This short piece by Vaclav Smil asks why we do talk so much about the Spanish flu, as a benchmark for Covid19, whereas we do not compare it with influenza pandemics after WWII. Smil’s crucial argument is that, if we do not have good numbers for the Spanish flu, we do have very good numbers for more recent pandemics. He points out that: these more virulent pandemics had such evanescent economic consequences. The United Nations’ World Economic and Social Surveys from the late 1950s contain no references to a pandemic or a virus. Nor did the pandemics leave any deep, traumatic traces in memories. Even if one very conservatively assumes that lasting memories start only at 10 years of age, then 350 million of the people who are alive today ought to remember the three previous pandemics, and a billion people ought to remember the last two. But I have yet to come across anybody who has vivid memories of the pandemics of 1957 or 1968. Countries did not resort to any mass-scale economic lockdowns, enforce any long-lasting school closures, ban sports events, or cut flight schedules deeply. Today’s pandemic has led to a deep (50 to 90 percent) reduction in flights, but during the earlier pandemics, aviation was marked by notable advances. On 17 October 1958, half a year after the end of the second pandemic wave in the West and about a year before the pandemic ended (in Chile, the last holdout), PanAm inaugurated its Boeing 707 jet service to Europe. And the Boeing 747, the first wide-body jetliner, entered scheduled service months before the last wave of the contemporary pandemic ended, in March 1970. Why were things so different back then? Was it because we had no ­fear-reinforcing 24/7 cable news, no Twitter, and no incessant and instant case-and-death tickers on all our electronic screens? Or is it we ourselves who have changed, by valuing recurrent but infrequent risks differently? I am afraid that  24/7 cable news, Twitter and incessant case-and-death tickers on all our electronic screens will not only twist memory, but they are also having a strong impact over political decision making. Take the Italian case. After a very severe lockdown (schools were kept closed for six months), we had more or less a good summer, with progressive reopening and small numbers of contagions, grave hospitalizations, and deaths. With the fall, we have been hit by the much-awaited “second wave”. The government’s preparations have been lacking if not altogether paradoxical: school hours have not been changed, and the supply of public transport has not been varied (in spite of the fact private bus companies are being kept idle, whereas they could have been contracted to help cope with the rush hour traffic). Swab tests were strictly monopolized by hospitals and pharmacists; doctors and private healthcare structures have not been mobilized in order to increase test capacity. Now, the numbers of contagions are rising sharply and doubling once every seven days. They will be around 30,000 a day by the end of the month. Alas, deaths seem to double every week, too. What has the government done? At first, it went for a dripping of closures, with new measures coming up once a week: a couple of weeks ago it made wearing facemasks mandatory, then we introduced curfews. Now gyms and swimming pools and ski resorts have been closed and restaurants won’t be free to serve dinner. The country is entering a lockdown, though softer than the first one. “There are no libertarians in a pandemic;” but somehow that is a problem. One of the key insights of modern libertarianism is that a complex society is a tangle of knowledge problems, which central authorities are not very good at unraveling. This has been lost on decision-makers, who think they can win the “war against the virus” with top-down decisions, irrespective of continuous and abrupt change. They are always lagging a step behind. A few days ago Federico Giugliano has written that somehow, in this second wave, Europe has quietly “turned Swedish”: “Governments are happy to impose more stringent measures on cities and regions with bad outbreaks (as Sweden itself is starting to do) but they’re extremely reluctant to crack down too heavily on social interactions, as they did in the spring.” That was hardly sustainable, politically speaking, with, as Smil put it, “24/7 cable news, Twitter and incessant case-and-death tickers on all our electronic screens”. With cases quickly rising, we see stronger pressure for a new lockdown: the media are breeding anxiety and anxiety elicits a call for political resolve. When it comes to Italy, the numbers are way above Italy’s test and tracing capacity. The lockdown is an implicit admission of the inability of doing anything else. In an article on Politico.eu, I asked “Why did the Italian government, after navigating one of the first and fiercest coronavirus outbreaks earlier this year, not learn from the experience?” My answer is: ideology. The government spent lots of energy and political capital in negotiating European aid and has planned great advancement in its building of an “entrepreneurial state”. I do hope that these new measures will be able to flatten the curve and reduce stress on the national health care service. But if the government is capable only of using the hammer, how can we expect it to be able to “dance” with the virus? (0 COMMENTS)

