Good Fellows -- International Man Of History - Barokong

A new lively Good Fellows discussion video and podcast Direct links here if the above embed codes don't work.
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Jones And Fernández-Villaverde Update - Barokong

Chad Jones and Jesús Fernández-Villaverde have updated their SIR model with social distancing. A part I find very intriguing is that they impute the infection rate and the reproduction rate from death rate data. The infection rate \(I_t\)  is given by \[I_t = \frac1\delta \gamma \left( \fracd_t+2-d_t+1\theta - d_t+1 \right)\] where the greek letters are parameters they estimate by fitting the path of deaths over time, and \(d_t\) is the daily death rate. Though deaths only happen a few weeks after infection, you can reverse the versi dynamics to figure out how many are infected today from how many are dying today. (Well, tomorrow and the day after). They similarly infer today's reproduction rate \(R_0\) from the next three days death rates. Now, there is clearly some inaccuracy here, and I've been pestering them to provide standard errors. There is some noise in daily deaths and once you start double and triple differencing them, the noise is larger. But as I think about behavioral and policy responses, these are the numbers we need. How many people in this state, city, zip code, grocery store, kafe, are infectious right now? 1 in 10? 1 in 100? 1 in 1000? 1 in 10,000? Is the virus spreading or slowly decaying, with reproduction rate below one? Just how careful do we need to be? Is wiping down,  surfaces or spraying luggage with disinfectant remotely cost-effective? Where are hot spots? If we had spent 1/1,000,000 of the $5 trillion the government is spending on random testing, we would know the answer to this question.  We don't. We do have death data. So a measurement with error of the thing we need the most is potentially quite valuable. Reproduction rates seem to stabilize around one, as my little behavioral model suggested. The fraction currently infectious is tiny. Still, half a percent is half a percent. If you run in to 100 people a day you're going to get it in two days. (A commenter corrects my sloppiness here -- "run into" has to have enough close interaction to transfer the virus.) Go look up your location in Table 1 (too big to include) The SF Bay Area only has 0.04% infected! That Whole Foods is pretty safe. But the reproduction rate is still above one. Their dashboard has up to date results for lots of places.
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Reopening The Economy, And Aftermath, Now On Youtube - Barokong

My Bendheim Center talk and discussion with Markus Brunnermeier on all things Covid-19 and economics is now on YouTube, direct link here. I start at 14:08. If you like the paintings behind me and you're getting bored, more gosip here. (Shameless nepotism disclaimer.)
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Reopening The Economy -- And The Aftermath - Barokong

I'm doing a Zoom talk at the Bendheim Center, Princeton, with Markus Brunnermeier, 12:30 Eastern today (Monday May 18) on this, tune in if you're interested. It's mostly based on recent blogs and opeds. Sign up here. I'll post a link to the video when it's over.
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Schmitz On Monopoly - Barokong

