Off-and-on lockdowns and a pandemic yo-yo

Tyler Cowen, an economics professor at George Mason University, expects off-and-on lockdowns and no quick end to the coronavirus pandemic.  Here’s what he had to say—

I don’t view “optimal length of shutdown” arguments compelling, rather it is about how much pain the political process can stand. 

I expect partial reopenings by mid-May, sometimes driven by governors in the healthier states, even if that is sub-optimal for the nation as a whole. 

Besides you can’t have all the banks insolvent because of missed mortgage payments. 

But R0 won’t stay below 1 for long, even if it gets there at all. 

We will then have to shut down again within two months, but will then reopen again a bit after that. 

At each step along the way, we will self-deceive rather than confront the level of pain involved with our choices. 

We may lose a coherent national policy on the shutdown issue altogether, not that we have one now. 

The pandemic yo-yo will hold. 

At some point antivirals or antibodies will kick in (read Scott Gottlieb), or here: “There are perhaps 4-6 drugs that could be available by Fall and have robust enough treatment effect to impact risk of another epidemic or large outbreaks after current wave passes. We should be placing policy bets on these likeliest opportunities.” 

We will then continue the rinse and repeat of the yo-yo, but with the new drugs and treatments on-line with a death rate at maybe half current levels and typical hospital stays at three days rather than ten. 

It will seem more manageable, but how eager will consumers be to resume their old habits? 

Eventually a vaccine will be found, but getting it to everyone will be slower than expected. 

The lingering uncertainty and “value of waiting,” due to the risk of second and third waves, will badly damage economies along the way.

Source: Marginal REVOLUTION

I think he’s right.  But what does the need for this trade-off say about our economic system?

Here’s a quote from In These Times.

What would the federal government do to best mitigate the devastation that this pandemic will visit upon human beings?  It would, first of all, provide free healthcare to everyone. ..Imagine instead, if you had an entirely different goal: protecting capital.  What would you do then?  Well, you would prioritize the health of corporate balance sheets, rather than human bodies.  You would keep the healthcare industry, now booming, in private hands.

Why Trump’s staff tells obvious lies

What needs explaining is not why Donald Trump and his staff tell lies.   Many recent leaders have lied.

What needs explaining is why Trump and his staff tell obvious and easily disprovable lies, such as the claim that record numbers of people came to see his inauguration.

My own thought was that it served two purposes.  One was to confuse the issue, because most people don’t have the time or resources to check facts.   As long as you stick to what you’re saying and never back down, a certain number of people will believe you.

The other purpose was to distract the attention of the press from more serious issues.   The time spent by reporters in covering arguments over crowd sizes is time spent not covering things such as Trump’s infrastructure plan.

But economist Tyler Cowen has a more sinister explanation.

By requiring subordinates to speak untruths, a leader can undercut their independent standing, including their standing with the public, with the media and with other members of the administration.  That makes those individuals grow more dependent on the leader and less likely to mount independent rebellions against the structure of command.  Promoting such chains of lies is a classic tactic when a leader distrusts his subordinates and expects to continue to distrust them in the future.

Another reason for promoting lying is what economists sometimes call loyalty filters.  If you want to ascertain if someone is truly loyal to you, ask them to do something outrageous or stupid.  If they balk, then you know right away they aren’t fully with you.  That too is a sign of incipient mistrust within the ruling clique, and it is part of the same worldview that leads Trump to rely so heavily on family members.

Source: Tyler Cowen – Bloomberg View

Time management tips for writers (and others)

Tyler Cowen wrote the following on his Marginal Revolution web log in 2004.

1.  There is always time to do more.  Most people, even the productive, have a day that is at least forty percent slack.

2.  Do the most important things first in the day and don’t let anybody stop you.  Estimate “most important” using a zero discount rate. Don’t make exceptions.  The hours from 7 to 12 are your time to build for the future before the world descends on you.

3.  Some tasks (drawing up outlines?) expand or contract to fill the time you give them.  Shove all these into times when you are pressed to do something else very soon.

4.  Each day stop writing just a bit before you have said everything you want to.  Better to approach your next writing day “hungry” than to feel “written out.”   Your biggest enemy is a day spent not writing, not a day spent writing too little.

5.  Blogging builds up good work habits; the deadline is always “now.”

Cowen was asked recently if he would like to revise the list.  He added these.

6.  Don’t drink alcohol. Don’t take drugs.

7.  At any point in your life, do not be watching more than one television show on a regular basis.

8.  Don’t feel you have to finish a book or movie if you don’t want to.  I cover that point at length in my book Discover Your Inner Economist.

I think I would take back my old #5, since I observe some bloggers who have gone years, ten years in fact, without being so productive.

via Do I wish to revise my time management tips?.

Inequality, austerity are enemies of meritocracy

A smart economist named Tyler Cowen has written a book entitled Average Is Over, in which he foresees a world of advanced technology in which maybe 15 percent of the population will have the ability to keep up and grow rich, while everybody else falls behind.

He said new technology will make the population more legible to the job creators, so that those who have merit will rise more quickly, but those who make bad choices early in their lives will be marked forever.  He has no problem with this because, like many economists, he thinks anything is all right if it is the result of market forces.

I don’t have standing to criticize Cowen’s book because I haven’t read it, but I think that, as a general principle, the greater the degree of inequality and the fewer the openings at the top, the less likely that these openings will be allocated on the basis of merit.  Rather the gatekeepers will first make sure that their families and loved ones are taken care of, and then will look to do favors for those who can do favors in return.

Equality of opportunity entails risk for those at the top, but that risk is minimized when prosperity is widely shared, and people who miss out on one thing have a fair shot at something else.

