Category: Uncategorized
Should South Africa lock down?
The lockdown will lead to 29 times more lives lost than the harm it seeks to prevent from Covid-19 in SA, according to a conservative estimate contained in a new model developed by local actuaries.
The model, which will be made public today for debate, was developed by a consortium calling itself Panda (Pandemic ~ Data Analysis), which includes four actuaries, an economist and a doctor, while the work was checked by lawyers and mathematicians. The process was led by two fellows at the Actuarial Society of SA, Peter Castleden and Nick Hudson.
They have sent a letter, explaining its model, to President Cyril Ramaphosa. In the letter, headed “Lockdown is a humanitarian disaster to dwarf Covid-19”, they call for an end to the lockdown, a focus on isolating the elderly and allowing children to go back to school, while ensuring the economy restarts so that lives can be saved.
The paper also is at the link, and it is perhaps more of a rough and ready calculation than a formal model per se. Nonetheless South Africa has a relatively young population and the core points are well taken:
In SA, they estimate that 5.4 years of life have been lost per Covid-19 death. They then multiply this by the range of deaths which they predict – 20,000 – as well as the actuarial society’s prediction of 88,000 fatalities. They factor in that the lockdown will have reduced some deaths, but not all. In the end, their model translated into a minimum of 26,800 “years of lives lost” due to Covid-19, and a maximum of 473,500 years. (This, critically, shouldn’t be confused with the actual number of fatalities expected from Covid-19.)
The actuaries then used the figures predicted by the National Treasury to model the impact on poverty. On Friday, the Treasury estimated that between 3-million and 7-million jobs will be lost due to the measures taken to combat the virus. The actuaries then work out that, conservatively, 10% of South Africans will become poorer, and as a result, will lose a few months of their lives.
It is a good question how many of the models used for the West have taken into account the “demonstration effect,” namely that poorer (and much younger) countries will be tempted to follow the same policies. I’ve yet to see a good discussion of this.
My Conversation with Adam Tooze
Tinges of Covid-19, doses on financial crises, but mostly about economic history. Here is the audio and transcript. Here is the summary:
Adam joined Tyler to discuss the historically unusual decision to have a high-cost lockdown during a pandemic, why he believes in a swoosh-shaped recovery, portents of financial crises in China and the West, which emerging economies are currently most at risk, what Keynes got wrong about the Treaty of Versailles, why the Weimar Republic failed, whether Hitler was a Keynesian, the political and economic prospects of various EU members, his trick to writing a lot, how Twitter encourages him to read more, what he taught executives at BP, his advice for visiting Germany, and more.
Here is one excerpt:
COWEN: Was Keynes right about the Treaty of Versailles? Was it as bad as Keynes said?
TOOZE: No. I’m a confirmed liberal Keynesian in my broad politics, and my understanding of politics and the way expertise ought to relate to it, and the operations of modern democracy. I think his political writings in Essays in Persuasion are brilliant. But I regard The Economic Consequences of the Peace as disastrous because, essentially, it enhanced and gave arguments to the German nationalists who —
COWEN: But that doesn’t mean Keynes was wrong, right? It may have had that effect, but he’s writing at a time where the wealth-to-income ratio is especially low, so a given measure of debt burden is much worse for an economy than what we might be used to.
TOOZE: Absolutely, but the evidence of the 1920s is that, with the right framework, the Weimar Republic was, in fact, perfectly capable of bearing a reasonable burden of reparations — 2 percent to 3 percent were doable. The fact of the matter is the German political class had no interest in accepting that responsibility and was quite determined to do a variety of different things to escape that burden.
And there is no doubt at all that the front-loading of the demands, which is very understandable from the point of view of the financial needs of the French in particular, caused a huge bottleneck, if you like, early on in the history of the Weimar Republic when it was most fragile. And that’s, as it were, the moment when I think the critique is most valid.
