Category: Economics

India Authorizes Any Vaccine Authorized by a Stringent Regulator

Mint: In a move that could potentially pave the way for Pfizer and Johnson & Johnson’s covid-19 vaccines in India, the Centre on Tuesday said it would allow the granting of emergency licensure for vaccines that have received authorization in the US, UK, Europe, Japan or from the World Health Organization (WHO).

This is good news and a smart move. But what’s frustrating is that Pfizer was the first company to apply for an EUA from India in December of 2020 but India demanded that they conduct a clinical study on the Indian population and Pfizer pulled its application. In other words, India could have had a third vaccine approved and in use but “vaccine nationalism” reared its ugly head. Only now, as the bodies burn in the streets, has the Indian government acknowledged that the FDA and the EMA are reasonably careful judges of safety and efficacy.

It’s true that the cold storage requirements make the Pfizer vaccine somewhat difficult to use in India’s villages but it would have been fine to use in the major cities.

Naturally, the FDA and the EMA should also recognize each other as peer regulators.

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?

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.

Shout it From the Rooftops and Sometimes People Will Listen

Shout it from the rooftops and sometimes lots of other people will start shouting and then sometimes other people will listen!

The U.S. will begin sharing its entire pipeline of vaccine from AstraZeneca once the COVID-19 vaccine clears federal safety reviews, the White House told The Associated Press on Monday, with as many as 60 million doses expected to be available for export in the coming months.

The move greatly expands on the Biden administration’s action last month to share about 4 million doses of the vaccine with Mexico and Canada. The AstraZeneca vaccine is widely in use around the world but not yet authorized by the U.S. Food and Drug Administration.

…About 10 million doses of AstraZeneca vaccine have been produced but have yet to pass review by the FDA to “meet its expectations for product quality,” Zients said…That process could be completed in the next several weeks. About 50 million more doses are in various stages of production and could be available to ship in May and June pending FDA sign-off.

Let’s also get our J&J vaccine factories up and running and soon we will have Moderna and Novavax to export as well. Keep it coming! An American plan to vaccinate the world.

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.

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.

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.

Response to Questions from Senator Ted Cruz on Vaccine Passports

In my Congressional testimony I got into a little back and forth with Senator Ted Cruz on vaccine passports. Subsequently, I was asked to respond to a series of follow-up questions of the form:

If a vaccine passport or any other type of vaccine credential is required by individual private companies, do you have any concerns with a [educational institution/airline/grocery store…] refusing service or otherwise discriminating against an individual that:

(a) chooses not to receive the vaccine?
(b) is not a suitable candidate to receive the vaccine for medical reasons?

My response:

During the pandemic it was common for bars and restaurants, churches, gyms, shopping malls, entertainment venues, schools and universities and even parks and beaches in the United States to be closed for everyone. Similarly, international travel has been severely restricted for everyone. I think it an improvement to move from closed-for-all to open-for-some. Thus vaccine passports represent a lifting of restrictions and an increase in freedom on the path back to normality. Greece, for example, is scheduled to open to anyone with a record of vaccination, negative COVID test, or previous infection. This is good for Greece which relies on tourist revenues for a significant share of its economy and good for the world who want to visit sunny beaches and ancient ruins.

Moving in stages, from closed-for-all to open-for-some to fully-open, is reasonable. The aim, of course, is to be open-for-all, an achievable aim if a large enough proportion of the population is vaccinated. As we move to normality we should also make it possible for the non-vaccinated to access as many services as possible on reasonable grounds, for example, through the use of testing and masks.

It bears repeating that the best way to avoid these difficult decisions is for as many people as possible to be vaccinated, thus making social life safe for the unvaccinated as well as the vaccinated. For these reasons I have supported free vaccinations, stretching doses to vaccinate more people quickly through policies such as delaying the second dose and testing fractional doses, using single-shot vaccines, and developing nasal and oral vaccines.

Sincerely,

Alex Tabarrok
Department of Economics
George Mason University

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.

Do career disruptions matter for the top five percent?

