Thursday, April 29, 2021

Cruz on crony capitalism

Senator Ted Cruz wrote a blistering Wall Street Journal Op-Ed decrying CEOs who pander to Democrats by making profoundly uninformed public statements. He announced that he will no longer take money from their corporate political action committees. And, he states

This time, we won’t look the other way on Coca-Cola’s $12 billion in back taxes owed. This time, when Major League Baseball lobbies to preserve its multibillion-dollar antitrust exception, we’ll say no thank you. This time, when Boeing asks for billions in corporate welfare, we’ll simply let the Export-Import Bank expire.

Cruz' statement is unintentionally devastating. So what about last time? 

So there it is in front of us, in writing, from a major politician. Political support, and campaign cash bought $12 billion tax breaks, antitrust exemptions, and Ex-Im subsidies. From Republicans. So much for any public policy pretense. And if those CEOs just figured out who has the power to hand out goodies now, and the Democrat's demands for public obeisance as well as cash, well, it's a lot harder to object that the CEOs fall in line.  

Wednesday, April 28, 2021

Infrastructure and jobs

William Gropper, Construction of the Dam, 1938

To many on the left, it's always 1933. Building "roads and bridges" will "create jobs," soaking up the mass army of unemployed desperate for work that they seem to see. 

Driving around though, I notice that we build roads with big machines, not lots of people. And construction jobs are high-skill jobs, not people with shovels. "Shovel-ready" itself is a misnomer. Nobody uses shovels on a construction site anymore, they use a backhoe. Neither you, reading this, nor I, nor an unemployed Wal-Mart greeter or bartender could do much of anything useful on a road construction site. 

On a lark, I went to the Bureau of Labor Statistics to see just how many people are employed on roads and bridge construction. 


Feb-Mar change

Total nonfarm



Construction of buildings



Heavy and civil engineering construction



Water and sewer system construction


Oil and gas pipeline construction


Power and communication system construction 


Highway street and bridge construction 


Specialty trade contractors



For perspective, total nonfarm employment is 144 million people, up nearly a million in the last month. That's a lot, usually 200,000 is a good month. Well, we're recovering fast from the pandemic. In case you didn't hear the pounding of nails, building construction employees 1.6 million people, with 4.7 million more in the trades. (We're not so much building new housing as building in new places.) 

Total unemployment is 9.7 million right now, down from 23 million at its peak. 

Roads and bridges employ 338,000 people. The total is a half of this month's gain alone.  We could use some water construction here in California, though it's not going to happen, and with only 184,000 people employed there looks to be room to expand. 135,000 are building oil and gas pipelines. Uh-oh.

Tuesday, April 27, 2021

Inflation and expectations at NRO

Essay at National Review Online. 

Inflation: The Ingredients Are in the Pot, and the Fire Is On. (But will it boil?) 

John H. Cochrane and Kevin A. Hassett

The end of the COVID-19 recession is in sight. If the Atlanta Fed’s real-time estimate of 8.3 percent Q1 growth proves accurate, real GDP is only four-tenths of a percent below the all-time high from Fall 2019. And the vaccinated, post-COVID boom is on the way. Most people have money, and are ready to spend it. Yet unprecedented fiscal and monetary “stimulus” continues.

Is persistent inflation around the corner? Inflation and commodity prices are up sharply. The latest Michigan survey shows people expect 3.7 percent inflation next year. Shortages of everything from lumber to semiconductors have raised input prices for businesses, while the percentage of small businesses reporting that they cannot find qualified workers is at a record high. The ingredients are in the pot, and the fire is on.

But will the pot boil? Since 2008, observers have warned of imminent inflation, yet inflation has barely budged.

Inflation is hard to foresee, because inflation today depends in large part on what people expect of inflation in the future. If businesses expect higher prices and wages next year, they raise prices now. If workers expect higher prices and wages next year, they demand higher wages now.

Inflation has been so low for so long that most Americans understandably see persistent inflation as ancient history, and that any blip up today will quickly be reversed.

Yet faith that our government will take prompt action to reverse inflation seems increasingly unfounded.

The Federal Reserve’s new policy framework and its officials’ speeches are eerily reminiscent of the early 1970s, and repudiate the standard lessons of that experience. One may rightly worry that should inflation emerge, the Fed could repeat mistakes of the 1970s.

Monday, April 26, 2021

Vaccines and liability

I learned something from the New York Times lead editorial on Sunday. Why are we not shipping mega quantities of vaccines to countries like India? 

... as the vaccines came to market, some vaccine makers insisted on sweeping liability protections that further imperiled access for poorer countries. The United States, for example, is prohibited from selling or donating its unused doses, as Vanity Fair has reported, because the strong liability protections that drugmakers enjoy here don’t extend to other countries...

