Category: Uncategorized
Real wages are flexible now
The restaurant used to pay you $13 an hour, now they pay you “$13 an hour plus p = ?? of Covid-19.” That new wage is a lower real wage.
Of course some workers are quitting, others are trying to shift back to disability, and so on. Those are movements along labor supply curves, not proof of sticky wages.
Plus other employers are taking unprecedented latitude in shifting around work hours, demanding new levels of commitment, asking workers to scrub down surfaces more and wear masks, and above all offering weaker promotion ladders, etc. — all cuts in the real wage.
I expect unemployment levels to rise to new and scary heights, and yes I do think the government should do something about that. But if you are analyzing the status quo with “a sticky wage model,” that assumption is probably wrong. Even though it is usually correct.
Of course at some point in the future I expect wages to become sticky again. Perhaps that is how we will know things have stabilized.
“Flexible wages on the downside, sticky wages on the upside” is perhaps the best assumption at the moment.
A further lesson is that sticky wages are not the only driver of unemployment, and the “fixed cost of working” models of Richard Rogerson and others have been underrated for a long time (to oversimplify a bit, given fixed costs it is not worth everyone coming in to work at some levels of demand/productivity).
What is the marginal risk of getting Covid-19?
This suggests that COVID-19 very roughly contributes a year’s worth of risk. There is a simple reality check on this figure. Every year around 600,000 people die in the UK. The Imperial College team estimates that if the virus went completely unchallenged, around 80% of people would be infected and there would be around 510,000 deaths.
So, roughly speaking, we might say that getting COVID-19 is like packing a year’s worth of risk into a week or two. Which is why it’s important to spread out the infections to avoid the NHS being overwhelmed.
Here is more from David Spiegelhalter, with some interesting graphics. For the pointer I thank H.
Friday assorted links
1. How the Fed is intervening in securities markets.
2. The argument for intermittent distancing.
3. Does a USB drive get heavier as you store more files on it? Supposedly it gets lighter.
4. How big will the trade collapse be? (The Economist)
5. A new method and institution for direct cash transfers to affected families.
6. Covid data tracker for state and local government policy actions.
7. MIE: Dr. Fauci donuts.
8. Michael Greenstone: key economic facts about Covid-19.
9. Curly Neal, RIP. And FDA deregulation on the mask front.
10. Musical version of the new Bohemian Rhapsody (recommended).
Are many more people infected than we think?
Here is the Clive Cookson FT piece (with an irresponsible headline). Here is the Lourenco new Oxford study, only a few pp. Miles Kimball offers analysis and numerous references.
Here is the Bendavid and Bhattacharya WSJ piece that perhaps has had the biggest popular influence. They argue that many more people have had Covid-19 than we think, the number of asymptotic cases is very large, and the fatality of the virus is much lower than we think, perhaps not much worse than the flu. But their required rate of asymptomatic cases is implausibly high.
The best evidence (FT) for asymptomatic cases ranges from 8 to 59 percent, and that is based on a number of samples from China and Italy, albeit imperfect ones. Icelandic data — they are trying to sample a significant percentage of their population — suggest an asymptomatic rate of about 50 percent. To be clear, none of those results are conclusive and they all might be wrong. (And we should work much harder on producing better data.) But so far there is no particular reason to think those estimates are wrong, other than general uncertainty. You would have to argue that the asymptomatic cases usually test as negative, and while that is possible again there is no particular reason to expect that. It should not be your default view.
Marc Lipitsch put it bluntly:
The idea that covid is less severe than seasonal flu is inconsistent with data and with the fact that an epidemic just gathering steam can overwhelm ICU capacity in a rich country like Italy or China.
Furthermore, the “optimistic” view implies a much faster spread for Covid-19 than would fit our data from previous viral episodes, which tend to come in waves and do not usually infect so many people so quickly.
So I give this scenario of a very low fatality rate some chance of being true, but again you ought not to believe it. The positive evidence for it isn’t that strong, and you have to believe a very specific and indeed unverified claim about the asymptomatic cases testing negative, and also about current spread being unprecedentedly rapid.
Here is Tim Harford’s take (FT) on all this, he and I more or less agree.
By the way, Neil Ferguson didn’t walk back his predictions. That was fake news.
