Month: February 2020

The economic impact of the Bernie Sanders agenda

From Casey Mulligan:

If fully implemented, but otherwise implemented wisely, Senator Sanders’ agenda for the economy would reduce real GDP and consumption by 24 percent.  Real wages would fall more than 50 percent after taxes.  Employment and hours would fall 16 percent combined.  There would be less total healthcare, less childcare, less energy available to households, and less value added in the university sector.  Although it is more difficult to forecast, the stock market would likely fall more than 50 percent…

Even if without any productivity loss or increased utilization in healthcare, college, and daycare, this means that the Sanders agenda would be expanding the Federal budget by 13.25 percent of baseline consumption.  Including 19 percent additional utilization of these “free” goods and services, tax rates on labor income must increase by 23.5 percentage points (it would be more but the Sanders agenda does expand the tax base by eliminating the exclusion for employer-sponsored health insurance).  GDP falls by 16 percent (this does not yet consider productivity losses — that comes below).

You can quibble with some of the numbers on productivity decline, but that such estimates are even possible from fairly standard parameters should give a number of you some pause.  Here is my earlier post on the economic policy ideas of Bernie Sanders.

Wednesday assorted links

1. “Exploiting within-country and industry-level variation in regulatory burden, the analysis finds a large, positive effect of regulatory burden on corruption.

2. “Resumes that list study abroad experience in Europe for one year are 20 percent less likely to receive any callback and 35 percent less likely to receiving a call back for an interview, relative to resumes that do not list study abroad experience.

3. “…colleges that ultimately boost earnings also tend to boost persistence, BA completion, and STEM degrees along the way.” Lots more in that paper.

4. “Singapore Airlines is the first major carrier to serve produce harvested just hours before a flight.

5. I wish to thank and praise my Lubbock hosts, the Free Market Institute at Texas Tech.

6. 2006 study of the possible economic impact of avian flu.  Possibly 4.25% of gdp.

Addendum, from the comments, from Aleh:

You don’t need to read the study-abroad paper to realize that it’s implausible. 35% less likely to receive an interview! That would be approaching the impact that’s been found for declaring a criminal record. And it it has to be in Europe specifically, and one year specifically!

Ok, the paper itself. Overall, study abroad per se has no effect. So they slice and dice by location, length, and whether it is a call-back of an interview request, and use a significance level of 0.1, and then – as you’d expect – a couple of weak “findings” appear. A year of Europe seems VERY bad (and yet two weeks in Europe, or any time in Asia, actually improves the raw numbers; that’s the theory there?). Going to Asia doesn’t show a statistically significant change in your chance of getting a callback, unless it’s a callback specifically asking for an interview – when it does help so.

The data here is under-powered and reaches to find any results (slicing and dicing, 0.1 threshold). The “statistical significance filter” works in such cases to ensure that when does one does find a statistically significant result, it will be be a massively overstated – if true at all. A year in Europe doesn’t just have the opposite sign effect than any other experience; it has an absolutely catastrophic effect (-35%). Just no.

This is bad statistics and (not necessarily the authors’ fault) thoughtless promotion of almost a self-evidently implausible claim. If there’s anything to be learned or honestly reported here, it’s the top level finding: that a reasonably controlled experiment found essentially no difference either way by adding study-abroad experience to your resume.

My Conversation with Garett Jones

Here is the transcript and audio, here is part of the opening summary:

Garett joined Tyler to discuss his book 10% Less Democracy, including why America shouldn’t be run by bondholders, what single reform would most effectively achieve more limited democracy, how markets shape cognitive skills, the three important P’s of the repeated prisoner’s dilemma, why French cuisine is still underrated, Buchanan vs. Tullock, Larry David vs. Seinfeld, the biggest mistake in Twitter macroeconomics, the biggest challenges facing the Mormon church, what studying to be a sommelier taught him about economics, the Garett Jones vision of America, and more.

Here is one bit:

COWEN: But let’s say it’s the early 1990s. Eastern European countries are suddenly becoming free, and they ask you, “Garett, what electoral system should we have?” What do you say?

