"We saw a lot of road kill and thought of you." —my sister
For more information on oil prices, click here. Podcasts of My Intro Economics lectures (in .wma format) For my 2005 Radio Economics MP3 podcasts, go to the bottom of the page that lists the lecture podcasts.
Canada
United States
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My email address:
EclectEcon@gmail.com My 2005 post about the housing crisis, before it happened, is here.
Why hasn't a promotion been developed where a major fast food chain gives every blood/plasma donor a coupon good for a burger when they leave the blood donor clinic?
"Just bring this coupon to one of our franchises, and to thank you for donating blood, we'll give you a burger."
The promotion would be great for the blood donor operations, and it would likely not cost the fast food firms much (net) either, as people cashing in the burger coupon would likely buy more food and drinks.
When I was a teen, helping out at the Red Cross blood clinic in Muskegon, Michigan, many years ago, blood donors all were taken into a huge kitchen area where other volunteers cooked excellent, unique, and good-sized burgers for everyone who donated blood (and for the volunteers and nurses).
It was a treat, and I can still remember the unique smell and taste of those burgers. But it was costly in terms of the time of all the extra volunteers, the space needed to prepare and serve the burgers, and the food itself. Why not partner with a fast food chain instead? They would get the advertising benefits, and it might induce a few more people to donate blood more often (in economics jargon, though, I have no idea what the burger elasticity supply of blood would be).
An ideal situation would be to run the promotion in a few locations and compare before and after donation data with locations not running the promotion. If the blood collectors didn't run the comparison, the burger provider would likely want to have some idea about the effectiveness of the campaign.
It wouldn't have to be a burger, though. It could be a breakfast sandwich or a milkshake or some chicken nuggets or a specialty doughnut.
And maybe "Burgers for Blood" wouldn't be the best idea for the promotional slogan.
This photo is technically not part of the Lockdown Photo series because I didn't take it inside our condo unit. I'm including it in the category (and in the Facebook photo album) though because it is closely related to the lockdown or "stay-at-home" order.
Because of the lockdown, we can't go out to restaurants to eat, not even for outdoor patio dining. And so many of us try to help out our favourite places by ordering for delivery or take out. That involves thousands of containers per day just for London, Ontario. A couple of times I wondered how and where the restaurants store all the containers they have to use. I got my answer on a recent walk when I passed this store or shop or warehouse: intermediation to the rescue! Restaurants don't need to store a month's supply of food containers. They can order a carton or two at a time from intermediaries! Long live intermediation!
Whoever runs this business (and others like it) takes a lot risk by stocking up on inventory. How many of what types of containers should they keep in stock? How reliable are their suppliers? What if the lockdown ends sooner than expected?
They must plan and gamble on what they think future orders will be and everything else about their business. For taking these risks, for providing the warehousing and supply services for local restaurants, they earn a return to their entrepreneurship. I love it.
From Foreign Policy (morning brief, April 23, 2021):
Taiwan’s marriage leave policy is under fresh scrutiny after a couple married four times (and divorced three times) to take roughly one month off work, the New York Times reports. Taiwan is one of the few countries to offer paid leave for marriages, a generous eight days, a fact the notorious (but so far unnamed) couple took advantage of by wedding four times between April 6 and May 12 of last year.
The case became more controversial after the groom’s employer, a bank, refused to grant further leave past the initial eight days, prompting the groom to file a complaint with the labor department. The company was fined $700 for violating the law, but the fine was revoked last week by the head of the department.
With our aging population, heath care demands have been increasing, meanwhile the supply of health care simply hasn't been able to keep pace. The most recent data from The Fraser Institute show the seriousness of the situation -- wait times have more-than-doubled since 1993.
Longer wait times impose all sorts of costs on those who are forced to wait to receive health care. These costs include: increased risks of more serious developments (or death), time lost due to queuing in offices and hospitals, time off work, time away from family, time when people are less able to perform household tasks, increased pain and suffering, and I'm sure there are many more, too.
Reducing the explicit costs of gubmnt-provided health care by converting those explicit costs into implicit costs borne by the users is not necessarily efficient. [Addendum: my friend JH points out that it can't possibly be efficient in part because it augments the explicit costs with the addition of all the waiting costs. He also points out that generally speaking, the policy makers don't bear these waiting costs to anywhere near the extent that 'us plain folk' do.].
A number of years ago, I offered this analysis and these suggestions. They are even more important now than they were then. Imagine how much less serious the problem of waiting time would be ten years from now if policy makers had adopted these suggestions when I first made them.
In Canada we have a health care system with devastatingly long wait times for many services. At a zero price, the quantity demanded greatly exceeds the quantity supplied. The standard supply and demand graph illustrating the problem:
Excess quantity demanded at a zero price means the scarce goods and services must be allocated using some other mechanism. As often happens, queuing (waiting) becomes a common allocative mechanism. But people have incentives to try to jump the queue, thus leading to such practices as favouritism, side payments (implicit or otherwise), medical tourism, and death panels (i.e. bureaucratic rules and decisions about who should receive the goods and services).
When I first moved to Canada over 40 years ago, we had a reasonably workable health care system with very short wait periods, despite the gubmnt provision of health insurance. What was different then?
Canada permitted extra billing. Physicians who wanted to earn more money charged some of their patients more than the fee schedule permitted. But that rarely meant poorer patients were turned away; generally everyone was served.
Some schmucks got it into their head that the problem with health care costs was too many physicians who were inducing extra demand for their services. That theory was soundly debunked, but it carried the day, and medskool admissions were scaled back. [Digression: a friend once used the supply-induced demand techniques to show that an increase in the number of chickens led to an increase in the demand for eggs.]
The demography of the physician profession has changed. More men want more time with their families as do the greatly increased number of women who have entered the profession. We get fewer services provided per physician now than we used to.
If these facts are even close to correct, there are several options for reducing wait times.
Allow physicians and medical service providers in general to charge more than the fee schedule (i.e. bring back extra billing) if they want to. This move would reduce the quantity demanded and increase the quantity supplied of services.
If people don't like this scheme, worrying about its impact on the poor, alter the insurance scheme as follows:
Require that every service have a co-pay of 10% up until the patient has paid some amount per year, say $2000, or something like that. It's amazing how having to pay even $10/visit cuts down on the quantity demanded of the services.
In other words, don't cover everything until patients have paid a good chunk. Make provisions for the needy at the same time, though.
Such schemes might have been cumbersome 30 years ago, but with computer-billing they would be much easier to implement now.
Meanwhile, greatly increase the admissions to medskool. Create more physicians. License more practicing nurses. Shift the supply curve outward to the right.
The suggestions I'm offering involve two things:
Let prices rise very modestly, thus cutting down on the quantity demanded and increasing quantity supplied. The responsiveness of the quantities demanded and supplied to price changes will undoubtedly be small, especially in the short-run, but the longer-run responsiveness is likely to be greater.
Shift the supply curve to the right.
These two changes are shown here:
Admittedly the above figure is stylized. Nevertheless, the directions of the changes are correct and would greatly help reduce wait times for health care in Canada.
Recently the CDHowe Institute pubished studies (see this) about the fiscal glacier (their term) facing Saskatchewan and Alberta (and probably others). These suggestions that I'm offering will not do so much to help with the fiscal glacier. The first one might, but the second one would be costly.
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Update in 2020: I realize that the major problem with my suggestions will be providing health care for the needy without creating a morass of regulations, information collection, etc. This will not be easy.
More to the point, I would hope for a simple programme even it would mean that some destitute people don't receive high quality health care. Trying to provide a high quality level of health care for everyone is one of the reasons we are imposing waiting costs on everyone. In a world of scarcity, no economy can provide everything for everybody, and trying to provide high quality health care for everyone has given rise to massive waiting times and costs that just aren't being taken into consideration properly.
Quite frankly this whole-hog determination that the federal gubmnt must do something about these two issues bothers me.
Pandemic policies should be and have mostly been up to the states, not the federal gubmnt (similarly here in Canada, it's mostly up to the provinces). The feds can help by collecting and disseminating information [which the CDC and the Timid Tam have failed miserably at doing] but it's not up to the feds to impose nation-wide restrictions. We're wrong to listen to and look to our federal leaders on this issue. So lefties, stop blaming Trump; righties, stop blaming Trudeau and Tam.
Back in January, when China and the WHO were lying to the world about the nature of Covid19, the federal gubmnts could have done more by imposing strict tests and restrictions on international travelers. But instead they called out the ostriches and denied the seriousness of the issue, hid facts, and actually lied about the usefulness of masks.
So now, what is Biden going to do about the pandemic and the economy?
Well, he's going to do something, and that has to be good.
I doubt it. He'll meddle. He'll hire and take more advice from members of the elitist interventionist caste, and he'll claim victory as the pandemic begins to fade next year and as the economy continues to rebound (assuming the Fed doesn't mess up horribly).
Let's hope he doesn't muck up the middle east peace process. He has a chance of continuing the good work going on there.
* Yes, I have subscription to the Washington Post. They have a very low subscription fee for international subscribers, and we are willing to pay that just to get their crossword puzzles, which we print off and do at our leisure.
A few weeks ago I wrote about how the FED is vacuuming up liquidity by making interest payments on US commercial bank excess reserves deposited at the Fed. In that post, I noted that so long as the Fed vacuums up the excess liquidity created when they buy up additional debt (gubmnt and otherwise), I can understand why and how there will be little actual monetization of the debt and only minor inflationary pressure. [It took me too long to grasp this, if it's correct.]
