Friday, May 29, 2020

Meanwhile, As Minneapolis Burns

So now we are all focused on the recent horrific murder in Minneapolis and now the subsequent events that are happening in many parts of the nation, with Minneapolis the epicenter.  This is serious, and I have idea how it will end.  This has even distracted us from the usual pandemic and economic issues, which are historically serious.

But while all this has been going on, just in the past week or so our president has been engaging in a series of serious actions that will have long run serious consequences people are barely aware of if they are not undone.  It is almost as if he is just outright melting down his presidency and taking the nation with him, although we are too busy looking at the flames in Minneapolis to notice.

Here is a list without comment. The US will withdraw from the Open Skies  agreement, first proposed by President Eisenhower, that has 35 other signatories.  The administration claims the Russians are breaking the treaty, although the specific offenses publicized seem to have nothing to do with this treaty at all.  This follows Trump withdrawing us from the Intermediate Nuclear Forces Agreement, the Paris Climate Accord, the the TPP, and the Iran JCPOA nuclear deal that Iran was adhering to.  Today it was announced that the US will withdraw from the World HealthOrganization. The administration is proposing changing the status of Hong Kong in connection with the US as well as psosibly forcing Chinese corporations to leave the New York stock exchange, not to mention that the daughter of the CEO of Huawei is about to be extradited to the US to be prosecuted for fraud in connection with violating US sanctions against Iran. Another round of EPA regulations are to be ended. Trump refuses to provide aid to the US Postal Service, which might go bankrupt later this year, with Trump declaring that voting by mail is a rigged fraud. He has also issued an executive order to alllow the FTC to make social media subject to lawsuits by his conservative allies. And then also today it was announced that his official pandemic task force is now effectively not functional.

There  is more, but all that is more than quite enough.

Barkley Rosser

Thursday, May 28, 2020

Death And The Pandemic Economy

The relation between death and the pandemic economy is a fraught one that has become hotly debated, although with not much clear empirical evidence.  I note that recently over on Econbrowser Menzie Chinn has had a series of posts on this matter in various forms.  Obviously a big issue has been the claim by the anti-lockdown crowd that not reopening the economy quickly will lead to an increase in suicides by the increasingly large numbers of unemployed people out there.  There certainly have been many studies in the past showing a variety of bad social outcomes from high unemployment, including suicides, domestic abuse, drug abuse, depression, and more. There does seem to be some strong evidence of several of these notably higher domestic abuse and depression. 

When it comes to suicide and death more broadly, the empirical picture is very murky.  Menzie in one of his recent posts reported on a regression he ran covering monthly data from 1998 to very recently that used dummies for months and then unemployment rates and suicides (in the US) and found the an unexpected "wrong sign" with lower suicides correlated with higher unemployment, although this was not a statistically significant result. He provides no explanation for why this odd result seems to be there, but it does show that this is not a simple matter.

Regarding current data on the main question, so far there does not seem to be any data showing a noticeable rise in suicides in the US since the pandemic, with only reports of some increases among medical personnel, who have suffered from overwork, stress, and even guilt, along with fear.  That we might be seeing that out of them is completely understandable. 

So why might we not be seeing much increase in suicides so far despite all the things going on such as increased depression as well as unemployment and more that would suggest we might expect to see it?  Some have suggested a "wartime" effect: people are suffering, but they know others are as well and so rally around the flag to hang in there. This rally around the flag effect even worked for awhile to boost Trump's polls for a few weeks in late March and early April until people saw how we was botching things, and now his polls are lower than they were before, even as those of some generally unpopular leaders in other hardhit nations like Italy, France, and Spain have seen their poll numbers continue to be noticeably higher than they were previously.

Another element, suggested to me by my medically connected daughters, not all that different from the above, is that people who are depressed feel "validated" because now others appreciate their condition. This is especially relevant for veterans suffering from PTSD and so on. 

Before proceeding further, let me note that there are some factors that may lower the death rate during a recession that can offset to some degree, with the importance of these matters of ongoing debate.  Probably the most important is the reduction of pollution, which is estimated to kill 200,000 to 300,000 people per year in the US.  Obviously pollution reductions now in the US are not going to offset all of that or even most of that, but presumably it does some.  An estimate in more heavily polluted China has claimed that the reduction of pollution there due to the pandemic might have saved up to 50,000 to 100,000 lives.  That is clearly a large number, and way exceeds the number of people in China who died of the coronavirus.

I note on this my earlier post that apparently at the global level carbon emissions have been estimated to have declined by 17% to a bottom point near April 7, with them rising gradually since with a likely gradual recovery of the world economy (with the US lagging on both the virus and the economic recovery). Probably carbon emissions are highly correlated with other forms of pollution, so this looks like a pretty good indicator of timing on that one, at least globally.

Two other items that have been brought up as reducing deaths during a lockdown/recession are auto deaths and work-related deaths.  It is probably true that we have seen some reductions of those in the US in the last few months, but I have yet to see any sort of reliable data on them.  Both of those have been trending downwards in recent years gradually in the US, with auto deaths in 2019 a bit over 36,000 with work-related deaths at about 5,100 (construction is the largest with over 1000).  Suicides last year were at about 48,000 in the US, so larger than those two put together, but as of now we do not know how any of these have changed recently.

I would add that on this matter of auto versus suicide deaths, the US picture is quite different from the global picture, although there is reason to be skeptical about some of the international data on suicides, which get covered up in many natinos (but also in the US to some extent for insurance reasons). Anyway, as of last year global auto deaths were estimated to be about 1.35 million while suicides were at a much lower 800,000.  Almost certainly why we have more suicides than auto deaths in the US unlike the rest of the world is that we have way more guns per capita than any other nation, and it is well established in the US that across states there is a strong correlation between guns per capita and suicide rates.

On a speculative note, given that pretty much the entire US is now engaging in varying degrees of reopening despite very few states having actually met the CDC guidelines for doing so, that we may see a perverse effect of an increase in suicides in the near future, even as the economy expands, which it certainly has been now for some time, maybe even as long as a month.  For one thing, unemployment continues to rise, despite the economy growing (and the stock market rising especially strongly).  But another effect may be the ending of that "wartime" effect.  People who are depressed and unemployed may lose that feeling of solidarity and as they fail to get jobs and may become homeless due to failures to pay rent, and so on, they may become more seriously depressed and feeling isolated.  I can well imagine such an effect leading to more suicides, although I do not know.