Jim Schmitz has released the first salvo in what promises to be a monumental work on monopoly, titledMonopolies Inflict Great Harm on Low- and Middle-Income Americans. (I love titles with answers and no colons.) Today, monopolies inflict great harm on low- and middle-income Americans. One particularly pernicious way they harm them is by sabotaging low-cost products that are substitutes for the monopoly products. I'll argue that the U.S. housing crisis, legal crisis, and oral health crisis facing the low- and middle-income Americans are, in large part, the result of monopolies destroying low-cost alternatives in these industries that the poor would purchase. He promises more to come Legal Services, Residential Construction, Hearing Aids, Eyecare and ...Repair, Pharmaceutals, Credit Cards, Public Education... There is a huge one right there. To Jim the main characteristics of monopoly are A. Monopolies sabotage and destroy markets. They typically destroy substitutes for their products, those that would be purchased by low-income Americans. B. Monopolies also use their weapons to manipulate and sabotage public institutions for their own gains... Unlike worries about big business (or today's FANGs), most monopolies are associations of smaller businesses Monopolies are difficult to detect...they  form power relationships of infinite complexity that are hard to untangle.... From the literature in the 1940s he mentions labor unions and farmers. ..construction (with “concealed protection of monopoly by doctored building and other ordinances”), retail trade (with “so-called ‘fair-trade’ laws which compel businessmen to act as if they were monopolists even if they wish not to”), farming (where farmers enjoy “the pleasures and profits of monopolistic behavior”)...Professional associations,... union- management monopolies. Jim is not just assembling evidence on particular markets. He has a methodological quest, to revive and reinvigorate a tradition from Henry Simons and Thurman Arnold in the first half of the 20th century, and to displace and destroy the conventional paradigm as taught over and over again in textbooks. What we repeat to generations of undergraduates is that a monopoly is a business that has a downward sloping demand curve. It raises its price, or restricts its output, to earn greater profits. One of many troubles with this view is that it's hard to see that much damage. The Harberger triangle is small. In fact, one of the many theorems about standard analysis is that the perfectly price-discriminating monopolist is efficient,  since it produces the same amount as the competitive firm. Dealing with airlines, credit card companies, and college tuition doesn't feel that way. The textbook goes on to say we need anti-trust to reestablish competition. Jim argues that this entirely misses the point. Most monopolies get their restrictions from government in the first place, and their damage lies in sabotaging low-cost competitors and innovation. Why do we tell the same tired story over and over? It's an interesting reflection on intellectual traditions. Much of Jim's analysis is mulut, historical, and empirical. It's so much easier to push the graphs around, and tell the clearest parables over and over. But in doing so, we lose much of the richness of experience that an earlier generation had.
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Markets Work Even In Crisis - Barokong