But by doing so, the Fed is also probably slowing economic recovery (to the extent that demand-side restrictions or reductions are playing a role in slowing the recovery from the current supply-side Covid shock).
From the Boston Globe:
Americans are finally saving more money — at exactly the wrong time: In an economy built on conspicuous consumption, Americans never seemed to save enough. But in an economy decimated by coronavirus closures, we might be saving too much.
The pandemic has upended consumer habits, with fewer people eating out and traveling and others building a financial cushion. Economists have long worried about Americans carrying too much debt, but ironically the sudden embrace of savings comes at a time when the economy needs consumers to spend more. A prolonged period of parsimony is hampering the recovery and threatening industries that had thrived on our free-spending ways.
In a classical economy, if people try to save more (and save it with financial institutions) those savings become available for others to borrow and spend, and the insane, so-called "paradox of thrift" never materializes. People save, and consumption spending falls; but roughly at the same time, people borrow and business, consumption, and investment spending rise by roughly the same amount. The composition of aggregate demand changes (and the resulting adjustments require time, meaning there are short-term dislocations with unemployment and other losses). However these dislocations cause nothing like what the old-time Keynesian "underconsumptionists" worry about. The underconsumptionists apparently are still extant and having influence on far too much biz writing and economic policy punditry.
Nowadays, though, there's a new problem. When people consume less and save more, the increased savings still tend to end up in financial institutions. But now, because the financial institutions can earn interest income on their reserves deposited at the Fed, they have a remarkably reduced incentive to create new loans and new money based on their excess reserves when the interest rates they can earn from the Fed compete effectively with the risk-adjusted rates they can receive on loans they grant.
Instead, the gubmnt increases its deficit and the increased debt isn't monetized. The result is that there is only a minimal, if any, impact on aggregate demand.
The problem here isn't that consumers are spending too little on consumption. Rather, the problem is that the Fed is soaking up excess reserves and banks are not using them as a basis for creating new loans.
Here's hoping the current Fed doesn't go that far... From that link in the previous sentence, we see that a decade ago, the St. Louis Fed understood the problem with the Great Depression. Do they fully grasp the situation now?
But the Fed is in a BIG box of trouble as things stand. Suppose they want to use monetary policy to stimulate aggregate demand a bit. To do so, they reduce the interest rate paid on commercial bank reserves, then what will happen? They have to fine tune this precisely so as not to dump billions of tonnes of liquidity onto the market. If they guess wrong, the excess liquidity will set off a frenzy of borrowing, house buying, business investment, and much more rapid inflation than most people are expecting.
Two questions:
I'm not sure my analysis and warnings are correct. I'd love to learn more.
I have no idea whether the Bank of Canada pays interest on chartered bank deposits, and my 5-minute Google search was inefficient and/or unproductive.
Finally, please tell me, reassure me, that the criticisms of the standard Keynesian presentation of the paradox of thrift hold sway in today's intro courses [unlike the Samuelsonian Keynesian nonsense they tried to indoctrinate us with when I was an undergraduate].
This year and last year I participated in an international convention for The Urban Economy Forum, both as a speaker and as a member of the steering committee.
Last year, not knowing what I was getting into, I prepared a 20-30 minute presentation, only to learn a few days in advance that I would have only ten minutes for my presentation.
The morning of the opening presentations started very late. And then every single speaker took more than their allotted time. By the time we got to my session, I was cut back to only 3 minutes, much to my dismay.
This year, I moderated one session and spoke at another, all via Zoom.
The session I moderated involved mayors and urban planners. They were each allotted ten minutes. One of them actually stayed within the time limit. The rest of them "cheated", some going over the limit by five or more minutes. The implication from their attitude was that they believed that what they had to say was SO important, they should talk longer. [note: I did not have control of the mute function, and I'm not sure I'd have felt free to use it if I'd had it...]
The same thing happened with session on which I was making a presentation with the addition that the moderator went well beyond his allotted time as well.
The tragedy of the commons is a situation in a shared-resource system where individual users, acting independently according to their own self-interest, behave contrary to the common good of all users by depleting or spoiling the shared resource through their collective action.
A classic example is overfishing when there are no restrictions on how many fish people can catch. Fishers take too many fish from the common pool, thus making things worse for all fishers.
In the case of conferences when speakers are left on their own merit and integrity to honour the speaking limits, it's the same thing. As the early speakers run over time, those near the end have less time (analogous to catching fewer fish). Transaction costs are high, cheaters can't easily be reined in.
Every one of the speakers would think they were caring and sharing people. And yet also, every speaker also knows they are part of the elites, people who, in their own minds, should plan and control and design for the future. In their minds, they are entitled to more time because of their status.
But it doesn't matter who thinks who is entitled to what. What matters, for this post, is that when property rights (to time slots, in this case) are not enforced, people, even those who think they are decent folk, will cheat (de facto) and take more for themselves.
Clearly The Urban Economy Forum needs to learn some way to avoid this "Tragedy of the Commons" for future meetings.
Maybe in the future, speakers should have to obtain "fishing" licenses?
Exactly. Without reading the article (it's gated and I'm not a subscriber), I can understand the headline.
The expected costs of using services have risen considerably under covid, including the costs and risks involve with the possibility of contracting the disease oneself.
So instead of hiring people to do things for us, or instead of going places for entertainment, we buy stuff instead, e.g. televisions, ready-made meals, etc. We are substituting things (which fall into the broad economics category of capital) for labour.
Yes, good economic theory often treats consumer durables as capital goods.
That's the substitution effect.
There's also an income effect as people who are receiving increased gubmnt assistance during covid are spending more on goods.
And people who work from home are spending less on day care and less on commuting (including auto services) and spending more money on things to entertain the kids and themselves.
Query: what has happened to personal saving during covid?
I've done lots of shopping and search in my lifetime, and I'm often bothered by questions about will I or did I find the right product, service, reference, date, job, theatrical agent, acting gigs, etc. Most of the time, search and shopping don't create much, if any, anxiety for me; I actually enjoy the process. Other times...
In the late 1960s when I was actively looking for a job as an economist for the first time, I just wrote cover letters to schools I thought I might be interested in, essentially saying "here's my curriculum vitae. Are you interested in someone like me?" Those schools that were interested set up interviews with me at massive conventions.
Later, with the introduction of JOE [Job Opportunities for Economists], schools advertised what fields of economics they were most interested in, and that cut down on my letter writing (i.e. made my search more efficient and less costly). It seems like a decently effective system. Let's hear it for intermediation and increased search efficiency!
Let me tell you, those searches were nothing like the search for literary agent.
Now that I have self-published three novels and written a fourth that is ready to go, and now that I've received some favourable reviews on Amazon and Goodreads (including many unsolicited reviews from people I don't know!), along with encouragement from some friends, I'm thinking perhaps I should try to find a literary agent to help get my novels published by a publishing house that will promote and distribute them. So I ordered the 2020 Guide to Literary Agents.
Hah!
There are thousands of agents listed. Thousands. How do I choose which one(s) to write to?
While the listings tell, roughly, what genres the agents are interested in, that information is pretty vague.
The listings sometimes also say whether the agents are accepting new "queries", apparently the industry jargon for inquiries about representation. But that information is often out-of-date.
There's a section of twenty agents seeking new clients, but most of them aren't anymore.
The listings provide some guidance as to which agencies handle which types of fiction, but when you go an the agency's website, you get a much better idea, along with more nearly up-to-date information about which agents within a given agency might be looking for clients who write novels like the ones I write.
So the guide is of some use, but I feel I'll have to visit tonnes of websites for accurate and up-to-date information. This looks like a daunting task.
Anyway, knowing what I know at this point, my search strategy now (subject to change as I learn more) is
begin looking through the guide somewhat systematically; in my case from back to front.
find agencies that might be interested in my novels. The problem is that I have two mystery novels and two novels that are more like contemporary, mainstream adult fiction, so I need to identify both types of agencies.
Go to the websites of agencies that might be interested in my books.
Look through their agent list to see if they have any agents listed who might be interested in any of my novels.The general rule seems to be that I can submit only one novel to any given agent. I can't submit all three or four novels to one agent.
Enter the agent's name and info into a spreadsheet.
Identify which novel is most likely to appeal to each agent.
Look at their submission details and enter those in the spreadsheet as well. The submission guidelines are roughly similar but slightly different for every agency.
Just keep looking and trying; be persistent.
This search process is SO time-consuming, scary, intimidating, iffy, low-probability, you name it. I know most authors' submissions are rejected at this stage, so I know I'll have to craft a good intro letter, synopsis, etc.
I also know I'll have to be prepared for rejection. I think I'll be okay with that. As I've said in the past, I've had tonnes of rejections when dating, applying for jobs, and submitting articles for publication in academic journals. Also my hit rate as a professional actor going to auditions was at best one-in-twenty. I'm used to rejection. I think.
So if any of you have bought and read any of my novels and happen to know an agent who might be interested in promoting it to a publisher, please let me know. Thanks!
Despite a marked slowdown in my blogging about economics, EclectEcon is still listed among the top 100 economics blogs. Here's an excerpt from the notice I just received:
Recently, I spent three hours listening to brief speeches by members of group that includes urban planners and policy-makers, i.e. listening to the pleadings of elitist-interventionist rent-seekers. Here's a major portion of my feedback to the organizers, slightly edited. I apologize here for misspelling 'gubmnt' in the letter.
