Year: 2020

Wats On My Mind: the state of the economy

Derrill Watson Current Events, Economics , , , , , , ,

I wrote the following update for my Principles of Macroeconomics students and thought it might just count as an update for Wats On My Mind.

In the first two minutes of class, I asked you how you would know how the economy is doing. Let’s focus on our three big areas: GDP, unemployment, and inflation.

Initial estimates are that GDP decreased by 4.8% in the first quarter (Jan-Mar). Let me comment on that a bit:

  1. That number is almost certainly inaccurate. It will be revised 3 months from now, 6 months from now, and be finalized 9 months from now. That is totally normal – as more and more data rolls in, our estimates get better. My bet is that the number is worse than that because closed firms won’t be reporting anything yet.
  2. The number for the second quarter will certainly be worse than that. We were only closed for 2-3 weeks in March, so the fact that we’re done that much in such a short window is a bad sign. We have already been closed longer in this quarter and the careful, measured opening we’re doing right now – which I think is wise to prevent a new spike of cases – won’t make for an instantaneous rebound.
  3. This is as bad as we saw during the Great Recession, but faster. Again, my hope and expectation is that our recovery will also be faster.
  4. GDP dropped in the EU by 14%. So it could be a lot worse!

The Bureau of Labor Statistics also released new numbers. So far 30 million Americans have filed for unemployment. That is roughly 18-19% of the workforce. This is officially, as expected, the highest unemployment rate since the Great Depression in the 1930s. The good news is that the number of new applicants has been going down each week, from 6.8 million at the end of March to “only” 3.8 million last week. (Recall: That’s still 4x larger than the previous high set in the 1980s.) The other bit of good news is that 90% of unemployed workers expect to return to their old job, while that number is usually only 40%. That gives me more encouragement that we could quickly bounce back.

Inflation is DOWN. If this were primarily a supply shock, we would be seeing overall higher prices. That means the drop in aggregate demand is bigger than the supply shock. To a Keynesian or a Monetarist, that also means that all the fiscal and monetary stimulus we have done so far is not enough and more needs to be done. To a Classical economist, the thing that needs to be fixed is still supply – demand itself is not terribly important. A Hayekian, of course, thinks all this stimulus is making things worse – it messes with the price signals markets rely on.

To get a rough estimate of where inflation is going, I have been recommending comparing TIPS bonds to nominal bonds because the difference between the interest rate on those bonds (the TIPS spread) is the market’s best guess of inflation. As you can see here the TIPS spread fell from 1.8% in 2019 to 0.5% at the end of March. During April, it has recovered slightly to 1-1.2%. A very rough guesstimate based on that suggests we would need a stimulus 3x as large as we have done right now to return inflation expectations to normal. !!!

The very idea of having Congress spend an extra $5 trillion on top of what is already being done is more than my little fiscally-conservative heart can comprehend just now. Politically, though, I expect Congress will find it in their hearts/re-election campaigns to have another round of stimulus. The Federal Reserve has even called on Congress to spend more, so have no fears of monetary offset hampering anything. Here is a monetarist arguing the Fed needs to do a great deal more to ensure spending expectations don’t fall. One of the points, though, is that we should not expect hyperinflation is around the corner.

On that first day, most students suggested looking at the stock market. From Feb 21-Mar 23 the Dow lost 10,000 points – 1/3 of its value. Since then it has recovered more than half. Notice that the drop came BEFORE quarantine and that the stock market has been recovering even as unemployment has climbed to record heights. This is another reason I don’t recommend imagining that the stock market gives a clear and unbiased view of what’s going on in “the economy”! The situation right now is clearly much worse than it was a month ago, so trying to figure out current conditions would not make sense. If I wanted to give it the best spin possible, I’d say the stock market is predicting better times ahead despite how bad things currently are.

 A few other data points:

  • 59% of Americans say they can social distance as long as needed, which is up from a few weeks ago. (Gallup)
  • Western European countries started reopening earlier than we have and they are starting to see an increase in cases and deaths again. Now, so far that’s only a 3-day trend and it could just be a blip, but it’s not encouraging.
  • Most people are actually behaving like decent, responsible people during the crisis – and they usually do.