A lovely result of the corona virus outbreak has been how we see stifling aspects of regulations. Right left and center are figuring out that the regulations need reform. Now, the forces for regulatory stagnation are always strong, so the insight may fade with the virus. Still, let us enjoy it while it lasts. The trouble with regulations is that, unlike "stimulus," the action is all in minute rincian not grand sweeping plan. John Goodman writes in Forbes The Americans for Tax Reform calculates that 397 regulations have been waived in order to fight COVID-19. That count is probably way too low. The federal Food and Drug Administration (FDA) has eliminated so many restrictions it would be hard to count them all. ... Consider that, up until a few months ago: ·     The only tests for the coronavirus that were approved for use in the United States were produced by the Centers for Disease Control (CDC) and half of those tests turned out to be defective. ·     It was illegal to produce, sell and distribute ventilators, respirators, and other  medical equipment without complicated and burdensome government regulatory permission. ·     It was also illegal to produce, sell and distribute personal protective equipment such as masks, gowns, gloves, etc. ·     Medicare actually dictated how many beds a hospital could have and no one could create additional beds anywhere without government permission. ·     In most cases it was illegal for a doctors to practice across state lines – consulting with patients in states where they had not been licensed to practice. ·     It was illegal for employers and insurers to waive the deductibles and copayments for coronavirus detection and treatment for the 26 million families with Health Savings Accounts (HSAs). ·     Medicare refused to pay for doctor consultations by means of phone, email, or Skype – except under special circumstances. ·     Medicare refused to pay for direct primary care services (concierge care) that would give patients 24/7 access to a physician, including contact by phone, email, and video at nights and on weekends. ·     It was illegal for employers to put money into an HSA so that employees could choose their own direct primary care physician. . And it was illegal to use employer money to buy individually owned insurance that employees could take with them when they moved to another job or exited the labor market. These barriers to sensible virus responses are largely gone for now. Will there be another ratchet effect, holding these responses in place after the COVID scare is gone? Let’s hope so. On the other hand, Jerry Brown noticed that planning and zoning rules were hindering recovery from wildfires and rebuilding after earthquakes, and rescinded all sorts of rules. Construction happened fast. Once. That wisdom did not stick. The ill effects of price controls, even in a crisis, especially for items whose price is objectively pretty low, is another one of those issues like free trade where economists and laypeople look at each other with jaws hanging in disbelief. Actually, it is a life-changing proposition -- counterintuitive to common sense, and clear as a bell when you understand it. It's a great conversion moment. Demand curves do slope down, and supply curves do slope up. Russ Roberts writes beautifully on price controls and face masks: What usually happens when masks are in short supply is that prices start to rise as buyers compete for the masks that are still available. The higher price encourages the manufacturer to add a night shift. Hire more workers. Work the existing shifts more intensely. If prices rise enough, companies that make other things may find it profitable to start making masks. Russ doesn't quite emphasize enough that it's more expensive to ramp up mask production quickly. So charging double the normal price doesn't even mean "profit," a rent that can be taxed away without distortion. The higher prices encourage hospitals that don’t need masks — the ones in Wyoming, say — to not hoard them, leaving them free to go to New York. Buyers of masks pay a premium, but there are a lot more to go around. Demand curves slope down, people are more careful to allocate expensive goods. It seems cruel, heartless, and immoral to make hospitals pay more for masks just when they are most desperately needed to save lives. But the alternative, a world where prices do not rise when life and death are on the line, is cruel and heartless, too. I add, masks are 50 cents on a wajar day. We are spending and losing a trillion dollars a month on the coronavirus. Haggling over who has to pay for masks is like complaining about the price of chewing gum at a $1,000 a night resort. If you hold prices down artificially when masks are in high demand, you destroy the financial incentive to make more masks. You also destroy any incentive to create excess capacity or stockpiles for a future pandemic. This is really an important point. Price controls are said to discourage "hoarders." But in fact it is exactly "hoarders" that we want! This message needs to be multiplied by about a million and sent to the Federal Reserve. Their actions have destroyed the incentive to keep some cash around, some ekstraequity on the balance sheet, and the ability to sweep in and buy at "fire sales." Ironically, perhaps, this seems to be happening in China, where over 3000 companies, including FoxConn and a Chinese automaker added mask making to their production lines at the beginning of the year. But it doesn’t seem to be happening very much in the United States. Why? Markets are failing in America because we’re not letting them work. It’s not a market failure. It’s a policy failure... U.S. distributors can’t pass higher prices through to hospitals in the midst of the crisis, for fear of being accused of profiteering. .. Most states have laws against “price gouging.” In California, for example, a state of emergency was declared on March 4, 2020 which limits price increases to 10% with violators subject to a year in prison and a fine up to $10,000 and other financial consequences. As for any masks in private stockpiles, forget about it. An auctioneer in Houston, Texas, offered 750,000 masks for bids. The state attorney general sued him for price gouging. The masks are in limbo. From the Department of Justice press release on April 2, 2020: “If you are amassing critical medical equipment for the purpose of selling it at exorbitant prices, you can expect a knock at your door,” said Attorney General William P. Barr. “The Department of Justice’s COVID-19 Hoarding and Price Gouging Task Force is working tirelessly around the clock with all our law enforcement partners to ensure that bad actors cannot illicitly profit from the COVID-19 pandemic facing our nation.” This sounds good but it comes at a cost — government has destroyed the opportunities to make profits by increasing the supply of masks. ... 3M, the largest manufacturer of N95 respirators in the U.S., says that it has doubled production in the last two months to about 100 million per month with plans to double that number in the next 12 months. Double in 12 months ? This will be over long before that. That’s great, but I wonder if they could get there quicker if they could charge more for masks. 3M has been under attack from President Trump for selling some of their masks to Canada and they’ve been under attack from 20 attorneys general demanding that 3M police the price distributors charge for their masks. Incentives matter. Pride or fear or kindness will motivate you. But so does money. And because responding with urgency is usually expensive, money makes it easier to indulge your kindness. Bottom line: Prices allocate resources and transfer incomes. Governments control prices to transfer incomes, putting up with the bad allocation of resources. Cheap items that are critically needed in a pandemic are exactly the items where allocating resources takes full precedents over transferring incomes -- especially between branches of a government spending trillions of dollars.
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Romer: If Virus Tests Were Like Sodas; A Modest Extension - Barokong