I will make a completely anecdotal observation that somehow this week I have observed several people both that I am in close contact with as well as some more distant, who seem to have sort of been freaking out this week.  This is probably just an odd bad luck of the draw, but I am a bit worried that it may reflect my speculation in the previous paragraph, and that whether or not we see more suicides, we may see an increase in the near term of people getting less happy and more depressed.  if that is happening, let us  hope that it ends soon. This pandemic has been bad enough.

Barkley Rosser

More On "Obamagate!"

Just three items.

1) Today (or yesterday late?) AG William Barr appointed yet another Special Counsel to investigate "Obamagate!" John Bash of the Texas Western District of the DOJ. He has been assigned to investigate the various unmaskings of Michael Flynn that happened between the election of 2016 and Flynn's interrogation by the FBI after Trump became president in January, 2017. The full absurdity of this is that even Barr in making this assignment recognized that there is nothing illegal about unmasking, not even anything improper.  Nevertheless, he thinks this particular set of unmaskings needs further investigation by the Department of Justice.

2) This is really just an extension of the first.  Not only are unmaskings normal and legal, but for the particular telephone calls on Dec. 29 that Flynn lied to the FBI about on Jan. 24, he was not even masked. Those were wiretapped by the FBI itself and never masked him. This makes this whole huffing about unmasking of Flynn all the more ridiculous. But then, when all these people say Flynn was somehow pressured into a plea bargain by the FBI on Jan. 24, well, he could have avoided all of this if he had simply not lied to the FBI.  Again, for the umpteenth time, I do not get why a former DIA director did not realize his phone calls with the Russian ambassador would be tapped with the FBI and others finding out about them and listening to them. What on earth did he think he was doing when he engaged in that lying (as well as the lying to Pence that got him fired from the Trump admin).

3) I shall note that while it is no longer the top or dominating story, the Fox News propaganda machine continues to spend regular and considerable time on this matter, still calling it "Obamagate" and pushing on the idea that Obama is guilty of something awful, setting up Flynn to lie to the FBI or something.  Hannity has cut it back, but this stuff still consumes a good quarter or so of his time nightly without a hint that any of it, much less pretty much the whole thing aside from a couple of botched FISA applications, is just a giant nothingburger. It may be that the cutback represents a realization that this is not catching on more broadly, not to mention it is stupid to go after the most popular political figure in the nation, but it probably is still going as fodder for the Trump base who have been sold this bill of goods, and the sale needs to be kept from being returned to the store.

Barkley Rosser

Tuesday, May 26, 2020

A Compromise on Liability

So Mitch McConnell and the senate Republicans want blanket employer liability protection as the price of another round of economic support.  They have this leverage because Democrats kept postponing their agenda until they were the only ones with a list of things they wanted to spend money on.

(This illustrates classic bargaining theory to a T.  Bargaining power depends on how much you think you will lose if the agreement is delayed [Rubinstein] or fails completely.  Democrats feared economic damage to the public if bailout bills weren’t approved immediately.  Once the financial markets were backstopped Republicans considered the rest to be low stakes.  Hence the strong tilt to McConnell et al.)

So here is a possible Democratic counter:

OK, you want liability protection.  Let’s give it to any employer, large or small, that sets up a health and safety committee to oversee protections on the job, elected by the whole workforce, one person one vote.  If protections are consensual, liability is waived.  Otherwise proceed at your own risk.

This would be good policy, and it has the political advantage of placing liability within a larger, readily communicable frame about participation and consent.

Monday, May 25, 2020

Conspiracy Theories: How to Pick Out the Plausible Ones

This is an age of rampant conspiratorialism.  Bill Gates is behind the pandemic because he wants to shoot you full of vaccines.  No wait, it’s all those 5G cell towers.  Or maybe it’s bioterrorism from China.  Or just a hoax perpetrated by international capital to undermine Donald Trump, the people’s tribune.  The right wing disinformation machine cranks out this stuff constantly, but paranoid fantasies also emanate from the left/alternative world.

So to counter the conspiracy pandemic, mainstream experts have come forward to advise us on how to detect and puncture unfounded rumors.  The problem I see is that sometimes there really are conspiracies, and it isn’t immediately obvious how to separate the ones that might be true from the purely crazy.

In the public interest, I offer the following rule of thumb.  A conspiracy, of course, is an agreement by a group of insiders to keep something important secret from the public.  If the group is tightly organized, motivated and able to operate separately from those on the outside, it is capable of waging a conspiracy.  If you relax these assumptions, however, you need additional groups to hide the initial conspiracy—in other words, secondary conspiracies.  And if the secondary conspirators aren’t tight enough a third ring of conspiracies is required.  As soon as you find yourself imagining lots of interlocking conspiracies to keep the central one secret you’ve wandered over the line.

Let’s see how this works in a pair of examples.  For nearly six decades people have debated whether JFK’s assassination was the work of a conspiracy.  I don’t have any particular insight to add, but the kind of plot laid out in David Talbot’s The Devil's Chessboard: Allen Dulles, the CIA, and the Rise of America's Secret Government is at least plausible.  It’s reasonable to think a secret team of intelligence officials might have carried it out, and if new leads emerge they should be followed up on.  That’s because it would take just one fairly small secret action to execute the plot and prevent disclosure: the agents Talbot identifies were closely connected and in the habit of frequently walling themselves off from those outside the club.  If the assassination was a CIA hit, a single conspiracy is all it would take to bring it about.

Now consider the claim that anthropogenic climate change is a hoax, perpetrated by a cabal of scientists eager to increase their funding, impose a socialist world order or both.  What would it take for them to do this?  First, there are a lot of climate scientists out there, thousands.  They would all have to be in on it.  Second, scientific research is not a secretive activity, sequestered from the unwashed.  There would have to be ancillary conspiracies among all those who communicate or work in conjunction with the climate plotters: the lab techs, the university research administrators, the journal editors, the funding agencies.  You need all these conspiracies to keep the central one secret.  And then what about all the people the secondary conspirators come into contact with?  How can you prevent other university officials from finding out that some of their colleagues are in cahoots with a nefarious climate plot?  Now you’re talking about third-order conspiracies; hell, the whole damn school has to be in on it.  Any one conspiracy is a stretch, but if you need conspiracies to cover up the conspiracies that cover up—well, you see the problem.

This can be summarized in a simple test: does the proposed conspiracy entail a small enough number of tightly connected people that only one circle of silence can keep it a secret?  If so, maybe you are on to something.  If not, if it’s conspiracies all the way down, stay away.

UPDATE: The time lapse between the Kennedy assassination and now has been fixed.

