Category Archives: Timothy Taylor is my Favorite Blogger

Virus update

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1. Kling was wrong. Regarding the drop in” deaths from the virus relative to cases, Tom Chivers writes,

it’s almost certainly not because the virus has mutated or anything. “There are some things we know are definitely not true,” says Beale. “We’re convinced that the virus itself isn’t substantially different, that there’s no ‘milder form’ of the virus.” The little package of RNA in its protein-and-lipid wrapper is essentially the same now as it was at the beginning of the outbreak.

Pointer from Tyler Cowen.

2. Maybe the high death rate in the U.S. is not something that would have been prevented by a different President (on this issue, my view is being reinforced). Andrew Biggs writes,

U.S. policymakers also suffered under the handicap that Americans entered the Covid pandemic in much poorer health than citizens of other developed countries. For instance, over 27,000 U.S Covid deaths list diabetes as a comorbidity, accounting for 16% of total Covid-related fatalities. But what if instead of having the highest diabetes rate among rich countries the U.S. had the same rate as Australia, with less than half the U.S. level? The same holds for obesity, listed as a comorbidity in 4% of Covid cases. Forty percent of Americans are obese, the highest in the developed world and over twice the OECD average. U.S. death rates from heart disease are also higher than most European and Asian countries. Hypertension is listed as a comorbidity in 22% of Covid deaths. If Americans simply had the same health status as other high-income countries, it is likely that tens of thousands of lives could have been saved.

Pointer from Bryan Caplan.

3. Timothy Taylor has links to more economics papers on the virus than anyone has time to read.

4. What if the virus had made its appearance in 1990?

–I don’t think people would have self-quarantined. We didn’t have the infrastructure for low-cost direct-to-home delivery. We didn’t have the technology to allow people to work from home.

–I don’t think we would have had lockdowns. We didn’t have a generation of people raised to believe that it was unsafe for children to play without adult supervision. Shelter-in-place orders from the government would have been too unpopular for elected leaders to contemplate.

–We would not have been promised a vaccine. No one could have announced “We already sequenced the virus genome!” as if that meant a vaccine was coming any day now.

–We would not have had all of the treatment options available today.

–Our population would have had a lower proportion of high-risk individuals–fewer elderly, obese, and diabetic individuals.

–We would not have had social media to fill our heads with statistics and model forecasts and expert pronouncements to keep the virus foremost in our minds.

In short, I suspect we would have come out about the same in terms of population death rate, maybe a little more or maybe a little less. The economic consequences would have been much less. And it would not have blown up into a national trauma. For the trauma, we can thank the fact that we now live in the Digital City.

UPDATE: after writing the foregoing, but before posting, I came across Vaclav Smil comparing the current pandemic to those in 1957 and 1968,

Why were things so different back then? Was it because we had no ­fear-reinforcing 24/7 cable news, no Twitter, and no incessant and instant case-and-death tickers on all our electronic screens? Or is it we ourselves who have changed, by valuing recurrent but infrequent risks differently?

Is financial repression an option for the U.S.?

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Timothy Taylor writes,

the US political system has been unwilling to restructure big spending programs like Medicare and Social Security; a large-scale restructuring or default on US debt seems like a highly unlikely last resort; and US inflation has been stuck at low levels for 25 years now, for reasons not fully understood. Thus, I suspect the US economy may be headed, by fits and starts, to a period of what Reinhart and Sbrancia call “financial repression.” By this term, they mean a set of policies that invole much greater government management of the financial sector, including policies that focus on keeping interest rates very low and also limit other options available to investors–so that the government will find it easier to keep borrowing at low interest rates.

Financial repression means that government dictates how people save, essentially forcing them to finance government debt at artificially low rates. I can see doing this in a backward country that lacks financial markets that would allow people to get better interest rates than they can from the government. I cannot see how this would work in the United States. I think that we will get inflation instead.

Right now, people are bidding up the prices of assets, especially in the stock market. I think of an asset boom as deferred inflation. Eventually, people will sell assets and buy goods and services, and that is when we will see the inflation.

