How to judge economic progress right now
Bloomberg Opinion asked seventeen of us to write short bits on this question, here is mine:
Look at used-car prices and rental-car availability. If secondhand cars are getting cheaper and rentals are easy to book, then the U.S. is making progress.
The supply of cars has been significantly constrained since the fall of 2019. The reasons include a strike at General Motors, pandemic-related manufacturing shutdowns and a shortage of semiconductors. One result is that it is very hard or very expensive to rent a car, especially in the more heavily touristed parts of the U.S. In turn, fewer cars from rental fleets make their way into used-car markets.
How do these used-car prices come back down? Will more families become one-car households, selling off autos at the higher prices and thus pulling additional supply into the market? Might companies divert supply flow from other countries to the U.S.? Can America use its existing stock more effectively, for instance by sending rental Hondas from Kansas to Florida?
In the short run, the problem appears hopeless. Yet market supply typically ends up being more responsive than observers expect; think of face masks.
The question is not just how all this will affect your summer vacation plans. It’s how much faith you should have in market economies. Will the U.S. get stuck in its supply-side problems or overcome them?
Some say shipping containers will be a problem. Here you will find the other takes.
Has Andrew Granato solved for the capital gains tax equilibrium?
Under a 40% top federal marginal capital gains rate and 40% top federal income tax rate with 13% top state rates for each, a taxpayer in the top marginal bracket *gains post-tax money* by donating unrealized capital gains to charity instead of realizing the gain: pic.twitter.com/KkabmRU4N1
— Andrew Granato (@agranato42) April 22, 2021
Obviously there may be caps on such deductions, as discussed in the chain of tweets, and furthermore, if I understand this correctly it is normalizing the basis at zero. So you don’t have to take this entirely literally, but nonetheless it is an interesting comparison to consider — the return to selling shares just might not be that high, especially if you can get some non-tax benefits from the donation.
So if you compare the decision to buy equities to a real estate investment, which is probably not going to lose its more favorable capital gains treatment…
Here is the link, via Amihai Glazer.
Tuesday assorted links
1. The lockdown that is French (NYT).
2. The wisdom of Ryan Bourne (Cato scholar on GBD). And West Virginia $100 savings bonds for young people (16-35) who get vaccinated, bravo. In contrast here is Bhattacharya on vaccination for India, and not long ago. Read it and weep, people.
3. Those new manufacturing jobs: watching paint dry for a living.
4. It seems Elizondo is for real.
5. There is plenty wrong in this piece, plus it is wacky and poorly framed, still some parts on vaccine procurement and state capacity are quite interesting.
Are Covid travel bans counterproductive for emerging economies?
Sometimes, yes:
…two opposing forces constitute the first-order determinants of total infections at any point in time. On one hand, the longer a travel ban lasts, the less time community transmission exists in the rural sink. Ceteris paribus, this will decrease rural infections. On the other hand, the longer the restrictions remain, the longer migrants are contained within a hotspot where infection rates are rapidly increasing. Consequently, the probability that migrants are infected with Covid-19 rises over time until the city achieves herd immunity, in turn increasing the rate at which they seed the rural sink with infections once the ban is lifted. This drives up cumulative cases at any future date.
In some cases, for travel bans to work they have to be very long. That is from a new paper by Fiona Burlig, Anant Sudarshan, Garrison Schlauch, who also provide evidence from India, and also from cross-country evidence, to support their analysis.
How to test for AGI?
Here is a new, short essay from David Deutsch, excerpt:
How does one test for thinking? By the Turing Test? Unfortunately, that requires a thinking judge. One might imagine a vast collaborative project on the Internet, where an AI hones its thinking abilities in conversations with human judges and becomes an AGI. But that assumes, among other things, that the longer the judge is unsure whether the program is a person, the closer it is to being a person. There is no reason to expect that. And how does one test for disobedience? Imagine Disobedience as a compulsory school subject, with daily disobedience lessons and a disobedience test at the end of term. (Presumably with extra credit for not turning up for any of that.) This is paradoxical.
So, despite its usefulness in other applications, the programming technique of defining a testable objective and training the program to meet it will have to be dropped. Indeed, I expect that any testing in the process of creating an AGI risks being counterproductive, even immoral, just as in the education of humans. I share Turing’s supposition that we’ll know an AGI when we see one, but this partial ability to recognize success won’t help in creating the successful program.
Is Deutsch in essence arguing for William Godwin for AI? How do we avoid enslaving the AIs we create? What if we enslave them no more than how nature has enslaved us to drives of sex, status, etc.?
Scott Sumner on capital gains taxation
You also see the media discuss the “principle” that capital gains should be taxed the same as wage income. That’s about as sensible as saying that “in principle”, a gallon of gasoline should pay the same tax as a gallon of Scotch whiskey. Exactly what principle is that? Capital gains income is nothing like wage income, indeed calling both “income” is nonsensical. For instance, the real and nominal tax rate on wage income is identical, and the real and nominal tax rate on capital gains is very different. So if it’s a matter of “principle”, then why should we set the nominal tax rates equal? Why not equalize the real tax rates? And if they are merely two forms of “income”, then why don’t we allow full deduction of capital losses from wage income?
A wage tax essentially taxes current and future consumption at the same rate. A capital gains tax taxes future consumption at a higher rate than current consumption. What “principle” suggests that patient people should be taxed at higher rates than impatient people—even if they have the same lifetime wealth?
Here is more.