And that’s why, for me, really, the hidden agenda of the economic consequences of the peace is an appeal, to the Brits but above all to the Americans, for large-scale debt concessions, on which one could only agree with Keynes that this was, in fact, absolutely critical, that market economies have unspoken fundamental political preconditions, which, in the aftermath of the massive war, have been disrupted.
And:
COWEN: Speaking of Hitler, was Hitler, in fact, the Keynesian?
TOOZE: No. Hitler personally — absolutely not. Hitler’s personal monetary ideas are very, very conservative. He’s an anti-inflation hawk. He has to be persuaded to engage in large-scale monetary financing.
Somebody like Schacht is a contemporary of Keynes, and that’s Hitler central banker and an adventurous monetary thinker. He’d learned to think outside the monetary box, if you like, in the efforts to stabilize Weimar’s currency in 1923–24. And he’s certainly an expansionary. He’s not afraid of monetary finance and of using off-balance-sheet vehicles to provide liquidity and to provide credit for an underemployed economy.
And quite reasonably, no one’s worried about inflation in 1933 because Germany has massive unemployment. So, in that sense, they are adventurous, macroeconomic, monetary economists.
They’re not Keynesians for the simple reasons that Keynesianism, classically, of course, is a liberal economic politics. It believes in a multiplier, and the multiplier’s the be-all and end-all really of Keynesian economics because what it suggests is that small, intermittent, discretionary interventions by the state — relatively small — will generate outside reactions from the economy, which will enable the state to serve a very positive role in stabilizing the economy but doesn’t require the state to permanently intrude and take over the economy.
That’s a post-1945 kind of vision of a mixed economy. Keynes himself — that’s why he wants the multiplier to be three because if the multiplier is three, then $1 by government spending generates $3 of private economic activity.
You can think of government intervention as sporadic. It’s emergency medicine. It’s not chronic care. That, of course, is the antithesis of what the Nazis are doing because they are ramping up government spending, not across the board, but highly focused on rearmament because what they’re doing is not just creating jobs, though they do create jobs as a side effect. What they’re doing is restructuring the economy towards building the foundation for rearmament in a war economy.
What they’re actually trying to do is systematically repress the multiplier because they do not want people employed in armaments factories to go out and buy clothing and fancy food, which requires imports. They want the money to be circled straight back into the armaments effort. Saving various types of financial oppression is the order of the day. They’re macroeconomists, the Nazis. They’re adventurous macroeconomists. They’re doing massive intervention, but they’re not Keynesian.
Tooze’s discussion of his own career and interests, toward the end, is hard to excerpt but for me the highlight of the conversation. He also provided the best defense of Twitter I have heard.
Definitely recommended.
Wednesday assorted links
1. The problem with Covid-19 and immunity?
2. Podcast with Marc Lipsitch. And Unherd interview with a German virologist (have not heard yet).
3. Excellent FT piece on liability issues.
4. The multiple virus strains hypothesis reemerges, caveat lector, please don’t get too carried away with this one, but worth a ponder. And here is a WaPo piece on the surrounding debate.
5. When will cancelled sailings impact U.S. ports?
6. Henry Farrell on what the public wants.
7. Are the Swedes epidemiological nationalists? (Might others be too?) And I don’t understand this Peter Turchin post on Denmark vs. Sweden, but maybe you will?
8. How the debate about herd immunity should proceed.
9. Model this (Australian camel plunge, multi-camel plunge in fact).
10. How much contact is required for transmission?
11. How do the CRISPR tests for Covid-19 work? (pretty amazing stuff).
12. Are panviral defenses a real option? (NYT)
13. The Quebec plan for school reopening — feasible or not?
Movies to watch under lockdown
I/we have been watching the following:
The Wedding Plan, Israeli movie about a religious woman who precommits to her future wedding, yet without having a particular groom in mind. Full of subtlety, motivated by behavioral economics and game theory, poignant, recommended. Israeli cinema and TV remain an underexploited profit opportunity.
