Relevant and even prescient commentary on news, politics and the economy.

There is hope.

The barriers facing black people in America today are numerous and daunting:  poor schools, dangerous neighborhoods, lack of income, wealth, and connections, persistent formal and informal discrimination in so many settings.  The list goes on, and it certainly includes many problems with our criminal justice system, from over-criminalization to degrading conditions of imprisonment to oppressive and violent policing.

Of all the problems facing black Americans, problems in the criminal justice system should be among the easiest to address.  This does not mean we can wave a magic wand and make these problems disappear.  But there are many promising ideas for reform; a careful effort to reform policing that would make a real difference.  We can quibble over the details and test different approaches, but we have a good idea of what needs to be done.

The combination of clear injustice, persistent and brave protesters, and promising policy ideas should make this a moment of hope for Americans, an opportunity to make measurable progress on a journey that has taken far too long.

Instead of grasping this opportunity with open arms, Trump is doing everything in his power to divide us for political gain.  Fortunately, Trump may not succeed.  We have made real progress since 1968.  Even many Republicans are concerned with police violence.  Plus, we have cell phones.  Ironically, Trump’s resistance may keep the protests alive and underscore the need for change.  Let’s hope.

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Ezra Klein is mad at the Democrats over automatic stabilizers

The HEROES act passed by House Democrats did not include a formula that would keep expanded unemployment insurance benefits in place until the economy has recovered.  The always thoughtful Ezra Klein is very critical of this omission.  His argument can be boiled down to two points:

  1. If Biden wins the presidency, Republicans will predictably try to destroy Biden politically by refusing to extend economic supports needed to protect families and promote an economic recovery. Automatic stabilizers are critical to protect a possible Biden presidency from Republican sabotage.
  2. Republicans need an economic stimulus package in the run up to the November elections more than Democrats do. This gives Democrats the bargaining power they need to force Republicans to accept automatic stabilizers.

According to Klein, moderate and progressive Democrats all support automatic stabilizers, and the idea polls well, but House leadership backed off when the CBO said the stabilizers for unemployment would cost $1 to 2 trillion dollars.  At the same time, Pelosi emphasized that the money would be spent if needed, so there is no actual savings from refusing to include automatic stabilizers, it’s political posturing all the way down.

I agree with Klein on point 1 above.  Automatic stabilizers are critical to protect a Biden presidency from Republican sabotage.  (It would be foolish to count on winning a working majority in the Senate and repealing the filibuster.)

I am less sure that Klein’s analysis of bargaining power (point 2 above) is correct, although I am sympathetic to his position.

Suppose that July rolls around and states are laying off workers and expanded unemployment benefits are about to expire.  The Republicans can agree to aid state and local governments and to extend UI benefits for a few months.  Democrats can reject this and hold out for automatic stabilizers.  Republicans will paint them as obstructionist.  It is not entirely clear who wins this public relations war, and with the election approaching the Democrats may not be willing to gamble if Biden appears to be leading.

Even more important, failure to agree to a package will lead to immense suffering as UI benefits expire.  Faced with this human catastrophe, Democrats may not be willing to play hardball with Republicans.  It’s like a real mother and an imposter mother bargaining over a baby:  if the no agreement point is cutting the baby in half, and the real mother is unwilling to do this, the imposter mother gets the baby.

Should the Democrats be willing to play hardball against the Republicans?  Should they be willing to inflict tremendous economic damage on innocent people to protect a Biden presidency?  I understand why the Democrats are reluctant to do this.  It is tempting to think that Democrats should respond to Republican hostage taking and hardball politics in kind, but the short-run humanitarian costs are very real, ratcheting up the level of inter-party conflict is bad for our democracy, and there is a legitimate question about whether the Democrats should wait and hope that the political environment shifts in a way that moderates the Republican party (e.g., perhaps demographic replacement will force Republican elites to change tactics).  On the other hand, perhaps the Republican party is so authoritarian that hardball is inevitable and necessary, despite the short-run suffering it will cause and the potential damage to our democracy from further escalating partisan conflict.

