Month: May 2020
Tuesday assorted links
2. Conor Sen catnip: “For example, people in New York travel 38% fewer total kilometers and visit 14% fewer block-sized areas than people in Atlanta.” The paper has further interesting results.
3. What is the chance you know someone with coronavirus?
4. Pareto: the virtual start-up assistant. A new product and company. The founder is EV winner Phoebe Yao.
5. Case numbers and deaths in prisons, relative to what the models predicted.
6. A simple John Cochrane model of Covid-19. And further commentary along similar lines. Both recommended. Again, we are actually getting somewhere with these.
7. Houllebecq on Covid-19. And “How Yukon’s ‘one caribou apart’ physical distancing campaign became a sensation.“
What is non-optimal about current sorting?
In club theory, clubs have congestion costs and charge fees, in part to reflect those costs. If there are enough clubs, or non-convexities are not too severe, the voluntary outcome is roughly optimal.
So why then are guidelines for social distancing needed? Why can’t we just let consumers decide to stay away from stores or other venues that might be too dangerous?
The problem with pandemics is that congestion costs are endogenous, and not fixed as in the simple club models. If you get infected, congestion costs rise, and entry fees rise, increasing both congestion and exclusion (shut stores as one symptom of exclusion), both reducing the welfare of others. Individuals do not take those costs into account when deciding their risk of exposure.
Seller Reputation and Price Gouging
That is a new paper by Luís Cabral and Lei Xu, here is the abstract:
We test the theory that seller reputation moderates the effect of demand shocks on a seller’s propensity to price gouge. From mid January to mid March 2020, 3M masks were priced 2.72 times higher than Amazon sold them in 2019. However, the difference (in price ratios) between a post-COVID-19entrant and an established seller is estimated to be about 1.6 at times of maximum scarcity, that is, post-COVID-19entrants price at approximately twice the level of established sellers. Similar results are obtained for Purell hand sanitizer. We also consider cumulative reviews as a measure of what a seller has to lose from damaging its reputation and, again, obtain similar results. Finally, we explore policy implications of our results.
In other words, Amazon is afraid to raise its prices, presumably for a mix of reputational and regulatory reasons.
Why isn’t Belarus being hit harder?
This is from my email, from Hayden Murray:
I’m an American, who lives in Belarus…[various disclaimers]
There’s no doubt that the government is underreporting Coronavirus deaths here, but also there’s no denying that there is very little problem. I don’t know anyone affected, (or even anyone that knows anyone,) yet I know many in California.
I think you were probably at least somewhat right with your idea that low consumption is already part of the culture. I think the difference in deaths is primarily due to better isolating the elderly, though. I’ve never seen an elderly person at a restaurant here, and I’ve been here for years. Compare this to California – and I mainly see older people (and often quite elderly) people at restaurants.
In addition, it seems that most elderly people in Belarus live in villages – which are often extremely isolated, even in normal times. Also, I have never heard of a nursing home here. I’ve seen many families taking care of extremely old family members, though. So, maybe this alone could explain some major differences. Couldn’t find hard stats on it though. But, putting all our most vulnerable into place, and then shuffling low-wage workers in and out constantly – seems like a recipe for disaster right now.
A multi-risk SIR model with optimally targeted lockdown
Or you could say “all-star economists write Covid-19 paper.” Daron Acemoglu, Victor Chernozhukov, Iván Werning, and Michael D. Whinston have a new NBER working paper. Here is part of the abstract:
For baseline parameter values for the COVID-19 pandemic applied to the US, we find that optimal policies differentially
targeting risk/age groups significantly outperform optimal uniform policies and most of the gains can be realized by having stricter lockdown policies on the oldest group. For example, for the same economic cost (24.3% decline in GDP), optimal semi–targeted or fully-targeted policies reduce mortality from 1.83% to 0.71% (thus, saving 2.7 million lives) relative to optimal uniform policies. Intuitively, a strict and long lockdown for the most vulnerable group both reduces infections and enables less strict lockdowns for the lower-risk groups.
Note the paper is much broader-ranging than that, though I won’t cover all of its points. Note this sentence:
Such network versions of the SIR model may behave very differently from a basic homogeneous-agent version of the framework.
And:
…we find that semi-targeted policies that simply apply a strict lockdown on the oldest group can achieve the majority of the gains from fully-targeted policies.
