# Category: Economics

## A Pox on the FDA

Monkeypox isn’t in the same category of risk that COVID was before vaccines but it’s a significant risk, especially in some populations, and it’s a test of how much we have learned. The answer is not bloody much. Here’s James Walsh in NYMag:

As monkeypox cases have ticked up nationwide, the White House and federal agencies have repeatedly assured the public that millions of vaccine doses will be distributed to at-risk populations before the end of the year. Yet since the World Health Organization announced the global monkeypox outbreak in May, only tens of thousands of shots have been administered in the U.S. The slow start is due, at least in part, to the fact that 1.1 million doses have been stored in a Denmark pharmaceutical facility while the Food and Drug Administration has taken almost two months to approve their release here, according to people familiar with the situation. FDA officials only began to inspect the facility last week. The lag time, public-health experts say, is indicative of the federal government’s lackadaisical approach to a growing public-health emergency.

…It’s unclear why the FDA took so long to send inspectors to Denmark. The agency regularly conducted virtual inspections of drug facilities early in the COVID-19 pandemic, according to the agency’s guidance, and public-health activists are demanding answers. “Members of at risk communities are being turned away from monkeypox vaccination because these vaccines are not available in sufficient quantity in the U.S., but instead sitting in freezers in Denmark,” members of the advocacy group PrEP4All and Partners in Health wrote in a letter to federal officials overseeing the outbreak response last week.

Compounding their frustrations was the FDA’s refusal to accept an inspection done last year by its counterpart, the European Medicines Agency, which deemed the company’s facility in compliance with the FDA’s own standards.

“The FDA does not grant reciprocity for EMA authorization of any vaccines, for monkeypox or other diseases,” a spokesperson for the FDA said in a statement.

Is there anyone in the United States who is saying, “I am at risk of Monkeypox and I want the vaccine but I don’t trust the European Medicines Agency to run the inspection. I’d rather wait for the FDA!” I don’t think so. James Krellenstein, an activist on this issue, asks:

“Why were the Europeans able to inspect this plant a year ago, ensuring these doses can be used in Europe and the Biden Administration didn’t do the same,” he added. “The FDA is making a judgment that they’d rather let gay people remain unvaccinated for weeks and weeks and weeks than trust the European certification process.”

Many people want to be vaccinated:

New York City has received just 7,000 doses from the federal government amid the national vaccine shortage. Meanwhile, the city Department of Health and Mental Hygiene’s appointment booking system has failed to keep up with the high demand for the shots — most recently on Wednesday.

…The mounting frustrations left health officials and Mayor Eric Adams on the defensive, pushing back against comparisons to New York’s struggles during the early days of the coronavirus vaccine, which was beset by computer glitches and supply shortages.

This is a classic case for reciprocity. Any drug, vaccine, test or sunscreen (!) approved by a stringent regulatory authority ought to be conditionally approved in the United States.

Addendum: If you are not furious already–and you should be–remember that during COVID the FDA suspended factory inspections around the world creating shortages of life-saving cancer drugs and other pharmaceuticals. As I wrote then “Grocery store workers are working, meat packers are working, hell, bars and restaurants are open in many parts of the country but FDA inspectors aren’t inspecting. It boggles the mind.”

Hat tip: Josh Barro.

Photo Credit: Nigeria Centre for Disease Control.

## David Neumark and Peter Shirley on the minimum wage literature

The effects on employment, of course:

Our key conclusions are as follows: (i) there is a clear preponderance of negative estimates in the literature; (ii) this evidence is stronger for teens and young adults and the less educated; (iii) the evidence from studies of directly affected workers points even more strongly to negative employment effects; and (iv) the evidence from studies of low-wage industries is less one-sided.

Here is the full paper, of course Twitter will try to tell you otherwise.

## Labor Unions Reduce Product Quality

A very nice paper in Management Science by Kini, Shen, Shenoy and Subramanian finds that labor unions reduce product quality. Two strengths of the paper. First, the authors have relatively objective measures of product quality from thousands of product recalls mandated by the FDA, the Consumer Product Safety Commission and the National Highway Traffic Safety Administration covering many different industries. Second the authors use 3 different methods. First, they find that unionized firms are more likely to have recalls than non-unionized firms (a simple difference in means subject to many potential cofounds but I still like to see the raw data), second they find that in a panel model with industry and year fixed effects and other controls that firms which are more unionized have a greater frequency of product recalls. Finally they find that firms where the union just barely won the vote are more likely to have subsequent product recalls than firms for which the union just barely lost the vote–a regression discontinuity study.

