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.
Saturday assorted links
1. Where foot traffic is headed: barber shops and salons seem pretty popular.
2. CDC defends itself on testing.
3. Ethiopia so far is doing OK (FT).
4. HIV genome found from 1966 in DRC.
5. NYT covers Taiwanese filmmaker Hou Hsiao-Hsien, a titan who strides amongst us.
The Amish in Minneapolis protest
See the sign? “Thou shall not kill anymore”.
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!
Conor Friedersdorf interviews me on the regulatory state and the pandemic
For Atlantic, here is one excerpt:
“Our regulatory state is failing us.”
And to troll some of you, here is another bit:
Friedersdorf: Libertarians and small-government conservatives are highly skeptical of the regulatory state. What do they get wrong?
Cowen: Very often, the alternative to regulation is ex post facto reliance on the courts and juries to redress wrongs. Of course, the judiciary and its components are further instruments of governments, and they have their own flaws. There is no particular reason, from, say, a libertarian point of view, to expect such miracles from the courts. Very often, I would rather take my chances with the regulators.
Also, let’s not forget the cases where the regulators are flat-out right. Take herbal medicines, penis enlargers, or vaccines. In those cases, the regulators are essentially correct, and there is a substantial segment of the population that is flat-out wrong on those issues, and sometimes they are wrong in dangerous ways.
Recommended, there is much more at the link.
The shift of prevalance toward the young
Half of new coronavirus infections in Washington [state] are now occurring in people under the age of 40, a marked shift from earlier in the epidemic when more than two-thirds of those testing positive were in older age groups.
A new analysis finds that by early May, 39% of confirmed cases statewide were among people age 20 to 39, while those 19 and younger accounted for 11%.
Here is the full article, via Anecdotal. A number of points:
1. As people adjust, and the higher-risk individuals take greater precautions, and the lower risk people relax their vigilance, this is likely to happen.
2. The case for age segregation, as a remedy and protection, becomes stronger. If your policy prescriptions never change over the course of a pandemic, you are not paying sufficient attention, or you are a dogmatist, or both.
3. Universities have to worry a bit less about their students and a bit more about their faculty, at the margin.
4. As more young people acquire immunity, the incentive for yet additional young people to invest in immunity, through stochastic deliberate exposure, rises. That in turn strengthens #2 and #3.
5. Will markets play a further role in this trend? The excellent Kevin Lewis sends me the following (WSJ):
…while surging demand has proven a boon for the traders known as blood brokers who source this commodity, diagnostic companies say high prices for the blood of recovered Covid-19 patients are posing a hurdle to developing tests. ‘We’ve had a terrible time trying to obtain positive specimens at a decent rate,’ said Stefanie Lenart-Dallezotte, manager of business operations for San Diego-based Epitope Diagnostics Inc., which sells an antibody test for Covid-19…She said one broker quoted $1,000 for a one-milliliter sample of convalescent plasma, a term for the antibody-containing part of the blood from recovered patients. Executives at other diagnostics companies say they have been quoted prices of several thousand dollars for one milliliter of plasma.
What is the market-clearing price here, and what is the elasticity of exposure with respect to that price? Evolving…
Stansbury and Summers respond on worker bargaining power, and more on monopsony
Both to my earlier points and to some other discussions, here is the link. Here is one excerpt related to a point I had not understood in the paper proper:
5. If corporate profits are so high, how is this consistent with the persistently low demand postulated by Summers’ “secular stagnation” hypothesis?
Secular stagnation as we think of it is the product of a rising gap between the desire to save and the desire to invest (which, in an IS-LM type framework, would push down the neutral real interest rate). Falling worker power redistributes income from lower and middle-income people to the rich. The rich have a higher propensity to save. Thus, falling worker power increases the desire to save relative to the desire to invest. Rising inequality has been posited by several authors as a contributor to the declining neutral real interest rate (see e.g. Smith and Rachel 2015). Under this view, secular stagnation is exemplified by low private return to capital investment – but, in a noncompetitive world, this may or may not be the same thing as an abnormally low profit rate or capital share.
There is much more at the link, and on other issues as well. I would say I found the whole paper and discussion very clarifying.
