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

Using insurance to improve policing

Eric Kramer | June 8, 2020 8:39 am

Law
Politics
US EConomics

There are two insurance-related police reform ideas being discussed.

One approach focuses on municipal liability insurance.  Many municipalities do not purchase liability insurance to cover lawsuits against officers, instead choosing to self-insure.  This is potentially a problem because insurers actually play an important role in loss control.  They provide information and services related to procedures, training, the risks posed by individual officers, etc.

The second proposal would require individual police officers to purchase professional liability insurance, in the same way that doctors and other professionals do today:

In response, we propose an innovative, market-based solution – mandatory professional liability insurance for police officers. Much the way that drivers with terrible records may be forced off the roads by high premiums, officers with the most dangerous histories, tendencies, and indicators might be “priced-out” of policing by premiums that reflect their actual risk of unjustified violence. Potential reductions or increases in premiums would create systemic effects by incentivizing both departments and individual officers to adopt policies, trainings, and procedures that are proven to lower risk.  Insurance companies, an outside third-party removed from local politics, would be in an ideal position to assess indicators of risk actuarially and set premiums accordingly.

My sense is that neither of these proposals are magic bullets, but they may be worth trying.

Under the first proposal, municipalities that buy insurance would have less of an incentive to prevent lawsuits than they do when they self-insure.  The loss control expertise of insurance companies may offset this, but municipalities that self-insure can (I assume) purchase loss control services today.  They may choose not to do so, presumably because of pressures from police officers and unions, because “loss control” includes things like getting rid of problem officers.  This is the heart of the political problem, and insurance will not make it go away, though it may help create pressure for reform if it makes better information about the costs of poor policing available.

Forcing municipalities to purchase insurance may also help if municipal governments that self-insure do not put aside adequate funds (“reserves”) to pay for wrongdoing by police officers that occurs today.  By under-reserving for today’s wrongful behavior by police, city officials can pass the costs of poor policing practices on to future officials and taxpayers.  If municipalities purchase reasonably full insurance, the expected costs of lawsuits from current policing practices will be reflected in the current insurance premium.  This will increase the incentive of city officials to reduce behavior that leads to lawsuits.  It seems to me that this may be the main advantage of both proposals.

The same problems would arise under the second proposal.  In addition, the prices charged to individual officers would quickly be politicized, just as they are in many other areas of insurance.  More subtly, full experience rating of officers may not be desirable because it exposes officers to too much risk.

 

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Jobs Report Not Really All That Surprising

Barkley Rosser | June 7, 2020 3:01 pm

US/Global Economics

Jobs Report Not Really All That Surprising

I am a bit taken aback at how shocked so many are about the new jobs report showing that net hiring in May was positive.  For regular readers here I have made several posts here noting that the US economy was almost certainly growing, probably for at least a month. The most recent was my one a few days ago on Rising Oil Demand, and an earlier one, where I was vaguer about the US economy, was the one on Rising Carbon Emissions.  It has been clear to me that the US economy hit bottom in terms of output about a month ago, which put it about a month behind the world economy as a whole and two months behind China.  All of this correlates with how the relative patterns of the pandemic have gone, with China a month ahead of most of the world and about two months ahead of the US.  I think it has been pretty clear that US GDP has been growing, so nobody should be all that surprised that the labor market has turned around and net hiring is now positive.

How did all this confusion come about?  I think the issue is that we get weekly reports on fresh layoffs as measured by new applications for unemployment insurance while we only get monthly reports on net hiring, with our monthly BLS reports such as the one that came out today and surprised the heck out of so many observers who should have known better.  I note that I did not forecast an increase in net hiring, but I had avoided making any forecasts on employment beyond the comment that it is a lagging indicator behind output, which would allow for net hiring to have still been negative. But I was somewhat mystified by what seemed to be such an disjuncture, clear evidence GDP was rising while there were these ongoing weekly reports of many more getting laid off.

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Weekly Indicators for June 1 – 5 at Seeking Alpha

Dan Crawford | June 6, 2020 8:12 pm

US/Global Economics

by New Deal democrat

Weekly Indicators for June 1 – 5 at Seeking Alpha

My Weekly indicators post is up at Seeking Alpha.

The interest rate-sensitive long leading indicators largely turned positive as soon as the coronavirus crisis hit. As lockdowns have eased, several of the short leading indicators have also now turned – or at least are a lot less awful.

If the easing up and/or the huge protests result in a surge of new coronavirus cases, that could certainly reverse itself. But for now, “less awful” is the trend.

As usual, clicking over and reading rewards me with a penny or two for the effort I put into the endeavor.

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Global Oil Demand Rises  

Barkley Rosser | June 6, 2020 7:44 pm

US/Global Economics

Global Oil Demand Rises

Back on April 20 we saw briefly the bizarre appearance of negative oil prices in certain markets. Today for the first time in many months Brent crude briefly topped $40 per barrel, although it fell back below that level (WTI is tending to be about $3 behind it, despite a single day recently when for the first time in years it nearly matched Brent crude at only 18 cents lower). However, it looks like the recent trend of global oil prices rising will continue some more, with prices likely to go above $40 and stay there.  How far beyond that I shall not forecast.  But this is a price level where many oil exporting nations can get out of immediate financial crisis, with many of them actually making money, if not as much as they would with still higher prices.

