Category: Economics

Krugman Argues Costly Universal Basic Income (UBI) Not Justified by Automation

(p. A22) [Andrew] Yang’s claim to fame is his argument that we’re facing social and economic crises because rapid automation is destroying good jobs and that the solution is universal basic income — a monthly check of $1,000 to every American adult. Many people find that argument persuasive, and one can imagine a world in which both Yang’s diagnosis and his prescription would be right.

But that’s not the world we’re living in now, and there’s little indication that it’s where we’re going any time soon.

Let’s do a fact check: Are we actually experiencing rapid automation — that is, a rapid reduction in the number of workers it takes to produce a given amount of stuff? That would imply a rapid rise in the amount of stuff produced by each worker still employed — that is, rapidly rising productivity.

But that’s not what we’re seeing. In fact, the lead article in the current issue of the Monthly Labor Review, published by the Bureau of Labor Statistics, is an attempt to understand the productivity slowdown — the historically low growth in productivity since 2005. This slowdown has been especially pronounced in manufacturing, which has seen hardly any productivity rise over the past decade.

. . .

The recently enacted American Rescue Plan gave most adults a one-time $1,400 payment, at a cost of $411 billion.

. . .

. . . the Yang proposal to pay $12,000 a year would cost more than eight times as much every year — well over $3 trillion a year, in perpetuity. Even if you aren’t much worried about either debt or inflationary overheating right now (which I’m not), you have to think that sustained spending at that rate would both cause problems and conflict with other priorities, from infrastructure to child care.

For the full commentary, see:

Paul Krugman. “Andrew Yang Hasn’t Done the Math.” The New York Times (Friday, April 16, 2021): A22.

(Note: ellipses, and bracketed first name, added.)

(Note: the online version of the commentary has the date April 15, 2021, and has the same title as the print version.)

Clarity Is Rewarded, at Least Among Cave Experts

After Deirdre McCloskey published her classic “Economical Writing” in Economic Inquiry, Jack High published a critique in the same journal arguing that young economists would ruin their careers if they followed McCloskey’s advice to write clearly. High claimed that clear writing would be less published and economists who wrote more clearly would therefore be less likely to receive tenure. McCloskey published a rebuttal saying that clear writing was more likely to be published, to be read, and to help the writer receive tenure. But she added that even if she was wrong about that, we should try to write clearly because it is the right thing to do.

The study mentioned below provides some evidence to support McCloskey’s claim that clarity is rewarded.

(p. D2) . . . a team of researchers has analyzed jargon in a set of over 21,000 scientific manuscripts. The study focused on manuscripts written by scientists who study caves, . . .

They found that papers containing higher proportions of jargon in their titles and abstracts were cited less frequently by other researchers. Science communication — with the public but also among scientists — suffers when a research paper is packed with too much specialized terminology, the team concluded.

For the full story, see:

Katherine Kornei. “Confused by All That Scientific Jargon? So Are the Scientists.” The New York Times (Tuesday, April 13, 2021): D2.

(Note: ellipses added.)

(Note: the online version of the article has the date April 9, 2021, and has the title “Are You Confused by Scientific Jargon? So Are Scientists.” Where the wording in the online version differs from the wording in the print version, the passages quoted above follow the print version.)

The study discussed in the passages quoted above is:

Martínez, Alejandro, and Stefano Mammola. “Specialized Terminology Reduces the Number of Citations of Scientific Papers.” Proceedings of the Royal Society of Britain (April 7, 2021)
https://doi.org/10.1098/rspb.2020.2581.

The McCloskey classic article, and the exchange with Jack High, are:

McCloskey, Deirdre. “Economical Writing.” Economic Inquiry 23, no. 2 (April 1985): 187-222.

High, Jack C. “The Costs of Economical Writing.” Economic Inquiry 25, no. 3 (July 1987): 543-45.

McCloskey, Deirdre. “Reply to Jack High.” Economic Inquiry 25, no. 3 (July 1987): 547-548.

Still Plenty of Fruit to Pick from the Tree of Science

Some pessimists have argued for imminent economic stagnation on the grounds that technological progress depends on new scientific knowledge and that we already pretty much know all there is to know about science. One way in which they are wrong is that the process of scientific discovery still has a long way to go before we fully understand the world. (If C.S. Peirce was right in saying that truth is the result of infinite inquiry, then we will never fully understand the world.)

