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

CNN’s Slavish Service to Trump

CNN’s Slavish Service to Trump

I had to do a double-take when I saw this news item.  First came the headline, “Pence won’t let public health officials appear on CNN unless Trump’s disinfo briefings run in full”.  I thought, this is horrible: the administration is holding Fauci and Birx hostage to force CNN to cover not only them but also Trump in his daily blatherings.  But no, it was exactly the other way around.  Pence was keeping them from being interviewed on CNN unless the network also covered their regular briefings.  What CNN has been doing instead is broadcasting the Trump portion and then cutting away when people who actually have something to say step forward.

Bad enough that Trump has a high profile daily outlet for his ravings; it’s incredible the media would treat this as news and CDC updates as disposable filler.  I guess they think they are doing the guy a favor by giving him free media so he doesn’t have to buy as much.

This has been a peeve of mine for some time; see here and here.  We expect Fox to offer itself as a mouthpiece for Trump, but why should the self-designated “enlightened” wing of journalism be just as craven?  Yes, the owners care more about ratings than the political consequences of their coverage, but why do working journalists go along without a peep?  What would it take to get through to them?

Lessons from the Pandemic

Lessons from the Pandemic

First, all who produce things we need or want are “essential workers”.  Health care practitioners are essential, but so are the people who stock pharmacies and grocery and hardware stores or staff customer service phone lines.  Truck drivers are essential.  Farmworkers who pick the crops we plan on eating are too.  Nothing demonstrates whose work matters in this world better than a pandemic that threatens to pull them off the job.

Second, because they are essential, whatever these workers need is what we all need.  If they need a bus to get to work, we all need that bus.  If they need childcare, we all need it.  Obviously, if they need healthcare or time to stay home and get over an illness or tend to their kids, that’s our need too.  And if they need a paycheck that provides secure housing, covers their expenses and gives them a chance to recharge their batteries periodically, we all need them to have it.

A virus does not respect the boundary of skin, the line we draw between ourselves and others.  It tells us that “we” is not just an idea or an attitude, but real economic and physical interconnection.  It’s true that we are not all in the same boat, that the burden of this pandemic falls unequally according to how much money we have, what neighborhood we live in and how much respect we get from those with power over us.  But those inequalities were always in front of us if we were willing to look.  It’s the interconnectedness that is suddenly starkly visible.

The Climate Crisis and the Green New Deal

The Climate Crisis and the Green New Deal

The Covid-19 pandemic won’t last forever, and at some point we will have to return to figuring out how to respond to the climate crisis.  (What a depressing opening line.  No, I have no desire to live in a world of permanent crisis.)  Is the answer a Green New Deal?  Challenge has just published my analysis of this; you can find the link here.

Abstract: The Green New Deal, an attractive agenda of increased investment in energy efficiency and renewable energy sources, is not remotely sufficient to stabilize global warming at a non-catastrophic level. Such a policy needs to be accompanied by direct measures to curtail the use of fossil fuels, although this may complicate the intended messaging.

Richard Epstein: Peak Dishonesty

Richard Epstein: Peak Dishonesty, Econospeak

Epstein is the doyen of libertarian legal theorists. Larry Tisch Professor of law at NYU and a senior fellow at the Hoover Institution, he has vast influence throughout the conservative world, including the White House.

His latest jag is calling for an early end to isolation policies to contain the coronavirus. In a nutshell, his argument is that the virus responsible for this pandemic exhibits a range of toxicities, and that evolutionary forces will naturally and fairly quickly shift this distribution toward milder strains. He claims that happened earlier with HIV, which is now (in his view) no longer much of a threat. He thinks epidemiologists are essentially charlatans, promulgating an approach to modeling viral transmission and severity that ignores his superior understanding.

He was interviewed by Isaac Chotiner of the New Yorker (hat tip: David Dayen), who gave him a hard time about his self-certainty that he is right and all the health professionals are wrong. But that’s not what I want to talk about.

Here is an excerpt from the transcript as published by the New Yorker:

Epstein: ….I do think that the tendency to weaken is there, and I’m willing to bet a great deal of money on it, in the sense that I think that this is right. And I think that the standard models that are put forward by the epidemiologists that have no built-in behavioral response to it—

Chotiner: And you’re not an epidemiologist, correct?

