Tyler Cowen talks about medium and long-term consequences of the virus crisis. I give it an A+.
For a couple of days I worked on a post on the economic outlook, which I scheduled to go up tomorrow. I think you will see a lot of similarity in our views. We differ in terms of tone. Tyler sounds detached and fatalistic. I sound cranky. Below are some more detailed comments of mine, sometimes amplifying his remarks and sometimes disputing them.
He starts out by pointing out that people are becoming more accustomed to webinars like the one at which he is speaking. One thing they allow is for the listener to be in a different place than a speaker. Oddly enough, he talks about the advantage as being he can as a professor spend a week in Europe without missing class, allowing him to travel more.
I think that web-based meetings will mostly reduce travel, and they will save on friction involved in conducting meetings. Think of the office of a big organization. Instead of having to herd people into conference rooms, you have them attend meetings from their offices. This is much more time-efficient. People don’t waste time walking between rooms. And meetings can more easily start on time, because you don’t have to wait for stragglers to show up–they should already be in front of their computers.
I think that Zoom works well when there are about 12 or fewer people. You can have eye contact with everyone, which keeps everyone engaged. So the future of on-line education may look less like MOOCs and more like seminars.
Next, he says that China will become something of a pariah, especially in America.
He says that just as we under-reacted to the crisis at first, we will probably over-react going forward. That is, whenever the actual risk abates, the fear will remain longer. I agree, and this is one reason I do not think that government can “re-open the economy.” The government has lost credibility as far as telling people that it’s safe to resume normal activities.
Later in the talk, he will reiterate that he thinks that social distancing norms will decay slowly. He will point out that some activities (think of concerts or sporting events) will require liability waivers in order to protect the impresarios, but he doubts this will happen. I would add that I do not expect the legal profession to allow Congress to take away its right to sue. Maybe colleges will be sued for both Type I and Type II errors (opening too soon or not opening soon enough).
Tyler notes the “rally around the flag” effect, raising support for government leaders in a crisis. Trump is a bit of an exception, since his opponents are so heavily dug in against him.
Tyler sees libertarian ideas as losing badly from this crisis, rather more than they deserve to lose. No argument from me there. Later in the talk, he will echo my view that this is a Higgsian moment.
He also sees the progressive left losing. I disagree. I agree with Tyler that the bathroom and pronoun issues will seem trivial. And support for immigration will plunge. Urban density will be less popular, and new entitlements, such as Medicare for all, may be put on hold by other fiscal priorities.
But I see progressives not as retreating, but as pivoting. They will argue that this pandemic shows that we need world government. Technocrats have to be in charge. Climate change is the next pandemic, and we can no longer tolerate complacency.
Tyler says that we won’t be able to adopt Asian policies to track people, because the tech companies will fear reputation hits if they participate. I think some recent news stories suggest otherwise, although perhaps it will be easy for Americans to opt out of tracking systems, and perhaps many will do so.
Overall, Tyler sees this crisis as promoting what he calls “centrist authoritarianism.” Think of the trade-off between “state capacity” and “libertarianism” tending to be resolved in favor of the former.
Tyler and I probably both see the CARES act as clumsy and oriented toward central planning. But for him what stands out is the clumsiness. He does not think that we need to have to worry about becoming a centrally planned economy, because our government does not have the organizational capacity to try it. I think he under-estimates the faith in the Fed among our elites, and the inability of the masses to mobilize against, or even to understand, the power that has been granted to the central bank. He does agree with me that we will see higher taxes and inflation in the future to pay for our deficits today.
He thinks that we will have too much to worry about keeping hospitals from going bankrupt to enact Medicare for all.
He thinks that poorly-capitalized firms, including many small businesses, will fail. He sees the tech giants coming out ahead, largely because they have large cash hoards. He notes that large companies will be reluctant to raise prices on scarce goods, because they will worry more about reputational hits than about foregone profits. Thus, the laws of supply and demand will not work as well as they might otherwise.
Tyler thinks that higher education will take a huge hit. Many top universities have a student body that is 20 percent foreign or higher, and he assumes that their willingness and ability to come to the U.S. will decline sharply. This in turn will force schools to admit lower-quality American students as substitutes. I had not considered this before. If he is right, then we should put higher education in the same category as airlines and cruise ships, as an industry that is going to suffer disproportionately. I’ll bet they wish that they hadn’t burned their political bridges with Republicans. And I sure would not want to be a candidate on the academic job market in the next few years.
Tyler sees de-globalization as significant, and he says that in general this will hurt small countries more than large countries. I recommend reading Peter Zeihan on this. Zeihan points out that the U.S. is well situated to revert to autarky, because we produce sufficient food and energy. China is not so well suited in this regard.
Tyler points out that our economic statistics will be very uninformative for the next several months. He makes the point that price measures, such as the Consumer Price Index, assume that consumers pick approximately the same market basket from one year to the next. But our market baskets today are nothing like what they were even a few weeks ago.
Tyler suggests that in tracking overall economic activity, reported GDP will be unreliable. He suggests following nominal tax revenue.
