Category: Economics

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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Economic value of a Victimhood Studies degree

by philg

Common sense and economic data have tended to diverge when looking at the value of a college degree. In unionized government jobs, such as teaching, the degree credential has obvious value. But what about learning “business” from professors whose only business experience is depositing checks from an employer? Or learning about victimhood from PhD victims? How do these things make a person more valuable to an employer than a smart high school graduate? And how can this learning make up for 4+ years out of the workforce?

The St. Louis Fed addresses the Great American College Fraud in “Is College Still Worth It? The New Calculus of Falling Returns”:

Among families whose head is White and born in the 1980s, the college wealth premium of a terminal four-year bachelor’s degree is at a historic low; among families whose head is any other race and ethnicity born in that decade, the premium is statistically indistinguishable from zero. Among families whose head is of any race or ethnicity born in the 1980s and holding a postgraduate degree, the wealth premium is also indistinguishable from zero. Our results suggest that college and postgraduate education may be failing some recent graduates as a financial investment.

This is consistent with the test results described in Academically Adrift: Limited Learning on College Campuses, which notes that the college students who are good at writing and thinking, as measured by the Collegiate Learning Assessment (CLA), are mostly those who were already good at this before they matriculated. The college courses that common sense suggested would be unhelpful were, in fact, unhelpful in moving their CLA scores.

Related:

  • Malcolm Gladwell video (hurts my fingers to type that) discussing research that students who go to elite schools are more likely to drop out of demanding majors, such as science, when they compare themselves to the geniuses in the classroom (i.e., don’t bribe your child’s way into an elite school if you want that child to graduate with a STEM degree)
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Why aren’t specialty smartphones available?

by philg

The automobile market requires high capital investment, yet we don’t see just a handful of almost-identical models taking the entire market. Starting from Android, building a smartphone shouldn’t require anywhere near the investment that is required to build a sports car or niche SUV, but where are the niche phones?

Example: Pilots would surely appreciate a smartphone, maybe Garmin-brand, with built-in ADS-B receiver and AHRS. Now a full backup panel is available at all times. Frequencies for ADS-B are 0.978 GHz and 1.09 GHz, not too different from the 0.8-1.9 GHz mobile phone bands.

Readers: What other capabilities would make good additions to smartphones for niche users? Why don’t these devices exist in the marketplace?

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Incompetence of Americans in service jobs is a sign of a vibrant economy or an uncompetitive workforce?

by philg

Going to Daytona Beach shortly after returning from Shanghai was a bit of a shock. About a third of the people working in retail stores and restaurants were barely capable of doing their jobs, no matter how simple.

Theory 1: this means the U.S. will have trouble competing with the world’s high-education countries (see “China’s Schoolkids Are Now Officially the Smartest in the World” (Fortune)). Our country is packed with people whose intelligence and education is not sufficient to do the jobs required in an advanced economy, e.g., pour coffee sooner than 30 minutes after a customer is seated in the hotel restaurant for breakfast.

Theory 2: the U.S. economy is so strong right now that all of the decent workers have been snapped up by high-paying employers, thus leaving people who ordinarily wouldn’t be in the workforce to be picked up by desperate service industries.

Supporting Theory 2 is that, even in Daytona Beach, there are some spectacularly profitable enterprises. The luxurious new art museum was funded by J. Hyatt Brown, who made over $1 billion via insurance commissions from an office in Daytona Beach. His collection of Florida-themed paintings contains at least one item that would be considered problematic today:

(I had some fun posting the above to Facebook. With only the text #NotOk “Watermelon Dreams”, I was able to generate more than 20 angry comments. A Trump-resister kicked it off by demanding to know “why are you posting this image and text?” (response: I am hoping for a revival of https://en.m.wikipedia.org/wiki/White_Panther_Party )

Readers: What do you think? People who can’t keep a ham restaurant stocked with ham or deliver breakfast in less than one hour at a not-busy breakfast restaurant is a sign of long-term economic health or decline?

Unrelated… Merry Christmas from Krispy Kreme:

Check out the gender balance at the Pokémon card tournament that brought us down to Dayton:

Where are the demands that those identifying as “women” be allowed to participate in this activity, which is surely more fun than coding PHP or C++.

Being a pilot is tough, but someone has to do it… (at Yelvington)

We visited the Daytona Turkey Run and learned something about Family Mobility:

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Don’t count on India becoming the next China

by philg

I finished Billionaire Raj.

The author continues with his main theme that all of India’s challenges can be attributed to inequality. If only the government were bigger and less corrupt, India would turn into a larger scale version of Singapore. Also, since Hindus are violent and threatening while Muslims are peaceful and threatened, another way to improve India would be for the big government to require everyone to convert to Islam, thus eradicating the scourge of Hindu nationalism.

There is an important message for investors buried in here. The author points out that China is a unique story and investors shouldn’t count on that story being replicated in India. He notes that Brazil was growing wildly and apparently sustainably in the 1980s… and then it wasn’t. An Indian future of overpopulation, pollution, and poverty is at least as likely as a China-like middle class society developing.

When I mentioned this book to a global investor friend, he responded with “India is the most corrupt place that I’ve ever seen.”

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China median income tough to adjust for purchasing power parity (PPP)?

by philg

Our CIA (a.k.a., “the folks who get everything right”) says that China has a per capita GDP of $16,700 per year (Factbook). Compare to the U.S. at $59,800 or Singapore at $94,100.

But does this attempt simply prove that an economist is someone who knows the price of everything and the value of nothing?

What’s clean air worth to you? In Shanghai this is available indoors to those who buy filtration systems, but walking around in the “fresh air” is not available at any price to residents (an ex-pat friend who has lived there for five years says that the air is much cleaner today than when he first moved in).

How about riding all the way across Shanghai on a gleaming new metro train for $1, e.g., airport to airport? You’re guaranteed never to wait more than 2 or 3 minutes for this train. You can stop into a clean restroom at seemingly every station. This would be a $100 Uber ride in the U.S., e.g., JFK to Newark, and it might take three hours. Can that be factored in? A Suzhou metro ride would cost $50 in the U.S. if the fares had to defray the cost of the infrastructure at U.S. rates (up to $2.5 billion per mile!) and for operation of trains every 3-7 minutes as they operate in Suzhou. Given that the Chinese take a lot of metro rides, do we factor those in as boosting their PPP?

Schools? To send a child to school in the U.S. that offers education comparable to a free public school in Shanghai (World Bank report) would cost $35,000 per year if indeed such a school is available in one’s region. On the other hand, to send a child to a high-quality English-language school in Shanghai costs $50,000 per year(!) according to my ex-pat friend who sends his 11-year-old there (“it is only about $25,000 per year for the international school in Tokyo,” he said, “but the Chinese are willing to pay any price to give their children an advantage so that’s what the market will bear here.”)

Speaking of schools, there is a huge convenient market of after-school activities in shopping malls. These offer gymnastics, dance, English lessons, computer programming, etc. No need to ferry the kids around through ever-worsening traffic in a pavement-melting SUV. Just walk from your apartment to the mall a block or two away. Here was my favorite:

Except for the air pollution, the overall quality of life in the Shanghai/Suzhou/Hangzhou region seems much higher than the CIA numbers would suggest. This is partly explained by Shanghai being richer than average for China (about 2.27X), but not entirely. The relatively high cost of housing in Shanghai alone would absorb most of the income advantage.

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