In this paper, we study the impact of labor unions on product quality failures. We use a product recall as our measure of quality failure because it is an objective metric that is applicable to a broad cross-section of industries. Our analysis employs a union panel setting and close union elections in a regression discontinuity design framework to overcome identification issues. In the panel regressions, we find that firms that are unionized and those that have higher unionization rates experience a greater frequency of quality failures. The results obtain even at a more granular establishment level in a subsample in which we can identify the manufacturing establishment associated with the recalled product. When comparing firms in close elections, we find that firms with close union wins are followed by significantly worse product quality outcomes than those with close union losses. These results are amplified in non–right-to-work states, where unions have a relatively greater influence on the workforce.

The authors put more weight on financial strains caused by unionization as a mechanism whereas my story would be that unionization prevents firms from disciplining shoddy workers and that leads to lower product quality. Note that my theory would also cover teachers unions which the author’s mechanism would not.

Hat tip: Luke Froeb.

Photo Credit: Joe Piette.

## Geographic mobility is one secret of successful immigration

According to Boustan and Abramitzky, the secret weapon deployed by immigrant parents wasn’t education. It wasn’t a demanding parenting style like the one described in Amy Chua’s “Battle Hymn of the Tiger Mother,” either.

It was geographic mobility.

Immigrant kids tended to outperform their peers from similar economic backgrounds because, unencumbered by deep hometown roots, their parents were willing to move to where the jobs were. If you compare immigrants to similar native kids born in the same place, they succeed at similar rates. It’s just that immigrant kids are much more likely to have grown up in one of those high-opportunity places.

“Immigrants are living in locations that provide upward mobility for everyone,” Boustan said.

Here is the full article, which also argues that recent immigrants have been climbing the economic ladder no slower than in the days of Ellis Island.  By Andrew Van Dam, based on the work of Leah Boustan and Ran Abramitzky.

## Operation Warp Speed Should Not have Been Disbanded

Operation Warp Speed produced a new vaccine for a novel virus in record time but when Operation Warp Speed was disbanded by the Biden administration, vaccine research and development slowed from warp speed to impulse power. It’s ridiculous that it is taking longer to develop and deploy tweaks to the mRNA vaccines to deal with new variants than it took to develop the original vaccines from scratch. By the time we get an Omicron-specific vaccine that variant will have disappeared. This is no way to run a civilization.

We should be investing in a universal vaccine for all sarbecoviruses (of which SARS-COV-II is a member) and, as I have long argued (and here) a nasal vaccine. We need not exaggerate, for the vaccinated the dangers are no longer acute, but we should be better prepared for future variants and the savings from less sickness alone easily trump the costs. Indeed, the issue isn’t even so much the cost as the need to coordinate regulatory agencies, as OWS did, to speed approvals and reduce bureaucracy.

Patrick Collison, writing at Slow Boring, has the details (as Tyler also noted):

Despite excellent technology and promising early results in animal models, we estimate that the very earliest we will have access to these vaccines in humans is 2024. These groups need to run primate trials, then run human clinical trials, and then ramp manufacturing and distribution. Beyond having to jump through a lot of hoops, we’ve observed that they’re frequently tripped up by stupid things outside of their control, any one of which may hold their work back by months. (One group’s monkeys have been delayed by US Customs, which will push the start of their primate trial back ‘till September. Another is struggling to obtain necessary adjuvants. Multiple groups are unable to get access to current mRNA vaccines for research purposes because of legal barriers.) All groups we’ve interacted with are underfunded compared to what would be ideal.

Broadly speaking, the holdups involve some combination of logistical challenges and regulatory requirements, and the intersection between both. (You don’t in principle have to run a primate trial, but the FDA makes it harder to run a human trial if you don’t. You don’t in principle need to use “acute infection” as a trial endpoint; you could also use neutralizing antibody titers, which would be much faster and simpler.)