Saturday, May 23, 2020

"Dr. Doom" At It Again: Predicts 10-Year Depression

That would be Nouriel Roubini of NYU who got his moniker back during the Great Recession, which he called pretty well in 2006.  He did this clearly yesterday in an interview in The Intelligencer, although he has been pushing something like this for some time now, bringing in all sorts of things like climate change and more pandemics to reinforce this long run forecasr, although he thinks in a decade there may be a sufficient restrucuting of the economy to improve the situation.  While he mostly does not talk about what should or could be done in the US, he seems to improve of a German type economy where the unemployment rate has risen only 1% in comparison to the massive increase towards 20%  we have sseen in the US.  Of course, Germany has managed the coronavirus much better than has the US, but they also have their Kurtzarbeit labor system that tends to preserve employment better during downturns, not to mention a broader social safety net as part of its social market economy.  He says things might have been better if we had Bernie Sanders as president, but then notes that compared to Merkel in Germany and even Boris Johnson in UK, Sanders is a right winger.

Roubini thinks that various policy stimuli put in place in the US will lead to a temporary period of growth, but that this will pan out fairly soon with growth turning negative, leading to something more like an L or U shaped pattern.  The key will be massive defaulting on debts as the impact of maassive unemployment works its way through via lots of non-payment on servicing those debts.  He also argues that a factor in the longer term depression will be a resurgence of inflation partly due to the negative supply-side aspects of the depression due to deglobalization and higher costs of new technology, exacerbated by an emerging US-China cold war that will have the US paying more for 5G systems. This will in turn lead to higher interest rates, and these will add to the tanking of the debt load, which he notes could not stand it when the Fed wanted to push the fed funds rate above 2.5% at end of 2018 when the economy was doing very well.

I do not know if he is right, and I  have seen a least one wisecracker argue that Roubini has predicted "the last 15 recessions out of 1," but I do see some serious dangers ahead if mor is not done to provide support for those out of work and small businesses.  Ending of enhance unemployment benefits in a situation of widespread unemployment in July would provide a negative shock, and another negative shock is beginning to come out of state and local governments as they deal with their mounting budget crises by massive layoffs.  Unlike the federal government they cannot run budget deficits, and tax revenues are and will be way down, which points to the need for some serious federal aid to them.  This was provided in the 2009 stimulus, of which about a third was such aid to state and local governments, although even that did not prevent those governments from continuing to be a drag on growth until as late as 2013. But as of now the Senate following Trump is refusing to move on this, invoking some sort of fantasy that it is only blue states having fiscal problems.  As it is, most analyses see the shock to state and local finances being much larger now than then.

Roubini may be overdoing his "Dr. Doom" routine, but he certainly points out to dangers to what so far is at best a barely there nascent recovery.

Barkley Rosser

For The Record About These Ads

Yet again I am upset that we are getting ads for Trump here.  I have made an inquiry to a knowledgeable person, and I have not been given a clear explanation for why all these ads are appearing here, with there seeeming to be more and more of them all the time.  I do wish to say that I do not believe any of us are getting  any money for any of this; I certainly am not.  And I wish they would go away.  But I do not know how to do it, and nobody else around here that I have communicated with seems to know either, although I suppose it is possible somebody has done something to let this happen and is getting money.  But if they are, they are covering it up.

So, I apologize to one and all who find the ads either annoying or, worse yet, downright offensive, which is how I view the Trump ones.  Sorry about this.

Barkley Rosser

Woke Is Reactionary: The Small Business Lending Edition

We live in a drastically unequal society.  Everywhere you look you will find injustice, constraint and exploitation.  Being a member of a racial or other minority increases the odds you will end up on the short end, so what should we do about it?  There’s a progressive solution, to change the system so injustice, constraint and exploitation are minimized.  And then there’s the woke solution, to demand benefits targeted to minorities (and women) that will more evenly distribute the injustice, constraint and exploitation that remains.

You can support the woke solution, but please don’t confuse it with progressive social change.

For a current example, look at this recent op-ed in the New York Times by Pamela Shifman and Salamishah Tillet, “How We Spend Tells Us Whose Lives Matter”.  They point out, “only 12 percent of the black and Latino [small business] owners in a survey who applied for aid reported receiving what they had asked for.”  I don’t know how that compares to white/Anglo owners, and no link is provided to the source they relied on.  But let’s assume with them this means minority SB owners have been disadvantaged in the expanded lending program to counter the effects of the coronavirus.  Knowing this country, I wouldn’t be surprised if this were true.

Two reasons are given for the disparity.  First, minority-owned businesses are less likely to have an existing loan relationship with a bank, and private banks are being used to funnel loans authorized by Congress.  Second, these businesses have slimmer reserves and are less able to survive the process of application, review and disbursement.  Again, let’s assume this analysis is correct.

The progressive solution would be to either impose greater obligations on the private banking system or bypass it altogether in administering the program.  If commercial banks are to be deputized to distribute public funds they should be required to do so not just for their existing clients but their share of the applicant pool, and streamlined procedures should be in place to get the money out the door as quickly as possible.  Or perhaps it would have been possible to forego using commercial banks altogether (or in part) and to quickly ramp up a dedicated lending facility operating in conjunction with the Fed or a specialized government agency.  (How much easier all of this would have been if we had a nationwide public banking system already in place.)

And then there’s the woke solution: “providing dedicated funding opportunities for minority and women-owned businesses, and within that funding pool, for women of color-owned businesses.”  So the inadequacies and unfairness of the lending arrangement are OK as long as they don’t disproportionately fall on these groups.  I suppose white business owners locked out of the deal can console themselves with their privilege.

Again, the woke program is a choice some may make; it’s goal is to take the racism and sexism out exploitation.  Just don’t confuse social justice with a more equally distributed injustice.

Friday, May 22, 2020

RIP Oliver Williamson

Oliver Williamson died yesterday at age 87, I do not know of what. He was famous as the main developer of New Institutional Economics, following the influence of Ronald Coase, which emphasizes the role of transactions costs in the formation and development of economic (and some other) institutions.  He received the Nobel Prize in 2009, along with Elinor Ostrom, but his influence was really quite vast for a man from a working class background, born in Superior, Wisconsin.

I checked, and although there may be another one ahead of him, as near as I can tell at his death only one other living economist had more Google Scholar citations. Andrei Shleifer has about 295,000 (h has a problem getting that trip to Stockholm because of his infamous corruption problem involving Russia), while Ollie had about 276,000.  The all time leader is Karl Marx at about 333,000.

