AEI’s Andrew Biggs has a totally reasonable piece arguing that Americans’ unhealthy lifestyles are a major cause of America’s high COVID mortality rate: Americans entered the Covid pandemic in much poorer health than citizens of other developed countries. For instance, over 27,000 U.S Covid deaths list diabetes as a comorbidity, accounting for 16% of total Covid-related fatalities. But what if instead of having the highest diabetes rate among rich countries the U.S. had the same rate as Australia, with less than half the U.S. level? The same holds for obesity, listed as a comorbidity in 4% of Covid cases. Forty percent of Americans are obese, the highest in the developed world and over twice the OECD average. U.S. death rates from heart disease are also higher than most European and Asian countries. Hypertension is listed as a comorbidity in 22% of Covid deaths. If Americans simply had the same health status as other high-income countries, it is likely that tens of thousands of lives could have been saved. The obvious upshot is: Individuals can and should reduce their COVID risk by switching to healthier lifestyles.  Yet Biggs strangely declares the opposite: General practitioners tell me that their Type 2 diabetes patients can tell you their weight and know how it relates to their illness. They know that by losing weight their can reduce their risk of blindness, limb amputations or death. They simply aren’t able to do it. If anything is obvious, however, it is that they simply are able to do it.  Anyone can.  Eat fewer and smaller meals… and you will lose weight.  Exercise more… and you will lose weight.  Everyone knows this.  And everyone can apply their knowledge.  Put less food in your mouth, move your body more, and your risk of dying of COVID will crash. Why then do so many people remain unhealthy, even the midst of an historic pandemic?  Because they prefer (the pleasure of food and idleness plus the attendant health loss) to (the pain of hunger and exertion plus the attendant health gain).  To quote Al Pacino in Scent of a Woman: I always knew what the right path was. Without exception, I knew. But I never took it. You know why? It was too damn hard. If this is all undeniable, why do so many smart people refuse to assent?  Social Desirability Bias, naturally.  When the truth sounds bad, people say – and perhaps even believe – the patently untrue.  As I’ve explained before: “Sorry, I can’t come to your party.”  This common excuse is almost always literally false.  You’re working?  Unless your boss chains you to your desk, you can come to the party.  You’re in Paris, and the party’s in DC tomorrow?  If you can beg, borrow, or steal airfare, you can come to the party.  The same goes for most social uses of the word “can’t” – everything from “We can’t be together” to “I can’t help myself.” Why say, “I can’t” when the truth is “It’s too costly for me” or “I don’t feel like it”?  Because “I can’t” sounds better.  It insinuates, “The only reason I’m not doing X is because I lack the ability to do X.  Otherwise I would totally do it.”  “It’s too costly for me” and “I don’t feel like it” are insulting by comparison.  Both blurt, “X simply isn’t my top priority.  Get used to it.”  In short, the way we use the word “can’t” is a clear-cut case of Social Desirability Bias: our all-too-human propensity to lie when the truth sounds bad. The literally-false “can’t” is hardly alone.  Social Desirability Bias permeates our diction – i.e., the specific words we choose to use. What’s so awful about sugarcoating the harsh reality that the obese are fully capable of reaching a healthy body weight? Simple: Sugarcoating distracts and confuses.  Self-help is a virtually foolproof solution for obesity; as long as you strictly follow the recipe, you won’t be obese for long.  Ignoring or denying the possibility of self-help discourages people from fixing – or even saving! – their own lives. One could scoff, “Human beings are weak.  What’s the point of telling them to diet and exercise for the rest of their lives when we know they won’t?  We might as well just spare their feelings.” Perhaps, perhaps. Consider, though, this parallel argument: “Anti-vaxxers are crazy.  What’s the point of telling them to get vaccinated when we know they won’t?  We might as well just spare their feelings.” Can you think of any decent objections?  Because I definitely can. 1. There’s a continuum of crazy.  Some anti-vaxxers are beyond hope.  Others will only bend the knee in the face of overwhelming shame.  A great many, however, are only skin-deep crazy.  Moderate shame – or persistent persuasion – will eventually get the vaccines in their bloodstreams. 2. Crazy is contagious. If no one challengers anti-vaxxers, undecided bystanders are more likely to adopt their crazy ideas.  These “converts,” in turn, can easily go on to corrupt others.  Given how conformist human beings are, the anti-vax movement can spread even in the absence of deliberate recruitment efforts.  Initially non-crazy people notice the rising prevalence of crazy ideas – and casually become crazy themselves. 3. Someone’s gonna get blamed.  