To speed things up:

• We should lower the barrier for human clinical trials and use simpler endpoints. For many vaccine candidates, we could run human trials concurrent with primate trials (once basic safety data has been obtained). In humans, we don’t need to repeat Phase I trials for platforms that have already been validated and derisked. (In this vein, the FDA’s recent announcement about not requiring trials for updated platforms was encouraging.)
• We should help these groups to scale manufacturing faster. Operation Warp Speed itself cost $10 billion; a second incarnation, with a tenth of that budget, could almost certainly accomplish a great deal. …In our view it is probably true that, with competent execution, we could roll out pan-variant COVID vaccines before the end of 2022. Actually making that happen would require significant and coordinated logistical, regulatory, and administrative action. However, it would by no means be impossible. Not having pan-variant vaccines in 2022 is best thought of as a choice. ## How bad is the new German trade deficit? That is the topic of my latest Bloomberg column. The country suddenly faces many problems at once: …extremely high energy prices, the need to bail out some of its energy firms, the conflict in Ukraine and the resulting promise to boost defense spending, and possible troubles with Italy in the Eurozone over rising borrowing costs. Germany is either going to do very, very poorly, or will muddle through and manage a major turnaround. I would bet on the latter. And here is another part of the argument: And then there is what may be Germany’s biggest problem: complacency. In the last 20 years Germany’s primary education system has had a mixed performance, albeit with some improvements, and its infrastructure is no longer perceived as so efficient or high quality. Yet reform was not imperative, partly because things were going OK enough in Germany. There is a chance that the current crisis will jolt Germany out of its passivity. Throughout history Germany has managed to reverse some very bad situations, as it did after the devastations of the Napoleonic wars and World War II. Keep in mind that human capital is the most important determinant of national wealth, much more important than the flows reflected in the trade account in any given month or year. If German reforms boost the ability of the country to train students and to put its people to work, the long-run payoffs could be very high. In general I have found that wealthy societies deal with “one-off” problems somewhat better than most observers expect in advance. I will be watching closely. ## Is remote work lowering pecuniary wages? Maybe so, according to the latest results from Jose Maria Barrero, Nicholas Bloom, Steven J. Davis, Brent H. Meyer and Emil Mihaylov: The recent shift to remote work raised the amenity value of employment. As compensation adjusts to share the amenity-value gains with employers, wage-growth pressures moderate. We find empirical support for this mechanism in the wage-setting behavior of U.S. employers, and we develop novel survey data to quantify its force. Our data imply a cumulative wage-growth moderation of 2.0 percentage points over two years. This moderation offsets more than half the real-wage catchup effect that Blanchard (2022) highlights in his analysis of near-term inflation pressures. The amenity-values gains associated with the recent rise of remote work also lower labor’s share of national income by 1.1 percentage points. In addition, the “unexpected compression” of wages since early 2020 (Autor and Dube, 2022) is partly explained by the same amenity-value effect, which operates differentially across the earnings distribution. Here is the NBER working paper. ## Economists grabbing coffee From Panka Bencsik: This is a continuously growing list of PhD holding (or soon to be) economists (and economics-adjacent folks) in academic (and academic-adjacent) positions who would be happy to grab coffee with colleagues visiting their city once it’s safe to do so again. Much in the spirit of #EconTwitter, the list is intended to open doors for informal, relaxed communication, and peer-to-peer research conversations. Started in March 2020, EconBrew now has over 300(!) economists from 40+ US states and 35+ countries worldwide. The effort is particularly geared towards offsetting some of the loss stemming from the global pandemic halting ways to connect with colleagues. I hope this list can serve as one of the many steps we can take to start new research conversations post-pandemic. Beyond personal meet ups, some of those who signed up are open to chatting with colleagues over Zoom, regardless of location. Everyone who is open to virtual meets has a note with their entry to indicate this. If you would like to be listed here as someone happy to grab coffee with a colleague, please sign up here: https://forms.gle/qsVHcAGGESJn1zeb7 Here is the link, via Patrick Gourley. ## Some negative results on cash transfers We randomized over 5,000 US individuals in poverty to one of three conditions during the first year of the COVID-19 pandemic: receiving a one-time$500 unconditional cash transfer (UCT; half a month’s worth of total household income for the median participant; N=1,374), a $2,000 UCT (two months’ income; N=699), or nothing (N=3,170). We measured the effects of the UCTs on participants’ financial well-being, psychological well-being, cognitive capacity, and physical health through surveys administered one week, six weeks, and 15 weeks after cash receipt. For 43% of our sample, we also observe bank account balances and financial transactions. While the cash transfers increased expenditures for a few weeks, we find no evidence that they had positive impacts on our pre-specified survey outcomes at any time point. We further find no significant differences between the$500 and $2,000 groups. These findings stand in stark contrast to the (incentivized) predictions of both experts and a nationally representative sample of laypeople, who—depending on the treatment group, outcome, and time period—estimated treatment effect sizes of +0.16 to +0.65 SDs. We test several explanations for these unexpected results, including via two survey experiments embedded in our trial. The data are most consistent with the notion that receiving some but not enough money made participants’ needs—and the gap between their resources and needs—more salient, which in turn generated feelings of distress. That is from a new paper by Ania Jarosewicz, Jon Jachimowicz, Oliver Hauser, and Julian Jamison, via a bunch of disappointed people on Twitter. And here is the summarizing tweetstorm. ## The Capitalist Kibbutz The Israeli kibbutz have long been moving away from utopian socialism towards “renewing kibbutz”; a kind of cooperative in which member wages differ, consumption is unequal, many resources are privately owned but there is some mutual aid–a “safety net”–and some common ownership typically of land. Abramitzky et al. look at how kibbutz members vote and their expressed preferences after a kibbutz moves from a traditional model to a reformed or renewed model. The answer is that preferences for the market economy increased the more kibbutz members were exposed