Category: Economics

Free rent today leads to higher housing costs tomorrow for America’s poorest?

by philg

One good thing about the U.S. response to coronaplague has been allowing our low-income residents, documented and otherwise, to skip paying rent while simultaneously forbidding landlords from initiating evictions (maybe until mid-2021 here in Maskachusetts?). So… the working poor are protected from harm by a benevolent government during this period when they are no longer “working” (probably making more money, though!).

Maybe not!

We’ve been doing a lot of helicopter flying lately with a photographer whose bread and butter is aerial real estate images. A typical mission involves going to a town with a lot of low-skill immigrants and/or multi-generational welfare-dependent native-born Americans and photographing an apartment building from the 1950s.

Why does anyone need these pictures? “All the rental landlords are trying to organize condominium conversions. Since they can’t collect rent, it makes a lot more sense to sell the apartments,” was the answer.

Especially given the high transaction costs of buying and selling real estate in the U.S. (5-6 percent every time someone needs to move!), is it fair to say that the result of today’s policy change will be higher long-run housing costs for low-income residents of the U.S.? With millions of immigrants arriving, plus population expansion from children of already-present immigrants, and a shrinking pool of rental housing, won’t that translate into higher rents?

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Most gunshot wounds are self-inflicted, coronaconomy edition (Sweden v. the Shutdown Karen Countries)

by philg

I personally don’t think economic performance is relevant when evaluating coronaplague policy. In a world where people don’t care about anything other than Covid-19 death risk, what difference does it make if they’re getting richer or poorer? That said, unemployment and poverty do lead to poor health outcomes and death. It just takes a while. So there is also a health angle to economics (see this post from March: “If All Lives Have Equal Value, why does Bill Gates support shutting down the U.S. economy?”).

“‘Striking’ Crisis Gap Exposed as Swedish Economy Stands Out” (Bloomber, June 16):

In a report on Monday, Capital Economics presented data that give Sweden an irrefutable edge. From peak to trough, Swedish GDP will shrink 8%; in the U.K. and Italy, the contraction is somewhere between 25% and 30%, according to estimates covering the fourth quarter of 2019 through to the second quarter of 2020. The U.S. is somewhere in the middle, it said.

Sweden has kept shops, gyms, schools and restaurants open throughout the pandemic. But the strategy, which the government says wasn’t shaped with the economy in mind, has resulted in one of the world’s highest mortality rates. Sweden’s state epidemiologist recently acknowledged he would have opted for a tighter lockdown with the benefit of hindsight.

(The article is written for American members of the Church of Shutdown, so the journalist points that Sweden has “one of the world’s highest mortality rates” without noting that the U.S. overall, in Month 4 of various degrees of shutdown, is only about 30 percent behind Sweden, that plenty of U.S. states have experienced higher death rates so far than Sweden, and that some countries that did shut down actually have higher mortality rates than Sweden. And, of course, Sweden is not actually planning on a “tighter lockdown” even when the inevitable second wave hits (Sweden’s latest plan).)

A figure from the article:

A gun enthusiast friend is able to say, in response to about 90 percent of news articles about companies or universities, “most gunshot wounds are self-inflicted.” These economic data from the Shutdown Karen countries add some ammunition to his theory!

(Again, since nobody cares about how poor they become, as long as they can be saved from the evil virus, I don’t think the self-inflicted impoverishment of the shutdown nations is relevant except that it will inevitably result in a shorter life expectancy and more deaths in the long run than any conceivable savings of Covid-19 deaths from the shutdown. See the Preston curve of life expectancy vs. per capita income.)

There might be some measurement errors for the U.S. A lot of our GDP for this quarter, for example, is going to be cleaning up cities after riots, the classic broken window fallacy. Also, people have been spending like crazy to try to adapt to the shutdown. Americans would prefer to go to a gym, but they’re buying home exercise gear as an interim stopgap. (Sweden’s gyms never closed, so they wouldn’t have as much of this type of no-added-value spending.) Americans would prefer to meet people in person, but they’re buying webcams for the Zoom sessions that they don’t enjoy. Ordinarily, Americans don’t need everything in the house or yard to be perfect, but as long as they’re locked into their houses why not fix everything up and tell the landscapers to go deluxe? (Anecdote: We had our shrubs mulched for the first time! I wanted to give Joe the Electrician some work, so we had him do a bunch of low-importance fixes (bad news for the Democrats who envision themselves as champions of the working American; like Joe the Plumber, Joe the Electrician is not easy to persuade: “The thing about Trump is that he does what he said he was going to do.”). Maybe all of this will cost $3,000 and add $500 in long-term value to the house?)