A reason for this is that his work became enormously influential across other disciplines, especially management and law.  Indeed, he is one of the few individuals I know of (I know of only one other, Shyam Sunder at Yale) who was simultaneously in an economics department, a separate business school (I think the Management dept), and a law school, all of which he was at UC-Berkeley.  The only other person I know of who was in more departments was the late polymathic Nobel Prize winner, Herbert Simon, more on him below.

I got to know Ollie through my being editor of the Journal of Economic Behavior and Organization (JEBO), 2001-2010.  He was both an Honorary Editor and the person who wrote the very first paper ever published in the journal back in 1980, "The organization of work: a comparative institutional assessment."  It only got 545 citations and was eclipsed by the second paper to appear in the journal, the one by Richard Thaler in which he introduced the idea of "mental accounting," which was cited by the Nobel committee when he got his prize (He would tell my predecessor as editor, the founding editor, Richard Day, that Day was lucky that Thaler "gave" him that big hit paper).  After I stopped being JEBO editor I joined him on being an honorary one, with the others currently so being George Akerlof, Richard Easterlin, Alan Kirman, and Vernon Smith.  Anyway, while I was editor I had quite a few dealings with Ollie and would see him later, including having him in to speak at JMU a few years ago.

I will tell a rather odd story about him that has some historical intellectual significance, I think, one that is not public knowledge.  So he got a Masters from Stanford, where he studied with the late Kenneth Arrow among others and then got his PhD where he studied with the late Herbert Simon, the father of the idea of "bounded rationality" who also coined the term "behavioral economics," although as I have argued in several papers that approach long predated Simon (who had over 900 published papers and at his death was in four departments at Carnegie-Mellon: management, psychyology, cognitive science, and computer science, with the comp sci building there named for him, and he was also in the philosophy dept for awhile but never in an econ dept, and his PhD was in poli sci/public administration from U-Wis-Milwaukee).  Anyway, Simon, whom I also knew quite well, died shortly after I succeeded Dick Day as editor of JEBO.

Following that there was a special session at the ASSA meetings in Atlanta, I think Jan. 2002, honoring Simon, with his sociologist daughter in attendance. Various people spoke, several of them Nobelists themselves, including both Arrrow and Williamson, as well as Dick Day (not a Nobelist).  I was not a speaker, but got invited thanks to Dick Day to the luncheon afterwards, with Dick and Ken and Ollie there, along with several others.  I was aware that there was a bit of difference between Arrow and Simon over rationality in economics, with Arrow's general equilibrium theory assuming perfect rationality by economic agents, while Simon had pushed the idea of bounded rationality.  I then triggered a major blowup by asking Ollie which he tended to agree with, the late Simon being honored there, or the very present Arrow.  He just smiled and did not answer, but my question set off Dick Day who was very much a supporter of Simon on this and a critic of rationality in economics (with me tending to agree with that). Anyway, Dick launched into a perfervid attack on Arrow like I had never seen.  Ken was a very cool customer and largely fended Dick off quite capably (Arrow was somebody I never saw lose an argument), although it was clear Dick was scoring some points, and it became a bit embarrassing, especially given the presence of Herb's daughter. I actually felt a bit guilty about what I had done, but it was in fact quite a substantial debate unlike almost any I have seen (and I was the one who finally calmied it down by a careful intervention). But throughout it, Oliver Williamson, the man in the middle, held his peace and said nothing.

Anyway, he was a good guy, despite having given me some hard times when I was editor (he had strong views about many things).  But I liked him and very much respected him, and I regret his passing.  RIP, Oliver Williamson.

Barkley Rosser

How Large is the Income Shifting Problem?

I took up this invitation from Dan Shaviro:
tomorrow morning I'll be participating in a very interesting international tax policy conference with a number of outstanding participants. It's on Zoom … I'm actually the second speaker on Panel II (although we're listed above alphabetically), so I will be speaking from roughly 11:08 to 11:15. I'm planning to discuss the OECD's Pillar 1 and Pillar 2 initiatives, although what exactly I'll say remains somewhat flexible pending the keynote address, which may offer updates (at least to me) that are of interest
He gives the entire agenda, which can also be found here. This blog post focuses on Panel I, which noted the difficulties of measuring the extent of income shifting to tax havens as we have the papers that formed the basis of the presentations by Kimberly Clausing and Leslie Robinson. Before I proceed an appeal to anyone who has a transcript of what Dan Shaviro and Victoria Perry (IMF) said as both had intriguing remarks on the enforcement of transfer pricing, which I want to include in a follow-up post. Clausing noted:
This research note describes the plausible magnitude of US revenue loss due to profit shifting, building on recent developments in the literature as well as new country-by-country data on US multinational companies in 2017. In the past, the most complete data sources have all shown large magnitudes of profit shifting, suggesting substantial revenue losses in non-haven countries. Blouin and Robinson (2019) have challenged this consensus, noting that many data sources may be flawed due to the inadvertent inclusion of double-counted profits or through an inadvertent misallocation of profit. Nonetheless, their proposed adjustment to the data generates its own puzzles, and experts at both the BEA and the JCT believe that the proposed adjustment will omit some types of profit shifting. Beyond that, Blouin and Robinson’s conclusions regarding how their adjustments affect the scale of profit shifting set aside many nuances in method that affect bottom-line findings about the scale of profit shifting. This research note uses recently released country-by-country tax data to estimate plausible benchmarks regarding the scale of profit shifting, finding that profit shifting is likely to be costing the US government over $100 billion a year in 2017 (at 2017 tax rates). While much can be done to refine these estimates and learn more about the scale of the problem, the problem remains unambiguously very large.
Robinson writes:
Influential work in academic and policy circles suggests that the magnitude of BEPS problem is large. We show that these magnitudes are overstated due to researchers’ misunderstanding of the accounting treatment of indirectly-owned foreign affiliates in the U.S. international economic accounts data. Our work has far-reaching implications as all country-level MNE data must apply some accounting convention that can make international comparisons difficult. We explain how this accounting treatment leads to double counting of foreign income and to its misattribution to incorrect jurisdictions. We demonstrate a simple correction, and show that the correction significantly reduces the magnitude of the BEPS estimates. For instance, our correction reduces an estimate of the U.S. fiscal effects of BEPS from 30-45% to 4-8% of corporate tax revenues lost to BEPS activity of MNEs
Scott Dyreng’s contribution was to note what one can and cannot find on a U.S. based multinational by reviewing the income tax section of its 10-K filing. This section provides the breakdown of consolidated pretax income that is sourced in the U.S. versus among its various foreign affiliates as well as the amount of foreign income taxes paid. He aggregated these publicly traded company’s information noting that on average 54% of pretax income was foreign sourced and the ratio of foreign taxes paid to foreign sourced income was 20%. In other words, a lot of foreign sourced income ends up in places like the UK, France, Germany, and Japan. Now we know that certain technology companies as well as life science companies end up sourcing income in tax havens but automobile multinationals are simply sourcing their income where either production or distribution takes place ending up with little to no base erosion. He and others on this first panel noted that this limited 10-K data should be supplemented by the as new country-by-country data, but there were concerns about the reliability of the latter. In a word, measuring the extent of profits shifting is difficult. Of course, the more interesting question is how should tax authorities address this and other issues with respect to how the income of multinationals should be allocated between various nations. Again – I would love to see transcripts of the remarks of Dan Shaviro and Victoria Perry.