(p. A1) Evidence is mounting that a tiny subatomic particle seems to be disobeying the known laws of physics, scientists announced on Wednesday, a finding that would open a vast and tantalizing hole in our understanding of the universe.

The result, physicists say, suggests that there are forms of matter and energy vital to the nature and evolution of the cosmos that are not yet known to science. The new work, they said, could eventually lead to breakthroughs more dramatic than the heralded discovery in 2012 of the Higgs boson, a particle that imbues other particles with mass.

“This is our Mars rover landing moment,” said Chris Polly, a physicist at the Fermi National Accelerator Laboratory, or Fermilab, in Batavia, Ill., who has been working toward this finding for most of his career.

The particle célèbre is the muon, which is akin to an electron but far heavier, and is an integral element of the cosmos. Dr. Polly and his colleagues — an international team of 200 physicists from seven countries — found that muons did not behave as predicted when shot through an intense magnetic field at Fermilab.

The aberrant behavior poses a firm challenge to the Standard Model, the suite of equations that enumerates the fundamental particles in the universe (17, at last count) and how they interact.

“This is strong evidence that the muon is sensitive to something that is not in our best theory,” said Renee Fatemi, a physicist at the University of Kentucky.

. . .

(p. A19) For decades, physicists have relied on and have been bound by the Standard Model, which successfully explains the results of high-energy particle experiments in places like CERN’s Large Hadron Collider. But the model leaves many deep questions about the universe unanswered.

Most physicists believe that a rich trove of new physics waits to be found, if only they could see deeper and further. The additional data from the Fermilab experiment could provide a major boost to scientists eager to build the next generation of expensive particle accelerators.

For the full story, see:

Dennis Overbye. “A Particle’s Tiny Wobble Could Upend the Known Laws of Physics.” The New York Times (Friday, April 16, 2021): A1 & A19.

(Note: ellipsis, and bracketed year, added.)

(Note: the online version of the article was updated April 9, 2021, and has the title “A Tiny Particle’s Wobble Could Upend the Known Laws of Physics.”)

My point at the start of this entry is directly relevant to my argument in the first half of the last chapter of:

Diamond, Arthur M., Jr. Openness to Creative Destruction: Sustaining Innovative Dynamism. New York: Oxford University Press, 2019.

Where Hospitals Charge Higher Prices for C-Sections, More C-Sections Are Performed

(p. B6) The more a hospital profits from a cesarean delivery, the more likely a woman is to get one, a new analysis suggests.

For the study, published in JAMA Network Open, researchers analyzed records of 13.2 million deliveries nationwide from 2010 to 2014, using a large database of generally healthy women.

. . .

During that period, profit from C-sections varied, from an average of $4,969 for the one-quarter of hospitals with the lowest charges to $26,129 for the quarter that charge the most.

The researchers found that compared with the one-quarter of hospitals that averaged the lowest profit per cesarean, those that made the most per formed 8 per cent more C-sections.

For the full story, see:

Nicholas Bakalar. “In Brief; Making Profits From C-Sections.” The New York Times (Tuesday, April 13, 2021): D6.

(Note: ellipsis added.)

(Note: after considerable search, I could not find this article in the online version of the NYT as of 4/24/21.)

The JAMA Network Open article discussed in the passages quoted above is:

Sakai-Bizmark, Rie, Michael G. Ross, Dennys Estevez, Lauren E. M. Bedel, Emily H. Marr, and Yusuke Tsugawa. “Evaluation of Hospital Cesarean Delivery–Related Profits and Rates in the United States.” JAMA Network Open 4, no. 3 (2021): e212235-e35.

Zoning Regulations Restrict Building Affordable Homes

(p. A25) Although zoning may seem like a technical, bureaucratic and decidedly local question, in reality the issue relates directly to three grand themes that Joe Biden ran on in the 2020 campaign: racial justice, respect for working-class people and national unity. Perhaps no single step would do more to advance those goals than tearing down the government-sponsored walls that keep Americans of different races and classes from living in the same communities, sharing the same public schools and getting a chance to know one another across racial, economic and political lines.

