Sadly swept from the headlines

by  Tyler Cowen in

Cost estimate, we hardly knew ye:

Joe Biden’s plan to cancel up to $20,000 in student loan debt for federal aid borrowers is expected to cost about $400 billion, according to the Congressional Budget Office...

About 95% of borrowers meet the criteria for forgiveness and about 45% of borrowers will have their balances completely wiped out, the CBO said.

Here is the full story.

The economy that is British

by  Tyler Cowen in

Risk of British default has not gone up.  Real interest rates are up.

To be clear, I don’t envy their current macroeconomic situation.  But again, the talk of how terrible this is seems much overblown to me.

Now you might be wondering how the five-year break even rates can be so well behaved.  Well, here is a dirty little secret: there is much less stimulus in the Truss plan than people are claiming.

I don’t mean to pick on Josh Barro, of whom I am a huge fan, but his pithy summary is so clear it allows me to summarize some of my disagreements on these issues.  Here is one excerpt from his Substack:

It’s a huge fiscal stimulus at exactly the wrong time. Truss is proposing over £160 billion of deficit-increasing policies over the next five years. To give you a sense of scale, since the US economy is approximately eight times the size of Britain’s, the equivalent would be if we implemented an additional $1.4 trillion, five-year stimulus package.

I agree this is expenditure, but by no means is all or even most of it “stimulus.”  As Josh notes, the energy price subsidies are the biggest part of this announced plan.  I am against that policy, but it is trying to absorb a contractionary shock rather than being stimulus per se.  The Truss plan is transferring much of that higher energy cost from the private sector to the public sector.  The real cost involved is mostly the preexisting problem from the higher cost of energy, which now is on the government’s books to an increasing degree.  Many people are speaking of that as “a cost of the Truss plan,” which it is in terms of nominal flows but not nearly as much in real resource terms (I would admit and indeed stress that the plan distorts relative prices, which is a big part of my objection to it).

That is probably one reason why the five-year break-even rates for the UK generally have been falling, not rising.

Then there are the tax cuts for the wealthy.  But those too are (mostly) not stimulus.  Dare I make a…Barrovian argument?  If you cut taxes, hold spending constant, and the tax cut recipients save most of that money, that satisfies the Barrovian neutrality theorem.  That also isn’t stimulus.  (Obviously government spending isn’t constant, but the main boost in spending, as discussed immediately above, is not itself net stimulus but rather a funny inefficient transfer that still leaves a net contractionary force partly in place, namely higher energy prices.)  You might object to the tax cut policy for distributional or other reasons, but you shouldn’t add it to “the stimulus pile.”  At least not most of it.  Furthermore, you can buy this argument without accepting the (Robert) Barro analysis for more general settings.

Again, people think there is much more “stimulus” in the new plan than there really is.

White, Male, and Angry

by  Tyler Cowen in

From the bottom to the top of society, white men are angry. This paper provides a reputation-based rationale for this anger. Individuals care about their social reputation and engage in belief-motivated reasoning. In the presence of uncertainty, white men tend to have too high an opinion of their group, whether they belong to the elite or not. When new information reveal that the elite is biased in favor of white men, their reputation of all white men decreases causing a payoff loss and the anger that comes with it. I also show how policies in favor of disadvantaged groups can be supported by some white men and opposed by some individuals from the minority when social reputation is taken into account. Reducing white men’s privileges can have a very different effects from disclosing the advantage this group enjoys.

That is the abstract of a new paper by Stephane Wolton.  The piece has some subtle and oft-overlooked ideas, and it comes via the subtle Kevin Lewis.

Tuesday assorted links

by  Tyler Cowen

1. Lookism in TikTok.  Which visual features predict video success?

2. This is slightly worrying for the diehard Brexit haters.

3. Ezra Klein and Patrick Collison podcast, self-recommending.

4. What exactly what was the new economic policy news event for the UK on Monday?

5. Potential tools of chess cheating, here and here.  Good thing no one does this stuff!  On top of that, the devices probably do not even exist.  Nor might any similar devices exist.

6. Income robustly predicts self-regard emotions.

NASA Reduces Existential Risk!

by  Alex Tabarrok in

Congratulations to NASA for a direct hit on an asteroid with the goal of shifting its orbit and proving the feasibility of protecting the planet. A great step for mankind!

Tyler and I use asteroid defense as an example of a true public good in our textbook, Modern Principles. Here’s the video from our textbook. Not quite so dramatic but funnier!

