Category: Current Affairs
The Economic Way of Thinking in a Pandemic
During the pandemic, economists often found themselves at odds with politicians, physicians, epidemiologists and others. Some politicians, for example, were worried that the pharma companies might engage in profiteering while economists worried that the pharma companies were not nearly profitable enough. Physicians focused on maximizing the health of patients while economists focused on maximizing the health of society–during the pandemic these were not the same and this led to disputes over testing, first doses first and human challenge trials. During the pandemic economists were often accused of not staying in their lane. But what is the economist’s lane?
In this talk, I discuss the economic way of thinking and how it conflicted with other ways of thinking. My talk pairs well with my recent paper also titled The Economic Way of Thinking in a Pandemic.
South Africa update
The African National Congress no longer regards privatisation as a “swear word” and has accepted that “bringing private sector money on board is not selling your soul”, said South Africa’s deputy president Paul Mashatile.
In an interview with the Financial Times at the end of a week-long investor roadshow to Britain and Ireland, Mashatile said South Africa’s new government, in which the ANC is sharing power with the market-leaning Democratic Alliance, had understood the need for more private investment in sectors such as energy, water and infrastructure. “We don’t have the money to do it, so we need the private sector,” said Mashatile, considered a potential successor to President Cyril Ramaphosa.
Investor sentiment towards South Africa has improved dramatically since the formation of the GNU, after 15 years in which the economy has barely grown against the backdrop of corruption scandals and government mismanagement of basic services.
The South African rand has risen more than 12 per cent against the US dollar this year, behind only the Argentine peso and Turkish lira. The Johannesburg bourse’s benchmark index is up 21 per cent in US dollar terms including dividends.
Here is more from the FT.
My excellent Conversation with Tom Tugendhat
Here is the audio, video, and transcript. Here is the episode summary:
Tom Tugendhat has served as a Member of Parliament since 2015, holding roles such as Security Minister and chair of the Foreign Affairs Select Committee. Before entering Parliament, Tom served in in Iraq and Afghanistan. He also worked for the Foreign Office, helped establish the National Security Council of Afghanistan, and served as military assistant and principal adviser to the Chief of the Defense Staff.
Tyler and Tom examine the evolving landscape of governance and leadership in the UK today, touching on the challenges of managing London under the UK’s centralized system, why England remains economically unbalanced, his most controversial view on London’s architecture, whether YIMBYism in England can succeed, the unique politics and history of Kent, whether the system of private schools needs reform, his pick for the greatest unselected prime minister, whether Brexit revealed a defect in the parliamentary system, whether the House of Lords should be abolished, why the British monarchy continues to captivate the world, devolution in Scotland and Northern Ireland, how learning Arabic in Yemen affected his life trajectory, his read on the Middle East and Russia, the Tom Tugendhat production function, his pitch for why a talented young person should work in the British Civil Service, and more.
And here is an excerpt:
COWEN: Okay. First question, what is your favorite walk around London, and what does it show about the city that outsiders might not understand?
TUGENDHAT: Oh, my favorite walk is down the river. A lot of people walk down the river. One of the best things about walking down the river in London is, first of all, it shows two things. One, that London is actually an incredibly private place. You can be completely on your own in the center of one of the biggest cities in the world within seconds, just by walking down the river. Very often, even in the middle of the day, there’s nobody there. You walk past things that are just extraordinary. You walk past a customs house. It’s not used anymore, but it was the customs house for 300, 400, 500 years. You walk past, obviously, the Tower of London. You walk past Tower Bridge. You walk past many things like that.
Actually, you’re walking past a lot of modern London as well, and you see the reality of London, which is — the truth is, London isn’t a single city. It’s many, many different villages, all cobbled together in various different ways. I think outsiders miss the fact that there’s a real intimacy to London that you miss if all you’re doing is you’re going on the Tube, or if you’re going on the bus. If you walk down that river, you see a very, very different kind of London. You see real communities and real smaller communities.
And:
COWEN: Can the British system of government in its current parliamentary form — how well can that work without broadly liberal individualistic foundations in public opinion?