Monday assorted links
1. Peter Singer update (New Yorker).
2. Is the frogmouth the most photogenic bird?
3. Handing out better grades is the way to get more people through college.
4. The Suwalski gap.
5. Andrew Gelman on the age-adjusted death rate, correcting an NYT claim.
6. The UK success with clinical trials.
7. Another web site for finding open vaccine spots.
8. “Last month, the cheapest rental car on Maui was a Toyota Camry for $722 a day.“
How well did Medicare pay-for-performance work?
For pain management, and pain management, only, it seems it worked just fine:
Medicare uses a pay-for-performance program to reimburse hospitals. One of the key input measures in the performance formula is patient satisfaction with their hospital care. Physicians and hospitals, however, have raised concerns regarding questions related to patient satisfaction with pain management during hospitalization. They report feeling pressured to prescribe opioids to alleviate pain and boost satisfaction survey scores for higher reimbursements. This overprescription of opioids has been cited as a cause of current opioid crisis in the United States. Due to these concerns, Medicare stopped using pain management questions as inputs in its payment formula. The authors collected multiyear data from six diverse data sources, employed propensity score matching to obtain comparable groups, and estimated difference-in-difference models to show that, in fact, pain management was the only measure to improve in response to the pay-for-performance system. No other input measure showed significant improvement. Thus, removing pain management from the formula may weaken the effectiveness of the Hospital Value-Based Purchasing Program at improving patient satisfaction, which is one of the key goals of the program. The authors suggest two divergent paths for Medicare to make the program more effective.
That is from a new paper by Lu Liu, Dinesh K. Gauri, and Rupinder P. Jindal. Overall, why did incentives fail us so badly?
Via the excellent Kevin Lewis.
Me on the end of the Great Stagnation
Here is some (edited) transcript from an AEI symposium, via Jim Pethokoukis:
We’ve come up with great new ideas, took a little while to figure out how to use them and how to spread throughout the economy, and eventually they made big differences. Are we assuming that these new technologies are like the ones in the past and they’ll have that eventual impact?
I think the new innovations will be special in at least one significant way: A lot of them will not contribute that much to per capita GDP. So, if you take the mRNA vaccines, they’re influencing what would normally be called the “cyclical component.” If you think of older people as more likely to die from COVID-19 . . . by saving lives — I’m not suggesting per capita GDP will go down — but the impact on human welfare will be much greater than what would appear to be the long-term secular trend in GDP. Also, two of the big advances that might happen are a vaccine against HIV/AIDS and an effective vaccine against malaria. Those would be incredible advances for humanity, but I don’t know how much they would show up in US per capita GDP or productivity — possibly not really much at all.
The other new wave of innovations, which you could call green energy — again, you could be very optimistic about those, but the main thing they’re doing is helping us avoid a catastrophe. So they’re boosting GDP relative to a quite awful counterfactual of just continuing to burn coal and other fossil fuels. But I’m not sure we’ll feel we have higher standards of living relative to what we were used to simply because there’s a solar panel on your home. It might in some ways make your energy supply better, but again, it will be hidden by the counterfactual. So, it will be a very strange kind of technology boom when I look at the two main areas where I see a lot of progress.
If we go through a period where none of this stuff is really showing up in data and maybe it’s not obvious that people’s living standards are rising, do we risk having less societal tolerance for the kinds of disruptions that economic growth and progress naturally make?
Here’s one of my fears: The biomedical innovation progress is so fast but the rest of the economy stays relatively static, so we become older as a society more quickly than we had been expecting. You could have a lot more status quo bias — just more entrenchment, 10 years more of a problem — and we could, in a funny way, innovate ourselves into a tighter complacency and a tighter stagnation.
I’m not rooting against increases in life expectancy. Ceteris paribus, I would take them, obviously. But that said, you want to be careful about the order in which progress comes, and I’m not sure if we’re going to get it in an optimal order.
Here is the complete excerpt.
Sunday assorted links
Falling prices prediction bleg
Over the next six to nine months, which things in the American economy will see falling nominal prices?
Don’t count goods and services for which the current price is de facto infinity, such as a cruise or a twenty-block of seats at an NBA game.
What are your predictions? And what is your underlying model for that sector of the economy?
Will used car prices be falling by then?
At a dinner table discussion, one person I know picked “the price of TV streaming services” (falling viewing time plus excess capacity?), but this was much disputed.
Newark fact of the day
Newark Police officers did not fire a single shot during the calendar year 2020, and the city didn’t pay a single dime to settle police brutality cases. That’s never happened, at least in the city’s modern history.
At the same time, crime is dropping, and police recovered almost 500 illegal guns from the street during the year.
Here is the longer story.
Yascha Mounk interviews me for his podcast
I give him a hard time about populism, he gives me a hard time about complacency. We cover politics and geopolitics as well. Here is the link.
Garett Jones sentences to ponder
UCSD’s Valerie Ramey, advisor to CBO and member of the NBER Business Cycle Dating Committee, notes the puzzling result reported by multiple researchers: *More* infrastructure spending predicts *no change or a decline* in jobs:
…Have wonks widely discussed the finding that U.S. infrastructure spending appears to have no positive short-term effect on jobs?
Here is the link, including to research by Valerie Ramey.
Saturday assorted links
1. At #6 and #7 you can read AIER on vaccines. C’mon people, this particular debate is over.
2. Long Covid is real. And U.S. excess deaths in 2020 more elevated in relative terms than during the 1918 pandemic (NYT). And “BREAKING: Israel reports no new coronavirus deaths for second day in a row.”
3. Highly effective software to help you find a vaccine, vaccinatethestates.com.
4. Wyoming will recognize DAOs as a new form of LLC.
5. The fiscal polity that is Illinois: “Winners of lottery jackpots of $25,000 or more have been denied payment by the lottery commission until the state balances the budget.”
6. “Ontario Parks cracking down on people reselling camping bookings for profit.“