Pfizer has reportedly not only sought liability protection against all civil claims — even those that could result from the company’s own negligence — but has asked governments to put up sovereign assets, including their bank reserves, embassy buildings and military bases, as collateral against lawsuits. 

Well, you can sort of see the problem. You're a drug company. You sell a billion units of a brand new drug -- still on emergency use authorization in the US -- to, say, India. 10 people get a rare blood clot that may or may not be due to your vaccine. Local courts sue you for a gazillion dollars. Who wouldn't want liability protection? 

As the Europeans allowed trillions of GDP and quite a few lives to vanish while they haggled over a few billion in cost of vaccines, perhaps the onus on countries should be, to say, we want your vaccine, we understand it's brand new and there may be risks, we'll take them?  

The NYT is, predictably, full of bad ideas. 

Friday, April 23, 2021

Summers at FT

Martin Wolf's FT interview with Larry Summers is a great read. It would be a great read for its articulate numeracy if Larry were a Republican, stepping down from the Trump CEA or Treasury. That he is on the the other team makes it ever more poignant. 

If you look at the economy at the beginning of this year, prevailing forecasts were that Covid would reduce wages and salaries to American households by $20bn-$30bn a month, with that figure declining over the year. So, that would be a $250bn-$300bn hole in wages and salaries over the course of the year.

So, I look at this hole and then I see $900bn of stimulus in the December package, $1.9tn of stimulus in the recently passed package and $2tn in the savings overhang, which is also likely to be spent. I see the Fed with its foot on the accelerator as hard as any Fed has ever done....

So, I look at that dwindling hole. Then I look at expenditures that aren’t hard to add into the multiple trillions, and I see substantial risk that the amount of water being poured in vastly exceeds the size of the bathtub.

Wait Larry, aren't you Mr. Secular Stagnation, Hysterisis, borrow and spend? 

Thursday, April 22, 2021

More inequality

Paul Graham adds interesting thoughts on inequality, looking at the Forbes 100. Maybe we don't have enough inequality, and maybe the rise in inequality (especially of wealth) since the 1970s represents too little inequality then, not too much now. Contra the usual in politics, a change is not always a problem, but sometimes for the better. How? Read on. 

Contra the mantra of inherited wealth, the super-rich in America today largely earned their way there from middle class, by starting new companies. They did not inherit wealth. The rich did not get richer. They were superseded by the (fabulously) nouveau-riche. 

In 1982 the most common source of wealth was inheritance. Of the 100 richest people, 60 inherited from an ancestor. There were 10 du Pont heirs alone. By 2020 the number of heirs had been cut in half, accounting for only 27 of the biggest 100 fortunes.

Why would the percentage of heirs decrease? Not because inheritance taxes increased. In fact, they decreased significantly during this period. The reason the percentage of heirs has decreased is not that fewer people are inheriting great fortunes, but that more people are making them.

How are people making these new fortunes? Roughly 3/4 by starting companies and 1/4 by investing. Of the 73 new fortunes in 2020, 56 derive from founders' or early employees' equity (52 founders, 2 early employees, and 2 wives of founders), and 17 from managing investment funds.


 the main source of new fortunes now is starting companies, and when you look at the data, you see big changes there too. ....

Wednesday, April 21, 2021

Inequality mirage?

David Splinter and Gerald Auten gave last week's Hoover Economic Policy Working Group seminar, summarizing their past and some work in progress on the distribution of income.  Link in case the above embed does not work. A recent paper. Splinter's web page

Splinter and Auten are very even handed, just-the-facts, economists. I'll pass on their facts. Grumpy interpretations are my own. 

It is a fact generally accepted that income inequality has grown a lot recently, and this is a "problem" to be "solved." So what if the great inequality crisis simply isn't true? Let's leave aside whether income is a good measure (it isn't), let's just look at the fact, has income inequality substantially increased? 

No. Here is the headline result. In their careful redoing of the numbers, the top 1% share of income has barely budged since the 1970s. (And, by the way, if you think the mid 1970s economy was the great happy prosperity we should try to reestablish, you're too young to remember the 1970s.)

Now we get in to a deep under the hood exercise about costing up income, and where did Piketty and Saez go wrong. The video has some of that. The papers have more, and a long list of back and forth, including comparisons with many other studies. I'll name just a few.

Omitted income.   Piketty Saez leave out many kinds of income. Auten Splinter attribute all national income to somebody.  Before 1986 many wealthy people were incorporated.  Leaving out corporate income biases the early shares down. Auten Splinter fix that. Pre-tax and transfer income! Who cares about pre-tax income! Auten Splinter calculate income after taxes at the top -- lower -- and including transfers at the bottom -- higher. Demographics. Marriage rates have fallen, so Auten Splinter calculate income by individuals. Benefits! They include benefits like employer-provided health insurance.