Economically discriminatory zoning policies — which say that you are not welcome in a community unless you can afford a single-family home, sometimes on a large plot of land — are not part of a distant, disgraceful past. In most American cities, zoning laws prohibit the construction of relatively affordable homes — duplexes, triplexes, quads and larger multifamily units — on three-quarters of residential land.

For the full commentary, see:

Richard D. Kahlenberg. “Zoning Is a Social Justice Matter.” The New York Times (Tuesday, April 20, 2021): A25.

(Note: the online version of the commentary has the date April 19, 2021, and has the title “The ‘New Redlining’ Is Deciding Who Lives in Your Neighborhood.”)

Mundell and Laffer Agreed High Taxes Hurt Poor

(p. A12) Robert A. Mundell began to make his name in the 1960s as a maverick economist eager to challenge his more orthodox colleagues. He ended up influencing mainstream economic policy in the U.S. and Europe in profound ways that few of his peers could have imagined.

. . .

Dr. Mundell’s influence on U.S. economic policy also dates to the 1960s. He was teaching at the University of Chicago when he met Arthur Laffer in 1967. Dr. Laffer, a Stanford-educated economist, later recalled their first meeting as a shock. “In walked a sallow, tousle-headed, pipe-smoking figure wearing a faded trench coat belted with a clothesline cord,” Dr. Laffer wrote.

The disheveled Dr. Mundell and the buttoned-down Dr. Laffer agreed that steeply progressive taxes were deterring investment and employment in ways that hurt the poor.

In the 1970s, Dr. Mundell argued that the U.S. should defy conventional economic wisdom by raising interest rates to protect the dollar’s value while reducing taxes to stimulate the economy. “I knew I was in the minority,” he said in an 1988 interview. “But I thought my vote should count much more than the others because I understood the subject.”

Dr. Laffer introduced Dr. Mundell and his ideas to Jude Wanniski and Robert Bartley of The Wall Street Journal editorial pages, whose work influenced Republican politicians including Jack Kemp and Mr. Reagan.

For the full obituary, see:

James R. Hagerty. “Canadian Economist Inspired U.S. Tax Cuts.” The Wall Street Journal (Saturday, April 6, 2021): A12.

(Note: ellipsis added.)

(Note: the online version of the obituary has the date April 9, 2021, and has the title “Robert Mundell Helped Inspire U.S. Tax Cuts and the Euro.” In the last paragraph quoted above, the online version mentions Jack Kemp. The print version did not.)

Amazon Workers Can Flourish Without Unions

(p. A1) Amazon workers at a giant warehouse in Alabama voted decisively against forming a union on Friday, squashing the most significant organizing drive in the internet giant’s history and dealing a crushing blow to labor and Democrats when conditions appeared ripe for them to make advances.

Workers cast 1,798 votes against a union, giving Amazon enough to emphatically defeat the effort. Ballots in favor of a union trailed at 738, fewer than 30 percent of the votes tallied, according to federal officials.

. . .

(p. A17) William and Lavonette Stokes, who started work at the Bessemer warehouse in July, said the union had failed to convince them how it could improve their working conditions. Amazon already provides good benefits, relatively high pay that starts at $15 an hour and opportunities to advance, said the couple, who have five children.

“Amazon is the only job I know where they pay your health insurance from Day 1,” Ms. Stokes, 52, said. She added that she had been turned off by how organizers tried to cast the union drive as an extension of the Black Lives Matter movement because most of the workers are Black.

“This was not an African-American issue,’’ said Ms. Stokes, who is Black. “I feel you can work there comfortably without being harassed.”

In a news conference organized by Amazon on Friday, Mr. Stokes and other workers said they had concerns that they wanted the company to address, like better training and anti-bias coaching for managers.

“We just feel like we can do it without the union,” he said. “Why pay the union to do what we can do ourselves?”

For the full story, see:

Karen Weise and Michael Corkery. “Major Setback to Labor As Amazon Employees Reject Unionization Bid.” The New York Times (Saturday, April 10, 2021): A1 & A17.

(Note: ellipsis added.)