So we still need to be acting with the presumption that the relatively pessimistic account of the risks is indeed true. Subject to revision, as always.
Minimum wage hikes are a much worse idea now
For one thing, the marginal product of labor is much lower, at least for a good while. But there is a deeper problem. Under the status quo ex ante, minimum hike proponents argued that the highest wages would be taken out of, say, the economic rents of restaurants.
But now those rents are largely gone! Especially for the small restaurants. The result will be that, if the minimum wage is raised, more laborers are laid off. At the very least there should be no minimum wage, or a much lower minimum wage, for small businesses.
A further effect is that higher contagion risk (extending into the future too, now that pandemics are salient) may encourage more employers to automate, including in kitchens, theme parks, etc. A higher elasticity of automation also militates against a minimum wage increase, because capital-for-labor substitution is now more likely, again indicating larger negative employment effects.
In essence, most of the previous empirical literature on this topic has to be significantly downgraded in relevance. Whatever you thought of them to begin with, the pieces by Dube and the like just don’t apply any more.
Most likely, we should lower current minimum wages. And that is all the more true, the more you have been worrying about coronavirus risk and Trump’s poor performance in response.
These are all very simple points, I am tempted to say they are “not even Econ 101.”
And note that in the very early stages of a lock down you might want a much higher minimum wage, precisely to keep people away from work, if somehow you cannot keep the customers away. The much higher minimum wage would force the employer to decide which are the truly important workers, and send the other into non-infectious activities, as Brian Slesinsky suggested to me.
This is all related to my earlier post The Meaning of Death, from an economist’s point of view.
The world is running a disturbing psychometric test
Put aside the people with small (and not so small) children at home, and observe whether the pandemic has boosted or destroyed their productivity. That is one measure for how they handle stress, and whether you might wish to trust them with a start-up or some other major project requiring quick adaptation and performance under duress. It may or may not be a measure for their ordinary performance on the job.
Consider the now-cancelled Candidates’ chess tournament in Russia. Ding Liren was one of the two clear favorites (with Caruana), and he lost three games in the first half of the tournament. That is evidence he does not play well under an extreme degree of stress. Yet he still is rated #3 in the world, from a career playing under conditions of “not a pandemic level of stress but still world-class levels of competitive stress.”
Grischuk had been saying the tournament should be called off, even in midstream. Probably he was right, but if play had continued would you have predicted him to come in first? Caruana, the American, was worried he may not be able to get home after the tournament. His play was OK but subpar, at least for a world-ranked number two. The non-favored but sturdy Nepomniachtchi was up three games, before unwisely playing a Winawer defense with the black pieces, but still he was the clear leader. How should we now revise our opinions of him?
A friend of mine writes to me:
I have submitted 4 papers in 2 weeks. Two R and Rs [revise and resubmits] done and sent back and two new papers sent out. Very close on 2 more. Then I guess I’ll start freaking out or something. Working is keeping me less stressed and more sane. You can really see the divide on Twitter between people getting shit done and people spending all their time hyperventilating.
David Brooks (NYT) considers how you have been living your life.
The psychometric stress test is being run, including on our institutions, regions, and nations. We’ll see how it goes.
Longer-run economic consequences of pandemics
How do major pandemics affect economic activity in the medium to longer term? Is it consistent with what economic theory prescribes? Since these are rare events, historical evidence over many centuries is required. We study rates of return on assets using a dataset stretching back to the 14th century, focusing on 12 major pandemics where more than 100,000 people died. In addition, we include major armed conflicts resulting in a similarly large death toll. Significant macroeconomic after-effects of the pandemics persist for about 40 years, with real rates of return substantially depressed. In contrast, we find that wars have no such effect, indeed the opposite. This is consistent with the destruction of capital that happens in wars, but not in pandemics. Using more sparse data, we find real wages somewhat elevated following pandemics. The findings are consistent with pandemics inducing labor scarcity and/or a shift to greater
precautionary savings.
That is a new paper by Òscar Jordà, Sanjay R. Singh, and Alan M. Taylor. And here is the tweet storm. It should be noted, of course, that the Spanish flu did not give rise to a comparable economic stagnation.
Via Evan Soltas.