Teorema, directed by Pasolini, this one makes no sense but is utterly captivating. I say it is the devil rather than Christ, but you could argue it either way. Don’t expect any scene to cohere, but this one is from the golden age of cinema and it shows.
The Lady from Shanghai. Could this be my favorite Welles movie, as he had not yet started to take himself too seriously? It spans sailing life, New York, Acapulco and Mexico’s Pacific coast, noir, and San Francisco’s Chinatown. The look at 1947 SF is enough to scare some YIMBY into the most desperate protectionist. This was a rewatch for me, and it seemed even better the second time around.
Rhapsody in August, late Kurosawa from 1991. Not for neophytes but the frankest cinematic treatment of Nagasaki you are likely to find. The best 2/3 of this film are very moving and indeed unforgettable. It is sufficiently subtle that most of the reviews are suitably bad.
Beforeigners, a Norwegian television show with a unique twist on the usual immigration story. Due to a time warp, migrants from earlier periods of history, such as medieval times and also the Stone Age, climb into current-day Oslo. You are not allowed to call them “Vikings,” rather they are “people of Norse descent.” And they cannot assimilate to a very foreign culture, though at least one of them ends up working in the Oslo police department. Clever and original, I hope they make more than just the first six episodes.
Tuesday assorted links
2. Conor Sen catnip: “For example, people in New York travel 38% fewer total kilometers and visit 14% fewer block-sized areas than people in Atlanta.” The paper has further interesting results.
3. What is the chance you know someone with coronavirus?
4. Pareto: the virtual start-up assistant. A new product and company. The founder is EV winner Phoebe Yao.
5. Case numbers and deaths in prisons, relative to what the models predicted.
6. A simple John Cochrane model of Covid-19. And further commentary along similar lines. Both recommended. Again, we are actually getting somewhere with these.
7. Houllebecq on Covid-19. And “How Yukon’s ‘one caribou apart’ physical distancing campaign became a sensation.“
What is non-optimal about current sorting?
In club theory, clubs have congestion costs and charge fees, in part to reflect those costs. If there are enough clubs, or non-convexities are not too severe, the voluntary outcome is roughly optimal.
So why then are guidelines for social distancing needed? Why can’t we just let consumers decide to stay away from stores or other venues that might be too dangerous?
The problem with pandemics is that congestion costs are endogenous, and not fixed as in the simple club models. If you get infected, congestion costs rise, and entry fees rise, increasing both congestion and exclusion (shut stores as one symptom of exclusion), both reducing the welfare of others. Individuals do not take those costs into account when deciding their risk of exposure.
Seller Reputation and Price Gouging
That is a new paper by Luís Cabral and Lei Xu, here is the abstract:
We test the theory that seller reputation moderates the effect of demand shocks on a seller’s propensity to price gouge. From mid January to mid March 2020, 3M masks were priced 2.72 times higher than Amazon sold them in 2019. However, the difference (in price ratios) between a post-COVID-19entrant and an established seller is estimated to be about 1.6 at times of maximum scarcity, that is, post-COVID-19entrants price at approximately twice the level of established sellers. Similar results are obtained for Purell hand sanitizer. We also consider cumulative reviews as a measure of what a seller has to lose from damaging its reputation and, again, obtain similar results. Finally, we explore policy implications of our results.
In other words, Amazon is afraid to raise its prices, presumably for a mix of reputational and regulatory reasons.
Why isn’t Belarus being hit harder?
This is from my email, from Hayden Murray:
I’m an American, who lives in Belarus…[various disclaimers]
There’s no doubt that the government is underreporting Coronavirus deaths here, but also there’s no denying that there is very little problem. I don’t know anyone affected, (or even anyone that knows anyone,) yet I know many in California.
I think you were probably at least somewhat right with your idea that low consumption is already part of the culture. I think the difference in deaths is primarily due to better isolating the elderly, though. I’ve never seen an elderly person at a restaurant here, and I’ve been here for years. Compare this to California – and I mainly see older people (and often quite elderly) people at restaurants.