Here is a related Twitter thread. I also take the authors’ model to imply that isolating infected individuals will yield high social returns, though that is presented in a more oblique manner.
Again, I would say we are finally making progress. One question I have is whether the age-specific lockdown in fact collapses into some other policy, once you remove paternalism as an underlying assumption. The paper focuses on deaths and gdp, not welfare per se. But what if older people wish to go gallivanting out and about? Most of the lockdown in this paper is for reasons of “protective custody,” and not because the older people are super-spreaders. Must we lock them up (down?), so that we do not feel too bad about our own private consumption and its second-order consequences? What if they ask to be released, in full knowledge of the relevant risks?
Monday assorted links
1. Opioid deaths appear to be surging.
2. Varun’s predictions about the future.
3. U.S. prison CFR simulator (by Paul Novosad).
4. Isaac Chotiner interviews Paul Romer.
5. You Can Now Get a Face Mask With Your Favorite Disney, Marvel, and Star Wars Characters. And price gouging could fix our mask shortage.
6. The friend number paradox. And Hobbes and plague.
7. Brewing trouble in the mortgage market.
8. Matt Parlmer thread, recommended.
9. Report on Buffett and Munger.
10. Straussian Swedes?: “In my household my opinion counts for little, and she has continued to live her life pretty normally (her high-school classes went online, however).”
In the Race for a Coronavirus Vaccine, We Must Go Big
Today in the New York Times I have an op-ed with Susan Athey, Michael Kremer and Christopher Snyder. We argue for a big program to invest in vaccine capacity before any vaccine is tested and approved. We agree with Bill Gates that we want the vaccine factories to be warmed up by the time a vaccine is approved. We can’t leave it all to Gates, however. The US economy is hemorrhaging $150-$350 billion a month so the benefits of a vaccine to society are huge and we should go big.
Today, the U.S. government could go big and create a Covid-19 vaccine A.M.C., guaranteeing to spend about $70 billion on new vaccines — enough to make direct investments to support capacity installation or to repurpose capacity and to pay, say, $100 per person for the first 300 million people vaccinated.
An investment of that size can anticipate and overcome several challenges typical of vaccine development. If we want to achieve a 90 percent probability of success, we must take into account historical rates of success from publicly available data; doing that suggests that we need to actively pursue not two or three vaccine candidates, but 15 to 20.
…Usually, to avoid the risk of investing in capacity that eventually proves worthless, firms invest in large-scale capacity only after the vaccine has proved effective. But in the middle of a pandemic, there are huge social and economic advantages to having vaccines ready to use as soon as they have been approved. If we leave it entirely to the market, we will get too little vaccine too late.
An advance market commitment for Covid-19 should combine “push” and “pull” incentives. The “pull” incentive is the commitment to buy 300 million courses of vaccine at a per-person price of $100, for vaccines produced within a specified time frame. If multiple vaccines are developed, the A.M.C. fund will have authority to choose products to purchase based on efficacy, the availability of sufficient vaccine for timely vaccination or suitability for different population groups. So firms compete to serve the first 300 million people with the most attractive vaccines, and the “pull” component provides strong incentives for both speed and quality.
The “push” incentive guarantees firms partial reimbursement for production capacity built or repurposed at risk and partial reimbursement as they achieve milestones. The partial reimbursement ensures that manufacturers have “skin in the game,” while inducing them to build large-scale capacity before approval is certain.
More than usual, read the whole thing and please do help to circulate the ideas by posting and tweeting.
The op-ed draws on the work of a large team of economists and statisticians who have been working days and nights for weeks. You can find out more at AcceleratingHT where we will soon be posting additional analysis and tools.
It’s a great privilege for me to be working with this group. One day I will write the story but for now let me just say that I have never seen such a brilliant and dedicated group come together to apply their skills to a problem of such importance and urgency.
What I’ve been reading
1. Ethan Sherwood Strauss, The Victory Machine: The Making and Unmaking of the Warriors Dynasty. On top of everything else this is an excellent book on management, and the random events along the way to making a team (the Warriors once wanted to trade both Curry and Thompson for Chris Paul). Kevin Durant ends up as the fall guy, recommended to those who care.
2. Valerie Hansen, The Year 1000: When Explorers Connected the World — and Globalization Began. Worth reading, my favorite part was the discussion of how Cahokia in Mississippi was connected to the Mayans. And Chichen Itza is probably the world’s best preserved city from the year 1000.
