probity

probity - n. Complete and confirmed integrity; uprightness: "He was a gentlemanly Georgian, a person of early American probity" (Mary McGrory).

American Heritage Dictionary, 4th Edition.

All hail the glories of Kant

Kant has long been my favorite philosopher, so I was excited for the chance to read the long and detailed biography by Manfred Kuehn. From a biographical perspective, Kant lived the quiet life of an academic.  He was single his entire life, and did not produce any major works until his mid-50s. He started out as an adjunct professor and only became a full professor in his mid-40s.  Throughout his career he spent much of his time lecturing for his students and working on his books and articles, while also enjoying a healthy social life with his close friends. 

Intellectually, of course, he was a powerhouse.  He produced three major critiques, The Critique of Pure Reason, the Critique of Practical Reason, and the Critique of Judgement.  He produced a major work of moral philosophy, The Groundwork for the Metaphysics of Morals.  He produced an important work on the philosophy of religion, Religion Within the Limits of Reason Alone.  Finally, he also produced a highly influential essay on how best to achieve world peace called Perpetual Peace: A Philosophical Sketch.

His first major work was the Critique of Pure Reason.  In this work, he attempts to answer the critical question of epistemology, "What can I know?" or perhaps more precisely, "What can I know a priori and in complete isolation from experience?"  In this pivotal book, he rejects the idea that we can make substantive claims about the world independent of experience.  In one of his key insights, he does see knowledge as having an a priori component, but this a priori component is based on the structure of our cognitive apparatus that provides an overall framework that allows us to understand our sensual experiences. These insights then into how the world works are not independent of our experiences but instead depend practically on the structure of our cognitive apparatus.  This leads Kant to reject the traditional a priori proofs that were big at the time about the nature of the soul, the world as a whole, and about God, and causes him to conclude that even though we must assume that God exists in order to maintain a functioning moral framework, we cannot prove he exists.     

This last theme is also taken up in his second major critique, the Critique of Practical Reason.  In this book, he suggests that people can only achieve true freedom through the experience of morality, and that it is only when everyone lives morally that freedom begins to be enjoyed by society.  Furthermore, happiness and morality do not always go together, so then the only way for society to achieve true freedom is to create this link between happiness and morality over the long run by assuming that God and immortality exists.  It is only through these assumptions that the whole moral undertaking of society can succeed, and so therefore we must believe in their reality on this account.

In Kant's third critique, The Critique of Judgement, he spends the first part discussing the problem of aesthetics and details some ideas on the nature of beauty and the sublime, and in the second part discusses the problem of determining whether features of nature can be explained entirely through pure mechanical law.  He argues that "All production in nature must be judged as being possible on mere mechanical law", and that this does not contradict the idea that "Some production of such things cannot be judged as possible on mere mechanical laws."  In his view, each statement has a role in science, even though the second one should be used sparingly.  

In Kant's primary work on moral philosophy, The Groundwork of the Metaphysics of Morals, he argues that moral behavior is not determined by consequences but instead by intentions, and a truly good will only acts in accordance with the categorical imperative which states that "I ought never to act in except in such a way that I could also will that my maxim should become a universal law."  An act in accordance with this categorical imperative is one that is moral but only if done for the sake of duty and not for the sake of self interest.  Many of our acts do appear moral but are in fact done out of self interest, and the only truly moral acts are the ones done for the sake of duty, which makes the intentions of the act the key feature of moral behavior.

Kant also produced a major book on religion called Religion Within the Limits of Reason Alone. In this book, he begins by acknowledging that humans are prone to evil, where even if we understand what the right thing to do is, we still often do what is wrong.  This propensity however is not definitive and humans do have the capability for moral improvement.  The question then is how to achieve this improvement.  Kant believes it is irrelevant whether the temptation to do evil is within us or without us, and that the stories about Jesus help us understand our moral predicament but do not represent anything real outside of the moral lessons.  Kant then goes on to address the question of the possibility for social progress, and the creation of an ideal society where human beings are motivated not by coercion from the state but by their own sense of virtue.  In this sense, he believes that this can be achieved by a community motivated by a faith in God, but only in a purely moral sense and not based on the historical, revealed, or culturally based features of the church.  In his view, it is this rationally based moral component of religious belief that is most important and that any service to God over and above "good life conduct" is "mere religious delusion and counterfeit service to God."  This direct attack on the traditional religious functions of the church got Kant in trouble with the religiously oriented government to the point that he was eventually forced to refrain from commenting on religious matters entirely.  

In a smaller essay, Kant described the possibility of achieving perpetual peace in world affairs in Perpetual Peace: A Philosophical Sketch.  Most famously, he argues that perpetual peace requires a republican or representative form of government that is consistent in many ways with what we know as democratic rule today.  He also proposes that states follow certain rules that are supposed to regulate international relations like there should be no peace treaty with a secret reservation of material for another war and that states are not the kinds of things that can be acquired by other states.  This article is still taught today as one of the early examples of arguments in favor of the notion that world peace can be achieved by making changes to the domestic political structures of countries around the world. 

Kant then was extremely intellectually ambitious and made several tremendous contributions to philosophy that still resonate hundreds of years later.  He was an enlightenment philosopher that believed reason could improve the lives of people over time.  He greatly enhanced our understanding of epistemology by refuting the idea that reason separate from experience could inform us about how the world actually worked.  He emphasized the importance of intentions in morality and how we really should act as if everything we did was actually a universal law.  He emphasized the role of reason in religion and how it was morality that made religion important and not religion that made morality important.  Finally, he set out a path about how world peace could be achieved over time by making reforms to our domestic political institutions.  