JONES: What I really would go for is presidential systems, if you can handle it, something like a first-past-the-post system, where those people elected from local districts focused on local problems — which have less of a free-rider problem involved — go up to the parliament and actually argue their case. The presidential element is less important than the parliamentary idea of the single-district voting. I tend to think that creates more accountability on the part of the government.

And more:

COWEN: For the United States, what is the most effective way, in your view, that you would want us to have 10 percent less democracy? What’s the one thing you would change?

JONES: I would change the House of Representatives to a six-year term. I picked that because it’s not outside the range of plausibility, and because I think people would instantly understand what it accomplishes — not because it has the highest payoff, but because it balances payoff with plausibility in a democracy.

And on boosting IQ:

COWEN: But what’s the key environmental lever? Whatever Ireland did [to have induced an IQ rise], it’s not that people were starving, right? That we understand.

JONES: No, true.

COWEN: So why don’t we do more of whatever they did, whatever was done to the East Germans, everywhere?

JONES: Exactly.

COWEN: But what is that lever? Why don’t we know?

JONES: I would say that thing is the thing we call capitalism.

COWEN: Capitalism is a big, huge thing. Not all of capitalism makes us smarter.

JONES: Yeah, that’s the thing — figuring out which things within capitalism — what is it about living in a free society with competitive markets where, at least in our youth and middle age, we feel a need to sell ourselves as valuable creators. There’s something about that that probably is what’s most valuable for boosting cognitive skills. It’s a sort of demand-side desire to try to use our minds in socially productive ways. And I think in communism, we can —

COWEN: So marketing makes us smarter?

JONES: That’s what I would say, yeah.

There is much more at the link, an excellent Conversation.  Here you can order Garett’s book 10% Less Democracy: Why You Should Trust the Elites a Little More and the Masses a Little Less.  You can read the introduction to the book on-line.

All Praise the Fist Bump

Handshaking spreads germs and is a bad method of greeting. I prefer an elegant namaste but that is slightly hard to coordinate on when the other person sticks out their hand. The fist bump is a little smoother and has a greater chance of being adopted.

A study by Mela and Whitsworth in the American Journal of Infection Control found that fist bumps transferred one-quarter as much bacteria as a moderate handshake and even less compared to a strong handshake. Fist bumps are better because of lower contact times and lower contact area.

Here’s Tom Hanks showing you how it’s done.

Hat tip: Bryan Caplan for always asking for the numbers.

Is common stock ownership really such a big deal?

We investigate the relation between common institutional ownership of the firms in an industry and product market competition. We find that common ownership is neither robustly positively related with industry profitability or output prices nor robustly negatively related with measures of non-price competition, as would be expected if common ownership reduces competition. This conclusion holds regardless of industry classification choice, common ownership measure, profitability measure, non-price competition proxy, or model specification. Our point estimates are close to zero with tight bounds, rejecting even modestly-sized economic effects. We conclude that antitrust restrictions seeking to limit intra-industry common ownership are not currently warranted.

That is from a new paper by Andrew Koch, Marios A. Panayides, and Shawn Thomas, forthcoming in the Journal of Financial Economics.  A useful corrective to some of the exaggerations I have seen floating around.

How robust are supply chains?

That is the topic of my latest Bloomberg column, here is one excerpt:

Consider the supply chain of the Apple iPhone, which stretches across dozens of companies and several continents. Such complex cross-national supply chains generate relatively high profits, giving them a kind of immunity to small disruptions. If there is an unexpected tax, tariff or exchange movement, the supply chain can generally swallow the costs and move on. Profits will be lower within the supply chain, but production will continue, as it is too lucrative to simply shut everything down.

Do not be deceived, however: Supply chains are not indestructible. If the new costs or risks are high enough, the entire structure will be dismantled. By their nature, supply chains do not fall apart slowly, because each part of the chain relies upon other parts to add its value. It does not help much to have the circuit components of the iPhone lined up, for instance, if you cannot also produce the glass screens. In this way, these supply chains are less robust under extreme conditions.