3. Zena Hitz, Lost in Thought: The Hidden Pleasures of an Intellectual Life. “Drawing on inspiring examples, from Socrates and Augustine to Malcolm X and Elena Ferrante, and from films to Hitz’s own experiences as someone who walked away from elite university life in search of greater fulfillment, Lost in Thought is a passionate and timely reminder that a rich life is a life rich in thought.”
4. Alaine Polcz, One Woman in the War: Hungary 1944-1945. I am surprised this book is not better known. I found it deeper and more gripping than many of the more broadly recommended wartime memoirs, such as Viktor Frankl. And more honest about the toll of war on women.
5. Adam Thierer, Evasive Entrepreneurs and the Future of Governance: How Innovation Improves Economies and Governments. A very good libertarian, “permissionless innovation” look at tech.
I have browsed Judith Herrin’s Ravenna: Capital of Empire, Crucible of Europe, and it seems to be the definitive book on the early history of that city (one of my favorite one-day visits in the whole world).
What happened to male youth movements?
I’ve been wondering, at what point did youth movements dissipate in America (and the West more generally?). It seems to be a perfect opportunity for organization and deployment of 18-25 year old men, who are nearly unphased by covid.
As workers in essential meat plants, factories, and other labor intensive supply chains grow sick and die, it seems that having an organized workforce of young men prepared to temporarily take over would be an ideal situation. (Women of course have a role to play, but they are already playing an outsized role in medicine).
More generally, I’m reminded of your previous blog post ‘What the hell is going on?’. This type of event seems to be exactly what wayward young men live for — the ability to contribute to something greater than themselves. Combined with the fact that healthy young men are at remarkably low risk, isn’t the opportunity to support their country at little risk to themselves, and in return gain high status, the ideal situation?
What do you think the failure mode is here? Why does the idea of mobilizing a few thousand men or women in each locality to contribute to the greater good feel so weird? It’s so weird no one even suggests it. Could I suggest that this even feels embarrassing? Why?
That is from an email from Simon Riddell.
Sunday assorted links
1. The acquired immune system.
2. Latest update on Swiss cantons.
3. Maybe the smoking result is still holding up?
4. New Taiwan test and trace data. Better and more relevant numbers than I have been seeing.
5. How did Covid-19 disrupt the Treasuries market?
6. Were WWI helmets in some ways better for blast protection than current helmets?
7. The NYT covers heterogeneities in Covid-19 cases and fatalities. And here is the FT on Portugal vs. Spain. And why is the Covid-19 death rate so low in Israel?
8. Control without information.
9. David Goldhill is upset. My short summary would be: “Public health experts insist on RCTs except when it comes to their own policy recommendations.” That’s right, isn’t it?
10. Richard F. Fenno, political scientist, has passed away, possibly of Covid-19.
Why aren’t there more Covid-19 deaths in U.S. prisons?
There are about 2.3 million prisoners in the United States, and so far the number of reported Covid-19 deaths is 251, or higher by the time you are reading this. If you know of a better data source, please let me know.
For purposes of contrast, Rhode Island has about a million people and currently 266 deaths (and rising). Connecticut has 2,339 Covid-19 deaths, and a population of about 3.5 million, or in other words almost ten times the deaths as the prisons without having even twice the population. In other words, at least nominally the prison system seems to be doing better against Covid-19 than either The Nutmeg State or The Ocean State.
And I read this kind of line quite frequently:
Ohio officials found that more than 80% of those inmates had the virus with the vast majority showing no symptoms.
Yet asymptomatic cases in non-prison samples are often in the 40-50% range, not higher. Furthermore, the Bureau of Prisons just tested 2000 prisoners (how random a sample?…but don’t forget the false negatives!) and 70% tested positive. Again, the death rate does not seem to be through the ceiling.
How can this heterogeneity be? I see a few options:
1. Actual Covid-19 deaths in prisons are much higher than reported. This is quite possible, though I don’t see the media coverage that might go along with this. At the very least, prisons might have longer death reporting and classification lags than does Connecticut.
2. Prison deaths are about to explode, due to exponential growth in the number of cases and their progression through time. Again, this is quite possible, but you know what? I thought of writing this post a few weeks ago and then figured I would be refuted by an explosion of the death total over the next few weeks. So far it hasn’t happened. It may yet.