Wednesday, May 20, 2020

Maybe This Is Not (Technically) A Recession?

Here I am using what is the journalistic definition of a "recession," also used in many nations although not officially in the US, where these things are determined ex post by an NBER committee.  Anyway, that "journalistic" definition is that there be two consecutive quarters of negative GDP growth.  Today in the Washington Post I saw a story on global carbon emissions, which are very closedly correlated with GDP, if not perfectly. Anyway, it appears that global carbon emissions hit bottom on April 7 and have been slowly rising since then (not sure about US separately, although US somewhat behind most other nations on the covid curve and so on the economic impact as well). I note that April 7 is one week into the second quarter.

This means it is very likely that at the global level we shall see positive economic growth in the second quarter, basically rising since the end of the first week of the quarter, although due to reporting lags in many countries this will not show up as positive growth in the data until later, possibly by the end of the month. This growth is slow, but it is positive, definitely not a V. 

So, assuming this slow growth continues,the world will have seen a massive shock in the first quarter, with most of that in a single month, March, the largest such short term shock in recorded history by far. But it looks that it may have hit bottom quite quickly, then to turn into a slow recovery shortly after the end of the first quarter.  First quarter is certainly going to be negative, but second looks very well like it might be positive, at least at the global level, hence, not technically quite a "recession" according to this journalistic definition.

The US is a murkier story.  I have not seen the carbon emissions data for the US (will go check) but I am aware of one variable that may have bottomed out in mid-April, credit card orders.  That is not perfectly correlated with GDP, but strongly so.  The WH has made noises about it and some other less significant variables that look to have at least turned around and may be going up by now.  The big one that has, and that Trump in particular focuses on, is the stock market, which certainly has come back a lot from its bottom point in late March, although still some way to go to get back to its mid-February peaks.  But it is volatile and could easily go back down again, not also to forget Paul Samuelson's old wisecrack that "The stock market has predicted the last nine out of six recessions." 

The Trumpists are loudly proclaiming a V shaped recovery, which really does not look in the cards, although they might get some solid growth happening by election time in November. I suspect lots of variables and also official GDP will still be negative for April, but there are two months after April in the second quarter, and while it is almost certainly doing so slowly, US GDP is almost certainly growing along with most of the rest of the world's economy now. The US might also join most of the rest of the world in having a net positive growth figure for the second quarter, if small, but no "journalistic recession": as well.

Barkley Rosser

Sunday, May 17, 2020


I know, I should probably not waste everybody's time commenting on this nonsense, but the push on it has been masssive, with it seeming to influence a lot of people it should not, so I have decided some pushback is called for, even if those who should see it do not.   I am partly triggered in this by getting defriended on Facebook yesterday by a generally intelligent libertarian academic economist I know who started massively linking to every crackpot pushing this nonsense, and when I pointed out some serious problems with all of it and declared the whole thing to be "insane," I was told that my "TDS was showing" and was defriended.  As far as I am concerned, TDS is people who believe lunatic lies by Trump, showing as a result their own derangement.

As part of all this the Trump media push on this is massive. I am not sure it held for the whole Sundy-Saturday week, but  reportedly for at least a substantial portion of last week Fox News was spending more time on this story than on the pandemic, no distraction with this, of course.  And  this was not as in there might be two sides to it, at least not on Hannity where I have kept an eye on it.  He has been for quite some time pushing for investigations of how the Russia investigation started with a demand that people go to jail for it for a long time.  So he has been all u-rah-rah to Trump coming on to Fox News on Thursday morning with his completely off the wall claim that "This is the greatest political scandal in US history," repeated several times, along with his demand that Senate committees drag lots of people in and that Obama, Biden (of course), Comey, and Brennan should all go to jail for 50 years, although he has not mentioned any actual crimes for which they should go to serve these long sentences that would effectively put them away for life. Both Sens. Grassley and Graham have jumped sort of to attention to promise hearings on all this, although the generally odious Graham did show some streak of sanity by saying he would not call Obama before his committee, perhaps aware that the guy is the most popular political figure in the country, warning "Be careful what you wish for," although I did not see him ruling out dragging Biden in.

So have there been any actual crimes in all this "Obamagate" as Trump has now repeatedly labeled it?  Not much.  Probably a majority of the talk in this past week and a half or so as this has ramped up has been about the unmasking of former General Michael Flynn.  Hannity has all bu frothed at the mouth over the supposedly awful "unmaskers," who seem to be as bad as Islamic terrorists, if not Commies in the 1950s.  Of course, unmasking is a completely trivial and ordinary thing that goes on all the time,  with the rate of it higher under Trump than under Obama.  Officials ask the NSA for the identity of an American identified in a phone call with some foreigner of interest.  This does not mean their identities become public, which rarely happens.  In 2017 there were over 8,000 such unmaskings, with the requests needing to be approved by NSA.  In 2018 this hit an all time record of over 16,000, approximately one per half hour, with that number falling back to something over 10,000 in 2019.