Be Our Guest: “Resolved: Human Government is Despotism”

Brandon Christensen Philosophy , , , ,

Jack Curtis is back with another guest post, this time on despotism. Here’s a sneak peak:

All human government is to some degree despotic; if it were not there would be no need for organized force. The more realistic issue seems to be: How much despotism should be tolerated in return for the benefits of human organization? And, with homo sapiens involved, that depends upon whom you ask.

Read the rest. It’s excellent, as usual. If you’ve got something to say, and nowhere to say it, why not Be Our Guest?

Nightcap

Brandon Christensen Links , , ,
  1. The family Coronavirinae Marc Henry, Inference
  2. “Physical distancing” versus “social distancing” Irfan Khawaja, Policy of Truth
  3. Avoidable unemployment Chris Dillow, Stumbling & Mumbling
  4. Connecting fascism with Integralism is a historical mistake Nathan Pinkoski, Law & Liberty

Nightcap

Brandon Christensen Links , , ,
  1. Permutations on Ernst Bloch’s “S is not yet P” Nick Nielsen, Grand Strategy Annex
  2. “‘Emergencies’ have always been the pretext …” Peter Boettke, Coordination Problem
  3. The Villager And The F-18 Deep Prasad, Medium
  4. Neill Blomkamp’s experimental film studio is AWESOME Andrew Liptak, Verge

Nightcap

Brandon Christensen Links , , ,
  1. Virus deaths in Democratic and Republican states James Rogers, Law & Liberty
  2. How fractured is the British left? Leontios Xenophilos, American Affairs
  3. An argument against moral blameworthiness Bill Rein, NOL
  4. Pity the poor stepmother Susan Hill, Spectator

An update from Texas

Brandon Christensen Culture , , , , ,

I am still working from home. The weather has been spectacular here over the past few days. I immediately head outside with the kids at 5 o’clock. We just run around and play. The younger one likes throwing the football around in the grass. The older one likes to play with the ants in the cracks of the sidewalk.

I was looking forward to going to Oslo this fall, but I just received news that the event has been postponed. I’ve still got the inaugural family camping trip to Ouachita to plan, so that’s exciting.

The political landscape here is much different than it is on the west coast or in Austin. Authority is decentralized. There are more black and Mexican people here, and fewer other minorities (including Central Americans). I have more black friends now than I ever did in California. It’s odd. In some ways, the non-South is now more racist than the old South. I can’t put my finger on it but I swear it’s true. You can carry on a friendly conversation with anybody here, something that’s missing out west and up north.

My guess is that this has something to do with the fact that segregation was blatantly racist in the South during the Cold War, and Washington felt it had to do something about it in order to win friends (despots) abroad. The racism in the north and the west was less blatant, and as a result nothing has ever been done about it.

I mean, I didn’t grow up with any black people. Or Mexicans. There are tons of them in California, but they don’t live in white residential areas. Down south, at least in the parts of Texas I’ve lived in, this is not the case. There are still “sides” of town, but at least we all share the same town. There’s still racism here, but the racism is more honest than, say, the zoning found up north and out west. This familiarity between blacks, Mexicans, and whites is something you as an individual have to work hard on to achieve in the non-South.

The federal government forcibly dismantled Jim Crow. It did so only after it conveniently ignored the 14th Amendment for decades, but at least it finally did so. There’s a place for Washington down here in Texas. Decentralized tyrannies are still tyrannies. I just started watching Waco, the Netflix series. It’s good. Washington is responsible for the deaths of several innocent women and children. It’ll never pay the price. Those people were just too strange for the broad public to really give a shit.

It’s a never-ending balancing act: finding a comfortable equilibrium between federal, state, and local governance. The feds are better at protecting the descendants of slaves than the state and local governments. But the state and local governments are better at protecting non-conformists and religious extremists than the federal government.

Libertarianism hasn’t been able to shake its racist stigma yet. Sure, leftists call us racists all the time, but a kernal of truth is still a kernal of truth. I have witnessed several people I once respected sweep libertarianism’s ugly, recent past under the rug and then turn to grab their paycheck. Libertarian Inc. has its place in our society, but it won’t be effective so long as the racist label sticks with us. And the racist label won’t come off until we grapple with the brutal truth of what we’ve become comfortable with and what we will tolerate.