If you refuse to blame anti-vaxxers for their own bad choices, people are likely to look around for someone else to blame.   For example: “People would probably be happy to take vaccines, if doctors weren’t so arrogant.”  The result: Instead of “sparing people’s feelings” in the aggregate, you wind up redistributing the hurt feelings over to innocent bystanders. What then is the right message to send?  This: “Anti-vaxxers are totally able to get vaccinated.  The are making bad choices.  They should make better choices.” This isn’t merely helpful; it is true. The same goes for obesity.  The right message is not: “They are simply unable to lose weight.”  The right message is: “The obese are totally able to be thin.  They are making bad choices.  They should make better choices.” This isn’t merely helpful; it is true. The same principle holds for self-help generally.  Self-help is like a vaccine: When used, it works wonders.  The fact that many people refuse to do what works is a flimsy reason to humor them.  And it is a terrible reason to endorse clear-cut errors like, “They just can’t do it.”   Anyone can get vaccinated; just roll up your sleeve and let the doctor stick you with the needle.  Anyone can be thin; just eat moderately and exercise regularly.  And anyone can improve his own life; just stop making excuses and follow the path of prudence. (1 COMMENTS)

On September 15, the Stanford Institute for Economic Policy had a virtual discussion about both Covid-19 and the views of the two major presidential candidates. The moderator was Gopi Shah Goda, deputy director of, and senior fellow at, SIEPR and the two interviewees were Kevin Hassett, who had been chairman of the Council of Economic Advisers under President Trump and Austan Goolsbee, who had had the same job under President Obama. I watched it live. I’ll hit some highlights and make some comments. This is Part 1. At 4;24, Goda asks: “What are the right economic policies to provide relief to those whose livelihoods have been adversely affected by the pandemic and stimulate the economy? How much spending should we do in the short run on Covid relief issues like extended and extra unemployment and stimulus payments?” She started with Kevin, and I got my first big disappointment. Notice that she asked two questions. Kevin, though, answered only the second. He gave a big number for spending and didn’t mention any other means of relief: deregulating, letting people work in occupations without having to get a license, allowing restaurants to sell food, allowing restaurants to open, getting the FDA to allow people to use home tests for the coronavirus. And his number for additional federal spending was big: $1.5 to 2.5 trillion. Goolsbee’s answer was what I would have predicted: lots more federal spending and a big bailout of state and local government. 14:50: Kevin defines classical liberals like me out of the discussion with “I don’t think there’s anyone who thinks there shouldn’t be state and local aid.” 15:10: Austan gets it right: There are a great number of people who are opposing state and local aid. 17:10: Austan has a funny line that riffs on the old can opener joke: “This is not just ‘assume we have a can opener; let’s assume we have the greatest of all can openers.'” Then he says that you wouldn’t want to use the price system to allocate the vaccine. 23:43: Goda asks about the differences between the two candidates’ tax policies. 24:20: Austan says that Biden wants to raise taxes on high-income people and on corporations. What’s important, he says, is what the money is used for. If the added revenue were used to provide universal child care, that would be very pro-growth, says Austan. But wait. This is not a discussion between politicians. This is a discussion between economists. What’s the market failure that would justify government provision of child care? Austan doesn’t  even mention one. If my wife and I, when we were younger, had wanted to hire child care so she could work, we would have compared her after-tax income to our net-of-child-care-tax-credit cost of hiring child care. I showed in a piece in the Journal of Policy Analysis and Management in the late 1980s that the structure of the tax credit at the time could be seen as a way of offsetting the distorting high marginal tax rate of the second earner, typically the women. But Austan isn’t making that argument; in fact, for high earners, he wants an even higher marginal tax rate. Moreover, various changes in the tax law have been the tax credit much less pro-growth. At about the 25:00 point, they get into a real substantive discussion about what happened to real wages and real family incomes after the tax cut. They literally disagreed about what the numbers were. Austan said that the effects of the tax cut on real median family incomes were disappointing. Kevin said that in a debate with Austan in Philadelphia a few years earlier, he had predicted that real median family income would rise by $4,000 and that the data that just came in (which were pre-pandemic), the number was actually a $4,900 gain. Kevin also pointed out that over 6 million people had moved out of poverty, the biggest drop since the War on Poverty had begun under LBJ. Kevin also pointed out that he had predicted that income inequality would fall as a result of the 2017 tax cut and that it had fallen. Aside for non-economists: Why would reductions in income tax rates on corporations and on high-income individuals even be expected, at a theoretical level, to increase real wages? By increasing the incentive to invest in capital. The greater the capital to labor ratio, the higher are real wages. 