One element of this price rise is on the supply side, especially with Saudi Arabia and Russia apparently maintaining a production cut agreement they have.  Rumors from OilPrice.com suggest there may be cheating on these agreements to come. But for now these two are holding the line on the supply side.
More important has been the increase on the demand side, which looks set to continue rising for at least the near future. I have posted previously on how global carbon emissions appear to have bottomed around April 7, with them rising since, if still well below pre-pandemic levels.  Burning fossil fuels is a major source of these emissions, so it is quite possible that oil demand has been rising since around then, even though it was 10 days after then that oil prices did their brief plunge into negative territory.
According  to OilPrice.com it is China that is leading this increase in oil demand.  It was the first economy to drop due to the pandemic, with its oil demand declining about 40% during February. However, it looks that China’s demand has returned as of May to a level 92% of its peak prior to the pandemic. That is substantial, while leaving more room for further growth.
Another nation with a large economy making an even sharper turnaround is India. In early April at the beginning of its two month lockdown its demand declined by 60%, but now it is estimated that in June its demand will return fully to its pre-pandemic level.
US demand has also made a turnaround, although it did not decline as much and is recovering more slowly. But its demand is rising and will almost certainly continue to do so, if not at a rate that would happen if there were a V-style economic recovery.
Barkley Rosser
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If only it were so simple

Dan Crawford | June 5, 2020 9:01 am

Politics
US/Global Economics

If only it were so simple

by

Ken Melvin

The covid-19 pandemic has been difficult to get a handle on; so much unknown, everyday so much new info. It will probably take years for the world to fully to understand all that the 2020 covid-19 pandemic entailed.

The George Floyd protests are all too familiar. The gut wrenching images from Minneapolis angered the nation. I don’t know what it’s like to be black in America; don’t feel that I have the right to say what I think for fear that I might be wrong; might do harm; but there is a part of Black Americans’ struggle and of the protests that I feel that I do know something about; enough to offer my thoughts.

America is not doing well; hasn’t been doing well for more than 45 yrs now. Today, by any measure, even before the pandemic, 40% of our workforce is not really making a living. The extensions of this are monumental! Yet our politicians prattle on about the ‘middle class’ while for all these years the middle class has been shrinking before our very eyes; the poorer workers have kept getting poorer. America is, and has now long been, in denial.

For 45 yrs now, the middle class, along with all other Americans, has been, more than anytime since the Great Depression?, subjected to a selection process; a selection process that applies to all American workers. As there are fewer and fewer good paying jobs, the standards for hiring keep getting tighter. What standards you ask? Age, education, health, credit, social status, religion, culture, race, ethnicity, … make up your own. Yes, all are forms of discrimination, all are arbitrary; but as there are fewer and fewer good paying jobs there has to be a way of deciding. Universities do it, always have; there’s always been a selection process. Even during the Great Depression , if you knew the right someone, you could get a good job; meritocracy be damned. It is not at all as simple as ‘whitey’ has to give ‘us’ some of what their getting; it’s more that the whole working class is suffering and that those at the bottom are suffering the most. And, this will continue unless major changes are made to the economic model.

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Will confident conservatism end with a bang or a whimper?

Eric Kramer | June 5, 2020 7:27 am

Hot Topics
Politics
US EConomics

I highly recommend David Hopkins blog.  Yesterday, he posted a piece on the end of confident conservatism.  It begins like this:

After Richard Nixon’s 1968 election, many conservatives came to believe that their movement naturally represented the political views of most Americans. This conservative faith in the wisdom of the average citizen was cemented by Ronald Reagan’s popularity in the 1980s, which was widely interpreted at the time (and not just by conservatives) as a decisive expression of the nation’s exhaustion with both outdated New Deal economic policies and decadent ’60s-era cultural practices.

Here are the final paragraphs:

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Ironies Of Minneapolis

Barkley Rosser | June 2, 2020 8:32 am

Politics
US/Global Economics

Ironies Of Minneapolis

In 1944 the Minnesota Democratic Party united with the Farmer-Labor Party to form the Democratic-Farmer-Labor Party of Minnesota, one of the most progressive state branches of the US Democratic Party.  In 1948 its mayor of Minneapolis, Hubert H. Humphrey introduced at the national convention the resolution supporting civil rights for African-Americans whose acceptance led to a walkout by Strom Thurmond and other Dixiecrats, with Thurmond running for president against Truman.  Humphrey would later become a famously progressive US senator and eventually LBJ’s vice president, which dragged him down due to the Vietnam War.

