How effective was pandemic aid?
We use an instrumental-variables estimator reliant on variation in congressional representation to analyze the macroeconomic effects of federal aid to state and local governments across all four major pieces of COVID-19 response legislation. Through December 2022, we estimate that the federal government allocated $603,000 for each state or local government job-year preserved. Our baseline confidence interval allows us to rule out estimates smaller than $220,400. Our estimates of effects on aggregate income and output are centered on zero and imply modest if any spillover effects onto the broader economy.
That is from a new paper by Jeffrey Clemens, Philip Hoxie, and Stan Veuger. Via the excellent Kevin Lewis.
*Atlantic Cataclysm*
The author is David Eltis and the subtitle is Rethinking the Atlantic Slave Trades. Here is one summary passage:
While Europe’s role in the slave trade may have been secondary it can scarcely be described as minor. The traffic was broadly based, with ninety-six European ports dispatching at least one voyage to Africa. Almost every port large enough to initiate transoceanic trade participated in the business. Owners, their employees and, most important, the public had unquestioning support for the business until the last quarter of the eighteenth century. The Portuguese and Spanish created the Atlantic slave-trading system, and they were the last to abandon it. They dispatched more voyages and carried off far more enslaved women and men than did the British throughout the era.
Eltis also writes:
Generally, the new data reveals a sense of equality between buyer and seller on the African littoral, at least until late in the slave trade era…Africanists have yet to take on board new population estimates for African regions in 1850 and match these with new estimates of the exodus of people that are now available. It now seems unlikely that outside influences transformed the nature of slavery in Africa.
And note:
…only four other jurisdictions in the Americas received more African captives than Barbados.
A very useful and important book on what is (yes) still a topic underrated in import.
The Afrikaner exception
The White House just issued an executive order on South Africa that includes admitting Afrikaner South Africans as refugees to the United States
Here is one of many reports. Let me first say that I am happy to have more Afrikaners in the United States. It reminds me of my “open borders for Belarus” proposal — numbers are limited and assimilation is not going to be a problem.
That said, the symbolism here can only be described as…grotesque. South Africa is a poorly governed country, so you can find many examples of bad policy decisions foisted on Afrikaners. But, if one is going to make generalizations about classes, blacks in South Africa suffer far more from that poor governance. This Executive Order, taken in context, is a deliberate attempt to invert the actual reality of the situation, and make a subset of the whites the supposed real victims. You don’t even have to get into apartheid history to see the outrageousness of this framing.
Ironically (is that the right word?), the order itself would seem to require the resurrection of the old-style racial classification system of apartheid South Africa. Who exactly is an Afrikaner? What if you are just “white”? Mixed race? Colored, with some Afrikaner blood in your background? Do we need a new version of the Population Registration Act to decide exactly who qualifies as a refugee?
This one could better be rethought, in any case I take it as an unpleasant and ominous sign of further changes.
“By your culture, we shall know ye”
From President Trump:
At my direction, we are going to make the Kennedy Center in Washington D.C., GREAT AGAIN. I have decided to immediately terminate multiple individuals from the Board of Trustees, including the Chairman, who do not share our Vision for a Golden Age in Arts and Culture. We will soon announce a new Board, with an amazing Chairman, DONALD J. TRUMP! Just last year, the Kennedy Center featured Drag Shows specifically targeting our youth — THIS WILL STOP. The Kennedy Center is an American Jewel, and must reflect the brightest STARS on its stage from all across our Nation. For the Kennedy Center, THE BEST IS YET TO COME!
Here is the link, and I will keep an eye on what happens there and report back.
Michael Pettis responds in the FT
Robert Armstrong at the FT gives him a chance to respond to Noah and Krugman and me, here are links to the originals:
[Armstrong] Cowen argues that intervention in the short term, as you have proposed, is counterproductive because demand shortfalls will resolve themselves as price adjustments. What is your response?
Pettis: While I understand Cowen’s reliance on the “Econ 101” model, which assumes that prices always adjust to balance supply and demand, this framework isn’t relevant in the context of current global economic conditions. Prices have not adjusted in the US or many other countries over several decades. Take China as an example, where price deflation has persisted and consumption has remained exceedingly low for years. To manage the gap between production and consumption, China has had to resort to extraordinarily high levels of investment and, as the cost of this wasteful investment has recently shown up in the form of the fastest- growing debt burden in history, to the highest trade surpluses in history.