From the comments, more about Maurice Hilleman
By Hochreiter:
“Finally, Hilleman took a step that seems unbelievable in the bureaucratically hardened, litigious society of today. He bypassed the Department of Health, Education and Welfare’s (HEW) Division of Biologic Standards and contacted the heads of the six U.S. vaccine manufacturers directly. His message was simple. “Don’t kill your roosters.” As a farm boy growing up in Montana, Hilleman had learned that farmers sell their roosters for stewing pots at the end of the spring hatching season. Because of his years working with the influenza virus, he knew that vaccine manufacturers produce their vaccine in fertilized chicken eggs. To produce vaccine on the scale Hilleman was envisioning would require a massive amount of fertilized chicken eggs. Manufacturers would need every rooster they could get. Recognizing that time was of the essence, Hilleman followed up his phone calls by shipping samples of this new strain to each of the six manufacturers for vaccine production on 22 May 1957. Initially dubbed “Far East influenza,” the virus was later named the Asian Flu.”
From *Influenza* by George Dehner. Here is the previous post about Maurice Hilleman.
Governor Cuomo: Libertarian
NY State Governor Cuomo’s lifting of regulations to deal with the coronavirus emergency may be the most libertarian government document in a generation. Here are a few laws that have been suspended or modified:
Paragraph 1 of Section 6542 of the Education Law and Subdivisions (a) and (b) of Section 94.2 of Title 10 of the NYCRR to the extent necessary to permit a physician assistant to provide medical services appropriate to their education, training and experience without oversight from a supervising physician without civil or criminal penalty related to a lack of oversight by a supervising physician;
Notwithstanding any law or regulation to the contrary, health care providers are relieved of recordkeeping requirements to the extent necessary for health care providers to perform tasks as may be necessary to respond to the COVID-19 outbreak, including, but not limited to, requirements to maintain medical records that accurately reflect the evaluation and treatment of patients, or requirements to assign diagnostic codes or to create or maintain other records for billing purposes. Any person acting reasonably and in good faith under this provision shall be afforded absolute immunity from liability for any failure to comply with any recordkeeping requirement.
Subparagraph (ii) of paragraph (2) of subdivision (g) of 10 N.Y.C.R.R. section 405.4, to the extent necessary to allow graduates of foreign medical schools having at least one year of graduate medical education to provide patient care in hospitals, is modified so as to allow such graduates without licenses to provide patient care in hospitals if they have completed at least one year of graduate medical education;
Sections 3502 and 3505 of the Public Health Law and Part 89 of Title 10 of the NYCRR to the extent necessary to permit radiologic technologists licensed and in current good standing in any state in the United State to practice in New York State without civil or criminal penalty related to lack of licensure;
The only non-libertarian aspect is the word “temporary.”
Thursday assorted links
1. Less Wrong coronavirus database (now upgraded).
2. My 2017 video on The Great Reset. And David Wright podcast on how Covid hits the poor.
3. MIE: In Beijing restaurants “many delivery orders now often include cards listing the names and temperatures of all the staff involved in preparing your food.”
4. The limits of infrastructure stimulus. And the case against airline bailouts. And database of state quarantine regulations.
5. Paul Romer’s simulations for tests and targeted isolation. And more from Romer. And a third Paul Romer simulation: even an eighty percent false negative rate helps fight a pandemic. I’ll be writing more on this soon.
6. Health and pandemics econ working group. And Senegalese music video.
8. Cheap mechanical ventilators?
9. Someone wise once told me that you get into the most trouble/controversy making statements that (pretty much) everyone agrees with. Here is my Bloomberg column on university endowments, which endorses the policies of virtually all elite universities, and by extension their presidents and boards. Or for that matter virtually all businesses that have had to opt for lay-offs.
10. The problems of post-acute care.
11. During the shutdown, the creativity pours forth (Joseph’s Machines).
The coronavirus situation in Japan is probably much worse than you think
I have been corresponding with a working group regarding the covid-19 situation in Japan. They shared a draft of their white paper with me while attempting to circulate their revisionist conclusions in policy circles.
The speed premium is indeed increasing quickly. The white paper has not materially changed since when I first saw it. Since then, the Olympics were postponed and experts in Japan have described the outbreak as “rampant.” The working group feels that society needs to prepare, and that this outweighs the desire to wait for additional official confirmation.
