Category: Economics

Least-Well-Off Were Gaining Before Pandemic

(p. A3) U.S. families’ income and wealth rose in the years heading into the coronavirus pandemic, with those in lower-income and lower-wealth categories reaping relatively large gains, the Federal Reserve said in a report on household finances.

. . .

The distribution of wealth between low- and high-income households narrowed slightly in the latest survey period, Fed economists said, a shift from the 2010-to-2016 period when incomes largely stagnated for all but the most well-off after the 2007-2009 recession.

Families in the lowest two income groups recorded large percentage increases in median net worth, suggesting the decadelong expansion benefited a wide swath of society. Net worth rose 37% to $9,800 for the lowest earners, and increased 40% to $44,000 for the second-lowest group. The median net worth of the highest and second-highest groups declined 8% and 9%, respectively.

For the full story, see:

Harriet Torry. “Household Wealth Rose Before Crisis.” The Wall Street Journal (Tuesday, September 29, 2020): A3.

(Note: ellipsis added.)

(Note: the online version of the story was updated Sep. 28, 2020, and has the title “Household Wealth Rose in Years Before Pandemic, Fed Says.”)

California Energy Shortage Partly Due to Government Mandated Price Ceiling on Energy Imported from Out-of-State

(p. B9) As California keeps facing electricity shortages, the discussion around its grid often veers to extremes.

. . .

Should California . . . have shut down less natural gas and nuclear power? That is definitely part of the issue, and future shutdowns might need to slow.

. . .

. . . at least some of the shortage is addressable through market rules.

For example, California has a hard import bid cap of $1,000 per megawatt hour. Christopher DaCosta, regional director of western power markets at Wood Mackenzie, says that surrounding areas have a softer cap and are able to pay more. During this summer, that meant power plants often rerouted electricity to higher bidders than California.

For the full commentary, see:

Jinjoo Lee. “To Keep Lights On, California Needs Power Play.” The Wall Street Journal (Thursday, September 17, 2020): B9.

(Note: ellipses added.)

(Note: the online version of the commentary has the date Sep. 16, 2020, and has the title “How to Keep the Lights On in California.”)

Chinese Communists Have Failed to Reform Toward Free Markets

(p. B6) China is the only major world economy reporting any economic growth today. It went first into Covid-19 and was first out, grinding out 3.2% growth in the most recent quarter while the U.S. shrank 9.5% and other advanced economies endured double-digit declines. High-tech monitoring, comprehensive testing and aggressive top-down containment measures enabled China to get the virus under control while others struggled. The Middle Kingdom may even deliver a modest year-over-year economic expansion in 2020.

This rebound is real, but behind the short-term numbers the economic restart is dubious. China’s growth spurt isn’t the beginning of a robust recovery but an uneven bounce fueled by infrastructure construction.

. . .

An honest look at the forces behind China’s growth this year shows a doubling down on state-managed solutions, not real reform. State-owned entities, or SOEs, drove China’s investment-led recovery.

. . .

For years, the world has watched and waited for China to become more like a free-market economy, thereby reducing American security concerns. At a time of profound stress world-wide, the multiple gauges of reform we have been monitoring through the China Dashboard point in the opposite direction. China’s economic norms are diverging from, rather than converging with, the West’s. Long-promised changes detailed at the beginning of the Xi era haven’t materialized.

Though Beijing talks about “market allocation” efficiency, it isn’t guided by what mainstream economists would call market principles. The Chinese economy is instead a system of state capitalism in which the arbiter is an uncontestable political authority. That may or may not work for China, but it isn’t what liberal democracies thought they would get when they invited China to take a leading role in the world economy.

For the full commentary, see:

Daniel Rosen, and Kevin Rudd. “China Backslides on Economic Reform.” The Wall Street Journal (Wednesday, September 23, 2020): A17.

(Note: ellipses added.)

(Note: the online version of the commentary has the date Sep. 22, 2020, and has the same title as the print version.)

Amazon’s Culture “Asks a Lot of Questions”

(p. B2) John Mackey helped popularize organic food when he co-founded Whole Foods Market four decades ago. Over the past several months, his chain of more than 500 stores has scrambled to adapt to another major shift in how Americans buy groceries.

. . .

The pandemic has accelerated an online-grocery movement that Whole Foods was already seeking to capitalize on as part of Amazon.com Inc. Mr. Mackey sold Whole Foods to the online-retail juggernaut for $13.4 billion in 2017, one of the decisions he recounts in his new book out this month, “Conscious Leadership: Elevating Humanity Through Business.”

. . .

WSJ: What merger challenges have you’ve learned from?