He says that our political system is reverting toward Federalism, and not in a good way. He says that as states look at their budget problems, they will be desperate to allow more economic activity, and they will ease restrictions too soon. Overall, 21st-century federalism will do more to reduce state capacity than to foster liberty.
I predict that the libertarian movement will tend to give up on politics and instead look for ways to “go Galt.” More interest in Seasteading, less interest in Cato.
Great post.
I’m curious about this: “I do not think that government can re-open the economy. The government has lost credibility as far as telling people that it’s safe to resume normal activities.”
Many governors, in polls released today, have hit 70% to 80% approval rating.
Won’t they be the principal ones telling people when it’s safe?
point taken. I was thinking about the CDC and the “models”
Hoping that Gov. Abbott gives ASK and all of the libertarian apologists a giant middle finger this coming week.
We need experiments, not the same old same old. Marginal revolution to something better?
https://www.fox4news.com/news/gov-abbott-will-issue-executive-order-next-week-to-re-open-some-texas-businesses
Clarification, here is what I mean about libertarian apologists:
“Hi, introducing my highly controversial new book, *Launching The Innovation Renaissance*. Please read it and here is my TedX talk. Let’s reform patent law and occupational licensing, because I care more about the masses than you do.”
But, when it comes to anything that IS actually controversial or might help the masses, then mum is the word. Instead, revert to the (now) wildly implausible contact tracing or anything else that won’t alienate the Patrick Collison’s of the world.
What a bunch of tools.
Re: “I think that Zoom works well when there are about 12 or fewer people. You can have eye contact with everyone, which keeps everyone engaged. So the future of on-line education may look less like MOOCs and more like seminars.”
I teach at a fancy college. I’m lucky to teach only seminars. And my seminars at Zoom during lockdown are going reasonably well. But we had half a semester of real seminar (and myriad real individual interactions) on campus before lockdown. We already had developed rapport and trust. Will undergrad Zoom seminars that start from scratch go so well?
The larger point is that selective colleges in the USA sell an ambiguous mix of investment towards career (signal of smarts, discipline, conformity, plus some human-capital formation), consumer good (campus life), and investment towards marriage markets (assortative mating by educational attainment). For better or worse, the crucial operative framework for this ambiguous mix is the residential campus. Real, close, intimate interactions among students are the crucial ingredient in the cement. (BTW, on campus, students learn more from one another in courses, via study groups etc, than from Faculty.) Will families pay premium tuition simply for Zoom seminars? The question answers itself.
If, perchance, social distancing will persist for a year (or two, or more?), then there will be major disequilibrium in selective higher education.
A sci-fi scenario: College orientation will become Hansonian variolation camp.
“Tyler thinks that higher education will take a huge hit.”
Um yeah…I’m definitely willing to best against this one. Disagree? Please propose your wager.
I’m tempted to take the bet b/c I want it to be right.
But BZ has a good point. Yes, let’s concede a number of small privates will shutter. But brand name schools have one type of protection, and state colleges have another.
My question for the Hive:
Will regulators change? They have been skeptical of many higher ed innovators.
More specifically: will Red State regulators change? (Blue State seems bridge too far).
I can imagine 2 paths. One is direct: they realize that online doesn’t automatically mean low quality. Second is indirect: the voters, the governors, etc….change their views, and therefore direct their regulators to change.
“I’m tempted to take the bet b/c I want it to be right.”
I want you to be right too :)! But, I will bet against it every single time.
Paging Bob Frank, please pickup a white courtesy telephone.
(In other words, the number of high school graduates qualified for college in the U.S. seems to be capped at something approximating 30% of the population. That 30% will ALWAYS want something special to differentiate itself from the 70%. With online education, a good portion of that status gain could disappear. )
This question is so firmly in Tyler’s domain that it is hard to disagree with him regardless of personal intuition.
The reputation of good schools might not fall, but my impression is that Tyler is talking about revenue.
Please post your wager. I will entertain any reasonable offer.
1. I’m trying to think of a fair time horizon for this prediction: 20% of US colleges will fail.
Doesn’t make such a fun bet, too long term.
2. How about:
How many American colleges shutter (close down, “merge”, whatever) by September 2021?
From 2016 to 2019, 22 colleges closed, like Mount Ida or Burlington College. So 7/year.
What if I say it will be 50 colleges by Sept 2021? Would you bet against? I’m not saying that itself matters so much, but it does have a “tip of the iceberg” value.
“Mount Ida College was a private college in Newton, Massachusetts. The college closed after spring commencement in 2018; the University of Massachusetts Amherst acquired the campus and renamed it the Mount Ida Campus of UMass Amherst.” [wikipedia]
So the place definitely hasn’t “shuttered”. Arnold wrote, “Tyler thinks that higher education will take a huge hit.” Should it count as a “hit” if the campus just gets transferred to another school and acquires a new name? Does it matter if the combined entity now has fewer students than the units did separately?