In the US, more than 800 people a day die of Covid-19, and the curve is beginning to trend upward again. Clearly there would be a substantial benefit from having a vaccine, just in terms of lives saved. In addition, Covid-19 imposes an enormous cost on the economy, especially sectors such as travel and entertainment. Many pundits have suggested that “challenge studies” would speed up vaccine development. In the past, when I’ve advocated this approach some have argued that it wouldn’t make much difference.  But a recent article suggests that vaccine development is indeed being slowed by a lack of infections: On Tuesday, front-runner Pfizer revealed in an earnings call that the first interim analysis in its Phase 3 clinical trial has not yet occurred. That means there hadn’t yet been enough Covid infections among the trial participants to take a first stab at analyzing whether the people randomly assigned to receive vaccine were infected at a lower rate than people who were assigned to get a placebo injection. So the Pfizer vaccine is being held up by a lack of infections, something that could be addressed with challenge studies. Some medical ethicists oppose the idea. A vaccine is not the only possible way to get our economy back on track; an effective treatment for Covid would also make people more willing to go out engage in economic activities. Another article in the same journal suggests that policy mistakes also played a role in slowing the availability of treatments. Here Scott Gottlieb discusses the shortage of monoclonal antibodies, a highly promising new set of drugs: “It is deeply unfortunate that we head into fall without enough doses of this drug,” Scott Gottlieb, the former commissioner of the Food and Drug Administration, tweeted after Regeneron released its news. “Many of us were talking about this as early as March. Regeneron did extraordinary work to secure their own manufacturing, but we needed a concerted industrial effort to get the supply we needed.” Indeed, Gottlieb penned op-eds in the spring and summer calling for a government-backed effort to manufacture the antibodies in large volumes — akin to the massive effort to develop experimental, and still unproven, Covid-19 vaccines. He reiterated that action needs to be taken now to accumulate sufficient supply to treat high-risk patients. In the spring, I criticized the program that gave $1200 to almost all middle class families, even those with jobs.  Some people argued that budget deficits are almost costless at near-zero interest rates.  But even in the unlikely event that interest rates stay at zero forever, any given government program has an opportunity cost—the money could have been spent elsewhere.  If these funds had instead been used to fund a crash program in drug manufacturing, we’d likely be much closer to a solution to the Covid recession. [Sure you can argue, “do everything”.  But politicians are not willing to spend unlimited amounts of money, nor should they.] In mainstream economic textbooks, there are actually relatively few industries where there is a strong theoretical argument for government intervention.  Most of those cases involve some sort of “externality” or “public good”.  And yet we see real world governments spend literally trillions of dollars on programs where there is little theoretical justification, and still fail to fund the one area where there seems to be a very strong “public good” argument.  Based on what I’ve read, this problem is even worse in many other countries, including places like Italy, where the government spends over 50% of GDP and yet provides substandard services in many areas. I worry when I hear pundits suggest that government spending is not costly in a world of near-zero interest rates.  That’s a recipe for waste, and for misallocation of resources. PS.  The benefits from solving the Covid-19 problem goes beyond lives saved and an improved economy, there is also evidence that the disease causes brain damage: Researchers at the Baylor College of Medicine reviewed 84 studies involving more than 600 patients who had been diagnosed with COVID-19. The median age was 61, and two-thirds of the patients were men, while one-third were women. The study’s authors examined the results of patients’ electroencephalograms — known as EEGs, the tests detect abnormalities in brain waves, according to Johns Hopkins Medicine — and found that brain abnormalities in COVID-19 patients were “common.” HT: Tyler Cowen (0 COMMENTS)

