That is the topic of my latest Bloomberg column. Here is one bit:
The hypothesis is that a lot of this new money got funneled into asset price markets, rather than being spent on goods and services. Measured rates of price inflation for consumer goods have remained stubbornly below 2%.
This view is misguided. First, dollars are not “trapped” in one sector of an economy, unable to be spent in other areas. If for instance equity prices are very high relative to food, people will sell equities and buy more food, or otherwise adjust and bring the prices back to proper levels. The experience of hyperinflation in Weimar Germany and Venezuela shows that it is not possible to keep price increases “bottled up” in particular sectors. They spread through the entire economy very quickly.
…recent price-earnings ratios are only modestly above their historic values. That may be a reason to be cautious, but it is hardly a sign of suppressed inflation. Bond prices are high, but real interest rates have been falling for centuries. And the European Central Bank tends to pursue tighter monetary policy than does the Fed. Europe often has very low interest rates, including sometimes negative nominal rates.
To see why the huge increase in bank reserves did not result in inflation, consider that there has been a considerable decrease in U.S. excess bank reserves over the last five years. No one claims that this has been accompanied by a massive deflation, whether in securities markets or elsewhere. Once that point is conceded, it’s possible to see why higher levels of reserves are not necessarily inflationary.
For an alternative point of view, you can read Arnold Kling.
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.
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.
Duke University has gone to incredibly and absurd lengths to contest other people’s trademark applications. For example, Duke opposed the following marks by filing with the Trademark Trial and Appeal Board :
- “The Dude Diet” for a diet-related website
- “Kuke” for electronic products
- “Goluke” for clothing
- “Le Duc” for food and drink services
they have even tried to claim they own “devil” and filed oppositions against:
- “Werdo” with this scribbled image of a devil for shirts and hats
- “Devils Nightmare” for beer
- “Devil’s Garden” for alcoholic beverages
- “Pretty Devil” for slot machines
It gets worse, Duke claims the letter D and the word blue with filed oppositions against:
- “Beach’d” for beach bags and cosmetic bags
- “D’Grill” for barbecue smokers and grills
- “DLove” for advertising and other services
- “True Blue” for auto parts
- “Stay Blue” for denim clothing
- “Blue Ball Chiller” for alcoholic beverages
- “Blue Solutions” for various goods and services related to car rentals and car sharing.
None of this is remotely consistent with trademark law which doesn’t convey an ownership right but is merely meant to help consumers purchase the products they intend to purchase. Yet, many of Duke’s oppositions have been successful since it’s often easier for the group asking for a trademark to simply give up and change their mark. Duke bullies far more than do other similar universities.
All of this is from an excellent paper, Mark of the Devil: The University as Brand Bully by James Boyle and Jennifer Jenkins both of whom are professors at the Duke University of Law! Bully for them!
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.
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?
Fernando Tatís Jr. was 18 years old, just a low-level prospect from the Dominican Republic trying to work his way up in the San Diego Padres farm system, when he made a financial deal that would impact his entire baseball career. And it wasn’t with the Padres.
Tatís signed a contract with Big League Advance, an unusual investment fund that pays minor-league players money up front in exchange for a share of their future MLB earnings.
Tatís, now 22 and widely viewed as one of the sport’s best young stars, today knows what those earnings will be. He agreed to a record-setting 14-year contract with the Padres on Wednesday night worth an eye-popping $340 million, the third-highest total in MLB history.
His new contract also creates a significant obligation for Tatís: to pay a sizable chunk of his new bounty—perhaps close to $30 million—to Big League Advance.
Here is the full WSJ piece, via Rick Pildes.
A number of people on Twitter were mocking this earlier idea of Martin Feldstein’s, now a policy since 1986. But of course unemployment benefits should be taxed at the federal level. If your income that year was low, you won’t pay any tax anyway. As of 2018, about 44 percent of American households paid no federal income tax in any case, so that is covering quite a few of the lower earners.
if you are in the taxable range, in your choices you should be comparing taxable income to taxable unemployment benefits, otherwise there is a distortion in your labor supply decision. If need be, raise the level of unemployment benefits. No, that isn’t a wash, because different individuals and households face different possible rates of marginal taxation. The higher earners (at least potentially the higher earners) should face a higher tax on their unemployment benefits than the lower earners will. So it is in fact a “progressive” policy.
Marty was right, as indeed he was about many things. Here is a good CRS overview of the issue. Here is Marty’s (partially gated) 1974 piece on the issue. This is exactly the kind of issue Twitter is ill-suited to considering.
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.
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.
Here is an email from a loyal MR reader:
I’ve been importing a few things for a new business. Such a huge opportunity for crypto. And not just for Nigerians.