Finally, it is not clear from Klein’s article exactly how the bargaining inside the Democratic party went down.  It is possible that members from swing districts opposed automatic stabilizers for narrow careerist reasons, even if the inclusion of automatic stabilizers would have had only a small effect on their re-election prospects.  In this case, the real problem here is not the democrats as a group, but the careerism of a small group coupled with the weakness of parties in the American political system (that is, the inability of parties to discipline wayward members).

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COVID-19 progress, take 2

In response to the comment on my last post . . . rolling 7 day average death rates with the peak for each country set to 100.

 

We peaked later than most countries other than Germany, which seems to be making better progress than us.  We may be doing as well (or as badly) as the U.K.  It seems like France and Spain are also outperforming the U.S. on this metric.

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A simple plan to produce billions of N95 masks

We desperately need to increase our capacity to test for COVID-19, to trace contacts, and to produce masks and other forms of personal protective equipment.  This will allow us to keep the virus under control and to cautiously re-start economic activity as we await development of a vaccine.  Unfortunately, President Trump has made it clear that he will not lead a mobilization against the virus.  His goal is simply to avoid blame for failures.

Congress cannot force the president to act, and it certainly cannot force him to be competent or honest.  Instead, Congress needs to go around the president.  This is not easy to do, but in the case of personal protective gear there is a simple law Congress can pass to greatly increase supplies.  To illustrate, here is how Congress can increase production of N95 masks:

  1. Take a price list for N95 masks from 3M or Honeywell or another major producer of masks from December 2019
  2. Decide which N95 models are most useful for managing the epidemic
  3. Quadruple the prices of these models
  4. Make a binding commitment to purchase all N95 masks produced between now and the end of 2020 at these prices

This simple law would give manufacturers a strong incentive to gear up production – to run additional shifts, to train new workers, to install new production equipment, etc.  The incentives it creates would filter through the entire web of suppliers that contribute to mask production.  It requires no action from the executive branch of government except cutting checks.  It is possible that too many masks will be produced, but any unneeded masks could be used to replenish the national stockpile, sent to low income countries, or simply mailed to every American household to use during flu season.

Congress can take direct action to increase mask production because N95 masks are well-defined products.  The same approach would work other forms of personal protective gear.  It would be more difficult to contract in this manner for increased test production, since there are many tests and clear standards have not been set (for time to get a result, false positive and negative rates, etc.).  In addition, we want to encourage the introduction of new technologies.  All this would require more complicated legislation.  But even in the case of tests Congress could jury rig something imperfect.

In the face of a disastrously incompetent and irresponsible president, Congress must step into the breach.

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Yes, the Democrats can play hardball with McConnell

Voters typically hold the President and his party responsible for the state of the country at the time of elections.  This means that Trump and the Republicans have a strong incentive to support an aggressive federal response to the Covid-19 epidemic and the economic collapse.  Under normal rules of political engagement, this should allow the House Democrats to extract concessions from the Republicans in negotiations over the government’s response to the crisis.

So far, however, this has not happened.  Republican Senate Majority Leader Mitch McConnell has been a cagey negotiator, pretending to oppose economic relief measures that Republicans clearly need.  This strategy has forced Democrats to negotiate for desperately needed public health policies and economic relief that will improve the political prospects of Republicans in the November election.  McConnell has framed these policies as concessions and secured special benefits for key Republican constituents in exchange, without making concessions to Democrats on their distinctive priorities.

Many observers are worried that the Democrats will get rolled by McConnell again on the next Covid-19 relief package, which will center on desperately needed relief for state and local governments.  McConnell has already expressed opposition to aid, even though congressional Republicans almost certainly need to provide relief to states as much as Democrats.  If McConnell gets his way Democrats will use their negotiating leverage to secure aid to state and local governments, rather than on getting their other priorities written into law.

This would be a disaster.  Democrats have two urgent priorities that Republicans will strenuously oppose.  First, the Democrats need nationwide vote-by-mail to make sure that the 2020 election is as free and fair as possible.  They also need funding for the Post Office to ensure that mailed ballots are delivered and counted.  Second, the Democrats need to create triggers to automatically extend the economic stimulus measures that are already in place.  The CBO now predicts a severe contraction that will last into fiscal year 2021, with a deficit of $5.8 trillion over two years.  Without automatic triggers, it is predictable that the Republicans will cite the deficit to deny further economic stimulus if Biden wins the presidency, and if history is any guide, this effort to destroy Biden’s presidency may well succeed.