29:10: Kevin catches Austan’s characterization of the proposed Biden tax hike as an increase in taxes on billionaires. Kevin points out that it would apply to people making over $400K annually. He then expresses optimism that Biden will hold off on raising marginal tax rates, due to the state of the economy. 31:00: Here is where Austan gives numbers on increases in real median family income that differ dramatically from Kevin’s data. Aside:  As a viewer, I was able to type a question on line and I did. We learned near the end from Goda that a number of viewers had asked a similar question and it was this: “You two are disagreeing on actual facts; show us your sources.” I asked Mark Duggan, the SIEPR director, for the source and he sent me the link to the Census data that Kevin had cited. Kevin turned out to be right about the large growth in median family income of families, including black and Hispanic families. I’m still scratching my head about what data Austan had in mind. 32:00: Kevin says that growth in median real family income in the first 3 years of Trump vastly exceeded any 3-year period under Obama. 32:10: Goda lays out the deficit issue nicely and asks about the two candidates’ plans. In Part 2, I’ll cover the rest of the discussion.     (0 COMMENTS)

I recently characterized “diversity and inclusion” as a deeply Orwellian movement – doublethink all the way: Out of all the major political movements on Earth, none is more Orwellian than “social justice.” No other movement is so dedicated to achieving the opposite of what its slogans proclaim – or so aggressive in the warping of language. For example: 1. The diversity and inclusion movement is nominally devoted to fervent “anti-racism.”  In practice, however, they are the only prominent openly racist movement I have encountered during my life in the United States.  Nowadays they routinely mock and dismiss critics for the color of their skin – then accuse those they mock and dismiss of “white fragility.” Recently, I noticed yet another fine mess of diversity and inclusion doublethink: the crusade against “othering.”  What does “othering” mean?  Defining other groups of human beings as objectionably different in order to rationalize the poor treatment they receive at your hands. The crusade against “othering” has become a prominent component of the diversity and inclusive movement, with over 1.5M google hits for this odd neologism.  Check out the Ngram: The most noted skirmish of the anti-othering crusade happened in an English class at Iowa State, where the syllabus gave this now-notorious “GIANT WARNING”: GIANT WARNING: any instances of othering that you participate in intentionally (racism, sexism, ableism, homophobia, sorophobia, transphobia, classism, mocking of mental health issues, body shaming, etc) in class are grounds for dismissal from the classroom.  The same goes for any papers/projects: you cannot choose any topic that takes at its base that one side doesn’t deserve the same basic human rights as you do (ie: no arguments against gay marriage, abortion, Black Lives Matter, etc). Yes, the media scandal only happened because the story was atypically dramatic.  The professor was even ordered to fix her syllabus and “provided additional information regarding the First Amendment policies of the university.” Yet the “othering” meme – and the attendant crusade – are already commonplace in the humanities and social sciences. What is so Orwellian about this crusade?  The fact that most of those who denounce “othering” exemplify the practices they denounce.  The diversity and inclusive movement has a broad list of odious outsiders they mention with scorn and treat with disdain: “straight cis white males,” adherents of traditional religions, conservatives, moderates, opponents of abortion, and even insufficiently radical liberals and progressives. You might think those who preach against othering would strive to assure the world of their hospitable intentions: “Just because you have other ideas doesn’t mean I’m going to other you.”  Instead, they reliably do the opposite, responding to even mild dissent with anger and ostracism. True, few professors threaten their students in writing.  Yet for every educator who others unbelievers on the record, there are probably dozens – if not hundreds – who do so informally.  Imagine you were a student of the chastised Iowa State professor.  After she grudgingly affirms your First Amendment rights, would you feel comfortable submitting work he previously stated was grounds for dismissal?  Not likely, because her initial statement so stridently othered you. The moral: The crucial variable is not official class policy, but the attitude of the teacher.  And teachers who think what the Iowa State professor wrote abound. As far as I know, intolerant, thin-skinned, anti-intellectual educators have been around for… well, forever.  What has changed is the Orwellian nature of their reaction to dissent.  Traditional authoritarians othered openly.  Orwellian proponents of “diversity and inclusion” other vast swaths of humanity while giving the evil eye to anyone who doubts their supreme commitment to compassion and acceptance. (0 COMMENTS)