By making these intellectual breakthroughs he laid out a path for social progress to follow, and many of these goals, dreams, and ideals he described over 200 years ago are now on their way to being achieved.  For this he deserves to be celebrated, and thankfully he is still taught in colleges across the world today.

What is the Fed doing differently on inflation now?

The Fed made a variety of changes to their monetary policy framework, but the one that has gotten the most attention has been their shift on how they approach inflation.  Instead of strictly targeting an inflation rate of 2%, they are now targeting an average inflation rate of 2% over the long term. The easiest way to think about this is that the Fed is trying to reduce the long term fluctuations in the inflation rate, where now if inflation falls below 2%, instead of targeting exactly 2% the following year, they will target something slightly higher than 2% to help make up the difference.  

In the short run, this leads to larger fluctuations, where if inflation is too low one year, then it will be higher the next, but because these short term fluctuations are designed to offset one another, the long run fluctuations in inflation will be more subdued.  The trick is that you do not want to make up the difference too quickly in order to avoid wild short term swings in inflation, which is why the Fed is adopting a "flexible form of average inflation targeting", which means they'll use their own discretion as to how to make up for the previous deviations from target, which I think makes sense.

This is in fact what the engineering department tells us we should be doing, where the debate over targeting the inflation rate versus the price level is basically a false choice.  Instead of doing inflation targeting *or* price level targeting, you should primarily be targeting the inflation rate with a little bit of effort put into trying to control the price level, which is what control theory engineers do when they use PI (proportional-integral) control, which I explain in more detail in one of my first blog posts.  The new Fed target does exactly that where it primarily targets the inflation rate but does try and correct for past deviations from target, which is essentially the same as targeting the price level just a little bit as well.  

This is does not represent a major change to the way the Fed manages monetary policy, but it is an incremental improvement and encourages the Fed to engage in more stimulative policy in the immediate aftermath of a recession, which could help speed up the recovery.  For now though, only time will tell if this change helps the economy, since it only makes a difference once inflation is about to exceed the 2% target, and we it could be some time before the economy reaches that point.    

What exactly did Jerome Powell announce in his speech?

Today, Jerome Powell made a big speech announcing an update to the overall framework for monetary policy that the Fed uses to set interest rates.  Here are the highlights.

We continue to believe that specifying a numerical goal for employment is unwise, because the maximum level of employment is not directly measurable and changes over time for reasons unrelated to monetary policy.  - Jerome Powell, speech at Jackson Hole, 8/27/20

This is Powell basically admitting the Fed has no idea what unemployment rate starts causing inflation, which has been true for a very long time. 

In addition, we have not changed our view that a longer-run inflation rate of 2 percent is most consistent with our mandate to promote both maximum employment and price stability.

This means the Fed is not raising their target up from 2% to say 3% or 4%.  I believe the inflation target should remain at 2% and not be raised any higher, which I talk about at greater length in my own policy memo.

Our new statement explicitly acknowledges the challenges posed by the proximity of interest rates to the effective lower bound. By reducing our scope to support the economy by cutting interest rates, the lower bound increases downward risks to employment and inflation. To counter these risks, we are prepared to use our full range of tools to support the economy.

Here Powell admits that sometimes interest rates will hit zero and that the Fed will be forced to engage in extraordinary measures, and the Fed is currently very willing to do exactly that.

With regard to the employment side of our mandate, our revised statement emphasizes that maximum employment is a broad-based and inclusive goal.

This appears to be a shout out to the people advocating to add racial equality explicitly to the Fed mandate.  I think this strikes a nice balance, where it acknowledges the need to consider these impacts more explicitly, without elevating it to a place equal to the legislatively mandated goals of price stability and maximum employment.

In addition, our revised statement says that our policy decision will be informed by our "assessments of the shortfalls of employment from its maximum level" rather than by "deviations from its maximum level" as in our previous statement. This change may appear subtle, but it reflects our view that a robust job market can be sustained without causing an outbreak of inflation.

Powell, in this addition to the framework, appears to be admitting that the Fed will not start trying to reverse an economic expansion simply because unemployment is getting too low and will wait until inflation starts going up until taking those steps. 

To prevent this outcome and the adverse dynamics that could ensue, our new statement indicates that we will seek to achieve inflation that averages 2 percent over time. Therefore, following periods when inflation has been running below 2 percent, appropriate monetary policy will likely aim to achieve inflation moderately above 2 percent for some time.

This is also a useful move by Powell, where there is a debate about whether to target the inflation rate or the price level (a topic I address in one of my very first blog posts and in a short paper describing a potential topic for future research).  I say this is basically a false choice (based on insights from the engineering department), where the Fed should primarily target the inflation rate but adjust that target by how much it has missed that target in the past, which means they would be targeting the price level to some degree as well. This is pretty much exactly what Powell announced, so I think this is a good idea as well, and even if it is a modest reform, it does represent an improvement on current policy.

In seeking to achieve inflation that averages 2 percent over time, we are not tying ourselves to a particular mathematical formula that defines the average. Thus, our approach could be viewed as a flexible form of average inflation targeting.

This is Powell admitting that strict mathematical formulas are not going to be used to determine monetary policy at the Fed.  I think this is broadly the right way to go, but I do find formulas useful for guiding policy, even if they should not be adhered to when other factors not in the formula substantially impact the desired course of action.  I will admit that in another policy memo, I suggest the ECB should consider using a QE vs inflation schedule to guide policy in Europe, but do advise that this formula should be revised often as economic conditions adapt over time, so this builds some discretion into the process as well when the need arises. 

In general though, I am thrilled with this revision to the framework for monetary policy used by the Fed.  It avoids increasing the 2% target, but does target an average inflation rate of 2% over time, and leaves it up to the discretion of the policymakers at the Federal Reserve to determine how exactly to do that.  They make other smaller revisions that I think move policy in the right direction and realistically could not have hoped for anything better.  This is just one more example of how Jerome Powell is doing a superb job managing the Federal Reserve in very difficult times. 