Nightcap

Brandon Christensen Links , , ,
  1. Historicizing Foucault Stuart Elden (interview), JHIBlog
  2. Historicizing inflation George Selgin, Alt-M
  3. Historicizing Hong Kong Brian Fong, Diplomat
  4. Historicizing West Africa Barnaby Crowcroft, Literary Review

Nightcap

Brandon Christensen Links , , ,
  1. Pandemics as an externality Robin Hanson Overcoming Bias
  2. The 21st century sucks Scott Sumner, MoneyIllusion
  3. Farewell, Mr President Irfan Khawaja, Policy of Truth
  4. Tolstoy wrote stories for children John Kuhner, LARB

Nightcap

Brandon Christensen Links , , ,
  1. Coronavirus and Ramadan Declan Walsh, New York Times
  2. The future of China’s political economy South China Morning Post
  3. Ricardo, Marx, and interpersonal inequality Branko Milanovic, globalinequality
  4. Polystate, part 2 Rick Weber, NOL

Brazil will not become Venezuela

Bruno Gonçalves Rosi Current Events, Politics , , , , , , ,

Judge Sérgio Moro has left the Bolsonaro government. Chosen to be Minister of Justice, Moro achieved prominence for leading the Carwash operation that took several corrupt politicians to jail, including former President Luiz Inácio Lula da Silva. Moro’s departure exposes a very serious weakness within the Bolsonaro government, and in the medium term, it will lead to the weakening of the government and the country. According to Moro, his departure is due to attempts by President Bolsonaro to unduly interfere with the Federal Police. Bolsonaro countered the accusations, but the scenario remains shaky for the president. If Moro is speaking the truth, and if he can substantiate what he said with material evidence, this can lead to impeachment and even arrest of the president.

It is important to remember how Bolsonaro came to power. Going back a few decades in the past, Brazil emerged from a military dictatorship in 1985. The years since then have been called the New Republic by Brazilian analysts. One of the most relevant leaders of this period was Fernando Henrique Cardoso. As finance minister (1993-1994) of the Itamar Franco government (1992-1994) and later as president (1995-2002), FHC led a series of reforms that made the country’s economy, previously marked by developmentalism, freer. FHC was succeeded by Luiz Inácio Lula da Silva (2003-2010). Historically a radical socialist affiliated with the Workers’ Party, Lula came to power in 2003 promising a moderate government. To a large extent, this promise was kept, but the Lula government was soon hit by serious allegations of corruption. These complaints continued under the government of his successor, Dilma Rousseff (2011-2016), who ended up being impeached in 2016. Because of his corrupt actions as president, Lula ended up arrested by Sérgio Moro in 2018. Despite the moderate tone of Lula and Dilma as presidents, throughout their time in power, both signaled measures that resembled their party’s most radical years. This nod often sounded like a threat that both could trigger the bases of their party to take radical measures as was seen in other South American countries that had elected left-wing governments, especially Hugo Chavez’s Venezuela. Lula went so far as to declare that in Venezuela under Chavez there was an “excess of democracy”.

It was in the face of multiple corruption scandals and the threat of a radical turn to the left that Jair Bolsonaro gained prominence. For many years an inconsequential politician from Rio de Janeiro, Bolsonaro gained fame with his stripped-down and even pimp language. As early as 2014, he began to be welcomed throughout Brazil under the shouts of “myth” for the open way in which it criticized the “left”. He soon became a popular phenomenon. Although many analysts doubted his viability as a candidate, he ended up winning the presidency.

Unfortunately, Bolsonaro is far from a classic liberal or a Burkean conservative. A retired army captain, he entered politics to defend the interests of his fellow soldiers. In addition, he has always defended Rio de Janeiro’s military police officers, who are constantly accused of human rights abuses. Finally, Bolsonaro has always declared himself an uncompromising admirer of the Military Dictatorship (1964-1985). Although he showed no signs that he would like to extinguish democracy in Brazil (as many analysts on the left feared), he was also unable to see the many damages that the military did to the country during their years in power.

In his practice as president, Bolsonaro shows himself to be an impatient man, unable to respect the bureaucratic procedures of a liberal democracy. Worse than that, if Sérgio Moro’s allegations are true (and there is good reason to believe that Moro is not a frivolous man), Bolsonaro is trying to control the Federal Police to avoid investigations against his eldest son, Senator Flávio Bolsonaro, accused of corruption and involvement with militias. There are good reasons to believe that, with the departure of Sérgio Moro, the Bolsonaro government has come to an end.