If the total number of students stays pretty much the same, I don’t see the “industry” as being in trouble. Restaurants, retail stores, even Starbucks go out of business all the time. That doesn’t mean those industries is in trouble.
“This question is so firmly in Tyler’s domain that it is hard to disagree with him regardless of personal intuition.”
The problem with Tyler is that 50% of the time he is completely prescient, and the other 50% of the time he had no clue.
On top of that, he thinks he is playing some kind of advanced chess match. So, you cannot really be certain what he thinks.
So, please post your wager.
https://www.independentsentinel.com/chi-phlebotomist-finds-30-50-of-patients-tested-have-antibodies-to-cov-19/
A phlebotomist working at Roseland Community Hospital said Thursday that she tests 400 to 600 patients a day and the numbers of patients coming through the testing center who appear to have already had coronavirus and gotten over it is far greater than those who currently have the disease.”
“A lot of people have high antibodies, which means they had the coronavirus but they don’t have it anymore, and their bodies built the antibodies,” Owaynat told Chicago City Wire.
—
More data, just a scrap which I did not go into. First I need to find out what a phlebotomist. Sounds like an economist who studies phlebots.
A phlebotomist is one who draws blood historically. They still do this, but the job description is broader today with all the in-clinic tests available to run. It may be the one in the story is the person who sends out the blood samples and gets back the results.
A fun fact that I read about about phlebotomist school: the students have to be trained how to draw blood from humans. Watching videos and practicing on mannequins or whatever can only go so far; they have to find live humans to get blood from.
So they practice on each other.
I work for a travel magazine. In addition to hosting events and publishing articles, we host a ton of events. We are budgeting for our events to resume in September.
When you say we can expect to see higher inflation do you mean you expect the inflation targeting policy to end or that it will still be the policy but the policy will be ignored or that the policy will fail?
I expect higher inflation if the policy changes. Even if it changes I don’t expect Core PCE to average more than 4% over the next 5 years and 5% over the next 10 years. If Trump is re-elected then I would revise these “limits” a little higher.
Coronavirus will be another ‘hole in the ground’ when next crisis like Katrina hits in a few years.
No time to go Galt. Engage the statist with all this gov ineptitude, models, money printing, lockdowns etc. they see it.
Re: “But I see progressives not as retreating, but as pivoting. They will argue that this pandemic shows that we need world government. Technocrats have to be in charge. Climate change is the next pandemic, and we can no longer tolerate complacency.”
On the other hand, a subset of well-governed small nations has managed the pandemic best. The long-term problem is that pandemics (and CO2) don’t recognize borders. Nations will try and separate international trade from international travel as much as possible. Supranational institutions like the EU and WHO haven’t been problem-solvers in the first phase of the global pandemic.
Compare William Nordhaus, who proposes a voluntary Climate Club:
https://www.foreignaffairs.com/articles/united-states/2020-04-10/climate-club
re: de-globalization
There are two bottles of pain reliever on the shelf. The acetaminophen in one comes from China and costs $10. The acetaminophen in the other comes from the US and costs $12.
Which one does the consumer buy?
Since the consumer is glad to buy water sent from Fiji, France, and Italy even via online shopping (where it’s not bundled with a restaurant experience) then I guess they will buy the same molecule at a higher price as long as there is a marketing program designed to introduce fear, uncertainty, and doubt.
Chinese I know in China say there are lots willing to pay a premium for packaged foods made in Taiwan and Korea over their domestic product. Many don’t trust stuff especially for kids.
Brian, ivar,
To be clear, I was talking about a pain reliever where the acetaminophen was sourced from China. It might show up on a shelf as Tylenol.
In any event, consumers can’t tell from a list of ingredients where they came from. Lacking that information means they fall back on price.
> But I see progressives not as retreating, but as pivoting. They will argue that this pandemic shows that we need world government.
Are more progressives so arguing now? I haven’t noticed, and a quick search (“world government” on twitter) turns up almost exclusively conservative commentary.
I’d see this as a hugely positive pivot. Nationalism is still enemy #1.
What’s wrong with educating “lower quality American’s” ? Don’t you think a lower quality American with a little help could have designed the chip my roommate designed at the Moore school before he moved back to China?
I enjoy this blog post, but I think in the thick of a crisis it is a terrible time to make policy decisions (unfortunately, sometimes you have to) and to make predictions.
After 9/11, many predicted global mayhem and even Islamic-Western wars. The biggest wars have been Sunnis vs. Shiites. Doing nothing might have been the best US response to 9/11, beyond simple retribution.
During the 1962 Cuban Missile Crisis, some suggested a first nuclear strike on the Soviet Union. Unless we conducted that first strike, there was a possibility, perhaps even a probability, that the Soviet Union would become the dominant world power given their socialist-militaristic economy.
And, policy decisions and predictions are being made now, during the COVID-19 crisis.
I would like to see a prediction of what will happen after 50 million Americans are unemployed at the end of May or June.
As for libertarians, perhaps they are totally discredited but then perhaps that has been the case anyway. There are no libertarians when neighborhood property zoning is under review, or at the slightest whiff of danger from a virus.