Four year lag in policy impacts

In general, my rule of thumb when judging how well a President has governed is to wait 4 years and see what happened in the Presidential term immediately following the one being judged.  By this measure, George W. Bush's second term was a governing disaster because Obama had a difficult time in his first term dealing with the impacts of the housing bubble.  Obama's first term was a governing success because he had a generally easy time dealing with the economy in his second term, even if ISIS now became a threat after Obama withdrew from Iraq in his first term.  Similarly, Obama's second term was largely a governing success because Trump had an easy time for most of his first term, but now it's only taken a 3 year lag for Trump's governing problems to take hold or perhaps more accurately the mistakes of his pandemic response were a little unusual since it only took a very short time to be realized.

You can even go back further and say George W. Bush had a difficult second term because of the mistakes he made in the first term, mostly Iraq.  Whatever troubles George W. Bush had in his first term can be traced to the tech bubble in Clinton's second term and Clinton's inability to deal with Osama bin Laden (though he did try much harder than George W. Bush did before 9/11).  Clinton's second term was largely a success because of the efforts Clinton made in his first term to fix the economy and reduce the deficit.  Now, this rule of thumb is not perfect and the evaluations are a bit subjective, but in general it does take a few years for policy mistakes to rear their ugly head, so you do have to wait a little bit until you really know if someone has governed well or not, so overall I think it works pretty well.  

New cases of Covid-19 declining in AZ and FL

There was a lot of press given to the rapid increase in cases of Covid-19 in Southern and Western states in July, but less well reported has been the dramatic decline that has occurred since then in some of those states like Arizona and Florida.  In the week from June 29th to July 5th, the seven day average of new cases was around 3900 and in the week from August 15th to August 21st this average declined to around 430, a drop of almost 90% in just around 7-8 weeks.  In addition, Florida saw their number of new Covid-19 cases drop from 12,000 a day in mid-July (using the 7 day moving average) all the way down to around 4,000 in the latest week, a drop of almost 70% in just 5 to 6 weeks.  

One important thing to note is that in late March states across the US took dramatic steps to reduce the transmission rate to below one new case for every current case (down from perhaps 3 from before the restrictions), but then this transmission rate rose above 1 again once restrictions were loosened.  It didn't turn out to be that difficult for policymakers to lower the transmission rate below 1 again in a lot of states, and the nature of this particular virus is that the number of new cases go down a lot quite quickly once you get the transmission rate below 1.  My rule of thumb in China was that once they implemented their full set of restrictions, the number of new cases there went down by 90% every two weeks, but Arizona has shown us that even more moderate restrictions can reduce the number of new cases by 90% in just 7 to 8 weeks.  If Arizona could keep up their current level of restrictions for another two months the number of new cases could drop below 40 per day, which is enough to deal with through rapid testing and thorough contact tracing by itself.  

That's why I think it's especially important to follow the recommendations of infectious disease expert Michael Osterholm and Minneapolis Federal Reserve President Neel Kashkari and go through a strict 6 week lockdown so we can get the virus under control.  If the restrictions were as strict as China, a 6 week lockdown could reduce the number of new cases by 99.9%, but even more modest restrictions somewhere in between China's efforts and Arizona's efforts could reduce the number of new cases per day by over 95%.  Then it might be possible to have in class learning for our students and resumption of more economic activity, and a 6 week sacrifice would not be asking too much. Clearly this is better than our current approach, which is simply to muddle through until a vaccine arrives, and really does merit serious consideration. 

The Hollowing Out of the Republican Party

Here are the speakers scheduled for the Republican convention.

Monday

SC Sen. Tim Scott

LA Rep. Steve Scalise

Former UN Ambassador Nikki Haley

Donald Trump Jr

Tuesday

First Lady Melania Trump

Sec of State Mike Pompeo

KY Sen. Rand Paul

IA Gov. Kim Reynolds

Eric Trump

Tiffany Trump

Wednesday

VP Mike Pence

Second Lady Karen Pence

TN Sen. Marsha Blackburn

IA Sen. Jodi Ernst

SD Gov. Kristi Noem

Thursday

President Donald J. Trump

HHS Sec Ben Carson

Senate Majority Leader Mitch McConnell

House Republican Leader Kevin McCarthy

AR Sen. Tom Cotton

Ivanka Trump

Now this list isn't nearly as bad as the ones making the rounds on the internet, where there is the standard President, VP, First Lady, Second Lady, along with their congressional leaders like Mitch McConnell, and a smattering of prominent Senators and Governors for both sides, but the Democrats had two past presidents, two past presidential candidates, two former first ladies (I'm double counting here), and the Republicans have a lot of Donald Trump's kids speaking (4 of them), so the Democrats do probably have a distinct advantage here. It is notable that George W Bush and Mitt Romney refused to speak, and George HW Bush and John McCain probably would have refused as well if they had survived, so this does represent a bit of a hollowing out of the Republican Party if some of their key leaders aren't supporting them.  

What has really struck me recently, however, is the hollowing out of their class of policy advisors within the Republican Party, where especially in economics, there are so few qualified people around that they have a lot of trouble with the basic functions of governance (see Trump's negotiations over the stimulus package and his highly problematic executive orders). Back when I first started paying attention to politics in the early 1990s, the Republican Party was the party of business and had controlled the presidency for 20 of the past 24 years, so they had a distinct advantage in the number of prominent policy advisors who had direct experience governing and had a long bench of economists from the world of business and academia to provide intellectual support for their policies.