Fortunately, as Dilma Rousseff’s impeachment demonstrates, Brazil is not Venezuela. Despite its many setbacks and weak record as a liberal democracy, the country still stands out in South America for its record of solid institutions that survived even during anti-liberal governments. Although imperfectly, Brazil has the institutions expected from a classic liberal democracy: division of powers, a bicameral legislature, a supreme federal court, and (at least formal) independence between the powers. Unfortunately, there are high levels of corruption in all of these spheres, largely due to the great attributions of the state provided for in the 1988 Constitution. Much is expected of the state, and the state controls an immense amount of resources. It is said that a thief was once asked why he robbed banks. “Because that’s where the money is,” was his reply. Likewise, there is a good reason why many people enter politics in Brazil.

There are crucial reforms that need to be made in Brazil if the country is to become a viable democracy. Fortunately, many of these reforms have been made in the past. Since its independence from Portugal in 1822, the country has, at least superficially, classic liberal institutions. Never has a head of government in Brazil dared to govern without a constitution, as was the case in other South American countries. Bolsonaro’s impeachment, if confirmed, will be a major blow, but it will not destroy Brazil. But it also shows that, more than populist politicians, Brazil needs leaders who will lead it to a deeper liberalism. Popular support for this type of reform exists, but it is contrasted by the desire for a “myth”.

Nightcap

Brandon Christensen Links , , ,
  1. Hayek’s rapid rise to stardom David Glasner, Uneasy Money
  2. Why I am not a natural lawyer FH Buckley, Law & Liberty
  3. British Imperial Federation (pdf) William Smith, Political Science Quarterly
  4. The people who profited from the Trail of Tears Caitlin Fitz, Atlantic

Wow, what a week

Brandon Christensen Current Events , , ,

I think it’s time to start re-opening our society. Last I heard, 50,000 Americans died from coronavirus. And throughout the world? 191,000. There are 7.6 billion people living today.

I think most of the arguing from here on out will be: 1) on whether the relative dearth of deaths was because of the lockdown, 2) why the data don’t match up, and 3) ___________ (fill in the blank, use the ‘comments’).

I think that, here in the States, there will be enough pushback that a lockdown on such an epic scale won’t happen again. Americans long ago chose money over public health, and that’s not necessarily a bad thing.

Check out these numbers.

This thing is far from over. Singapore has seen a rise in cases. But I think it’s time to open up shop again. Government schools can close for good. Don’t go shopping just because you’re too lazy to pick up a book. Nursing homes have always scared me, so why not rethink the whole concept? This is manageable. Government proved that it is unfit for the task. Government also proved that it is responsive to the people. Same old story, same old song and dance. That’s not a bad silver lining for a pandemic like this one.

I have more to say about federation as a foreign policy. I just don’t know what yet. I’d like to focus on present-day India, the Caribbean, and Mexico, as well as the 19th century’s Federal Republic of Central America, Five Civilized Tribes, and Gran Colombia. It’ll be a long, slow process.

Nightcap

Brandon Christensen Links , , ,
  1. Why does government do stuff? Robin Hanson, Overcoming Bias
  2. Indian removal Claudio Saunt, Aeon
  3. Migrants, Muslims, and other non-people Namit Arora, Baffler
  4. Immigration will be another casualty of coronavirus Tyler Cowen, Bloomberg

Paid Sick Leave and Schelling Focal Points

Rick Weber Comments, Culture, Current Events, Economics, Law, Liberty , , , , ,

Paid sick leave is something I want more people to have. Of course it’s a good thing. Sick leave is valuable, but it’s not free so we have to ask it it’s worth it.

Right around the 11:30 mark is a tragic and hilarious line: “Dildos are not essential items. Books for kids, yes, but dildos? … No!” Good for John Oliver noting that deciding what is essential isn’t straight forward–apparently frivolous things might keep people inside and so serve the public health.

This is a classic Austrian point: prices (are supposed to) communicate information about how urgently people want a product. We run into trouble trying to prevent prices from reflecting the underlying economic crappiness of a crisis. Price gouging should be allowed for toilet paper and especially for grocery/Amazon workers. And the price of grocery workers should be passed on to consumers.

What we’ve got now requires each of us to not only ask “am I willing to pay this price?” but also engage in a moral calculus that is hard. I have to ask (as a person striving to be moral) if it’s really worth ordering X, Y, and Z from Amazon. But as a person who has to strive to be moral, it’s entirely too easy to fall for bad rationalizations.