In addition, it seems that most elderly people in Belarus live in villages – which are often extremely isolated, even in normal times. Also, I have never heard of a nursing home here. I’ve seen many families taking care of extremely old family members, though. So, maybe this alone could explain some major differences. Couldn’t find hard stats on it though. But, putting all our most vulnerable into place, and then shuffling low-wage workers in and out constantly – seems like a recipe for disaster right now.
A multi-risk SIR model with optimally targeted lockdown
Or you could say “all-star economists write Covid-19 paper.” Daron Acemoglu, Victor Chernozhukov, Iván Werning, and Michael D. Whinston have a new NBER working paper. Here is part of the abstract:
For baseline parameter values for the COVID-19 pandemic applied to the US, we find that optimal policies differentially
targeting risk/age groups significantly outperform optimal uniform policies and most of the gains can be realized by having stricter lockdown policies on the oldest group. For example, for the same economic cost (24.3% decline in GDP), optimal semi–targeted or fully-targeted policies reduce mortality from 1.83% to 0.71% (thus, saving 2.7 million lives) relative to optimal uniform policies. Intuitively, a strict and long lockdown for the most vulnerable group both reduces infections and enables less strict lockdowns for the lower-risk groups.
Note the paper is much broader-ranging than that, though I won’t cover all of its points. Note this sentence:
Such network versions of the SIR model may behave very differently from a basic homogeneous-agent version of the framework.
And:
…we find that semi-targeted policies that simply apply a strict lockdown on the oldest group can achieve the majority of the gains from fully-targeted policies.
Here is a related Twitter thread. I also take the authors’ model to imply that isolating infected individuals will yield high social returns, though that is presented in a more oblique manner.
Again, I would say we are finally making progress. One question I have is whether the age-specific lockdown in fact collapses into some other policy, once you remove paternalism as an underlying assumption. The paper focuses on deaths and gdp, not welfare per se. But what if older people wish to go gallivanting out and about? Most of the lockdown in this paper is for reasons of “protective custody,” and not because the older people are super-spreaders. Must we lock them up (down?), so that we do not feel too bad about our own private consumption and its second-order consequences? What if they ask to be released, in full knowledge of the relevant risks?
Monday assorted links
1. Opioid deaths appear to be surging.
2. Varun’s predictions about the future.
3. U.S. prison CFR simulator (by Paul Novosad).
4. Isaac Chotiner interviews Paul Romer.
5. You Can Now Get a Face Mask With Your Favorite Disney, Marvel, and Star Wars Characters. And price gouging could fix our mask shortage.
6. The friend number paradox. And Hobbes and plague.
7. Brewing trouble in the mortgage market.
8. Matt Parlmer thread, recommended.
9. Report on Buffett and Munger.
10. Straussian Swedes?: “In my household my opinion counts for little, and she has continued to live her life pretty normally (her high-school classes went online, however).”
What I’ve been reading
1. Ethan Sherwood Strauss, The Victory Machine: The Making and Unmaking of the Warriors Dynasty. On top of everything else this is an excellent book on management, and the random events along the way to making a team (the Warriors once wanted to trade both Curry and Thompson for Chris Paul). Kevin Durant ends up as the fall guy, recommended to those who care.
2. Valerie Hansen, The Year 1000: When Explorers Connected the World — and Globalization Began. Worth reading, my favorite part was the discussion of how Cahokia in Mississippi was connected to the Mayans. And Chichen Itza is probably the world’s best preserved city from the year 1000.
3. Zena Hitz, Lost in Thought: The Hidden Pleasures of an Intellectual Life. “Drawing on inspiring examples, from Socrates and Augustine to Malcolm X and Elena Ferrante, and from films to Hitz’s own experiences as someone who walked away from elite university life in search of greater fulfillment, Lost in Thought is a passionate and timely reminder that a rich life is a life rich in thought.”
4. Alaine Polcz, One Woman in the War: Hungary 1944-1945. I am surprised this book is not better known. I found it deeper and more gripping than many of the more broadly recommended wartime memoirs, such as Viktor Frankl. And more honest about the toll of war on women.