TUGENDHAT: I think it works extremely well at ensuring that truly liberal foundations are maintained. I mean that not in the American sense; I mean in a genuine, the old liberal tradition that emerges from the UK in the 1700s, 1800s, where freedom of thought, freedom of assembly, the right to own property, and all those principles that then became embedded in various different constitutions around the world, including your own. I think it does very well at doing that because it forces you, our system forces you, into partnership. There are 650 people who you have to work with in some way in Parliament over the next four or five years.
And there’s four of us currently going for leadership at the Conservative Party. There’s one reason why, despite the fact that we’re competing almost in a US primary system, the way in which we are dealing with each other is very different, is because we’re all going to have to work together for the next four years. Whoever wins is going to have to work with the other three, and the idea that you can simply ignore each other isn’t true. There’s only 121 of us Conservative MPs in Parliament, and what this system forces on us is the need to deal with each other in a way that you have to deal with somebody if you’re going to deal with them tomorrow. I think that’s one of the reasons why the British political system has endured because it forces you to remember that there’s a long-term interest, not an immediate one, not just a short-term one.
Recommended, highly intelligent throughout, including on China, Russia, and Yemen.
How economists think about victims of natural disasters
That is the topic of my latest Bloomberg column, here is one excerpt:
First, whenever possible it is better to use private insurance, such as homeowner’s insurance and flood insurance, to protect against loss. One of the functions of insurance is to make losers at least partially whole after the fact, but another is to make risky decisions too expensive to contemplate in the first place.
This second function of insurance is especially important for Florida. The state is vulnerable to storms, so market prices for insurance should be allowed to adjust to higher levels, most of all for vulnerable properties. High prices in an area are a sign that building and renovation should not take place there. With fewer people living in vulnerable areas, the cost of storms will fall accordingly.
That sounds harsh, but “incentives matter” is the first and primary principle of economics, and sometimes incentives should be allowed to operate. Unfortunately, Florida has a state-run insurer of last resort which continues to bail out homeowners.
Political debates tend to frame this issue as whether to help poor, struggling homeowners. And indeed they may well suffer some terrifying losses because of storms. But whatever you think of such bailouts after the fact, with better incentives ahead of time, that issue will come up less often.
Economists are better at ex ante institutional design than at adjudicating all claims on the public purse ex post.
Advice that is not always heeded.
The Marginal Revolution Podcast: The Nobel Prize
We interrupt our regularly scheduled series of podcasts on the 1970s–first one here on inflation and monetary policy–to bring you a new podcast in honor of next week’s Nobel Prize in economics. Who will win? Who should win? Who should have won but didn’t? Who won but shouldn’t have?
Here’s one bit:
COWEN: I would give it to Robert Barro.
TABARROK: Okay. Tell me why you would give it to Robert Barro.
COWEN: “Are government bonds net wealth?” as a fundamental way of thinking about fiscal policy remains central. Also, he did early work on political business cycle theory. The status of cross-country growth regressions has fallen greatly. People once thought he might get it for that. That may now even be hurting his chances, but I think overall, what he’s created and done is enough for a Nobel Prize. He’s had five or six key articles in major macro fields.
TABARROK: Yes, I agree with you. I think you’re right about the cross-country regressions have fallen in favor over time, but still hugely important and really pushed the profession in that direction for a long time. Just because it’s not fashionable today doesn’t mean that it wasn’t a major contribution.
COWEN: It does mean fewer people will nominate him for fear of looking a bit low status, like, “Oh, you still think cross-country growth progressions are the thing.” I think it matters how many people nominate you in the early rounds.
TABARROK: Yes. I think it’s Barro’s birthday this week. He’s 80, I think.
I’d be pleased if Barro won, not for the least reason that he will be here at GMU next week which would be extra exciting if we can also celebrate a Nobel.
Here is the MR Podcast home page. Subscribe now to take a small step toward a much better world: Apple Podcasts | Spotify | YouTube.
Northern Ireland fact of the day
The NHS in Northern Ireland is the worst in the UK. During the quarter April/June 2021, over 349,000 people were waiting for a first appointment, 53 percent for over a year, an increase of 39,000 for the same period in 2020. Adjusted for population size, waiting lists in Northern Ireland are 100 times greater than those in England, a country 50 times its size.
