Category: Current Affairs
Be Like Mommy and Daddy: Markets in Everything
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Which small changes in pandemic habits will stick?
That is the topic of my latest Bloomberg column, here is one excerpt:
I for one will miss the Saturday evening Zoom meeting. Since the pandemic started, I have found it easy to schedule calls at 5:30 or 6:30, even when more than one person is involved. Everyone just says yes. Why not? You’re not going out to the movies or dinner. Even if you think Zoom calls are oppressive — especially if you think Zoom calls are oppressive — it is better to have somewhere to put your marginal Zoom call other than 2 o’clock on a Thursday afternoon.
For a lot of people, the blurring of work and private time has been a burden. But I’ve been living that way most of my life. For the last year, the rest of the world has been forced to adopt my work habits, and I am going to miss it when they return to traditional socializing. I’ll still be offering you that Saturday night slot. We’ll see how many takers I get.
And:
I also will miss early lunch, a practice also noticed by New York Times columnist David Brooks. Like a lot of people, I miss eating in a variety of settings — not just restaurants or coffee shops, but cafeterias or my desk — so I look for that variety temporally. The early cooking of a hamburger does indeed provide that break in routine, and with lunch at 11, why do I need breakfast anyway?
Recommended.
A Biden Plan for World Vaccination
Canada has approved the AstraZeneca vaccine. The US has not. The US has paid for an AstraZeneca factory in Baltimore and stockpiled millions of doses. The US should lease the factory to Canada or simply make the doses available for export. The same factory will also produce the J&J vaccine so it’s possible that there is some small opportunity cost. Exporting vaccine to our close ally, trading partner, and neighbor, however, would create significant political, economic, and health benefits for the United States.
More generally, the US is focused on vaccinating its residents first. That’s understandable. But step two is vaccinating the world. The Kremer team advocated going big on vaccine capacity for two reasons. First, we needed a lot of capacity to vaccinate the US fast and fast was valuable. Second, going big meant that the US could vaccinate its population quickly but then have that capacity available to vaccinate the rest of the world.
Contrary to what many people feared, Operation Warp Speed hasn’t taken doses from the rest of the world, Operation Warp Speed has built the infrastructure to deliver doses to the rest of the world. Our motto in advising governments and NGOs was ‘Capacity is the antidote to conflicts over distribution.‘
The United States will soon be the first big country with a fully vaccinated population. The US will then have a chance to lead the world into the post-pandemic era with a “Biden plan” for world vaccination akin to the Mashall Plan.
Invest more. Vaccinate the world. End the pandemic.
Start with Canada.
Lynne Kiesling and Vernon Smith on Texas electricity
How can the resilience of ERCOT’s grid be improved without resorting to costly regulatory mandates that may or may not yield benefits? ERCOT could implement clear market rules requiring natural gas generators to have firm supply contracts in order to be certified as an eligible resource for emergency conditions. Plant owners have incentives to do so because they would have market access under high-price conditions where their performance would more than compensate them for the insurance cost of fuel security.
ERCOT can also take advantage of Texas’ deregulated retail market structure to incentivize more customers to reduce consumption in return for bill savings, creating demand flexibility. Using digital devices and automation to send prices to residential devices would allow consumers to reduce their demand during extreme stress and high prices. Similarly, the Texas market design is well-suited to increasing battery storage, which has been made increasingly economical due to innovation. Batteries enable households to choose to self-insure against outage risk, and when interconnected in their local distribution grid, they can serve as resources to provide energy or grid services to others.
Here is the full opinion piece, via Kurt B.
Seatbelt Now or Wait for Airbag?
Should you take a less efficacious vaccine or wait for a more efficacious vaccine? The individual and social incentives are in conflict. For society as a whole it’s typically much better if everyone takes the less efficacious vaccine sooner. We show one example of this in the supplementary material to the Science Paper with details under different scenarios in a forthcoming paper but the intuition is clear. Herd immunity is herd immunity. In the final analysis what you care about is not your chances of overcoming the disease if challenged (the vaccine efficacy) but your chances of overcoming the disease if challenged times the probability of being challenged. Herd immunity means pushing the latter number close to zero which is more important than modest differences in efficacy rates.