Epstein: No, I’m trained in all of these things. I’ve done a lot of work in these particular areas. And one of the things that is most annoying about this debate is you see all sorts of people putting up expertise on these subjects, but they won’t let anybody question their particular judgment. One of the things you get as a lawyer is a skill of cross-examination. I spent an enormous amount of time over my career teaching medical people about some of this stuff, and their great strengths are procedures and diagnoses in the cases. Their great weakness is understanding general-equilibrium theory.

That last sentence brought back memories.

The Mankiw CV Plan

The Mankiw CV Plan

Greg Mankiw has posted a suggestion for delivering money to people that targets the benefit to those who need it the most.  The idea is clever:

1. Pay people the benefit B.  (This could be spread over many weeks or months.)  Everyone gets the same B.

2. Next year at tax time, compute the ratio r Y(2020)/Y(2019), the ratio of each filer’s 2020 income, net of B, to their 2019 income and capped at 1.  Impose a surcharge of rB on tax liability.  This way people would pay back a proportion of B based on how much they needed it.  If their 2020 income was greater than or equal to 2019, r = 1 and they would repay B in its entirety.  If their 2020 income was zero, r = 0 and there is no surcharge.  (And no tax at all for that matter.)  Partial income losses would lie in between.

Clever and well-intended, but there are problems.

First, what’s income?  Does it include capital gains and losses?  If so, everyone who has a substantial chunk of financial assets will be able to claim zero income in 2020.  What about business losses?  Clearly, if income is defined expansively, as it should be for tax purposes, those who derive income from capital will come out ahead of those who rely on labor.

Second, how will repayment work?  For low to moderate income people who keep their jobs, tax liability for 2020 may be immense—a large proportion of their annual income.  Yes, if such people save all their B they can just apply it to next year’s payment, but how likely is that?  In practical terms, if the country is facing a wave of enforcement actions and bankruptcies a year from now, the repayment mechanism is likely to be abandoned.

Third, what are the incentives?  Mankiw predictably worries about labor supply, but I think the bigger problem is the immense incentive to work off the books.  Instead of saving only your fractional tax rate when you transact in cash, now you will add the savings on your surcharge.  No one who can escape official scrutiny will report any payments or receipts.  If your goal was to drive as much of the economy underground as quickly as possible, you would have succeeded.

I appreciate Mankiw’s attempt to tie provision of government support to the level of need.  One of the virtues of universal, untargeted social insurance, however, is that it requires a smaller enforcement apparatus and doesn’t turn people who play by the rules into suckers.

Congress and the Fed Could Ensure Universal Protection During the Pandemic

Congress and the Fed Could Ensure Universal Protection During the Pandemic

No matter how well or poorly the federal government addresses the overall economic crisis, millions of vulnerable people will be left unprotected.  Homeless people, incarcerated people, immigrants, people in fringe, off-the-books employment like day labor—unless steps are taken that specifically target them, they are staring into the abyss.

This is fundamentally a local problem.  States, counties and cities know where the needs are.  They have existing ties through social service agencies and their connections to nonprofits.  This is where the expertise lies, but their budgets, lean in good times, are in free-fall right now.

The solution is straightforward.  Congress should authorize the Federal Reserve to purchase specially designated state and municipal bonds floated for the specific purpose of serving the health, housing, food and other essential needs of vulnerable populations.  There should be no limit to the amount that can be borrowed.  And the Fed should purchase these bonds with the intention  of retiring them.  Effectively, the Fed would be using its money-creating power to finance social protection at the local level.

This facility can be created immediately, with auditing to follow when practicable.  There should be no delay in meeting the urgent human needs that will otherwise go unaddressed by more conventional policies.

AFL-CIO has a Plan

AFL-CIO has a Plan

From the AFL-CIO website:

PRIORITIES OF THE LABOR MOVEMENT TO ADDRESS THE CORONAVIRUS:

PROTECT FRONT-LINE WORKERS
  • Streamline approaches for allocating and distributing personal protective equipment to working people in greatest need.
  • Issue a workplace safety standard to protect front-line workers and other at-risk workers from infectious diseases.
  • Provide workplace controls, protocols, training and personal protective equipment.
  • Provide clear, protective federal guidance for different groups of workers with different needs.
  • Increase funding for the Occupational Safety and Health Administration and Mine Safety and Health Administration for additional inspectors and health specialists, and for developing and implementing an infectious disease standard.
MITIGATE THE BROADER PUBLIC HEALTH CRISIS

For a Universal Debt and Rental Moratorium

For a Universal Debt and Rental Moratorium

Incomes are collapsing throughout the economy, and both businesses and individuals face a crisis in meeting fixed payments they can’t control.  The most direct step we can take is to temporarily suspend these payment obligations.