Dear _____
Let me begin by saying I recognize that I clearly come from a different discipline, with a very different outlook from that of everyone else in the organization....
Today's meeting really upset me. I heard politician after politician and urban planner after urban planner pleading for more money from the Federal government. And I heard lots and lots of stories about the importance and the "needs" of major urban areas. As I tell students, "when an economy's scarce goods are allocated on the basis of 'needs', the number and importance of needs multiplies a thousand-fold." This was little more than intellectual rent-seeking, for the most part, saying, "Here's why other taxpayers should help pay our bills."
Just because cities have lots of people in them and have lots of people working in them, that does not justify asking taxpayers elsewhere to support those bureaucracies. Self-purported 'need' doesn't make cities any more worthy of Federal support than it does farmers or Alberta oil workers or Maritime lobster fishers. All it does is create multiple layers of competing (and co-operating) bureaucracies, all trying to get a bigger slice of the take from taxpayers.
Furthermore, if every city got the money they want from the Federal government, they would, for the most part, be asking the Federal government to tax everyone in everyone else's city and then flow the tax receipts through multiple costly bureaucracies to their own cities. That is a negative sum game: each municipality may get more money, but that money has to come from somewhere. More money for the cities to spend doesn't come out of thin air, and not one single speaker addressed this point; all they said was, "We need it", and everyone else nodded their heads.
The other issue that bothers me is that many cities seem not to have saved very much in their reserves for unforeseen contingencies. This is especially troublesome for those cities which are legally restricted in their borrowing.
Of course they didn't see this [the Covid-19 pandemic] coming, and probably didn't anticipate the seriousness of the Covid19 recession even in January. But that's what reserves for unforeseen contingencies are supposed to be for! You put money aside "just in case". You don't say, "Oh we'd rather pay for our pet projects that the voters 'need' instead of building up our reserves."
Cities (and, indeed, all levels of government) have been profligates for a number of years leading up to 2020. Times were good, judging from GDP growth and declining unemployment rates. Those are the times when governments should be running surpluses and putting aside more funds in their reserves. Instead we saw government after government, at all levels, running up their deficits, spending as if the unforeseen contingencies would never happen.
Well, they happened. And now these same profligates, instead of losing their jobs, instead of resigning in shame, are begging taxpayers everywhere outside their own municipality to bail them out. It's morally reprehensible, but also from a practical point of view it's a perpetuation of fiscal ponzi schemes and negative-sum games that cannot continue.
My summary take:
If the Covid19 pandemic taught us anything, it should be that cities need to build up stronger reserves for unforeseen contingencies.
When you ask for higher-level government financial support, you are really asking other taxpayers to cover for you.
Addendum: Shortly after I sent this letter, I read this article, Just Say No to State & Local Bailouts, by former student, David Henderson. In the article he points out that mismanagement and capitulation regarding pension funds in states like California, Illinois, and New York are not good reasons to bail out those states. He and I are clearly in tune with each other, as evidenced by this sentence:
The most vocal advocates of the subsidy are members of Congress and/or governors of states with big budget deficits, such as California, Illinois and New York. Their budgets are in shambles. Do they have an argument beyond “we need it” and “it's a moral obligation”?
Earlier this month, I wrote a post predicting that we will experience inflation in the 2-3 year long-term. This prediction was based solely on the expectation that central banks will be forced to monetize the massive deficits being created by gubmnts at all levels. Furthermore, even if these are short-term huge increases in deficits, they won't just go away. They are enormous additions to gubmnt debts and will have to be dealt with somehow even if gubmnt deficits return to pre-pandemic levels in the next year or so.
The trouble is, if I'm right and if others agree with me, then long-term interest rates should be higher than they are, and TIPS (inflation-protected bonds) rates should reflect higher inflation expectations. Given that neither the long-term bond rates nor the TIPS yields reflect an expectation of strong inflation, clearly others don't agree with me.
So was I wrong? Am I wrong to hold onto these beliefs?
As a part of a webinar* that I attended yesterday, presented by Dennis Lockhart and David Altig, both affiliated with the Atlanta FED, the question of long-term inflation was addressed.
They mentioned the exploding balance sheet of the FED. They pointed out that although an exploding balance sheet would normally go along with rapid inflation, in this case the velocity of money has shrunk considerably as people are holding onto money, not spending, etc. They continued,
The FED balance sheets have been growing rapidly and will likely continue to do so, at least in the short run
Aggregate Demand and Aggregate Supply curves are both shifting to the left, and without much implication about what will happen to overall price levels. When both curves shift to the left, we know output will fall, as it has, but we can't predict much about the overall price level without knowing more about the relative shifts.
There will be some (or considerable, they weren't sure) structural shifting in the makeup of AD .
Most of the growth in the FED balance sheet has been in very short-term paper. The FED has mostly been buying up short-term debt, Treasury Bills, and lending money very short-term through re-purchase agreements with major banks. Unlike the financial crisis of 2008, the commercial banking system seems pretty solid and solvent, but providing sufficient liquidity has been the aim of the FED.
As countries emerge from the pandemic, the FED will gradually scale back its creation of reserves, and the balance sheets will shrink slowly, roughly in sync with the emergence from the pandemic.
Two issues where they didn't really face the questions I have:
The gubmnt debt is growing rapidly. The FED can't let all the short-term paper expire; they'll have to monetize the debt. This is a potentially serious problem. All that increased debt created by governments at all levels simply won't go away. And as the FED monetizes that debt, there will be inflationary pressures. One possible out might be to increase the interest rate the FED pays on reserves, but neither of them mentioned that possibility.
(and this one really bothered me) They argued that the Fed massively increased the balance sheet in dealing with the 2008 banking crisis and we didn't have inflation. My reaction would have been (if it had been a Zoom) don't be myopic:
That was when the Fed started paying interest on reserves. The Fed created reserves and the commercial banks saved them. The extra reserves didn't lead to much of an increase in the money supply as a result.
They both seemed to think we'll emerge from this depression as quickly as possible as soon as we know we have a vaccine and/or treatments. If so, can the FED shed all those short-term securities just as quickly?
How quickly we can emerge from it will depend on how serious the structural re-alignment will be and has been.
Put differently (or the same way I started), I don't think gubmnts are going to reduce their deficits or debts by cutting spending or increasing taxes much; Central Banks are going to monetize these increases in debt for the most part:
How can Central Banks monetize such extreme increases in gubmnt debt without creating inflationary pressures eventually?
And if I'm right, why aren't markets reflecting higher inflationary expectations?
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*I'm grateful to the Global Interdependence Center for inviting me to participate in their sponsored webinar, "College of Central Bankers presentation: Assessing the Monetary Policy Response"
Apparently consumer spending declined in March by nearly 8%, by far the largest drop in recent history.
How can I predict inflation when there has been such a drop in demand?
One big reason is that inflation arises when there is too much money chasing too few goods, and the recent drops in GDP have been monumental.
Here's more of an explanation for my predictions:
The drop in consumer spending provides an impressive graph, to be sure! From it, alone, it looks as if a lack of consumer (and undoubtedly business) demand will keep the lid on spending pressures, at least in the short run.
The argument coming from me and other monetarists [channeling Milton Friedman, I hope] is that there's been a massive reduction in output, as well, and it won't get back to 2019 levels for a long time; at the same time there has been and will continue to be a massive injection of spending power (the money supply) as central banks monetize the rapidly growing gubmnt debt. Unless the extra money supply is soaked up somehow as we come out of the depression, it'll create inflationary pressures.
Consider the old quantity equation of money: MV=PQ, where
M is the money supply
V is the number of times each dollar turns over during the year in spending for final goods and services.
When interest rates are low, this number also tends to be low because the cost in terms of foregone interest income tends to be minor. When interest rates are high, people move money into earning assets more quickly and the 'Velocity' of money tends to rise.
P is the overall price level
Q is the rate of real output [i.e. Real GDP]
The equation is a tautology, with V being the variable that makes it true by definition.
But it's clear that V is pretty low right now (people fleeing to cash for security, hence not turning money over so rapidly; also because interest rates are low). So current increases in M are not having much impact on P despite a falling Q.
As the economy emerges from the depression, Q will grow back to 2019 levels, but V will also grow. And M will be much higher than the 2019 levels, meaning P will have to grow.
When and how much?
As Friedman is famous for having said, "It's a long and variable lag."
Below is a letter (somewhat edited) I wrote to a friend this morning.
How are you handling the CV19 situation there? I hope you're healthy and will continue to be healthy. I don't know about you, but I feel so blindsided by the whole thing.
...
I worry about and for everyone. I see no way out of this for at least a few months, and meanwhile so many people will have been pushed to the edge. I try to control my despondency by thought-blocking and thinking about positive things, but every once it awhile it hits.
So far, Ms. Eclectic and I are okay. We're both over 75 and have some health issues, and so we're trying to be careful... very careful. Over a month ago, we visited our oldest son and his wife and their new son, but since then we have had only two outings together: once to meet some friends in a parking lot where we opened our trunk and the friends put a bag with homemade masks and shields in it. And once when we took lawn chairs to an open park and sat in the sun, well away from everyone else, while I tried to fly my kite.