to the market economy but support for some redistribution to the poor (which was now less costly as the society was wealthier) did not decrease. We find that labor market liberalization [i.e. new kibbutz model, AT] led to increased support of open labor market policies such as competitive labor market mechanisms, increased pay for overtime work, and differential wages. It decreased support for socialist policies, such as the joint ownership of the means of production. Still, it did not affect beliefs in the Marxist principle “from each according to his ability, to each according to his needs”, a principle which stands at the core of socialist egalitarian perception. At the same time, the reform also led to increased support for the safety net. …The effects we document appear to be driven by an increase in living standards and work ethics that resulted from the reform. Equal sharing in the traditional kibbutz encouraged shirking and free riding. While strong idealism among founders helped kibbutzim reduce these problems in the past, idealism declined over time, and the second and third generations became less idealistic than the founding generation (see Abramitzky 2018 for a discussion). By the 1990s, before reforms took place, members complained about shirkers. As reported by members in surveys, our findings provide quantitative evidence that the reform improved kibbutzim’s members’ economic conditions and work ethics. These improvements might have, in turn, contributed to the more favorable attitudes of kibbutz members towards open labor market policies. Such improved economic conditions and work ethics might explain why even groups that stood to lose in relative terms from the reform, such as older and less educated members, supported it. The improved economic conditions and work ethics meant that even if these groups experienced declines in their relative income (as they found themselves at the bottom of the kibbutz’s income distribution), they may not have lost in terms of absolute income. Moreover, these groups may have concluded that a shift away from equal sharing was inevitable for the long-term survival of their kibbutz, and accordingly became more favorable to market mechanisms after the reform. …We conclude that introducing market-based wages led to a shift in attitudes towards what we call a market economy with compassion, changing from their traditional democratic socialist model to a social democratic one. Although most kibbutz members support the differential pay reforms, they still want to maintain their core principle of mutual guarantee. When reflecting on how they want to live and build their society, most members want to live in neither a traditional socialist kibbutz nor a capitalist city. Most of them prefer something in the middle – a market economy within a compassionate society with a comprehensive safety net. In short, the mixed economy is stable. ## Mexican nearshoring is failing Between 2018 and 2021 the proportion of manufactured goods imported into the US from Mexico barely changed according to data compiled by Kearney, the consultancy. Instead the rewards of the China boycott were reaped by low-cost Asian competitors including Vietnam and Taiwan. Asian countries other than China increased their share of US manufactured goods imports from 12.6 per cent to 17.4 per cent over the period. And: It is the only major Latin American economy whose output will still be below pre-pandemic levels by the end of this year, according to estimates from JPMorgan. Here is more from the FT. Note that Mexican immigration into the United States is rising again. ## The FDA is Increasing Skin Cancer Americans who travel to the beaches in France, Spain, or Italy routinely do something that is illegal in the United States–they buy and use European sunscreens to protect themselves from sunburn and skin cancer. Suncreens in Europe and Asia are better than in the United States because more ingredients are allowed and these create more effective and more pleasing suncreens. I’ve been writing about this since 2013! My view hasn’t changed: My rule is very simple. I don’t think the FDA is better than the EMA so if any drug or device is approved in Europe it ought to be available for purchase in the United States with a label saying “Approved by the EMA. Not approved by the FDA.” (By the way, we do have reciprocity type agreements with Canada and New Zealand for food so this would not be unprecedented.) Here’s the latest from Amanda Mull writing in the Atlantic: Newer, better UV-blocking agents have been in use in other countries for years. Why can’t we have them here? In formal statements and position papers, doctors and cancer-prevention advocates express considerable interest in bringing new sunscreen ingredients to the American market, but not a lot of optimism that any will be available soon. …In 2014, Congress passed a law attempting to speed access to sunscreen ingredients that have been in wide use in other countries for years, but it hasn’t really worked. “The FDA was supposed to be fast-tracking these ingredients for approval, because we have the safety data and safe history of usage from the European Union,” Dobos said. “But it seems to continually be stalled.” According to Courtney Rhodes, a spokesperson for the FDA, manufacturers have submitted eight new active ingredients for consideration. The agency has asked them to provide additional data in support of those applications, but none of them has yet satisfied the agency’s requirements. “In the medical community, there is a significant frustration about the lack of availability of some of the sunscreen active ingredients,” Henry Lim, a dermatologist at Henry Ford Health, in Michigan, told me. The more filters are available to formulators, the more they can be mixed and matched in new ways, which stands to improve not just the efficacy of the final product, but how it feels and looks on your skin, and how easy it is to apply. On a very real level, making sunscreen less onerous to use can make it more effective. “The best sunscreen is going to be the one you’re going to use often and according to the directions,” Dobos said. Skin cancer is the most common type of cancer in the United States, and by one estimate, one in five Americans will develop it in their lifetime. Hat tip: Joe. ## Is The Army racially egalitarian? (model this) This paper links the universe of Army applicants between 1990 and 2011 to their federal tax records and other administrative data and uses two eligibility thresholds in the Armed Forces Qualification Test (AFQT) in a regression discontinuity design to estimate the effects of Army enlistment on earnings and related outcomes. In the 19 years following application, Army service increases average annual earnings by over $$4,000 at both cutoffs. However, whether service increases long-run earnings varies significantly by race. Black servicemembers experience annual gains of$$5,500 to$\$15,000 11–19 years after applying while White servicemembers do not experience significant changes. By providing Black servicemembers a stable and well-paying Army job and by opening doors to higher-paid postservice employment, the Army significantly closes the Black-White earnings gap in our sample.