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Post-coronaplague world of employment will be even less friendly to older workers?

by philg

All of my friends in the new work-from-home economy say that coworkers with newly unskooled children to manage are “useless”. Employers who fire their least productive employees, therefore, in an age-neutral manner, may actually be firing an older-than-average population (and, coincidentally, saving a ton of money on employer-provided health care for both these older adults and their children!).

I’m wondering if the new “wear a mask 8 hours/day” policies will also winnow the older workers out of the U.S. labor force. Older people have reduced lung capacity and muscular strength compared to the young, so they are going to be more impaired by the masks. Already in retail stores I have noticed some older workers struggling and, in some cases, wearing the mask around their necks, even when interacting fairly closely with customers.

Finally, you have the actual risk of coronaplague. As workers get closer to the average age of a Covid-19-tagged death (82 in Massachusetts), they might not want to take the risk of coming into contact with a lot of co-workers, customers, etc.

Related:

  • The Age Discrimination in Employment Act of 1967 (EEOC): “The ADEA prohibits employment discrimination against persons 40 years of age or older.” (i.e., employers wouldn’t hire people over 40 without the threat of lawsuits and coercion by the government)
  • “Lung Capacity and Aging” (American Lung Association): “Your lungs mature by the time you are about 20-25 years old. After about the age of 35, it is normal for your lung function to decline gradually as you age. This can make breathing slightly more difficult as you get older.”
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Making $200/hour on the coronapanic front line

by philg

Text from a pilot:

A good friend’s daughter works at a local restaurant in summer breaks from college. They called her up and offered her $40 an hour to come and hand out the take out orders because they could not get anyone employed full time before to show up until unemployment runs out. She ended up making $800 for one shift because the guilty-conscience of the Wellesley Elite was tipping her $20 for each bag of food she brought to their Mercedes while saying “Thank you for your front line service”.

Now that the summer heat is upon us and wearing a mask will become more uncomfortable, what will be the additional wage that employers will have to pay to entice workers into these jobs where hours of mask use is required?

Related:

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Facebook pay cuts for remote employees who move to Nevada or Texas prove that the labor market is rigged?

by philg

“Zuckerberg says employees moving out of Silicon Valley may face pay cuts” (CNBC):

The company will begin allowing certain employees to work remotely full time, he said. Those employees will have to notify the company if they move to a different location by Jan. 1, 2021. As a result, those employees may have their compensations adjusted based on their new locations, Zuckerberg said.

“We’ll adjust salary to your location at that point,” said Zuckerberg, citing that this is necessary for taxes and accounting. “There’ll be severe ramifications for people who are not honest about this.”

If there is a market for productivity and accomplishment, the remote worker should be able to get paid the same regardless of location, no? For items where there is a functional market, we can’t say “Oh, this is of excellent quality, but was produced in Cambodia so I am going to pay only half as much as I would pay for the same item, same quality, made in higher-cost China, right?

Readers: Does the fact that Facebook can unilaterally set the price it will pay for labor depending on the cost of housing from which the labor toils show that the market for Silicon Valley labor is rigged?

Related:

  • High-Tech Employee Antitrust Litigation (Wikipedia): High-Tech Employee Antitrust Litigation is a 2010 United States Department of Justice (DOJ) antitrust action and a 2013 civil class action against several Silicon Valley companies for alleged “no cold call” agreements which restrained the recruitment of high-tech employees.
  • Hacker News thread on this post (my favorite: “Supply and demand makes sense as an explanation [for why on-site workers in different locations are paid different amounts], but it doesn’t actually explain this one. If facebook were just charging a market rate determined by supply and demand, then your salary would drop when you become remote, regardless of where you actually live, as your location has nearly no bearing on your productivity or competition for the same job. The fact that Facebook wants workers to report their location, as they cannot easily see the difference, shows their motivation cannot be driven by supply and demand.” Also good: “Salary based on an individual’s needs is quite the ‘hmmmmm’ moment. It is one of the reasons Violet Newstead — Lily Tomlin’s character in 9 to 5 — is given when she furiously demands to know why she was passed over for a fair promotion. The guy who got the job instead? Well had a wife and kids to support. He needed it more.” And quoting American academia’s favorite thinker: “No, it just proves that Marx was right about the nature of the wage/salary. The value of labour power is the cost of reproducing/maintaining that worker at a particular standard of living, not some particular fraction of the value generated at work.”)
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If coronashutdown is to protect the old, why do young people have to pay for it?

by philg

The average age of a Covid-19-tagged death here in Massachusetts is 82. Thus, presumably to the extent that any lives are saved from Covid-19 by our educational, social, and economic shutdown, they will be roughly 82-year-old lives.