Apparently between his appointment as incoming National Security Adviser and Trump's inauguration, about three dozen officials requested him to be unmasked, some of them on multiple occasions.  Note that while they may have suspected it was him, they did not know this when they made these requests.  While there has been a big focus on Flynn's Dec. 29 phone conversations (two of them) with former Russian Ambassador Kislyak, the majority of these unamsking requests, which were granted as legitmate, came in mid-Deecember due to other phone calls he was in on, the contents of which remain unpublicized to this point. The Dec. 29 ones, which were later leaked to the Washington Post that published about them on Jan. 12, were especially important in that they made it clear that Flynn had lied to incoming VP Pence about making promises to the Russians about weakening sanctions just imposed by Obama to punish them for their interference in the US election, which lie Pence had publicly pronounced.  This would lead Trump to eventually fire Flynn, and it was this matter that Flynn lied to the FBI about on Jan. 24, although they did not coordinate with the DOJ when they spoke with him.  I note that two days after the election when Obama met with Trump, he specifically advised him not to appoint Flynn to anything due to his screaming incompetence, with Obama having fired Flynn from being director of the Defense Intelligence Agency (DIA, Pentagon junior cousin to the CIA).  There is an old Cold War era Wsahington joke that goes: "The CIA director testifies before the Senate Intelligence Committee, 'The Russians are coming!" Then the DIA director testifies and says, 'The Russians are coming tomorrow!" and then the Air Force Intelligence director testifies that, 'The Russians arrived yesterday!''"

I find it a sign of Flynn's screaming incompetence that as a former DIA director he did not realize  that when he started having phone conversations with the Russian ambassador and who knows who else we do not still know about that NSA would be listening so any lies he would tell later would be caught and that indeed he would get unmasked by a gazillion officials all over the security establishment.  And he has now committed perjury by withdrawing his confession of lying to the FBI, with all this pile of Trump media people pressing for Judge Sullivan to drop his case now that AG Barr has requested it, since AG Barr is clearly such an honest and straightforward player himself, given how he blatantly lied about the Mueller Report when it came out.

So, roughly coinciding with Barr's move was that of Acting Director of National Intelligence (DNI) Grenell declassifying and bringing to the Dept of Justice, with Fox News filming his arrival there with a briefcase containg them the roughly three dozen names of people who dared to unmask Flynn.  Barr promptly transmitted these names to various GOP senators, three of whom then made the list public so Hannity and others could staart denouncing these evil unmaskers, triggering them to start receiving death threat from lunatic Trump followers. I note that Grenell's sole experience in intelligence or foreign policy matters was his recent bout of serving as ambassador to Germany where that government requested he be removed, a request that was ignored by Trump.  Shortly after he arrived in Berlin, Trump withdrew the US from the Iran nuclear JCPOA, and Grenell then issued a demand that no German businesses have any dealings with Iran, a demand that was ignored aside from the German government's demanding he be removed.

Ah ha!  At least one possible crime has been identified!  (This has been "the scandal in search of a crime")In Friday's WaPo, Trump fan Mark Thiessen (who I grant has on rare occasions criticized Trump mildly for this or that) published a column in which he declared "Flynn isn't the one who committed a crime" (yes, he did).  According to Thiessen the crime is the leaking of the stories about Flynn's Dec. 29 phone calls to Kislyak, about which he lied to Pence and others in the incoming Trump admin, which led them to fire him. Thiessen proceeded to identify 8 out of this three dozen people who might have been the evil leaker (although he only listed 7 names), and thus possibly open to being prosecuted, if only DOJ can figure out which  one it was. This was the set of people who supposedly not only reuested unmasking of Flynn from NSA, but were actually given his name (allthough apparently in some cases these requests were made by staffers in their offices without even the main person even knowing about it, this being so routine). Obama's name was not among the 7 Thiessen listed, but Biden's, Clapper's, and Somantha Powers's were.

Obviously there is attention being paid to Biden in this regard, and no doubt we shall hear a lot about this from the Trump media mob, with him possibly even being demanded to testify before one of the Senate committees.  However, it is almost certainlhy not him or even one of his staffers.  Why not?  The one unmasking request that came out of his office did so on Jan. 12 (not mentioned by Thiessen but reported elsewhere in WaPo), the day the leaked story appeared in WaPo.  So quite likely somebody in his office sent the request after seeing the story in the paper.  Anyway, not the leaker.

Curiously another name is somebody I never heard of, one Stephanie L. O'Sullivan, identified by Thiessen as "a CIA official whose name is redacted." What?  He does not explain where her name was redacted.  If it was redacted in the report given by Grenell to Barr, how did it come to be unredacted and made public?  This looks like illegal leaking of its own, of a still hired person in the CIA whose identity is supposed to be kept secret.  But ah, obviously this shows how the evil Deep State was after Flynn and the whole Trump administration, blah blah blah.  The hypocrisy of this particular piece of this just stinks to high heaven.

Anyway, I realize that this is pretty complicated.  But that may be why I see a need to put it out there as there is no doubt the Trump people will be putting out distorted and wildly exaggerated versions of this big time.  So, here it is, for any of you who have made it this far.  And that is enough from me on this, at least for now.  Stay well, one and all.

Addenda: In today's Washington Post, Ruth Marcus noted something I had forgotten: it was Michael Flynn who led the chants to "Lock her up!" at the 2016 GOP convention.  Of course such a worthy cannot be locked up himself.

For the record, here are the 7 people listed by Thiessen in his column as being candiated leakers (or maybe somebody from one of their staffs, although he does not mention that possibility): former VP Joe Biden, former UN ambassador Samantha Power (Fox News commenters have made much of her, who supposedly made 7 unmasking requests, how dare her!), former DNI (not Acting) James R. Clapper, Jr. (why would somebody in his position have any authority to make such a request?), former Treasury Secretary Jack Lew, former White House Chief of Staff Denis McDonough, deputy nation intelligence director Michael Dempsey, ah, and the above-menioned Stephanie L. O'Sullivan, whose name was supposedly "redacted," but I missed that she also is a "former deputy national intelligence director."

Oh, and in Trump's diatribes on all this he  has called this "the greatest political crime" as well as "scandal" in US history.  Maybe a "political crime" is not quite the same thing as a "legal crime," although, wow, there is this case of leaking!

Barkley Rosser

Four Days On, Ten Days Off

A very interesting paper (not peer-reviewed) by a team of Israeli scholars proposes that a more manageable exit from pandemic lockdown might be achieved by implementing a scheme in which employees go in to work for four days and then return to isolation for ten days before repeating the cycle. A variation on the proposal would have two staggered relays of workers cycling through the 14 day routine.

The research has been popularized in a New York Times op-ed and a Fast Company feature, so I would bother to discuss it here in detail. Not being an epidemiologist, I can't vouch for the authors' assumptions about average infectiousness. Obviously, implementing such a scheme out of the blue would present formidable challenges even assuming competent political leadership.

