President Biden’s Pipeline Closure Did NOT Destroy Jobs

According to the Republican National Committee in a letter they sent to me: “On his very first day in office, Joe Biden destroyed 11,000 American jobs and $1.6 BILLION in wages when he halted construction of the Keystone XL Pipeline.” This was coupled with a plea to “Please contribute $45 IMMEDIATELY to help your Party win back the House and Senate.” I reject both messages.

Ok, ok, if you want to say that this decision of President Biden’s destroyed jobs, fine. But, then, if you want to be logical, you also have to opine that:

* The horseless carriage destroyed jobs in saddle making, horse training, blacksmithing, whip manufacture, and cleaning up manure.

* The cell phone demolished employment opportunities at Kodak in film-making, camera production.

* The computer eviscerated occupations in typewriters, carbon-paper, white-outs (for typing errors), forestry (less paper now needed)

* Automatic elevators devastated careers for manually operated elevator attendants.

* Air conditioning put paid to the fan industry.

* 78 records gave way to 45s, which were supplanted by tapes and then discs the streaming; jobs were “lost” every step of the way.

* Air travel to a great degree supplanted alternative means of transportation (well, not right now, to be sure, but, hopefully, soon again).

* Changes in taste have eliminated numerous careers in manufacturing hula hoops, pet rocks, men’s hats and women’s too

This list could go on and on. The RNC should take it as a homework assignment to add to it.

Yes, it cannot be denied, in all of these cases job slots were eliminated, including in the present administration’s decision that construction be halted in pipeline construction. But to put matters in such a way is an exercise in economic illiteracy. A more accurate description is that occupations are/were/will be shifted from one avenue to another. Unemployment did not rise when the automobile, the cell phone, the computer, automatic elevators were introduced. Rather, people were transferred from working on items no longer needed to others in greater demand. Instead, they were allocated in the direction of new goods and services more greatly desired by consumers.

In all these examples it is clear from the position of the Monday morning quarterback that these were economic improvements. Whether reducing fossil fuels and oil, which are complementary goods to pipelines, and embracing alternative energy sources will be an improvement to our economic welfare is an entirely different matter. All that can be said about this decision is that it will not destroy jobs; it will rather rearrange the labor market in the direction favored by the new administration.

The natural tendency of the market system is in the direction of full employment. When industries collapse, due to progress, new technology, changes in taste, etc., this releases workers to seek alternative employment. Such phenomena do not “destroy jobs”; rather, they move them elsewhere.

True, Mr. Biden’s pipeline decision did not stem from changing consumer tastes, new technology, etc. But in our system, he is now the representative of the people, all the people, those who voted for him and those who did not. Was this a wise move on his part on our behalf? Save that question for another day. For now, we must see through the foolishness of declaring he has “destroyed jobs.”

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Comparing Apples to Oranges: America versus Europe in the Response to COVID

I have listened to pundits and medical experts on networks from PBS to DW speak at length on the failures of America to adequately deal with the pandemic in comparison with European countries. Most recently, one of these sources cited Americas high fatality numbers as compared to other western European countries and specifically criticized the American system of states and federalism as presenting an unworkable patchwork of policies. One cited the per capita death rate as the highest of all. In both cases the point is misleading.

The direct nation to nation comparison of the US and specific European countries, without any differentiation as to their economic condition or level of population, is the most invidious of the two assertions. Setting aside concerns about how the counting is done, America, taken as one undifferentiated mass, does look worse in absolute numbers, but such one-to-one comparison commits the classic error of contrasting apples to oranges.

To make a meaningful comparison, we need to construct a proper basis by looking at countries that are similar in terms of economic organization and development. Then we have to combine those into a unit of population similar to the US. When that is done the figures don’t look all that different.

The US has a population at roughly 330 million people. Of the most advanced economies comparable in development, none of the western European countries separately comes anywhere close to that figure, but if we cobble together what could be called the big five, we can arrive at a unit that is acceptably close:

Germany : 83 million

UK: 68 million

France: 65 million

Italy: 60 million

Spain: 47 million

Total: 323 million

Now let us look at each country’s separate COVID death numbers:

US: 542,000

 

And each of the big five European countries:

Germany: 75,000

UK: 126,000

France: 92,305

Spain: 72,900

Italy: 105,000

Total: 471,205

 

If one then runs the per capita number that gives results for the US at approximately .0016 and for the European big five, .0014, a difference of only .0002. And now consider that in the US, the rate is slowing as we approach herd immunity through natural exposure and vaccination. Europe is again on the increase and has significantly botched its vaccine delivery. This doesn’t speak particularly well for the central administration in Brussels.

