Why do we buy stuff? The quick answer is: because we want it. We enter into business transactions to satisfy our own needs and we tend to disregard the seller. A good part of our life- perhaps the most important part of it- is about surrounding ourselves with people we like and appreciate. With these people, we typically entertain relationships that are not akin to market transactions. But, as good ol’ Adam Smith would say, “in civilized society” we stand “at all times in need of the co-operation and assistance of great multitudes,” but our “whole life is scarce sufficient to gain the friendship of a few persons.” Hence the need to resort to relationships regulated by monetary exchanges and predicated upon the mutual understanding that each of the parts is pursuing her own self-interest: It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity, but to their self-love, and never talk to them of our own necessities, but of their advantages. For this reason, I am rather suspicious of boycotts and similar forms of putting pressure on businesses. For one thing, most of the time collateral damage is not considered by those advancing such strategies. A few years ago many suggested we should boycott the local franchises of evil multinational companies, for whatever kind of objectionable business practices they engaged in developing countries. The most immediate result of such strategies, when successful, was to cause those franchises to go bankrupt, with many locals losing their jobs. You can argue that the salary of a Milanese is not more important than social justice for Nigerians, but I wonder if you were actually lowering the living standards of the first but increasing the living standards of the latter. Perhaps there were better ways to do something for them (like opening borders and allowing them to search for better jobs elsewhere). I am also very suspicious of articles such as this by Dana Millibank. He claims that there are “33 companies (as of Wednesday afternoon) that form a “hall of shame,” defying demands that they exit Russia or reduce their activities there.” Hence, “Those who want to stop Russia’s murderous attack against Ukraine should stop investing in or buying the products of these companies.” And then comes a list, from Koch Industries to Subway (“it’s giving Ukrainians the Cold-Cock Combo by refusing to cut loose its 446 Russian franchises.”) In a free market, to be sure, we are happily free to buy what we want where we prefer for whatever reason we favor. Yet I find the logic behind Millibank’s piece hopelessly flawed. For one thing, why does the fact that these companies are active in Russia  mean that they are somehow financing Putin’s war? Among the reprobates, you can find French retailers Decathlon and Leroy Merlin. I wonder how employing Russian cashiers to sell windbreakers in St Petersburg or bricolage items in Moscow is “supporting the war”. But what I fear the most is the slippery slope. The theme is an old one: you apply the logic of the little group, of the face-to-face society, to larger groups, in this case even to international trade. It is one thing to surround yourself with people you like, quite another to think that you should trade only with people you like and because you like them. Potentially, this is a slippery slope. What about the political preferences of my grocer? What if he is a Trumpian? Should I search for another grocery store? What about the presence of companies in countries that, though they haven’t invaded Ukraine, are equally controversial as Russia? Shall we stop buying at stores of companies that sell to Venezuelans or Iranians, because we do not like their regimes? Is it going to help Venezuelans and Iranians in any possible way? Or is it a version of secular atonement, a kind of political Lent that we impose upon ourselves, renouncing to stuff that we would otherwise like? The logic of market transactions is the one so beautifully outlined in those succinct lines by Adam Smith. I understand that people can be very passionate about some causes or strongly dislike some people, hence they do not want to buy stuff from them. There are authors I do not want to profit from me purchasing their books. But most of our transactions are not made of books or movies, that we can somehow neatly associate with their makers, but rather with artifacts which are in itself the result of a complex division of labor. Our market transactions depend on us liking the product and not the producer, and happily so. (0 COMMENTS)

Economist Robert Pindyck of MIT talks about his book, Climate Future, with EconTalk host Russ Roberts. Pindyck lays out what we know and do not know about climate change. He argues that because of the nature of greenhouse gases, adaptation must be part of the policy response to climate change. The post Robert Pindyck on Averting and Adapting to Climate Change appeared first on Econlib.