One can quibble, but one can quibble. At least this cornerstone "fact" of political debate is a lot less sure than it looks. 

If the rich aren't getting richer, the poor aren't getting poorer:

Tuesday, April 20, 2021

Nuclear power and growth

Jason Crawford's "Roots of Progress" blog on what happened to nuclear power is an important read for many reasons, among them economic growth, climate, and regulation. It's a review of Why Nuclear Power Has Been a Flop by Jack Devanney which goes on my must-read list. 

Perhaps the important economic question of our time is this: Is growth over? Are we running out of ideas? Or is our decades-long growth slowdown the result of an increasingly sclerotic, over-regulated, crony-capitalist rent-seeking political system? Nuclear power offers an interesting case study. 

Through the 1950s and ‘60s, costs were declining rapidly. A law of economics says that costs in an industry tend to follow a power law as a function of production volume: that is, every time production doubles, costs fall by a constant percent (typically 10 to 25%). This function is called the experience curve or the learning curve. Nuclear followed the learning curve up until about 1970, when it inverted and costs started rising:

Plotted over time, with a linear y-axis, [note mulitplicative scale in the last graph] the effect is even more dramatic. Devanney calls it the “plume,” as US nuclear constructions costs skyrocketed upwards


Read carefully. US construction costs exploded in the 1970s. South Korean construction costs did not. The blue points do not continue because the US simply stopped building nuclear power plants, not because we solved the cost disease. 

This chart also shows that South Korea and India were still building cheaply into the 2000s. Elsewhere in the text, Devanney mentions that Korea, as late as 2013, was able to build for about $2.50/W.

The standard story about nuclear costs is that radiation is dangerous, and therefore safety is expensive. The book argues that this is wrong: nuclear can be made safe and cheap. It should be 3 c/kWh—cheaper than coal.

The post goes on about the safety issue, which you should read but I won't summarize. 

The point for us: Here is a clear case of an end of growth. We know the cause. We did not run out of ideas. Regulation killed this industry. 

 the NRC approval process now takes several years and costs literally hundreds of millions of dollars.

Why? Among other causes, Crawford lists beautiful parables of incentives gone wrong (Second economic lesson for today.)  

Sunday, April 18, 2021

Inflation expectations

This post follow's last week's post on inflation levels prompted by the big March increases in CPI and PPI, and the CEA tweetstorm response. (Also a longer post on the chance of inflation.)

WIN button from the Ford Administration

Is inflation coming?   The CEA goes on to 

Over the longer-term, a key determinant of lasting price pressures is inflation expectations. 

And takes comfort that survey expectations don't see a large increase in inflation. But when did survey expectations ever predict inflation?  In fact most research on surveys, especially in finance,  is used to claim people are dumb and terrible at predicting the stock market and other variables. 

The CEA goes on to 

An increase in inflation expectations from an abnormally low level is a welcome development.  But inflation expectations must be carefully monitored to distinguish between the hotter but sustainable scenario versus true overheating. 

But  if after "carefully monitoring," when it becomes impossible to make excuses, it looks like inflation is breaking out, what do you do then? 

Tuesday, April 13, 2021

Inflation levels

 March inflation is up. The CEA delivered a historic tweetstorm. It starts with 

temporary factors: base effects, supply chain disruptions, and pent-up demand, especially for services

I'm glad for once to have nailed a forecast: That Fed and Administration's first response to inflation would be to invoke "temporary" factors, just as in the 1970s.  We'll see how that pans out. 

The CEA goes on to "base effects,"

In the near-term, we and other analysts expect to see “base-effects” in annual inflation measures. Such effects occur when the base, or initial month, of a growth rate is unusually low or high..

This unusually large price decrease early in the pandemic made April 2020 a low base. 

Since this is about the past, we can say something more definite. Yes, if you start from a low base, you can see a lot of growth. To get around the arbitrariness, let's look at price levels. Here is the recent CPI (blue) and CPI less food and energy (red). These are the levels of the CPI -- conceptually how many dollars it takes today ($271) to buy what $100 bought in 1983.  

The last few months uptick is clearly visible. You can find your own "base month" by drawing a line. Yes, a line from last April to today shows an unusually higher slope, because last April was unusually low. 

But to the extent that we're just seeing "reflation," a return of prices to normal after a steep covid-induced recession, the graph suggests that was over last summer. "Reflation" was over by September. Draw your own trends -- that's why I left some history in. 

Monday, April 12, 2021

Conversations: covid and (separately) nonprofits

 I did a few fun video conversations last week. 

This is a conversation with Ryan Bourne, Megan McArdle, and Alex Tabarrok on economics and the year of covid. Direct link if the above embed doesn't work. 

The conversation  is occasioned by the publication of Ryan's excellent book Economics in One Virus.  I am often asked for recommendations of general readable economics books. (i.e. no equations.) This is a gem. 