How can Democrats maximize their leverage to get their priorities through Congress?  I believe the best approach is for the House to pass its own bill and send it to the Senate for a vote.  In addition to economic relief for states, the bill should include automatic triggers and vote-by-mail, repeal of the tax cut for real estate developers, and other popular provisions that Republicans will oppose.  Democrats may end up making concessions to the Republicans, but they will be in a strong position to preserve their key policy objectives.

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Lockdown socialism, the substance

Arnold Kling writes (my bold):

Yesterday’s post on lockdown socialism was unusual for me, in that it was not aimed at persuading someone who might disagree. Let me approach the topic by trying to make the best case for the other side.
If I were a lockdown socialist, I would argue as follows.

  1. We want people to engage in less economic activity, because we believe that will save lives.

[details omitted]

  1. Because we want everyone to comply with lockdowns, we have to make sure that they do not suffer privation. Therefore, we have to send checks to every household so that they can afford necessities, we have to make sure that people are not evicted from their homes for failure to pay rent or mortgages, we have to bail out key industries, we have to protect banks from failure, we have to make sure that hospitals obtain funds, and we have to compensate state and local governments for their expenses and the revenue shortfall that will fall on them from lower tax collections.

Assuming that this is a fair steel-man argument, here are my counter-arguments.

I am more worried about (2) than (1). That is, we might need to continue the lockdowns, but we absolutely have to stop the socialism.

I am going to skip Kling’s argument against the lockdown and focus on his argument against “socialism”.  Here is his brief against socialism:

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Conservative rhetoric, COVID-19, and Lockdown Socialism

Arnold Kling has a recent post up on “Lockdown Socialism”:

I’ve seen headlines about polls showing that people are afraid of restrictions being lifted too soon. To me, it sounds as if they prefer what I call Lockdown Socialism.

Under Lockdown Socialism:

–you can stay in your residence, but paying rent or paying your mortgage is optional.

–you can obtain groceries and shop on line, but having a job is optional.

–other people work at farms, factories, and distribution services to make sure that you have food on the table, but you can sit at home waiting for a vaccine.

–people still work in nursing homes that have lost so many patients that they no longer have enough revenue to make payroll.

–professors and teachers are paid even though schools are shut down.

–police protect your property even though they are at risk for catching the virus and criminals are being set free.

–state and local governments will continue paying employees even though sales tax revenue has collapsed.

–if you own a small business, you don’t need revenue, because the government will keep sending checks.

–if you own shares in an airline, a bank, or other fragile corporations, don’t worry, the Treasury will work something out.

This might not be sustainable.

Kling later published a second post acknowledging that the phrase “Lockdown Socialism” is inflammatory and explaining why he opposes the lockdown and the economic relief the government is providing during the crisis.  I will turn to those arguments in a day or two.  But his inflammatory post is worth examining for what it teaches us about the rhetorical strategies of economic conservatives. I will focus on four aspects of his argument.

Redbaiting: 

Kling argues that Americans who worry that restrictions will be lifted too soon support something called “Lockdown Socialism”.  I doubt that a sizable majority of Americans prefer something called “Lockdown Socialism” or indeed any other form of socialism.  Very few Americans identify as socialists, and most of those who do use the term to mean social democratic capitalism, which is not socialism in the standard sense of government ownership of the means of production and central economic planning.  Using the phrase “Lockdown Socialism” seems to be nothing more than an attempt by Kling to tar people he disagrees with the negative connotations that socialism has for many.

Polls are often difficult to interpret, but in this case I suspect that people who worry that restrictions will be lifted too early are worried that . . . restrictions will be lifted too early.

Fostering resentful identity politics:

The most serious problem with Kling’s post is that he frames “lockdown socialism” to encourage his readers 1) to think that many people are violating important social norms, including the norms to have a job and pay your rent, and 2) to focus on horizontal inequities, such as the fact that some people have to work at essential jobs while others stay safe at home (without paying rent). 