5. Adam Thierer, Evasive Entrepreneurs and the Future of Governance: How Innovation Improves Economies and Governments. A very good libertarian, “permissionless innovation” look at tech.
I have browsed Judith Herrin’s Ravenna: Capital of Empire, Crucible of Europe, and it seems to be the definitive book on the early history of that city (one of my favorite one-day visits in the whole world).
What happened to male youth movements?
I’ve been wondering, at what point did youth movements dissipate in America (and the West more generally?). It seems to be a perfect opportunity for organization and deployment of 18-25 year old men, who are nearly unphased by covid.
As workers in essential meat plants, factories, and other labor intensive supply chains grow sick and die, it seems that having an organized workforce of young men prepared to temporarily take over would be an ideal situation. (Women of course have a role to play, but they are already playing an outsized role in medicine).
More generally, I’m reminded of your previous blog post ‘What the hell is going on?’. This type of event seems to be exactly what wayward young men live for — the ability to contribute to something greater than themselves. Combined with the fact that healthy young men are at remarkably low risk, isn’t the opportunity to support their country at little risk to themselves, and in return gain high status, the ideal situation?
What do you think the failure mode is here? Why does the idea of mobilizing a few thousand men or women in each locality to contribute to the greater good feel so weird? It’s so weird no one even suggests it. Could I suggest that this even feels embarrassing? Why?
That is from an email from Simon Riddell.
Sunday assorted links
1. The acquired immune system.
2. Latest update on Swiss cantons.
3. Maybe the smoking result is still holding up?
4. New Taiwan test and trace data. Better and more relevant numbers than I have been seeing.
5. How did Covid-19 disrupt the Treasuries market?
6. Were WWI helmets in some ways better for blast protection than current helmets?
7. The NYT covers heterogeneities in Covid-19 cases and fatalities. And here is the FT on Portugal vs. Spain. And why is the Covid-19 death rate so low in Israel?
8. Control without information.
9. David Goldhill is upset. My short summary would be: “Public health experts insist on RCTs except when it comes to their own policy recommendations.” That’s right, isn’t it?
10. Richard F. Fenno, political scientist, has passed away, possibly of Covid-19.
Why aren’t there more Covid-19 deaths in U.S. prisons?
There are about 2.3 million prisoners in the United States, and so far the number of reported Covid-19 deaths is 251, or higher by the time you are reading this. If you know of a better data source, please let me know.
For purposes of contrast, Rhode Island has about a million people and currently 266 deaths (and rising). Connecticut has 2,339 Covid-19 deaths, and a population of about 3.5 million, or in other words almost ten times the deaths as the prisons without having even twice the population. In other words, at least nominally the prison system seems to be doing better against Covid-19 than either The Nutmeg State or The Ocean State.
And I read this kind of line quite frequently:
Ohio officials found that more than 80% of those inmates had the virus with the vast majority showing no symptoms.
Yet asymptomatic cases in non-prison samples are often in the 40-50% range, not higher. Furthermore, the Bureau of Prisons just tested 2000 prisoners (how random a sample?…but don’t forget the false negatives!) and 70% tested positive. Again, the death rate does not seem to be through the ceiling.
How can this heterogeneity be? I see a few options:
1. Actual Covid-19 deaths in prisons are much higher than reported. This is quite possible, though I don’t see the media coverage that might go along with this. At the very least, prisons might have longer death reporting and classification lags than does Connecticut.
2. Prison deaths are about to explode, due to exponential growth in the number of cases and their progression through time. Again, this is quite possible, but you know what? I thought of writing this post a few weeks ago and then figured I would be refuted by an explosion of the death total over the next few weeks. So far it hasn’t happened. It may yet.
3. Prisoners are younger. Here is data on inmate ages, they are not that much younger than the general U.S. population. But they are somewhat younger, and surely this is one factor.