Socialism as a yay word

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Timothy Taylor writes,

If someone chooses to take all their hopes for a better and more just society and bundle it up in the name of “socialism,” [then] any criticism of “socialism” will be viewed as an attack on their dreams and desires. Conversely, pretty much no one ever has said that “capitalism is the name of my desire.” The arguments for capitalism are typically made in terms of machine-like functionality, emphasizing what works and doesn’t work under capitalism. And of course, the arguments for capitalism emphasize how it has actually raised the standard of living for average people over recent decades and centuries, not how it summarizes one’s dreams for the future.

The virus as a PSST shock

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David Autor and Elisabeth Reynolds write,

The COVID crisis appears poised to reshape labor markets along at least four axes: telepresence, urban de-densification, employment concentration in large firms, and general automation forcing. Although these changes will have long-run efficiency benefits, they will exacerbate economic pain in the short and medium terms for the least economically secure workers in our economy, particularly those in the rapidly growing but never-highly-paid personal services sector.

Pointer from Tyler Cowen. Also discussed by Timothy Taylor.

I keep emphasizing that a recovery in terms of employment will require a massive amount of entrepreneurial experimentation. I think that deregulation and cutting payroll taxes are the best hope there. If instead you get a lot government debt/money being issued with an inflexible economy, the only result will be bidding up prices for the offerings of the surviving businesses.

On the payroll tax cut, I believe that President Trump is correct. I wrote,

government ought to be encouraging the transition to new activities that are profitable in a virus-conscious economy. One way to do so would be to pay businesses a wage subsidy to hire workers. Another method would be to cut the payroll tax. An economy-wide incentive to add workers would have more bang for the buck than a costly effort to keep uneconomical businesses afloat.

It is sad that even some Republican Senators prefer Keynesian remedies. Shows you how little influence I have.

Where to spend health dollars

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Donald Berwick writes,

Decades of research on the true causes of ill health, a long series of pedigreed reports, and voices of public health advocacy have not changed this underinvestment in actual human well-being. Two possible sources of funds seem logically possible: either (a) raise taxes to allow governments to improve social determinants, or (b) shift some substantial fraction of health expenditures from an overbuilt, high-priced, wasteful, and frankly confiscatory system of hospitals and specialty care toward addressing social determinants instead. Either is logically possible, but neither is politically possible, at least not so far.

Pointer from Timothy Taylor.

I agree that medical procedures are less important for longevity than other factors. If we spent money effectively on other factors, then that would be more cost-effective at the margin than spending more on medical services.

But the essay overall is a brief for the Progressive agenda, which I doubt will move the longevity needle in the right direction.

Are real estate agents racist?

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Timothy Taylor writes,

The growing body of audit studies in US housing markets is not a bunch of anecdotes: it’s data showing that racial discrimination which is illegal under existing law is in fact disturbingly pervasive in US housing markets. I would love to see a wave of these audit studies of housing market discrimination carried out around the country, with loud publicity for the results and also with some legal consequences attached. It would be socially useful if rental agents and real estate agents needed to take seriously the possibility that the ways in which they are treating their minority customers could come under public scrutiny.

He cites a study of the Boston rental market as the latest example. Rental agents were less likely to show a particular apartment to a black applicant than to white applicant with identical qualifications.

I would point out that the Boston rental market is peculiar, in that it seems that the prospective renter must use an agent. In other cities, the owner is allowed to advertise the apartment and renters are allowed to respond directly to ads. My guess is that Boston is different because the rental agents were able to lobby for some legal requirements that are not present elsewhere.

When there is no agent in the picture, the incentive of a landlord or a home seller is to rent or sell to the highest bidder. If you exclude customers, based on race or any other factor, you risk leaving money on the table.

But agents have weird incentives. It works out that they want to complete a transaction with as little effort as possible. Maximizing traffic into the property is not the way to go, especially if we are talking about rent-controlled apartments that are scarce.

