The Lockdowns Definitely Suppressed Economic Activity

 

Pryce Boeye’s Hungry Hobo sandwich shops’ sales on the Iowa side of the Mississippi River have been booming since the state reopened dining rooms in mid-May, while those he owns in still-closed Illinois languish.

The pattern is repeated across the Quad Cities, a river-straddling metro area of around 420,000 that includes Scott and Muscatine counties on the Iowa side, as well as Rock Island and Henry counties in Illinois. The contrasting state reopening policies have created two tracks in what had been a unified economy before the coronavirus pandemic.

The scene is playing out in other border communities around the country where workers and shoppers regularly cross state lines. The relatively stringent lockdown regime in Illinois compared with Iowa has created a clear shift in current spending patterns and potential longer-term consequences.

These are the opening 3 paragraphs of Doug Cameron, “States’ Divergent Virus Rules Create Tale of Two Economies,” Wall Street Journal, June 24 (June 25 print edition).

I often see economists say that the lockdowns didn’t have much effect because a huge percentage of consumers were essentially engaged in their lockdown measures without government regulation.

The evidence in this article, not just anecdotes but 3 graphs of hours worked, businesses open, and employees working, strongly suggests that the lockdowns matter. (There are 3 graphs in the print version and only one in the electronic version.)

To be sure, you have to adjust for the fact that these cities border each other; the effect is therefore exaggerated by the cross-border shopping. So a better test would be Iowa and Illinois cities separated by 50 miles or so. Nevertheless, it’s strong evidence.

 

I’m catching up on Wall Street Journals during my staycation.

(0 COMMENTS)

Read More

Will Italy get the “upside” of COVID?

In many assessments of the changes brought by COVID-19, I notice some classical liberal scholars are putting on the upside a certain degree of deregulation, which apparently governments are accepting in order to cope with the healthcare challenge and to ease the way towards recovery.

I am afraid that won’t happen in Italy. I have an article on the matter in Politico.eu.

As I recall in the piece,

The first time I heard an Italian politician promise to slash red tape, I was 13. It was 1994 and, with great fanfare, Silvio Berlusconi had injected the Reagan-esque language of bureaucratic reform into Italian politics.

It was a theme the four-time prime minister and his successors would return to over and over again. As the economist Nicola Rossi recently noted, over the last 30 years, Italy has introduced 10 much-talked-about “simplification reforms” and “reforms of the public administration” in 1990, 1993, 1997, 1998, 1999, 2000, 2003, 2005, 2009, 2014.

And yet, none of these resulted in an actual, substantive deregulation effort.

The article is here.

(0 COMMENTS)

Read More

The totalitarian temptation

Opponents of libertarianism often point out that there are cases where government mandates can be welfare improving. I accept that argument, but not the implications that people draw from that fact.

The real question is not whether government power can make things better; it is whether government power will make things better, on average. I believe the answer is no.

I recently saw an article on mask regulations that made me almost burst out laughing:

After previously prohibiting local jurisdictions from imposing mask mandates, Mr. Abbott, a Republican, issued an executive order Thursday requiring residents to wear masks in public spaces, except in counties with 20 or fewer cases of coronavirus. Cases of Covid-19, the disease caused by the coronavirus, have been rising for weeks in the state.

Notice the governor’s supreme confidence in his wisdom.  A week ago he was so confident that mask mandates were a bad idea that he banned local governments—which presumably know their situation better than someone in faraway Austin—from mandating the wearing of masks.  He didn’t recommend against local mask mandates, he banned them.  Today this same individual is so confident that mandates are a good idea that he is requiring many local governments to ban masks.  He’s not recommending they do so, he’s requiring mask bans.

This is not about whether mask wearing is a good idea (I favor mask wearing and private sector mandates but oppose government mandates), this is about whether we can trust government officials to recognize that they don’t have all the answers, and that sometimes they should allow others to decide for themselves.  As soon as one gives power to government officials they will abuse that power, they will assume they know what’s best for us.

Pierre Lemieux has a new post that provides another such example.  He cites a WSJ article on masks:

U.S. Surgeon General Jerome M. Adams tweeted on Feb. 29: “Seriously people—STOP BUYING MASKS!” He has since apologized and now supports wearing them.