Our visit to our son was the last time we saw any of our children, grandchildren, or great grandchildren in person. We miss the hugs, kisses, and laughter together. We Facetime, but it's not the same.
Meanwhile, I'm going stir crazy, but fortunately only some of the time, and I have it under control when it hits. I know it's a bit risky, but I get out of our condo unit every day. Some days it's just to climb some stairs up and down here within our condo building; other days I go for walks. Rarely, I go out to do shopping. Every time I leave the unit, I take hand sanitizer with me and use it after any incident when I might have touched some surface. And every time I go outside the building, I wear a mask.
Mostly, now, I walk in residential areas, not on popular paved walking trails; it's easier to avoid other people in residential areas.
If I'm just going for a walk where at worst I'll pass jogger or biker, I wear a homemade mask, but I line it with two layers of paper towels and two layers of Kleenex tissue to improve the filtering. For shopping, I have an N95 mask that I wear, but I've had to trim and reshape my beard and sideburns so it fits properly. We also take our temperatures frequently now. We have become borderline paranoids. At our age and in our states of health, we figure the odds are high that we're goners if we get it.
... Our sons have both been able to arrange most/all of their work to do it at home, but our daughter and some of our grandchildren and their families are really beginning to feel the economic effects of the shutdowns.
Meanwhile, my three main outside social activities are gone:
Encore, the concert band, no longer rehearses and will likely have to cancel our June concert. I'm hoping things are under control enough we can resume in the fall.
I no longer do stage work, but the mystery dinner theatre shows have been canceled until fall at the earliest. I'm hoping those can resume then, but who knows if customers/clients/restaurants will want to hire us even then?
I (used to) play bridge weekly with three other men, but of course we no longer see each other, not even to get together with the others (or anyone else) in the building.
[addendum: It's been so long that I forgot to add a fourth thing: we like to eat in restaurants, and can no longer do that. We order takeout or delivery now and then, but not often, and yes we are amazingly careful (I hope) when interacting with others in those situations. ... pay in advance, get it left outside our building where I'm waiting 15' away, or have them set it outside their establishment for me to pick up, etc.]
I miss the social contacts. Of course I'm much more actively exchanging emails with some friends and relatives, and I spend far too much time on "pandemic porn", watching counts and policies.
I'm also doing some writing. I've published two more novels (see my .sig file below) and am working on another, but I'm not getting much written on it because of all the emotional and other distractions caused by Covid19.
I fear that we are in for a major economic depression. In addition, I fear all the central planners who want to reshape society and economic activity without regard for the benefits of individual freedom and choice. And I really worry about the ever-present nationalistic, protectionist tendencies I see regaining strength everywhere. This pandemic will set the world back by 3 years, if not 30 years. This is just one of the many very serious reasons I despair.
I felt early on, thinking about our friends and relatives who work in and/or run small businesses, that we (our countries) needed an emergency assistance programme in addition to our otherwise reasonably adequate social safety net. Everyone in those positions was completely blindsided (as were most of us), even if they saw it coming in early January (when most of us were more concerned about Australian wildfires). So many businesses will have to shut down, and so many landlords will lose massive amounts of income as business and residential tenants default on rent payments (and many in Ontario will actually choose to do so because the province has put policies in place to protect tenants who miss a couple of months of rent payments). And so many residential tenants on the edge will eventually lose their apartments. Shelters are overflowing and find it difficult to practice any kind of distancing. And people living on the financial edge will face serious mortgage issues.
So many little people will be hurt. So many.
Believe it or not, I'm glad politicians are trying to help out those people. Yes, even I, John Palmer, quasi-libertarian, Mr. small-gubmnt, think it is right for gubmnts to do this. But I detest the bailouts of major corporations, and I resent the fact that so much tax money will be used for the cronies in the name of helping out the little people.
Where is the money coming from for all these programmes??? Before this happened, both the US and Canada were already grotesquely adding to their deficits and debts despite the good economic conditions (when budgets should have been in surplus!), and now there's less wriggle room.
Will they raise taxes? How much? and on whom? Now would be a great time for tax reform, but instead of a simple flat tax without all the deductions and exemptions exploited mostly by the rich, I'm afraid we'll see a return to higher marginal tax rates for high income folks, and we'll return to the sluggishness of the pre-Thatcher "English Disease" and the pre-Reagan era.
Will gubmnts borrow? Now is not a bad time to lock in long-term debt at low interest rates, but watch for runaway inflation and stagflation about two years from now. And with inflation, interest rates will go up considerably.
And I further resent the use of the term "stimulus". There's nothing to stimulate! This is a major supply-side shock to the economy, and until people can start producing goods, and especially services, we can't help but experience a major drop in GDP.
Anyway, I'm sure I've rambled on far too long. Despite the despair I feel, I'm also fairly happy and contented. We're okay, and for now so are our progeny.
Have you noticed that grocery prices have risen? Some of my friends have mentioned it, and yesterday I think I saw some prices that are higher now than they were a month ago.
If prices are higher now, are rising, and are expected to continue to rise for the next few months or longer, here are some possible explanations:
I. Microeconomics
Costs are rising:
Many grocery chains and other retailers have given their employees raises of 10% or more
Many grocery stores have put down tape or spray painted markers 6' apart inside and outside their store to promote distancing; they have also put up queue-control barriers to keep people distancing in the queues instead of crowding near the front; doing this is not cost-free.
Many grocery stores have someone at the door to limit the number of people in the store at any given time.
They also have people wipe down the handles of the baskets, carts, trolleys, etc.
Some even have sanitizer stations for people to sanitize their hands.
Restocking shelves isn't cost-free either, and since people are staying at home and eating at home more now, this means they're also buying more at grocery stores rather than at restaurants, hotels, trains, planes, etc. How does this add to costs/unit? see the next item.
Diminishing marginal product: you can add more product and you can hire more employees (maybe), but it's hard to add more space in the store and in the back storage areas. More people and more product means more congestion and more congestion costs. Also, hiring more workers means digging deeper into the pool of potential workers, and retraining current employees is also costly
Higher demand typically means stores just try to order more from their suppliers, but there are higher costs for suppliers, too, as they face shortages and rising costs of their own.
Given that the value of the Canuck buck has declined relative to the US dollar, that means Canadian importers are paying more for everything that might end up on the shelves or might be used to produce things that might end up on the shelves.
Demand is rising:
As I noted above, people are buying more from grocery stores than they used to.
As some managers and some suppliers see the increased demand, they raise the prices. Often not in any major or obvious way. Pricing decisions are not simple textbook [find the q/t for which MR=MC] but rather involve considerable trial and error, either at the store or at some regional or head office.
When people have to queue up to get into stores, and when people read or hear about stores being out of some things, they don't worry so much about paying a few cents more for many of the items on their shopping list. [in econ-speak, the price elasticity of demand is lower in those instances]
Some stores have fewer sales, and some stores no longer put out flyers advertising sales.
II.Macroeconomics
Aggregate Supply
The CoVid-19 pandemic has caused a decline in the overall rate of production. Many (probably most) manufacturing facilities are still trying to operate full time, but they are facing increased supply problems for some items, in part due to transportation issues and in part due to bottlenecks.
The lock-down, quarantine, and isolation policies have primarily affected the service sector of the world economy, but not exclusively. Also, the drop in production of services has led to a major shift to the left of the overall Aggregate Supply curve.
Aggregate Demand
One would think that with so many people's incomes dropping, Aggregate Demand would decline. However...
In both Canada and the United States, numerous policies have been implemented to dampen the effect of the pandemic on people's incomes. This is especially important if (1) people expect the support policies to be reasonably lucrative, (2) people expect to be supported if they over-extend, and/or (3) they expect it all to be over in a couple of months or so. Following the Friedman permanent-income-hypothesis, if people consume according to expected income (including gubmnt programmes), consumption may not drop much at the aggregate level.
What is there to spend money on? People who regularly (or even irregularly) traveled, ate in restaurants, shopped a lot in person, etc. all have less to shop for. They (we) are driving up demand for the things we can still buy.
Over the next year or so, the gubmnts plan to increase their fiscal deficits astronomically. These deficits will almost surely be monetized to a great extent by the central banks. [in colloquial language, the gubmnt won't raise taxes to pay for all the programmes; instead it will print more money]. The increased money supply will lead to much more rapid inflation over the the next two years unless the central banks try to neutralize that effect. They've shown no indication they intend to so so.
Sectoral Shifts in Demand
As consumers try to buy more household products in general, manufacturers cannot instantaneously hire and train more employees the products that consumers want more of. As I once wrote (albeit in reverse) back in the late 1970s, "you can't easily transport and train all the workers in the oil patch to some place where they can produce more surgical masks, toilet paper, etc.
A letter was shared widely last week from a Michigan hospital, for example,
outlining its triage criteria for intensive care, making clear that other conditions
such as cancer, heart disease or trauma could make a patient “not eligible” for
intensive care or mechanical ventilation.
“Patients who have the best chance of getting better are our first priority,” read
the public letter from Henry Ford Health System.
The article then discusses attempts to quantify (objectively!! Hah!) expected future years of quality-adjusted life. My take:
Scarcity is rampant (time, ventilators, healthcare workers, space, supplies) [Economists discuss this all the time for all goods and services]
Scarcity means people have to make choices, like it or not. [Economists also discuss this all the time; indeed some people say that economics is the study of choice due to scarcity.]