Are we Americans just a bunch of malcontents?

My friend Anne e-mailed me an article entitled Everything Is Amazing and Nobody Is Happy by Morgan Housel for The Motley Fool.  He says the American standard of living is just great, and American pessimism about the economy is not based on any fact.

Click on the link and see if you agree.  I don’t see it.  Housel’s basic argument is that we Americans live longer and enjoy longer retirements than in the past.  That is, in fact, true for me. But unless something changes, I don’t think it is going to be true for my niece and nephew, who are in their 20s, and their young children.

What I see, as I look around, is (1) the evaporation of good jobs in manufacturing, (2) expansion of low-wage jobs in fast-food restaurants and chain stores, (3) evaporation of pensions and other benefits, (4) workers laid off in middle age who are surviving on a combination of part-time and temporary jobs, (5) young workers doing the same.   There are Americans in high tech and high finance who are doing well, but they are a minority.

A book (which I haven’t read) entitled Average Is Over by an economist named Tyler Cowen says the future economy offers little to most Americans.  He argues that high technology and automation will provide great opportunities for the most intelligent and enterprising 15 percent of the population, but the rest of us will have few opportunities except in service jobs providing for the affluent.  I don’t think his prediction is inevitable, but I certainly think it is possible.

Of course average Americans are much better off than their ancestors a century ago, and infinitely better off than child laborers in the sweatshops of Bangladesh or forced laborers in the cotton fields of Uzbekistan.  But our country is moving backward, not forward.  There’s no law of nature that says that, just because we’re Americans, we are guaranteed the “American standard of living”.

The mystery of the Great Stagnation

We’re not as innovative as we think we are, according to Tyler Cowen, a respected right-of-center on the faculty of George Mason University.  American innovation and American income growth are both slowing down, he said in a talk to a TED conference.

The great age of American innovation was the first half of the 20th century, not the second half, Cowen said.  During the early 20th century, electricity, the telephone, the automobile, broadcasting and aviation revolutionized American life.  Nuclear power, the space program, xerography, the personal computer, the Internet, the cell phone – these changed American life much less.

I think what he said is correct.  I could, without much discomfort, go back to living as I did in 1961.  I don’t think many Americans who were 74 in 1961 would have willingly gone back to living as they did in 1911.

Cowen said 20th century American innovation was based largely on inventions and discoveries of the late 19th century – the electrical generator and the internal combustion engine.   Most of what came after is based on a realization of the possibilities in these two things.  The main exception that comes to mind is antibiotics, also an innovation of the early 20th century.

But Cowen does not really address the question of why this is so, and nor does he connect it with the slowing of income growth.

How Wall Street bankers got so rich

Tyler Cowen is an economist on the faculty of George Mason University and the Center for the Study of Public Choice.  He is an advocate of tax cuts and balanced budgets and a critic of Keynesian economists such as Paul Krugman.

Tyler Cowen

He wrote a disturbing article recently for The American Interest recently in which he argued that (1) the financial sector is soaking up increasing an increasing share of the U.S. national income and is likely to continue to do so; (2) by so doing it will put the U.S. economy increasingly at risk; and (3) it is hard to see what can be done about it.

He cited statistics showing how the financial sector is growing in comparison to producers of tangible goods and services.  From 1973 through 1985, the financial sector never accounted for more than 16 percent of U.S. corporate profits; by 2004, it had risen to 41 percent.  From 1948 through 1982, compensation of employees in the financial sector was roughly equivalent to average compensation in U.S. industry as a whole; by the 2000s, it was 181 percent.

Cowen noted that in 2004, the top 25 hedge fund managers received combined compensation equal to all the CEOs of the Standard & Poor’s 500 largest corporations put together.  And the number of Wall Street speculators taking in (I won’t say earning) $100 million a year was nine times as great as the number of public company executives taking in that amount.

How did they become so rich?  Cowen said it is by means of what he calls “going short on volatility.”

By this he means betting against infrequent events, such as a collapse of house prices, as if they were never going to happen.  They are able to get away with this because, when the day of reckoning comes, they are able to walk away from the situation  Wall Street firms are public companies, and so the risk of collapse is handed off to the shareholders.  And they are so large and so entangled with the rest of the economy that the government can’t allow them to fail.  Wall Street executives get to keep gains for themselves, while spreading risk to stockholders and taxpayers (and also to customers who buy securities they don’t understand, an aspect Cowen doesn’t deal with.)

Cowen doesn’t think there is much that can be done.  The problem is not so much that the banks are too big to fail as that the bankers are too clever to be regulated.  Their financial instruments and activities can’t be controlled because they are too complicated to understand.  Whatever regulatory system the government tries to impose, Cowen thinks the so-called financial engineers will find a way to get around it.

For now, he says, the big financial institutions are chastened by the recession, and are inclined to sit on their money rather than gamble with it.  The Federal Reserve System facilitates this by lending trillions of dollars at near-zero interest rates, on which the banks can profit by re-lending in the form of short-term commercial paper (money market funds).  But sooner or later, he says, there will be another financial bubble.

The underlying dynamic favors excess risk-taking, but banks at the current moment fear the scrutiny of regulators and the public and so are playing it fairly safe. They are sitting on money rather than lending it out. The biggest risk today is how few parties will take risks, and, in part, the caution of banks is driving our current protracted economic slowdown. According to this view, the long run will bring another financial crisis once moods pick up and external scrutiny weakens, but that day of reckoning is still some ways off.

Is the overall picture a shame? Yes. Is it distorting resource distribution and productivity in the meantime? Yes. Will it again bring our economy to its knees? Probably.

via The American Interest Magazine.