What about at the individual level? If you have a choice, it’s clearly better to get the more efficacious vaccine, especially since both vaccines are free (the price system has its advantages in clearing markets). But if you have to wait for the more efficacious vaccine, the choice isn’t obvious. Many people in Europe aren’t taking the AstraZeneca vaccine in the hopes of getting an mRNA vaccine later but I think that is a mistake. Don’t fail to wear your seatbelt today because your next car may have airbags. I’d be happy to take the AstraZeneca vaccine today, if only the government would let me.
Moreover, there is little reason to believe that you can’t follow-up the J&J or AstraZeneca vaccine with a mRNA vaccine at a later date.* If we will be taking multiple SARS-COV-2 vaccines over the next 10 years, as seems likely, it really doesn’t matter much which one we get first.
Do yourself and your society a favor by getting whatever vaccine is available.
Everything in this post applies even more strongly to a country making decisions. Buy the vaccine with the earliest delivery date! And don’t forget to consider the Gamaleya, Sinovac and Sinopharm vaccines.
* Multiple shots of adenoviral vector vaccines such as AZ may become less efficacious overtime as people’s bodies recognize the vector.
Following the science? — the show so far
As the pace of recovery quickens, and most balance sheets continue to look decent, it seems increasingly obvious that $1.9 trillion is too much to spend. We are spending at least $1 trillion too much, with very little investment to show for it, and $1 trillion is a lot of money. Heaven forbid they should make part of the stimulus dependent on future macroeconomic variables, which is what science would suggest.
New CDC school opening guidelines fail to “follow the science.” School reopening is a big, big issue. Overall the blue states are not doing well on it, and the Biden administration is hurting rather than helping.
Vaccine distribution is doing better, with 2.4 million doses distributed per day by the end of this last week. I am less sure how much that is above the previous trajectory. At least originally, Biden was boasting of aspiring to doing one million doses a day, so the presidential grasp of detail is not what pushed us over the edge here.
Those are arguably the three most important issues at the moment, and the overall performance level is not great.
The AstraZeneca vaccine still is not approved, with no sign of an FDA budge in sight. Canada approved it last week, so now there are more than fifteen nations on board. The new data on its performance are quite strong, even for a single dose.
Biden will be appointing an FDA head, but I haven’t heard talk of reform in spite of major and ongoing failures, and some in process reforms in the UK. Is it even permissible to raise the topic of “the deregulations we need”?
The $15 minimum wage idea seems doomed to fail, in any case it was obviously worse than an “indexed by state” approach, even if you hold the Dube-ous view of minimum wage economics.
The emergency facility — a vestige of the Trump administration that was open for only a month in summer 2019 — is being reactivated to hold up to 700 children ages 13 to 17.
By the way, arrests of unaccompanied children at the border are up 50% this month (WSJ). So this problem isn’t going away. Is science being used to structure the incentives properly for these migrants?
That issue aside, immigration is the one policy area where there has been major sustained improvement, and where those improvements are likely to continue.
As far as I know, there is no immediate plan to eliminate or lower the Trump tariffs on Chinese goods.
The (non-scientific) belief in a new era of cooperation with Europe, including in opposition to China, already lies in tatters.
I don’t know if the American military should have bombed Syria, but I do know that it did and I suspect our government also does not know if it should have, not really know in the scientific sense.
I do get that the Biden administration “feels more scientific” to you, and it has the demeanor of a proper establishment, and it offers experts much higher status, and it does not encourage yahoos to storm the Capitol, for which I am very grateful.
But the rather obvious evidence here is that the scientific record is already quite poor.