(Note: the online version of the story has the date April 9, 2021, and has the title “Amazon Workers Vote Down Union Drive at Alabama Warehouse.”)

Clean-Energy Requires More Transmission Lines Which Requires More Use of Eminent Domain to Seize Private Property

(p. B12) President Biden’s infrastructure plan proposes some tried-and-trusted methods to spur clean-energy development such as a 10-year extension of existing tax credits for solar and wind energy. More interestingly, it introduces an investment tax credit for high-voltage transmission lines.

. . .

The administration is certainly looking in the right direction: To reach President Biden’s net-zero emissions goal by 2050, the U.S. will need to expand electricity transmission systems by 60% by 2030 and may need to triple it by 2050, according to research published by Princeton University in December [2020]. That is because renewable energy-rich places such as the windiest regions aren’t necessarily close to population centers, where electricity demand is.

While the clean-energy industry probably won’t complain about a new subsidy, the tax-credit proposal is a bit of a head scratcher given that the real roadblocks to transmission lines have to do with permitting, much of which is in the hands of state and local authorities.

A shift toward e-commerce should push up productivity by eliminating workers needed in bricks-and-mortar stores, Mr. Gordon said. Videoconferencing should also help, though the public-transit sector could offset some of the gains because buses and rail transit will carry fewer riders, he said.

“For most transmission we need in the country, it’s not a cost issue or an access-to-capital issue, although transmission can be delayed because of cost allocation debates,” said George Bilicic, global head of power, energy and infrastructure at Lazard.

. . .

The proposed plan also calls for a so-called Grid Deployment Authority within the Energy Department to “better leverage existing rights of way” along roads and railways. That would be a good first step, though eminent domain—the power of the government to take private property and convert it for public use—remains largely within state regulators’ hands. While the Federal Energy Regulatory Commission has authority to grant natural-gas pipelines the right of eminent domain under the Natural Gas Act, there is no equivalent authority for electricity transmission under the Federal Power Act and little momentum in Congress to grant that provision.

For the full commentary, see:

Jinjoo Lee. “Productivity Looks Ready to Pick Up.” The Wall Street Journal Tuesday, April 6, 2021): B12.

(Note: ellipses, and bracketed year, added.)

(Note: the online version of the commentary has the date April 4, 2021, and has the title “Biden’s Grid Proposal May Be a Square Peg in a Round Hole.”)

The Princeton research mentioned above is:

Larson, Eric, Chris Greig, Jesse Jenkins, Erin Mayfield, Andrew Pascale, Chuan Zhang, Joshua Drossman, Robert Williams, Steve Pacala, Robert Socolowi, Ejeong Baik, Rich Birdsey, Rick Duke, Ryan Jones, Ben Haley, Emily Leslie, Keith Paustian, and Amy Swan. “Net-Zero America: Potential Pathways, Infrastructure, and Impacts, Interim Report.” Princeton, NJ: Princeton University, Dec. 15, 2020.

More Evidence Xi Jinping Believes in Marx’s Communism

(p. A11) Mr. Biden this month published his Interim National Security Strategic Guidance. The document puts China in a category by itself as “the only competitor potentially capable of combining its economic, diplomatic, military, and technological power to mount a sustained challenge to a stable and open international system.”

In his signed introduction to the document, Mr. Biden wrote: “I believe we are in the midst of a historic and fundamental debate about the future direction of our world. There are those who argue that, given all the challenges we face, autocracy is the best way forward. . . . We must prove that our model isn’t a relic of history; it’s the single best way to realize the promise of our future.”

This candor is helpful. Beijing’s dirty secret is that Mr. Xi, in his internal speeches, has for years been describing the competition in precisely these ideological terms. Consider a passage from his seminal speech—kept secret for six years—to the Communist Party Central Committee on Jan. 5, 2013.

“There are people who believe that communism is an unattainable hope, or even that it is beyond hoping for—that communism is an illusion. . . . Facts have repeatedly told us that Marx and Engels’s analysis of the basic contradictions in capitalist society is not outdated, nor is the historical-materialist view that capitalism is bound to die out and socialism is bound to win. This is an inevitable trend in social and historical development. But the road is tortuous. The eventual demise of capitalism and the ultimate victory of socialism will require a long historical process to reach completion.”

