Thursday, April 22, 2021

Costs of lockdowns are more than 3 times higher than the benefits

Essay from a Canadian economist concludes"

...the cost/benefit ratio of lockdowns in Canada, in terms of life-years saved, is between 3.6–282. That is, it is possible that lockdown will go down as one of the greatest peacetime policy failures in Canada’s history.

1.  The benefits of lockdowns are small because:
  • Even without lockdowns, vulnerable people take care of themselves by isolating, so the effects of lockdowns are small.
  • Covid deaths are concentrated among the elderly, with fewer years ahead of them.  The following table shows the value of a statistical life ranges from $14 million for toddlers down to $2 million for an 85 year old.  

2.  The costs of lockdowns on an economy are much larger than the fall in GDP (Canada's Gross Domestic Product graphed below):

The hidden costs of lockdowns include

...costs through lost civil liberty, lost social contact, lost educational opportunities, lost medical preventions and procedures, increased domestic violence, increased anxiety and mental suffering, and increased deaths of despair.

THE BOTTOM LINE comes from Henry Hazlitt's timeless classic, Economics in One Lesson:
The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.

And when we do that, the answer is very clear:  the costs of lockdowns are probably an order of magnitude higher than the benefits.


Friday, April 16, 2021

Revealed preference: people are leaving California in droves

I grew up in San Diego and, despite the great weather and surf (swells three to four feet at ten-second intervals), I left the state for a better job.  Now, the National Review reports on the current exodus (links below are to past posts on the website about the Not-So-Golden State).

...what caused and continues to cause the exodus out of California is not tax burden, or regulation, or cost of living, or housing prices. Rather, it is the burden, and regulation, and cost of living, and housing prices, and more.
  • One making $58,000 a year in California is in a marginal tax bracket (9.3 percent) nearly double that of someone in Arizona making over $500,000 a year (4.5 percent)
  • The top 5% of filers make 67% of tax payments, and they are starting to leave)
Unfunded pensions that have to be paid by future residents Cost of living:

BOTTOM LINE from Chapter 9:  the exodus will continue until residents are indifferent between living in California and elsewhere.   

Wednesday, April 14, 2021

The Disneyland Dilemma

Some vintage Disneyland ticket books reminded me of Walter Oi's famous paper "A Disneyland Dilemma: Two-Part Tariffs for a Mickey Mouse Monopoly." He highlighted the two-part tariffs as part of their price discrimination scheme.

  1. The simplest rides, appealing to the younger children, such as Sleeping Beauty Castle Walkthrough or the King Arthur Carousel, required only the cheaper A tickets. The best rides, such as the Matterhorn Bobsleds or Pirates of the Caribbean, required the most expensive E ticket. In between, rides could go for a B, C, or D ticket. Already Disneyland is price discriminating based on demand elasticity across rides.
  2. Disneyland made convenient ticket books with various numbers of each type available for a discount. There never were enough E tickets. This was an initial form of bundling.

  3. Next, Disneyland adopted Oi's two-part pricing. They set ride prices equal to marginal cost, essentially zero, but then required a high up front park admission fee.

  4. Next, they adopted multi-day and multi-park passes with a decreasing price for each additional day or park. They also offered season passes that were popular to locals who could visit parks on non-consecutive days. These are versions of quantity discounts.
  5. Finally, there exists a Disney Golden Pass that allows unlimited lifetime entrance to nine parks. However, it appears to be only given out to dignitaries and Disney officials.

Saturday, April 10, 2021

Does venture capital still contribute to growth?

The New Yorker has a harsh critique of some Venture Capital firms, like the ones that funded WeWork: 
 A widely read summary by a Harvard Business School professor, Nori Gerardo Lietz ... exposed WeWork’s “byzantine corporate structure, the continuing projected losses, the plethora of conflicts, the complete absence of any substantive corporate governance, and the uncommon ‘New Age’ parlance.” At the same time, she wrote, the S-1 (Disclosures to the regulators about the company's financial health ) failed to provide many conventional financial details. ...S-1 laid bare a basic truth: WeWork’s dominant position in the co-working industry wasn’t a result of operational prowess or a superior product. Instead, WeWork had beaten its rivals because it had access to a near-limitless supply of funds, much of which it had squandered on expensive furniture, flamboyant perks, and promotions luring customers with below-market rents.