That is from the truly excellent Perils and Prospects of a United Ireland, by Padraig O’Malley. Imagine a detailed, thoughtful 500 pp. book on political issues you probably don’t care all that much about — is there any better way to study politics and political reasoning? Every page of this book offers substance.
Elsewhere, of course, we are told that reluctance to give up their health care system is a major reason why Irish reunification is not more popular in the North, and that holds for Catholics too.
This one will make the best non-fiction of the year list.
The polity that is Russia
Russia’s parliament, the State Duma, is working on a law that aims to ban so-called child-free ideology which it sees as harmful to traditional values.
Vyacheslav Volodin, the chairman of the State Duma, the lower house of parliament, announced recently that fines for “propaganda of childlessness” will amount to up to 400,000 rubles ($4,300; €3,879) for individuals and up to 5 million rubles for companies.
This legislation is based on a 2022 law banning “LGBTQ+ propaganda.”
…The first draft of this new law to ban “child-fee ideology” was discussed in the State Duma in September 2022. The following year, special “family lessons” were introduced in schools. According to officials, their aim is to “form a healthy society” and increse the “popularization of large families.” Several parliamentarians have even raised the idea of imposing taxes on childless families.
At the same time, access to emergency contraception and abortion has been limited in Russia. New Health Ministry guidelines instruct medics on how best to dissuade woman from having an abortion, while many private clinics have lost their license to carry out abortions. Ten regions in Russia have imposed fines for “inducing” women to have abortions.
Here is the full story. Via Rasheed Griffith.
Scott Alexander on Milei
Monthly inflation went from 25% to about 4%. This is obviously great, but there are two small notes of concern.
First, the 25% number was just one really bad month. Inflation had been at a baseline of about 4% for most of the last five years. The immediately-pre-Milei government really cranked up the money printer in its last few months, increasing the numbers to 10% for a few months, and finally 25% for one really bad final month. Milei was able to get it down to its usual baseline of 4%, but I think he was hoping to get it lower. So far it’s been stubborn and stayed at the 4% level through the spring and summer.
Second, even 4% monthly inflation is awful. 4% monthly = 60% yearly. Remember, the United States briefly had 9% yearly inflation after COVID and people were livid. Argentina’s “good” “improved” inflation is still 7x that.
The case why culture is not stuck
From the excellent Katherine Dee, here is just one excerpt:
TikTok sketch comedy is in the same lineage of theater. It invites a suspension of disbelief from the audience, creators often play multiple characters, rapidly switching between roles with nothing more than a change in voice, facial expression, or camera angle. And importantly, it’s funny. When the whole feed is taken together, it’s almost digital vaudeville: a song, a short sketch, a physical feat, slapstick, animal acts and satire, one after another, in a personalized variety show on your phone.
And:
It’s a spectrum. At one end, we have Internet Personalities, with their cults of devotion. In the middle, we find fan culture, where some fans become prominent figures within their fandoms, stars in their own right. These Big Name Fans occasionally break out to create their own media kingdoms, as was the case with E.L. James, who authored Fifty Shades of Grey, itself originally Twilight fanfiction, and Cassandra Clare, who began in the Harry Potter fan community, before going on to write several popular fantasy series. At the other end of the spectrum are anonymous creators, whose approach to authorship is almost medieval: their projects are not about them as individuals, but the meme, the project, the aesthetic, the vision. They are less like the expressive individualists of Modern art, than the cathedral builders of the Middle Ages.
Much has been said about memes as art and the collective labor and imagination that goes into their creation, but it extends further than that. It’s not just memes. Creating mood boards on Pinterest or curating aesthetics on TikTok are evolving art forms, too. Constructing an atmosphere, or “vibe,” through images and sounds, is itself a form of storytelling, one that’s been woefully misunderstood and even undermined as shallow. Many of these aesthetics have staying power, like “coquette” and “cottagecore.” They’re not passing fads or stand-ins for personalities or subcultures. They are more than ever-evolving vectors for consumerism. They’re a type of immersive art that we don’t yet have the language to fully describe.