White House adviser Dr. Anthony Fauci said this month that he initially dismissed masks because medical workers were facing a shortage in supplies. He, too, is now an advocate.

I can’t overstate the damage done by these lies.  It would be one thing if the authorities had said, “masks are effective, but we have a shortage so don’t wear them.”  Even that would be slightly misleading, as the shortage was created by the government.  Instead they lied and said masks are not effective, as a way to discourage their use.  These government officials assumed that the public could not be trusted with true information.

In the future, public health officials might recommend that children be vaccinated for the measles, and people will recall when they were lied to about the efficacy of masks.

Over time, government mandates become a self-fulfilling prophecy.  The government has so many mandates that the public begins to assume that if something is not banned it must be safe.  They might assume that if masks are not required then they must be unneeded.  It then becomes more difficult to get voluntary compliance.

We’ve seen this in banking, where people stopped paying attention to the safety and soundness of banks after FDIC was instituted.  Before deposit insurance was mandated, people were very reluctant to deposit money in banks that were making lots of risky loans.  Now they don’t care.  If the public is treated like little children, they begin to behave like children.  Government power advocates then say, “see, the public is infantile and they must be told what to do.”

(0 COMMENTS)

Read More

Lester Grinspoon RIP

On Thursday, June 25, Lester Grinspoon, M.D. died, one day after his 92nd birthday. This afternoon, I looked at my markups of two of his books, Marihuana Reconsidered, 2nd ed. 1977 and Cocaine: A Drug and Its Social Evolution, co-authored with James B. Bakalar.

Shortly after I got my green card, in October 1977, I did an academic’s version of “sowing his wild oats.” My particular version was reading The Autobiography of Malcolm X, which I loved, these two books by Grinspoon, and a few other books on illegal drugs, including one by Richard Ashley (mentioned below.) I was bored in academia and I wanted to write a piece on the economics of drug legalization. So, of course, the passages of Grinspoon’s two books that  I marked up disproportionately were about the economics.

Here are a few.

From Cocaine:

When it [cocaine] became almost impossible to obtain legally, its associations became criminal; those who had least general respect for the law and conventional society were most likely to be persuaded of its virtues and to know where it could be found. Evidence that criminals use more of cocaine and other illicit drugs than the rest of the population must always be considered in this light. (p. 48)

I wrote in the margin: Self-selection.

Another one:

Consider the firearms analogy again. We have suggested that the most rational justification for restricting access to a drug is that it is a dangerous instrument, like a gun. The kind of danger from drugs with which social policy should be most concerned, then, is the same kind that concerns us in the case of firearms. But the nations and states that restrict or prohibit the private ownership of firearms do so because of the danger that someone will be hurt or killed by a bullet from someone else’s gun–not because gun dependence is a bad habit, or because grown men who like to play with guns are immature and socially maladjusted, or because the gun habit produces a dangerous personality type (presumably impulsive and aggressive), or because a man may neglect his wife and children while he oils and polishes his gun collection or keep the neighbors awake by indulging in target practice in the backyard, not even because one can use a gun to kill himself. It is difficult to impose any legal restrictions at all on firearms in many parts of the country. One can imagine the outrage if they were suppressed for reasons like these. And yet is considered quite acceptable to suppress psychoactive drugs for analogous reasons. (p. 223)

One of my favorite passages, which is too lengthy to quote, is his analysis of the demand for illegal drugs. The main reason I like it is that he shows a care that an economist would bring to an economic issue. Without using economic jargon, he argues that making drugs illegal can severely cut the supply, thus raising the price, and that the effect of the higher price will be less demanded than at a lower price. In a footnote, he points out that Richard Ashley’s reasoning in his book Cocaine: Its History, Uses, and Effects (1975) failed to distinguish between a movement along a demand curve and a shift in demand. Grinspoon did not use these terms but he took on Ashley’s claim that because per capita use of cocaine in 1973 was the same as when it was legal in 1903, therefore prohibition did not affect consumption. Grinspoon argued for an income effect without, of course, using that term. Grinspoon pointed out that as affluence increased, we would expect more per capita use (a rightward shift in demand) and, therefore, the fact that we didn’t see that was evidence that prohibition was moving us up and to the left of the rightward-shifted demand curve.