How resilient are high-skilled, white collar workers? We exploit a uniquely comprehensive dataset of individual-level resumes of bank employees and the setting of the Lehman Brothers bankruptcy to estimate the effect of an unanticipated shock on the career paths of mobile and high skilled labor. We find evidence of short-term effects that largely dissipate over the course of the decade and that touch only the senior-most employees. We match each employee of Lehman Brothers in January 2008 to the most similar employees at Goldman Sachs, Morgan Stanley, Deutsche Bank, and UBS based on job positions, skills, education, and demographics. By 2019, the former Lehman Brothers employees are 2% more likely to have experienced at least a six-months-long break from reported employment and 3% more likely to have left the financial services industry. However, these effects concentrate among the senior individuals such as vice presidents and managing directors and are absent for junior employees such as analysts and associates. Furthermore, in terms of subsequent career growth, junior employees of Lehman Brothers fare no worse than their counterparts at the other banks. Analysts and associates employed at Lehman Brothers in January 2008 have equal or greater likelihoods of achieving senior roles such as managing director in existing enterprises by January 2019 and are more likely to found their own businesses.

That is from a new paper by Anastassia Fedyk and James Hodson.  Via the excellent Kevin Lewis.

From the comments, Zaua on capital gains tax hikes

This is a big mistake even from a class equality perspective as it will cause rich people to invest more in things that are less liquid and accessible, and therefore harder to tax, from private businesses to real estate to crypto.

I believe that as much wealth as possible should be based on publicly traded corporations, because that is an avenue to build wealth that is accessible to all people with any amount of spare money and an avenue where regular people probably aren’t going to get screwed too badly by insiders because of the efficient markets hypothesis. However, the liquidity and accessibility of public markets also makes them easier to tax. So the higher capital gains tax rates are, the less attractive the public company form will be and the more attractive investment options will be put behind opaque structures that have tax advantages but also become too risky or even inaccessible to the general public.

If you must raise taxes on the rich, do it on their individual income rates, not their capital gains rates.

Here is the link.

Is this really better than borrowing?

Or how about a VAT?

President Joe Biden will propose almost doubling the capital gains tax rate for wealthy individuals to 39.6%, which, coupled with an existing surtax on investment income, means that federal tax rates for investors could be as high as 43.4%, according to people familiar with the proposal.

The plan would boost the capital gains rate to 39.6% for those earning $1 million or more, an increase from the current base rate of 20%, the people said on the condition of anonymity because the plan is not yet public. A 3.8% tax on investment income that funds Obamacare would be kept in place, pushing the tax rate on returns on financial assets higher than the top rate on wage and salary income, they said.

Here is the full story from Bloomberg.  Given state rates, that means over 50% in New York and California — is that what the science recommends?

A Foreign Policy Disaster in the Making

NYTimes: A lethal, fast-paced second wave of the coronavirus pandemic has brought India’s health care systems to the verge of collapse and is putting millions of lives and livelihoods at risk.

On Sunday and Monday, the country recorded more than 270,000 and 259,000 cases, respectively, of Covid-19, a staggering increase from about 11,000 cases per day in the second week of February. Reported coronavirus infections shot up from about 20,000 per day in mid-March to more than 200,000 by mid-April.

The newspapers and social media are scrolls of horror and failure of the health system. There are reports of lines of ambulances with patients waiting outside the largest Covid facility in Ahmedabad in the western state of Gujarat because ventilator beds and oxygen had run out.

On Friday in the northern city of Lucknow, Vinay Srivastava, a 65-year-old journalist, shared his falling oxygen levels on Twitter, tagging government authorities for help. Overburdened hospitals and laboratories wouldn’t take calls from his family. The last tweet from Mr. Srivastava’s handle described his oxygen saturation level at 52, way below the 95 percent, which is considered normal. Nobody helped. He died on Saturday.

When I left India in February of 2020 I feared that COVID would rip through its dense, urban populations which were already under stress from some of the world’s worst air and water pollution. I feared that COVID would overwhelm India’s weak public health care system and leave its low-capacity state flailing. As it happened, I should have worried more about America’s poorly cared for nursing home populations, its high obesity rate, and its low state-capacity. It was the US state that ended up flailing, as it and the public became absorbed by media spectacles, impeachments and scandals du jour even as thousands died daily. The virus mocks us all.

