Hong Kong will give $645 dollars to all those who accept to be tested for Covid19 and are positive. The number of cases, and deaths, are on the rise in Hong Kong but everything seems under control, given the fact Hong Kong’s population is 7.4 million. Lombardy, where I live, is the home of 10 million people and since the start of the pandemic we have had more than 180.000 cases and some 20.000 deaths. Yet this is understandably an outcome the Hong Kong authorities want to avoid, and so they are putting in place a system that incentivizes testing in this way. We will see how it goes. Income per capita in Hong Kong is around $ 50,000. I suspect that, everywhere, higher-income people, as they tend to be more exposed to the media, are eager to test no matter what. If there is a certain reluctance in lower-income people to test, perhaps because they fear the consequences of quarantine in terms of their work and their social life, perhaps subsidies such as Hong Kong’s might well counteract this wariness (I suppose it was designed with that goal in mind). One wonders why Western democracies didn’t try to do the same. After all, they have all distributed a staggering amount of money in the last few months. Linking some of it to testing would not have hurt – though of course if the subsidy was too high you could imagine some opportunistic behavior (including attempts to playing with the test’s results to score positive, to the extent that’s possible). I fear that’s because the testing capacity wasn’t there. Now it seems a similar approach might be enacted in Italy, too. Perhaps in the hope of saving the upcoming skiing season, the province of Bozen, in South Tyrol (a German-speaking region of Italy), has tested 70% of its population (over 350.000 people) in just a few days, with antigenic tests. People there are notoriously very law-abiding, but that’s not the same everywhere. Why should we rule out the idea that a monetary incentive could help? (0 COMMENTS)

  Earlier this month, Judith Hermis, one of my junior colleagues at the Naval Postgraduate School, wrote a letter to Governor Gavin Newsom and sent me a copy. I edited it and she accepted my edits. So the letter you see below is not the same one she sent. But it is true to the spirit and argument of her original letter. We talked on the phone and agreed that people need to speak out against Newsom’s and other officials’ wholesale infringements on our freedom of association. That’s why Judith gave me permission to quote it here. By the way, she sent this well before either of us knew that Newsom did not practice what he preached when he went to the French Laundry with a lot of people and dined indoors without masks–and then lied about it. Here it is: Dear Governor Newsom, I hope this message finds you and your family well. I am writing in response to the November 13 statement issued by the California Department of Public Health in connection with private gatherings. I am opposed to these mandates on freedom grounds. The Declaration of Independence states that Americans have unalienable rights to life, liberty, and the pursuit of happiness. These rights are impossible to maintain under the conditions of a coercive nanny state masquerading as a free republic. Second, and as important, government derives its just powers from the governed, not the other way around. If you think your office has the right to issue rules pertaining to the activities that go on within private individuals’ homes, you have sorely misestimated the bounds of your authority. I fail to find Constitutional grounds for your office or any administrative branch to whom legislative authority is delegated to issue mandates, proclamations, guidelines, or statements bearing the imprimatur of governmental authority to regulate the activity of individual citizens within private homes. The Declaration of Independence assures life, liberty, and the pursuit of happiness. It does not assure perfect physical safety from infectious agents. Moreover, as billions of humans from authoritarian societies, including members of my own immediate family, will willingly testify, perfect safety and perfect liberty are mutually exclusive goals. Many Americans, myself included, prefer liberty to safety because under liberty, those who wish to take additional precautions and private actions against, for example, contagious illness, are free to do so, while those who wish to live differently may also pursue their desires. Liberty maximizes the wellbeing of all citizens, including those who are more cautious and safety-oriented, and those who chose to live according to other priorities. Government mandates, by contrast, unreasonably deprive citizens of liberty under the guise of safety and force all citizens to