Regular EconLog reader Mark Barbieri writes: My wife and I are looking into building an airplane. The airplane we want to build is called an AirCam. We have no experience building airplanes, so you may be wondering why we would build it instead of buying it from the manufacturer or a dealer. It’s because that is illegal. It’s the usual story of regulatory capture. Commercially built airplanes have to go through an expensive certification process. That doesn’t make sense unless you are building a fairly mainstream airplane and plan to sell a lot of them. It also means that you don’t see much innovation in the general aviation airplane industry. Fortunately, the FAA allows for “experimental” airplanes. These don’t have to go through the same approval processes, but there are other restrictions. The most important one is that the owner must assemble the majority of the plane. On one hand, that’s great because it allows something like the AirCam to exist. On the other hand, it seems crazy to require that amateurs like me build airplanes. You can work around those rules. A professional can build the plane and register it and then you can buy it from them as a used plane. It’s a violation of the spirit of the rules, but my understanding is that the FAA generally looks the other way. You don’t get the certifications needed to be able to do your own maintenance or make any modifications, but you probably don’t want to anyway. Just thought that you might find it interesting that I’ll be building an airplane because it is technically illegal for me to pay a professional to do it for me. If we ever do get it built, we’ll eventually take it out to Monterey. If you’re crazy, we’ll be happy to take you up in it and give you a view of your area from a different perspective. I do find it interesting. It explains, in part, why 30-year-old and even 50-year-old general aviation aircraft are still flying and still often fetch substantial prices. I think that we can be reasonably sure that one effect of this is more accidents per number of aircraft because people who are not experts will probably not, on average, do as good a job as people who are. And of course with aircraft, accidents lead to fatalities a much higher percent of the time than accidents with cars. Adam Smith famously said that the division of labor is limited by the extent of the market. In this case it’s the government that purposely limits the division of labor. (0 COMMENTS)

Some critics of free market capitalism suggest that we should steer the economy with an industrial policy.  Over at Law and Liberty, Patrick Brown has an article entitled The Perils of Inaction. Much of the essay discusses how free trade policies have caused economic dislocation in America’s rustbelt.  Here’s an excerpt: [N]ot every working- or middle-class parent is an aspiring entrepreneur—many just want a steady paycheck and a sense of stability, and feel that an excessively laissez-faire approach to trade and economic growth has undermined their ability to achieve those goals. . . . Although the Buchananite and Thielist critiques differ in important respects, they help illustrate the hollowness of an economic approach that errs on the side of being too hands-off. My preferred approach would be to invest in basic and advanced R&D, as in the bill formerly known as the Endless Frontier Act, while at the same time exploring what effective place-based policy might look like in disinvested regions. If conservatives believe, as many will avow, that a healthy family is the core unit of a flourishing society, it will not be enough simply to take our hands off the wheel. The family itself can be threatened if left unprotected against the relentless churn of a market economy. At first glance, that wish list sounds attractive.  Don’t allow globalization to inflict severe hardship on America’s heartland, and encourage R&D that will promote cutting edge growth.  To his credit, Brown does not recommend tariffs.  Instead, he recommends policies to encourage investment in depressed areas.  So what’s wrong with the plan? It is easier to see the problem if I restate the proposal as follows: Move away from a laissez-faire approach to the side effects of globalization in order to slow the pace of creative destruction, and boost R&D in technology to speed up the pace of creative destruction.  In other words, simultaneously put your foot on the accelerator and brake pedal for creative destruction. Many pundits make the mistake of failing to look at things from a general equilibrium perspective, that is, failing to consider how a policy that impacts one sector affects another.  Many industrial policy proposals focus only at the initial effect, not the indirect effects on other industries. It is true that trade has cost jobs in specific industries, but the overwhelming majority of job loses in industries such as steel, coal and autos has been due to technological change. As we continue to develop better and better robots, this process will likely continue.  