As for the per capita rate, the UK still has that record at, .0018 despite very severe lockdowns. New York has one of the highest rates in the US at .0025, and it was one of the sates with comparably severe lockdown policies.

From the numbers, it is hard to be happy with any country’s performance, but they do not indicate a failure of federalism. As we approach the end of the pandemic, there will be plenty of data to run through, but I suspect the more centralized forms of command and control will leave a lot to be desired. I for one would not advise putting all our apples in one basket—nor our oranges for that matter!

 

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Brookings’ Cliff Winston on Infrastructure

President Joe Biden is planning a multi-trillion-dollar infrastructure and jobs package to spur transformative change to the economy. Unfortunately, the infrastructure component of his plan will fail to significantly improve the nation’s roads, bridges, and the like because it ignores the vast inefficiencies in current transportation policy that greatly reduce benefits from infrastructure spending.

Let me take you on the journey of a dollar of government spending intended to improve, for example, travel conditions on a highway. This dollar will have a long, perilous trip and encounter many dangers enroute that will divert it from its correct destination and take large, wasteful chunks out of it. By the time it reaches the wrong destination, it will fund much less than a dollar’s worth of highway improvements. The dangers it encounters include inefficient road pricing and investment policy, inflated input and project costs, misallocation of highway revenues, and the slow adoption of technological innovations.

This is from Clifford Winston, “How Federal Infrastructure Dollars Get Nickeled and Dimed,” Barron’s, March 24, 2021.

I highly recommend the whole piece. Actually, everything I’ve ever read by Cliff has been at least good and usually great.

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Alain Bertaud and the Future of Cities

Recently, our parent organization, Liberty Fund, embarked on a series of programs aimed at our local (Indianapolis, Indiana) community. The first topic we endeavored to explore was the future of cities.

One of the programs we hosted was a virtual “town hall,” in which I was privileged to interview former EconTalk guest and urban planner Alain Bertaud.

I asked Bertaud what a city like Indianapolis, whose goal is to attract and retain talented young professionals, ought to focus on, as well as why we might not want our city planners to have a “vision” for the future.

Here’s the video of our conversation:

 

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Should AstraZeneca Vaccine Be Paused?

Millions of people in dozens of countries have received the AstraZeneca Covid vaccine with few reports of ill effects, and its prior testing in tens of thousands of people found it to be safe.

But recently, blood clots and abnormal bleeding in a small number of vaccine recipients in European countries have cast doubt on its safety, although no causative link has been found between the patients’ conditions and the vaccine. The reports have prompted more than a dozen countries to either partly or fully suspend the vaccine’s use while the cases are investigated. Most of the nations said they were doing so as a precaution until leading health agencies could review the cases.

This is from Denise Grady and Rebecca Robbins, “Should You Be Concerned About Blood Clots, Bleeding and the AZ-Vaccine?,” New York Times, March 15, 2021.

The countries that have paused include Germany, Italy, France, Spain, Denmark, Ireland, Norway, the Netherlands, and Iceland.

This makes no sense, but it is, unfortunately, not so unusual for governments to substitute their own risk assessments for those of their sheep citizens.

There’s such an obvious solution: have the governments of those countries warn people that there might be blood clots, tell them the data, and leave them free to choose. I guarantee that millions of Europeans would be willing to take the small risk of blood clots and go ahead and get vaccinated.

Oh and, by the way, my solution applies to the United States, whose government is even worse: the Food and Drug Administration has not yet allowed people to take the AstraZeneca vaccine.

Economist Thomas Sowell is famous for saying “There are no solutions. There are only tradeoffs.” I don’t agree. I’ve just given a solution, one that lets people make their own tradeoffs.

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Can economists be trusted?

For the most part, economists don’t give people advice on how to run their lives. Rather we tend to focus on explaining the behavior of consumers and businesses, usually assuming they are at least somewhat rational. One exception is when there is a “principal-agent problem”, the case where the people you hire (the agents) have interests that differ from you own interest.

Thus economists might advise someone to be a bit skeptical if one’s dentist recommends that you get a new crown. Is it actually needed, or is the dentist merely trying to pad his income?

There is one area where economists are especially likely to give advice–personal investments. The Efficient Market Hypothesis (EMH) suggests that it’s extremely hard for financial advisors to consistently beat the market. Because these professionals must be paid for their services, managed mutual funds tend to do worse, on average, than index funds. Thus almost all economists that I know recommend that average people invest in index funds.