While we are on the topic, here is a new paper by Stansbury (with Schubert and Taska) on monopsony. I haven’t read through it, but just based on the description of what they did it seems to get closer to finding the truth than the other works I have seen in this area:
Abstract: In imperfectly competitive labor markets, the value of workers’ outside option matters for their wage. But which jobs comprise workers’ outside option, and to what extent do they matter? We the effect of workers’ outside options on wages in the U.S, splitting outside options into two components: within-occupation options, proxied by employer concentration, and outside-occupation options, identified using new occupational mobility data. Using a new instrument for employer concentration, based on differential local exposure to national firm-level trends, we find that moving from the 75th to the 95th percentile of employer concentration (across workers) reduces wages by 5%. Differential employer concentration can explain 21% of the interquartile wage variation within a given occupation across cities. In addition, we use a shift-share instrument to identify the wage effect of local outside-occupation options: differential availability of outside-occupation options can explain a further 13% of within-occupation wage variation across cities. Moreover, the two interact: the effect of concentration on wages is three times as high for occupations with the lowest outward mobility as for those with the highest. Our results imply that (1) employer concentration matters for wages for a large minority of workers, (2) wages are relatively sensitive to the outside option value of moving to other local jobs, and (3) failure to consider the role of outside-occupation options in the concentration-wage relationship leads to bias and obscures important heterogeneity. Interpreted through the lens of a Nash bargaining model, our results imply that a $1 increase in the value of outside options leads to $0.24-$0.37 higher wages.
It also would be interesting to see what these parameter values imply for the effects of minimum wage hikes.
Friday assorted links
1. Sam Altman on idea generation.
2. Nuclear markets in everything: bid on plant reactor control and monitoring system.
3. Often immigrant restaurants are better prepared for the pandemic.
4. Why do humans help others, and how do financial markets affect the sociality of behavior? Quite interesting, not just the usual b.s. VTEKL.
5. Why men are pointing loaded guns at their dicks.
6. Why our regulatory state is still failing us.
What should I ask Annie Duke?
I will be doing a Conversation with her. Here is part of her Wikipedia page:
Anne LaBarr Duke (née Lederer; September 13, 1965) is an American professional poker player and author. She holds a World Series of Poker (WSOP) gold bracelet from 2004 and used to be the leading money winner among women in WSOP history (a title now held by Vanessa Selbst). Duke won the 2004 World Series of Poker Tournament of Champions and the National Heads-Up Poker Championship in 2010. She has written a number of instructional books for poker players, including Decide to Play Great Poker and The Middle Zone, and she published her autobiography, How I Raised, Folded, Bluffed, Flirted, Cursed, and Won Millions at the World Series of Poker, in 2005.
Duke co-founded the non-profit Ante Up for Africa with actor Don Cheadle in 2007 to benefit charities working in African nations, and has raised money for other charities and non-profits through playing in and hosting charitable poker tournaments. She has been involved in advocacy on a number of poker-related issues including advocating for the legality of online gambling and for players’ rights to control their own image.
She also has a new book coming out this fall, How to Decide: Simpler Tools for Making Better Choices. So what should I ask her?
Richard Davis requests
Here are some answers, I put his questions — from Request for Requests – in bold:
Melancholy among academics.
We’re a pretty sorry bunch, and many of us don’t have so much professionally to live for, at least not at the relevant margin — it is easy to lose forward momentum and never recover it, given the constraints and incentives in the profession and broader pressures toward conformity. Rates of depression in academia, and especially in graduate school, are fairly high. Many of the core processes are demoralizing rather than inspiring. It is remarkable to me how much other people simply have accepted that is how things ought to be and perhaps they believe matters cannot be that different. I view the high rates of depression in academic life as a “canary in the coal mine” that doesn’t get enough attention as an indicator of bigger, more systemic problems in the entire enterprise. What are you doing with your lifetime sinecure?
Your favorite things Soviet.
Shostakovich. And the Romantic pianists, most of all Richter and Gilels. Constructivist art and ballet up through the late 1920s. The early chess games of Tal. Magnitogorsk. War memorials, most of all in Leningrad. Tarkovsky. I admire the “great” Soviet novels, but I don’t love them, except for Solzhenitsyn, whom I would rather read then Dostoyevsky. Probably the poetry is amazing, but my Russian is too limited to appreciate it.
The optimal number of math PhDs worldwide.
I would think fairly few. I am happy having lots of mathematicians, with independent tests of quality. But is the Ph.D such a great test or marker of quality? Did Euclid have one? Euler? Does it show you will be a great teacher? Maybe we should work toward abolishing the math PhD concept, but out of respect for the profession, not out of hostility toward math.