Subsidizing R&D will actually speed up the creative destruction that has eliminated so many blue-collar jobs.  In a few more decades, the number of workers doing routine assembly line work will fall to a very low level, just as farmers have gone from being a majority of the workforce in the early 1800s to less than 2% today.  (And not just in the US, in all developed economies.) That’s not to say that there are no good arguments for industrial policy. What makes me skeptical about industrial policies, however, is that in many cases I don’t see a coherent plan.  For example, some industrial policy advocates favor protectionism, overlooking the fact that policies that discourage imports also indirectly discourage exports.  Is that the plan?  Should our government be trying to discourage exports?  Policies that encourage R&D in technology also tend to speed up automation, with its associated loss of low-skilled blue color jobs.  Is that the plan? As usual, Milton Friedman put it best: At one of our dinners, Milton recalled traveling to an Asian country in the 1960s and visiting a worksite where a new canal was being built. He was shocked to see that, instead of modern tractors and earth movers, the workers had shovels. He asked why there were so few machines. The government bureaucrat explained: “You don’t understand. This is a jobs program.” To which Milton replied: “Oh, I thought you were trying to build a canal. If it’s jobs you want, then you should give these workers spoons, not shovels.” My solution is to move from shovels to earth movers, and have monetary policy set at a level where we have something close to full employment.  Eliminate trade barriers.  Eliminate occupational licensing laws and NIMBY regulations to make it easier for workers to move to where the jobs are.  You can call that an industrial policy; I call it laissez-faire. (0 COMMENTS)

With the increases in oil prices since late December, it’s time to look at some basic facts about oil prices and oil markets. Doing so will help us understand where the Biden administration has gone wrong and where it has gone right. Yes, you read that correctly: Biden has done one good thing, selling oil from the Strategic Petroleum Reserve (SPR). If he followed my advice, he would do two more good things: push to repeal the Jones Act and make clear that he will drop his opposition to fossil fuels. The sale from the SPR helps us consumers and reduces Russian’s oil revenues. Repealing the Jones Act also would help us consumers and allowing more domestic oil production would cause future prices to be lower than otherwise, making us consumers better off and hurting the Russians in the longer term. This is the opening paragraph of David R. Henderson, “A Short Course in Oil Economics,” Defining Ideas, March 17, 2022. That wasn’t my original title but I liked this title, chosen by the editor, better. Another excerpt, in which I explain contango: In normal times, the relationship between the spot price of oil (the price you pay for delivery today) and the futures price for delivery in, say, a year, is one of “contango.” If you’re picturing people dancing in step with each other, you’re not far off because contango means that the spot price and the futures prices move together. And backwardation: Every so often, though, the futures price today for delivery in, say, a year is less than the spot price. This relationship between the spot and futures price is called “backwardation.” The spot market is telling us that oil is more valuable now than it will be, say, a year from now. In such a situation, arbitrage can’t work, for one simple reason: there is no time machine that lets us move oil from the future, when it will be less scarce, to the present, when it is scarcer. We are in that situation today. On Monday, March 14, the spot price of oil closed at $103.01, while the June 2023 futures price closed at $81.11. Read the whole thing. (1 COMMENTS)

A recent David Beckworth interview of Bill Nelson provided a number of fascinating observations, including this comment: Nelson: . . . A banker, a chief investment officer at one of the largest banks gave me an example that I like to use to explain how this works. You can be in compliance with all of the regulations by holding three days worth of cash for your emergency situation. But when reserve balances were cheap, meaning market rates were below the rate that the Fed was paying on reserves, they decided they would hold five days worth of cash rather than holding alternative types of liquid assets. Nelson: But then when the Fed started to shrink its balance sheet back in 2018 and market rates moved up above the Fed’s rate that it was paying, sooner than they expected, as an illustration of what I’m talking about, they thought, “Well, we’ll reexamine this. It might not be cheaper. Let’s hold three days of cash and then hold a couple days of money in reverse repos, because that’s earning a little bit more.” And they looked at it and they thought about it and they decided, “Well, but then we’d have to explain this to our examiner and they would want to know why they were doing it.” And it just wasn’t worth the hassle to make the change. Nelson is concerned that this might make it more difficult for the Fed to reduce the size of its balance sheet: Nelson: The Fed was, I think, following the right course of action, when you look back in 2018, and they started to reduce the size of their balance sheet by letting it roll off. It looks like they’re going to be doing that soon in May, or June, July, probably more quickly than before. The proof is going to be in the pudding in terms of what I’m saying about structural demand. If I’m wrong and that flat part of the curve is the right way to look at it, the Fed will be able to shrink its balance sheet quite a long way before it sees any response in rates. But if I’m right, then what will happen is that as it starts to shrink much sooner than it would anticipate, you’ll see rates moving up. And in that paper, there’s kind of an exhibit of how the responsiveness of rates is much different when the balance sheet is shrinking than when it’s increasing. Nelson: However, they’ll start reducing the size of the balance sheet, market rates will move up a bit above the interest rate that they pay on reserve balances, that will create an incentive for banks to reduce their holdings, find alternative ways to meet their liquidity needs. Bank supervisors, examiners will start getting used to the idea that not every problem will be solved by the banks holding more reserve balances. The Fed needs to encourage that process by educating examiners that they shouldn’t be building in this preference for reserve balances. Prior to 2020, reserve requirements were one of the Fed’s tools for controlling monetary policy (albeit not used very actively).  Higher reserve requirements increased the demand for base money, and hence were contractionary (ceteris paribus).  Today, banks no longer face explicit reserve requirements, but it seems that bank examiners are imposing a sort of implicit reserve requirement on banks.  I have two problems with this: 1. It’s not clear why bank examiners should care about reserves.  I can see why they might be interested in bank capital, or bank holdings of safe assets, but it’s not clear why bank reserves are important.  Prior to 2008, banks did just fine with extremely low levels of bank reserves, barely 1% of current levels.  If it is default risk that is the concern, T-bills are an equally safe asset.  As for liquidity, the Fed needs to be willing to fully meet the banking system’s demand for reserves in a crisis.  But that fact is true even if banks hold large amounts of reserves.  Nelson points out that the more reserves are injected into the system, the greater the bank demand for reserves to meet the preferences of bank examiners.  There is a sort of ratchet effect. Large reserve holdings do not solve the liquidity problem. 2.  Even if regulators should be focused on bank reserves, it is the level of reserves that ought to matter.  And yet according to Nelson (first quote above), regulators often respond to a change in reserves, not the level.  Thus one bank might find its reserve ratio of 25% to be acceptable, while another bank might face greater scrutiny from examiners if it reduced the ratio from 30% to 27%.  Why? Ideally, we’d go back to the pre-2008 “corridor system”, where banks held relatively small amounts of reserves and the Fed’s balance sheet was only about 6% of GDP.  A large balance sheet increases the risk of Fed policy becoming politicized, as when it engages in credit allocation. (0 COMMENTS)

Yesterday, I posted Part I of my commentary on Alex Tabarrok’s talk on Covid failures and successes. Here’s Part II. It starts at about the 41:00 point. Alex discusses four failures: failure to do an Operation Warp Speed for masks and trials; not getting the vaccine early to nursing homes; not experimenting and studying the virus; and not doing human challenge trials. On failure to do an OWS for masks and trials, I don’t have much to say. I don’t know how feasible that would have been in the time they had. Alex himself shows how heavy-footed and slow the government is on many of these things. We don’t know that OWS for masks and trials would have worked well. Not getting the vaccine early to nursing homes. This is a biggie. I totally agree with him on this one. As he notes, getting it to nursing homes 5 weeks earlier might have (Alex says “would have”) saved 14,000 lives. On the issue of nursing homes, that would have been the obvious to mention another huge nursing home failure in the spring of 202o: the decision of at least 3 governors of major states, Governor Cuomo of New York, Governor Phil Murphy of New Jersey, and Governor Wolf of Pennsylvania, to insist that nursing homes take in people who tested positive for Covid. Alex says nothing about this. Not funding experimentation and study of the virus. Alex points out that Fast Grants, run by Tyler Cowen and Patrick Tollison, handed out $60 million to study the virus before the National Institutes of Health had reviewed even one Covid proposal. Alex is justifiably upset by this.   He also points out that Fast Grants was the entity that funded Professor Anne Wyllie of Yale to do her Saliva Direct project. This is Yale, which, Alex points out, has a $42 billion endowment. So neither the government nor the non-profit sector shone on this, to put it mildly. In a toting of costs and benefits, though, which is what Alex’s talk is about, I wish he had commented retrospectively on whether it was a good idea for Fast Grants to give a grant to Neil Ferguson and his Imperial College colleagues for their model that, as noted in Part I, way overpredicted deaths for Sweden without non-pharmaceutical interventions. Does Alex think that funding Ferguson was a good move? We don’t know. Human challenge trials of the vaccine. Watch from 50:40 to 55:30. Alex is almost pitch perfect on this. Why almost? He should have a statement in there that anyone who engages in a human challenge trial does so voluntarily. When you say it, everyone gets it, but it needs to be said. One thing I wonder that it would have been nice for Alex to address. He points out (at about 49:20) that Moderna’s vaccine was designed on January 13, 2020. When he, Kremer, Athey and the others proposed Operation Warp Speed later in 2020, did they know that? If so, how did it affect their thinking? If not, would knowing that have changed their thinking?   (1 COMMENTS)

One can imagine a just war between a state representing individuals who want to be free and left alone and, on the other side, a tyrannical state aggressor intent on subjecting and looting the libertarian country. If the latter wins, liberty would increase in the world. But reality is never so simple and war instead typically reinforces, on all sides, the power of the state and the idea that the individual must submit to the collective. War does not bring the best in all people (contrary to what state propaganda suggests, including the parading women soldiers in Moscow shown on the featured image of this post). An interesting Wall Street Journal story about the successful resistance of a small Ukrainian town  illustrates how war arouses primitive instincts (Yaroslav Trofimov, “A Ukrainian Town Deals Russia One of the War’s Most Decisive Routs,” March 16), although I admit it is not the most tragic illustration in the history of warfare: Russian soldiers took over villagers’ homes in Rakove and created a sniper position on a roof. They looked for sacks to fill with soil for fortifications, burned hay to create a smoke screen and demanded food. A local woman who agreed to cook for the Russians is now under investigation, said Mr. Dombrovsky. “A traitor—she did it for money,” he said. “I don’t think the village will forgive her and let her live here.” In the practice of war if not generally in tribal morality, a traitor is anybody who takes another side than his tribe’s. But note the other element in the story: she did it for money! I suspect that Mr. Dombrovsky would not have been happier if she had done it for free, perhaps “for the cause,” and with a big smile. At any rate, money is apparently an aggravating factor (even if paid in deeply depreciated rubles), which corresponds to the reigning orthodoxy among our own academic philosophers. A moral case can be made that coerced cooperation with the violent aggressors of one’s neighbor is acceptable, but not cooperation for the purpose of obtaining personal benefits. But then, isn’t avoiding harm a personal benefit? Does it matter that Mr. Dombrovsky, who is a special forces commander, is presumably paid himself? What if the woman had cooked for free and was only paid a tip afterwards ? We don’t know enough about this case to make any serious ethical analysis, but I would bet that Mr. Dombovsky’s comment reflected a generalized suspicion toward individualist behavior on free markets. If that is true, we are not dealing with the pure war case of a group of libertarians defending themselves against aggressors, but with two more or less authoritarian camps. Not surprisingly, dealing with actual cases is more complicated than with stylized models. All that seems to confirm the classical-liberal or libertarian idea that an individual usually acts in his own personal interest and that only a minimal ethics—James Buchanan would say “an ethics of reciprocity”—should be recognized as a necessary constraint on personal behavior in a free society. (See my review of Buchanan Why I, Too, Am Not a Conservative in the forthcoming Spring issue of Regulation.) Female Russian soldiers of the Military University of the Russian Defense Ministry march along the Red Square during the Victory Day military parade to mark the 72nd anniversary of the victory over Nazi Germany in the 1941-1945 Great Patriotic War, the Eastern Front of World War II, in Moscow, Russia, 9 May 2017. (0 COMMENTS)

Alex Tabarrok has posted a talk he gave at Bowling Green State University in February. The title is “U.S. Pandemic Policy: Failures, Successes, and Lessons.” Alex does a good job of presenting his case. I’ll hit the main highlights on which he does well. At the same time, there are yawning gaps that leave me wondering whether he has no view on the issue (for example, he mentions zero about lockdowns) or whether he just is not familiar with what I thought were pretty well-known failures (e.g., nursing homes in New York, New Jersey, and Pennsylvania.) I’ll go through the talk seriatim. Because my comments are extensive, Part I is today and goes to about the 41:00 point of the 60-minute talk. Part II will be tomorrow. Alex starts off by pointing out the huge number of U.S. deaths due to Covid-19, now in excess of 900,000. He notes that this is greater than the total number of U.S. deaths in all foreign wars the U.S. has fought in. That’s correct. For completeness, though, it would have been good to point out that the median age of military members’ deaths in all U.S. foreign wars was almost certainly below 40 and probably below 35, whereas the median age of Americans who died of Covid was about 80. That means that the number of life years lost to Covid was substantially below the number of life years lost to all those wars combined. (I’m focusing on Americans here. Comparing worldwide deaths from Covid to worldwide deaths from World War II alone shows Covid to be a fraction of WWII, even putting aside life years.) Am I callous about people close to age 80 who die? No. For one thing, I’m only 9 years away from that age. I’m simply pointing out what Alex’s George Mason economist colleague Don Boudreaux has pointed out well here, namely, that we sensibly react differently to the death of an elderly person than to the death of a teenager. Next, Alex discusses the economic costs and shows that they are huge. Here’s where I first started wondering: are these the costs of the pandemic alone or are they the costs of the pandemic and of the lockdowns that governors of states with over 98 percent of U.S. residents imposed on those residents? Alex doesn’t address that. The losses in the first few months from early March 2020 to about June 2020 are likely due mainly to people’s voluntary reactions to the pandemic. But after that, the losses were probably mainly due to lockdowns. His next major point is that Covid-19 was not a “Black Swan” event but, rather, was a predictable and predicted event. Alex says that we were not ready for this pandemic. I’m not sure that’s true. I think we were somewhat ready. As Phillip W. Magness and Peter C. Earle pointed out in “The Fickle ‘Science’ of Lockdowns,” Wall Street Journal, December 19, 2021, in 2019, both the World Health Organization (WHO) and Johns Hopkins University’s Center for Health Security had concluded that large-scale quarantines were not a good way to deal with the pandemic. So it wasn’t so much that “we weren’t ready” as that we were somewhat ready but Donald Trump’s task force and a whole lot of similar organizations in other countries threw out the playbook, ignored tough tradeoffs, and went with widespread lockdowns even of people for whom there was no evidence of disease and people (children) for whom the risk of death was tiny. Alex mentions none of that. Regarding tradeoffs, Scott Atlas, one of my Hoover colleagues and an adviser to President Trump on Covid (too late in the game, given the disastrous decisions Trump made in the first few months) points out in his 2021 book, A Plague Upon Our House, that he (Atlas) tried unsuccessfully to get his colleagues who were advising Trump to look at tradeoffs. I talk about that in my forthcoming review of Atlas’s book in Regulation. Instead, Trump’s government and governments around the world were influenced by a model created by Neil Ferguson and his colleagues at Imperial College London. The model turned out to be way off-base. One fact that Magness and Earle cite: Imperial predicted up to 42,473 Covid deaths in Sweden under mitigation and 84,777 under uncontrolled spread. The country, which famously refused to lock down, had some 13,400 deaths in the first year. More on the Ferguson model later, in Part II. Here’s one recommendation from the Johns Hopkins study that caught my eye (p. 13): WHO and national authorities will need to provide strong evidenced-backed reasoning for the necessity of NPIs in order to effectively implement them and to communicate their role and necessity to the public, especially for NPIs such as social distancing that inherently limit civil liberties. Therefore, they should under- take directly or support research on NPIs and disseminate their findings on these analyses. NPIs are “non-pharmaceutical interventions.” Next Alex goes over a timeline showing some huge mess-ups by the CDC and the FDA. Alex does such a good job of this, and with a beautiful righteous anger. It goes from about 6:30 to about 14:30. I highly recommend this segment. It covers Helen Chu, whom I wrote about here on April 8, 2020, among others. A minute or two later Alex, justifiably goes after the FDA for slowing down tests and compares our experience to that of other countries like South Korea. That goes to about 24:00. His story about South Korea (from about 22:00 to about 24:00) is really powerful. Like Alex, I think these were huge mistakes. Because of these mistakes that slowed testing, we in the United States were flying blind. Well, almost. Stanford medical professor Jay Bhattacharya, who has a Ph.D. in economics and earned an M.D., was skeptical from the beginning about two things: (1) that the reported fatality rates of about 3 percent were real; and (2) that the virus had not already spread widely as, in his reading of the literature, had happened with previous viruses. On (1), his reasoning was that what was being measured was the case fatality rate and this was likely to be much higher than the infection fatality rate. Why? The people who went to get tested were disproportionately people who had symptoms, and not just symptoms, but bad symptoms. To test (2), he and some colleagues, in early April 2020, tested 3,328 residents of Santa Clara county (California) to see how widely the virus had spread.  What they did is called a seroprevalence study. They concluded that 1.1 to 2.0 percent of Santa Clara county residents had antibodies. This implied about 53,000 people, which was a large multiple of the 1,200 confirmed cases at the time. In private conversation, Jay told me that that percent was just too high for a society-wide lockdown to be effective. Alex doesn’t mention Bhattacharya’s seroprevalence studies or those of many others who were conducting such studies at the same time who found numbers broadly consistent with Jay’s. In Alex’s view, the big success was something he had a large role in: persuading the Trump administration to give drug companies many billions of dollars so that they could build capacity and be ready to quickly scale up production once a vaccine was found. This was Operation Warp Speed. OWS also guaranteed that the government would buy the vaccine once it had been produced, even if the virus went away. His story about how they went about that is very interesting and I recommend listening to it. It goes from about 24:30 to about 41:00. The best part, in my view, is getting the FDA to back off from business as usual (at about 25:50.) Also, Alex says (26:10) that OWS paid firms to start building factories now. I think he leaves out a major, and successful, exception. While Moderna, the company that vaccinated me 3 times, did take that money, I think I recall that Pfizer refused. (I can’t find the link: I remember reading it in the Wall Street Journal in the spring or summer of 2020. Please correct me if I’m wrong.) I’m a fan of the vaccines. I think they accomplished a lot. The big unknown is whether we would have had the vaccine without the subsidy elements of OWS. Alex clearly thinks we wouldn’t have. He emphasizes the importance of building capacity even before the drug is proven effective. Co-author Charley Hooper, who makes his living consulting to pharmaceutical companies, and I wrote an article in December 2020 titled “The FDA’s Deadly Caution.” We lay out a timeline where, without FDA regulation, we might have had the vaccine months earlier than we had it. As Alex agrees, a few months difference is huge. That’s it for Part I.         (1 COMMENTS)

Of course they won’t admit to this fact, but these projections make a mockery of the Fed’s commitment that inflation will average 2% over the longer run: The Fed is not supposed to raise its projection for the average inflation rate during the 2020s; it should adjust monetary policy so that its inflation forecast for the 2020s does not increase. Some might point to the “flexible” part of “flexible average inflation targeting”, which presumably refers to the fact that the Fed doesn’t just care about inflation, they also care about real GDP growth.  But the Fed just raised its implicit estimate of NGDP growth in 2022 from roughly 6.6% to over 7%, which is wildly inconsistent with the Fed’s dual mandate.  NGDP is already well above the pre-Covid trend line.  The economy is overheating and the Fed is about to pour more gasoline on the fire. St Louis Fed President James Bullard is right; the Fed should have raised rates by 0.5%.  But the bigger mistakes were made late last year, when the Fed allowed excessive NGDP growth and refused to commit to pushing inflation below 2% after a period of above 2% inflation. Just as in late 2008, this is a mistake happening in broad daylight.  There is no excuse.   (1 COMMENTS)