The payments are a real pain. Many vendors already accept bitcoin. And you could eventually use smart contracts to provide a version of Alibaba Trade Assurance that works for places other than China and with every vendor. The language barrier makes it seem like you are answering an email about a Nigerian Prince, so some kind of escrow to build trust will expand who is comfortable importing.
I’m doing this because it is about 40% of the price to import yourself for the products I need rather than buy from someone on Amazon (who probably bought from a similar exporter). There are very real barriers to be knocked down and eliminate a whole host of middlemen in many products.
I will definitely be using crypto payments for future transactions. The convenience of crypto increases a lot as you do larger orders and build trust with suppliers.
Yesterday I outlined my supermarket job from ages 16-18 in suburban New Jersey. I did know plenty of economics at that time, including Adam Smith and Paul Heyne and most of classical economics, and here are some of the observations I made. Please note this is all n = 1 or n = 2, these may or may not be generalizable. Here goes:
1. Mockery was the relevant incentive at the margin, and the “enforcer of first resort.” If you did something wrong you were mocked, sometimes mercilessly. My first night on the job I put too many fruits and vegetables in the refrigerator, relative to expectations, and so I heard about that multiple times on my next appearance. The jokes at my expense were funny.
2. There was strong competition to win overtime hours. Working Sunday 12-5 was a prime slot, and not hard work either because customer demand was slow that day. Saturday 1-9:30 had extra payoffs as well. These labor supply curves definitely sloped upwards. And allocation of overtime hours served to keep the better workers around.
3. My sense was that the demand for labor was pretty inelastic in the following sense: once you were soundly established as someone who would show up, complete your list of tasks, and not steal too much, they really were not looking to fire you. You were “a keeper,” and in principle they would pay you more in response to a minimum wage hike, rather than firing you.
4. My sense was that the demand for labor was quite elastic in the following sense: the lower-tier workers were given a lot of luxury hours. For one thing, if you didn’t get an average of at least fifteen hours a week, you might leave for another job. Second, and more importantly, a lot of the night hours were optional. Did they really need you back there that Tuesday night after 6 or 7 p.m.? Well, maybe yes, maybe no. There was a sense that if customers came by with questions, it was useful to have someone around to help them. But if the produce department was not making a lot of money, they would cut back on these hours quite readily. In slow times I didn’t get the 5-10 p.m. slot a whole lot.
5. Department managers, including in produce, were paid an “efficiency wage time profile” of returns, a’ la Eddie Lazear. That is, in early years they would pay you below marginal product, but pay you above marginal product in the later, outer years. That schedule would keep you in line, because you needed to avoid getting fired to reap the high later returns. That said, in the outer years you would end up getting canned, because the prescription is not entirely time consistent. Why keep someone around who is getting paid above marginal product? It was called “getting busted.” At that point you would typically start all over again with another supermarket. (I did understand this all at the time, though I hadn’t yet read Lazear and a lot of the work hadn’t yet been published.) A minority of department managers ended up promoted to store managers, but that was hard to pull off, especially without a college degree.
6. There was plenty of employee theft, though never from me. Things disappeared off the back of trucks, and in this time there was no CCTV. At a smaller scale, to be caught eating or taking food without a receipt was considered a fireable offense, though if you were a good worker and kept it to brief snacking within limits they did not try too hard to catch you. They didn’t want to have to fire you, yet they did want to keep the rule in place. Collusion between male line workers and female cashiers sometimes was a problem, as it meant some people would just take foodstuffs home.
6b. Shoplifting was rampant, though much more in the meat department than in produce. Overall, the customers and workers were less honest than the bosses.
7. Correctly or not, the line workers typically were cynical about the union. You paid dues to it, and you were told it gave you higher wages, but otherwise it had no presence in your life. People saw the dues that left their paycheck, but were not convinced they were getting comparably high wages because of the union.
8. Due to gas prices and commuting costs (you had to keep your car in OK shape, which took competence as well as money), there was a modest degree of monopsony. Still, everyone understood that a higher cost of labor meant fewer hours and in the longer run fewer hires. No one thought that allowing vastly more shoplifting would lead the company to hire more labor, which is in fact what the more radical monopsony models imply. Nope, it wasn’t monopsony of that sort.
9. The store manager, and in turn the department manager, would be terrified when the regional boss would do a store walk-through, and typically that happened by surprise. That was when they really wanted you to scurry and have everything looking spic and span.
10. Workers had various personality types, and within a given type only so much motivation was possible, no matter what the rewards. All rewards were seen as temporary, and to be followed by an eventual firing or demotion. Slackers were slackers, and you had to accept that and work around them accordingly.