Single-Shot and First Doses First
The FDA panel voted unanimously to authorize the J&J vaccine. Good. Note, however, that the single-shot J&J vaccine is quite comparable to the first dose of the Pfizer and Moderna vaccines. Yet, few people are demanding that J&J be required to offer a second shot at all, let alone in 3-4 weeks (What about vaccine escape! How long does immunity with a single-shot last! What about the children!). It really is scandalous how these objections to a single-shot have disappeared. This is evidence of what I call magical thinking–an undue focus on the clinical trial design as having incantatory power.
Why did J&J focus on a single-shot? Was this because of “the science”, i.e. something unique about their vaccine? No. J&J focused on a single-shot vaccine for the same pragmatic reasons that I favor First Doses First.
J&J representatives said they chose to begin with the single shot because the World Health Organization and other experts agreed it would be a faster, more effective tool in an emergency. (emphasis added).
My view is that it would be good if the J&J vaccine was followed by a booster–perhaps of some other vaccine–but that it’s individually fine and in fact socially beneficial to get more people protected quickly by delaying the booster for at least 12 weeks to when vaccines are less scarce. I don’t currently see a reason for thinking differently about the Pfizer and Moderna vaccines.
Market Design to Accelerate Vaccine Supply
Market design to accelerate COVID-19 vaccine supply is my new paper in Science, co-authored with Camilo Castillo, Michael Kremer, Eric Budish, Susan Athey and others. We make three vital 
points. First, governments invested much less than our group advised. We spent trillions on fiscal support and maybe $20 billion or so on vaccines, far too little. Nevertheless, the 3bn courses we have (conservatively) in 2021 capacity is worth on the order of $17.4 trillion or $5800 per course. If advance market commitments moved us from 2 billion to 3 billion courses then they were worth 2.4 trillion dollars. I feel pretty good about the work we did to encourage Operation Warp Speed and other advance purchases.
Second, it’s not too late to do more. If we could get an additional billion courses in capacity online by July 2021 that would speed up vaccination in high-income countries by 1.4 months and in the world by 4.3 months. A few months might not seem like much but that speed-up is worth half a trillion to the world economy. If we could get additional capacity online by April it would be worth a trillion dollars.
You might think that getting more capacity online by April isn’t possible but you can do a lot for a trillion dollars. Moreover, we can increase capacity not just by building more factories but by using the doses we have now more wisely. Low-dose syringes, for example, can increase supplies by 20%. I think the health authorities know this now (although they should have been prepared) but even at this late stage almost everyone is under-estimating how much it would be worth spending to get 20% more vaccine capacity. Similarly, going to half-doses is equivalent to doubling the number of Moderna and Pfizer factories. Even if we did half doses for the young alone, that’s a big increase in supply. We calculate that additional capacity is worth $576 to $989 per annual course, far higher than the price.
Third, we also give advice on how to structure contracts. Buying doses isn’t optimal because companies can just agree and put you to the back of the queue. Optimal rewards and penalties are very difficult to implement, especially when optimal penalties could bankrupt firms many times over (because the social value of vaccines is much greater than the private value.) So it’s much better to subsidize capacity with an option to buy doses at a discount produced from that capacity–this is similar to what Operation Warp Speed did with Moderna and Novavax.
Finally, here’s a fourth important point I haven’t made earlier. We suggest procurement auctions to surface prices on necessary inputs. Ordinarily, an increase in demand to a final producer such as a vaccine manufacturer is transmitted along the entire supply chain through the signaling and incentive mechanism of prices. When final goods prices are limited socially or by law, however, the supply chain can become dis-coordinated. Capacity contracts could be fulfilled, for example, and the producer could yet claim an inability to produce because raw materials are in short supply. Thus, we need a mechanism to coordinate supply chains.The US Defense Production Act is one such mechanism. An alternative procedure that may work more quickly is to organize procurement auctions for all the inputs and complementary goods required for vaccine production. The advantage of a procurement auction is that it can attract and incentivize firms globally, firms that are well beyond the reach of the DPA.
Read the whole thing and the appendix with details on methods and calculations.