Over at TheMoneyIllusion I did a post discussing Steve Ambler’s presentation on NGDP targeting, and Nick Rowe’s subsequent discussion. Now I’d like to address some concerns expressed by Stephen Williamson. One concern is that NGDPLT (or average inflation targeting) might be rather complicated to communicate. I believe that’s true of average inflation targeting, but not NGDPLT. Williamson mentioned that each year there would be a different NGDP target growth rate, depending on whether current NGDP was above or below the target path. But I believe it’s a mistake to think in terms of growth rates when evaluating a level targeting regime. Consider the analogy of exchange rates under the Bretton Woods regime. The British pound was targeted at $2.80, plus or minus 1%. In my view that’s a very simple and easy to understand system. But if you consider the exchange rate in terms of growth rates, it might seem very complicated. Thus if the current exchange rate is $2.82, (i.e. slightly overvalued) then the Bank of England might be said to “target a negative growth rate of the exchange rate” until the pound returns to $2.80. The opposite would be true if the exchange rate were currently $2.78. And how long would it take to return the exchange rate to the target? I favor a system where the Fed targets 12-month forward NGDP at exactly the rate implied by a predetermined target path, growing at 4% per year. The focus should not be on current NGDP, or the expected growth rate over the next 12 months, rather the focus should always be on the expected level of NGDP in 12 months. And that expected value should always be equal to the target value. In other words, monetary policymakers should “target the forecast”. Over time, I believe that people would begin to think in level terms, just as with they did with exchange rates under Bretton Woods. If 12 months is too short (arguably true in the special case of Covid-19) then use a 24-month forward target.  But even with inflation targeting there will be special cases, as with severe supply shocks. Williamson also argued that NGDPLT might lead central banks to adopt a “lower for longer” policy after an event like 2008, as both RGDP and inflation would be below trend.  In contrast, with an inflation target the central bank need not make up for depressed RGDP.  (Actually, with the Fed’s dual mandate that distinction is less clear, but I’d like to focus on some other issues.) I have two responses to the questions raised by Williamson: 1.  I believe it’s incorrect to treat the severe NGDP gap of 2008-09 as a given.  In my view, the big drop in NGDP was mostly caused by the Fed’s unwillingness to adopt a policy of 5% NGDP level targeting in 2007.  Had such a policy been in place, the drop in NGDP during 2008-09 would have been far smaller.  This is consistent with models developed by Michael Woodford and others, where current levels of aggregate demand (NGDP) are heavily dependent on expected future aggregate demand, i.e. expected future path of monetary policy.  In 1933, FDR raised current gold prices by promising to raise future gold prices.  Then in 1934, FDR did raise the price of gold from $20.67 to $35/oz.  If the Fed promises to quickly push NGDP back to the 5% growth trend line, then NGDP will fall less sharply below the trend line in the short run.  (Of course that’s not to say there wouldn’t be a recession in 2008-09, but it would have been considerably milder.) 2.  I believe it is a mistake to assume that if a central bank did X and fell short of its inflation and/or NGDP goal, it would have had to do 2X or 3X to have hit the goal.  My claim sounds counterintuitive, but in fact my argument has an affinity to NeoFisherian ideas that have been developed by Williamson.  The very low interest rates of 2009-15 to some extent reflected the low levels and growth rates of nominal GDP during this period.  With higher NGDP and/or faster expected growth in NGDP, the equilibrium (natural) interest rate would have been higher in nominal terms, perhaps allowing the central bank to hit its policy target with a higher policy interest rate. In 2001, Lars Svensson proposed a “foolproof” method for Japan to escape its liquidity trap.  Svensson’s proposal called for a one-time depreciation of the yen, but the most important part of the proposal was that the yen would subsequently be pegged to the US dollar.  In the long run, this would raise Japan’s inflation close to US levels, due to purchasing power parity.  But due to interest parity it would also raise Japan’s nominal interest rates up to US levels, which were still well above zero back in 2001.  