4. Prisoners smoke a lot, and nicotine actually may have protective properties against Covid-19. And is obesity low in prison? I do not know. Still, I don’t think of prisoners as a group in perfect physical health.
5. Prisoners are…um…locked up. The superspreaders just aren’t that super, there are not many new entrants to the prison population, few tourists from Italy, and so on. Not only do they live in cells, but the prison system as a whole is like thousands of scattered islands.
I see 1-5 all as possible significant options, with #4 as the weakest candidate. What else might be playing a role here?
Communism still matters liberty still matters
Those who grew up in East Germany seem to have a harder time cottoning to the realities of capitalism:
We analyze the long-term effects of living under communism and its anticapitalist doctrine on households’ financial investment decisions and attitudes towards financial markets. Utilizing comprehensive German brokerage data and bank data, we show that, decades after Reunification, East Germans still invest significantly less in the stock market than West Germans. Consistent with communist friends-and-foes propaganda, East Germans are more likely to hold stocks of companies from communist countries (China, Russia, Vietnam) and of state-owned companies, and are unlikely to invest in American companies and the financial industry. Effects are stronger for individuals exposed to positive “emotional tagging,” e.g., those living in celebrated showcase cities. Effects reverse for individuals with negative experiences, e.g., environmental pollution, religious oppression, or lack of (Western) TV entertainment. Election years trigger further divergence of East and West Germans. We provide evidence of negative welfare consequences due to less diversified portfolios, higher-fee products, and lower risk-adjusted returns.
That is from a new NBER paper by Christine Laudenbach, Ulrike Malmendier, and Alexandra Niessen-Ruenzi.
But if you are looking for a contrary point of view, consider this new paper by Sascha O. Becker, Lukas Mergele, and Ludger Woessmann:
German separation in 1949 into a communist East and a capitalist West and their reunification in 1990 are commonly described as a natural experiment to study the enduring effects of communism. We show in three steps that the populations in East and West Germany were far from being randomly selected treatment and control groups. First, the later border is already visible in many socio-economic characteristics in pre-World War II data. Second, World War II and the subsequent occupying forces affected East and West differently. Third, a selective fifth of the population fled from East to West Germany before the building of the Wall in 1961. In light of our findings, we propose a more cautious interpretation of the extensive literature on the enduring effects of communist systems on economic outcomes, political preferences, cultural traits, and gender roles
That said, I still believe that communism really matters, and durably so, even if the longer history matters all the more so. And now there is yet another paper on East Germany and political path dependence, by Luis R. Martinez, Jonas Jessen, and Guo Xu:
This paper studies costly political resistance in a non-democracy. When Nazi Germany surrendered in May 1945, 40% of the designated Soviet occupation zone was initially captured by the western Allied Expeditionary Force. This occupation was short-lived: Soviet forces took over after less than two months and installed an authoritarian regime in what became the German Democratic Republic (GDR). We exploit the idiosyncratic line of contact separating Allied and Soviet troops within the GDR to show that areas briefly under Allied occupation had higher incidence of protests during the only major episode of political unrest in the GDR before its demise in 1989 – the East German Uprising of 1953. These areas also exhibited lower regime support during the last free elections in 1946. We argue that even a “glimpse of freedom” can foster civilian opposition to dictatorship.
I take the core overall lesson to be that the eastern parts of Germany will experience significant problems for some time to come.
And speaking of communist persistence, why is it again that Eastern Europe is doing so well against Covid-19? Belarus is an extreme case, with hardly any restrictions on activity, and about 14,000 cases and 89 deaths. You might think that is a cover-up, but the region as a whole has been quite robust and thus it is unlikely to be a complete illusion. And no, it doesn’t seem to be a BCG effect.
Does communism mean there is less of a culture of consumption and thus people find it easier to just stay at home voluntarily? Or have all those weird, old paranoid communist pandemic ministries persisted and helped with the planning? Or what?
Double credit on this one to both Kevin Lewis and Samir Varma, neither less excellent in his conjunction with the other.