What historical works of art were anticipated to be great prior to creation, were immediately declared to be great at creation and have continued to be judged great ever since?
Overall it is striking how popular how many of the great revolutionaries have been. Michelangelo was a major figure of renown. Mozart was quite popular, though not fully appreciated. Beethoven was a legend in his time, and every Wagner opera was an event. Goethe ruled his time as a titan. A significant percentage of the very best writers were well known and loved during their careers, though of course there was uncertainty how well they would stand up to the test of time.
The future of Northern New Jersey.
Much like the present, plus defaults on the pension obligations and over time the Indian food may get worse, due to acculturation. The Sopranos will fade into distant memory, I am sorry to say, as will Bruce Springsteen. So many young people already don’t know them or care. I feel lucky to have grown up during the region’s cultural peak.
Who are the greats that still walk among us (other than McCartney)?
The major tech founders and CEOs, Stephan Wolfram, Jasper Johns and Frank Stella and Richard Serra and Gerhardt Richter and Robert Gober, a number of other classic rock stars (Dylan, Brian Wilson, Jagger, Eno, etc.), Philip Glass, Richard D. James, and note most of the greatest classical musicians who have ever lived are alive and playing today (Uchida anyone?), at least once Covid goes away. Many of the major architects. Ferrante and Knausgaard and Alice Munro. Many of the figures who built up East Asia and Singapore. Perelman. Jerry Seinfeld and Larry David. Magnus Carlsen and all sorts of figures in sports. A bunch of other people whom Eric Weinstein would list.
Why
Why not?
*The Puzzle of Prison Order*
That is the title of the new and excellent book by David Skarbek, and the subtitle is Why Life Behind Bars Varies Around the World. Here is part of the Amazon summary of its contents:
Many people think prisons are all the same-rows of cells filled with violent men who officials rule with an iron fist. Yet, life behind bars varies in incredible ways. In some facilities, prison officials govern with care and attention to prisoners’ needs. In others, officials have remarkably little influence on the everyday life of prisoners, sometimes not even providing necessities like food and clean water. Why does prison social order around the world look so remarkably different?
Here is one excerpt:
…Nordic prisons have a much smaller proportion of prisoners to members of staff, about one prisoner for every staff member. These jobs attract high-quality employees, and in Finland and Norway, it is common for there to be an excess supply of applicants. Working in corrections is a more attractive career than it is in many other countries. The fact that students sometimes work as prison officers suggests that the environment in Nordic prisons is more relaxed than that in many other prisons and the work is socially acceptable. Many Nordic prison officers have university and vocational education. For example, about 20 percent of staff in Swedish men’s prisons have university degrees and staff members participate in a 20-week in-service training program and take 10-week university courses on sociology and social psychology. In Norway, prison officers receive two years of training at full salary and nearly all have tertiary educational qualifications. By comparison, California correctional officer training lasts 12 weeks and requires only a high-school diploma.
The book is due out from Oxford University Press on August 3rd.
Thursday assorted links
1. Noah interviews Krugman (Bloomberg, substantive, not politics).
2. How to run the NBA playoffs is in fact a social choice problem.
3. “We’re not as wealthy as we thought we were.” (Who said that again?)
4. Murder rates are rising again.
5. Allison Schrager interviews Kopczuk on wealth taxes.
6. New and still puzzling cruise ship data, with lots of asymptomatics.
7. Who in NYC is still getting sick? (NYT)
8. Indian casinos are asserting sovereign rights and reopening (NYT).
Every Stock is a Vaccine Stock
Barrons: General Electric stock was racing higher Tuesday, but not because of anything the company did or announced. Recent Covid-19 vaccine news is serving as a catalyst, and every stock these days feels like a vaccine stock.
Indeed, every stock is a vaccine stock. When vaccines or other treatments do well, all stocks do well which is why stock prices are now highly correlated:
Bloomberg: From beginning the year with a correlation of 0.19, the gauge of how closely the top stocks in the S&P 500 move in relation to one another spiked to 0.85 in mid-March, toward the peak of the coronavirus sell-off before leveling off around 0.8. A maximum possible correlation of 1.0 would signify all stocks are moving in lockstep.
It’s not surprising that when Moderna reports good vaccine results, Moderna does well. It’s more surprising that Boeing and GE not only do well they increase in value far more than Moderna. On May 18, for example, when Moderna announced very preliminary positive results on its vaccine it’s market capitalization rose by $5b. But GE’s market capitalization rose by $6.82 billion and Boeing increased in value by $8.73 billion.