I believe Williamson would recognize Svensson’s proposal as being NeoFisherian in spirit, even though Svensson himself is a New Keynesian.  Svensson reassured his readers that the policy would be expansionary “in spite of” of higher Japanese nominal interest rates, but a NeoFisherian would say there’s no need to say “in spite of”. Monetary policy affects interest rates in two ways.  First, policy can target a short-term interest rate.  Second, a change in the policy regime can impact the equilibrium or natural rate of interest.  In monetary policy models, the policy stance is often described as the difference between the policy interest rate and the equilibrium rate.  My argument is that a shift to a 5% NGDPLT target path in 2007 would have radically boosted NGDP growth expectations during 2008.  Actual NGDP expectations fell sharply in the second half of 2008, even for 2009 and 2010.  With NGDPLT, expectations for future NGDP would have held up better during 2008, and thus the equilibrium interest rate would have been higher. This does not mean that the Fed could have gotten by with a higher target interest rate.  We know that the actual target rate was too high to maintain adequate NGDP growth (or even 2% inflation) in 2009.  So we needed a lower interest rate relative to the equilibrium rate. Whether we needed a lower interest rate in absolute terms is uncertain.  If a switch to NGDP level targeting had raised the equilibrium interest rate in 2008, then the effect on the actual short-term interest rate would be ambiguous.  It depends on whether the Keynesian effect or the NeoFisherian effect was dominant. We should never assume that if low rates and lots of QE failed, then even lower rates and even more QE would have been needed to hit the target.  That’s one option, but regime change is another.  The Australian central bank did not cut rates to zero, and didn’t do any QE, and yet completely avoided recession in 2008-09.  A credible and successful policy of maintaining adequate NGDP growth expectations in the long run is the best way of keeping equilibrium interest rates above zero, and avoiding the need to do QE.   (0 COMMENTS)

How can antebellum racial violence and intolerance in America help explain the disappearance of bankers in post-Soviet Russia??? This “mystery” is at the heart of this episode in which EconTalk host Russ Roberts welcomes economist Lisa Cook to discuss her research. Cook had a notion that violent barriers to innovation might exist in both these contexts- and she was right. In the course of her research, Cook found that innovation among African-Americans peaked around the year 1900, and she was determined to find out why. This led her to in-depth research on patents obtained throughout the period, and the conclusions she was able to draw are striking. We hope you’ll agree, and that you’ll consider helping us continue this timely conversation using the prompts below.     1- What is the primary explanation Cook offers for the decline in patents obtained by African-Americans after 1900? What have been some of the uinintended consequences of this decline?   2- What did Cook find regarding the effects of different types of violence on different kinds of inventions? Why does she posit such differential effects occurred?   3- Why might the period of 1900-1930 be considered the “Golden Age of African American business”? How is Garrett Morgan illustrative of this period? What most surprised or bothered you about Morgan’s story?   4- Roberts shares his concerns about two particular areas with respect to African-Americans- policing and education. How does Cook believe these two issues ought to be addressed? To what extent do you agree with her proposed solutions?   5- The conversation ends with a discussion on whether the United States is in need of a “new narrative.” What do you think? What’s wrong with our current national narrative, and what should be amended and/or take its place?   BONUS QUESTION: Regular listeners have become accustomed to Roberts’s skepticism with regard to econometric analysis. Is his skepticism overdone in this case? Explain. (0 COMMENTS)

A few months ago, Mike Huemer published a pithy defense of business in general, and big corporations in particular.  Some highlights: Now, I have had personal experience with individuals, corporations, and government. All three are, of course, sometimes unsatisfactory. But my experience with large corporations is way better than my experience with either individuals or government — better from the standpoint of my ending up feeling satisfied, or being made better off by interacting with them. Thus: Customers of big corporations are often unreasonable and disagreeable, and the company puts up with it and bends over backwards to make the customers happy. Example: I buy a product at a big chain store, take it home, cut off the packaging, then decide, for no particular reason, that I don’t like it anymore. I take it back to the store to return it. Dialogue: “Is there anything wrong with it?” “Nope, I just don’t want it anymore.” “We’re very sorry, sir.” Then they give me my money back. That’s the sort of interaction that I typically have with big corporations and their representatives. (In