The authors are an international team based in Tokyo. They cannot attach their identities to the white paper at present. They are not medical researchers. They have reviewed their conclusions with a medical researcher and others. You can weigh the evidence of their claims.
Here is the document (no, it is not malware), and here is the opening bit:
The governmental and media consensus is that Japan is weathering covid-19 well. This consensus is wrong. Japan’s true count of covid-19 cases is understated. It may be understated by a factor of 5X or more. Japan is likely seeing transmission rates similar to that experienced in peer nations, not the rates implied by the published infection counts. The cluster containment strategy has already failed. Japan is not presently materially intervening at a social level. Accordingly, Japan will face a national-scale public health crisis within a month, absent immediate and aggressive policy interventions.
There is a great deal of further detail, including the numbers, at the link. Sobering.
But *when* will you favor a shift in coronavirus strategy? (no Straussians in a pandemic)
I agree with the numerous sentiments, for instance as expressed here by Ezra Klein, that we are not facing a dollars vs. lives trade-off, rather the better solutions will improve both variables. Also read this Tom Inglesby thread. Furthermore there is a concrete path forward toward general improvement, for instance read Zeke Emanuel (NYT, I don’t agree with every detail but the overall direction yes). And don’t forget these costs cited by Noah.
But we are economists, not mood affiliators, and so we must address the classic question of “at what margin?” At what margin would you favor an actual shift in strategy because the virus already had reached so many people? And yes, such a margin does exist. At that margin we would continue some of our defensive responses, but the overall approach would have to change away from the above links.
Let’s say everyone had been exposed to the coronavirus except yours truly. Should we shut all (non-take out) restaurants just to limit my personal risk? Clearly not. And likely I would end up getting exposed sooner or later in any case. Then you should “let it rip,” and let Tyler decide when he wishes to go outside or not (but of course offer him health care).
So what is the margin of bad outcomes where, after that point, a major change in strategy should set in? Has to set in? That is the question we all need to answer. And what should that strategy change be exactly?
We like to say “speed is of the essence,” but a less frequent spoken corollary of that is “at some point it is too late to stage the defense we had been hoping for.”
What if we made no further progress against Covid-19 after two more weeks? Three more weeks? How about a bit of progress on testing across the next month and a modest increase in mask capacity? How much longer is the cut-off? Given how rapidly the virus spreads, it can’t be that long from now. It cannot honestly be “four months from now.”
(For the record, I am still optimistic, but not at p = 0.8, so this eventuality is by no means purely hypothetical. And it is perfectly correct to note that Trump’s own incompetence is to some extent making the whole dilemma come true, and that itself is deeply unsettling. Agree! We should have “gone Singapore” months ago. But the dilemma is now here nonetheless, noting that we are hardly the only country in this bucket. You can’t just condemn Trump and stop thinking about it.)
Or what if New York and seven other regions are hopeless but the rest of the country is not?
I am fine if you agree with me, Ezra, Tom Inglesby, Zeke Emanuel, and many others, including most of the Democratic Party public health establishment. We all favor “speed is of the essence.”
But the next part of the message never quite gets delivered. And no one wants to talk about what the next strategic stage — if we fail — should look like.
It is imperative that you consider where your line lies — if only mentally — when you would jump ship and indeed…confess a significant degree of defeat and then formulate and push for a new strategy.
Addendum: Straussian Tyler is not entirely comfortable with this post, as he, like his brother Tyrone, prefers to tell the Noble Lie and maintain the illusion that the preexisting struggle must continue across all margins and at all times. But perhaps, these days, there are no Straussians in foxholes. So pick your “no return” point, write it down, and then get back to me. The honesty of our policy response requires this, yes? I’m not even making you say it out loud.
And don’t you find it strange that no one has been willing to raise this point before? Could it be that we are not being told the entire truth? Or are people not telling the entire truth to themselves? Isn’t that the same mistake we’ve been making all along?
Quarantine markets in everything and stimulus at that
As countries in Asia impose stricter entry requirements on foreign visitors amid a new wave of imported coronavirus infections, hotels in the region are seeing unexpected opportunities as quarantine lodgings for travelers and workers seeking self-isolation venues.