Because of the EMH, the field of economics has its own distinct epistemology. We believe in the wisdom of markets. We believe that the optimal forecast of many economic variables is embedded in the consensus market forecast. AFAIK, other sciences don’t use this approach to ascertain what is true. Thus meteorologists don’t typically assume that a prediction market forecast of global temperatures in the year 2050 represents the optimal forecast, even were such a market to exist.

On the other hand, I do wonder if economists are being consistent in the way they apply concepts such as the principal-agent problem and the EMH. Doesn’t our criticism of managed mutual funds apply equally well to our own profession? Consider the following two approaches to policy:

1. Most economists seem to believe that it makes sense for our profession to do a lot of research on the macroeconomy, and then base our monetary policy on forecasts derived from computer models of the economy.

2. I believe that much of this research is wasteful, and that monetary policy should be guided by market forecasts of the relevant economic variables.

In order to see who’s right, let’s take the same analytical framework that makes economists so critical of the managed mutual fund industry and direct it toward our own field. We immediately see two problems. Just as with the financial industry, it is in the best interest of economists if society spends a lot of money financing research on predicting future macroeconomic outcomes. These are good jobs!

Second, the EMH suggests that the output of these investigations will be inferior to the consensus market forecast, and yet we usually argue that policymakers should rely on our computer models, not the consensus market forecast. Thus we seem to be dismissing the value of the EMH when it comes to our own profession, after using the EMH as a bludgeon to bash the financial services industry.

Of course one could argue that research by individual economists is a valuable input into the market forecast of inflation and GDP, but one could equally well argue that research by individual financial experts is a valuable input into the market pricing of assets.

And even if economic research should be subsidized because information has external benefits, that does not justify using a particular Fed model to set policy, rather than the market forecast.

Economists are also “agents”, and our self-interest is not the same as society’s self-interest. On the other hand, I’m also an economist, so why should you believe me? My self-interest might be to carve out a career as a contrarian.

I would respond as follows. I’m not trying to brainwash you; I’m merely pointing to some implications of ideas that many of you already know, especially those with some background in economics.  Back in 1996 (when he was defending free trade), Paul Krugman gave four suggestions to people trying to become public intellectuals.  This one struck home:

Adopt the stance of rebel: There is nothing that plays worse in our culture than seeming to be the stodgy defender of old ideas, no matter how true those ideas may be. Luckily, at this point the orthodoxy of the academic economists is very much a minority position among intellectuals in general; one can seem to be a courageous maverick, boldly challenging the powers that be, by reciting the contents of a standard textbook. It has worked for me!

That’s what I did in my new book, which comes out this summer.  And that’s what I’m doing here.  The principal-agent problem and the EMH are well-established ideas.  And it is well known that economists are highly skeptical of managed mutual funds, and often recommend indexed funds.  In this post, I’m merely pointing to the implication of applying this sort of analysis to my own profession.  Don’t automatically believe what I say—think about whether it makes sense.

After all, my best interest doesn’t coincide with your best interest.

PS.  You might argue that asset markets don’t exist for some key macro variables.  But that’s no excuse; the Fed can create them.

PPS.  Part 2 of my MMT critique is now out.  Now there’s a theory that categorically rejects the EMH!!

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The Ethical and Economic Case Against Lockdowns

Last Friday, February 19, I gave about a 1.6 hour Zoom talk to Ryan Sullivan’s class at the Naval Postgraduate School.

It was titled “Don’t Forget What We Know: The Ethical and Economic Case Against Lockdowns.”

Here it is.

By the way, the most surprising thing I heard from Jeremy Horpedahl in his debate/discussion with Phil Magness is that when there’s an externality, there’s a presumption in favor of government intervention. I disagree and I say why at about the 28:50 point.

The Commissar Komisar discussion at 54:27 is based on a short blog post I did here.

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Private versus Government

In his textbook Public Finance, 7th edition, 2005, Princeton University emeritus professor of economics Harvey S. Rosen, discussing the idea that incentives to monitor are better in the private sector than in government, quotes Adam Smith’s statement to that effect in The Wealth of Nations. He also gives a famous modern example. Rosen writes:

Anecdotal evidence for this viewpoint abounds. One celebrated case involved New York City, which spent $12 million attempting to rebuild the ice-skating rink in Central Park between 1980 and 1986. [DRH note: think about that–that’s 6 years.] The main problem was that the contractors were trying to use a new technology for making Iceland it did not work. In 1986, after spending $200,000 on a study to find out what went wrong, city officials learned they would have to start all over. In June 1986, real estate developer Donald J. Trump offered to take over the project and have it completed by December of that year for about $2.5 million. Trump finished the rink three weeks ahead of schedule and $750,000 under projected cost.