So why hasn’t the demand shortfall “gone away”, as Cowen’s model would predict? The answer lies in China’s trade and industrial policies, which enhance global manufacturing competitiveness at the expense of domestic consumption. These policies include an undervalued currency, repressed interest rates, highly directed credit, and, yes, tariffs. These policies, together with strict controls on trade and even stricter controls on the capital account, have prevented any natural adjustment from taking place. This matters, because a country’s internal imbalances created by domestic policies lead automatically to its external imbalances which, in turn, must be reflected in the external imbalances of the trade and investment partners of that country. That is how internal policies in one country will lead automatically to changes in the internal conditions in other countries. Cowen’s models may well be internally consistent, but they are based on simplified assumptions that clearly fail to describe the real-world factors that shape trade imbalances.
I’ll say a few points in response:
1. Pettis says “While I understand Cowen’s reliance on the “Econ 101” model, which assumes that prices always adjust to balance supply and demand, this framework isn’t relevant in the context of current global economic conditions. Prices have not adjusted in the US or many other countries over several decades.” The first sentence there is just the usual anti-economics slur. In fact the (numerous) models I have in mind are workhorses from PhD level international macroeconomics, not from “Econ 101.” And can he really mean “Prices have not adjusted in the US or many other countries over several decades”? Run that one through o1 pro if you have any doubts, it is about as flat out wrong as a proposition about economics can get.
2. The rest of the answer just repeats his usual about China. It does not even attempt to answer why, in the medium-term or long-term, as prices adjust, demand imbalances in the United States do not go away.
3. In another part of the interview, which I will not reproduce for reasons of copyright, Pettis responds to my criticism of his claim that America had weak [sic] demand during 2022-2023. His answer is to focus on this: “Contrary to Cowen’s claim, US business investment is not constrained by a lack of American savings.” That is not something I ever said or wrote, it is something I do not believe, and it completely fails to answer my rather obviously correct criticism of Pettis on U.S. demand.
4. I will let Noah handle the rebuttals to him, if he so chooses. I will however mark his response to Krugman and Smith, on the counterproductive nature of tariffs on intermediate goods, as just abysmally bad and off point. This is one of the most obtuse rebuttals I have read, ever.
5. If you are curious, here is Maurice Obstfeld, a Nobel-quality international economist, on Pettis and related issues.
Friday assorted links
1. Using AI to cut government spending.
2. “I built RPLY to never miss a text again. Staying in touch should be effortless—RPLY finds your unanswered texts, instantly suggests AI-powered drafts, and syncs across all your Apple devices, meeting you where you already are.” Link here. Techcrunch article here. Much more of this on the way.
3. Katherine Rundell on children’s books.
4. Allen Sanderson has passed away.
5. The Trump Executive Orders as radical constitutionalism?
6. High school summer program at Princeton and Swarthmore.
7. Comments on US AID and its current status.
8. Fast-track approvals starts for New Zealand.
10. Fergus annotates my Conversation with Ross Douthat, from an Evangelical Christian point of view.
Alex and I consider how to reform the NSF in economics
Here is a redux of our 2016 Journal of Economic Perspectives piece. Here is the abstract:
We can imagine a plausible case for government support of science based on traditional economic reasons of externalities and public goods. Yet when it comes to government support of grants from the National Science Foundation (NSF) for economic research, our sense is that many economists avoid critical questions, skimp on analysis, and move straight to advocacy. In this essay, we take a more skeptical attitude toward the efforts of the NSF to subsidize economic research. We offer two main sets of arguments. First, a key question is not whether NSF funding is justified relative to laissez-faire, but rather, what is the marginal value of NSF funding given already existing government and nongovernment support for economic research? Second, we consider whether NSF funding might more productively be shifted in various directions that remain within the legal and traditional purview of the NSF. Such alternative focuses might include data availability, prizes rather than grants, broader dissemination of economic insights, and more. Given these critiques, we suggest some possible ways in which the pattern of NSF funding, and the arguments for such funding, might be improved.
Relevant for today’s debates of course.
My excellent Conversation with Ross Douthat on God and religion
Here is the audio, video, and transcript. I am very glad Ross flew down from Connecticut to do it, we ended up cutting about 2x the normal length. Here is part of the episode summary:
Ross joined Tyler to discuss what getting routed by Christopher Hitchens taught him about religious debate, why the simulation hypothesis resembles ancient Gnostic religion, what Mexican folk Catholicism reveals about spiritual intermediaries, his evolving views on papal authority in the Francis era, what UFO sightings might tell us about supernatural reality, why he’s less apocalyptic than Peter Thiel about the Antichrist, and why he’s publishing a fantasy novel on Substack before AI potentially transforms creative writing.
Here is one excerpt:
COWEN: In general, you weigh personal testimony higher than I do. Let me see if you can talk me into it a bit. Something is recorded in data sensors and confirmed across multiple sensors. Maybe I don’t know what it is, but I’ll believe there’s something there. But if people say X, Y, and Z — there’re all sorts of religions neither you nor I would sign onto, and plenty of humans who will assert, insist that there’s direct evidence for that particular religion.
The story of Joseph Smith, the plates from LDS would be one example, but there’re plenty of religions that don’t even exist anymore, where there’re very particular stories that people have attested to. We really do dismiss them in the numbers of the tens of millions or maybe even billions. So, if we’re willing to dismiss all those stories, isn’t David Hume right? We should not dismiss the stories, but they’re not going to budge us out of a more commonsensical worldview.
DOUTHAT: Yes. I don’t dismiss all of those stories. I guess that’s part of my strong departure from Humean assumptions. I think that certainly there are fakes and frauds and charlatans in religion, and there are people who are just sincerely mistaken, who think that they had a religious experience when really, they have a diagnosis or they should get a diagnosis of some form of mental illness or insanity.
At the same time, I think that the wide range of attested spiritual, just frankly bizarre experiences that human beings have — of which, UFO encounters are a subset — that, again, has familiar antecedents going back millennia — I think we should take those seriously and have a theory of what they are that is more complex than fraud meets insanity meets delusion.
Part of this is just knowing people who’ve had those kinds of experiences, reading a lot about those kinds of experiences — not just in my own tradition, but in other religious traditions. I think that they correspond to something real, even if the interpretation that people give to them is wrong or deluded or misguided. I don’t think that Joseph Smith was in fact chosen by God to restore the lost truths about Jesus Christ, polygamy, and the ancient civilizations of the New World. I don’t think that’s true.
Do I think that Joseph Smith didn’t have some weird supernatural encounter? I’m less confident about saying that. The same would go . . . I don’t think that Muhammad is the Seal of the Prophets. Do I think that Muhammad either hallucinated or made it all up? Again, I’m certainly much less confident than you would be in saying that. I do not —
COWEN: It’s almost an Islamic doctrine you’re holding. There are these various tiers of prophets, and they’re imperfectly right, but they’re getting at the divine.
DOUTHAT: Yes. I think any coherent theory of supernatural experience — given what you can encounter just by reading William James — has to say either there’re infinite realms of deception out there . . . This is something that some religious believers would say. There’s one subset of totally authentic, trustworthy religious experiences, and then there’s a vast realm where it’s all demonic deception.
Or you have to say that there’s just a range of ways in which people encounter God and the supernatural that do get filtered through cultural assumptions and through — I don’t want to say imperfect prophets — let’s just say imperfect human beings. And that helps yield the diversity of religions in the world today.
But you can also see patterns in those things like near-death experiences. The range — there is cross-cultural variation in near-death experiences. If you have a near-death experience as a Tibetan Buddhist, you are more likely to see the Buddha. If you have a near-death experience as a Catholic, you’re more likely to maybe see an archangel or a Catholic saint or something. But at the same time, there are some pretty clear commonalities to suggest that people in Tibet and people in Indiana are having the same kind of experience when they die and are resuscitated and report the lights, the tunnel, all the strange things associated with those experiences.
Yes, there’s a challenge here, obviously, for any kind of dogmatic religion. You do have to figure out, “Okay, why is there this consistency but also this variation?” But there’s also a challenge for the Humeans to say, “Well, we’re just writing off this fairly consistent cross-cultural realm of human experience because it’s all supposed to be myth and hallucination?” The people who have these experiences are not generally the kinds of people who you would describe as prone to hallucination and insanity. There are of course cases, but that’s not the norm.
On the Humean point — if you go back and read Hume, he doesn’t exactly say this, but you really have the strong impression that Hume thinks that once you get rid of established religious authorities and the universal teachings of antique stories from the Bible, that a big swath of supernatural stuff will just go away. Now, he says humans still —
Interesting throughout, definitely recommended. And again, I am happy to recommend Ross’s new book Believe: Why Everyone Should be Religious.
“Can America Win the AI War with China?”
A long video chat, with Geoffrey Cain, who is more hawkish than I am. Bari Weiss moderates. One argument I make is that America may prefer if China does well with AI, because the non-status quo effects of AI may disrupt their system more than ours. I also argue that for all the AI rival with China (which to be sure is real), much of the future may consist of status quo powers America and China working together to put down smaller-scale AI troublemakers around the rest of the world. Interesting throughout.
Thursday assorted links
Three Simple Principles of Trade Policy
Are we in a trade war today? Who knows? Doesn’t really matter. It’s always a good time to review important principles. A good source is Doug Irwin’s Three Simple Principles of Trade Policy published in 1996. Below I have updated occasionally with more recent data.
Principle 1: A Tax on Imports is a Tax on Exports
Exports are necessary to generate the earnings to pay for imports, or exports are the goods a country must give up in order to acquire imports….if foreign countries are blocked in their ability to sell their goods in the United States, for example, they will be unable to earn the dollars they need to purchase U.S. goods.
…The equivalence of export and import taxes is not an obvious proposition, and it is often counterintuitive to most people. Imagine taking a poll of average Americans and asking the following question: “Should the United States impose import tariffs on foreign textiles to prevent low-wage countries
from harming thousands of American textile workers?” Some fraction, perhaps even a sizeable one, of the respondents would surely answer affirmatively. If asked to explain their position, they would probably reply that import tariffs would create jobs for Americans at the expense of foreign workers and thereby reduce domestic unemployment.Suppose you then asked those same people the following question: “Should the United States tax the exportation of Boeing aircraft, wheat and corn, computers and computer software, and other domestically produced goods?” I suspect the answer would be a resounding and unanimous “No!” After all, it would be explained, export taxes would destroy jobs and harm important industries. And yet the Lerner symmetry theorem says that the two policies are equivalent in their economic effects.
Exports and imports rise and fall together. It is surely obvious that if you want more imports you must export more (barring a bit of borrowing see below). The same thing is true in other countries. As a result, it is also true that when you import more you export more.
Principle 2: Businesses are Consumers Too
Business firms are, in fact, bigger consumers of imported products than are U.S. households.
As of 2024, more than 64% of imports are intermediate products. See here for the data.
By viewing imports not as final consumer goods but as inputs to U.S. production, policy makers can more clearly recognize that the issue is not so much one of “saving” jobs but of “trading off’ jobs between sectors. This brings home forcefully the most important lesson in all of economics-there is no such thing as a free lunch. Every action involves a trade-off of some sort. Higher domestic steel prices help employment in the steel industry but harm employment in steel-using industries. Higher domestic semiconductor prices help employment in the semiconductor industry but harm employment in semiconductor using industries. As john Stuart Mill wrote in 1848 in the context of import protection, “The alternative is not between employing our own country-people and foreigners, but between employing one class or another of our own country-people.”
Principle 3: Trade Imbalances Reflect Capital Flows
There is a fundamental equation of international finance that relates this net borrowing and lending activity to the current account. The equation is:
Exports – Imports = Savings – Investment
The powerful implication of this equation is that if a country wishes to reduce its trade deficit, the gap between its domestic investment and its domestic savings must be reduced.
…A country’s trade balance is related to international capital flows–not with open or closed markets, unfair trade practices, or national competitiveness. If a country wants to solve the “problem” of its trade deficit, it must reverse the international flow of capital into its country. In many cases net foreign borrowing can be reversed by reducing the government fiscal deficit. [emphasis added, AT]
Doug concludes:
These three simple principles of trade policy…[have] stood the test of time, they come as close to truths as anything economists have to offer in any area of policy controversy. Yet they are routinely denied, explicitly or implicitly, in trade policy debates in the United States and elsewhere. I do not imagine that a greater appreciation of these principles would invariably bring about more liberal trade policies; I offer them, rather, in the more modest hope that they might lead to sounder debates in which the real consequences of government policies are confronted more seriously than at present.
Hat tip: Erica York.
What should I ask Sheilagh Ogilvie?
She is a Canadian economic historian at Oxford, here is from her home page:
I am an economic historian. I explore the lives of ordinary people in the past and try to explain how poor economies get richer and improve human well-being. I’m interested in how social institutions – the formal and informal constraints on economic activity – shaped economic development between the Middle Ages and the present day.
And:
My current research focusses on serfdom, human capital, state capacity, and epidemic disease. Past projects analysed guilds, merchants, communities, the family, gender, consumption, finance, proto-industry, historical demography, childhood, and social capital. I have a particular interest in the economic and social history of Central and Eastern Europe.
Here is her Wikipedia page. Her book on guilds is well known, and her latest is Controlling Contagion: Epidemics and Institutions from the Black Death to Covid. Here are her main research papers.
So what should I ask her?
Deep Research considers the costs and benefits of US AID
You can read it here, summary sentence:
Based on the analysis above, the net assessment leans toward the conclusion that USAID’s benefits outweigh its costs on the whole, though with important qualifiers by sector and context.
Here is a useful Michael Kremer (with co-authors) paper. Here are some CRS links. Here is a Samo analysis. AID is a major contributor to the Gavi vaccine program, which is of high value. The gains from AID-supported PEPFAR are very high also.
To be clear, I consider this kind of thing to be scandalous. And I strongly suspect that some of the other outrage anecdotes are true, though they are hard to confirm, or not. How about funds to the BBC? While the “Elonsphere” on Twitter is very much exaggerating the horror anecdotes and the bad news, I do see classic signs of “intermediaries capture” for the agency, a common problem amongst not-for-profit institutions.
The Samo piece is excellent. For one thing he notes: “The agency primarily uses a funding model which pays by hours worked, thus incentivizing long-duration projects.” And the very smart Samantha Power, appointed by Biden to run AID, “…is in favor of disrupting the contractor ecosystem.” Samo also discusses all the restrictions that require American contractors to be involved.
Here is a study on how to reform AID, I have not yet read it.
Ken Opalo, in a very useful and excellent post, writes:
For example, in 2017 about 60% of USAID’s funds went to just 25 American organizations. Only 11% of U.S. aid goes directly to foreign organizations. The rest gets management via U.S. entities or multilateral organizations. This doesn’t mean that the 89% of aid gets skimmed off, just that an inefficiently significant share of the 89% gets gobbled up by overhead costs. In addition, this arrangement denies beneficiaries a chance at policy autonomy.
According to the very smart, non-lunatic Charlie Robertson:
My data suggests US AID flows in 2024 were equivalent to: 93% of Somalia’s government revenues, 61% in Sudan, just over 50% in South Sudan and Yemen
While I do not take cutting off those flows lightly, that seems unsustainable and also wrong to me as a matter of USG policy. Those do not seem like viable enterprises to me.
There are various reports of AID spending billions to help overthrow Assad. I cannot easily assess this matter, either whether the outcomes was good or whether AID mattered, but perhaps (assuming it was effective) such actions should be taken by a different agency or institution?
While US AID appears to pass a cost-benefit test, it does seem ripe for reform. Based on what I have read and heard, I would focus all the more on public health programs, and forget about “trade promotion,” “democracy promotion,” and more. I would get rid of virtually all of the consultants, and make direct transfers to worthy African and Ukraine programs, thus lowering overhead. If such worthy programs exist, why not give them money directly? Are they so hard to find? And if so, how trustworthy are these intermediaries really? What are they intermediating to?
So a housecleaning is needed here, but the important sources of value still should be supported.
I wonder if he enjoyed our Markets in Everything series?
Now he is in it:
A former senior adviser to the Federal Reserve Board of Governors was arrested Friday and accused of leaking inside information from the Fed to the Chinese government over a period of several years, at one point receiving a $450,000 payment, and then lying about it to Fed investigators.
After leaving the Fed, Rogers moved his family to Shanghai and began working as a professor at Fudan University, according to comments he made to the EconVue podcast last year and posted in online biographies.
Here is the full story.
Wednesday assorted links
1. Douglas Irwin on dismantling the Indian license raj. And Indians praying for visas under Trump. And podcast on Indian biotech potential.
2. New data on LLMs refereeing economics papers.
3. Do LLMs use trigonometry to do addition?
5. Oliver Kim on exchange rates.