Suppose the government were to announce that, starting immediately, all stipulated debt and real estate rental payments were to be suspended for all borrowers and renters.  This moratorium could have an ending date of, say, two months in the future, with the option of extending it if circumstances require.  No interest would accrue to any of these obligations; in effect, we would be stopping the clock on them for a period of time.

Of course, if nothing else were done this would shut down the credit and rental systems completely for the duration of the moratorium, so a stipulation would have to be added that it applies only to debt or rental obligations established at the time of the announcement.  We’d all have to keep two sets of books, one for pre-announcement loans and rentals, the other for post.

International obligations are somewhat more complicated, but the economic heft of the US is great enough that these conditions could probably be imposed unilaterally on foreign counterparties, especially if the logic of this step persuaded other countries to adopt a similar course of action.

A debt moratorium would dampen some channels of financial instability and provide greater security for most participants in the economy.  By itself, however, it would not address the gaping hole in the real economy caused by shutting down whole sectors of goods and services production.  That requires other forms of stimulus.

Some Ideas for Pandeminomics

Some Ideas for Pandeminomics

The starting point for all of what follows is that government, if it has the will to act, is currently in the driver’s seat.  Much of the private sector is facing a terrifying confluence of crunches: supply breakdowns, demand falling off a cliff for many goods and services, and a looming shortfall of liquidity to service debt.  A wide swath of business is on the ropes and needs a rescue from government.  This puts the power in our hands if we can wield it.  Of course, with Republican dominance in Washington and the continued loyalty of the Democratic Party to the liberal wing of the plutocracy, the likelihood that we will take advantage of this moment is small.  Still, the opportunity is there, and that’s the basis for thinking ambitiously.

1. Debt-equity buyouts.  There’s a lot of business debt, and borrowers face a crisis as their earnings tumble.  Andrew Ross Sorkin proposes a scheme in which the government would offer no-interest bridge loans to any and all comers, with repayment delayed until after the immediate crisis abates.  The key condition, and just about the only one, is that recipients commit to retaining 90% of their pre-virus workforce.  Dean Baker would go further and provide direct bailout support in exchange for quid pro quo’s, like zeroing out shareholders and limiting CEO pay.

Here is another idea.  Have the government offer to purchase any and all outstanding corporate debt, converting it into an equity stake.  Wipe the debt off the books and take a public ownership position instead, which could be used to pursue objectives, like cutting pay at the top and expanding worker benefits, that the vast majority of Americans support.

2. Public voucher purchases.  For the small business and self-employed sector, particularly in services, I like the Saez-Zucman idea of having the government serve as buyer of last resort.  Specifically, I would set up a public fund to enable the government—perhaps at state and local levels—purchase vouchers for future goods.  A massage therapist, for example, could sell a quantity of vouchers for future massage sessions, providing an income stream to make it through the quarantine.  When the crisis recedes, the government would distribute these vouchers to the public, either through a highly discounted sale or even free distribution.  Perhaps the vouchers could be for steep discounts, say 80%, off the posted price to all for a bit of post-virus income as well.

Benefit-Cost Analysis and the Coronavirus

Benefit-Cost Analysis and the Coronavirus

We are in the middle of a flurry of decision-making on how to deal with COVID-19.  After much resistance, officials are now canceling public events, closing schools and discouraging other activities that put us in contact with each other.  Travel restrictions and possible shutdowns of workplaces, as we’ve seen in Italy, may be up next.

It’s interesting we haven’t heard anything about benefit-cost analysis in all this.  Nearly all economists profess to think that BCA is the single best decision method.  Almost every introductory economics textbook is built around benefit-cost thinking, and for decades federal regulations have mandated BCA for proposals with significant economic impacts.

But now we are facing immense choices—what could have a more drastic impact than shutting down most of the economy by fiat?—and BCA is nowhere to be found.