Clinton basically turned this around in 1992, where he brought in a large team of highly talented economic advisors that made it possible to staff the government for 8 years under Clinton and 8 years under Obama.  Plus the economic policy debates have been won by the liberals over this time where Paul Krugman especially has helped convince us that we don't really need more tax cuts for the rich, that Obamacare really does work, and we need more fiscal stimulus in the depths of a deep recession rather than austerity.  Now that the few conservative economic advisors that are left (like Kevin Hassett) are jumping ship, it's the Democrats with the really long list of policy advisors with direct governing experience, and their success in the policy debates have made it so academic economists generally support the Democratic position on issues now too. 

This complete reversal over the last 28 years in the world of government and academic economists really is noteworthy, and if the Republicans want to continue being a viable party, they need to do a better job cultivating the talent that would allow themselves to effectively govern.  Bluster and propaganda can keep you going for a while, but eventually the Republicans need some governing successes, and these have been few and far between for the last two Republican presidents.  This does not seem to be a priority for Republicans right now, but maybe once Trump no longer controls the cult of personality that has become the Republican Party, maybe they can move on and find ways to govern more effectively in the future.

revive

revive - v.  1. To bring back to life or consciousness; resuscitate.  2. To impart new health, vigor, or spirit to.  3. To restore to use, currency, activity, or notice.  4. To restore to validity or effectiveness of.  5. To renew in the mind; recall.  6. To present (an old play, for example) again. 

American Heritage Dictionary, 4th Edition 

Trump's executive orders are not working

It has been almost two weeks since Trump announced his executive orders creating a new unemployment insurance program and a payroll tax deferment, and neither one seems to be working.  So far, 11 states have been approved to get the new unemployment insurance funding, and only one state, Arizona, is actually distributing the extra benefits right now. That means those people currently on unemployment have gone without the extra $600 a week in benefits since the beginning of the month, and are unlikely to get benefits for weeks in the states that have signed up, while people in states that have not gotten approved yet might have to wait even longer.  Even the states that do set up this new unemployment insurance program and do manage to distribute benefits, the people living there will still get only half of the $600 a week in extra benefits they previously got, since the federal government is only willing to fund an extra $300 a week in benefits under this program. The Trump administration has already had to backtrack by taking away the requirement that states provide an additional $100 a week in extra benefits in order to get the $300 a week from the federal government, but this process is taking so long and so few people are getting benefits that this whole approach to unemployment insurance appears to be more of a publicity stunt and negotiating tactic rather than a legitimate attempt to provide more unemployment benefits to people who need them.   

As far as the Trump's plan to defer payroll taxes, this plan also has become so complex and unwieldy that the US Chamber of Commerce and 30 trade associations wrote a letter to Congress and the Treasury Department declaring the plan to be "unworkable".  The problem is that Trump's executive order does not cut payroll taxes but only defers them, so people who decide not to pay might get stuck with a huge tax bill at the beginning of 2021.  This makes it very difficult to administer the payroll tax system under such uncertainty, and this means that a lot of businesses will decide to keep things the same and decline to defer the payroll taxes altogether.  Just to be clear, this is big business, usually a staunch supporter of Republican plans to reduce their tax bill, declaring a Republican proposal on taxes to be "unworkable" to the point they might refuse to participate.  If they cannot get their business allies on board, and no one actually defers their payroll taxes then this executive order would turn out to be a bust as well.  This executive order was probably a serious attempt to force Congress to cut payroll taxes down the road by letting people defer their taxes now and creating a political crisis for politicians if they do not cut payroll taxes later since otherwise people would have to pay back all the taxes they deferred in one lump sum. Ultimately, this executive order debacle represents just another example of Trump being unprepared to actually govern and makes it even more important to cut a comprehensive bipartisan deal with Congress to ensure we get a stimulus package that actually does work, but it still remains to be seen how quickly that might happen.

My Five Rules of Good Nutrition

In general, the study of good nutrition has been subject to a number of missteps and mistakes that make people suspicious of many recommendations coming from the nutrition community.  I do believe the science has gotten better, and that doctors do have a better understanding of what a healthy diet looks like even if there is still a lot left to learn.  I have developed five overarching rules of good nutrition that I learned primarily from doctors and public health researchers like Dr. Andrew Weil, Walter Willett, and Dan Buettner who make a similar series of recommendation on how to live a healthier life through good nutrition.  Overall, they do not recommend a low fat or low carbohydrate diet but instead focus on finding the healthy foods for each type.  Based on that fundamental insight into good nutrition, here are my five rules along with the key evidence in support of each one.

Rule #1 - Avoid processed foods.  A lot of the foods we buy from the store or from fast food restaurants are filled with chemical additives that are dangerous to our health like high fructose corn syrup and hydrogenated oils.  Making your food at home can make it easier to avoid those additives as well as other processed ingredients like added sugar, white rice, and refined flour.  The Nutrition Science Initiative came to a similar conclusion, where they explicitly tested whether a healthy low fat diet or a healthy low carb diet would lead to greater weight loss through a randomized controlled trial, and found that both did approximately equally well and it was the recommendations to avoid processed foods like added sugar and refined flour that were most important in achieving weight loss.  The Nutrition Science Initiative was founded by Gary Taubes, the author and researcher who started the low carb craze, and, to his credit, he explicitly started this research organization in order to make nutrition research much more rigorous by utilizing research methods like randomized controlled trials more extensively.  This key study of theirs basically showed how it is making sure it is the healthy aspect of the diet and not whether it is low fat or low carb that determines its success, which is counter to what their founder Gary Taubes had advocated for many years before that. 