Paul Romer has a lovely post, If virus tests were like sodas. (HT Marginal Revolution.) Go enjoy the whole thing. It's short. A few excerpts and a suggested addition: Imagine a world in which the only way to get a soda is to get your doctor to write a prescription. It costs $20 per can. Your insurance company pays. ... Because they have to keep total costs from running out of control, insurance companies, health care providers, and government regulators have cobbled together a system that limits access to soda. One part of this system is an expensive regulatory process... The only people who can get sodas are those already under the care of the health care system. They are not thirsty, but the insurance company covers the cost, so whatever. People who are thirsty start going to the hospital just to get soda. Doctors comply with their requests for a prescription. Soda producers try to increase output, but soon run into “bottlenecks.” One vendor with an approved soda delivery system that packages a straw with a can finds that its supplier of straws can not keep up with the increased demand. This soda company explains to its unhappy customers that it has FDA approval only for a product that includes a straw from its traditional supplier. The soda company says that it is applying to the FDA for an Emergency Use Authorization (EUA) that gives it permission to bundle a can with a straw from a different vendor. As it waits, it keeps repeating its excuse: “There is a straw bottleneck!”... In their experiments with drinking from the can, these same university researchers realize soda is just flavored sugar water and that they could produce millions of sodas per day at a price well under $1 per can. The researchers publicize their findings. Policy wonks urge them to get going: “Produce the sodas that a thirsty nation needs.” But these do not say anything about who will pay for all these additional sodas. The researchers are good sports, but they are not idiots. They produce some token batches of soda and go back to writing papers. ... wonks conclude that even an economic system as big, as powerful, and as innovative as the one we have established in the United States cannot rise to the challenge of producing millions of sodas per day. They settle for a stretch goal of offering one soda per month to each family. Comment: The policy wonks as usual left out the persoalan: big, powerful, innovated, and regulated to death. The facts: Researchers affiliated with Rutgers University did discover that you do not need a swab to do an RT-PCR test for the SARS-CoV-2 virus. They even went to the trouble to get an EUA to conduct tests on saliva samples. No one has proposed a way to pay the researchers at Rutgers, or their peers in comparable laboratories located throughout the United States, for the tests they could supply. For now, they do them because they are good sports. The US economy produces 350 million 12 oz cans worth of soda each day. Soda producers do not need to get regulatory approval each time they innovate around some hurdle or bottleneck. I'm not sure soda is so lightly regulated, but we'll leave that. Lessons If we want to use this nation’s massive capacity – much of which, by the way, is now sitting idle – to produce tens of millions of virus tests per day, there is a way to do it: Decide what a test should do. As long as labs provide tests that do what a test is supposed to do, let them worry about the details. Do not appeal to charity; be prepared to pay these labs twice as much as we spend on soda. On the last point, the usually clear Paul ran out of steam. Who should be prepared to pay the labs? The same insurance companies and government purchasers where the whole duduk perkara started? Let me offer a suggestion. Allow people and businesses to pay the labs whatever the labs want to charge and buy the tests themselves. Require only that they report the test result to the CDC's national database. Lots of people and businesses will happily pay cash for a test. Spitting in a cup and sending it in -- or putting it in an Abbot Labs machine for instant results -- cannot possibly hurt anyone. There is no reason such tests should not be sold, unregulated, on the free market, like pregnancy tests. Sure, label the test with the best estimate of its false positive and negative rate, and the same long legal boilerplate disclaimers that go on a lawnmower you buy from Home Depot. Who gets it first? Well, those willing to pay the most. This is not a capitalist inequality outrage, this is a good idea. GDP and employment are cratering. The  people and businesses who get most economic value out of testing should get them first. And, by doing so, they fund the immense expense of test development and rapid ramp up for the rest of us.  And, of course, the higher the price, the more quickly competitors will ramp up and drop prices. We'll all get tests faster if those who "can afford it"  pay through the nose to get it first.
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