But that is the case with so much of what’s new. We won’t understand it until it’s in the rearview mirror.
Interesting throughout. Of course AI-aided creations will be the next step in this process. Maybe you don’t like a lot of these new forms, perhaps because they do not have the nobility and grandeur of say Bach. One simple point is that it is not optimal for every period in culture to focus on exactly what you want from it. This point is rarely recognized. Diversity across time is valuable as well!
Tariffs Hurt Manufacturing
In Disentangling the Effects of the 2018-2019 Tariffs on a Globally Connected U.S. Manufacturing Sector (forthcoming) Aaron Flaaen and Justin Pierce of the Federal Reserve Board write:
The unprecedented increase in tariffs imposed by the United States against its major trading partners in 2018-2019 has brought renewed attention to the economic effects of tariffs. While vast theoretical and empirical literatures document the effects of changes in trade policy, it is not clear how prior estimates apply when there are virtually no modern episodes of a large, advanced economy raising tariffs in a way comparable to the U.S. during this period. Further complicating estimation of the effects of tariffs is the rapid expansion of globally interconnected supply chains, in which tariffs can have impacts through channels beyond their traditional effect of limiting import competition.
Another important feature of these tariffs is that they were imposed, in part, to boost the U.S. manufacturing sector by protecting against what were deemed to be the unfair trade practices of trading partners, principally China. Thus, understanding the impact of tariffs on manufacturing is vitally important, as some may view the negative consequences of tariff increases documented in existing research—including higher prices, lower consumption, and reduced business investment—as an acceptable cost for boosting manufacturing activity in the United States.
…On the one hand, U.S. import tariffs may protect some U.S.-based manufacturers from import competition in the domestic market, allowing them to gain market share at the expense of foreign competitors. On the other hand, U.S. tariffs have also been imposed on intermediate inputs, and the associated increase in costs may hurt U.S. firms’ competitiveness in producing for both the export and domestic markets. Moreover, U.S. trade partners have imposed retaliatory tariffs on U.S. exports of certain goods, which could again put U.S. firms at a disadvantage in those markets, relative to their foreign competitors. Disentangling the effects of these three channels and determining which effect dominates is an empirical question of critical importance.
…Our results suggest that the traditional use of trade policy as a tool for the protection and promotion of domestic manufacturing is complicated by the presence of globally interconnnected supply chains and the retaliatory actions of trade partners. Indeed, we find the impact from the traditional import protection channel is completely offset in the short-run by reduced competitiveness from retaliation and especially by higher costs in downstream industries…[the] net effect is a relative reduction in manufacturing employment.
Most famously, Whirlpool predicted that tariffs on washing machines would be great for Whirlpool profits, but their pleasure turned to dismay when they realized that steel and aluminum tariffs would raise their input prices.
Hat tip: The excellent Kevin Lewis.
There are not 13,099 Illegal Immigrant Murderers Roaming Free on American Streets
Migrants incarcerated for homicide are considered “non-detained” by ICE when they are in state or federal prisons. When ICE uses the term “non-detained,” they mean not currently detained by ICE. In other words, the migrant murderers included in the letter are overwhelmingly in prison serving their sentences. After they serve their sentences, the government transfers them onto ICE’s docket for removal from the United States.
And that is only part of the mistake in the numbers you may have heard. Here is more from Alex Nowrasteh:
The third untrue claim is that these 13,099 migrants convicted of homicide committed their crimes recently. Those migrant criminal convictions go back over 40 years or more. Confusion over the period covered by a dataset afflicts the interpretation of other criminal datasets too. If there really were 13,099 migrants convicted for domestic homicides in 2023, then they would have accounted for about 99 percent of all homicide convictions in the U.S. last year despite being about 4 percent of the population. That is obviously not the case because no group of people is criminally overrepresented by a factor of 25 above their share of the population. Even when the 13,099 homicide convictions of migrants are spread out over the entire Biden administration, migrants would have accounted for about one-third of all homicide convictions from 2021 through 2023. That’s obviously not true. The problem comes from erroneously increasing the numerator (the number of homicide convictions) for a single year and decreasing the denominator (the total number of homicide convictions in just one year) rather than spreading out the convictions and the total number of all murders over a 40-plus year period.