My Caribbean podcast with the excellent Rasheed Griffith
One hour, fifteen minutes, almost all of it about the history and culture and economic future of the Caribbean, here is the audio. It starts with Rasheed interviewing me, but later becomes more of a back-and-forth dialog, covering Cuba, Trinidad, Barbados, the best music from Jamaica, why Haiti has failed so badly, whether the Caribbean will be Latinized, and much more. This one is pretty much entirely fresh material and I enjoyed doing it very much.
Rasheed is from Barbados, he is a very recent Emergent Ventures winner, and more generally his podcast focuses on the role of China in the Caribbean. Newsletter and some prestigious podcast guests coming soon!
Here is Rasheed on Twitter.
A Majority of Doses are Now Second Doses
As of Feb. 18 (last day of full data) we gave out 817,708 second doses and just 702,426 first doses. In other words, a majority of doses are now second doses. As Daniel Bier writes this means that we are boosting some people from ~85% to ~95% protected when we could be vaccinating more first timers and getting them from 0% protected to ~85% protected.
If we followed the British rule and delayed the booster to 12 weeks, we could immediately more than *double* the number of people going from 0% protected to to ~85% protected. More first-doses would be great for the newly protected and more people at ~85% protection would also reduce transmission so there would be fewer new infections and less threat to the non-vaccinated.
The opportunity cost of not delaying the booster is measured in lives lost.
Texas utilities should have had more dynamic pricing
But there was also a missed opportunity on the demand side. Texas has retail choice for electricity, but the overwhelming majority of Texas customers face electricity prices that are too static, too inflexible, and don’t respond to market conditions. Economists have been advocating dynamic prices for decades, but adoption has been slow.
Case in point. While wholesale prices in the Texas market climbed last week to $9,000/MWh, the overwhelming majority of electricity customers in Texas continued to pay retail prices close to $120/MWh, barely 1/100th of the true marginal cost.
Not seeing these high prices, Texas consumers had little incentive to conserve. You had a feast or famine — with millions of consumers at an all-you-can-eat buffet — while millions of others faced tragic blackouts and, essentially, an infinite price.
If everyone instead had turned their thermostats to a chilly, but manageable, 65°, this could have really helped the state manage the emergency. As Severin Borenstein pointed out after the California power outages last August, even modest adjustments to the thermostat can save a lot of electricity.
Dynamic pricing allows customers to pay lower prices throughout 99% of the year, in exchange for facing much higher prices when supply is tight. Numerous studies have documented that dynamic pricing yields substantial demand reductions (here, here, here, and here).
You may have read about households who paid enormous electricity bills last week. 29,000 out of Texas’ 11+ million customers buy their electricity from Griddy, a retailer that charges customers wholesale prices for a monthly fee of $9.99/month. This is a very extreme version of dynamic pricing. The evidence shows that you don’t need such extreme price changes to encourage conservation. Moreover, it is straightforward to incorporate hedging into retail contracts to protect customers from these outcomes.
With 28GW of forced outages in Texas last week, it is unlikely that dynamic prices alone could have closed the gap between demand and supply. But dynamic pricing is the fastest and cheapest way to build flexibility into the market, and can play an important role moving forward.
Here is more from Lucas Davis. Via Jonathan Carmel.
The AstraZeneca Vaccine Works Well
A new study looking at essentially the entirety of the Scottish population finds that both the Pfizer and AstraZeneca vaccine work very well at preventing hospitalizations from the first dose.
UK policy for use of vaccines against COVID-19 involves an offer of a first dose followed by a second dose 12 weeks later. To our knowledge, this is the first study of COVID-19 vaccine effect against hospitalisation for an entire nation after a single dose of vaccine. We found that a single dose of BNT162b2 COVID-19 vaccine was associated with a vaccine effect (VE) of 85% (95% CI 76 to 91) for COVID-19 hospitalisation 28-34 days post-vaccination. A single dose of ChAdOx1 vaccine was associated with a vaccine effect 94% (95% CI 73 to 99) at 28-34 days post-vaccination. VEs increased over time with a peak at 28-34 days post-vaccination for both vaccines. Comparable VEs were seen in those aged ≥80 years for prevention of COVID-19 hospitalisation with a high combined VE of 81% (95% CI 65 to 90) at 28-34 days post-vaccination.