Let’s assume for sake of argument that the shutdown makes sense as a mechanism for saving lives. Flatten the Curve will save more people from Covid-19 by delaying their infection than will be killed from (a) the shutdown of regular health care, (b) poverty and unemployment, (c) starvation in poor countries, (d) the suspension of clinical trials for new drugs, (e) the suspension of clinical training for the next generation of medical doctors, etc.

Now that we’ve assumed shutdown is an actual life-saving mechanism, we come to the cost and who pays. Just this year’s federal budget deficit is on track to be $4 trillion. So that’s $4 trillion that will be borrowed before the inevitable bailout of the big-spending state governments (not allowed to issue bonds so they borrow by making public employee pension promises that they don’t fund).

The ordinary borrowing mechanism of the federal government imposes the costs onto people who are still young enough to work and pay taxes, right? And since federal government tends not to repay debt, but merely roll it over and pay more interest, the younger the person the more he/she/ze/they will have to pay, right? Is it fair to say, then, that Americans who are currently in their 20s will bear the highest burden from coronashutdown? (current children will pay too, but they won’t start paying taxes for a few years yet so their future payments have to be discounted)

Is this our revenge on them for saying “OK Boomer”?

(The young folks above would be violating our Massachusetts town’s mask order, but the photo is from Portsmouth, New Hampshire (“Stay Home or Die” will be the new license plate motto?) so they’re not breaking the law there.)

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Will we need caravan-loads of immigrant workers after we are done with coronapanic?

by philg

Immigrants may have played a substantial role in the American coronaplague. Via immigration and children of immigrants we grew our population from 200 million to 330 million (Pew) with no corresponding increase in health care system capacity. So our terror regarding overburdened hospitals was in some ways a result of the immigration. The worst-plagued cities in the U.S. have been New York (40 percent foreign-born) and Boston (25 percent foreign-born).

But the shutdown plus policies that have made collecting unemployment more lucrative than working for the typical American are winnowing the natives out of the labor force. See “Since coronavirus crisis began, one-fifth of Massachusetts workforce has filed for unemployment” (masslive, April 30), for example. Also, “Labor Markets During the Covid-19 Crisis: A Preliminary View” (Berkeley and U. Chicago agree that Americans don’t like to work!):

First, job loss has been significantly larger than implied by new unemployment claims: we estimate 20 million lost jobs by April 8th, far more than jobs lost over the entire Great Recession. Second, many of those losing jobs are not actively looking to find new ones. As a result, we estimate the rise in the unemployment rate over the corresponding period to be surprisingly small, only about 2 percentage points. Third, participation in the labor force has declined by 7 percentage points, an unparalleled fall that dwarfs the three percentage point cumulative decline that occurred from 2008 to 2016. Early retirement almost fully explains the drop in labor force participation both for those survey participants previously employed and those previously looking for work.

In other words, a lot of existing Americans are done working! This is consistent with past periods of unemployment, in which Americans who get accustomed to lying on the couch watching TV while consuming alcohol and opioids transition seamlessly to SSDI (see “Long-Term Joblessness and Disability Benefits Receipt” (ssa.gov): “At 20 years after their job loss (voluntary or involuntary), these workers had a 25 percentage point higher likelihood of receiving DI or SSI benefits”).

Could it be, then, that to replace the Americans who stop working we will need to grow the population to 400 million or so? (we don’t have an Australia/New Zealand/Canada-style policy favoring working-age skilled immigrants so we will probably need 10-20 immigrants to replace each skilled American who has gone into SSDI/opioids or conventional retirement) And then, when the next plague hits (evolution may just be a theory, but it seems to produce a steady supply of new viruses…), we’ll get into a double secret panic regarding hospital capacity.

Related:

  • When Swedish infidels do business in the U.S… the IKEA Covid-19 page says “we have made the decision to furlough hourly U.S. co-workers in store locations and our Service Office effective April 19, 2020. This will allow our hourly co-workers, who are no longer able to work due to closures, to apply for expanded unemployment benefits.”
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Donutnomics during the Coronaplague

by philg

I caught up recently with my source for “Fast-food economics in Massachusetts: Higher minimum wage leads to a shorter work week, not fewer people on welfare”. He owns donut shops and, following minimum wage hikes, had workers asking for their hours to be cut so that they could continue to be eligible for various forms of welfare, including means-tested housing and health insurance subsidies.

What’s going on during coronaplague? “Business is down 50 percent,” he replied. “But we should be able to get a loan from the government that will pay for two months of salaries.”