Global supply chains have yet to come apart mostly because trade and prosperity generally have been rising. But now, for the first time since World War II, the global economy faces the possibility of a true decoupling of many trade connections.

It is not sufficiently well understood how rapid that process could be. A complex international supply chain is fragile precisely for the same reasons it is valuable — namely, it is hard to construct and maintain because it involves so many interdependencies.

The nature of the cross-national supply chain makes it especially vulnerable to shocks coming from the coronavirus. These supply chains do not adapt so well to complete cutoffs in materials or labor, as may happen if Chinese coronavirus casualties continue and workplaces find it hard to operate effectively.

Imagine that closed Chinese factories cannot produce the components of many American medicines. It is not a question of the supply chain simply losing some profits; rather, some critical pieces of the production process are missing. The medicines won’t work without these inputs. The U.S. medical establishment might try to source those components elsewhere, but it isn’t easy for other suppliers to produce enough of them at sufficient scale and quality.

U.S. medical producers might try to bid more for the Chinese medicine components, but if the workers are prohibited from even showing up at the factory, no feasible market clearing price can make this arrangement work. Production just won’t be possible. Fashionable practices of near-zero inventories can make these shortages appear all the more rapidly. About 80% of the active pharmaceutical ingredients in U.S. medicines rely on Chinese or Indian components, so this does represent a very real public health risk for the U.S., even if the coronavirus itself does not.

You will note that when it comes to ex ante planning, companies do not in general internalize the costs of a supply chain cut-off to their customers, since consumer surplus for the infra-marginal buyers exceeds market price.  Supply chain are thus too fragile relative to an optimum, though that matters only under very limited circumstances, as we may be seeing right now.

Environmental impact statements can do great harm

In pursuit of federal approval for the nation’s first congestion pricing scheme, the one officials suggested would launch in January 2021, the question was this: Should New York State and New York City conduct a quick “environmental assessment” or a full scale “environmental impact statement,” a process that could take years?

Federal officials didn’t provide a definitive answer in that meeting, nor have they since.

That haziness puts MTA officials, and the massive system-wide rehabilitation plan whose funding is reliant on congestion pricing, in a serious bind.

Here is the full story, via Austin V.

Canine collar markets in everything

There are a lot of great options for dog collars on the market, but none of them will amuse you quite like the Cuss Collar from Mschf Labs. It’s a relatively simple product that combines a patent leather collar strap with an injection-molded speaker that does exactly what you think it does–it swears every time your dog barks. After all these years, it turns out Fido wasn’t saying things like “I love you,” “let’s go for a walk,” or “feed me,” he was saying things like “motherf#*ker,” “shit,” and all kinds of other expletives.

Here is the full story, via Michael.

Tuesday assorted links

Lubbock, Texas notes

Hill BBQ is perhaps the best I have had — ever.  It is open Thursday and Saturday only, get the burnt ends and beef ribs.  Next in line is Evie Mae’s, better known on the barbecue circuit, but still mostly unsullied by tourists and so the lines remain manageable.

There is no real center of town, but you can visit the world’s largest windmill museum (it is windy there), a prairie dog park, and Robert Bruno’s self-constructed, funky Steel House on a nearby lake.  There are Confederate memorials remaining by the main courthouse.  You will see tumbleweed.  There is a strange man walking around town with a tricolor hat.

The economy is cotton, health care, and Texas Tech at about 40,000 students.  Buddy Holly was from Lubbock.

It still has a strong regional feel, much as say parts of the Dakotas do.  The dinosaur displays in the museum are labeled “The Original Longhorns.”

I would go long on Lubbock: no NIMBYs (yet), the housing stock is rising in quality, they are opening an entertainment center downtown, and it could be the next Marfa but on a larger scale.  What’s not to like?

How valuable is social impact investing?