Wednesday, May 13, 2020

Reopening Isn’t Reopening—It’s Cutting Off Unemployment

Donald Trump, cheering on his “warriors” who demand that states lift their lockdown and distancing orders (where they have them), would have you believe this is about bringing the economy back to life so ordinary people can get their jobs and normal lives back.  Elitist liberals who work from home and have country estates to retreat to don’t care, but “real” people do.

The reality is different.  The shuttering of stores, restaurants, hotels and workplaces didn’t begin with government orders and won’t end with them.  If the rate of new infection and death is too high, a lot of people won’t go along.  Not everyone, but enough to make a huge economic difference.  Ask any small business owner what it would mean for demand to drop by 25-50%.  Lifting government orders won’t magically restore the economic conditions of mid-winter.

So what’s it about?  Even as it makes a big PR show of supporting state by state “liberation” in America, the Trump administration is advising state governments on how to remove workers from unemployment insurance once orders are lifted.  Without government directives, employers can demand workers show up, and if they refuse they no longer qualify.  And why might workers refuse?  Perhaps because their workplaces are still unsafe and they have vulnerable family members they want to keep from getting infected?  Not good enough—once the state has been “liberated”.

How should we respond to this travesty?  First, of course, by telling the truth that an anti-worker, anti-human campaign is being conducted under the guise of defending workers.  If the Democrats weren’t themselves such a tool of business interests we might hear that narrative from them, but the rest of us are free to speak out and should start doing it, loudly, wherever we can.

Second, one of the laws of the land is the Occupational Safety and Health Act of 1970, which gives workers the right to refuse imminently hazardous work.  This hasn’t been used very often, nor is there much case law around it, but the current pandemic is a good reason to pull it out of storage.  If there are public interest law firms looking for something useful to do during distancing, they could advertise their willingness to defend workers who need to stay home until work is safe—while still getting their paycheck.  If employers thought the choice was between public support for workers sitting out the pandemic or their support for them we might hear less about “liberation”.

How Likely Is A Second Wave Of SARS-CoV-2?

Dr. Anthony Fauci has testified before a Senate committee that he is worried that there may be a serious "Second Wave" oof the current SARS-CoV-2 pandemic in the United States.  The basis for this fear is the experience over a century ago with the Spanish flu, still deadlier than the current pandemic.  It came in three full waves, and of those the second was easily substantially larger than the other two.  The lag between the first and second was several months, and as of now no nation that has had its first wave essentially ger under control has not had it under control for as long as that gap. So we are not yet in a position to see if this pandemic can or will imitate that former pandcmic.

Nevertheless, there is some evidence about the possibility of more immediate, less dramatic, second waves in the form of the number of new cases in a nation rising noticeably after having had a major decline from an initial peak.  We have now seen this in a number of nations, in a small number quite dramatically.  What is the current situation regarding this?

On May 11, the site showed graphically the time path of  new cases per day for 99 nations.  This group divides these nations into three groups: "Winning" (32 nations) that have basically gotten their numbers well down, with a few exceptions; "Nearly There" (31 nations) that exhibit a variety of patterns, although nearly all currently below their peak by some; and "Need to Take Action" (36 nations), most of which simply are steadily moving up, although a small group have flattened (includes Moldova, Philippines, Poland, Romania, Sweden, and UK) or are slightly declining from a peak (including Ecuador, Finland, and US).

Out of each of these groups there are minorities that have exhibited seeing a noticeable upturn in the number of cases after noticeably declining from a peak, with some of those only showing a modest upturn, but a smaller group showing a substantial such upturn of moving back up at least halfway towards the previous peak, with a very small number actually moving back up above the previous peak.   I shall note these particular set, but note that out of the 99 total, 16 have shown such a noticeable secondary increase, and out of those 7 that have exhibited a large such increase, with two of those moving back up beyond the previous peak.  Who  are these?

From the first group of nations, the ones supposedly "Winning" there are five that have moved up, with two of those having done so substantially.  Those moving back up by small amounts are Croatia, Lithuania, and Vietnam, while those moving up a lot, both of them on the order of halfway back to the previous peak are Jordan and Lebanon (I am not sure why these last two are in this first group).

From the second group there are 7 that have shown some second uptick, with 3 of those more substantially so. Those first 4 are Bosnia, Costa Rica, Niger, and North Macedonia, while the 3 that have moved back substantially are Burkina Faso and Kyrgyzstan, both moving up about halfway, and San Marino, the natoin with the highest per capita rate of cases of all nations and that saw a decline of nearly half that was then followed by an increase that went above the first peak but has since been declining again.

Out of the final group, "Need to Take Action," there are 4 that have seen an increase after a peak, with two of those showing substantial secondary upticks.  The first 2 are Iran and Singapore while the latter 2 are Azerbaijan, now back up to about half its former peak, and Iraq, which has moved back up itss former peak again.

Aa a broader perspective on all this I close by noting that a substantial portion of the world's 10 most populous nations are not only in the final group that need to take action, which included the US that is mildy declinging, they are simply rising solidly with little sign of flattening, with this group including Bangladesh, Brazil, India, Indonesia, Mexico, Nigeria, Pakistan, and Russia.  Clearly this pandemic has a serious way to go, even if we luck out and avoid any really enormous second waves on the scale of the Spanish flu's one, which we have not yet seen out of any nations so far.

PS: I note that Germany, Lebanon, Singapore, and South Korea have all reimposed some previously lifted lockdown rules, even though the secondary outbreaks in two of these do not even show up in this data set (Germany and South Korea).

Barkley Rosser

Saturday, May 9, 2020

The 75th Anniversary Of VE Day: Forgettable Or Boring?

My wife, Marina, as many of those reading this know, is from the Soviet Union, and takes extremely seriously the anniversary of the victory of the Soviet Union and its allies over Nazi Germany, which became official at 10:45 PM in Berlin on May 8, 1945, which was 12:15 May 9 Moscow time. So, while all of the rest of the world celebrates VE Day on May 8, now in Russia today is Victory Day, as it is called everywhere outside the US, although I just saw a clip from the day itself in London where Winston Churchill declared that what had happened was "Victory in Europe," although while UK did play a minor role in subsequent events in the Pacific, aside from the US for the rest of the allies VE Day was simply Victory Day in Europe.

So, yesterday in UK there was a flyover of planes in celebration of this anniversary, somehow according to the radio report I heard putting out red, white, and blue colors in the  sky. Is this for the US helping out with D-Day? I do not know.  The only other public demo on May 8 I am aware of was Donald Trump meeting with some WW II vets, all reportedly over 95 years in age, with neither  him or any of them for the photo op wearing a face mask, despite the fact that the White House has suddenly become a new epicenter for the coronavirus.