What’s the main challenge right now? “Almost all of my workers could make more collecting unemployment than by continuing to work for me,” he said. This has created a delicate situation. Given that unemployment is now more lucrative than full-time work, does he lay off the best workers, rewarding them financially for their high effort and dedication to his business? Or does he lay off his least productive workers, thus inadvertently rewarding them financially for their weak efforts and lack of dedication?

How about around the rest of the neighborhood? Other than the supermarket, our town has one source of food that remains open: a pizza and sub shop that has a few tables, but was always primarily a take-out business (it occupies half of a gas station). The owner-chef says that business is down 60 percent.

Readers: Are you as surprised as I was by these numbers? Most donut sales are drive-through and/or takeout to begin with. Wouldn’t people want to escape their houses, enjoy a traffic-free 5-minute trip to the local donut shop, and come back with a delicious coffee and donut? And why are pizza/sub sales down? I have a tough time believing that our neighbors have finally learned to use their $250,000 dream kitchens.

A neighbor is an accountant for small-to-medium-sized businesses here in Massachusetts. He reports that every employer with whom he works is besieged by employees, especially the part-time and low-wage ones. Are they nervous about the future of the economy and want extra hours and overtime pay so that they can save up? No. Like the donut slingers, they want to be laid off because they can achieve a similar or higher spending power by collecting conventional Massachusetts unemployment plus $600 per week from the Federales.

Consider someone who works 25 hours per month at $20 per hour, helping out a retail store during busy hours. That’s $500/month, which would entitle the worker to roughly $200/month in benefits in the event of a layoff. Right now, however, unemployment will pay closer to $2,800/month.

How about a full-time minimum wage worker? Let’s call that 172 hours times $12 per hour = $2,064 per month. Unemployment will pay over $3,000 per month.

I met a 24-year-old who works for a national retail chain that is headquartered in Massachusetts. She has been cut from five days per week in the office to two days per week working from home. “I hope this lasts through the summer,” she said. “I’m making at least $200 extra per week while hardly doing anything.” (She has a 24-year-old friend, meanwhile, who has been terrified by reports of young people cut down by Covid-19. The slender healthy young person will not leave her apartment.)

How typical are these experiences in which an employee actually has a higher spending power by being laid off? “The $600 Unemployment Booster Shot, State by State” (nytimes) says “Workers in more than half of states will receive, on average, more in unemployment benefits than their normal salaries”:

It looks as though there are some strange bedfellows in this table. New Hampshire and New York, for example, are two of the states that offer the highest reward for continuing to work (still a minimal difference in spending power compared to playing Xbox and watching Netflix all day).

One of the main themes of the Bell Curve (1994) is that American society becomes more unfriendly each year to those whose IQ is below average. I wonder if this is being amply proven by the current landscape of work-versus-welfare alternatives. The Bell Curve says that in the old days it wasn’t that helpful to have a high IQ. If you were born a peasant you could think big thoughts while digging for potatoes. It wasn’t that harmful to have a low IQ. If you worked harder you’d get paid more. If you committed a crime, of which there was a short list of easily understood prohibitions, you’d get imprisoned. Our modern world, on the other hand, has thousands of crimes, many of which are non-obvious and/or not regularly punished. Would a person with an IQ of 90 be able to figure out that saying “I didn’t do it” to a law enforcement officer could result in 5 years in prison (Brogan v. United States), more than pleading guilty to killing a fiance in order to get the insurance cash?

Pre-plague Massachusetts already presented a non-obvious landscape for planning out a life of earning. Having a child and living on welfare yields a greater spending power than working at a median wage job (CATO analysis). Having sex with a married dermatologist yields a greater spending power than going to medical school and working as a primary care doctor (our family law). Having sex with three different already-married above-median-income partners and collecting child support from each yields a substantially greater spending power than marrying a median-income partner. Add to all of these we now have a situation in which workers are much better off financially being fired than continuing to work. And, of course, they’re also way better off in terms of exposure to the dreaded coronavirus if they stay home and play videogames or watch TV.

We have a similar situation for business owners. The smartest and most successful business owners had their free government cash arranged within days. They had no trouble figuring out which bank to use, what forms to fill out, etc. (The biggest banks helped the biggest customers, taking advantage of the fact that a hotel or restaurant chain with 100 directly owned locations was considered 100 “small businesses” rather than one big business.) The honest, but not-too-bright, small business operator? He/she/ze/they was mostly out of luck.

How about people who want to collect conventional welfare? Here’s part of an email from our local school:

The events of the COVID-19 emergency may have changed financial circumstances for your family. As a consequence, your students may now be eligible for the Free and Reduced Price School Meals (FRL) program. If they are eligible for the FRL program, the national Pandemic-EBT program may provide additional benefits in the form of food assistance cards.