case this isn’t obvious: in that story, I’m the one who’s being a jerk.) And: The attitude conveyed by most businesses is “You’re the boss.” “Welcome!” “We’re so happy to see you!” “Thank you, and have a nice day.” “Let us know if anything about your experience is not to your liking.” Etc. Sure, the employees are not really sincere in these expressions of emotion. But at least the business thinks they should act like they care about you. The government has no such idea. The attitude conveyed in everything they do is “We’re the boss,” and they have no interest in pretending to care about you. Do what we say, give us your money, then get out. If there’s anything about your experience that is not to your liking, you can go **** yourself. (Note: Not actual quotations.) Sometimes, you see an irate and unreasonable customer loudly berating an employee of some business over the business’ perceived failure. The employee generally listens patiently and tries to fix the problem. Try doing that to one of the government agents who are there to “serve and protect” you. You’ll probably wind up in jail, if not in the hospital. Since I’ve made similar arguments in the past, my admiration for Mike’s essay is no surprise.  Yet as I read, counter-examples and complexities sprang to mind.  When is business unresponsive?  When is government responsive?  And why?  My thoughts, in no particular order: 1. Though I’m homeschooling all four of my kids now, I’ve often interacted with public school teachers and administrators in my parental role.  And I couldn’t help but notice: Almost all K-6 teachers are excruciatingly nice.  Not a one has ever told me to “go **** myself.”  Indeed, I routinely got good results from a single phone call or email.  In my experience, if you don’t care for a teacher, public schools swiftly reassign your child.   Furthermore, if you ask them to go easy on your kid, they will. 2. Still, there are plenty of things you can’t get public schools to do by asking.  You can’t get them to spend more time on math and less on music and art.  You can’t get them to focus more on learning and less on kids’ feelings.  You can’t get them to harshly punish trouble-makers so the rest of the kids can learn in peace.  My point is simply that on some dimensions, public schools were genuinely eager to please me. 3. The same holds in public universities.  If college students complain to their professors or ask for special treatment, we usually appease them.  And said students are rarely afraid to ask. 4. Mike focuses heavily on customer service, where business has a blatant edge over government.  Government workers, on the other hand, usually have a much better deal than similarly qualified private-sector workers.  Compared to the private sector, for example the average U.S. federal worker has similar pay, much better explicit benefits (insurance, pension, vacation), and awesome implicit benefits (job security, low standards). 5. We all know a few notoriously unresponsive businesses.  Verizon is infamously frustrating to deal with.  T-Mobile overcharges me a few dollars every month; they fix it when I complain, but there’s no cure in sight.  Expedia makes is so hard to redeem your COVID-19 flight credit that I’m tempted just to give up. 6. On reflection, even these aggravating companies do a great job on most dimensions.  FiOs works well.  T-Mobile is still cheap after they overcharge me.  And in normal times, Expedia is fantastic.  But these shortcomings still confound me.  Why can’t every business work as seamlessly as CostCo and Amazon? 7. Why does government ever seem to work well?  The best story: Tax funding gives government immense slack.  They get paid almost regardless of what they do, and almost never go bankrupt.  This is ordinarily a recipe for crummy behavior.  However, if you combine defective incentives with strong intrinsic motivation, the picture changes.  Most bosses, for example, want their workers to like them.  In the public sector, bosses can pursue this goal with little fear of losing money or worse.  And so they do, leading to grossly inflated compensation – and lifetime employment of incompetents. 8. Public schools, similarly, can stonewall parents.   To take one glaring example, they can take their normal budget, then decline to deliver in-person classes.  Still, if you ask a nice person – like a kindergarten teacher – to do a nice thing that doesn’t cost them anything, they do it.  Perhaps the most extreme example is the lavish funding for special ed.  No one enjoys saying “No” to handicapped children – and if tax-payers pay your bills, you never really have to say it. 9. Flip side: If you ask a nice person to do good thing that doesn’t sound nice, the fact that it doesn’t cost them anything doesn’t help you.  As a parent, I tried to get public schools to give my kids more math and less music and art, but they refused with beatific smiles.  “Oh, well we believe in educating the whole child…” Question for discussion: What exceptions to Huemer’s rules have you experienced? (0 COMMENTS)