Grinspoon, a psychiatrist at Harvard Medical School, was kind of the Julian Simon of medical research. Simon started by thinking that an increase in population would put a real strain on resources. Once he examined the literature, especially H. J. Barnett and Chandler Morse. Scarcity and Growth: The Economics of Natural Resource Availability. Baltimore: Johns Hopkins University Press for Resources for the Future, 1963, he changed his views. (The Barnett/Morse book is referenced in ue Ann Batey Blackman and William J. Baumol, “Natural Resources,” The Concise Encyclopedia of Economics.) Grinspoon had bought a lot of the claims about how dangerous illegal drugs were but when he examined the evidence, he found they were much less dangerous than he had thought.

Interestingly, Grinspoon retired as an associate professor. Here’s what Wikipedia says about why:

Grinspoon’s allies believe “an undercurrent of unscientific prejudice against cannabis among [Harvard] faculty and school leaders doomed his chances”; in 1975, a dean confided to him that the promotions committee “hated” Marihuana Reconsidered because it was “too controversial.” Dan Adams of The Boston Globe has characterized Grinspoon as “no Timothy Leary […] He was an earnest academic who wore a tie, and insisted he never promoted the use of marijuana, but rather the elimination of draconian prohibitions.”[15]

Former colleagues Ming Tsuang and Joseph Coyle have maintained that the denial of Grinspoon’s promotion was likely predicated on his perceived neglect of “original research” in favor of “[synthesizing] the work of others.” However, Coyle has acknowledged that Grinspoon’s cannabis research “could have been an element” in the decision.[15]

Academics are such open-minded people.

Nick Gillespie, over at Reason, has written a nice appreciation of Grinspoon.

 

(0 COMMENTS)

Read More

Closing or Reopening the Economy

That the expressions “closing the economy” or “reopening the economy” are widely and unthinkingly used suggests a deep problem: the state—governments at all level—has become so incredibly powerful that it can open or close large parts the complex and multifaceted network of exchanges between millions of individuals. It’s like if the government were a store owner and we were its store employees.

As I pointed out in an earlier post on this blog, even the Wall Street Journal writes unblinkingly that “countries,” by which it means national governments, can “reopen their societies.” If the state is so powerful as to open and close “its” society, perhaps it’s time for society to close its government—or, certainly, big chunks of it?

This language acknowledging Leviathan- or Hydra-like power of the state should worry even those who think that there was some justification for government measures to combat an epidemic such as Covid-19.

(0 COMMENTS)

Read More

The Data Are In: It’s Time for Major Reopening

 

 

Early in the Covid-19 pandemic, an influential economic analysis from the University of Chicago concluded that the likely benefits of moderate social distancing would greatly exceed the resultant costs. The New York Times and the Washington Post recently cited that study as evidence that the use of strict lockdowns to control the virus’s spread has been justified, and that current efforts to “open up” social and economic activity around the U.S. are dangerous and irresponsible. That is seriously misleading; the Chicago study is already out of date. More recent research supports the idea that the lockdowns should end.

This is the lead paragraph in an op/ed published in today’s Wall Street Journal. The op/ed is David R. Henderson and Jonathan Lipow, “The Data Are In: It’s Time for Major Reopening,” WSJ, June 15 (electronic) and June 16 (print).

Three things that delight me about it, in order:

1. It was published and I think it’s pretty important.
2. Although I haven’t seen the print version, a friend in the Eastern time zone tells me that it’s the lead op/ed. I’ve had over 50 op/eds in the Journal and this is only about the 4th or 5th time my piece has been above the fold.
3.The editor understands that the word “data” is plural.

Another paragraph:

That finding [that the benefit of the social distancing and lockdowns is only about $250 billion] casts major doubt on the value of lockdowns and even social distancing as a method of reducing the spread of Covid-19. While we can’t yet estimate a specific figure, the economic cost of social distancing and lockdowns will likely be more than $1 trillion. And that’s an understatement of the costs when you consider increased suicides and other social losses not captured in gross domestic product. For example, parents of young children have widely noted their kids’ gloomy outlook when not allowed to be with friends.