Details of the Pandemic-EBT program may be found at https://www.mass.gov/info-details/pandemic-ebt-p-ebt. It is a supplemental program provided through the Massachusetts Department of Transitional Assistance. Eligibility is based on the FRL status, so, if your family circumstances have changed, you may wish to apply for enrollment in the Free and Reduced Price School Meals (FRL) program.

The application form is attached. You may fill out the Word document and upload the completed application file electronically to the Free & Reduced Lunch Application Submission Folder. That is the preferred application method. You could also print out the PDF version, fill it out, sign, and scan it, then upload it electronically to the Free & Reduced Lunch Application Submission Folder. Either method provides for the confidentiality of your information.

So… as long as you have a scanner and/or an Office 365 subscription, free meals will be coming your way! Here’s an excerpt:

Confusing: Each of your six children can be “foster”, “homeless”, “migrant”, and/or “runaway”. If a child has run away, however, how would there be an adult filling out this form?

(The form also says “We are required to ask for information about your children’s race and ethnicity. This information is important and helps to make sure we are fully serving our community.” Dare we ask if the white poverty industry employees will try to prepare ethnically appropriate meals for each child? It will like Clint Eastwood in Gran Torino trying to make Hmong meals for the neighbors?)

Is this truly accessible to a person with a below-average IQ?

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If All Lives Have Equal Value, why does Bill Gates support shutting down the U.S. economy?

by philg

The Gates Foundation‘s main message is “All Lives Have Equal Value” (secondary message: send $billions in Microsoft profits over to Africa without it ever being taxed!).

Bill Gates is a righteous opponent of Donald Trump’s hopes to reopen the U.S. economy. From The Hill:

Asked about suggestions being floated in the U.S. about relaxing social distancing measures to avoid severe economic damage, Gates said there is “no middle ground” between the virus and the cost to businesses.

Gates, who did not mention Trump in the interview, said that “it’s very irresponsible for somebody to suggest that we can have the best of both worlds.”

Are these positions consistent? If some of the most pessimistic epidemiologists are correct, shutting down the U.S. economy might save a few hundred thousand American lives. For this to be true, the virus has to thrive in hot/humid weather, the Army Corps of Engineers has to be incompetent at setting up field hospitals, all drug therapy attempts have to fail, etc. But maybe all of those worst-case assumptions will be correct.

For every saved American, though, aren’t we guaranteed to cause more than one death in a poor country? The U.S. is 15 percent of the world economy. Our shutdown is going to make us poorer so we’ll buy less from the world’s poorest countries. People in those poorest of countries who were at a subsistence standard of living in 2019 are going to be without sufficient funds for food, shelter, and medicine in 2020. Even citizens of medium-income countries, e.g., those who work in industries that are tied to trade with the U.S., might be unable to afford previously affordable life-saving medical interventions.

So if Bill Gates actually believes that All Lives Have Equal Value, shouldn’t he be saying “keep the the U.S. economy open, sweep up any dead bodies, and keep buying stuff from countries where they desperately need the cash”?

[Update, 4/9: I have supplied this post to friends on Facebook who are most zealous regarding “saving lives” via a U.S. economic shutdown. Although in pre-plague times these same people were generally huge advocates for “thinking globally” and advocating for the vulnerable anywhere on Earth, they are hostile and confused when told that their shutdown might be an inconvenience or worse for someone in another country. It has proven to be an interesting window into the logic of the American Righteous. Planet Earth is exquisitely interconnected such that bringing a reusable shopping bag to the Columbus Circle Whole Foods will stop global warming and thus keep the seas from inundating Jakarta. On the other hand, we can stop trading with a country where people are living on $2/day and there will be no adverse consequences for those people.]

Related:

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Black Death lesson: immigration will discourage women from working

by philg

“The Black Death: The World’s Most Devastating Plague” by Dorsey Armstrong, a professor at Purdue, includes a great lecture on economics. One of the effects of a reduction in population was a rise in wages. Market-clearing wages turned out to be high enough to induce women to work in much larger numbers than previously. This, in turn, was one reason it took hundreds of years for the European population to return to pre-Plague levels. Working women would elect to delay having children and would have fewer total children.

Via immigration and children of recent immigrants, the U.S. has been expanding its population, the reverse of what happened during the Black Death. Simultaneously, Americans are decrying (a) stagnant wages for the working class, (b) the lack of women in the workforce, and (c) the wages paid, specifically, to those who identify as women. (One definite difference between the Middle Ages and today is the percentage of the population that can qualify to be placed in the “women” category!)

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