Rule #2 - Eat good fats, not bad fats.  Again, the emphasis here is not on a low fat diet, but finding and consuming more of the good fats like olive oil, nuts, avocados, and fish oil while avoiding fats like partially or fully hydrogenated oils, butter or dairy fat, and other saturated fats that comes from red meat.  This is a key part of the Mediterranean diet, which has been shown in a rigorous randomized controlled trial in Spain to reduce the mortality rate of those who are at risk of heart disease and strokes.  In this study, half the participants were asked to participate in a low fat diet and half were given extra amounts of either olive oil or nuts to add to their diet, and the study was forced to end early because the group getting olive oil and nuts did so much better.

Rule #3 - Eat good protein, not bad protein.  This recommendation highlights that plant based protein (like legumes, whole grains, and nuts) is generally better than animal based protein (especially red meat), though including fish in your diet can be a healthy option as well.  My favorite research on this issue comes from a long term study of Seventh Day Adventists, whose religion promotes various features of a healthy diet, and has a relatively high proportion of their members adopt an exclusively vegetarian or vegan diet.  This research has shown that consuming less meat has lowered the health risks coming from high blood pressure, obesity, and diabetes, and that Seventh Day Adventists do live substantially longer than the rest of the population.  

Rule #4 - Eat good carbs, not bad carbs.  This rule suggests that carbs are ok to eat if done right, but you want to eat whole grains and avoid refined sugar and refined flour.  Eating refined carbs and sugars causes insulin to spike, which means they are high on the glycemic index, and if people can steer themselves towards food with a low glycemic index, like whole grains, then you can get the calories you need without risking the insulin resistance that can lead to diabetes.  The evidence I find particularly persuasive on this point is the graph I have in my own research linking high fructose corn syrup to obesity, where I show how higher levels of Coke consumption have a large negative impact on life expectancy.  In the graph, the US has the highest levels of Coke consumption in the OECD, and also has a life expectancy 4 to 6 years lower than countries that consume the least amount of Coke. 

Rule #5 - Eat more fruits and vegetables.  Eating more fruits and vegetables has been one of the stalwarts of nutrition advice for a long time, and this one generally holds to be true.  Fruits and vegetables contain a large number of important micronutrients that can be valuable for your health, and in a large long term study of the eating habits of nurses and how that might affect their health, eating more fruits and vegetables has been linked to less cardiovascular disease, lower weight, and less diabetes.  

In some ways, these recommendations are simple and a little repetitive, but I think they provide a useful guide about how to approach building a healthy diet.  The goal is not to become overly restrictive, but to find a balanced way to get the nutrients you need without causing any major health problems when you get them.  I find that a Mediterranean, vegetarian, or vegan diet can all be quite healthy and help people adhere to the recommendations presented here, and leave it up to the individual what diet is best for them.  Diet is important, and doctors have gotten a lot wrong in the past, but the higher quality of research done in recent years has led to a better understanding of good nutrition, and provided a stronger empirical foundation for the recommendations that are made.  Following a healthy diet can help people avoid health problems that might arise in the future and live a longer life overall.   

The 100th Anniversary of the Ratification of the 19th Amendment

Today is the 100th anniversary of the ratification of the 19th Amendment to the US Constitution that granted women the right to vote.  If you want to learn more about the final vote in Tennessee that ensured its ratification, where one young 24 year old legislator got a letter from his mother and switched his vote in favor of passage at the last minute, you can hear that story as reported by NPR.  If you want to read a series of essays about women's equality, including one on that key vote in Tennessee, you can find that story over at Brookings.  Today is truly a day to celebrate since women had to wait far too long to gain the rights that the American Revolution was fought to protect for white men, and the Civil War was fought to provide for black men.

The US needs more international students not less

Clearly, Covid-19 and Trump's impediments to legal immigration have caused the number of international students likely to study in the US to decline substantially for next year.  The US brings in large numbers of students from China (about 370,000) and India (about 200,000) and this always seemed like a double win for the US since it brings in more revenue for our own system of universities and also expands our soft power in countries that will become major foreign powers later on this century. 

I always thought the US had an enormous surplus of highly talented students who wanted to become professors, so it would be easy to expand the supply of slots in colleges and universities in the US simply by hiring more professors and enrolling more undergraduates.  I also thought there was a nearly limitless supply of students from around the world who wanted to study in the US, where a lot international students came here for college even though they had to pay full out of state tuition with little access to financial aid. 

Since there was a large demand for a college education around the world, and the US had the ability to greatly expand supply, then simply reducing the impediments to studying in the US would create great new academic jobs in the US and improve the quality of education for hundreds of thousands of students around the world.  Alas, Trump seems to want to make this process even more difficult, just at a time when universities in the US are struggling, making the financial impact on the US even more harmful.  Instead of trying to limit the number of international students, the US should be taking steps to make it even easier, not only for students from China and India, but for other developing countries around the globe, not only because it benefits the US but also because it provides benefits for the other countries as well.  Missing out on this win-win situation for everyone should be avoided as much as possible, and hopefully the damage from Trump's policies curbing legal immigration can be quickly reversed. 

advance

advance - tr. 1. To cause to move forward: advance a chess piece.  2. To put forward; propose or suggest: advanced a novel theory during the seminar.  3. To aid the growth or progress of: advanced the cause of freedom.  4. To raise in rank; promote.  5. To cause to occur sooner: advance a deadline by one week.  6. To raise in amount or rate; increase.  7. To pay (money or interest) before due.  

American Heritage Dictionary, 4th Edition.

The end of The Big Bang Theory

I just finished watching the final season of The Big Bang Theory, and as usual, they do a wonderful job throughout, where they continue their string of funny, heart warming, creative, and insightful seasons.  The show gives us a glimpse into the nerdy world of science and imbues that world with a sense of humanity by filling out some wonderful characters that live in it.  I did think it was a little unrealistic how so many of the guys in the show ended up with such amazing wives, but it is nice to see the characters grow and have their lives get better, and I did like how the show ended on high note to wrap everything up.   Plus, with most everyone in a relationship you get to the see the writers go wild with all the funny things that can happen with your romantic partner in the course of everyday life.