Arne Akbar, president of the British Society for Immunology, noted “…overall these new findings should provide reassurance around the UK’s decision to offer the two doses of the vaccine 12 weeks apart.”
Another important point is that the AstraZeneca vaccine actually shows a higher effectiveness than the Pfizer vaccine. The study wasn’t designed to compare the vaccines and the populations getting the vaccines aren’t random samples. Nevertheless, the AstraZeneca vaccine appears to work well and it was actually given to a greater proportion of elderly patients.
The new results from Scotland support the UK, EU, and WHO decisions to authorize the AstraZeneca vaccine. If the US had authorized the AstraZeneca vaccine in late December at the same time as did the UK, millions more Americans could have been vaccinated saving many lives.
Where is the FDA’s cost-benefit calculation?
From the Comments, On FDF
Also this from Tom Meadowcroft:
Scientific researchers search for the truth. Medical clinicians use limited data balance cost and benefits in the face of uncertainty to save the most lives.
When searching for the truth, it is important to have high standards of statistical significance, integrity, and patience, because credibility and a reputation for integrity is everything. Every academic knows that a retracted paper or an accusation of playing fast and loose with statistics can be the death knell for a career. As a result it is prudent to be very certain before publishing. Public health officials, particularly those in charge of approving vaccines, dread the possibility that a vaccine that will be given to millions of healthy people, often children, to prevent diseases where death is rare, which could harbor some flaw that causes a hundred avoidable deaths; they seek the highest standards of proof of safety and efficacy before approving such a vaccine.
But a pandemic is not a search for truth, and a COVID vaccine administered in the midst of a pandemic is very different than a measles vaccine administered to 2-year-olds. The pandemic makes these decisions for FDF or for vaccine approvals into clinical decisions, where health professionals should be balancing the certain benefit of reducing the thousands of daily deaths against the uncertain cost of the possibilities of harmful side-effects and uncertain details of efficacy (when does immunity kick in, how long does it last, how valuable is a booster) that additional months of testing and trials would reveal more clearly.
Public health researchers, academics for the most part, lack the ability (and courage) to make the sort of cost/benefit analysis with necessarily limited data that clinical physicians make every day in examination rooms. Any good clinician, faced with the citizenry of a country as their patient, would have opted for FDF, the AZ vaccine, and quite likely reduced doses by the start of the year. Because we are stuck with academics and administrators as our decision makes, unable to see beyond their usual routine of searching for the truth and protecting their reputations, thousands more will die.
Venezuelan relative price fact of the day
As Venezuela enters its eighth year of economic crisis, a deeply personal drama is playing out inside the home: Millions of women are no longer able to find or afford birth control, pushing many into unplanned pregnancies at a time when they can barely feed the children they already have.
Around Caracas, the capital, a pack of three condoms costs $4.40 — three times Venezuela’s monthly minimum wage of $1.50.
Birth control pills cost more than twice as much, roughly $11 a month, while an IUD, or intrauterine device, can cost more than $40 — more than 25 times the minimum wage. And that does not include a doctor’s fee to have the device put in.
Here is the full NYT article.
The First Dose is Good
WSJ: The Covid-19 vaccine developed by Pfizer Inc. and BioNTech SE generates robust immunity after one dose and can be stored in ordinary freezers instead of at ultracold temperatures, according to new research and data released by the companies.
The findings provide strong arguments in favor of delaying the second dose of the two-shot vaccine, as the U.K. has done . They could also have substantial implications on vaccine policy and distribution around the world, simplifying the logistics of distributing the vaccine.