I remembered this passage when I was preparing for a Zoom interview on Monday with a high school senior in Arizona. He asked good questions and I gave him this example and a number of others.

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Boris Johnson’s reopening plan

On Twitter, Ryan Bourne links to a series of tweets by Ben Riley-Smith, the political editor of the Daily Telegraph, on Boris Johnson’s reopening plan. Ryan’s comment is: “Why are the UK guidance and laws so much more specific and prescriptive than anywhere else? Absurd level of micromanagement”. If you read Riley-Smith’s tweets (which, if I understand correctly, are based upon political rumor), you will indeed be left with a similar question.

It is notable, and troubling, how much “planning” has been going on in these matters. This is the consequence of an approach of fighting the pandemic in which most governments renounced early on the idea of using rules, as general as possible in these difficult times, and choosing instead a discretionary approach. Discretion has two benefits: on the one hand, it allows for faster adaptation as the pandemic situation evolves. On the other hand, it makes it easier for people in power to claim credit for whatever advancement recorded in the struggle with the virus.

But by using prohibitions and bans, rather than rules, and emphasizing the government’s power to impose and revise plans for the whole of society, we are wasting the opportunity to mobilize knowledge and creativity on a larger scale. Your grocer is not an epidemiologist, and his opinions on the virus’ variants, for example, are unlikely to be particularly well-founded. But if you tell him that he can have a certain number of people per hour / per square meter in his shop, or that he can stay open provided he copes with a certain degree of social distancing, he is likely to busy himself in contriving ways to keep open and complying with the rule at the same time.

Since the virus is a collective problem, governments have all somehow assumed that there can be no bottom up solutions. But the “struggle against the virus”, by any practical purpose, is in fact a series of attempts and actions aiming at keeping our lives together and similar to what they were before, as much as possible despite the pandemic. These attempts and actions could benefit a great deal from bottom-up, trial-and-errors endeavor. Governments have chosen to do without them. This may increase the costs of non pharmacological interventions, but it also means that we won’t benefit from tinkering solutions. It is an old story: the government assumes its experts have superior knowledge. When it comes to the virus, it is likely to be true. When it comes to how to adapt our lives to the fact the virus exists, perhaps no.

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Terence Kealey on the British ARPA

Terence Kealey has an excellent piece in CapX on the influence of Mariana Mazzucato’s work on the British “conservative” government. Boris Johnson has announced a new Advanced Research & Invention Agency (ARIA), a brainchild of his controversial advisor Dominic Cummings. It is an ambitious effort, as the government itself describes it as a “new research agency to support high risk, high reward science”. Here you can see the reaction of a few scientists who welcomed the news.

Terence begs to differ, and he does so by writing a short history of ARPA in the US, which he considers more a case of government failure than one of successful, “mission-oriented” public spending. At the very end of his piece, Terence reminds that some of Johnson’s voters, and Brexit fans, may have hoped to see the government shrinking once they regained “independence” from the EU. Sadly, they are going to be disappointed:

Some Brexiteers had hoped that leaving the EU would be a chance to shrink the state. Sadly for them, Boris Johnson knows he’s Prime Minister only because of the votes of the ‘left behind’, and such folk are none too keen on the bracing winds of competition: they are keen on high public spending, subsidies, and a corporate state within which they can find shelter.

And boy, is Johnson delivering for them, starting with an industrial policy based on vast corporate welfare – starting with research.

I am not so sure what the “left behind” would make of the building of a “British ARPA”. Is that helping in any way the left-behinds? I suppose the Johnsons of this world would make the case that the new agency is indirectly strengthening British business, keeping it at the frontier of technology and thus “saving jobs” from globalization and international trade. It is sort of variation of the old argument for infant industry protection.

But I also suppose that the left-behinds do care about improvements in their lives- here and now- and it is harder to make the case that a British ARPA would play any role in providing them with better job opportunities, or strengthening their purchasing power, or safeguarding their savings. It may please them as a symbol: the British flag waving over science- be proud of your government because it invests in science. We tend to overestimate the role of interests in real-life politics, but my takeaway from the last few years of ramping populism is that most of the time, people do not vote thinking of their immediate interests. They are mesmerized by symbols, and happy to be fed with them.

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