I also thought that, as a part of their legacy, there was a real chance that the show could have an important impact on society.  For example, ten to fifteen years after Will and Grace came on the air, we made dramatic progress on marriage equality for gay couples, and getting to know someone who was gay through a TV show probably played a key role gaining greater social acceptance.  Around the same time, That 70's Show started running, and this show was groundbreaking in the way it portrayed pot smoking as a fun and relatively harmless way to spend some time as a high school student. About ten to fifteen years after that show first aired, we also made tremendous progress on legalizing marijuana and reducing the stigma associated with that drug.  The United States has always had a problem where smart kids are often picked on and bullied when growing up in school, and maybe The Big Bang Theory will humanize the world of the smart kids, and allow them to gain greater acceptance and experience less hostility from their classmates.  There is real power in syndication, and perhaps The Big Bang Theory will not only have entertained us with great skill for 12 years but also improved the lives of the people they set out to portray in the real world as well. 

Kamala Harris as Biden's VP

I think Biden did an excellent job choosing Kamala Harris as his VP.  She unifies the party along ideological, racial, and gender lines.  She can step in and would likely do a superb job as President if the need arose. She is an accomplished debater and can play a strong role attacking President Trump during the campaign, while also being able to withstand the abuse and harassment that is likely to occur when she does. She had the best tax plan of any candidate in the Democratic primary and is well informed on all the issues currently facing the country. 

Now that I've said all those nice things about her, we can also look at potential drawbacks from the choice.  Realistically, California is a safe Democratic state and choosing Governor Whitmer would have provided the greatest electoral advantage since she could help Biden win Michigan.  Susan Rice had the most experience on foreign policy and perhaps would have been better prepared to handle that portfolio of issues if required to serve as President.  Becoming Biden's VP also sets that person up to become the next Democratic presidential candidate in 2024 (if Biden decides to serve only one term) or 2028 (if Biden decides to run again), and Kamala positioned herself a little too far left on health care issues for my taste during the primary, where ideologically I'm more of a moderate and would prefer someone more like Senator Klobuchar to succeed Biden if he wins.

Despite these concerns, choosing Senator Kamala Harris is a historic, well considered, and superb choice for VP.  I look forward to her having the chance to serve as VP if Biden wins the Presidency, and believe she brings a lot to the ticket, both in terms of her campaigning skills and a well thought out tax plan that should have gotten a lot more attention in the primary. 

The legacy of John Hume

Last week, John Hume, a prominent political leader in Northern Ireland, died at the age of 83.  In 1998, he helped negotiate the Good Friday Accords, which brought peace to Northern Ireland after decades of conflict between Protestants and Catholics, and won a Nobel Peace Prize for his efforts.  His own political experience shows how diplomatic efforts can bring an end to long standing political conflicts and his life should be celebrated for the peace he was able to achieve in his home country.

In one of my own working papers, I describe how peace can be achieved as a result of following four specific rules.  First, political leaders need to stop trying to keep all the benefits of governance for themselves.  Second, political leaders need to offer fair deals of democracy and self determination.  Third, these fair deals need to be backed by military force to ensure their success and fourth, crazy escalators need to be destroyed as quickly as possible.

John Hume basically showed us how the first and second rule can lead to lasting peace, since the Good Friday Accords ended the domination of politics in Northern Ireland by London and set up a democratic power sharing deal that ensured both sides had a stake in the political system.  It was only by sharing power between the two factions that the violence came to an end, and demonstrates that this approach to international conflict does have a solid basis in how ongoing conflicts actually can be resolved.  If this approach worked in Northern Ireland, then there is hope that this strategy could be adopted more widely in other areas of the world, and ideally would see lasting peace develop in those areas as well.

Trump's payroll tax deferral will likely turn into a tax cut that threatens SS benefits over the long term

I wanted to make two quick points on Trump's executive order deferring payroll taxes until the end of the year.  If this goes through and companies actually stop withholding payroll taxes, then when the time comes in January of 2021 when people have to pay the money back, Congress will basically have no choice but to turn those payroll tax deferrals into actual tax cuts.  The reason is simply that people are subject to loss aversion, which is an insight from behavioral economics that tells us that losses are felt twice as strongly as similarly sized gains.  Politically, that means it is relatively easy to oppose the deferral before it takes effect because politicians are trying to block a future gain, but once people see the money in their pocket then making people pay back all the deferred taxes at the beginning of next year will be seen as a loss and felt twice as powerfully.  This is why new spending programs or new tax cuts are difficult to enact, but once they take effect they are extremely difficult to get rid of.  I have a whole working paper (fairly technical) about how loss aversion affects the desire for governments to keep running budget deficits, which really is quite good.

Once we realize that Trump's payroll tax deferral will most likely eventually turn into a payroll tax cut, then we need to ask what impact will this have on Social Security benefits.  By not replacing the decline in payroll tax revenues with a similarly sized transfer from the general fund (as Obama did when he cut payroll taxes), Trump is essentially raiding the Social Security Trust Fund to pay for the extra stimulus provided to individuals during this crisis.   If the Social Security Trust Fund has less money, then this significantly reduces the mount of time it will take for the program to run out of money.  This likely will not have any immediate impact on Social Security benefits, but after the pandemic is over Republicans will point to the dismal state of Social Security's finances and declare an emergency that requires drastic cuts to Social Security benefits over the long run even though they were the ones to cause the problem in the first place by using Social Security Trust Fund money to pay for new stimulus.  Republicans do this all the time, where they say we have plenty of money to enact big tax cuts, but then once the tax cuts pass and the deficit goes up, they say we need to cut back on entitlements like Social Security and Medicare in order to deal with the deficit problem they themselves created.