A cure for COVID-19 would be worth trillions to the world but only billions to the creator. The stock market is illustrating the massive externalities created by innovation. Nordhaus estimated that only 2.2% of the value of innovation was captured by innovators. For vaccine manufacturers it’s probably closer to .2%.
Who can internalize the externalities? Moderna clearly can’t because if they could then on May 18 Moderna would have increased in value by $20.52b ($4.97b+$6.82b+$8.73b) and GE and Boeing wouldn’t have gone up at all. Massive externalities.
A clever institutional investor like Blackrock or Vanguard could internalize some of the externalities by encouraging Moderna to work even faster and invest even more, even to the extent of lowering Moderna’s profits. Blackrock would more than make up for the losses on Moderna by bigger gains on other firms in its portfolio. Blackrock does indeed understand the incentives, although its unclear how much beyond jawboning they can actually do, legally.
I’d like to see more innovation in mechanisms to internalize externalities–perhaps in a pandemic vaccine firms should be given stock options on the S&P 500. Until we develop those innovations, however, the government is the best bet at internalizing the externality by paying vaccine manufacturers to increase capacity and move more quickly than their own incentives would dictate. Billions in costs, trillions in benefits.
The Spanish-language Kindle edition of *Stubborn Attachments*
The various subtleties of the title “Stubborn Attachments” do not translate well into Spanish, so here is “El imperativo moral del crecimiento económico: Una visión de una sociedad libre y próspera de individuos responsable.”
You can order it here, and I expect a print edition will be coming in due time.
I thank all of those involved for helping this project come to fruition, and thank Gonzalo Schwarz for doing the translation.
*The Deficit Myth* and Modern Monetary Theory
That is the new book by Stephanie Kelton and the subtitle is Modern Monetary Theory and the Birth of the People’s Economy. Here are a few observations:
1. Much of it is quite unobjectionable and well-known, dating back to the Bullionist debates or earlier yet. Yet regularly it flies off the handle and makes unsupported macroeconomic assertions.
2. Like many of the Austrians, Kelton likes to insist on special terms, such as the government spending “coming first.” You don’t have to say this is wrong, just keep your eye on the ball and don’t let it distract you.
3. “MMT has emphasized that rising interest income can serve as a potential form of fiscal stimulus.” You don’t have to believe in a naive form of Say’s Law, but discussions of demand should start with the notion of production. Then…never reason from an interest rate change! Overall, I sense Kelton has one core model of the macroeconomy, with a whole host of variables held fixed (“well…higher interest rates means printing up more money to pay for them and thus greater stimulus…”), and then applies that model to a whole series of quite general problems and questions.
4. She thinks “demand” simply puts resources to work, and in this sense the book is a nice reductio ad absurdum of the economics one increasingly sees from mainstream writers on Twitter. p.s.: The economy doesn’t have a “speed limit.” And it shouldn’t be modeled using analogies with buckets.
5. We are told that the U.S. “…can’t lose control of its interest rate”, but real and nominal interest rates are not distinguished with care in these discussions. The Fed’s ability to control real rates is fairly limited, though not zero, and those are empirical truths never countered or even confronted in this book.
6. The absence of a nominal budget constraint is confused repeatedly with the absence of a real budget constraint. That is one of the major errors in this book.
7. It still would be very useful if the MMT people would take a mainstream macro model and spell out which assumptions they wish to make different, and then solve for the properties of the new model. There is a reason why they won’t do that.
8. I don’t care what the author says or how canonical she is as a source, a federal jobs guarantee is not part of MMT.
9. Just because the economy is not at absolute full unemployment, it does not mean that free resources are on the table for the taking. Again, in this regard Kelton is a useful reductio on a lot of “Twitter macro.”
10. I am plenty well read in the “money cranks” of earlier times, including Soddy, Foster, Catchings, Kitson, Proudhon, Tucker, and many more. They got a lot of things right, but they also failed to produce coherent macro theories. I would strongly recommend that Kelton undertake a close study of their failings.
11. For all the criticisms of the quantity theory, I would like to know how the MMT people explain the Fed coming pretty close to its inflation rate target for many years in a row, under highly varying conditions, fiscal conditions too.
12. The real grain of truth here is that if monetary policy is otherwise too deflationary, monetizing parts or all of the budget deficit is not only possible, it is desirable. Absolutely, but don’t then let somebody talk loops around you.
You can order the book here.