What should I ask Paul Salopek?

by  Tyler Cowen in

I will be doing a Conversation with him, here is Wikipedia:

Paul Salopek (born February 9, 1962 in Barstow, California) is a journalist and writer from the United States. He is a two-time Pulitzer Prize winner and was raised in central Mexico. Salopek has reported globally for the Chicago Tribune, Foreign Policy, The Atlantic, National Geographic Magazine and many other publications. In January 2013, Salopek embarked on the “Out of Eden Walk”, originally projected to be a seven-year walk along one of the routes taken by early humans to migrate out of Africa, a transcontinental foot journey that was planned to cover more than 20,000 miles funded by the National Geographic Society, the Knight Foundation and the Abundance Foundation.

Salopek received a degree in environmental biology from the University of California, Santa Barbara in 1984. Salopek has worked intermittently as a commercial fisherman, shrimp-fishing out of Carnarvon, and most recently with the scallop fleet out of New Bedford, Massachusetts, in 1991. His career in journalism began in 1985 when his motorcycle broke in Roswell, New Mexico and he took a police-reporting job at the local newspaper to earn repair money.

As far as the walk goes, he has made it to China.  So what should I ask him?

The overreaction to the Truss macro policy

by  Tyler Cowen in

It has been extreme:

I know an unpopular economic policy when I see one. And the consensus among economists about the tax cuts and deregulations announced last week by UK Prime Minister Liz Truss is almost universally negative. Larry Summers noted: “I think Britain will be remembered for having pursued the worst macroeconomic policies of any major country in a long time.” Willem Buiter described it as “totally, totally nuts.” Paul Krugman is skeptical. As Jason Furman summed it up: “I’ve rarely seen an economic policy that is as uniformly panned by economic experts and financial markets.”

That is from my latest Bloomberg column.  I certainly can see reasons why one might oppose the plan, but the skies are not going to fall:

I see no evidence that the markets are beginning to doubt the UK’s ability to repay its debts. The UK, and earlier Great Britain, has arguably the best debt repayment history of all time (though it did default on some of its debts to Italian lenders in the 13th century). It even repaid its extensive debts from the Napoleonic Wars, though they were more than 200% of GDP.

There are different ways you might measure the marginal cost of UK government borrowing, but I don’t see any measure where it is high and under many measures it is negative in real terms.  Remember when people used to tell us this meant there was no major problem on the fiscal side?

I do criticize the Bank of England for not doing more to reign in inflation, plus the government should have coordinated better with the Bank.  And don’t forget this:

The Truss plan offers many admirable deregulations, including an attempt to get the UK economy to build more residential structures, as it so badly needs. It is difficult to say now just how successful this plan will be, but it is definitely a step in the right direction, as are most of the other deregulations, including lifting the ban on onshore wind generators. By calling the Truss plan the worst thing ever, commentators make it unlikely that these ideas will get the approbation they deserve.

Recommended.

Monday assorted links

by  Tyler Cowen

1. Why are New Yorkers eating dinner at earlier times? (NYT)

2. Jacques Dreze has passed away.

3. Kindergarten rank matters.

4. CIA launches first podcast.

5. “Its people would benefit from something approximating “state capacity libertarianism with Somali
characteristics.””

6. Median home value on Martha’s Vineyard rose from 700k to $1m over the span of the last year.  A local’s dissection of local NIMBYism.

7. How is drug decriminalization going in Oregon?

Petrov Day!

by  Alex Tabarrok in

Today we honor Stanislav Yevgrafovich Petrov whose calm actions and general humanity helped to prevent a nuclear war on September 26th, 1983. The NYTimes reported the events on Petrov’s death in 2017.

Early on the morning of Sept. 26, 1983, Stanislav Petrov helped prevent the outbreak of nuclear war.

A 44-year-old lieutenant colonel in the Soviet Air Defense Forces, he was a few hours into his shift as the duty officer at Serpukhov-15, the secret command center outside Moscow where the Soviet military monitored its early-warning satellites over the United States, when alarms went off.

Computers warned that five Minuteman intercontinental ballistic missiles had been launched from an American base.

“For 15 seconds, we were in a state of shock,” he later recalled. “We needed to understand, ‘What’s next?’ ”

The alarm sounded during one of the tensest periods in the Cold War. Three weeks earlier, the Soviets had shot down a Korean Air Lines commercial flight after it crossed into Soviet airspace, killing all 269 people on board, including a congressman from Georgia. President Ronald Reagan had rejected calls for freezing the arms race, declaring the Soviet Union an “evil empire.” The Soviet leader, Yuri V. Andropov, was obsessed by fears of an American attack.

Colonel Petrov was at a pivotal point in the decision-making chain. His superiors at the warning-system headquarters reported to the general staff of the Soviet military, which would consult with Mr. Andropov on launching a retaliatory attack.

After five nerve-racking minutes — electronic maps and screens were flashing as he held a phone in one hand and an intercom in the other, trying to absorb streams of incoming information — Colonel Petrov decided that the launch reports were probably a false alarm.