The important takeaway from this post is that any payroll tax deferral will likely eventually turn into an actual payroll tax cut, and if the loss in revenue from the payroll tax cut is not replaced with transfers from the general fund, the worsening of Social Security's financial situation will likely be used as an excuse to cut Social Security benefits over the long run once the crisis is over.  Do not be fooled by this bait and switch.  Republicans are always looking for ways to cut entitlements and raiding the Social Security Trust Fund to pay for stimulus now is one way to make it easier for them to do that in the future.

Trump's executive orders

Over the weekend, Trump made a bold move by issuing a series of executive orders that fundamentally try to bypass the legislative process entirely.  Trump announced four executives orders on Saturday.  One creates a new program to distribute aid to the unemployed.  A second allows people to defer paying payroll taxes until the end of the year.  A third allows HUD to consider extending a moratorium on evictions and a fourth allows people to delay making student loan payments.  The underlying strategy behind these executive orders seems to be that Trump knew he had to do something, but if forced to make a deal with Democrats he would have to spend much more than he wanted on stimulus.  As a result, he decided to circumvent the negotiations and enact a bare bones stimulus package that he can then claim credit for while also exaggerating its likely impact.

If you look at where the negotiations started, Republicans were offering a stimulus package worth about $1 trillion, the Democrats had their own proposal that cost more than $3 trillion, and if you look at Trump's executive orders, those combined together have the federal government end up costing less than $225 billion by the end of the year according to the Committee for a Responsible Federal Budget.  In general, he plans to devote less than $45 billion in federal money to his new unemployment insurance program while deferring payroll taxes until the end of the year would reduce revenue coming in by about $150 billion and allowing people to delay their student loan payments would cost around $30 billion.  The main result of his executive orders is that Trump managed to reduce the cost of the stimulus package to the federal government by an order of magnitude compared to any likely deal made with Democratic support.

The problem of course is that these executive orders are unlikely to work out as planned.  The executive order on unemployment insurance requires states to set up a whole new program from scratch, which could take months before any money goes out.  If programs do get set up, it would still result in a big cut to unemployment benefits, where the new program would have the federal government pay benefits worth $300 a week and states would have to fund an additional $100 a week, which is still below the current extra benefit of $600 a week provided by the federal government.  States are also short on cash right now and might not be able to fund their portion of the benefit, which means they would lose out on the $300 a week from the federal government as well.  Even if states do set up a new program and are able to pay for their portion, the $300 a week in federal benefits would run out of funding in a month or two, at which point states would have to pick up the entire tab.

The deferral in payroll taxes is designed to take the place of the stimulus checks, but the most important point to make here is that people who are not working would not get any benefit from a payroll tax cut.  If the new unemployment insurance program runs into hurdles, those who lost their jobs may face a severe cut in their benefits that could have been partially offset by a fixed $1,200 stimulus check that goes out to virtually everyone, but now will not be offset at all because the aid is structured as a payroll tax cut.  Most likely, the hardship faced by the unemployed over the short run will force Trump to go back to the negotiating table within a few weeks where a much larger stimulus package can be crafted between the two parties in Congress.

Ultimately, Trump's executive orders are trying to block badly needed stimulus from going into the economy during these difficult times.  It will not take long to figure out that these executive orders are badly designed and poorly crafted, making them essentially unworkable as a way to confront the economic problems our country is currently facing.  Unfortunately, this attempt to bypass the legislative process is going to slow down negotiations for weeks on end, requiring people to lose critical aid at a time when there are few jobs to be had for those currently unemployed. This new political strategy is likely to inflict serious economic harm in the short run that may be difficult to recover from quickly.  Only by changing course as quickly as possible can the country get back to a path where the economic harm from the pandemic is greatly mitigated by federal efforts to offset the economic damage.

delight

delight - n. 1. Great pleasure; joy.  2.  Something that give great pleasure or enjoyment. - intr. 1. To take great pleasure or joy: delights in taking long walks.  2. To give great pleasure or joy: an old movie that still delights. -tr. To please greatly.

American Heritage Dictionary, 4th Edition

The glories of Ibsen

Today, since it's Friday, I'm recommending another book, this time taken from the archive of all-time classics everyone should read.  Well, technically its not a book, its a play, and technically not a play, but a playwright.  I will freely admit that one of my favorite playwrights is Henrik Ibsen, a Norwegian playwright who wrote his most famous plays in the late 1800s.  He's one of my big four along with Shakespeare, Chekhov, and Arthur Miller, and clearly deserves to be there since he is the most frequently performed dramatist in the world after Shakespeare.

Unlike Shakespeare, he didn't alternate between comedies and tragedies, where half his plays have ridiculously happy endings and the other half ridiculously sad endings.  His works are amazing, but they definitely are not comedies, and even if they are brilliant, they can get a little heavy.   Here's a summary of all the works I've seen in a theater or on DVD, and particular note should be paid to the last one, since it has to do with the public's adverse reaction to an important discovery in public health, which might be particularly important for our times.

Ibsen's Most Famous Plays

A Doll's House - A play about the constraints placed on women by the institution of marriage.

Hedda Gabler - A tragedy about two young academics competing for career success and the affections of a manipulative woman.

Peer Gynt - A fantastical story about a life filled with adventure and the meaning of it all.

The Master Builder - A tale of a successful architect whose life becomes intertwined with an attractive young woman even as his own marriage has fallen apart.

The Wood Duck - A reflection about the emotional foundations on which families are built.

An Enemy of the People - The story of a scientist who makes an important public health discovery that falls apart when he faces resistance from society.