Mr. Mackey: Amazon has a culture that asks a lot of questions. We took a little longer to get used to that, but that’s no big deal. That’s how you learn things. They’re trying to understand our business. They want to know everything. And I think that’s healthy.

WSJ: What’s the biggest leadership lesson you’ve adopted from Jeff Bezos?

Mr. Mackey: Amazon wants you to write up a document explaining your ideas, defending them, and then you can have discussions. That’s a practice Whole Foods has adopted. Amazon’s also very data-driven. As opposed to acting from the gut, Amazon says, “Show us the data.” That’s been a good discipline for us. We do it ourselves, even when we’re not talking to Amazon.

For the full interview, see:

Jaewon Kang, interviewer. “BOSS TALK; Rugged Individualism in the Grocery Aisle.” The Wall Street Journal (Saturday, September 12, 2020): B2.

(Note: ellipses added. In both the print and online versions, “WSJ” and “Mr. Mackey” are bolded, as are the questions asked by Jaewon Kang. The bolding is not visible in the theme used for this blog.)

(Note: the online version of the interview has the date Sep. 11, 2020, and has the title “BOSS TALK; Whole Foods CEO John Mackey Says Many People Are Done With Grocery Stores.”)

The book co-authored by Mackey and mentioned above is:

Mackey, John, Steve Mcintosh, and Carter Phipps. Conscious Capitalism: Elevating Humanity Through Business. New York: Portfolio, 2020.

Apple Is First U.S. Firm to Reach Two Trillion in Market Value

(p. B1) Apple Inc. on Wednesday [Aug. 19, 2020] became the first U.S. public company to eclipse $2 trillion in market value, a dizzying achievement that highlights the iPhone maker’s commanding role in the world economy.

Shares of Apple rose as much as 1.4% to $468.65, eclipsing the $467.77 mark needed to reach the milestone. They ended the day up 0.1% at $462.83, putting the company’s market value just below $2 trillion.

For the full story, see:

Amrith Ramkumar. “Apple’s Stock-Market Valuation Touches $2 Trillion Mark Intraday.” The Wall Street Journal (Thursday, August 20, 2020): B1-B2.

(Note: bracketed date added.)

(Note: the online version of the story was updated Aug. 19, 2020, and has the title “Apple Surges to $2 Trillion Market Value.”)

Natural Experiments Are Equal to Randomized Double-Blind Clinical Trials in Showing Causality

(p. B6) . . . randomized controlled trials are the gold standard in medicine. Using randomization (by, say, flipping a coin to assign patients to a new treatment or not) is the best way to determine whether treatments work.

Unfortunately, randomized trials take time — which is a problem when doctors need answers now. So doctors and public health officials have been turning to available real-world data on patient outcomes and trying to make sense of them.

. . .

“Large-scale randomized evaluations have been less common in economics, prioritizing the need for economists to identify often creative but sometimes narrow natural experiments to estimate the causal effects of treatments,” said Amitabh Chandra, an economist at the Harvard Business School and the Kennedy School of Government.

Ashish Jha, recently appointed the dean of the Brown University School of Public Health, said that while “natural experiments have causal interpretations, typical associational studies in medicine do not, which may make some medical researchers less comfortable interpreting the results.”

. . .   Most doctors can relate to recent comments by the Food and Drug Administration director Stephen Hahn in last week’s congressional pandemic hearing. “In a rapidly moving situation like we have now with Covid-19,” he said, decisions are made “based on the data that’s available to us at the time.”

For the full commentary, see:

Anupam B. Jena and Christopher M. Worsham. “THE UPSHOT; What Coronavirus Researchers Can Learn From Economists.” The New York Times (Thursday, July 2, 2020): B6.

(Note: ellipses added.)

(Note: the online version of the commentary has the date June 30, 2020, and has the same title as the print version.)

Boeotia Was “an Early Model of Democratic Federalism”

(p. C12) Mr. Cartledge, a professor emeritus at Cambridge and author of popular history books such as “The Spartans,” “Thermopylae,” “Alexander the Great” and “Democracy: A Life,” has picked an opportune time to look afresh at Thebes and Boeotia. The modern city of Thebes, an uninspiring market town, would not normally attract tourists, but is home to a glittering new museum, among the most up-to-date in Greece, featuring exhibits of archaeological finds (many unique in type) and historical objects from prehistory to the present. (One exhibit is titled, provocatively, “The Intellectual Radiance of Boeotia.”) There is a book forthcoming, from scholar James Romm, about Thebes’s “Sacred Band,” its elite unit of soldiers, made up of pairs of devoted homosexual lovers. Thebes is in the spotlight.

. . .