As he later explained, it was a gut decision, at best a “50-50” guess, based on his distrust of the early-warning system and the relative paucity of missiles that were launched.

Colonel Petrov died at 77 on May 19 in Fryazino, a Moscow suburb, where he lived alone on a pension. The death was not widely reported at the time. 

From the comments, more on health care

by  Tyler Cowen in

Again this comment is from Sure:

The US does not have a healthcare system. It has several. Medicare is single payer option with overwhelmingly private provision and some alternative administrative choices with a thick skim of secondary overlays of private health insurance. The Indian Health Service is full Beveridge. Kaiser is a single private system with nearly full vertical integration. Tricare is a social insurance model with limited private provision. Employer based healthcare is privately funded (with a generous tax break on said provision), privately administered (subject to millions of pages of regulation), and privately provisioned (with minor exceptions for state funded hospitals and the like). Then we have health sharing which are explicitly not health insurance, but involve “voluntary” assumption of costs by members, often linked by religious belief.

Then you have the growing cash healthcare option where providers take all comers, but only those who can put cash on the barrel because the paperwork is too expensive. And of all the ways healthcare is administered in this country, this and the VA are the only ones that do not run the full gamut of provision (at least not yet).

I have worked for most of these. All of them are larger systems than multiple small European countries. All of them are wildly more expensive than similar mechanisms of provision overseas. All of them suffer from intrusive, expensive meddling by politicians and bureaucrats that result in active degrading of patient care in my experience.

There is no good way to pay for healthcare in the US. Chances are, if you name an option somebody has at least failed to get the necessary buy-in at the state level. If you have some essential feature list, there is almost certainly an option that has already tried it.

Changing who signs the checks seems to make very minimal difference. We chase after crumbs by focusing on if the overall model should be more Kaiser or more IHS or more Medicaid.

The far bigger impact are the patients. We need 500 dollar chairs in the waiting room, to ensure that those with BMIs >50 will not have them collapse underneath their weight. We had to order a larger CT scanner a few years back when it was deemed unacceptable to send patients to the zoo for imaging. Opioid use means that I have to detail a lot of warm bodies to manage patients in withdrawal. I need an order of magnitude more warm bodies for suicide watch that my predecessors required back in the day according to the records (and for “low risk” suicide watches I can use telesitters to monitor multiple patients). I need huge numbers of social work hours because once patients hit the ED I need to deal with the complete lack of social service contact they had while homeless. The psychiatric population is an ever revolving door where I can make them basically normal (albeit low functioning) again with the aid of emergency required antipsychotic medications but will see them relapse once they hit the streets and discontinue care (and will have their best shot at long term recovery only once they victimize enough “good” people to get jailed). And, of course, I need an order of magnitude more expensive home health because everyone is single and estranged from the rest of humanity (most unmarried 30+ patients report having no one who can learn how to change dressings for example).

And, in spite of all this, survival rates for health matched controls are great. You get diagnosed with lung cancer? You survive longer and better in the states than your doppleganger in Britain or France. You need a liver transplant from Hep C? Get it here if you want lower rejection odds.

American healthcare starts with sicker patients and no amount of crafty planning about signing checks or shuffling patients is going to change that.

What I’ve been reading and browsing

by  Tyler Cowen in

Lucy Worsley, Agatha Christie: An Elusive Woman.  Fun and easy to read, plus the first set of photo has perhaps the greatest photo I ever have seen, with the caption: “Agatha’s brother Monty liked flirting, ‘talking slang’ and ‘getting into tempers’.  He disliked any kind of work.  In later life he behaved badly with firearms and became addicted to morphia.”

Alan S. Blinder, A Monetary Fiscal History of the United States, 1961-2021.  A very good introduction to these topics from a mainstream point of view.

There is also Stephen M. Stigler, Casanova’s Lottery: The History of a Revolutionary Game of Chance.

And Sean Carroll, The Biggest Ideas in the Universe: Space, Time, and Motion.

Tom Mustill, How to Speak Whale: A Voyage into the Future of Animal Communication.  Will the greatest achievement of AI be allowing us to speak with whales?

That was then, this is now…

by  Tyler Cowen in

Six days after Traphagen’s visit, U.S. Customs and Border Protection confirmed that work on the border wall that began under Trump is revving back up under Biden. In an online presentation Wednesday, CBP — the largest division of the Department of Homeland Security and home to the Border Patrol — detailed plans to address environmental damage brought on by the former president’s signature campaign promise and confirmed that the wall will remain a permanent fixture of the Southwest for generations to come.

Here is the full story, median voter theorem blah blah blah, via the wisdom of Garett Jones.