As a side observation:
Here is the whole essay. Tweetstorm here. Via Naveen.
Carrying costs > liquidity premium, and not only pandas have a fertility crisis
A zoo in Finland has agreed with Chinese authorities to return two loaned giant pandas to China more than eight years ahead of schedule because they have become too expensive for the facility to maintain amid declining visitors.
The private Ähtäri Zoo in central Finland some 330 kilometers (205 miles) north of Helsinki said Wednesday on its Facebook page that the female panda Lumi, Finnish for “snow,” and the male panda Pyry, meaning “snowfall,” will return “prematurely” to China later this year.
The panda pair was China’s gift to mark the Nordic nation’s 100 years of independence in 2017, and they were supposed to be on loan until 2033.
But since then the zoo has experienced a number of challenges, including a decline in visitors due to the 2020 coronavirus pandemic and the conflict between Russia and Ukraine, as well as an increase in inflation and interest rates, the facility said in a statement.
Here is the full NPR story.
Newsom vetoes AI bill
California Gov. Gavin Newsom has vetoed a controversial artificial-intelligence safety bill that pitted some of the biggest tech companies against prominent scientists who developed the technology.
The Democrat decided to reject the measure because it applies only to the biggest and most expensive AI models and leaves others unregulated, according to a person with knowledge of his thinking. Smaller models could prove just as problematic, and Newsom would prefer a regulatory framework that encompasses them all, the person added.
Had Newsom signed the bill into law, it would have laid the groundwork for how AI is regulated across the U.S., as California is home to the top companies in the industry. Proposals to regulate AI nationally have made little progress in Washington.
The governor is hoping to work with AI researchers and other experts on new legislation next year that could tackle in a more comprehensive way the same concerns of the bill he vetoed—about AI acting in ways its designers didn’t intend and causing economic or societal damage, the person with knowledge of his thinking said.
Here is more from the WSJ.
Crime vs. disorder
A similar pattern emerged in my recent report on crime in Washington, D.C. There, too, there are signs that disorder has risen, relative to both the pandemic and pre-pandemic, as the police have attended to it less. Unsheltered homelessness, unsanitary conditions, shoplifting, farebeating—all seem to have become more common in D.C. And those problems have come as a smaller police force has deprioritized order enforcement—if you look at table 2 of that report, you’ll see that arrests for minor crimes were down as much as 99% in 2023 relative to 2019.
I increasingly think this is a more general phenomenon. Disorder is not measured like crime—there is no system for aggregating measures of disorder across cities. But if you look for the signs, they are there. Retail theft, though hard to measure, has grown bad enough that major retailers now lock up their wares in many cities. The unsheltered homeless population has risen sharply. People seem to be controlling their dogs less. Road deaths have risen, even as vehicle miles driven declined, suggesting people are driving more irresponsibly. Public drug use in cities from San Francisco to Philadelphia has gotten bad enough to prompt crack-downs.
These are fuzzy signals, but they jive with my personal experience (for whatever that is worth). In the half-dozen cities I’ve visited in the past year, visible disorder has been a common feature.
Here is more from Charles Fain Lehman.
On the price of Ozempic
That is the topic of my latest Bloomberg column, here is one excerpt:
As for consumer prices for the current obesity drugs, they are not as high as is often reported, once the various ways to get a discount are taken into account. Despite reports that the drugs cost $1,000 per month, the reality is more favorable. Even putting aside insurance coverage, readily available discounts can cut that price in half. Eli Lilly & Co. recently introduced online sales of Zepbound vials for $399 a month.
Lurking in the background are “compounded” versions of these drugs, which are pharmacy-produced copies, permitted by law when there is a shortage of the core drugs. These compounds do not undergo the same inspection processes as the brand names, and their safety and efficacy has been questioned. But they are easy to get and relatively cheap. This is an example of competition, however imperfect and in need of oversight, lowering prices — and in a less clumsy manner than a government price control.
Are we right now getting anything close to optimal price discrimination, or not?