Here is the full paper by Kyle Greenberg, et.al., via the excellent Kevin Lewis.

## Institutional Review Boards Should be Curtailed

A good piece on IRBs from CSPI by Willy Chertman:

Institutional Review Boards (IRBs) are ethics committees, ideally composed of scientific peers and lay community members, that review research before it can be conducted. Their ostensible purpose is to protect research subjects from research harms. But oftentimes, IRBs are costly, slow, and do more harm than good. They censor controversial research, invent harms where none exist, and by designating certain categories of subjects as “vulnerable,” cause a corresponding diminishment in research on those subjects. There is even a plausible legal argument that they violate researchers’ First Amendment rights. Because previous attempts to spur the responsible federal executive agencies into streamlining IRBs have been unsuccessful or only had limited success, a targeted legislative solution that does not depend on bureaucratic implementation is needed.

Chertman has a number of suggestions for reform. At the very least social science should not be under the purview of IRBs at all.

…a more sweeping approach would be removing social science from IRB jurisdiction altogether. Historian Zachary Schrag, who worked intensely to lobby federal agencies on the Common Rule revisions from 2009-2017, proposes this in his book, Ethical Imperialism. As he documents, the Belmont Report, and subsequent regulatory developments, were not designed with social science in mind. Congress could fix this historical oversight by changing the wording of HHS regulations. This would free IRBs to focus on truly high-risk research instead of wasting time on low-risk social science research. Since social science more often touches on political questions, this would also extricate government-mandated oversight boards (IRBs) from the delicate position of regulating politically charged research.