So how do we help these essential-yet-replaceable* workers? Paid sick leave sure sounds good. And given the externalities involved in a pandemic, there’s a strong argument for mandating it.

But it’s worth remembering (particularly as a long run policy) that if we push on one part of a compensation bundle, something’s going to give. If we require employers to provide a company car (or simply encourage company cars through preferential tax laws), we shouldn’t be surprised to see monetary compensation fall. The same logic applies to paid sick leave.

But I’m my own devil’s advocate, so let me make a counter argument. I rarely use my sick days. I think I’ve taken 2 or 3 in the last 6 years. (I’m absolutely reevaluating that position now!) There’s this idea floating around in the back of my head that tells me to just tough it out and keep working. This isn’t because I carefully weighed pros and cons, it’s just received “wisdom” picked up by osmosis from the broader culture.

American culture values work over value. There’s no shortage of bullshit work because we’re in a work-too-hard equilibrium. This is not to say that hard work doesn’t have benefits. I’m happy when ambitious entrepreneurs work “too” hard to provide greater value. But there are a lot of cases where we create work for its own sake (especially in the higher ed racket, but apparently we’re not alone).

Essentially, we’re all playing a coordination game where we choose between “[appear to] work to make things better” and “stay home instead of passing your illness to other people.” Given American work culture, the Schelling focal point is <work, work>.

On the compensation end of things employers have to decide between offering more sick leave or some other compensation (like money). In this end, there is some benefit to zigging where other employers zag. If I’m running the only business to offer paid paternity leave, I get my pick of the best family-oriented workers while my competitors have to outbid each other to get the best of the other workers. But any mid-level HR manager is more likely to play the risk-averse strategy of following “best practices.”

So we’re in an equilibrium that underrates sick leave. We want to be in an equilibrium where it’s just good business sense to offer sick leave during a global pandemic. But coming from our current equilibrium, offering sick leave is a costly decision to privately provide a public good; it’s unlikely to happen unless the culture already promotes it.

I think we can get that equilibrium. I think we’re already moving towards it (ask yourself: would the board of the East India Company be more likely to offer sick leave than Amazon?). But we’re not there yet.

Paid sick leave should be good business sense right now**. But it depends on a culture where such behavior is widespread. I’m not convinced we could flip a switch and get that culture over night. Given that, I’m at least somewhat okay with contradicting my libertarian priors and calling for emergency mandates for paid sick leave. 2020 America isn’t likely to coordinate on the “right” short-term solution and coercion is probably the most efficient*** way to deal with this common pool problem. But outside of a public health emergency we shouldn’t allow top down mandates about the mix of compensation offered in markets (certainly not with the sort of people we elect to be on top).

(A couple rhetorical points: First, John Oliver isn’t speaking the language of those on the right. They won’t even be convinced that the issues he’s talking about are important. I think that’s a shame. Second, this is a tough time to try to argue against paid sick leave. In 2020 America, mandatory paid sick leave is probably required because we’re at the wrong Schelling point. Again, I don’t think conservatives or right-libertarians will find Oliver’s motivations convincing, but I believe that they could be persuaded. But that’s another blog post.)

(Two important counterpoints to the above: first, price increases hurt the poor. The way to solve that is to give charity money to the poor, not to try to make markets communicate information about relative scarcity and act as charity–that’s half-assing twice and it’s bound to be more inefficient than the charity would be costly. Second many people categorized as “essential” aren’t in a position to demand higher wages*. I don’t have an easy solution to this issue. Let’s talk about it in the comments.)

*Which is to say, workers who are in the same position as water in the diamond-water paradox.
**Not to say it would be cheap or easy.
***There you go. Now my friends on the left can accuse me of being a bloodless economist for opposing paid sick leave in general, and my friends on the right can accuse me of being a bloodless economist for supporting

Nightcap

Brandon Christensen Links , , , ,
  1. Catholicism, America, and the fascist temptation James Patterson, Law & Liberty
  2. The greatest financial bailout of all time is underway John Cochrane, Grumpy Economist
  3. Whither the precautionary principle Thomas L. Knapp, The Garrison Center
  4. Steel-manning lockdown socialism Arnold Kling, askblog
  5. What will the political outcome of coronavirus be? Niall Ferguson, Spectator