Those choices, when it comes to a pandemic, involve triage, deciding who to treat and how (recall gripping scenes from MASH that captured this effect to some extent).
You can call them "death panel" decisions if you want, but someone has to decide who gets what treatment. What will be their decision rules?
The CV19 triage decisions are analogous, but on a much larger scale, to decisions about who gets what transplants.
The linked article talks about being neutral, objective, etc. I call BS. There are normative values embedded in these measures.
Even though I'm relatively healthy, and even if I might have as much as 15-20 years left, I could very easily lose out in triage to others who are younger, have more 'productive' years ahead of them (i.e. will work at real jobs, earning money and paying taxes, and not lounge around writing and acting). E.g., I'm over the 75-years-old criterion applied in some parts of Italy. It's not 'agism', and I understand it, but the realism of it is a huge gutwrench.
It is this situation that leads many of us elders (a term I'm coming to like a lot more than seniors) to:
wear masks,
use sanitizers,
wash a lot,
avoid crowds (especially in confined areas),
do large shoppings at odd hours to avoid having to be in stores too often,
isolate a great deal,
pay for delivery so we can avoid stores, etc.
I know I'm going to die at some point, but I'd rather not have it be after I've been lying on a table, realizing that some young ER doc or nurse has triaged me into death.
I know I'm not going out very often where there will be other people, and I know that finding any factory-produced mask will be difficult, if not impossible (I have friends who work in hospitals, and they can't/shouldn't get them for home use now), and so I was considering making a mask from a virus-shield 3M furnace filter (of which we happen to have a spare). Unfortunately, the YouTube videos that show how to do that, all involve sewing something... which ain't gonna happen.
Then my friend, Ted Frank, posted a video on how to make a mask from a T-shirt.
I did it, and it takes less than 15 minutes. Here are the steps and the photos.
First, find a T-shirt you don't want to keep as a T-shirt. Unfortunately, I had given away most of my less interesting T-shirts, and I hope the students who gave me this one won't be upset that I've used it to make a mask. Think of the trade off: T-shirt sits unworn in a drawer or is used to maybe somewhat reduce the probability of spreading a contagious disease to or from me. (I know, it ain't an N95 or whatever, but at least it'll fit tight).
The chalk in the next photo is important. It not only half-sorta helped me cut straight, but drawing the cut lines before cutting helped me avoid some serious mistakes.
Here is the shirt with my chalk lines. Notice that I drew two bottom lines. I drew the higher one of the two because I didn't really want the word "Assume" to be on the mask but then I realized the underarms of the sleeves will help hold the pieces in the front and back together. Also I wanted a longer (top-to-bottom) mask.
And if I were making another one, I'd probably leave some of the tops of the arms as well.
Those next chalk lines show where to cut so there will be two sets of ties on each side of the mask.
Now it's time to cut (you can probably do all this in less time than it takes to read what I did).
And here is the final result. Just tie it on and adjust it.
Before I go out, I'll probably put some tissue between the front and back. And to sterilize it after I've been out, I'll leave it in the sun on the balcony.
From his recent column called "Arguable", but I can't find a specific link to it (I subscribe).
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How bike lanes kill
As regular readers may know, I’m no fan of the relentless push in many towns — including the ones I live and work in — to make the streets more and more friendly to bicycles by making them less and less friendly to automobiles. I have nothing against bicycles, which are nimble, nonpolluting, healthful, and inexpensive. I also have nothing against rollerblades, Segways, wheelchairs, scooters, unicycles, or horse-drawn buggies. But none of them belong in the middle of crowded urban traffic.
Designated lanes for bicycles are a fine idea — where traffic is minimal or there is ample room to expand roadways. But the current mania for subtracting or narrowing already-crowded car lanes in order to benefit cyclists is terrible.
Inserting bike lanes into city streets disadvantages the overwhelming majority of drivers and passengers who rely on automobiles in order to accommodate the relatively tiny minority who bike. In a column last year I wrote: “The doctrine that cars, buses, and trucks should ‘share the road’ with bicycles sounds egalitarian and green, but it’s as impractical as expecting motor vehicles to ‘share’ urban thoroughfares with skateboards and strollers. The chief function of those roads is to keep people and goods moving as rapidly, efficiently, and safely as possible. Bike lanes unavoidably impede that function — often to the detriment of bike riders themselves.”
But taking away road lanes from cars in order to provide more lanes for bicycles isn’t just inconvenient. It’s also deadly, as Gary M. Galles, a professor of economics at Pepperdine University, shows in a recent essay for the Foundation for Economic Education.
He begins by noting that in the wake of implementing a new plan to bring down the number of people killed in Los Angeles traffic, the number of people killed in Los Angeles traffic went up:
Los Angeles Mayor Eric Garcetti created Vision Zero in 2015 in an effort to reduce non-driver traffic fatalities, especially pedestrian deaths. Its goals were to cut non-driver fatalities by 20% by 2015, 50% by this year, and 100% by 2025. Following that vision, the City Council adopted Mobility Plan 2035, a 20-year initiative to remove automobile lanes and make more room for bus and bike lanes to upgrade pedestrian and cyclist safety.
Results to date? Since Vision Zero was launched in 2015, according to the Los Angeles Times, the number of pedestrians, vehicle occupants, bicycle riders, and motorcyclists killed each year in crashes has risen 33%. (Fatalities surged in 2016 from 183 to 253, a 38% increase, and have dipped slightly since then.).
It isn’t hard to understand why cramming Los Angeles drivers into fewer driving lanes makes LA’s roads more dangerous, not less. And with the city planning to double down on its approach — a blueprint just approved by City Council would remove even more traffic lanes in order to make more room for bikes and buses — it seems obvious that congestion will only grow worse and fatal accidents more frequent.
Until reading Galles’s essay, though, it hadn’t occurred to me that there is another way in which increased congestion will cost lives. “More motor vehicles trapped in gridlock,” he writes, “cannot clear the way for ambulances or fire trucks responding to emergency calls.”
I tend to be skeptical of the “adopt-my-policy-or-people-will-die” school of analysis, but there is nothing theoretical about the outcomes to be expected when emergency response times slow down. When it takes EMTs longer to reach people suffering a heart attack, or becomes more difficult for fire trucks to reach a blazing building, the cost is paid in human lives. Galles quotes the Mayo Clinic’s Roger White, an expert in the treatment of out-of-hospital cardiac arrests: “A one-minute decrease in the call-to-shock time increases the odds of survival by 57%,” White told USA Today, while decreasing the response time by three minutes “improves a victim’s chance of surviving almost fourfold.”
Even backers of the new Los Angeles transportation plan agree that it will worsen traffic in many parts of the city. That is another way of saying that emergencies will be responded to more slowly. And that is another way of saying that more victims of heart attack (or a stroke or ingested poison or a shooting or a fire) won’t make it.
The numbers are jolting. If transportation economist Randal O’Toole is correct, for every pedestrian whose life might be saved by so-called traffic calming — i.e., by policies that deliberately slow automobile traffic in order to boost bikes and buses — more than 30 lives are apt to be lost due to delayed paramedics and firefighters. When Ronald Bowman, a scientist with the National Bureau of Standards, crunched the data for a plan to slow traffic in Boulder, Colo., he came up with an even more lopsided risk factor: 85 lives lost for each life saved.
To the militant and self-righteous bicycle lobby, of course, little of this matters. They want more bike lanes and fewer cars, they want them now, and they can be counted on to browbeat any objectors with loud insults and vehement sanctimony. But the objections are valid, whether or not they’re heeded. Bikes are terrific, but they don’t belong on the busiest city streets. The price of insisting otherwise isn’t cheap.
The Boston Globe has a story about how a recent court decision means that au pairs must be paid more in Massachusetts.
The predictable result:
Families will hire fewer au pairs to look after their children, and fewer au pairs will be hired.
Au pairs are being sent home, something economists have argued for decades is what happens when minimum wages are increased other than by market forces. Increase the price, reduce the quantity demanded.
But the big story in the article is, "OMG, what will we do? We won't be able to afford to hire au pairs to look after our children anymore. This is more tragic than global warming." [I made up that quote, but that's the tone].
Elitist interventionists love to tell everyone else that workers deserve higher wages and that people should be willing to pay more; but when it comes to money out of their own pockets, the story is about how the elites will suffer, and less about how au pairs will tragically miss out on employment and cultural exchange opportunities.
At the end of this month, I get to make a ten-minute PowerPoint presentation to an international conference about how stricter housing codes contribute to homelessness and reduce the supply of affordable housing. Seems like a no-brainer to me, but I expect few if any of the other participants will even agree that perhaps one cause of homelessness and the lack of affordable housing is strict housing codes, and even fewer will even consider the possibility that reducing the seriousness of housing codes might help to alleviate the problems.
Ten Minutes. PowerPoint. Helpful suggestions/criticisms welcome!
Below is a former convent that was converted to a rooming house and that met with great difficulties because the rooms were not up to code. I lived there in the fall of 1978 when I was down, out, and had little money.
I have met both Joe Stiglitz and Stanley Fischer. I trust and respect Fischer. Stiglitz not so much.
Stiglitz gave the economics profession the theoretical framework called "asymmetric information", according to which sellers often have much better information about their products and therefore are in a position to take advantage of less-well-informed buyers. His solution? Gubmnt intervention.