The biography of the Theban leader Epaminondas (418 B.C.-362 B.C.) written by Plutarch is, unfortunately, lost. Even so, his reputation shines. Admired by figures from Cicero and Montaigne to Sir Walter Raleigh (who called him “the worthiest man that ever was bred by the nation of Greece”), Epaminondas seems to have had a philosophical bent as well as a brilliant military mind.

. . .

Perhaps his greatest act, . . ., even if it might have been intended more to inconvenience the Spartans than as a benevolent deed, was freeing the helots of Messenia, a people that had been enslaved by the Spartans for 300 years. He helped found a new capital city for the Arcadian federation (Megalopolis), and also for the ex-helots (Messene). Maybe Epaminondas was not only the Nelson of his age, but the Lincoln as well. He died in battle and was buried alongside his male beloved, Caphisodorus, with an epitaph that listed his children (daughters, being female) as the cities Messene and Megalopolis; it ended “Greece is free.”

Mr. Cartledge’s command of the historical material is effortless and exhaustive, and his appreciation of Thebes is persuasive. Between the radical but self-destructive democracy of Athens and Sparta’s totalitarian oligarchy (both imperialist), Thebes and Boeotia stand in the middle as an early model of democratic federalism—the “united states” of Boeotia, for instance, shared a currency. It was Thebes that dealt a critical blow to Spartan domination, and a Theban leader who freed a long-enslaved people. Alexander the Great himself adopted military tactics from Epaminondas. If Thebes’s period of hegemony was brief—barely a decade—it also changed the course of the ancient world.

For the full review, see:

A.E. Stallings. “Greece’s Mythic Heartland.” The Wall Street Journal (Saturday, September 12, 2020): C12.

(Note: ellipses added.)

(Note: the online version of the review has the date Sep. 11, 2020, and has the title “‘Thebes: The Forgotten City of Ancient Greece’ Review: Mythic Roots.”)

The book under review is:

Cartledge, Paul. Thebes: The Forgotten City of Ancient Greece. New York: Abrams Press, 2020.

Litan and Mankiw Endorse Paying People to Take Vaccine

(p. 5) What’s the best way to get the economy back on track after the Covid-19 recession? Simple: Achieve herd immunity. And what’s the best way to achieve herd immunity? Again, simple: Once a vaccine is approved, pay people to take it.

That bold proposal comes from Robert Litan, an economist at the Brookings Institution. Congress should enact it as quickly as possible.

. . .

Recent research by the University of Chicago economists Austan Goolsbee and Chad Syverson has found that the government-mandated shutdowns account for just a small part of the decline in economic activity. The main reason people aren’t spending is that they are afraid to leave their homes and contract the virus. That hypothesis explains my own behavior. I have not stepped foot on an airplane or inside a restaurant for six months.

. . .

Immunology, meet economics. One of the first principles of economics — perhaps the most important — is that people respond to incentives. Applying this principle to the case at hand, Mr. Litan recommends that the government pay $1,000 to whoever gets the vaccine. With a large enough incentive, most Americans are likely to get vaccinated.

This proposal is textbook economics. (I’ve written some of the textbooks.) As all economics students learn, when an activity has a side effect on bystanders, that effect is called an externality. In the presence of externalities, the famous theorems of economics that justify laissez-faire do not apply. Adam Smith’s vaunted invisible hand can no longer work its magic.

A classic example of a negative externality is pollution, and the simplest and least invasive policy solution is a tax on emissions. In economics-speak, such a tax internalizes the externality: It induces polluters to take the cost of pollution into account by giving them a financial incentive to cut emissions. That’s why I have written here many times that a tax on carbon emissions is the best way to deal with global climate change.

Vaccination confers a positive externality. When you get vaccinated, you benefit not only yourself but also your fellow citizens by helping society take a step toward herd immunity. In this case, internalizing the externality requires not a tax but a subsidy, as Mr. Litan suggests.

For the full commentary, see:

N. Gregory Mankiw. “A Vaccine Subsidy Licks 2 Crises With One Shot.” The New York Times, SundayReview Section (Sunday, September 13, 2020): 5.

(Note: ellipses added.)

(Note: the online version of the commentary has the date Sept. 9, 2020, and has the title “Pay People to Get Vaccinated.”)

The Robert Litan op-ed mentioned above is:

Litan, Robert E. “Want Herd Immunity? Pay People to Take the Vaccine.” Brookings Institute Op-Ed. (Tues., Aug. 18, 2020) URL: https://www.brookings.edu/opinions/want-herd-immunity-pay-people-to-take-the-vaccine/.>

The Goolsbee and Syverson NBER working paper mentioned above is:

Goolsbee, Austan, and Chad Syverson. “Fear, Lockdown, and Diversion: Comparing Drivers of Pandemic Economic Decline 2020.” NBER Working Paper #27432, June 2020.