Last week, for the Nth time, the Wall Street Journal had a story about shortages of Covid-19 tests ( “Covid-19 Testing Is Hampered by Shortages of Critical Ingredient,” September 25). An important topic. The journalist notes: According to a survey last month by the American Association for Clinical Chemistry, which represents commercial, hospital and public-health laboratories, 67% of labs are having issues getting both reagents and test kits—the highest level since the group started querying labs in May. Shortages of test kits have persisted for seven months. And there is apparently no explanation in sight. The president of the Riverside Health System in Virginia, Dr. Michael Dicey, echoes the general puzzlement: This is a big country, and we still haven’t been able to settle the testing issue. It doesn’t make any sense. In fact, it makes a lot of sense for anybody who knows something about economics—and does not push it under the rug for ideological reasons. During these seven months, prices of most goods produced in America have been under the legal threat of states’ “price gouging” laws and of the federal Defense Production Act. The latter does not formally control the prices of testing supplies, but the federal government has been doing it indirectly through the FDA, the CDC, and a few commissars who control the allocation of many Covid-19 related products. Among them are Peter Navarro, the so-called “equipment czar” (“‘This Is War’: President’s Equipment Czar to Use Full Powers to Fight Coronavirus,” Wall Street Journal, March 28, 2020), Admiral Brett Giroir, the “testing czar” (“Trump’s Covid-19 Testing Czar Claims Administration Is Doing ‘Everything That We Can Do’ to Increase Testing Capacity,” CNN, August 14, 2020), and Moncef Slaoui, the “vaccine czar” (“Trump Vaccine Czar Will Not Be Required to Disclose Pharma Ties, IG Rules,” The Hill, July 17, 2020). The Soviet Union was also a big country and they too were unable to settle similar issues, such as shortage of automobiles, pharmaceutical products, or bread. It took between 8 and 12 years for an ordinary citizen to take delivery of a car after he ordered it. Shortages also hit pharmaceutical products; a New York Times story of 1977 (“Soviet Medicine Mixes Inconsistency with Diversity”) gives many examples. Another New York Times story, published a few years later, focussed on food shortages (“Soviet Food Shortages: Grumbling and Excuses,” January 15, 1982; OCR errors corrected): The situation in late summer looked so bleak that the Kremlin began a nationwide campaign for the conservation of bread, and there are many cities and towns where bread purchases are restricted. … In Moscow there is de facto rationing, limits set by store managers on the quantities that shoppers can buy. … For years, top Soviet officials have attributed the nation’s poor agricultural performance to bad weather, and the leadership’s official New Year greeting to the people this year again stressed the climatic blight. Legion of examples are available. Strangely—for those who ignore standard price theory—shortages persisted until the whole system crashed. It was not because of a lack of commissars. Could the situation, by any chance, have something to do with the substitution of government allocation for free-market prices? And is it possible that what does not work in the United States right now is also, on a lower scale, the consequence of government interference in prices and allocation? Economic theory and observations strongly point to a positive answer. The efficiency of decentralized markets and free prices in the allocation of resources was first clearly demonstrated by Adam Smith in his 1776 classic The Wealth of Nations. The invisible hand of voluntary cooperation works better than the visible fist of the state. (The featured image of this post shows Smith’s statue in Edinburgh.) The well-known story reported by Philip Coggan in his recent book More (which I review in the current issue of Regulation) illustrates the incapacity of the collectivist mind to understand or to acknowledge that decentralized and free markets are more efficient than government price controls and allocation: In the aftermath of the Soviet Union’s break-up, the economist Paul Seabright was contacted by a Russian official who was keen to learn about the workings of the markets. “Tell me, for example,” he asked “Who is in charge of the supply of bread to the population of London?” (0 COMMENTS)

“In the near future, the world may need to resort to lockdowns again — this time to tackle a climate emergency.” Certainly, Mariana Mazzucato has a taste for striking words. In her latest column for Project Syndicate, Mazzucato argues that Shifting Arctic ice, raging wildfires in western US states and elsewhere, and methane leaks in the North Sea are all warning signs that we are approaching a tipping point on climate change when protecting the future of civilization will require dramatic interventions.   