The Biden and Xi quotations are almost mirror images of each other. The president’s quotation serves as a belated American rejoinder to Mr. Xi’s furtive call for the defeat of capitalism and democracy, which he made during President Obama’s first term.

For the full commentary, see:

Matt Pottinger. “Beijing Targets American Business.” The Wall Street Journal Saturday, March 27, 2021): A11.

(Note: ellipses in original.)

(Note: the online version of the commentary has the date March 26, 2021, and has the same title as the print version.)

Chinese Chip Central Planning Creates “Stunning Absurdities That Defy Logic and Common Sense”

(p. B1) Liu Fengfeng had more than a decade under his belt at one of the world’s most prominent technology companies before he realized where the real gold rush in China was taking place.

Computer chips are the brains and souls of all the electronics the country’s factories crank out. Yet they are mostly designed and produced overseas. China’s government is lavishing money upon anyone who can help change that.

. . .

(p. B2) In a way, China is hoping to achieve the same kind of liftoff that helped it progress from making plastic toys to crafting solar panels.

With semiconductors, though, “the model starts to break down a little bit,” said Jay Goldberg, a tech industry consultant and former Qualcomm executive. The technology is eye-wateringly expensive to develop, and established players have spent decades accumulating know-how. Europe, Mr. Goldberg noted, once had many “incredible” chip companies. Japan’s chip makers are leaders in certain specialized products, but few would call them bold innovators.

“My point is, there is a ladder — China’s moving up it,” Mr. Goldberg said. But it’s “unclear which outcome they go to.”

. . .

At a top-level meeting on the economy last week, the Communist Party’s leaders enshrined technological self-reliance as one of the country’s “Five Fundamentals” for economic development.

Complete self-sufficiency in chips, however, would mean recreating every part of the lengthy supply chains for some of the most complex technology on earth — a mission that would seem to lead, if not to madness, at least to waste.

. . .

“Up until very recently — this year — the goal had been: With state backing, move up the value chain, specialize where China has a comparative advantage, but don’t really try and fall down the rabbit hole of trying to build everything yourself,” said Jimmy Goodrich, the vice president for global policy at the Semiconductor Industry Association, a group that represents American chip companies.

Now, “it’s very clear that Xi Jinping is calling for a redundant domestic supply chain,” Mr. Goodrich said. “And so the rules of economics, comparative advantage and the supply-chain efficiencies have basically been thrown out the door.”

The government is conscious of the dangers. State-run news outlets have amply covered the recent semiconductor flameouts. The message to other upstarts: Don’t mess it up.

When the state broadcaster China Central Television visited one stalled project in the eastern city of Huai’an recently, it found dozens of giant machines idling on the factory floor, many of them still sheathed in plastic.

“There have been some stunning absurdities that defy logic and common sense,” China Economic Weekly said.

. . .

“There is definitely a bubble in China,” he said. “But you can’t overgeneralize.”

. . .

“Something is bound to accumulate, whether it’s equipment, talent or factories, right?” Mr. Liu said. “If not you or the other guy, then it will be someone else who ends up using it. I think this might be the government’s logic.”

For the full story, see:

Raymond Zhong and Cao Li. “China’s Frenzy to Master Chip Manufacturing.” The New York Times (Monday, December 28, 2020): B1-B2.

(Note: ellipses added.)

(Note: the online version of the story has the date Dec. 24, 2020, and has the title “With Money, and Waste, China Fights for Chip Independence.”)

“A Public Choice Analysis of Mandated Randomized Double-Blind Clinical Trials”

My “A Public Choice Analysis of Mandated Randomized Double-Blind Clinical Trials” was presented on April 13, 2021 in the Law & Economics session of the Association of Private Enterprise Education meetings. I am grateful to Ray DeGennaro and Matthew McClanahan for including me in McClanahan’s session and to Lauren Nicole Hughes for recording the session on her smartphone.

To some extent, the presentation was an outgrowth of my book:

Diamond, Arthur M., Jr. Openness to Creative Destruction: Sustaining Innovative Dynamism. New York: Oxford University Press, 2019.