Perhaps it is overrated? That is the theme of my latest Bloomberg column, here is one excerpt:

A second risk is that social impact investing simply redistributes wealth from investments — maybe to less socially conscientious individuals. Imagine a socially conscious investment firm that declines to participate in the initial public offering of a company that pollutes the ocean. That might create downward pressure on the price of the IPO. But there is a problem: The value of the actual investment has not declined, so at a potentially lower IPO price other investors will step in to fill the demand. In fact, those investors may have the chance to buy at a discount and earn a higher return than otherwise.

The net result is that conscientious investors have missed out on a profitable opportunity, while less socially aware investors have earned more. Over time, the less socially aware investors will become richer, and their greater wealth may translate into greater political and economic influence.

That also put less conscientious investors in control of the firm.  And:

It is also difficult to monitor the performance and social efficacy of the funds focused on doing good. In actively managed sustainable equity funds, for example, the most commonly held stocks are estimated to be Microsoft, Alphabet, Visa, Apple and Cisco. I have nothing against those companies, but you have to wonder exactly how much social improvement those investment funds are buying.

So many matters in today’s America are increasingly performative, and so:

It is increasingly difficult for businesses and investment funds to perform their proper work under the glare of perpetual debate and periodic condemnation.


Commuting markets in everything?

From Palo Alto to San Francisco in 15 minutes.

Hello, Palo Alto residents!

We are an early-stage startup that is aiming to shorten your commute times. We use state-of-the-art Electric Vertical Takeoff and Landing aircrafts. We have just opened access to early flights:

You would be able to fly from Palo Alto to San Francisco in about 15 minutes for about $23 one-way.

It would mean a lot to us if you could share some feedback and if this kind of service would be beneficial to you.

Thank you so much!

Here is the link, via tekl.

Monday assorted links

Royal sentences to ponder

Meghan and Harry insist Queen Elizabeth doesn’t own the word ‘royal’

Prince Harry and Meghan Markle laid bare their hostility with Buckingham Palace — by insisting that neither Queen Elizabeth nor the UK Government owns the word “royal” internationally.

Hours after the Duke and Duchess of Sussex confirmed on Friday they would not go ahead with their planned “Sussex Royal” brand after The Queen put a stop to it, they posted an extraordinary statement on their website insisting they still had the right to the word “royal.”

The statement reads: “While there is not any jurisdiction by The Monarchy or Cabinet Office over the use of the word ‘Royal’ overseas, The Duke and Duchess of Sussex do not intend to use ‘Sussex Royal’ or any iteration of the word ‘Royal’ in any territory (either within the UK or otherwise) when the transition occurs Spring 2020.”

Here is the full story, via Ted Gioia.

That was then, this is now — pandemic response capabilities

From 2005:

Before adjourning last week, the US Senate passed and sent to President Bush a bill providing $3.8 billion for pandemic influenza preparedness and a controversial liability shield for those who produce and administer drugs and vaccines used in a declared public health emergency.

The preparedness funding and liability protection were part of the fiscal year 2006 defense spending bill passed by the Senate on the evening of Dec 21. The bill had cleared the House 2 days earlier.

The $3.8 billion for pandemic preparedness is a little more than half of the $7.1 billion Bush had requested in early November. House Republican leaders said last week the measure would fund roughly the fiscal year 2006 portion of Bush’s request.

As reported previously, the amount includes $350 million to improve state and local preparedness and directs the Department of Health and Human Services (HHS) to use most of the rest on “core preparedness activities,” including increasing vaccine production capacity, developing vaccines, and stockpiling antiviral drugs.

The liability provision offers broad legal protection for the makers of drugs, vaccines, and other medical “countermeasures” used when the HHS secretary declares an emergency. The provision says people claiming injury from a medical countermeasure can sue only if they prove “willful misconduct” by those who made or administered it. The bill calls for Congress to set up a compensation program for injuries, but it provides no funds for that purpose.

…But Sen. Edward Kennedy, D-Mass., and some other Democrats, along with consumer groups such as Public Citizen, derided the liability provision as a giveaway to the drug industry.

I am pleased to have argued for this in the time period leading up to this legislation, let us continue to hope we do not need it.