comply with the desires of the most frightened members of society with no corresponding derivation of the government’s power from the governed. In plain English, the state government is attempting to coerce citizens to comply with the concerns of the most frightened individuals. This is antithetical to the conception of freedom America has long protected. In closing, I would like to remind you of the wise words of Benjamin Franklin, who stated that, “Those who would give up essential Liberty, to purchase a little temporary Safety, deserve neither Liberty nor Safety.” Please defend our liberty by immediately denouncing the actions of the Department of Public Health. Are they free to make suggestions? Yes. Are they free to issue binding guidance? No. Sacrificing liberty for safety is an unacceptable arrogation of private rights by the government of our beautiful state. Best, Judith M. Hermis Private citizen     (0 COMMENTS)

Last Thursday, my Naval Postgraduate School colleague Ryan Sullivan and I made a case against school shutdowns in a Zoom talk to a local Monterey group called The Old Capitol Club. It’s an actual physical location in downtown Monterey and I’ve given 2 talks there in person in the last 20 years, something I refer to right at the end of this talk. This, of course, was remote. From about 23:00 to 25:15, I handle the issue of human capital vs. signaling to explain why I think the $2.5 trillion loss of human capital is overstated. I draw on Bryan Caplan’s The Case Against Education, which I point out should be titled The Case Against Schooling. At 32:38, a viewer named Hampton raises a question. I gave him a seat-of -the-pants answer. I later went to the data and came up with a much different answer. Going to CDC data that updated after our talk, I found that the number of American residents below age 15 who had died of COVID-19 is 83, up from 81. The number who had died who were between age 15 and 24 was 418. So I interpolated to get the number of between age 15 and 18, and got 0.4 of 418 = 167. This is substantially higher than the seat-of-the-pants answer I gave Hampton. It’s also an overestimate because we know that the mortality rate rises with age. So people in the age 15 to 18 category are substantially lower risk than people in the age 19 to 24 category.   (0 COMMENTS)

You’ve probably had a boss who was a jerk.  Indeed, you may be working under a jerk of a boss right now.  Question: Would it be a good idea to pass an Anti-Jerk Law to protect workers from these jerky employers?  Like existing employment discrimination laws, the Anti-Jerk Law would allow aggrieved employees to sue their employer for jerkiness – and received handsome compensation if they prove their charge in a court of law. I doubt many people would endorse this Anti-Jerk Law.  On what basis, though, would they object? Libertarians might stand up for the “right to be a jerk,” but few non-libertarians would find that convincing. Economists might appeal to the standard economics textbook conclusion that mandated benefits – including the right to sue your employer for jerkiness – are inefficient.  But few non-economists would find that convincing.   Why, then, would normal people refuse to endorse an Anti-Jerk Law?  If pressed, the reason would probably be along the lines of, “Jerkiness is way too subjective.”  If you call your boss a jerk, he’s probably thinking, “No, you’re the jerk.”  Even if a large majority of the workers at a firm consider their boss a jerk, a contrarian might insist, “The boss is tough but fair.  You folks simply don’t measure up.”   Other people might muse: “Personality conflicts are a fact of life.  You can’t legislate them out of existence.”   What happens if you scoff at the subjectivity of jerkiness and pass your Anti-Jerk Law anyway?  All of the following: 1. Bosses try to avoid the appearance of jerkiness.  But bosses with poor social skills or bad luck still get sued. 2. Since bosses try to avoid the appearance of jerkiness, litigious employees don’t have a lot to work with. 3. As long as judges and juries are sympathetic, however, they lower the de facto burden of proof, allowing the war on jerks to continue indefinitely. 4. Bosses, in turn, defend themselves by trying to pre-emptively discredit litigious employees. 5. Cynical bosses go a step further by trying not to hire employees who are relatively likely to cry “jerk.” 6. Human resource departments institute Orwellian anti-jerk training, where participants get punished for pointing out that the HR folks are domineering and insulting.  In other words, HR reps exemplify the very thing they claim to oppose. 7. If so-called jerky managerial styles enhance productivity (think: athletic coaches), society forfeits major benefits.   As far as I know, no country has an Anti-Jerk Law in place.  But many countries ban “discrimination,” and the effects are much the same.  Once you pass discrimination laws…   1. Bosses try to avoid the appearance of discrimination.  But bosses with poor social skills or bad luck still get sued. 2. Since bosses try to avoid the appearance of discrimination, litigious employees don’t have a lot to work with. 3. As long as judges and juries are sympathetic, however, they lower the de facto burden of proof, allowing the war on discrimination to continue indefinitely. 4. Bosses, in turn, defend themselves by trying to pre-emptively discredit litigious employees. 5. Cynical bosses go a step further by trying not to hire employees who are relatively likely to cry “discrimination.” 6. Human resource departments institute Orwellian anti-discrimination training, where participants get punished for pointing out that the HR folks are hostile and bigoted. In other words, HR reps exemplify the very thing they claim to oppose. 7. If so-called discrimination enhances productivity (think: standardized testing), society forfeits major benefits.   Why do the same patterns emerge in both cases?  Because “he discriminated against me” is about as subjective as “he was a jerk to me.”  In both cases, they feel very real to the accuser.  In both cases, they feel very unfair to the accused.  If you knew neither party, you’d probably decline to even express an opinion. And with good reason. (0 COMMENTS)

Some Republican leaders have, at last, started to blame Trump for burning the bridges behind him after being fired by the electorate or, perhaps more exactly (nothing is grandiose in that presidency), for breaking what he thinks are his toys after he felt scolded. (Will he also scratch graffiti on the oval office desk?) This is more or less what the Wall Street Journal, a newspaper that tried to love Trump, argues, although more prudently, in two pieces: “A Bogus Dispute Is Doing Real Damage,” November 19, by columnist Peggy Noonan; and Lindsay Wise, “Some Republicans Call for Trump to Back Up Claims of Fraud,” November 20, 2020. Yesterday, the Wall Street Journal reported on weekend tweets of Mr. Trump attacking the Republicans who have called him to stop trying to subvert the election results (Catherine Lucey and Ted Mann, “Trump Continues to Challenge Election Results as Legal Options Dwindle,” November 22). Against the (Republican) governor of Maryland Larry Hogan, who had said that “We’re beginning to look like we’re a banana republic,” Trump tweeted that “Hogan is just as bad as the flawed tests he paid big money for!” Interestingly, this jab refers to a story revealed last week by the Washington Post, one of the newspapers that Mr. Trump used to blame as “enemies of the people.” At the exact opposite end of endangering American democracy to serve one’s political self-interest, lies the danger of sacralizing it. In the piece linked to above, journalist Lindsay Wise reports about Rep. Liz Cheney (R., Wyoming): Ms. Cheney, the top ranking Republican woman in the House, said that if Mr. Trump can’t stand up his fraud claims and show they would tip the election in his favor, he should “fulfill his oath to preserve, protect and defend the Constitution of the United States by respecting the sanctity of our electoral process.” In a classical-liberal perspective, nothing is sacred about ballots. They just need to be cast by eligible voters and be counted correctly. Perhaps this is what Rep. Cheney wanted to emphasize by speaking about the sanctity of the process. In the mind of populists (as I and other analysts define them), elections are supposed to reveal the will of the people, and they blame the electoral process if it doesn’t achieve that. In reality, the electoral process cannot reveal the will of the people, which is unknowable because it does not exist. It suffices for liberal democracy that the process deliver a good count of the votes cast by a majority or a plurality of the electorate. The populists have it exactly backward: they idolize democracy for what it cannot deliver and undermine its useful process. We can understand that moral rules develop to support voting because it is an institution that often fosters prosperity and offers some protection against tyranny. Contemporary economists who have formalized this theory of morals include Friedrich Hayek and, in game-theoretic terms, Robert Sugden. But this does not mean that democratic voting is a sacred panacea. (0 COMMENTS)

Some Republican leaders have, at last, started to blame Mr. Trump for burning the bridges behind him after being fired by the electorate or, perhaps more exactly (nothing is grandiose in that presidency), for breaking what he thinks are his toys after he felt scolded. (Will he also scratch graffiti on the oval office desk?) This is more or less what the Wall Street Journal, a newspaper that tried to like Trump, argues, although more prudently, in two pieces: “A Bogus Dispute Is Doing Real Damage,” November 19, by columnist Peggy Noonan; and Lindsay Wise, “Some Republicans Call for Trump to Back Up Claims of Fraud,” November 20, 2020. Yesterday, the Wall Street Journal reported on weekend tweets of Mr. Trump attacking the Republicans who have asked him to stop trying to subvert the election results (Catherine Lucey and Ted Mann, “Trump Continues to Challenge Election Results as Legal Options Dwindle,” November 22). Against the (Republican) governor of Maryland Larry Hogan, who had said that “We’re beginning to look like we’re a banana republic,” Trump tweeted that “Hogan is just as bad as the flawed tests he paid big money for!” Interestingly, this jab refers to a story revealed last week by the Washington Post, one of the newspapers that Mr. Trump used to blame as “enemies of the people.” At the exact opposite of endangering American democracy to serve one’s political self-interest, lies the danger of sacralizing it. In the piece linked to above, journalist Lindsay Wise reports about Rep. Liz Cheney (R., Wyoming): Ms. Cheney, the top ranking Republican woman in the House, said that if Mr. Trump can’t stand up his fraud claims and show they would tip the election in his favor, he should “fulfill his oath to preserve, protect and defend the Constitution of the United States by respecting the sanctity of our electoral process.” In a classical-liberal perspective, nothing is sacred about ballots. They just need to be cast by eligible voters and be counted correctly. Perhaps this is what Rep. Cheney wanted to emphasize by speaking about the sanctity of the process. In the mind of populists (as I and other analysts define them), elections are supposed to reveal the “will of the people,” and they blame the electoral process if it doesn’t achieve that. In reality, the electoral process cannot reveal the will of the people, which is unknowable because it does not exist. It suffices for liberal democracy that the process deliver a good count of the votes cast by a majority or a plurality of the electorate. The populists have it exactly backward: they idolize democracy for what it cannot deliver and undermine its useful process. We can understand that moral rules develop to support voting because it is an institution that often fosters prosperity and offers some protection against tyranny. Contemporary economists who have formalized this theory of morals include Friedrich Hayek and, in game-theoretic terms, Robert Sugden. But this does not mean that democratic voting is a sacred panacea. (0 COMMENTS)

Modern Monetary Theory is a term that one encounters with increasing frequency. It is often applied to a specific policy, such as advocacy of expansionary fiscal policy. But that’s not a very useful definition. Lots of economists now advocate expansionary fiscal policy in the current environment of very low interest rates and high unemployment. MMT is more than fiscal stimulus; it is a model of the macroeconomy. In order to better understand the MMT model I’ve been reading “Macroeconomics”, an undergraduate textbook written by William Mitchell, Randall Wray and Martin Watts. You probably won’t be surprised to learn that it’s not my cup of tea. But I don’t want to be unfair in my appraisal, so I’ll discuss a point of confusion here (and another today over at MoneyIllusion), and try to elicit feedback from those better schooled in the model. Am I being unfair? If so, what’s the intuition that I’m missing? On page 85 they present a national income account equation (which is accurate), and then provide a peculiar interpretation: (6.4)  (GNP – C – T) – I   ≡  (G – T) + (X – M + FNI) The terms in Equation (6.4) are relatively easy to understand now.  The term (GNP – C – T) represents total income less the amount consumed by households less the amount paid by households to government in taxes net of transfers.  Thus it represents household saving. The left-hand side of Equation (6.4), (GNP – C – T) – I, thus is the overall net saving of the private domestic sector, which is distinct from total household saving (S) denoted by the term (GNP – C – T). Everything is correct until the final sentence.  It does not represent net saving. Once you subtract investment from household saving you end up with the sum of the government deficit (defined as a positive number) and the current account balance (the net inflow of foreign saving.)  That’s not net saving as conventionally defined, which is equal to net investment is a simple economy with no government or trade. Because this might be confusing to readers, let’s consider their model in a closed economy context, for instance, how would it apply to the global economy as a whole?  In that case, you could drop the current account balance (zero for the globe by definition) and you’d end up with: (GNP – C – T) – I   ≡  (G – T) The claim is that net saving equals the budget deficit in a closed economy.  Unless I’m missing something, that’s a really weird definition of net saving, completely unrelated to how mainstream economists (of all stripes) define saving. And it’s not just me; Robert Blumen reaches a similar conclusion: Modern monetary theory, which is now experiencing its fifteen minutes of fame, contains a number of strange and counterintuitive propositions.1 Proponents claim that these propositions are not an economic theory, only an accounting identity. One of these is that the private sector can save only if the government runs a deficit. Within the self-consistent, tail-chasing world of MMT, these statements are true by definition. However, when MMT aphorisms are interpreted using their normal meaning in the English language, their conclusions are not only false, but foolish. Now you might argue that it’s a free country and people are entitled to define terms in unconventional ways.  Nonetheless, I have two objections to the way they define net saving. 1. This is an introductory economics textbook.  Students that learn this definition of saving would be utterly confused by the way the term ‘saving’ is used in any other economics class, or in the broader society.  Thus by their definition, net saving would always be exactly zero in any closed economy with no government, or any closed economy where the budget was always balanced. And yet people would still be saving in that situation (in the conventional sense), as net saving would equal net investment.  To give you a sense of the magnitudes involved, suppose that the global budget deficit is 3% of global GDP and global net investment is 20% of global GDP.  Then net household saving would be 3% of GDP as defined by MMTers, and 23% of GDP as defined by other economists.  That’s a radically different definition. 2.  My bigger objection is that they seem to draw meaningful causal implications from this peculiar definition of saving.  This isn’t just a typo, one minor glitch in an otherwise straightforward textbook, this definition informs much of the subsequent analysis. Thus on page 96 we see the following: Since the accumulation of a stock of financial wealth results from a surplus, that is, from a flow of saving, we can also conclude that causation tends to run from deficit spending to saving. This is actually correct if you define “saving” according to the second equation above, but it’s an utterly meaningless statement.  After all, in a closed economy context, “net saving” is just another term for “budget deficit”.  In an open economy context, “net saving” is just another term for “budget deficit plus current account balance”.   In plain English, students are being informed that causation tends to run from deficit spending to deficit spending!  True, but utterly without significance. Identities like C+I+G = GDP or M*V = GDP can be useful if used correctly, as a foundation for a behavioral model that tries to compare a policy related term (M or G) with an interesting goal variable (GDP).  However both sides of the closed economy equation above are the budget deficit; there is no goal-related variable. Now it’s possible that I’m missing something very basic here.  But reread Robert Blumen’s appraisal; he’s saying the same thing. I’ll reserve final judgment until I hear back from MMT commenters; perhaps I’m misinterpreting the textbook.  My initial appraisal, however, is quite negative.  Over at TheMoneyIllusion I ask for help in understanding their view of open market operations. (0 COMMENTS)

My experiences with unions have not been good. My father was a Shell Oil union member.  His union went on strike long ago when my mother was pregnant with my younger brother. After a few months on strike it was growing obvious (according to my father) that it would end soon in failure from the union perspective. The union bosses feared that my father and others would return to work before the union had formally given up. They came to our house and told my pregnant mother that it would be quite unhealthy for her if my father returned to work. While a student at the U of C Berkeley I had taken jobs for three summers with Shell Oil, one of the perks they give their workers’ children. Two summers were [spent] roustabouting in the oil fields of Kern County, California with regular Shell employees who never spoke of labor relations with the company. Instead they talked about their families and non-work activities.  The middle of the three summers with Shell, I was assigned to the supply yard behind Shell’s Kern County headquarters. I assisted the one employee there who loaded pipes and other oil field equipment onto trucks that then delivered the equipment to the fields I had worked in the summer before. Much of the time the two of us just hung out there waiting for the next truck, very unlike digging ditches to repair leaking pipes as I had done the previous summer in 112-degree summer heat. We drove around in the small portable crane used for loading the trucks. The entire time my “companion,” an avid union member, complained about how Shell Oil was exploiting us. After a few weeks I dreaded having to be around him. This is from Warren Coats, “Unions vs the Gig Economy,” Warren’s space, November 14, 2020. This was not like my own experience with union workers, all of whom I liked. Maybe it was because we got a bonus for every foot we drilled, which made us very productive. I’ve written about one very positive experience here. But Warren’s story is like many I’ve heard from people who worked in union jobs in the summer and then got out of them. The whole thing, which is not long, is worth reading. (0 COMMENTS)

Back in 1976, I drove from Wisconsin to the Canadian Rockies. In North Dakota I drove past endless miles of wheat farms, with some sunflower farms thrown in. The countryside looked much the same after crossing the border into Saskatchewan, Canada. But one thing changes dramatically at the border. Just south of the border the farmers tend to vote for right wing candidates that are strongly opposed to Obamacare. To the north, the farmers vote for candidates that support Medicare for all. A system that Alexandria Ocasio-Cortez would love. A person’s political views can never be understood in isolation, only in the context of the broader society in which they are embedded. Based on numerous comments that I’ve seen in the press, I don’t believe that either party understands the role of “identity” in politics. Republicans sometimes suggest that their party would have won states like Pennsylvania, Wisconsin and Michigan if not for the votes of cities with large black populations, such as Detroit, Philadelphia or Milwaukee. Democrats suggest that America will gradually become a country where a majority of the population is “people of color” and that this will help their party in the long run. Both are wrong. If having lots of black voters made a country more left wing, then you’d expect America to be more left wing than Canada, and you’d expect the Deep South to be the most left wing part of America. What both parties miss is that the existence of racial minorities changes the voting behavior of white voters. There’s very little evidence that a majority of the population will ever become non-white, because the category “white” is so fluid. Watching the NBA draft on Wednesday, I was struck by how many of the first round draft picks came from bi-racial families. Admittedly this is a skewed sample that is not representative of the broader population. But both Hispanics and Asians intermarry at a surprisingly high rate. My Asian wife gave birth to a daughter that our society views as white. Race won’t go away, but there is no realistic prospect of whites becoming a minority in the US in the foreseeable future. Reason magazine reports that one Washington school district has already declared that Asian-Americans are white: One school district in Washington state has evidently decided that Asians no longer qualify as persons of color. In their latest equity report, administrators at North Thurston Public Schools—which oversees some 16,000 students—lumped Asians in with whites and measured their academic achievements against “students of color,” a category that includes “Black, Latinx, Native American, Pacific Islander, and Multi-Racial Students” who have experienced “persistent opportunity gaps.” Expect much more of this in the future. Then there is the “Latino” population: Though not everyone in the Rio Grande Valley self-identifies as Tejano, the descriptor captures a distinct Latino community—culturally and politically—cultivated over centuries of both Mexican and Texan influences and geographic isolation. Nearly everyone speaks Spanish, but many regard themselves as red-blooded Americans above anything else. And exceedingly few identify as people of color. (Even while 94 percent of Zapata residents count their ethnicity as Hispanic/Latino on the census, 98 percent of the population marks their race as white.) Their Hispanicness is almost beside the point to their daily lives. It is foolish to use ethnic identity to predict the future course of politics. (0 COMMENTS)