, that a crisis point is near, and that a widespread rebellion may alter the existing order.

…In conclusion, Cowen describes how a dynamic society should look and feel, and then he shifts his pessimism about the present to a sort of ersatz optimism about the future, when current structures collapse and chaos improves American democracy.

Here is the full review.  And just one point: I know many of you claim I have not predicted much of current goings-on.  It is true I did not expect Trump to win, but you will find many other predictions in this book, most of which are looking pretty good as of today.  Typically if I am writing material into a book I do not blog it, so that the material will be fresh to all of my readers.  If you order The Complacent Class, you will find very little of it already has shown up on MR, the chapter on productivity excepted.  You could say the better the book, the more you will find a few significant gaps on this blog.  Sorry!

“Our principles”

There is another reason why the Republican Party could not contain Trump, a perhaps deeper reason. Michael Oakeshott, an under-read political thinker in the mid-20th century, remarked in his exquisite essay, “Rationalism in Politics,” that one of the more pathological notions of our age is that political life can be understood in terms of “principles” that must be applied to circumstances. Politics-as-engineering, if you will. Republicans themselves succumbed to this notion, and members of the rank and file have noticed. Republicans stood for “the principles of the constitution,” for “the principles of the free market,” etc. The problem with standing for principles is that it allows you to remain unsullied by the political fray, to stand back and wait until yet another presidential election cycle when “our principles” can perhaps be applied. And if we lose, it’s OK, because we still have “our principles.” What Trump has been able to seize upon is growing dissatisfaction with this endless deferral, the sociological arrangement for which looks like comfortable Inside-the-Beltway Republicans defending “principles” and rank-and-file Republicans far from Washington-Babylon watching in horror and disgust.

That is from a very interesting Politico piece by Joshua Mitchell of Georgetown.  As for me, let’s just say I am a big fan of what Mitchell calls “book club”!