Conservative economists often encourage us to focus on norm violations and horizontal inequities caused by government programs because it is the most effective way to get people to support limited government.  Most people are not buying what libertarians have on offer, but resentment sells.  Kling’s post garnered an unusually large number of comments, and it was reposted by Tyler Cowen, and it also got an unusually large number of comments on his blog.  Of course, it is inevitable that some political actors will try to exploit resentments for political gain.  The question is whether responsible public intellectuals should frame issues in a way that foments resentment and distrust by suggesting that policy disagreements are rooted in opportunism and rejection of widely shared values.

I think not.  Resentment is politically toxic but using inequities that are plausibly justified to foster resentment is a choice we do not need to make.  Rather than encouraging essential workers to be resentful of the fact that they are putting themselves at risk while others are safe at home, we can express gratitude to them and encourage them to feel good about the sacrifices they are making on our behalf.  Classical liberals used to warn about the dangers of envy, but too many small-government conservatives today think nothing of deliberately stoking resentment, a far more dangerous emotion.

Disaster innuendo:

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Real options and social distancing

I missed this when it first came out:

We think that the debate regarding extreme social distancing has a clear verdict — it is imperative that we should engage in this social distancing (shelter in place for all but essential workers) at least for the foreseeable short-term, but for reasons that both sides have missed.

Our country does not need to decide today whether it is worth shutting down the economy for a prolonged period to protect against coronavirus. Instead, we only need to decide what to do for now. And for now, the health benefits of extreme social distancing clearly exceed the costs to the economy regardless of your chosen economic model. To understand this, it is critical to appreciate the concept of real options.

Recommended.

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Quick take on the Payroll Protection Program and Health Care Enhancement Act

The House yesterday approved the Payroll Protection Program and Health Care Enhancement Act.  The PPP part of the law quite literally just increases the amount of money allocated to the program.  That’s it.  The law does almost nothing to fix the serious defects of the program in the original CARES act.  This is remarkable because the initial law was so poorly drafted:

  • The sign-up process was first come, first served, which favored larger businesses with better access to credit and stronger banking relationships – firms least likely to need assistance to survive.
  • The sign-up process appears to have disfavored areas that and industries that are hardest hit by the economic downturn.
  • The act requires businesses to rehire staff to get loan forgiveness, but many laid-off employees are earning more on the new generous unemployment program than they did at work.  This makes it difficult for some businesses to re-open and qualify for loan forgiveness.
  • Loan forgiveness is limited for businesses with higher non-payroll costs.
  • The money is very poorly targeted.  A business can qualify for PPP money even if it is still profitable.  To get money, a business owner just has to certify that “current economic uncertainty makes the loan necessary to support your ongoing operations”.  Basically, if you can reasonably claim to be worried about the effect of economic conditions on your business, step right up!

There is a good chance that we will discover that much of the money given away under this act was given to businesses that did not need it.  Since the current cost of almost $700 billion is only supposed to cover two months, and will probably be insufficient to do that, and there is no end in sight to the current economic freeze, this is inexcusable.  It would have been easy for the Senate to fix some of these problems.

The bill also provides $75 billion for health care providers and $25 billion for testing.  The testing provisions were controversial, with Republicans trying to put responsibility on states and Democrats wanting a more aggressive federal response led by President Trump.  There are a few restrictions on how the testing money will be spent (mostly related to how the money is allocated between the feds, states and localities, tribes).  States are required to develop testing plans and the feds are required to distribute some of the funds within 30 days.  The Trump administration is supposed to develop a strategic testing plan that will “address how the Secretary will increase domestic testing capacity”, and the plan is supposed to be updated every 90 days.  I’m sure that will be helpful.  (In fact, I don’t see anything in the bill that would prevent Trump from giving all the money to the states and washing his hands of responsibility entirely, but I may be missing something.)

My overall take is that the provisions related to testing are not nearly aggressive enough, and they are extremely vagueVague delegations won’t work in our current era of divided and highly polarized government, and it certainly won’t work with Trump running the executive branch.  Democrats need a new legislative playbook that avoids just tossing problems over to the executive branch to solve.  This is hard but can be done.  (See here and here for previous discussions.)

Despite my criticisms of the bill, it is arguably better than nothing, and I might well have supported the bill if I were a rank and file House member.  (In fact, the only House Democrat to vote against the bill was Ocasio-Cortez.)  The big question is what Democrats could have done to achieve a better outcome.  It is hard to tell from outside, but figuring out how to do better is critical.

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