Anyone who reads this blog knows three things:

1.  Innovation drives growth, and growth is almost everything.  

As Novel laureate Robert Solow said, “Adding a couple of tenths of a percentage point to the growth rate is an achievement that eventually dwarfs in welfare significance any of the standard goals of economic policy.

2.  Total Factor Productivity (the output measured relative to the inputs required to produce it) has grown much faster in the US than elsewhere.  This is one of the best aggregate measures of innovation.  

3.  The US has birthed more Unicorns (startups with a $1B valuation) than any other country else:

BOTTOM LINE:  Innovation is hard to measure, but it looks like the US has it, so the Venture Capitalists who fund it must be doing something right.  One cannot condemn an entire industry using a few anecdotes about how some startups fail--no matter how spectacularly.

Thursday, April 8, 2021

President Joe Biden vs. Joe Biden

 NY Times has a good article on the Biden administration's contempt for economics.  

“The next generation of the economics profession is rebelling against its predecessors by being all about inequality in the same way that my generation rebelled against its predecessors by being all about incentives, and this is a good thing,” said Larry Summers, who served as Treasury secretary under Bill Clinton and N.E.C. director under Barack Obama. 
Biden has less trust in economists, and so does everyone else. Obama’s constant frustration was that politicians didn’t understand economics. Biden’s constant frustration is that economists don’t understand politics.


 The backdrop for this administration is the failures of the past generation of economic advice. Fifteen years of financial crises, yawning inequality and repeated debt panics that never showed up in interest rates have taken the shine off economic expertise. But the core of this story is climate. “Many mainstream economists, even in the 1980s, recognized that the market wouldn’t cover everyone’s needs so you’d need some modest amount of public support to correct for that moderate market failure,” Felicia Wong, the president of the Roosevelt Institute, said. “But they never envisioned the climate crisis. This is not a failure of the market at the margins. This is the market incentivizing destruction.”

Wednesday, April 7, 2021

Gig Workers of the World Unite!

Door Dash drivers are trying to beat the algorithm. When a specific meal needs to be delivered, Door Dash's algorithm will post the gig to available drivers with payment information. If no one accepts, the algorithm raises the compensation level. This is how markets are supposed to clear. 

What if drivers organize to withhold their services until the rate rises enough? In labor markets, this is the main goal of employee unionization. In business markets, we call it collusion. (It is an open question if these gig workers are employees or independent contractors.) But there are a lot of drivers. It is not clear if you can get enough of them them to commit to this strategy. It is useful to employ moral suasion. The Facebook group #DeclineNow, was formed to share information and encourage compliance.

#DeclineNow has little patience for such naysayers. Users who question the $7 minimum rule are punished with suspension from the group or, as the group’s moderators like to put it, “a trip to the dungeon.” One former moderator, Josie Lindström, claims to have personally suspended hundreds of people, saying the intolerance for dissent was necessary to keep the group moving in the right direction. “It has to be all of us, or it doesn’t work,” she says. But Lindström eventually quit, citing what she described as a toxic atmosphere.

Monday, April 5, 2021

Restrictive zoning causes segregatation in Connecticut

Restrictive zoning--90% of Conneticut allows only (expensive) single-family homes--limits supply, especially of lower priced housing like apartments, and drives up the price.  

From Vox:

According to one measure by researchers at the University of Pennsylvania’s Wharton School, Connecticut has the 15th-most regulated residential building environment. In doing so, it has confined poorer people to small parts of the state and likely discouraged countless more from ever moving to the state.

The results are pernicious:

By artificially restricting the supply of housing through onerous regulations, Connecticut has in effect driven up the cost of living for everyone and priced out lower- and middle-income Americans from living in most of its towns and cities. Simply put: fewer homes and growing demand mean higher prices for everyone.

As part of her “Segregated By Design series, the Connecticut Mirror’s Jacqui Thomas reported that “more than three dozen towns in the state have blocked construction of any privately developed duplexes and apartments within their borders for the last two decades, often through exclusionary zoning requirements. In 18 of those towns, it’s been at least 28 years.” By creating these metaphorically walled enclaves, in addition to driving up the cost of housing for low-income people, localities have blocked lower-income families from finding housing in a place where their kids could attend good schools.

Other posts on housing