“Before the White People Left”

(p. A1) CHICAGO — The old guard of this city’s Roseland neighborhood, a community on the South Side famous for molding a young Barack Obama and infamous for its current blight, has never forgotten the fruit trees.

Back in the 1970s, before the full exodus of white residents, the erosion of local businesses, the crack epidemic of the 1980s and the disinvestment that followed, it was the trees that signaled the societal elevation of Black families — separating those who moved here from the urban high rises they fled. An apple tree greeted Antoine Dobine’s family in 1973, he said. The tree meant a yard. A yard meant a home. And a home meant a slice of the American dream, long deferred for Black Americans.

“Pear trees, peaches, apples, it was beautiful,” Mr. Dobine recalled. “Before the white people left.”

. . .

The fruit trees have been replaced with overgrown lots. Residents say gangs use the abandoned areas to stockpile weapons, which children sometimes find.

For the full story, see:

Astead W. Herndon. “Black Area Embraces Protests But Still Has No Grocery Store.” The New York Times (Wednesday, August 12, 2020): A1 & A21.

(Note: ellipsis added. The online version say that the New York print version had the title “In a Black Chicago Community, Doubt Defies Hope for Change.” My National print version had the title “Black Area Embraces Protests But Still Has No Grocery Store.”)

(Note: the online version of the story was updated Aug. 28 [sic], 2020, and has the title “‘A Smoking Gun’: Infectious Coronavirus Retrieved From Hospital Air.”)

“An Active Regulatory State Is a Playground for the Privileged Class”

(p. A17) . . . the poor would suffer most under Mr. Biden’s platform. Dividing U.S. households into five income groups, I have estimated the regulatory costs of each quintile and expressed them as a percentage of each quintile’s average income. The costs to the bottom group amount to 15.3% of its total income—representing a burden equal to all the taxes they currently pay. This group would experience part of the cost as lower wages, but the biggest bite would come in diminished purchasing power due to higher prices for energy, cars and other consumer goods.

The top quintile, by contrast, would suffer the least from regulatory restoration, with labor, energy and other consumer rules amounting to only a 2.2% implicit tax on the highest earners.

This estimate includes not only regulations Mr. Biden has explicitly said he would revive, but also many of those that would be necessary to meet the goals outlined in his platform.

. . .

An active regulatory state is a playground for the privileged class to indulge its own preferences at the expense of ordinary Americans.

For the full commentary, see:

Casey B. Mulligan. “The Real Cost of Biden’s Plans.” The Wall Street Journal (Thursday, September 17, 2020): A17.

(Note: ellipses added.)

(Note: the online version of the commentary has the date Sep. 16, 2020, and has the same title as the print version.)

Open Offices Reduce Productivity and Spread Diseases

(p. B4) When historians of the early 21st century look back on the pre-Covid era, one of the absurdities they might highlight is the vogue for gigantic, open-plan offices. The apotheosis of this trend of breaking down barriers between co-workers must surely be Facebook Inc.’s 433,555-square-foot Frank Gehry-designed open-plan office at its headquarters in Menlo Park, Calif. Opened in 2015, it’s now a ghost town, a monument to offices vacated by the pandemic.

Cramming cavernous spaces with as many desks as they could hold might have increased serendipitous interactions, but it almost certainly reduced productivity and helped spread communicable diseases, including coronavirus.

. . .

Cue the “dynamic workplace,” a pivot away from the open plan, built on the idea that with fewer employees coming to work on any given day, offices can offer them more flexibility of layout and management.

While open offices and dynamic workplaces share similar components—privacy booths and huddle rooms to escape the hubbub, cafe-like networking spaces, etc.—they’re philosophically distinct. One is intended to be a place where people come (at least) five days a week, and get most of their work done on site. The other is planned for people rotating in and out of the office, on flexible schedules they have more control over than ever.

. . .

Research on hot-desking in office spaces, for example—where employees give up a dedicated space in favor of first-come-first-serve seating—finds that it decreases socialization and trust. This happens because employees figure they might never again see the person they sit next to on a given day, says Dr. Sander. In other studies, employees complain they can’t find their colleagues, that it’s a hassle to find a new spot to work every day, and that such arrangements ignore humans’ innate territoriality and desire to make a space their own.

For the full commentary, see:

Christopher Mims. “Goodbye, Open Office. Hello, ‘Dynamic Workplace.” The Wall Street Journal (Saturday, September 12, 2020): B4.

(Note: ellipses added.)

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