Then I had a nice conversation with Mike Hartmann at The Giving Review, link here with transcript, (slightly edited, please refer to that if you want to quote me. The above is just a screenshot, you have to go to the link). 

We explored my view that the US should eliminate the whole non-profit business, most of all the tax deductibility of contributions to non-profits, but also (less importantly) the non-profit corporate form. While many non-profits do a lot of good (my employer!) the system has become obscenely perverted, mostly as a tax-supported vehicle for political action, but also a tax dodge available only to the super duper wealthy, and a means of protection from the market for corporate control for flabby institutions. I trust that genuine useful charities will still attract donations -- maybe more -- from the substitution effect than they lose without tax deductions. 

I've long been meaning to gather facts and figures to see if this salty opinion makes as much sense as I think it does, and I'm glad to learn about Philanthropy Daily, a resource that will be helpful.

Oh yes also a great GoodFellows with Bjorn Lomborg on climate. I love talking to Bjorn. He has an extensive command of the facts and science, and he's still an optimist that facts and science will actually make a dent in this debate. As global warming moved to climate change to climate crisis to climate justice to climate risks (financial) I'm less optimistic, but hope must be let out of Pandora's box.  Also 

with Bari Weiss on media, censorship, free speech and assorted issues. Direct links, podcast  versions, and more all here

Thursday, April 8, 2021

Ip on Bidenomics

Greg Ip has a great column in the WSJ on Bidenomics.  It's not long, it's so well written that it's hard to condense the good parts, and you should really read it all. 

There is an intellectual framework to Bidenomics, and with that a scarily more durable move on economic policy. 

There used to be 

"certain rules about how the world worked: governments should avoid deficits, liberalize trade and trust in markets. Taxes and social programs shouldn’t discourage work."

By contrast President Biden's (really his team's) "embrace of bigger government" is founded on different economic ideas. To wit, abridged: 


Old view: Scarcity is the default condition of economies: the demand for goods, services, labor and capital is limitless, their supply is limited. ...faster growth requires raising potential by increasing incentives to work and invest. Macroeconomic tools—monetary and fiscal policy—are only occasionally needed to deal with recessions and inflation.

New view: Slack is the default condition of economies. Growth is held back not by supply but chronic lack of demand, calling for continuously stimulative fiscal and monetary policy. J.W. Mason.. said, that “‘depression economics’ applies basically all of the time.”

I guess I'm an old fogie. 

Tuesday, April 6, 2021

A letter to Yellen

Secretary of the Treasury, and ex Federal Reserve Chair Janet Yellen recently hosted an important meeting of the Financial Stability Oversight Council.  This is the highest level body overseeing financial regulation in the US. It matters. 

Her remarks start smoothly but critically, as one expects of a habitually well-prepared pro. A lot went wrong last year, from the treasury markets to another mutual fund bailout, and so forth. Bravo, it is time to get past celebrating how another bailout blowout saved the world and see if we can avoid another one. 

And then, 

We must also look ahead, at emerging risks. [To the financial system, the FSOC's purview.] Climate change is obviously the big one.

It is an existential threat to our environment, and it poses a tremendous risk to our country’s financial stability. We know that storms will hit us with more frequency, and more intensity. We know warming temperatures might disrupt food and water supplies, leading to unrest around the world. Our financial system must be prepared for the market and credit risks of these climate-related events. But it must also be prepared for the best-possible case scenario: that we begin a rapid transition to a net-zero carbon economy, which also creates potential challenges for financial institutions and markets. On all these fronts, the Council has an important role to play, helping to coordinate regulators’ collective efforts to improve the measurement and management of climate-related risks in the financial system.

Dear.. May I still call you Janet? I have known you for 40 years, since you were kind to a young brash graduate student. In all that time you have always worked for sensible well-reasoned, quantitatively evaluated policy. I don't always agree, but you always have clear, careful and conservative (in the move-carefully sense, not the political sense) thinking behind your recommendations. 

What the heck is going on? Surely you know this is nonsense? 

Monday, April 5, 2021

San Francisco bans affordable housing

"San Francisco bans affordable housing," is the spot-on conclusion of a lovely post by Vadim Graboys (link to twitter). 

The post is titled "54% of San Francisco homes are in buildings that would be illegal to build today" with an interactive graph of those homes. 

Or, put another way, "To comply with today's [zoning] laws, 130,748 homes would have to be destroyed, evicting around 310,000 people."

The latter statistic is fun, but actually severely understates the damage of San Francisco's (and Palo Alto's!) zoning laws. The only reason current homes are illegal is that they were built under slightly less restrictive zoning laws. So that measures how much zoning laws have gotten stricter over time. It does not measure the much larger number of homes and apartments that were never built.