Do voters effectively hold elected officials accountable for policy decisions? Using data on natural disasters, government spending, and election returns, we show that voters reward the incumbent presidential party for delivering disaster relief spending, but not for investing in disaster preparedness spending. These inconsistencies distort the incentives of public officials, leading the government to underinvest in disaster preparedness, thereby causing substantial public welfare losses. We estimate that $1 spent on preparedness is worth about $15 in terms of the future damage it mitigates. By estimating both the determinants of policy decisions and the consequences of those policies, we provide more complete evidence about citizen competence and government accountability.
From the now classic paper of the same title by Andrew Healy and Neil Malhotra. As Neil said on twitter “It becomes depressing tweeting out this article after every instance of government failure,” but there you go.
Diem has been through several iterations since it was first announced in June 2019, with adjustments not being limited to just a change of name. Now those behind the project are beginning to reveal where they expect Diem to sit within financial markets and how the stablecoin will overcome regulatory and structural hurdles as it enters use.
On 11 February, an OMFIF audience heard Diem’s plans of becoming a bridge between traditional banking and new, digital assets. Christian Catalini, chief economist at the Diem Association and co-creator of Diem, tackled many of the concerns surrounding it, presenting it as a tightly regulated organisation that is also incorporating some of the best features of new digital currencies.
Diem had already made the transition to focus on single currency stablecoins fully backed by reserves, concentrating on the Diem dollar initially and abandoning a move toward a permissionless system in the future. Catalini went further at the OMFIF meeting, detailing how Diem will not allow the stablecoin to be fractionalised or leveraged elsewhere.
In his session with OMFIF’s Digital Monetary Institute, Catalini also gave new insights into the ongoing regulatory process. Diem, in its payment license application, is essentially being treated as a new bank by its regulator, the Swiss Financial Market Supervisory Authority, Catalini said. Diem’s reserves follow closely Basel III’s capital requirements and incorporate additional buffers to account for redemptions…
Diem has always maintained that there will be no fractionalisation of reserves, but concerns about how to enforce this have lingered. Even without lending by the issuer, virtual asset service providers, such as wallet suppliers or operators, could engage in fractional reserve banking with the coins as collateral. Catalini revealed that Diem will address this risk with new requirements for these service providers to back liabilities fully with Diem coins.
This makes ‘Diem different relative to any stablecoin today’, Catalini said.
Developing…one lesson is never underestimate projects initiated or sponsored by Facebook! And more generally, the continued interest in stablecoins (which are not appreciating, by definition) shows there is very real interest in some kind of direct digital transfer mechanism, call it money if you wish. So I am happy to see some major players moving to fill this space and in a manner designed not to collapse once the regulators get their paws on it.
Here is the full story and further detail.
Canada has made some smart moves with the Novavax vaccine. First, they initiated a rolling review of the Novavax vaccine in late January which suggests that they might authorize the vaccine based on the British trial before the US trial is concluded. The FDA will probably wait until the US trial is concluded. Second, Canada also signed a production agreement to bring some capacity online in Canada, although that will take time. That agreement, however, is on top of an advance purchase of 52 million doses with an option on another 24 million doses.
In short, if they act quickly, Canada could approve the Novavax vaccine before the United States and get a jump on its own vaccination efforts.
Our baseline results show welfare losses as large as 15% in parts of Africa and Latin America but also high heterogeneity across locations, with northern regions in Siberia, Canada, and Alaska experiencing gains. Our results indicate large uncertainty about average welfare effects and point to migration and, to a lesser extent, innovation as important adaptation mechanisms.
A few points:
1. Average global welfare loss is about six percent. The discount rate is 0.9%, and yes those are welfare losses. Losses as a percent of gdp are somewhat lower, because amenity costs are a factor with global warming.
2. About half of the global losses stem from the negative effects on productivity. For Africa, amenities losses are especially important. Overall the biggest losers are Central America, India, Brazil, and Africa. Many colder regions are better off.
3. The model allows for many margins of adjustment, including migration. Cheaper/freer migration is a good way of limiting the costs from global warming.
4. Subsidies to green energy don’t help very much, because of Jevons-like effects, namely that energy becomes cheaper and total energy use rises.
5. A carbon tax postpones fossil fuel use but in the long run it doesn’t help much, unless the delay in fossil fuel extraction is used to buy effective abatement measures.
Of course the assumptions in such papers always can be challenged, but this is one case where the authors think like economists throughout the entire exercise. It seems to be one of the best such studies.
My net conclusion (not theirs) is that the paper shows why serious action has been so slow in coming. The world as a whole might lose about two years worth of economic growth, with most of the losses concentrated in countries that are not calling the shots. Let’s say a poor country loses fifteen percent of welfare and about ten percent of gdp. Isn’t that somewhat similar to many of the losses caused by the current pandemic? Circa early 2021, how many vaccines are we sending to those places?
I do fully agree that we should be more cosmopolitan, but first to fix the malady we must understand it.