3. Prisoners are younger. Here is data on inmate ages, they are not that much younger than the general U.S. population. But they are somewhat younger, and surely this is one factor.
4. Prisoners smoke a lot, and nicotine actually may have protective properties against Covid-19. And is obesity low in prison? I do not know. Still, I don’t think of prisoners as a group in perfect physical health.
5. Prisoners are…um…locked up. The superspreaders just aren’t that super, there are not many new entrants to the prison population, few tourists from Italy, and so on. Not only do they live in cells, but the prison system as a whole is like thousands of scattered islands.
I see 1-5 all as possible significant options, with #4 as the weakest candidate. What else might be playing a role here?
Communism still matters liberty still matters
Those who grew up in East Germany seem to have a harder time cottoning to the realities of capitalism:
We analyze the long-term effects of living under communism and its anticapitalist doctrine on households’ financial investment decisions and attitudes towards financial markets. Utilizing comprehensive German brokerage data and bank data, we show that, decades after Reunification, East Germans still invest significantly less in the stock market than West Germans. Consistent with communist friends-and-foes propaganda, East Germans are more likely to hold stocks of companies from communist countries (China, Russia, Vietnam) and of state-owned companies, and are unlikely to invest in American companies and the financial industry. Effects are stronger for individuals exposed to positive “emotional tagging,” e.g., those living in celebrated showcase cities. Effects reverse for individuals with negative experiences, e.g., environmental pollution, religious oppression, or lack of (Western) TV entertainment. Election years trigger further divergence of East and West Germans. We provide evidence of negative welfare consequences due to less diversified portfolios, higher-fee products, and lower risk-adjusted returns.
That is from a new NBER paper by Christine Laudenbach, Ulrike Malmendier, and Alexandra Niessen-Ruenzi.
But if you are looking for a contrary point of view, consider this new paper by Sascha O. Becker, Lukas Mergele, and Ludger Woessmann:
German separation in 1949 into a communist East and a capitalist West and their reunification in 1990 are commonly described as a natural experiment to study the enduring effects of communism. We show in three steps that the populations in East and West Germany were far from being randomly selected treatment and control groups. First, the later border is already visible in many socio-economic characteristics in pre-World War II data. Second, World War II and the subsequent occupying forces affected East and West differently. Third, a selective fifth of the population fled from East to West Germany before the building of the Wall in 1961. In light of our findings, we propose a more cautious interpretation of the extensive literature on the enduring effects of communist systems on economic outcomes, political preferences, cultural traits, and gender roles
That said, I still believe that communism really matters, and durably so, even if the longer history matters all the more so. And now there is yet another paper on East Germany and political path dependence, by Luis R. Martinez, Jonas Jessen, and Guo Xu:
This paper studies costly political resistance in a non-democracy. When Nazi Germany surrendered in May 1945, 40% of the designated Soviet occupation zone was initially captured by the western Allied Expeditionary Force. This occupation was short-lived: Soviet forces took over after less than two months and installed an authoritarian regime in what became the German Democratic Republic (GDR). We exploit the idiosyncratic line of contact separating Allied and Soviet troops within the GDR to show that areas briefly under Allied occupation had higher incidence of protests during the only major episode of political unrest in the GDR before its demise in 1989 – the East German Uprising of 1953. These areas also exhibited lower regime support during the last free elections in 1946. We argue that even a “glimpse of freedom” can foster civilian opposition to dictatorship.
I take the core overall lesson to be that the eastern parts of Germany will experience significant problems for some time to come.
And speaking of communist persistence, why is it again that Eastern Europe is doing so well against Covid-19? Belarus is an extreme case, with hardly any restrictions on activity, and about 14,000 cases and 89 deaths. You might think that is a cover-up, but the region as a whole has been quite robust and thus it is unlikely to be a complete illusion. And no, it doesn’t seem to be a BCG effect.
Does communism mean there is less of a culture of consumption and thus people find it easier to just stay at home voluntarily? Or have all those weird, old paranoid communist pandemic ministries persisted and helped with the planning? Or what?
Double credit on this one to both Kevin Lewis and Samir Varma, neither less excellent in his conjunction with the other.