The George Stigler (not Joe Stiglitz!) solution? Reputation matters, and people will learn who to trust and who not to trust. Joe Stiglitz criticizes that approach, arguing markets would do better with proper gubmnt intervention.
Stiglitz seems to believe that if only he and his ilk could make all the economic policy decisions, there would be no problems. And yet he has been so wrong so often, it's hard to understand why people pay attention to him anymore.
opposed raising the minimum wage and then favoured it with arguments that had nearly everyone else scratching their heads
completely missed the problems of risky mortgages in praising and defending the pre-crisis work of Fannie Mae and Freddie Mac
Stiglitz is the quintessential elitist interventionist who loves to talk about market failures (with little acknowledgement that most of the failures he deals with are dealt with adequately in the market), but he rarely if ever acknowledges that gubmnt policies are made and implemented by fallible people.
Stiglitz never met an argument for gubmnt intervention that he didn't like. He really needs to study more economic history and more about gubmnt failure, along with all the reasons gubmnt interventions are often much worse than the alleged market failures they have been instituted to "fix".
Why do I mention Fischer in my opening sentence? Because Stiglitz incorrectly accused him of impropriety. It looks like pot-kettle-black to me, given Stiglitz's cozying up with so many socialist and other dictators.
As Harold Demsetz once wrote, it is important in economics to compare feasible alternatives. Stiglitz doesn't do that; instead he frequently rails against imperfect markets, arguing they can be improved with "perfect" regulators and policies. It ain't gonna happen that way, Joe.
In 1969, I was in gradskool in Ames, Iowa. I was pretty well on my way to drifting away from being an idealistic young socialist and toward becoming a small-gubmnt libertarian. That drift made me far less enamoured of the moon programme than many of my friends were. I didn't see the point of going to the moon (still don't, really; though as a stepping stone to Mars for future colonization... maybe). We (i.e. the US gubmnt) were spending billions and billions on the space race when there were so many competing "needs" on earth.
I was much more interested in ending the Vietnam war, in controlling and reducing pollution, and in controlling the beginnings of the horrid economic period that was emerging because the gubmnt wouldn't control its spending.
But we did go to a friend's place to watch it. I'm glad I did.
[I]n the developed world, most of the waste is properly disposed of, thanks to waste management systems few of us think about or even notice. North America is the source of just 0.9 per cent of the world’s “mismanaged” plastic, meaning plastic that could wind up in the ocean. Almost all our junk ends up in landfills (or incinerators). There are many good reasons to rue this but the state of the oceans isn’t one.
So where does the plastic that is choking the oceans come from? Mostly, the developing world. ...
By far the worst sources of plastic pollution are rivers whose basins are heavily populated with poor people who lack access to proper waste disposal. A recent study estimated 90 per cent of all river-borne plastic pollution comes from just 10 rivers: eight in Asia, two in Africa. ...
But a reasonable person wouldn’t fault developing countries for lacking a capacity that we in the wealthy world only developed relatively recently and at an expense they can’t afford. A reasonable person would say we’re rich, they’re not, so let’s fund them to develop the waste disposal systems needed to make their lives better and clean up the oceans we all share. (Of course, China is now wealthy enough to develop its own waste disposal, and happily for the world the government has started to aggressively tackle the problem.)
Less charitably, the critical role of the developing world is being ignored because no one in this country stands to gain – in votes, eyeballs, or donations – by talking about waste disposal in the developing world.
Whatever the explanation, it is a weird sort of narcissism to look at a global problem and assume it is all about us. If we are to make a difference, we must get over ourselves.
There is little doubt in my mind: the film Strange Brew captures the unique essence of the Canadian Cultural Identity.
But even though this film was a minor commercial success, there are many people in the culture industry who claim they absolutely NEED subsidies from the rest of us taxpayers to help preserve the national cultural fabric, whatever the heck that is.
What is so unique about Canada that needs preserving? Hockey? Curling? Beer? Skiing? Songs by Anne Murray? Poutine? Tim Horton's? But all these things pass the market test very successfully and will continue to do so without subsidies from the taxpayers so long as they provide satisfaction to consumers who vote with their dollars.
What is definitely not unique to Canada, though, is allegedly high-culture stuff for the elitist bigots of the country. Shakespearean productions are not a part of the unique Canadian culture; neither are local orchestral productions of supposed "music" by Mahler or Schonberg, showings of ancient art at local art musea, etc.
These things are nice, maybe, for people who like them, but there is no reason for the rest of the taxpayers of Canada to support such extravaganzas. Just because they are performed or managed or produced by people living in Canada, that doesn't make them part of our unique cultural fabric.
Some people think we should help preserve our cultural identity by supporting the artists who write music and paint and write stories. I disagree. Most of the stuff produced by these self-proclaimed artistes is unwanted by the majority of Canadians; it comes from snobs to be consumed by snobs with average folk being asked to pay for it. This situation is highly unfair. Furthermore, if average Canadians don't want the junk enough to support it, I place little credence in the claims that it represents Canadian culture.
Let's face it. Most real people would probably rather visit a wax museum than sleep through a ballet. And a wax museum probably sounds better to most people than all the "cultural" activities in all of the prairies put together (by prairies, I mean from Kenora to the Rockies). Ask yourself this: which has more visitors per year -- the Niagara Falls wax musea or Winnipeg. I'll bet Winnipeg loses by a ratio of about 235 to 1.
And now ask yourself: which gets more tax dollar support for culture -- the Niagara Falls wax musea or Winnipeg? I'll bet Winnipeg wins by an infinite ratio.
The important conclusion to be drawn here is that Winnipeg needs, yes, NEEDS federal subsidies for its very own wax museum. Or else to subsidize the move of their entire city to Niagara Falls.
Meanwhile, let those who make their living by appealing for government grants to the arts do something useful with their time, such as set up a wax museum in London, Ont., or produce more good movies like Strange Brew that real Canadians can identify with.
***
People who know me understand that I'm an above average supporter of the arts in London, Ontario; I strongly favour private support for the arts. My objection is to taxing everyone to support the tastes, wishes, activities, of the pretentious (and, of course, non-pretentious) few.
Not everyone responds the same way to changes in incentives, but some do. An example sent by my friend Jack:
Overheard at a shopping mall today: Two mothers, looking around 16 years old, one with three young kids about a year apart, the other with two. The one with three says to the other “ you should have another one. You wouldn’t believe how much more money you get.”
The recent scandals involving wealthy people trying to use bribes to open a "side door" into universities for their children amused me. The problem for me went beyond the moral issues, the impact on their children, and the general amount of unspoken favouritism shown in the admissions process.
So why did it amuse me?
Because if parents want to bribe someone to get their children into university, why not have them just bribe the universities directly in a bidding war for a few admission places each year?
Here's an editorial I wrote on this topic nearly thirty years ago. It could and should be easily adopted by any university.
University Underfunding: An Immodest Proposal
by John Palmer
Ontario universities are in a financial bind. Our elected representatives have made it clear that increases in university funding will not keep pace with the rate of inflation; at the same time, universities are not being allowed to raise tuition fees as much as they would like. The result is the growing use of very large classes, less essay writing by students, and the loss of some of the world's best scholars to other universities outside Ontario. If revenues are not allowed to keep pace with costs, quality will continue to suffer.
These are times that call for creative adjustments. Raising tuition fees (along with greater OSAP awards) is a good beginning — charge more to rich students without discouraging low-income students from attending university. But these schemes are limited by the province and cannot deal fully with the underfunding problem.
Let me offer another partial solution: auction off fifty extra admission places to the highest bidders without regard to academic ability or secondary school performance.
Before the howls of indignation approach the volume of a supersonic jet breaking the sound barrier, consider these arguments in favour of the scheme:
1. The extra costs of providing a UWO education for an additional 50 students per year, even 50 who are less likely to be successful here, are probably quite low, perhaps no more than two or three thousand dollars per student. So long as the auctioned-off places bring in more revenue than they cost, they will provide a net gain for the university.
2. There appear to be many students, judging from our admission cut-off, who would like the prestige and education they could receive from attending UWO. It is likely that in a bidding situation some would offer quite sizeable donations to UWO in exchange for such a privilege.
Here's how the scheme would work: Every student who is denied admission to UWO on academic grounds would be sent a bidding form. Those wishing to bid for one of the fifty places would sign documents promising to donate to UWO the amount of their bids, if successful. They would mail the bids to an independent auditor, the highest fifty bids would be accepted, and the successful bidders would be legally bound to pay the bid.
Students making winning bids would not be identified on any university records (aside from provisions for anonymous followup research), and would not receive favourable treatment in future years. This would be a one-time donation to the university which would do no more than entitle successful bidders to pay tuition and to try to succeed in university. Even students donating $20,000 would be required to meet the progression standards set out in the Calendar.
If parents want to give out bribes to get their children admitted to university, Let them bribe the university itself instead of intermediaries, like sports coaches or others.
We all have reasonably strong views about the world, how it operates, and how we think it should operate. These strong views, or priors, affect how we interpret events.
So let me ask readers to pick an issue about which you have strong views. What would it take to get you to change your views?
Example:
One of my all-time favourite economics professors, the late nobel laureate Robert Fogel, was once a communist organizer. He became a Chicago-school near libertarian type economist because communism was wrong about the failures of capitalism.
Counterexample:
I have friends who are so strongly opposed to abortion, nothing would ever change their minds.