All of this will require some rethinking. Today, however, I want to point to a foreign policy disaster in the making. America’s role as the guarantor of a globalized, mostly peaceful, and orderly world–already deeply hurt by four years of “America First,”–is now under further threat by an increasing perception that we are vaccine hoarders. Conspiracy theories are running wild in India on WhatsApp and elsewhere that we have hundreds of millions of spare doses. It isn’t true, of course. We ordered more doses than we needed because we didn’t know which vaccine would work and so we smartly placed multiple bets. Our advance-purchases from Pfizer and big investments in Moderna and related parts of the vaccine supply chain have paid off big time. As the US is vaccinated, our investments will benefit the entire world. Our investments in Novavax, AstraZeneca and Johnson and Johnson were also smart investments but those bets have yet to pay off in a big way. We don’t have hundreds of millions of doses stockpiled but maybe tens of millions of some AstraZeneca and Johnson and Johnson vaccines.

We have, however, used the Defense Production Act to prioritize American vaccine manufacturing at potentially great cost to India. As The Economist reports:

Production lines in India, making at least 160m doses of covid vaccine a month, will come to a halt in the coming weeks unless America supplies 37 critical items.

A shutdown of vaccine production in India would be a disaster for India and also for the United States. Our image in Asia will be tarnished at a time when we want to be making allies to counter Chinese influence. Moreover, the US benefits tremendously from a globalized world. Indeed, the US cannot supply its own vaccine needs without inputs from the rest of the world so flouting the rules will boomerang, leaving us and everyone else worse off. Autarchy is very bad for vaccine production.

The Biden Administration has some leeway. We have over 60 million doses of Pfizer and Moderna vaccines on hand and more arriving every day. We do not need to pause our own vaccination efforts to help others. We can donate what AstraZeneca stockpiles remain at no cost to us. A I said in my testimony to Congress, forget being humanitarians, there are health, economic and political reasons to vaccinate the world.

So let’s make it clear that we have an American plan to vaccinate the world before perceptions solidify that we are the villain and not the hero of the story.

Are young or old lives worth more?

Jeremy Horpedahl and Bryan Caplan debate this topic, with Jeremy pointing out that older, wealthier people can have just as high a willingness to pay to reduce risk, if not higher.

In all things Covid I usually agree with Jeremy, though in this case I side with Bryan’s conclusion (though he doesn’t explain well why he is correct).

For purposes of simplicity, let us consider purely selfish individuals and move to the case where the “p” of death will be equal to one if the “risk” is not avoided.  And make capital markets perfect.  Then both young and old will then pony up the full value of their prospective human capital to avoid death.  The lives with more human capital will be worth more, at least according to economic standards.  Young lives usually will be worth more than old lives, though of course highly productive older people might count for more if the higher productivity outweighs the smaller number of years left.  You might prefer to save fifty-year-old Thomas Schelling over the life of a forty-year-old who is doing less.

This is so far quite intuitive, again noting these are economic judgments not final moral judgments (which will be more contentious and bring in many additional considerations).  Furthermore, you can scale down these numbers, and adjust for risk-aversion, to cover mortality risks much lower than p = 1.

Now consider some older people who have a lot of wealth but very little human capital.  These (selfish) individuals still will pay a lot to avoid death or risk of death, but in essence there is an externality.  They treat their wealth as “disappearing with their death” when in reality that wealth simply is transferred to others.  Therefore they overspend to keep themselves around on planet earth, and they will overpay for risk reduction.

So the lives of high wealth, low human capital individuals, including older individuals, are overweighted by traditional economic metrics, given that “naive” WTP measures do not adjust for the “wealth transfer upon death” externality.  That is some but by no means all of the elderly.  Their willingness to pay for risk reduction may be as high as the WTP of the young, but in social terms that does not mean their lives are equally valuable.

In sum, check your WTP calculations against human capital intuitions.

The first version of this argument appeared in my dissertation, though it has surfaced a few times since, including in some QJE pieces.

And if you would like some homework for your spare time, try solving for the conditions under which selfish individuals, but living in families, can make intra-family trades to internalize these wealth transfer externalities.