Industry players say the unusual proposal of repurposing hotels as quarantine quarters is one way the battered hospitality sector could fill up some rooms and get much-needed revenue during such tough times, while lending a hand to the most affected sectors or communities amid the escalating situation worldwide.
And:
These full-board packages are targeted at Thais or residents who wish to isolate themselves for 14 days. Meals are delivered to the rooms on trolleys, while dishes, cutlery and bedsheets used by guests in self-isolation will be separated for special handling.
A special team will provide daily housekeeping services and help monitor the conditions of the guests under quarantine. Should any of these guests become unwell or develop any coronavirus symptoms during their stay at the hotel, they will immediately be sent to the several hospitals located in the vicinity of the hotel, according to Shah.
“We hope to get at least some customers with these quarantine packages, as standard tourists will not come during this time,” Shah remarked. These packages are priced very competitively with rates slashed by 20 percent, he added.
With the Singapore government making it mandatory for anyone entering the country since March 20, 11.59 p.m. to undergo a 14-day stay-at-home notice, Park Hotel Group Executive Director Shin Hui Tan has already seen an uptick in enquiries from returning residents wanting to check themselves into hotels during the two-week period.
Here is the full story, via Air Genius Gary Leff.
Wednesday assorted links
1. “Variation in skill can explain 44 percent of the variation in diagnostic decisions, and policies that improve skill perform better than uniform decision guidelines.” Not a Covid-19 paper, but relevant of course, link here.
2. Which states are practicing social distancing the most? (NYT)
3. Human challenge studies to accelerate a vaccine.
4. My Bloomberg column on how the macroeconomics of Covid-19 do and do not resemble WWII. Oops, correct link here.
5. The idea of “group testing” actually came from economist Robert Dorfman of Harvard (who taught me history of economic thought way back when). And more on pooled tests. And Nebraska is doing pooling.
6. “Use Surplus Federal Real Property to Expand Medical and Quarantine Capacity for COVID-19.”
7. Why scaling up testing is so hard (New Yorker).
8. We still don’t know the CFR for H1N1.
9. “Overlooked is the possibility that beauty can influence college admissions.” But not for Chinese it seems.
10. Mullainathan and Thaler with some deregulatory suggestions (NYT).
12. Benjamin Yeoh on early vaccine use.
13. James Stock: “The most important conclusion from this exercise is that policy hinges critically on a key unknown
parameter, the fraction of infected who are asymptomatic. Evidence on this parameter is scanty, however
it could readily be estimated by randomized testing.”
14. Two elite factions in tension with each other (nasty stuff, please do not read).
The Speed Premium in an exponentially growing pandemic world
I’ve blogged a few times in the past about the importance of speed, and speed as an input into productivity and innovation. What many people do not realize is that “the speed premium” is vastly higher when a deadly virus is doubling in reach every five to seven days.
An economic or epidemiological plan from a week ago might be worthless or even misleading today. For instance, some scientists have told me that at some point, if the virus is widespread enough, there is no choice but to let it burn its way through the population (not saying we are there yet, probably not according to the consensus of experts I am seeing).
Have you perused recent newspapers and mentally noted how many of the articles — such as reviews of art exhibitions — obviously were written and planned in The Time Before (can I call it that?). Those articles are now largely worthless, though a few of them may have nostalgia value.
If you are writing commentary, the value is being there is the morning, not the evening. The “commentary cycle” used to stretch at least a day or two, occasionally a full week.
The corporate value of being prepared early with a good telework plan has been especially high.
Ben Thompson writes: “…on January 23, the day that China locked down Wuhan, Taiwan had the capability of producing 2.44 million masks a day; this week Taiwan is expected to exceed 13 million masks a day, a sufficient number for not only medical workers but also the general public.”
If you are seeking to start a business, to deal with the third party vendors that Amazon is (temporarily) abandoning, you cannot just wait a month or two. You have to start now.
The Chinese system has its flaws from an anti-pandemic point of view, most of all low transparency. But their typical rapid speed of response has been astonishing — setting up that hospital in six days — and it is a big reason why they are on a (partial) rebound.
If you are giving philanthropic grants, you have to be ready to give them now. If you give them three months from now, you may well miss the boat in terms of expected impact.
Are you ready for a world where the speed premium is so insanely high?
I wish to thank Daniel Gross for a conversation related to this blog post. We spoke at 3.5x.