Removing IRBs from social science research is particulary important now because politically sensitive research can be crushed under the pretense that it could “harm” participants.

## Scottish Enlightenment vs. Irish Enlightenment

The Scottish Enlightenment seems like a real enlightenment to most observers, the 18th century Irish Enlightenment (Swift, Berkeley, Burke, toss in James Barry too) does not.  In my admittedly unorthodox view, I think the Irish Enlightenment simply had different concerns but was no less of an enlightenment.  Much of the Scottish Enlightenment was concerned with the following:

1. Increasing market size and division of labor

2. Martial virtue and security against foreign enemies

3. Sympathy

That all makes broad sense when you realize that Britain was indeed building the world’s largest economic market, and furthermore had to worry about its enemies on the Continent.  Regular social interactions were becoming normal enough that one could ask basic questions about sympathy, and assume that some degree of sympathy was present.

None of those conditions held true for Ireland.  Market size was small, and external market relations typically were controlled by the British.  As for military issues, Britain could dominate you in any case, so martial virtue was of secondary import, at least until later civil wars.  And sympathy was not to be assumed at all, for reasons of religious, political, and class prejudice.

My “standing on one foot” version of the Irish Enlightenment would be a concern with:

1. Is toleration at all possible?  Toleration needed before sympathy!

2. Can we expect there to be progress at all?  James Barry argues for the universality of progress, but Swift doubts whether moral progress is likely.  Burke wishes to take progress in baby steps.  Berkeley is skeptical altogether.  If you are ruled by the Brits, the richest society to date, but they are still bastards to you, maybe you will be more skeptical about moral progress.

3. A sense of terror from difference, as mirrored both in Burke’s aesthetics of the sublime and the voyages in Swift’s Gulliver’s Travels.  Everyone is running around deeply afraid of “the other,” and this concern surfaces also in Burke’s fears for the French aristocrats.  The enthusiasms of the French revolutionaries reminded Burke all too much of the earlier Irish civil wars and rebellions and massacres, even though in both cases he knew the privileges of the nobles were not deserved.  Swift is consistently asking whether one culture can understand the other at all.

I view the two Enlightenments as embodying different kinds of skepticism.  The Scots, such as Hume and Smith, hold a deep epistemic skepticism, which led them to recipes for decentralization and mechanism design.  The Irish had a more practical skepticism, doubting whether moral progress in human beings was all that likely.

The Irish and Scottish Enlightenments perhaps clashed most directly when Burke took issue with David Hume’s accounts of the Catholic 1641 “massacres” in Ireland, arguing that a more nuanced understanding of Irish history was needed.  Burke considered writing his own history of Ireland.

Burke, like Swift, understood the point of view of “the settled” fairly well, arguably better than the Scots did:

Beyond Irish affairs, Burke also began the impeachment of Warren Hastings over his actions as governor-general of India. The fourteen-year impeachment clearly displayed his obsessive nature, but it also finds him arguing against the imposition of British laws and manners on India. Instead, he defends the native civilisations, their institutions and religious beliefs.

Bishop Berkeley is a more complicated fit in this story, and might require a blog post of his own.  But think of him as telling everyone that everything they think they know is wrong, and they actually exist in a simulation in the mind of God.  A prospect to strike terror into the hearts of many!  Even the supposed truths of mathematics and the calculus melt away on close examination.  As for politics, Berkeley worried a great deal about corruption and factions, and he favored extensive government interventions, both social and economic, to make life stable again and human beings virtuous.  He feared that perhaps progress was not possible, as growing wealth would lead to luxurious and corrupted tastes.

Overall, the Irish Enlightenment wasn’t nearly as optimistic as its Scottish counterpart.  But it was far more mindful of the perspective of the victim, presaging more modern developments.  And later in the 19th century, the Irish Enlightenment turned its attention to themes of depopulation and excessively high land rents, both extremely relevant to current times as well…

The Irish Enlightenment is, dare I say, underrated?