Heat and learning
By Jisung Park, Joshua Goodman, Michael Hurwitz and Jonathan Smith, in the latest issue of the AEA policy journal:
We demonstrate that heat inhibits learning and that school air conditioning may mitigate this effect. Student fixed effects models using 10 million students who retook the PSATs show that hotter school days in the years before the test was taken reduce scores, with extreme heat being particularly damaging. Weekend and summer temperatures have little impact, suggesting heat directly disrupts learning time. New nationwide, school-level measures of air conditioning penetration suggest patterns consistent with such infrastructure largely offsetting heat’s effects. Without air conditioning, a 1°F hotter school year reduces that year’s learning by 1 percent. Hot school days disproportionately impact minority students, accounting for roughly 5 percent of the racial achievement gap.
Here is the (gated) AEA link, here are alternate versions of the paper.
Saturday assorted links
1. Are the turning points of epidemics intrinsically unpredictable?
2. An increasing number of state governments are seizing unused gift cards as unclaimed property.
3. How much do work-related visitors predict coronavirus spread?
4. Jesús Fernández-Villaverde and Charles I. Jones now have a Covid-19 deaths tracker, very useful.
5. Six Covid-related deregulations to watch.
6. The variety of college plans.
7. Innate immunology? (NYT)
8. Deepak Lal has passed away.
9. A rogue pandemic view, speculative. And Kelsey Piper on the IHME model, recommended.
10. Meara O’Reilly, Hockets for Two Voices, short distraction, by the way she is the daughter of Tim O’Reilly.
A Pandemic Trust Fund
The Coronavirus Pandemic may be the most warned about event in human history. Surprisingly, we even did something about it. President George W. Bush started a pandemic preparation plan and so did Governor Arnold Schwarzenegger in CA but in both cases when a pandemic didn’t happen in the next several years those plans withered away. We ignored the important in favor of the urgent.
It is evident that the US government finds it difficult to invest in long-term projects, perhaps especially in preparing for small probability events with very large costs. Pandemic preparation is exactly one such project. How can we improve the chances that we are better prepared next time?
In a short paper for the Center for Growth and Opportunity I offer a different funding mechanism to address the problem:
…we would like organizations tasked with protecting the public from low-probability, high-cost events to be funded on a permanent basis that is not subject to budgetary discretion or degradation. Instead of yearly appropriations, it’s preferable to have a one-time appropriation to finance a stream of investments. The financial means of doing this is to buy a bond with an earmarked revenue stream. That is, instead of selling bonds the government buys long-term safe bonds which pay out dividends that are earmarked to a program, in this case to pandemic preparation.
There is a well-known example of such a financing scheme, the social security trust fund. The social security trust fund was established in 1937. It buys long-term safe bonds that pay dividends that are used to finance social security payments. Unlike the pandemic trust fund I propose, the Social Security Trust Fund buys bonds on an ongoing basis but that is a relatively unimportant difference.
The Social Security Trust Fund buys the safest form of government bonds, which has given rise to a long-standing controversy over whether the trust fund is a “fiction.”10Of course, the trust fund is a kind of fiction but so are federalism, checks and balances, and the Constitution. Fictions can be powerful because they create shared understandings that govern behavior and determine equilibrium action. The trust fund does what it says—it increases trust by indicating that Social Security payments are higher in creditor priority than other spending. Just as Section 507 of the Bankruptcy Code increases trust by indicating that secured bondholders get paid before unsecured creditors such as a company’s suppliers. Since 1937, the Social Security Trust Fund has always held net assets, and when it briefly ran deficits in the 1970s and early 1980s, the Greenspan commission was established to shore up the system.11 That is, the simple existence of the Trust Fund as an accounting entity created an awareness, which made it easier to act to maintain the Fund.
A Pandemic Trust Fund would begin with a $250 billion investment in bonds earmarked to pandemic preparations. At current effective rates of interest of about 3%, this is enough to support spending of $7.5 billion annually.12 Note that $7.5 billion is nowhere near enough to address the current pandemic, but that is because we did not invest enough in pandemic preparation. Had we invested $7.5 billion in pandemic preparation every year for the last two decades, for example, we would be in much better shape today. The $7.5 billion is for annual ongoing preparation.
…A Pandemic Trust Fund invested in $250 billion of government bonds is an accounting fiction that may be readily agreed upon today at the height of the crisis because it has few current costs. Yet, as we have discussed, accounting fictions can have real power in changing the future allocation of resources.
Read the whole thing, it is also includes some interesting info on clever DOD contracts that have advanced pandemic preparations.