The former is a more scholarly approach; the latter is a more religious or moral approach.
So what would it take to get you to change your mind about ________?
For me:
Minimum wages. I think they're wrong; I don't think that on average they help all the people they're intended to help; I think that in general gubmnt intrusion into markets inhibits economic growth and makes future generations of poor people much worse off than they would be if we had more economic growth. I'm nearly religious on this. I'm not sure I could be convinced to change my views (informed by the study of economics and the studies I've read about minimum wages).
Global warming. I was skeptical about how much we're experiencing, but I'm beginning to shed that skepticism in the light of increasing data and information from some people I tend to trust. I'm still somewhat skeptical about how much is caused by humans. I'm not qualified to even try to understand the studies. I doubt that much we might do in Canada or possibly in North America will change things much. I do think we should prepare and help prepare to deal with it if, as, and to the extent we experience it.
Coventry School and the the confrontation at the Lincoln Memorial. This incident is what prompted this post. What would prompt you to change your take on the situation? What if the boys had been from a secular school and carrying copies of Michelle Obama's book?
Seriously, for each contentious issue, I think it would be a good idea for us to ask ourselves, "Is it possible that I can be convinced otherwise?" If not, we're debating religion, which I'm willing to do in some settings [do we have a multi-verse with 11 dimensions? what caused the big bang? etc.]
and as I wrote [edited here] in a comment on my Facebook page earlier today:
I shouldn't do this, I know, but my views: 1. I'm anti-Trump, as I hope most of you know. But I'm probably anti-Trump for reasons different from those that many of you have. At the same time I know some very smart and caring people who are pro-Trump. My point? Don't use your or anyone else's views about Trump to judge a particular situation. Please. 2. I'm not anti-abortion, but I'm pro-adoption (my daughter was adopted). Colour me woefully ambivalent on the topic. My point: please don't use my or anyone else's views on abortion to judge a particular situation. 3. From what I've read and seen, the school the boys were from teaches stuff I strongly disagree with. That doesn't mean I hate these boys; that doesn't mean they were in the wrong at this confrontation. 4. I am not a fan of MAGA (I actually had to google it when the incident was first written about). 5. In this incident, no matter what you might think about the boys and their school and their hats, what did they do wrong in this confrontation? Especially I don't know what the one student did who was confronted by Phillips. He smiled or smirked, as we were taught to do in the Civil Rights movement; he reacted non-violently. 6. If you condemn the boys for their behaviour in this instance because of their school, their hats, their parents, their politics, their views on abortion, etc. you've missed the point I was trying to make. 7. Like the writer of this Atlantic piece, I've held some wildly different, and (many would say) hateful or objectionable views over my lifetime. I have done some pretty uncaring things in my lifetime. But I hope people will not use those views or actions to judge me in any given situation. I know some do and some have, but please keep this in mind when writing about this particular situation.
I'm sure I could write more. I probably will. I'm feeling so despondent though because of the comments I've read, both yesterday and today.😕
Addendum: Many of us can, and do, change our views on religious-type topics as well. I was once a conscientious objector to war. I think I may have been drifting away from that moral position but 9-11 sealed it for me. I was no longer a conscientious objector after that event. Also, I was once an atheist but cosmological questions turned me into a devout agnostic.
No matter what stories people may try to tell about greed and conspiracies, gasoline and crude oil prices move in lock step, and crude oil prices are nearly double what they were a couple of years ago. See this.
A review of Bryan Caplan’s The Case Against Education
“We don’t need no education” [Pink Floyd, “Another Brick in the Wall, Part 2”]
As an undergraduate, I always crammed for exams and rarely remembered anything I may have “learned” beyond the next week. I certainly did not remember much after a several months, not to mention after a year or two. So long as I received the grade I was shooting for, I had succeeded.
More than four decades of teaching at the university level convinces me that my experiences are no different from those of most students. This observation is at the heart of Bryan Caplan’s new book, The Case Against Education: Why the Education System Is a Waste of Time and Money (Princeton University Press, 2018).
The major point of Caplan’s study is that high school diplomas and undergraduate degrees generally do not show that the students actually learned and retained much that will be useful after graduation (those who go on to teach are, to some extent, exceptions). Rather, completion of high school or the BA signals a student's ability, intelligence, work ethic, and willingness to perform to satisfy teachers’ requirements.
Caplan reviews the compelling evidence that even after taking account of ability, intelligence, and a host of other variables, those students who complete high school on average earn more than those who don’t, and those who complete a BA earn more than those who don’t. Completion of a programme clearly means something in the job market to potential employers and is valuable. The puzzle is: why do those students earn more even though they don’t remember, much less use, most or any of what they studied?
Caplan’s answer: The very fact that they completed high school or received an undergraduate degree is worth a great deal to future employers because completion conveys valuable information about students’ character traits and general abilities, despite telling very little about specific skills and learning. Students spend years and years (and years and years and years) studying things they don’t remember and never use. Why? To generate signals to potential employers that they have what it takes to be productive employees; or, in the case of high school students applying to college or university, that they have what it takes to be successful undergraduate students.
I have been reading these ideas from Brian Caplan for nearly a decade, as he has posted them at the blog Econlog. I was so persuaded by them that several years ago I gave a public lecture at The University of Regina “I Didn’t Learn a Thing as an Undergraduate.” in which I summarized his ideas.
When I first started teaching, every year there was a student or two who would plead for a higher grade, and my reaction was usually, “I won’t certify that you know this material when you don’t.”
Even then, I knew I was in the business of certifying something, but I thought I was certifying the students’ knowledge of economics. According to Caplan, though, I wasn’t – instead I was certifying their intelligence, their ability to buckle down and study enough to get a certain grade, and their ability to “learn” (at least for a brief period) whatever it was I wanted them to learn. I was certifying their ability to generate signals about character traits that employers and educators believe are valuable.
Caplan questions why we need so much education if the primary purpose of education is to certify and to generate signals, but not to foster learning. He points to all the language courses students are forced to take but forget quickly, to the history courses despite which so many people know so little basic history, and even to the math and science courses that so many students take in high school only to signal their suitability for university. If the primary reason students take these courses is to signal character traits, not skills or knowledge, then it seems mighty wasteful for them to be spending so much time and energy on coursework. Surely students would be better off if they spent more time learning skills and less time signaling.
Let’s face it: you don’t need a BA for many, maybe even most, of the jobs that require them, but employers require BAs because students with a BA signal that they have more ability, better work ethics, and greater willingness to conform to the employers’ work standards. The BA hasn’t taught the students anything useful for the job, but it has signaled character traits that many employers are willing to pay for.
While that might be correct overall, it likely does not hold for any given individual. A reasonable student can rightly ask, “How can I send a reliable message to potential employers and universities about my abilities and personality if not by completing my education programme? Doing so is next to impossible.”
As a result, the student quite sensibly decides to signal quality by getting more education. And so do zillions of other students, all contributing to a signaling war with each one trying to send a signal that they are better-suited --- i.e. better credentialed --- than other job or college applicants.
The result is an attempt to generate better credentials than the others have who might be competing for the same position. The students quite properly say, “I know what employers want – diplomas and degrees. If I want to get the job I need a diploma or degree.”
Caplan’s conclusion is clear: all this signaling is costly and wasteful. He sees it as what economists and others refer to as a negative sum game: Everyone devotes more and more scarce resources (time and money) to advancing themselves and/or their progeny in the credential war, trying to create more impressive (albeit more costly) signals.
High school students take courses that signal their willingness and ability to submit to the rigours of college or university coursework. They also join extra-curricular activities to prove they are well-rounded; they participate in or even start their own charity fund-raisers to show they care about others; and they vie for “leadership” positions in local groups to show their leadership potential. Many sign up for SAT training courses or buy books with sample questions and guidance on how to improve their SAT scores. These are all attempts to signal. They have little to do with producing what economists call “human capital”—i.e. skills and useful knowledge.
In my own case, in high school I had a friend who had some SAT study books. I had never heard of studying for the SATs. I naively believed the SATs were truly aptitude tests. But we studied the books, and I felt they helped me increase my SAT scores.
Also, in my last year of high school, I had read that someone who restored an old MG was regarded highly by Yale. As a result, when I was visited by an admissions officer for an elite liberal arts college in the US, I made a point of mentioning that I had built the hi-fi system I had. She seemed impressed, but I don’t know that it mattered. The point is that apparently even then, nearly sixty years ago, I was well-aware of the importance of signals.
Later in my studies, after having been an abysmal student at Carleton College, I was speaking with the admissions director [then-famous labour economist, H. Gregg Lewis] for the economics graduate programme at The University of Chicago. He told me he wouldn’t admit me, despite the lax admission standards there, because I had such a low grade point average from Carleton.
“The best predictor of someone’s likely success in our graduate programme is their undergraduate grade point,” he told me. “The next best predictor is my personal impression from their letters of recommendation.”
“But,” I argued, “I have very high scores on the mathematics and economics portions of the Graduate Record Exams [GREs].”
He said those were horrible predictors of success in graduate school. His predictors were signals. And my low grade-point signaled to him that I would not be a success in the graduate programme at The University of Chicago. If I had wanted to signal my ability to succeed there, I should have buckled down and gotten better grades as an undergraduate.