As always, I’m contractually obligated not to post the whole thing until 30 days from now. It’s on my calendar.

(0 COMMENTS)

Read More

Bill Whalen and David Henderson Conversation

On June 4, my Hoover colleague Bill Whalen interviewed me about my latest article for Hoover’s Defining Ideas, “Just Say No to State & Local Bailouts,” June 3. I had heard and seen a talk by Bill on Zoom a week earlier and was impressed with his deep knowledge of California politics. His show is titled “Area 45.”

The interview was really a conversation, something I prefer to a standard interview. Bill has a charming personality, with just the right amount of humor.

In the first 20 or some minutes I make the case that I made in my article, in response to Bill’s questions. But he also raised an issue I hadn’t addressed in my article: whether on grounds of emergency aid, California’s state government should be given a bailout. I said no and I said why.

Some highlights from the rest of the conversation:

23:20: Why I worry that Senate Majority Leader Mitch McConnell will go along with some kind of bailout.

36:00: My case for bonds instead of tax increases. (My first choice, of course, is budget cuts.)

37:10: Why, if the feds do bail out California’s government, I would prefer aid with no strings over aid with strings.

38:30: States going their own way on coronavirus policy and why that’s important.

41:00: Related to what’s directly above: The states as laboratories of democracy and why that’s so important.

41:27: Why economists and other social scientists are almost orgasmic about the forthcoming data.

45:20: Eat the rich.

45:40: I’m seeing it as rich people saying “eat the rich.”

 

(0 COMMENTS)

Read More

AEA Admits It Doesn’t Know the Literature

We recognize that we have only begun to understand racism and its impact on our profession and our discipline.

This is an astounding statement from the “officers and governance committees of the American Economic Association,” published June 5. Here’s the whole statement.

Like them, I don’t know much about racism’s impact on the economics profession or on the discipline. But unlike them, I have gone far beyond beginning to understand racism.

One of the earliest contributions to the understanding of racial discrimination was Gary Becker’s book The Economics of Discrimination, written in 1957 and based on his Ph.D. dissertation at the University of Chicago. One of Becker’s main contributions in that book was the idea that when an employer discriminates on a basis other than productivity, he misses out. Becker’s point was not that therefore employers would not discriminate but rather that the free market makes them pay a cost for discriminating.

In 1962, Armen Alchian and Reuben Kessel found, consistent with Becker’s model, that when governments regulate firms’ profits, as they do with utilities, the utilities have a diminished penalty for discriminating and, therefore, discriminate more.

Are these high-level people in the American Economic Association unfamiliar with this literature?

 

(0 COMMENTS)

Read More

Health Professionals Show What Matters. Hint: It’s Not Health

 

Are the signers unaware of their double standard? Their statement above shows that they are quite aware. The standard is not health, which is supposed to be their area of expertise. No. They distinguish between the April 30 anti-lockdown protest of people in Michigan and the late May protests of people about the treatment of black people based on three things: (1) the race of the anti-lockdown protesters, (2) the fact that some of the anti-lockdown protesters in Michigan were carrying guns, and (3) the issue being protested. My own view, by the way, is that both kinds of protests are justified and important.

For about 6 weeks before the Michigan protest, we were told that we should stay home because it was so crucial for defeating the coronavirus. That actually made some sense. So when the Michigan protesters came along, most of the public health community opposed their being near each other and unmasked because that could spread the virus. That made some sense too, which is why, for the May 1 anti-lockdown protest in Monterey that Lawrence Samuels and I organized, we encouraged people to wear masks and/or socially distance. (Sadly, only about half of the protesters did wear masks, although the social distancing was relatively successful.) To their credit, in the rest of the open letter, the health professionals advocate that protesters do so safely, either wearing masks or keeping their distance. But then why didn’t they say the same about the anti-lockdown protests? Why didn’t they just encourage them to protest safely? The answer is obvious. The health professionals sympathized with one cause and not with the other. Which means it’s not about the health; it’s about the cause.

This is from David R. Henderson, “Health Professionals Show What Matters. Hint: It’s Not Health,” antiwar.com, June 11, 2020.

Read the whole thing, which is not long.