He was succeeded by equally progressive Arthur Naftalin as Minneapolis mayor, a political science professor at the University of Minnesota, who served until 1969.  However, for reasons that remain somewhat unclear, the attempted progressive policies of these majors did not result in excellent conditions for the city’s then quite small African American population, who lived in highly segregated neighborhoods. Whatever progress did happen was substantially damaged by Naftalin’s successor as mayor, Charles Stenvig, the city’s police chief, who ran on a platform that demanded to “take the handcuffs off the police” and promised to crack down on “racial militants.” He was reelected in 1971, and many see him being a major influence in the police department of Minneapolis becoming an exceptionally racist and vicious one.

All this is recounted in a 2008 paper that appeared in the journal American Studies by Jeffrey T. Manuel and Andrew Urban, “‘You Can’t Legislate the Heart‘: Minneapolis Mayor Charles Stenvig and the Politics of Law and Order.” vol. 43, issue 3/4, pp. 195-219.

Furthermore, with African-Americans moving more into the city in more recent years, the gap between educational outcome as well income and employment outcomes between the races has increased to be among the highest in the nation, despite the liberal past and reputation of the city.  These facts contribute to the bad racial situation in the city, which combined with the racist police department have led to this awful current situation there.

A source on the educational gap is Minnesota among worst achievement-gap states; mprnews, and a source on the income and employment gas is Something Is Rotten in the State of Minnesota politico magazine, this latter also dealing with bad racial police behavior in Minneapolis.

I thank Tyler Cowen at Marginal Revolution for these sources, and this general account, which I did not know of.  This is indeed a sad tale, given the proud and generally admirable history of the Minnesota Democratic-Farmer-Labor Party.

Barkley Rosser

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Is There a Future for FDI?—Update

Dan Crawford | June 1, 2020 6:15 am

US/Global Economics

by Joseph Joyce

Is There a Future for FDI?—Update

The Organization of Economic Cooperation and Development (OECD), which recently reported on foreign direct investment (FDI) in 2019, has released a new study on the impact of the pandemic on future FDI. The OECD points out notes that FDI flows before the pandemic have been on a downward trend since 2015, and FDI flows in 2018 and 2019 were lower than any years since 2010, suggesting that the decline in FDI will not be reversed when the pandemic eases. This comes as policymakers in the U.S. and elsewhere show concern over Chinese acquisition of domestic firms, and the Chinese government clamps down on Hong Kong’s autonomy.

The OECD report’s authors have optimistic, middle and pessimistic scenarios on the effectiveness of public health and economic policy measures, and their impact on FDI flows in the medium term. Under the optimistic scenario, public health measures are effective in controlling the spread of the virus and economic policies successful in restoring economic growth in the latter half of this year. FDI flows would fall between 30% to 40% in 2020 before rising by a similar amount in 2021 to their previous level. Under the middle scenario, public health and economic policy measures are partially but not completely effective, and FDI flows fall between 35% to 45% this year before recovering somewhat in 2021, but would remain about one-third below pre-crisis levels.  The pessimistic scenario is based on the need for continued measures to contain the virus and repair extensive economic damage, which would lead to drop in FDI flows of over 40% this year and no recovery in 2021.

The impact of an extended decline in FDI will be particularly severe for emerging market and developing economies, which have already seen the reversal of portfolio capital flows. The OECD report points out that the primary and manufacturing sectors, which account for a large proportion of FDI in these economies, have been particularly hard hit during the pandemic. Moreover, the corporate earnings that are a major source of the funding of new FDI expenditures by multinational firms fell in 2019 and will decline further this year.

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It didn’t happen overnight

Dan Crawford | May 31, 2020 9:12 am

US/Global Economics

by Ken Melvin

3rd World

—

It didn’t happen overnight.

The nightly news, when talking about the effect of the pandemic on the populace in, say, Southeast Asian, African, South American, … countries, invariably refer to the tenuous hold on life of their working poor; they don’t really have a job. Each day they rise and go forth looking for work that pays enough that they and their family can continue to subsist. It is, in some countries, a long-standing problem.

Sound too familiar? Sometime in the late 80s (??) Americans began to see day labors line up at Home Depot and Lowe’s lots in numbers not seen since The Great Depression. Manufacturing Corporations began subbing out their work to sub-contractors, otherwise known as employees without benefits; Construction Contractors subbed out construction work to these employees without benefits; Engineering Firms subbed out engineering to these employees without benefits; Landscapers’ workers were now sub-contractors/independent contractors; … Here, in the SF Bay Area, time and again, we saw vans loads of undocumented Hispanics under a ‘Labor Contractor’ come in from the Central Valley to build condos; the white Contractor for the project didn’t have a single employee; none of the workers got a W-2. Recall watching, sometime in the 90s (??), a familiar, well dressed, rotund guest from Wall Street, on the PBS News Hour, forcefully proclaiming to the TV audience:

… American workers are going to have to learn to compete with the Chinese; Civil Service employees, factory employees, … are all going to have to work for less …

All this subcontracting, independent contractors, … was a scam, a scam meant to circumvent paying going wages and benefits, … to enhance profit margins; a scam that transferred more wealth to the top.

 

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