In many ways, signals are good things. They aren’t perfect, but they are short-hand ways of conveying generally useful information. When someone completes high school, they signal they have the mental ability to grasp the basic material, and they also have the personal ability to withstand boredom, to do as they are told, to jump through hoops. This is an important signal to potential employers. Further, if they get high enough grades and high enough SATs, they signal they probably have the mental ability and the personal characteristics to finish an undergraduate degree.
Similarly, completing a BA tells potential employers the student has even more ability intellectually and more stamina and conformity.
Caplan asks how many college and university graduates actually use the things they studied as undergrads. The answer, overwhelmingly outside certain professions, is very little.
As an example, I know one person who majored in English literature with a minor in Religious Studies at a top-ranked university. He ended up getting a job with a major corporation only because he had become fluently bilingual in French on his own. He has since gone on to head up their business-to-business web sales programme, despite studying zero business or computer science in high school or university. When I asked him how much of his schooling he had ever used on the job, he answered “Four percent. Writing all those essays helped me learn how to organize and structure my time.”
Put differently, his university credentials (coupled with his ability to speak French) signaled a set of abilities valued by the corporation. They indicated a strong probability that he would be highly productive.
This story is repeated everywhere. Students who work to earn diplomas and degrees signal things that are valued by employers, no matter what subjects they study.
Caplan goes on to suggest that from a societal perspective there must be a more efficient way to generate these signals. Having people spend, say, 16-17 years in school to create these signals seems like a very expensive way to do it.
Indeed, some of his critics have argued that if there were a more efficient way to acquire this information, employers and intermediaries would have developed mechanisms for doing so by now. Caplan’s first response to this is weak: he responds that the signals from education are so strongly embedded in our culture and psyches that we don’t trust alternative signals. If that is the only reason, I expect things will change, and fairly quickly over the next few decades.
However, his second response has more strength: we have had a credential explosion as students (encouraged by their parents and by educators) scramble and slave to create better signals to make themselves more attractive to college admission officers and employers. A generation ago, people could and did do jobs with only high school diplomas but for which employers generally seem to require BAs today. People don’t need BAs to do those jobs, but having a BA signals things that employers want: intelligence, solid work ethic, and conformity.
Caplan argues that these signals are relative, in comparison with the applicant pools, and not absolute. If they were measured according to some absolute scale, then a high school diploma today would signal the same thing it did a generation ago (assuming high school standards haven’t changed much; however, see below). But when an employer is faced with a job applicant with stronger signals, like a BA, then the one with the BA tends to win.
According to Caplan, there are two big problems with this credential war that is set off when we use schooling to signal ability, work ethic, and conformity. The first is that the war, like many wars, is a negative sum game: it is beneficial for each individual to play the game but it wastes society’s scarce resources when everyone plays the game. It is to each student’s advantage to get a high school diploma (or to complete a BA), but only because they are competing with other students who are also spending time and money in the credential war.
Not all signaling wars are bad, though. For example, when firms advertise just their company names, they are signaling that they intend to have a good enough product that they wouldn’t want to have wasted money on the general, non-specific advertisements [see, for example, Klein and Leffler]. This type of signaling war encourages firms to produce reliable products and the competition is beneficial to all of society. Caplan argues, though, that using schooling to signal abilities and character traits has no social benefits and hence generates far too much waste, with students taking courses they don’t want and don’t need, only to create acceptable signals.
I like Caplan’s case that signaling is a major part of schooling and education. But there are some positive aspects to the signaling war that Caplan either ignores or dismisses too easily. The longer students are in school, the more they tend to learn and practice good work habits and conformity to teachers’ and professors’ assignments. Caplan’s response is that they can learn and demonstrate these same skills on the job if they go into the workforce; they don’t need to spend so much unproductive time in school to learn and demonstrate these skills. My sense is that the two are not the same, but Caplan does make a strong case.
Interestingly, throughout much of Canada students applying to university can pretty much blow off their time in the lower grades, even in high school. All they need is a high overall average in six different grade twelve courses [see the details here for Ontario]. What is more, they can retake courses to raise their averages, and apparently admissions officers tend to just look at the averages of the best six, as generated by a computer programme.
Here the important signal is grade point. Essays on “why I want to attend your university” aren’t required, nor are SATs or records of charitable work. And so at least some of the wasteful efforts in the signaling war are less valuable here.
The credential war has another pernicious effect however: it induces grade inflation. High school teachers feel pressure to ease up just a bit so students who might be borderline are admitted to college or university. Similarly university professors are under pressure from students to be lenient so that students can get into professional schools. And department chairs put pressure on the hard-ass professors to ease up so the students don’t migrate to other departments to take their courses.
There are numerous true stories about grade inflation and signaling. I’ll share a couple.
When I moved to Canada after being an instructor in graduate school at Iowa State University, I was informed that 80 is an A here and 50 is a pass. In most schools in the US, 90 is an A, 80 is a B, and you need a 60 to pass. The result was that I just adjusted my marking scheme. The numbers were far from absolute.
During my first few years, I had no qualms about giving marks that ended in a “9”. Several years later, a decree came from the department chair that we were no longer to give marks ending in a “9” because students were appealing them and chewing up too much important administrative and faculty time. We were to round everything ending in _8.5 to the next highest grade. That edict cut down on appeals considerably … initially…. And even in the long run to some extent. But of course many students soon figured out that all they needed was a 78.50 to get an 80 (an A), and so there were still appeals, just not as many.
For decades, the University of Western Ontario economics department had a rigid policy that in first year courses there was to be a set grade distribution according to guidelines we all agreed to. For the most part, these guidelines were strictly enforced to maintain inter-section equity. The guidelines were comparatively difficult for the students, though. As a result, enrolments in economics began to tail off over the years as students sought out easier courses in other departments that were more likely to give them the averages they needed to get into a top-ranked business school, law school, or other professional programme. Eventually the economics department caved in to the grade inflation taking place elsewhere in the university and eased up on its grading guidelines. Students wanted to generate grade signals, and we were under pressure to contribute to the signaling and credential wars they waging by being more lenient ourselves.
If students are increasingly studying less, as seems to be the case, and receiving higher grades, then the signals are being diluted. To that extent, students who want to impress employers and admissions officers need to generate additional and stronger signals. Many will choose to further their studies. Others will look for other signals. For example, students seeking admission to top business school programmes now are expected to do something to demonstrate their entrepreneurial drive and talents such as starting a business or organizing a fund-raising campaign. When I talk with these students, it is often the case that they don’t really want to do these things, but “it’ll look good on the application forms”; i.e. it’s part of the signaling war as they try to distinguish themselves from all the other applicants who have good, inflated grades.
Even if you are persuaded by Caplan’s arguments that schooling is mostly signaling and doesn’t really contribute much to the skills and talents of most students, you may be less persuaded by his recommendation for dealing with the high costs of signaling wars.
His solution: eliminate taxpayer support of education. As a life-long educator who has enjoyed feeding at the trough of the public fisc, I cringe at this recommendation. I am especially reluctant to endorse it for grades K-12. At the university level, though, it makes some sense to at least consider reducing the sizes of the government subsidies. I realize my experiences may not be generalizable, but they probably are: there are far too many students in university who will learn very little and use next to nothing of what they were taught. They are there, in part, because governments subsidize their participation in the credentialization wars.
Caplan’s book is an easy read. He writes with serious humour, if that makes sense. I have smiley faces in the margins all through the book. My major complaint is that the publisher chose to use endnotes instead footnotes, meaning I was constantly flipping back and forth to check the footnotes, many of which are well-worth the effort.
I certainly urge those who might be interested to read the introductory material in Chapter One. After that, Chapters four and five become tedious --- necessary to bolster his case, but tedious, as he develops and carefully references his case numerically. Also his conversations near the end of the book are interesting. But for those who want the Readers’ Digest version of the book, I highly recommend Caplan’s column in the Los Angeles Times, which presents his case extremely well.
[Addendum: if high school dropouts quickly learn that there is great advantage to having a diploma, I strongly suspect that many of them outright lie and say they have a diploma, fully expecting that potential employers won't bother to check. If so, then the signal for having a high school diploma has likely been seriously distorted and weakened.]
Note: a condensed, edited version of this review will appear in the April edition of the newsletter of the Society for Academic Freedom and Scholarship [SAFS], a Canadian organization created to foster and defend academic freedom.
Here's a simple way to look at central banks, monetary policy, and interest rates.
Interest rates are an effect, not a cause.
If central banks increase the rate of growth of the money supply, ceteris paribus, initially interest rates will fall.
Call that effect "the liquidity effect". The central bank floods the money markets with liquidity and people try to make loans, offering favourable terms.
2. If the central banks maintain a higher rate of growth of the money supply over time, this will lead to higher rates of inflation. Eventually, higher rates of inflation will lead people to expect those higher rates of inflation, leading them to offer and demand higher interest rates in market for lendable funds. Call this effect "The Fisher Effect" (after the famous economist who first wrote about it, Professor Effect).
In general, central banks cause interest rate movements by what they do to monetary reserves and the money supply, not by what they say about interest rates.
So why do we have low interest rates now? because the US Fed pays interest on reserves, sucking tonnes of reserves out of the monetary system, offsetting all their grandiose efforts at quantitative easing.
"I really enjoy your site, and I'm planning to assign your blog to my students. I love to find "real world" examples to supplement the text, and your blog is terrific for that. Thanks for writing it!" -- J.A.B.