Oftentimes, plays get too little attention in favor of novels, because it is often difficult to seem them on stage, but Ibsen definitely shows us this shouldn't be the case.  All the plays described here are classics for good reason and are still relevant for society today. 

We should pay people a lot to donate their kidneys... later.

Timothy Taylor has a great blog post summing up all the arguments for and against paying people to donate kidneys.  On the positive side, kidney recipients will live longer, have a higher quality of life, and save money for society as a whole.  On the negative side, there are fears that this new system will exploit the poor, pushing them to sacrifice their own health and well being in order to cope with the difficulties of having little money.  Ideally, we would get enough voluntary donations to satisfy the medical need, but so far that has not happened in the past, and will be unlikely to get us to that point in the future.

My contribution to this debate is to argue that we should pay people a lot for donating their organs, but that we should delay paying them for about 5 years after the organ has been donated.  Economists get a bad rap for putting a price on everything and transforming each transaction into an opportunity for profit.  If both people are made better off from paying someone to donate their organs, then they should be able to do so, but the real question is whether both parties are actually made better off as a result of the paid donation.  Part of the concern is just the distaste over putting a monetary value on our own organs, but I think the real concern is that rich people will exploit the short term financial needs of poor people in order to pressure them into making a donation that is not in their own best interest.

Behavioral economics would suggest there is reason to worry, where there is strong evidence showing that people substantially overweight costs and benefits that occur in the very short term, and substantially underweight costs and benefits that occur over the long term.  If the medical system provides potential donors with a short term financial benefit but imposes long term health costs, then donors might be biased towards donating their kidneys even when it is not in their best interest to do so.

My solution to this problem is two fold.  First, we should make sure donors get *a lot* of money for donating their organs.  Kidney transplants save the health system tons of money and the donors who make this happen should be allowed to get a large portion of those benefits.  I would say donors should get at least $25,000 to $50,000 for donating their organs, and perhaps even more depending on how much money it actually saves.  Giving people a lot of money makes sure people do not pressured into giving up their organs for a price that is too low.

My second solution to this problem is to delay the payments for their organs by about 5 years.  If we worry that people are subject to present bias, then they might be biased towards donating their organs if they are offered a significant financial benefit over the short term.  They might be short on cash and have a big bill they need to pay, and then this short term need could potentially be exploited to convince them to donate their organs even when it is not in their best interests to do so.  If, however, the payment did not arrive until 5 years later, then there would still be a strong financial incentive to donate, but this payment could not be used for an immediate short term problem or impulse buy, and would not be subject to the present bias that might motivate someone to donate their organs purely for short term financial benefit.  If the payments were delayed for 5 years, then it could only be used for some long term, preplanned benefit that was a priority for the donor that would not be overweighted due to present bias, greatly reducing our fear of exploitation.

If we take away the fear exploitation by ensuring donors get a generous price and delaying the payment by 5 years, then a lot of our concerns about exploiting the poor go away as well.  Once the public has greater assurances that the immediate short term financial needs of the poor will not be exploited and only long term considerations will be weighed when making the decision, then there will be less fear that present bias is driving the poor to do something not in their best interest.  There will always be some distaste from turning organ donation into a financial transaction, but if both people do actually benefit from a paid donation, then people should be allowed to do so, and by making these changes to our system of organ donation then perhaps many lives could be saved in the process.

Whichever presidential candidate proposes the highest deficit is more likely to win the election

In one of my key papers, I suggested that politicians can improve their electoral fortunes by proposing higher deficits, and even developed some formal models to show how this might happen.  The basic argument is that voters are subject to present bias, where they overweight events that happen right away and underweight events that happen far into the future.  If a politician wants to increase their popularity, they can propose tax cuts or new spending that increases the deficit in the short term, and imposes costs only in the long term when the deficits need to be closed later.  Voters would like the short run benefits a lot, and dislike the long term costs only a little, and once you start working on budget policy, you realize quite quickly that increasing the deficit is quite popular and decreasing the deficit is quite unpopular.

Now that we suspect that proposing higher deficits is going to help you win the election, the question then becomes, how much does it help.  My rule of thumb is that the politician that proposes the higher deficit wins about 75% of the time going back to the Great Depression. I generally assume Democrats propose higher deficits in every election from 1932 to 1976, and Republicans propose higher deficits in every election after 1976, except in 1992 when Clinton won and in 2012 when Obama won.  That means the presidential candidate proposing the higher deficit won in 16 of the 22 elections since 1932, where the candidate proposing a lower deficit won only when Eisenhower won his elections in 1952 and 1956, when Nixon won in 1968 and 1972, when Clinton won in 1996, and Obama won in 2008.  One striking thing to note is that over this entire history, the only time the same party won more than two presidential elections in a row occurred first when the Democrats became the high deficit party in 1932 (when they won 5 elections in a row) and then again when Republicans became the high deficit party in 1980 (when they won 3 elections in a row).

The next key question then becomes which presidential candidate is proposing the highest deficit in 2020.  It is hard to argue that Trump really is the low deficit candidate since he substantially increased the deficit when he passed his big tax cut in 2017 and again when passing the first pandemic relief bill.  In the latest stimulus negotiations, however, Democrats are the ones proposing much higher deficits (which I presume Biden supports), and Republicans are the ones trying to limit the amount of relief (which I presume Trump supports), so even though Trump worked very hard to be the high deficit candidate throughout his presidency, he is switching it up at the very end right before the election.  Because of this last minute role reversal, I would have to determine that Biden is the high deficit candidate now and has the edge in the next election because of it. Now we will just have to see which candidate actually wins the election in 2020 to see if this theory continues to hold true.  Polls suggest that Biden currently has a substantial edge going into the November election, so it looks like the theory might be accurate this time around too.