(0 COMMENTS)

Read More

The Detroit Cops’ Violent Attack on Black Capitalism

 

A lot of people who write about the Detroit riot of 1967 have missed what was in plain sight. The Kerner Commission’s report of 1968, which examined the causes of the riot, laid out some important facts but missed their significance.

Here’s what I wrote in my book The Joy of Freedom: An Economist’s Odyssey in a chapter titled “Free Markets versus Discrimination.”

 

During a five-day period in July 1967, 43 people were killed during a riot in Detroit’s inner city.  President Johnson then appointed the National Advisory Commission on Civil Disorders, the so-called Kerner Commission, named after the then-governor of Illinois who headed it–to look into the causes of that and other riots during the summer of 1967 and to make recommendations that would prevent such riots in the future. When its report came out in 1968, it made a big splash.  The report stated that black poverty was a big cause of the Detroit riots, and its recommendations for more government jobs and housing programs for inner-city residents were explicitly based on that assumption.  These recommendations are what received much of the publicity at the time and are what most people took away from the report.  Too bad more people didn’t actually read the report. The Commission’s own account of the Detroit riot tells a different story. Here’s the report’s first paragraph on Detroit:

On Saturday evening, July 22, the Detroit Police Department raided five “blind pigs.”  The blind pigs had their origin in prohibition days, and survived as private social clubs.  Often, they were after-hours drinking and gambling spots.

These “blind pigs” were places that inner-city blacks went to be with their friends, to drink, and to gamble; in other words, they were places where people went to peacefully enjoy themselves and each other.  The police had a policy of raiding these places, presumably because the gambling and drinking were illegal.   The police expected only two dozen people to be at the fifth blind pig, the United Community and Civic League on 12th Street, but instead found 82 people gathered to welcome home two Vietnam veterans, and proceeded to arrest them.  “Some,” says the Commission report, “voiced resentment at the police intrusion.”  The resentment spread and the riot began.

In short, the triggering cause of the Detroit riot, in which more people were killed than in any other riot that summer, was the government crackdown on people who were going about their lives peacefully.   The last straw for those who rioted was the government suppression of peaceful, albeit illegal, black capitalism.  Interestingly, in its many pages of recommendations for more government programs, the Commission never suggested that the government should end its policy of preventing black people from peacefully drinking and gambling.

The government’s fingerprints show up elsewhere in the Commission’s report.  Urban renewal “had changed 12th Street [where the riot began] from an integrated community into an almost totally black one…” says the report.  The report tells of another area of the inner city to which the rioting had not spread. “As the rioting waxed and waned,” states the report, “one area of the ghetto remained insulated.”  The 21,000 residents of a 150-square-block area on the northeast side had previously banded together in the Positive Neighborhood Action Committee (PNAC) and had formed neighborhood block clubs.  These block clubs were quickly mobilized to prevent the riot from spreading to this area.  “Youngsters,” writes the Commission, “agreeing to stay in the neighborhood, participated in detouring traffic.”   The result: no riots, no deaths, no injuries, and only two small fires, one of which was set in an empty building.

What made this area different was obviously the close community the residents had formed. But why had a community developed there and not elsewhere?  The report’s authors unwittingly hint at the answer.  “Although opposed to urban renewal,” the Commission reports, “they [the PNAC] had agreed to co-sponsor with the Archdiocese of Detroit a housing project to be controlled jointly by the archdiocese and PNAC.”  In other words, the area that had avoided rioting had also successfully resisted urban renewal, the federal government’s program of tearing down urban housing in which poor people lived and replacing it with fewer houses aimed at a more upscale market. Economist Martin Anderson, in his 1963 book, The Federal Bulldozer, showed that urban renewal had torn down roughly four housing units for every unit it built.  The Commission, instead of admitting that urban renewal was a contributing factor, recommended more of it.  Their phrasing is interesting, though, because it admits so much about the sorry history of the program:

Urban renewal has been an extremely controversial program since its inception.  We recognize that in many cities it has demolished more housing than it has erected, and that it has often caused dislocation among disadvantaged groups.

Nevertheless, we believe that a greatly expanded but reoriented urban renewal program is necessary to the health of our cities.

In short, the commission’s remedy for poison was to increase the dosage.

 

(0 COMMENTS)

Read More