This is the scenario Mazzucato works with. What are the odds it will come by? When could that happen? What are the events that may trigger it? Mazzucato seems to assume that this is almost inevitable if things “go on” as they did in the past, namely if we continue to have economic growth dependent on fossil fuel. Still, more than a scenario this looks like the background story of the movie “Interstellar”: in that movie, a team of scientists was (treacherously) contriving to send some humans up in space in order to perpetuate humanity. Here we have Mazzucato suggesting governments should work to “limit private-vehicle use, ban consumption of red meat, and impose extreme energy-saving measures, while fossil-fuel companies would have to stop drilling.” That the private sector can cope with such a challenge is a hypothesis Mazzucato does not even consider. Such a sad scenario cannot possibly be affected by human ingenuity, at least if supported by private shareholders. Mazzucato’s piece is simply an exercise in “never letting a good crisis go waste”. She maintains that Covid-19 is “itself a consequence of environmental degradation: one recent study dubbed it the disease of the Anthropocene.” Moreover, she says, “climate change will exacerbate the social and economic problems highlighted by the pandemic. These include governments’ diminishing capacity to address public-health crises, the private sector’s limited ability to withstand sustained economic disruption, and pervasive social inequality.” The key sentence in the article is: “These shortcomings reflect the distorted values underlying our priorities.” Virtually all problems, in Mazzucato’s worldview, reflect the fact the priorities in the world of production are attuned to people’s demands. In a capitalist system, there are no other “values underlying our priorities” than the perceived necessities of people which become demand for goods and services. This is the essence of Mazzucato’s view: Addressing this triple crisis requires reorienting corporate governance, finance, policy, and energy systems toward a green economic transformation. To achieve this, three obstacles must be removed: business that is shareholder-driven instead of stakeholder-driven, finance that is used in inadequate and inappropriate ways, and government that is based on outdated economic thinking and faulty assumptions. Corporate governance must now reflect stakeholders’ needs instead of shareholders’ whims. Building an inclusive, sustainable economy depends on productive cooperation among the public and private sectors and civil society. This nicely summarizes the evolution of Mazzucato’s views, from her first to her second book. In her first book, she advocates an “entrepreneurial state”. In the second she does call for going beyond capitalism founded upon “shareholder value”. I think this makes sense. If the state is going to fund or sponsor innovative companies, they will nonetheless have to compete in a world of private business seeking positive profits — and that may show either the virtues of government-led capitalism or its weaknesses. So, why not allow both the government and the private sector reject the profit motive, which means the traditional metrics of success and failure too? Note that in Mazzucato’s piece there are no words of concern for low-income countries, where relatively more “polluting” technologies may be the only ones available, let alone economical, for the time being. I think this piece is very useful. It perfectly epitomizes an attitude which is spreading in some intellectual quarters: use the Covid19 crisis to make some changes permanent, hoping for a world in which people travel less, trade less, rely more on the government. Those on the other side of the debate should take any available opportunity to emphasize that the quarrel is not between those who want to use government capital to satisfy people’s needs, and those who want to use private capital to satisfy people needs: but between those who want the economy to serve the needs of the people, and those who want the economy to supply those goods and services some rulers believe the people should consume. (1 COMMENTS)

Where do our deepest personal values come from? Can we choose those values? Philosopher and author Agnes Callard of the University of Chicago talks about her book, Aspiration, with EconTalk host Russ Roberts. Callard explores the challenge of aspiration–who we are versus who we would like to become. How does aspiration work? How can we […] The post Agnes Callard on Aspiration appeared first on Econlib.

Over at The Money Illusion, fellow EconLog blogger Scott Sumner lays out 21 characteristics of a banana republic. He points out that it’s not a complete list. I agree. In particular, there’s one characteristic missing, a characteristic that has been quite relevant in the United States and in major parts of the world since early April. It is this: Does the government prevent people from practicing their occupation and shut down huge parts of the economy based on the idea, not that people are sick and might spread their sickness to others, but that people might be sick, even though most of them aren’t, and might spread their sickness to others? And relatedly, does it threaten people who could easily prove themselves not to be sick with fines and/or jail sentences for not complying? Also, related, does the government keep changing its rationale for the shutdowns.   (0 COMMENTS)