And the recovery is well under way. Real gross domestic product (GDP) increased at an annual rate of 33.1 percent in the third quarter of 2020 (table 1), according to the “advance” estimate released by the Bureau of Economic Analysis. In the second quarter, real GDP decreased 31.4 percent. This is from a news release from the U.S. Department of Commerce’s Bureau of Economic Analysis, October 29, 2020. A 33.1 percent annual rate of increase means that that would be the rate if the rate of increase of the summer quarter continued for 3 more quarters. Of course, that won’t happen. To put it in perspective, a 33.1 percent annual increase implies that real GDP in the summer quarter increased by 7.4 percent. That’s a record increase for a quarter. Of course it comes after the huge decline of 31.4 percent (annual) in the spring quarter, which happened due to Covid-19 and the lockdowns. That doesn’t make it even. If a number falls by 31.4 percent, then to get back to where we where, we need an increase of 45.8 percent. To help with the math on the second point a little, here’s how I put it after a tutorial during which I watched myself on video in prepping for my first distance-learning class way back in 2002: “The camera loses 1/4 of my energy; therefore I need to increase my energy by 1/3.”   Here’s the math on both if you’re interested and, for that matter, even if you aren’t interested. Let x be the quarterly rate of growth. Then (1+x)^4 = 1.331. 4 ln(1+x) = ln(1.331) = 0.2859 ln(1+x) – 0.2859/4 = 0.07148 1+x = e(0.07148) = 1.074 Therefore x = 0.074. Growth rate = 7.4 percent.   On the second one. If a number falls by 31.4 percent, it falls to 68.6 percent of what it was. To get from 68.6 percent to 100 percent, it must rise by 1/0.686 = 45.8 percent.   (0 COMMENTS)

Television’s finest half-hour reminded America of the values of classical liberalism. This fall, LIFE magazine has published a special issue commemorating the 50th anniversary of the movie M*A*S*H. Despite the hook, the issue focuses on the ensuing TV series, which ran from 1972 to 1983. Though the show has often been characterized as being politically left-wing, it actually is heavily classically liberal, celebrating the individual, civil liberties, and the market, and harshly criticizing anti-individualism, government compulsion, and government decision-making. In a series of essays, I examine the classical liberalism of M*A*S*H. This is Part 1. CBS Television, Public domain, via Wikimedia Commons   The TV series M*A*S*H premiered on September 17, 1972 — a bad time to debut an anti-war, anti-establishment dark comedy. America’s mood was on the rebound from the social upheaval of the late-1960s: Operation Linebacker was pushing back the North Vietnamese forces with few U.S. casualties, easing public frustration over the Vietnam War. The nation’s economy was booming, growing 5.25 percent in 1972 and would grow 5.6 percent in 1973. Prosperity and military success produced strong approval numbers for President Richard Nixon, who would be reelected in November with more than 60 percent of the popular vote and winning 49 states. All that good news was bad for the early weeks of the impertinent if not subversive M*A*S*H. The pilot finished 45th in the week’s ratings, a miserable showing in the three-network era. Subsequent episodes fell into the 50s, raising the specter of cancellation. But national moods can change quickly when the news changes. Three months before M*A*S*H debuted, the Washington Post reported that five men had been arrested in connection with a break-in at the Democratic National Committee headquarters. As the show’s first season played out, Watergate mushroomed from an offbeat news item into a full-blown scandal. Halfway through the TV season, a humbled United States signed the Paris Peace Accords, ending America’s involvement in Vietnam; the last U.S. troops left the country on March 29, 1973, four days after M*A*S*H’s first-season finale. That fall, with the show’s second season underway, the OPEC oil cartel cut production in retaliation for western nations’ support of Israel. The resulting energy crisis sent the U.S. stock market reeling and the economy into recession. With inflation already surging, the United States got its first dose of “stagflation.” Finally, on August 9, 1974 — a month before M*A*S*H’s season-three premiere — a disgraced Nixon resigned the presidency. Those events may have helped Americans embrace the sitcom that treated the inhumanity of war and the inanity of government with a cathartic mix of laughter and tugged heartstrings. M*A*S*H’s ratings rose in the final weeks of its first season, as more viewers began following the goings-on at the fictional 4077th Mobile Army Surgical Hospital, located near the front lines of the Korean War. That prefaced regular top-10 finishes for the rest of the show’s 11-year run. M*A*S*H’s cast, crew, and writers would carry off a slew of Emmys and Golden Globes over the next decade. The series finale is television legend; even current Super Bowls struggle to top the nearly 106 million viewers who watched “Goodbye, Farewell and Amen” on February 28, 1983. Following the program’s end, its decommissioned sets, costumes, and props became wildly popular exhibit at the Smithsonian Institution. Today, M*A*S*H continues to draw audiences in syndication, nearly a half-century after it debuted. What made it so successful? Public reaction to Vietnam and Watergate may explain its first few years, but M*A*S*H was a TV juggernaut for the rest of its run, despite the departure of most of its original cast, change in show runners, and turnover of writers. Even the series’ shift in tenor from situation comedy to dramedy (sometimes heavy on drama) did not weaken its audience. An academic thesis has argued that the show’s success came in part from its following changing public values and outlooks as the United States moved from leftish libertinism of the early 1970s, to malaise-induced cynicism of the late ‘70s, to the conservative Reagan Revolution of the early 1980s. Yet, libertarians and other classical liberals — who often find political similarities where others see left–right differences — may perceive something else: that throughout its run, M*A*S*H consistently promoted the ideals of classical liberalism. People unfamiliar with classical liberalism may be unsurprised by the idea that M*A*S*H was a “liberal” show. Several of its cast members are vocal supporters of political causes on the left side of the U.S. political spectrum, and critics (and even some fans) of the series criticize it for being too “lefty” in its later seasons. But this is not the liberalism I mean. The philosophy of classical liberalism acknowledged that government has an important role to play in addressing truly public problems, but that individual liberty and private, consensual relationships are of paramount importance. Classical liberalism is skeptical of government power, appreciates the incentives and benefits of the marketplace, and defends civil liberties. As such, classical liberalism encompassed a broad swath of the American political spectrum as it existed in the latter part of the 20th century, from ACLU civil libertarians, to Jimmy Carter/Bill Clinton centrists, to Ronald Reagan’s small-government conservatives. To be clear, M*A*S*H’s chief protagonist, surgeon Benjamin Franklin “Hawkeye” Pierce (played by Alan Alda), may not have been an avowed libertarian who leafed through The Road to Serfdom along with his beloved nudie magazines. But he and his comrades embraced and advocated principles and institutions that acknowledged classical liberals hold dear, as did many Americans (including both Democrats and Republicans) of that era. And today, amidst a surge in illiberalism in both the United States and abroad, the show continues to offer classical liberals both comic relief and hope. (1 COMMENTS)

As I noted earlier this week, Tyler Cowen wrote a blog post, “David Henderson needs a reboot,” October 27, in which he responded to my three critical pieces on his two Bloomberg articles. My pieces are, from earliest to latest, here, here, and here. Cowen’s articles (gated unless you look at only a few on Bloomberg) are here and here. Here’s the problem: Other than on one issue where he did point to a serious problem in my argument, as I noted here, Cowen didn’t join the debate about lockdowns. Instead, he made the following statements: David is repeatedly writing critiques of my writings on Covid-19.  (Google to them if you wish, they are so off base and misrepresentative I don’t think they deserve a link, and furthermore I find it almost impossible to track down EconLog archives under their new system.) Making it hard for your readers to even know what the person you’re arguing with is saying is not really a good way to carry on a debate. Fortunately, raja_r, one of Cowen’s commenters, was able, with apparently much less difficulty than Cowen had, to post the links in the comments section on Cowen’s site. Virtually all of his points revolve around simple or it seems even willful misunderstandings. Virtually all? Really? If it’s “virtually all,” then surely we’re going to see a few examples, right? I’ll save you the suspense: he names one (other than the Russian vaccine point, which I discuss later.) Then he goes to the one in which, I did misunderstand him. I’ve noted that already. I have no idea why he thinks it might be willful. I will grant him good faith even though he doesn’t reciprocate. That’s it. We don’t get more examples. Later he writes: I could point to numerous misunderstandings in David’s recent posts, pretty much in every paragraph. Maybe he could. He’s a smart guy. Here’s the problem. He doesn’t. He writes: I also think he is quite wrong on substance, allying himself with a few eccentric thinkers that hardly anyone agrees with, and who have not acquitted themselves well in debate, or made good predictions as of late, but that is another matter for a different time. He says I’m wrong on substance. Ok. Which substance? He says I’m allying myself with “a few eccentric thinkers that hardly anyone agrees with.” He doesn’t name them. But hardly anyone agrees with them? The horror. Is iconoclast Tyler Cowen really saying we should go with majority opinion? Is that how we get to the truth? He should pay greater heed to say Scott Gottlieb, who knows what he is talking about. I’ve read Gottlieb’s stuff. As my Hoover colleague George Shultz once said to me after telling me he had been reading my work (I had criticized him here), “I like some of it.” It would be nice to know which parts Cowen thinks are good. I hope he would agree with me that Gottlieb’s support, while at the Food and Drug Administration, for regulating e-cigarettes, making it harder for people to quit smoking real cigarettes, was a cruel and destructive move. I’m sure his co-blogger, Alex Tabarrok, could tell him about that. I will grant him one more point. He writes: David’s Russian vaccine post does not misunderstand me, but I don’t think it shows a very full grasp of the issue.  I very much favor regulatory reciprocity for pharmaceuticals, vaccines, and more, but I strongly believe adding Russia to the reciprocal list would “poison the well” and doom the whole idea.  In the meantime, they are not nearly as far along for a major vaccine rollout as they claim, so probably we are not missing out on very much, even if the quality were fine.  The slightest problem with the vaccine would be blown out of proportion, most of all with DT as president and Russian conspiracy theories circulating.  If your goal is to nudge and push the FDA to move more quickly across the board, starting them off with the approval of a Russian vaccine is bad tactics and is risking the entire apple cart.  Maybe try for Mother England first?  So I think David here is quite wrong, and applying market liberalization ideas in a knee-jerk rather than a sophisticated fashion.  He called the post “Tyler Cowen’s shocking post on the Russian vaccine,” but I wonder who he thinks is really supposed to be shocked by that one.  If you read David’s comment on his own post you will see he is genuinely unable to imagine that such an argument as I present above might exist. I didn’t think of that and I do see his point. Score one for Cowen. I do object, though, to the statement, “he is genuinely unable to imagine that such an argument as I present above might exist.” I’m quite able. By the way, if you want to see an even better argument than Cowen’s, check the numerate discussion of the Russian vaccine that my sometimes co-author Charley Hooper has posted on EconLog. Back to whether I’m able to understand Cowen’s argument, here’s the problem. Tyler Cowen’s writing style is cryptic. He often writes conclusions without the reasons that lead to them and also writes things that leave readers wondering what he means. Read his post that I linked to in my critique of his view on the Russian vaccine and you will find no statement of the argument he gives above. Which brings me to my second last point. In the comment section of his post criticizing me, Cowen writes: David, if you can’t convince a very experienced author that you have come even close to his meaning, probably you haven’t. There has been a lot of other discussion of those pieces, and the other readers do seem to have understood them. You have not. The test of whether I’ve come close to his meaning is whether I’ve convinced “a very experienced author” that I’ve come close to his meaning? But that depends on two things: (1) how good I am at understanding his meaning and (2) how open he is to being convinced that I understand his meaning. He focuses only on the first. Then he adds: I should also note that Bloomberg has a truly crack, first-rate team of editors, making sure that what goes out is clear. They failed. Take a look at this paragraph from his second Bloomberg article: Consider 9/11, when some 3,000 Americans died. The U.S. mounted a very activist response that included new security procedures at airports, crackdowns on money laundering, increased surveillance and two wars. Not all of those choices were prudent, but nonetheless they qualify as a very vigorous response. Any editor worth his salt would have asked “which of those choices were prudent?” It would actually be nice to have a debate about lockdowns without getting into 9/11 and other tangential issues. The debate should be about the costs and benefits of lockdowns and among the big costs is our huge loss of freedom. That’s a debate worth having. So far, Tyler Cowen has not joined. I wish he would.     (1 COMMENTS)

Tenure is terrible.  Well, it’s awesome for those of us who have it.  The tenure system, however, is nonsense on stilts.  Economists’ rationalizations for tenure are flimsy indeed.  Just consider: Virtually all semi-prestigious professors have tenure, yet virtually no one in the for-profit sector has anything close.  I know, we can construct fanciful scenarios where this chasm makes sublime economic sense, such as: “Professors are willing to sacrifice vastly more in salary than normal humans to eliminate the last vestiges of job insecurity” plus “Giving professors enormous job security has far less effect on their productivity than it would on normal humans.”  But neither claim is remotely plausible.  Lots of non-professors intensely value job security, and lots of professors heavily slack off once they get tenure. Still, no individual professor is responsible for this corrupt system.  And it’s hardly reasonable (or even useful) for an individual professor to renounce his tenure, whatever that might mean.  It is reasonable, however, to ask: “How can my tenure be redeemed?” The obvious starting point is: Don’t shortchange your students merely because you have tenure.  Take pride in your teaching.  Strive to edify and inspire even though the career rewards are trivial. Next: Produce excellent research even though you totally don’t have to.  Take pride in your contributions to human knowledge.  Push yourself on both quantity and quality. When you ponder these norms, however, they’re more rigorous than they look. Suppose you’re teaching labor economics.  Can you “strive to edify and inspire” if you gloss over intensely controversial subjects like the economics of discrimination?  Absolutely not.  You can’t take pride in your teaching while muttering, “Students can’t handle the truth.”   The forthright yet friendly exploration of vital yet sensitive topics is part and parcel of great teaching.  And while untenured teachers can plausibly protest, “I’ve got to think about my family’s security,” those of us with tenure know where our next paycheck is coming from.  While there’s a small chance the administration hassles you, that’s a minor cost in the broad scheme of things.  If tenured professors won’t voice awkward truths, who will? Much the same hold for research.  Slightly extending human knowledge on a topic no one cares about is rarely a worthwhile intellectual contribution.  In a world of anxious conformists, most of the best research opportunities are mired in controversy – especially in the humanities and social sciences.  If you want to create research that really matters, you should boldly proceed.  Tenure takes care of your family, but who will put food on the table of ugly truths?  Most of the time, the answer is: You or no one. So make it you. If you use your tenure to teach and research with integrity, you’re well above the bar.  Yet if you’re earnest about redeeming tenure, you should also deploy it to defend the integrity of teaching and research in general.  Untenured faculty can forgivably keep their mouths shut and their heads down.  Those of us with tenure, however, are the obvious candidates to “give back”: To aggressively defend the rights of faculty and students to explore controversial ideas without fear.  And bear in mind: for we professors, the only “controversial ideas” worthy of the name are ideas that are controversial on university campuses.  Noam Chomsky may be more controversial than Milton Friedman in the broader world, but in academia almost no one needs to look over their shoulder before praising Chomsky. Admittedly, the duty to stand up for the right to explore controversial ideas without fear is an imperfect duty; no one has time to stand up for everyone.  Nevertheless, you have ample time to at least stand up for your own friends, your own colleagues, and your own students.  Some anti-intellectual university functionary might get mad at you for doing so.  If even a dream job for life doesn’t give you a backbone, though, what will?   (1 COMMENTS)

Arnold Kling recently posted on the implications of the Modigliani-Miller (M-M) theory of corporate finance for monetary economics. He seems to suggest that open market operations will not significantly affect the price level, even when interest rates are positive. (Although it’s possible I’ve misread his post): The metaphor that I would propose is that a single firm’s changes to its financial structure is like me sticking my hand in the ocean, scooping up water, and throwing it in the air: I don’t make a hole in the ocean. Modigliani-Miller is not strictly true. But it is the best first approximation to use in looking at financial markets. That is, you should start with Modigliani-Miller and think carefully about what might cause deviations from it, rather than casually theorize under the implicit assumption that it has no validity whatsoever. Taking this approach, I view the Fed as just another bank. Its portfolio decisions do not make a hole in the ocean. That heretical view is the basis for the analysis of inflation in my book Specialization and Trade. *Sumner’s response is actually beside the point, in my view. The Modigliani-Miller theorem does not in any way rely on different asset classes being close substitutes. It relies on financial markets offering opportunities for people to align their portfolios to meet their needs in response to a corporate restructuring. I have the opposite view. I believe that money is neutral in the long run and that if you permanently and exogenously double the monetary base through open market operations, this action will double the price level. Consider the following example. Apple decides to exchange tens of billions of dollars of T-bills for another asset, say palladium. Let’s say Apple suddenly buys up 30% of the world’s stock of palladium. As a first approximation, the value of Apple has not changed–they simply exchanged one asset for another at current market prices. But the market value of palladium has likely increased sharply! If palladium were the medium of account when this occurred, then Apple’s portfolio readjustment would be highly deflationary.  Indeed something quite like this caused the Great Depression. You might argue that palladium has nothing to do with M-M, and I’d agree. But my claim is that cash is much more like palladium than it is like stocks or bonds, which are the sorts of assets envisioned when people discuss M-M.  In 1981, $100 bills yielded 0% while one-month T-bills yielded nearly 15%.  These assets are clearly not close substitutes.  When the government exchanges T-bills for T-Notes, the financial markets yawn.  When the Fed (implicitly) announces a plan to exchange T-bills for cash, the global market value of all stocks can decline by trillions of dollars in seconds.  There’s a good reason why stock investors believe I’m right and Kling is wrong; cash and T-bills are not close substitutes. I’ve spent my whole life looking at the impact of open market operations (OMOs) on macro variables, as have much smarter people like Milton Friedman.  There’s no doubt in my mind that exogenous and permanent OMOs have a huge impact on the economy, at least at positive interest rates and very likely at zero interest rates as well.  That’s not in doubt.  The question we need to examine is not, “Does M-M help us to understand monetary policy?”  Rather the interesting question is, “Why doesn’t M-M help us to understand monetary policy?” PS.  At 2:15 on December 11, 2007, the Fed made an announcement.  The didn’t even mention “cash”, but the only way to implement their announced policy was to reduce the growth rate of cash to a level below what the market had expected 5 minutes earlier.  This is how the stock market (DJIA) responded: Stock investors don’t seem to believe that M-M applies to OMOs. (0 COMMENTS)

  Prime Minister Scheer?   Co-blogger Scott Sumner, over at his own blog, themoneyillusion, writes: Other countries generally elect their president by majority vote (although a few “ceremonial” presidents are picked by an EC, as in India). He might be correct if he literally means “president.” But Scott seems to be comparing the United States electoral college to how the rest of the democratic world elects its governments’ main leaders, whether they’re called President, Prime Minister, or something else. The other governments I know best–Canada, where I grew up, eh?, the United Kingdom, Australia, and New Zealand–don’t elect their Prime Minister by majority vote. They have a Parliamentary system and the party with the most seats gets to form the government. In a way, that’s like the Electoral College. Indeed, although in Canada’s 2019 national election no party won a majority of the vote, the party that won the plurality was the Conservative Party. Scheer’s Conservative Party won 34.34 percent of the vote and Prime Minister Justin Trudeau’s Liberal Party won 33.12 percent. If it had been the party with the most votes that determines the Prime Minister, we would be referring to Prime Minister Andrew Scheer.   (0 COMMENTS)

In this video interview, Dr. Joel Kettner, formerly the Manitoba government’s chief public health officer, presents some striking statistics and commentary. I checked his numbers and it’s clear that the interview is current. The interviewer starts by stating the “flatten the curve” rationale. But look at his numbers, which I confirmed here, and see if what’s going on has anything to do with “flattening the curve,” even in Manitoba’s single-payer system of health care. Number of cases: 4,500. (Actually, it’s 4,532.) That’s 1 in 300 population. Number of deaths: 58. That’s 1 in 25,000 population and less than 1% of all deaths. Number of ICU admissions: 15, which is 20% of all ICU beds. In a typical flu season, the majority of ICU beds are taken up by people with acute lung injury or pneumonia. Number of hospitalizations: 83. This is < 3% of all beds. Percent usage of ventilator capacity: < 1%. 80% of deaths in Canada are of people over the age of 85 and residents of personal care homes. (This was right at the end where he felt rushed, so it’s possible that he meant “or,” not “and.”) Watch, at about the point where 2:20 is left, how he makes the point that so many of us have been making: look at the big picture and look at tradeoffs. The lockdowns might well be causing more deaths than they’re saving. (He doesn’t go that far, but I wonder if he would.) Why did I choose Manitoba? The main reason is that that’s where I grew up. The second reason is that Dr. Kettner made his points more clearly and succinctly than I’ve typically seen. HT2 Cameron Neumann.     (0 COMMENTS)

Iskander, a devoted EconLog reader, sent me a fascinating question.  With his permission, I reprint his original email and a followup. Original Email Dear Professor Caplan, I was reading through some old Econlog posts, and I saw one about Hong Kong (“Statist at Heart”) where you attribute rapid post war growth to the free market policies of the British. I tend to agree with this, however I do wonder about why growth was only rapid after 1950. There was next to no institutional/political change as far as I know, yet per capita output growth was not that large in the century beforehand. I can see why wages might be held down by elastic labour supply from mainland China, but not output per capita. In many ways the British Empire acted as if it was ruled by a cabal of free market economists. It should have led to rapid global convergence as modern technology and goods were free to flow from Europe to the rest of the world and it made sure property rights were protected. Not only European property rights, as there were a large number of Indian, Chinese, Jewish and Parsi merchants and businessmen who flourished. If a Indian merchant wanted to set up a modern factory there were very few impediments from the government, which has not been the case post 1947. In addition, taxation was low (India’s tax to GDP ratio was around 5% in the 1920s) and it usually came in forms with low deadweight loss (lump sum land taxes, excise taxes on goods with inelastic demand). The exceptions to this were the settler colonies which were the most badly behaved (especially in South Africa) in terms of economic freedom. Why do you think all this led to very little growth pre-1950, if these policies made Hong Kong rich post-1950? Followup Dear Professor Caplan, I’m not able to find a totally convincing answer to the question myself. That said I can imagine that economic freedom has benefits even if it doesn’t lead to rapid growth. I think that the area of China near Hong Kong was spared from most of the fighting until the 1940s (It was the base of the Kuomintang), even then Hong Kong could have produced goods for more stable South East/ South Asia (or Europe/America given the low level of wages). At least in India, the British only moved away from free trade after WW1. A rearguard action by pro-free trade civil servants meant that tariffs were originally given only if an Industry made the case that it would raise productivity and eventually be weaned off protection, called “discriminating protection”. Under this scheme, perhaps the only successful case of Indian “infant Industry” actually growing up came about, Tata Steel. By the 1930s the rise of nationalism and fiscal pressures (The government was on the edge of bankruptcy) led to the decline of the discriminating part of protection. The Bombay cotton textile industry was being beaten in its home market by Japanese textiles despite cotton being shipped from India to Japan, processed there and shipped back even with 50% tariffs. An interesting thing is that both industries were using the same machines but the Japanese firms had managed to raise productivity thrice as fast as the Indian firms (as far as I can remember, this is from the work of Gregory Clark and Susan Wolcott). This was a inglorious end for the first modern textile Industry in Asia (The imperial connection and an open economy meant that India’s first modern factory came thirty years before Japan’s). Perhaps good economic policies can only go so far without widespread change in attitudes and aspirations. Personally, I’m tempted to blame the chaos in China from the overthrow of the Manchus until the Korean War, but I’m not married to that story.  Iskander’s knowledge of colonial economic policy seems better than mine, but if I were researching this in earnest I would start by nailing down the facts. In any case, what’s the best response to Iskander’s challenge? (0 COMMENTS)