But why would an agent discriminate on the basis of skin color? The agent may have an instinct that the black person will not “feel comfortable” in a neighborhood, so that it is not worth spending time showing that person the apartment, given the alternative of showing a white person the apartment.

The study shows that renters with housing vouchers were actually more likely to see the apartment of choice if they were black. That might be because the real estate agent is more confident that a transaction will take place in the case of a housing voucher if the prospective renter is black. The agent figures that the black renter will not have as many options.

My hypothesis is that there would be less racial discrimination in housing and rental markets if agents were out of the picture. I suspect that some agents have some preconceptions that are effectively racist, and I doubt that this can be overcome as long as the incentives of agents are what they are.

I am pretty sure that if you don’t have rent control, rental agents won’t gain a foothold, and the rental market will operate without them. Landlords have an incentive not to discriminate, so my hypothesis would be that in markets without rent control an audit study will not show as much discrimination.

What about buying a home/ If you could design the real estate transaction process from scratch, you could make it as easy to buy and sell a home as it is to sell a used car. In doing so, you would reduce the need for real estate agents, and you might reduce racial discrimination.

Many a young techie has salivated over the prospect of solving this problem. But it is not a technology problem. It is a public choice problem. Uber was able to come out pretty well against the lobbyists for the taxicab industry. Airbnb was able to come out ok against the lobbyists for the hotel industry. The real estate lobby is a tougher nut to crack.

Mass transit assessed

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Randal O’Toole does the assessment.

Most low‐​income workers have given up on transit as a method of commuting and have purchased cars. Instead of helping low‐​income people, transit’s major growth market is people who earn more than $75,000 a year. In all but a handful of urban areas, transit uses more energy and emits more greenhouse gases per passenger mile than the average automobile. Far from relieving congestion, transit agencies are seeking to increase congestion in order to promote their businesses.

Pointer from Timothy Taylor. Locally, the contractor for building the Purple Line of the Metro just pulled out with the project a couple of years away from completion. The impact on me, as far as I can tell, is that my favorite bike path, which was torn up at the very start of the project and which was supposed to be replaced when it was completed, will be out of commission indefinitely.

Anyway, suppose we use the intention heuristic, which says that you judge something by its intentions, not by its results. By that standard, mass transit is great, and we need to spend more on it.

Lockdown socialism watch

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Timothy Taylor writes about the Fed getting into the corporate bond market,

The Fed is starting with $50 billion for the “Primary” fund and $25 billion for the “Secondary” fund. The idea is to then leverage this amount with debt in a 10:1 ratio so that it could end up financing $750 billion in purchases.

You might remember that Congress put all sorts of conditions on giving loans to small business. They had to promise to keep employees and do other things. You can bet that the big boys are going to get their money no matter how many people they lay off.

The U.S. is banker to the world

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Timothy Taylor writes,

Alexander Monge-Naranjo, in “The United States as a Global Financial Intermediary and Insurer” (Economic Synopses: Federal Reserve Bank of St. Louis, 2020, No. 2) delves into the return on these international investments. He calculates that from 1952-2015, the average annual return on assets that US investors was 5.2%, while the average annual return on assets held by foreign investors in the US economy was 2.5%.

Why does this difference exist, and how can it persist? As Monge-Naranjo argues, the typical pattern is that US investors in other economies are relatively more likely to invest in higher-risk asset–like investments in companies. Conversely, foreign investors in the US economy are relatively more likely to put their money into a safer asset, like US Treasury debt. In this sense, the patterns of international investment in and out of the US economy look like an insurance arrangement for the rest of the world–that is, investors in the rest of the world are trading off lower returns when times are good for safer and steadier returns when times are bad.

I often say that households and nonfinancial businesses seek to issue risky, long-term liabilities and to hold riskless, short-term assets. Banks and other financial intermediaries allow this by doing the opposite. So a bank will make business loans funded by deposits.

The rest of the world treats us link a bank. They issue risky, long-term liabilities (investments in companies) and hold riskless, short-term assets (our Treasury securities), while we do the reverse. Woe to us if there ever is a run on our bank.