A single shot of the vaccine is 85% effective in preventing symptomatic disease 15 to 28 days after being administered, according to a peer-reviewed study conducted by the Israeli government-owned Sheba Medical Center and published in the Lancet medical journal. Pfizer and BioNTech recommend that a second dose is administered 21 days after the first.
The finding is a vindication of the approach taken by the U.K. government to delay a second dose by up to 12 weeks so it could use limited supplies to deliver a single dose to more people, and could encourage others to follow suit. Almost one-third of the U.K.’s adult population has now received at least one vaccine shot. Other authorities in parts of Canada and Europe have prioritized an initial shot, hoping they will have enough doses for a booster when needed.
Preliminary data also suggest that the other widely used vaccine in the U.K. developed by AstraZeneca PLC and the University of Oxford could have a substantial effect after a first dose .
The Israeli findings came from the first real-world data about the effect of the vaccine gathered outside of clinical trials in one of the leading nations in immunization against the coronavirus. Israel has given the first shot to 4.2 million people—more than two-thirds of eligible citizens over 16 years old—and a second shot to 2.8 million, according to its health ministry. The country has around 9.3 million citizens.
…”This groundbreaking research supports the British government’s decision to begin inoculating its citizens with a single dose of the vaccine,” said Arnon Afek, Sheba’s deputy director general.
The Israeli study is here. Data from Quebec also show that a single dose is highly effective, 80% or higher (Figure 3) in real world settings.
It’s becoming clearer that delaying the second dose is the right strategy but it was the right strategy back in December when I first started advocating for First Doses First. Waiting for more data isn’t “science,” it’s sometimes an excuse for an unscientific status-quo bias.
Approximately 16 million second doses have been administered in the US. If those doses had been first doses an additional 16 million people would have been protected from dying. Corey White estimates that every 4000 flu vaccinations saves a life which implies 4000 lives would have been saved by going to FDF. COVID, of course, is much deadlier than the flu–ten times as deadly or more going by national death figures (so including transmission and case fatality rate)– so 40,000 deaths is back of the envelope. Let’s do some more back-of-the-envelope calculations. Since Dec. 14, there have been approximately 10 million confirmed cases in the United States and 200,000 deaths. There are 200 million adults in the US so 1/1000 adults has died from COVID, just since Dec. 14. If we use 1/1000 as the risks of a random adult dying from COVID, then an additional 16 million vaccinations would have saved 16,000 lives. But that too is likely to be an underestimate since the people being vaccinated are not a random sample of adults but rather adults with a much higher risk of dying from COVID. Two to four times that number would not be unreasonable so an additional 16 million vaccinations might have avoided 32,000-64,000 deaths. Moreover, an additional 16 million first doses would have reduced transmission. None of these calculations is very good but they give a ballpark.
It is excellent news that the vaccine is stable for some time using ordinary refrigeration. Scott Duke Kominers and I argue that there is lot of unused vaccination capacity at the pharmacies and reducing the cold storage requirement will help to bring that unused capacity online. The announcement is also important for a less well understood reason. If Pfizer is only now learning that ultra-cold storage isn’t necessary then we should be looking much more closely at fractional dosing.
When I said that we should delay the second dose, people would respond with “but the companies say 21 days and 28 days! Listen to the science!”. That’s not scientific thinking but magical thinking. Listening to the science was understanding that the clinical trial regimen was designed at speed with the sole purpose of getting the vaccines approved. The clinical trial was not designed to discover the optimal regimen for public health. Don’t get me wrong. Pfizer and Moderna did the right thing! But it was wrong to think that the public health authorities could simply rely on “the science” as if it were written on stone. Even cold-storage wasn’t written on stone! Now that the public health authorities know that the clinical trial regimen isn’t written in stone they should be more willing to consider policies such as delaying the second dose and fractional dosing.
We are nearing the end in the US but delaying the second dose and other dose-stretching policies are going to be important in other countries.
Sure and Tom Meadowcroft have been hitting it out of the ballpark in the comments sections. Two examples.
Sure: