How equity ownership shapes values

How does engagement with markets affect socioeconomic values and political preferences? A long line of thinkers has debated the nature and direction of such effects, but claims are difficult to assess empirically because market engagement is endogenous. We designed a large field experiment to evaluate the impact of financial markets, which have grown dramatically in recent decades. Participants from a national sample in England received substantial sums they could invest over a 6‐week period. We assigned them into several treatments designed to distinguish between different theoretical channels of influence. Results show that investment in stocks led to a more right‐leaning outlook on issues such as merit and deservingness, personal responsibility, and equality. Subjects also shifted to the right on policy questions. These results appear to be driven by growing familiarity with, and decreasing distrust of markets. The spread of financial markets thus has important and underappreciated political ramifications.

That is from a newly published paper by Yotam Margalit and Moses Shayo, via the excellent Kevin Lewis.

Monday assorted links

Fight the Virus!

I was asked by the LATimes to contribute to a panel on economic and pandemic policy. The other contributors are Joseph E. Stiglitz, Christina Romer, Alicia H. Munnell, Jason Furman, Anat R. Admati, James Doti, Simon Johnson, Ayse Imrohoroglu and Shanthi Nataraj. Here’s my contribution:

If an invader rained missiles down on cities across the United States killing thousands of people, we would fight back. Yet despite spending trillions on unemployment insurance and relief to deal with the economic consequences of COVID-19, we have spent comparatively little fighting the virus directly.

Testing capacity has slowly increased, but where is the national program to create a dozen labs each running 200,000 tests a day? It’s technologically feasible but months into the crisis, we have only just begun to spend serious money on testing.

We haven’t even fixed billing procedures so we can use the testing capacity that already exists. That’s right, labs that could be running tests are idle because of billing procedures. And while some parts of our government are slow, the Food and Drug Administration seems intent on reducing America’s ability to fight the virus by demanding business-as-usual paperwork.

Operation Warp Speed is one of the few bright spots. Potential vaccines often fail and so firms will typically not build manufacturing capacity, let alone produce doses until after a vaccine has been approved. But if we follow the usual procedure, getting shots in arms could be delayed by months or even years.

Under Operation Warp Speed, the government is paying for capacity to be built now so that the instant one of 14 vaccine candidates is proven safe and effective, production will be ready to go. That’s exactly what Nobel-prize winning economist Michael Kremer, Susan Athey, Chris Snyder and I have recommended. It might seem expensive to invest in capacity for a vaccine that is never approved, but it’s even more expensive to delay a vaccine that could end the pandemic.

Relief payments can go on forever, but money spent on testing and vaccines has the potential to more than pay for itself. It’s time to fight back.

Alex Tabarrok is a professor of economics at George Mason University and a member of the Accelerating Health Technologies With Incentive Design team.

My point about not fighting the virus directly was illustrated by many of the other panelists. Joseph Stiglitz, Christina Romer, Alicia Munnell, Jason Furman, James Doti, and Shanthi Nataraj say nothing or next to nothing about viruses. Only Anat Admati, Simon Johnson, Ayse Imrohoroglu get it.

Admati supports a Paul Romer-style testing program:

Until effective vaccines and therapies are available, which may be many months away, our best approach is to invest heavily in increasing the capacity for testing many more people and isolating those infected.

Simon Johnson argues, in addition, for antibody tests (not the usual PCR tests):

Policymakers should go all-in on ramping up antibody testing, to determine who has been exposed to COVID-19. Such tests are not yet accurate enough to determine precise immunity levels, but the work of Michael Mina, an immunologist and epidemiologist at Harvard, and others demonstrates that using such tests in the right way generates not just information about what has happened but, because of what can be inferred about underlying disease dynamics, also the information we need to understand where the disease will likely next impact various local communities.

Imrohoroglu advocates for targeted lockdown:

In addition to CDC recommendations about social distancing and public health strategies for all, I believe that as we reopen, we should keep a targeted lockdown policy in place for at-risk groups.

Coronavirus travel insurance markets in everything

Moral hazard — forget about it!:

In the Mediterranean island nation of Cyprus, government leaders have pledged to cover all costs for any traveler who tests positive for the coronavirus while on vacation, according to the Associated Press. In a letter sent out to governments, airlines and tour operators, Cypriot officials said they would cover “lodging, food, drink and medication for covid-19 patients and their families” while on the island.

Tourism accounts for 13 percent of Cyprus’s economy, according to the AP, and with one of the lowest coronavirus ratios per capita in Europe, tourism ministers plan to restart international air travel on June 9.

Here is the full story, which includes other examples.

Alex Armlovich on blood plasma donors and markets

From my email:

I saw your post about COVID blood brokers–My girlfriend and I had it in March and finally got antibody tests last week when the city opened the free clinics.

I inquired on a national plasma donor site, was directed to CSL Plasma in Clifton NJ, and a donor concierge from LeapCure reached out. They didn’t tell me what the compensation is (the CSL website says it’s usually ~$50 for normal plasma) but they’re calling a roundtrip Uber from my apartment near Ridgewood, Queens all the way to NJ, which is $108 one-way. The concierge said to reach out if there are any concerns with the first trip next week because they’re hoping for up to 2x weekly donations.

What I don’t understand is, why doesn’t the city’s antibody testing program directly link up to plasma donation? I had to go through a bunch of hassle to find out where to donate, and I think the information & coordination friction is a bigger deterrent than anything else. And why isn’t there more collection capacity in the city itself; the long commute seems unnecessary. If this is scientifically important enough to merit real donor spending from biotech, it seems like the city should make even a minimal investment in reducing process friction.

Maybe an integrated, frictionless testing & plasma donation infrastructure should be a permanent strategy for future “zero-day viruses” where convalescent antibodies are the only thing we have to treat first responders…

Here is Alex Armlovich on Twitter.

Why does Minneapolis have such extreme educational disparities?

A correspondent writes me:

I live in Minneapolis and have worked in education policy here for a few years. With all of the unrest going on here, I feel increasing urgency to learn more about a question that’s been puzzling me for many years, and which I can’t seem to find a satisfactory answer to: why is Minnesota one of the worst states in the nation for disparities between black and white students, both in education and other outcomes such as employment and income?

Of course, most of my liberal colleagues and friends will say something like, “structural racism”, which isn’t really an explanation. That doesn’t explain why we to do so poorly in disparities, when other somewhat similar states such as Michigan and Illinois do better than us in their educational disparities.

All of this makes me think – there must be a study of disparities among minority or historically marginalized groups that looks across countries and cultural contexts, to try and understand what specifically causes students from those communities to perform poorly in school. And surely there must be cases where poor minority groups perform better in school than would be expected.

Do you have any suggestions for reading that could start me on the path to figuring this out?

The comments section is open, please leave your thoughtful suggestions there.  And read this for general background on the economic side, and this.

The plans for Greece’s reopening to tourists

In the European Union Greece is moving the quickest, but still this does not sound so appealing:

Phase 1 – Until 15 June
International flights are allowed only into Athens airport.
All visitors are tested upon arrival and are required to stay overnight at a designated hotel. If the test is negative, then the passenger self-quarantines for 7 days. If the test is positive, the passenger is quarantined under supervision for 14 days.

Phase 2 – Bridge phase- 15 June to 30 June
International flights are allowed into Athens and Thessaloniki airports.
If your travel originated from an airport not in the EASA affected area list (https://www.easa.europa.eu/SD-2020-01/Airports#group-easa-downloads), then you are only subject to random tests upon arrival.
If you originate from an airport on the EASA affected area list, then you will be tested upon arrival. An overnight stay at a designated hotel is required. If the test is negative then the passenger self-quarantines for 7 days. If the test is positive, the passenger is quarantined under supervision for 14 days.

Here is much more detail.  Via Yannikouts.

Social Planners Do Not Exist

Enrico Spolaore on his friend, co-author, and mentor Alberto Alesina:

I first met Alberto thirty years ago at Harvard, where he had received his Ph.D. in Economics in 1986, and had returned as faculty, after a couple of years at Carnegie-Mellon. He was already deservedly famous. In 1988, The Economist had presciently picked him as one of the decade’s eight best young economists, as he was transforming the way we approach macroeconomics and economic policy by explicitly bringing politics into the analysis. In his influential contribution to the NBER Macroeconomics Annual 1988, he had forcefully stated that “social planners do not exist.” Economists should not just assume that governments would implement optimal policies (presumably following the economists’ own  recommendations). Instead, we should strive to understand actual policies as resulting from the strategic interactions of partisan politicians with each other and with the public, and often leading to socially inefficient outcomes.

Exactly right. Alesina was one of the most important scholars extending and integrating public choice, especially to macroeconomic questions.

That was then, this is now, Minneapolis racial animus edition

Are you familiar with the earlier history of Minneapolis, say from the 1960s and 1970s?  From an article by Jeffrey T. Manuel and Andrew Urban, here is one passage about two mayors:

In 1969, four-term Democratic-Farmer Labor (DFL) mayor and former University of Minnesota political science professor Arthur Naftalin declined to run for a fifth two-year term as the mayor of Minneapolis, leaving the contest open amid the social turbulence of the late 1960s. Naftalin was a close associate of former Minneapolis mayor Hubert H. Humphrey and a practitioner of Humphrey’s brand of liberalism. They believed that government’s role was to manage and coordinate different interest groups within society, such as business leaders, members of organized labor, and racial minorities, so that the city would function efficiently and social conflict could be avoided. By allocating money to various social programs, they believed urban problems such as crime and poverty could be solved. In an unexpected move, Charles Stenvig, a 41-year-old detective in the Minneapolis police department and president of the police federation, threw his hat into the ring as an independent candidate for mayor. Running an unconventional campaign that spent little money and relied on volunteer labor, Stenvig won the 1 969 election by pledging to “take the handcuffs off the police” and to crack down on “racial militants,” criminals, and student protesters. Capturing 62 percent of the vote against a moderate Republican opponent, Stenvig shocked the city’s political establishment with his convincing victory. Running again as an independent in 1971, Stenvig defeated Harry Davis, Minneapolis ‘s first black mayoral candidate, receiving a remarkable 71 percent of the vote.

And:

Naftalin’s connection with academia was a sharp contrast to Stenvig’s open animosity toward higher education.

And:

Naftalin argued that with “proper computers,” a single executive authority could easily – and rationally – control a widely- scattered metropolitan area. For Naftalin, a rational executive would have to make unpopular decisions based on his or her expert knowledge of what was best…

And:

Thus, at several points during his career Stenvig tried to censor what he believed were immoral publications…

And this:

At the national level, many observers were surprised that race could even be a political issue in Minneapolis given the city’s numerically small minority population… Although the city’s African American population was relatively small it was concentrated in several neighborhoods, which led to frequent incidents of alleged police harassment and the belief that residents of black neighborhoods were treated unfairly by the overwhelmingly white police force.

And:

When a 12-year-old African-American boy was attacked by a police dog and dragged down the street by two policemen, many saw it as confirmation of Stenvig’s attitude toward blacks.

Finally:

Far from a naïve reactionary, Stenvig presented a political ideology that was sharply critical of liberalism and rejected social scientific knowledge and abstractions as useful guides for governance.

The article is interesting throughout, and is likely to remain so.  And you can read here about the 1967 race riots in northern Minneapolis.

Coronavirus markets in everything, Swedish restaurant edition

At Rasmus Persson and Linda Karlsson’s restaurant, you don’t have to order takeout, or wear a mask, or try to stay two metres away from the other patrons — because there are no other patrons.

It’s just you, seated alone at a table in a picturesque meadow in the Swedish countryside as you’re served a homemade meal that arrives in a basket using a rope and pulley.

It’s called Bord För En, which translates to “table for one,” and it opened on May 10 in Ransäter, a rural town some 350 kilometres west of Stockholm.

“We wanted to create a space that’s 100 per cent corona-free, as much as we could at least,” Persson told As It Happens host Carol Off.

Here is the full story, via Michelle Dawson, and no you don’t have to worry about them having too many beautiful women…

And here is their Facebook page with further details and images.  By the way, most of the customers are men.  Then there is this:

When you book your reservation at Bord För En, you include a list of names of your close friends, and the restaurateurs then solicit one of them to write you a personal message.

It operates on a “pay what you wish” basis, and so far they have been heavily booked.

AcceleratingHT

I’ve been working with Michael Kremer, Susan Athey, Chris Snyder and others to design incentives to speed vaccines and other health technologies. AcceleratingHT is our website and now features a detailed set of slides which explain the calculations behind our global plan. The global plan is similar in style to the US plan although on a larger scale. The key idea is that the global economy is losing $350 billion a month so speed pays. One way to speed a vaccine is to invest in capacity for 15-20 vaccine candidates before any candidates are approved, so that the moment a candidate is approved we can begin production (one can store doses in advance of approval). Most of the capacity will be wasted but that is a price worth paying. As Larry Summer says if you will die of starvation if you don’t get a pizza in two hours, order 5 pizzas. Human challenge trials are another way to speed the process.

A global plan is ideal since there are significant benefits to coordination. If each country invests in vaccines independently they will each choose the vaccine candidates most likely to succeed but that means all our eggs are a few baskets. There are over 100 vaccine candidates and they have different scientific and production risks so you want to choose the 15-20 which maximize the probability of success for the portfolio as a whole. To do that efficiently you need countries to agree that ‘I will invest in lots of capacity (more than I need) in candidate X if you invest in lots of capacity (more than you need) for candidate Y’, even knowing that the probability that X succeeds may be less than that of Y.

Vaccine nationalism is making a global plan look unlikely but if each country invests in multiple candidates around the world, as Operation Warp Speed is doing, and if each country guarantees to uphold contracts, we can reach a similar solution.

At AcceleratingHT you can also find our Incentive Design App which computes the optimal vaccine program given user chosen parameters. A big shout out to Juan Camilo Castillo, a newly graduated PhD student from Stanford, who put in a lot of heavy lifting on the app. We have been working on these models under time pressure and I will never forget the late night/early morning zoom calls where Michael Kremer would call out, “I think we need to take into account factor X. What effect would that have?” and Camilo would respond “Give me 5 minutes!” and, as we debated other factors Y and Z, Camilo would hack-away changing parameters and rewriting code till he had an answer. Hire a rising star while you can!