The following nations have a public holiday for May 8 relatd to the victory of the Allies over the Axis powers in Europe: UK, France, French Guiana, French Polynesia, Martinique, Saint Martin, Guadeloupe, Gibralter, New Caledonia, Czech Republic, and Slovakia, which really boils down to three nations at the end of WW II, UK with some associates, France with a lot of associaates, and then the former Czechoslovakia, now slit into two.  Nontrivially, Ukraine today has May 8 not a public holiday, but it is a Day of Peace and Reconciliaton, which is suupposed to be recognized.

In the US VE Day as it is still called since for us the war with Japan was more important then, and now that we got done with this distraction in Europe it was now time to get to real business to defeat Japan, well...  So, VE Day is below Pearl Harbor Day, D-Day, and VJ Day (Aug, 15) in the general veiw  of Americans.  As it is, none of these are public holidays, but then, we only lost about a half million or so in the war, well underthe deaths in our Civil War, and also a number well under that who died in Leningrad, now St. Petersburg, during the long siege it suffered thanks to Adolf Hitler.

More of the "nations" listed that have public holidays on May 8 are France-related. But unlike Britain with Churchill and all that, for France ultimatlely this holiday is not one they want  to emphasize given their embarrassing history of having been defeated by Germany and then having the awful Vichy regime and all that, which they have still barely gotten over.  Sure, Aug. 1944 de Gaulle pushed the Grmans out of Paris, with lots of support from US, UK, and Canada, so, well, not all that triumphant, and I checked: no  big celebration there on May 8.  For them the big one is the prvious war, WW I, which they unequivocally won, Battle of Verdun and all that.  On Nov. 11, now Veterans Day in the US (well, sorry, the nearest Monday for commercial reasons), they have aserious military parade up the Champs Elysses with the French president utlimately bowing before the flame of the Unkown Soldier under the Arc de Triomphe.  I have actually observed these events more than oncein the days when Jacques Chirac was the French president, and these French displays are apparently what has gotten our pathetic POTUS wanting same here.

Anyway, in the end, the French made no big  deal about this day, and very few nations did as well, aside from the jet overfly in Britain, where rhey take it pretty seriously still.  In the US Trump's embarrasssing meeting with some old vets from WW II barely made any news.  The matter here at least is forgetable, and likewise in most of the world.

But there is one place where that is not true and has not been ever since 1945, the former Soviet Union, and its main successorussia, although as noted above for them Victory Day is today, while I am now writing, May 9. In the Soviet period the whole long week between the Workers Day, May Day, and Victory Day, May 9 was a total national holiday. But now May Day has been downgraded and the long holiday has been long gone in Russia. But in the recent years Victory Day, May 9, has been increasingly emphasized and celebratred.  Especially since he annexed Crimea and thus brought down on Russia western sanctions, Putin has puffed up this celebration with massive military parades and presentations, with a side aspect of this a revival of Joseph Stalin, the victor in the end of that war.

So this year was supposed to be his utimate presentation. On April 22 there was supposed to be a referndum on a new Russian constittution that would allow Putin to run again in 2024 for two more 8 year terms. But, oh, a pandemic hit and the vote has been put off. Like his pal in Washington, Putin initally dismissed and ingnored the invading virus, although has since put in place a much more severe regime of lockown than anything going on anywhere in the US. But in the last fes days the infection rate has soared wildly out of control in Russia with daily figures of new infections exceeding 10,000 per day, one of the highest rates in the world.

Well, tsk tsk.  So, Great Leader Putin had been planning and builuding up towards this grand event that was supposed to succeed his elevation to essentially lifetime leadership like his neighbor in China has, Xi Jinping.  But, oooops! The humongous and super grand beyond anything ever seen before, even beyond the shows in Paris that set Trump drooling, was planned to happened today in Moscow on this, the 75th anniversary of their great victory over Hitlerian Germany. But no show.

And it was a great victory, maybe the greatest in all of world history. Nothing else remotely compares. At Yalta it is reported that a reason FDR and Churchill did not push back too hard against Stalin, aside from the hard fact that the Red Army was already sitting in much of Eastern Europe (and especially in Poland), they were aware that something like 26 million Soviet people had died as a result of Hitler's invasion of that nation, with their numbers of dead not even in the same order of magnitude.  Many Americans ignorantly think that it was D-Day that did Hitler.  No, it was Stalingrad, the bloodiest single battle in all of world history with over a million dead, followed by the battle of Kursk, by far the largest tank battle in history, after which it was all over, with D-Day basically a sideshow to make sure that 1814 would not be repeated, a time when Russian troops did get to Paris after Napoleon's failed invasion of Russia, which led to Russian soldiers demanding drinks, "bistro, bistro!" which French entreprneurs responded to, giving us the bistro.

So, with the possible aside from the flyover in the UK, most of the world outside of Russia has come to view VE Day as forgettable. The remaining vets are indeed over 95 and few in number, and the rest of us, especially in the US, have many other things on our minds. It is forgettable and has been forgotten.

The situation in Russia is more complicated, given the recent focus and buildup related to it by Putin.  That the great celebration is not happening is clearly frustrating for Putin. But the word in various rceenteports has been that he is "bored," although I doubt that is really accurate.  Anyway, just as he was about to imitate Xi and grab lifelong power, the nasty virus showed up, and  while imitated Trump and other authoritarian idiots around the world in initally ignoring it, eventually it blew up in his face and now Russia is shut down, no vote for his supreme leadership, and no massive three quarters of a century celebration of Victory Day.  Instead reportedly he has disappeared from public view, hiding in his dacha while nameless underlings deal with the pandemic.  It is not his problem. By mnay reports he is "bored."

Barkley Rosser

Friday, May 8, 2020

What Is the Shape Of This Cyclel As A Letter: V, L, W, J, U, Or Maybe A Lazy J or Wiggly W?

For some time now it has become commonplace for people to describe business cycles by how they resemble one letter or another, although obviously this amounts to a lot of handwaving. But it does provide bright images.  Thus Trump and crew seem to believe that the US will experience a V recovery, one that will boom up as rapidly as it fell down, so the sooner we can reopen America the sooner he can get that boomy uptrun to guarantee his reelection. Somehow he fails to understand that if he gets it going too soon, the uptrun is more likely to get sideswiped by a serious Second Wave of the coronvirus tht would turn the upturn back into a downturn, making it into a W, or if, as I suspect, given that the douwnturn we have just seen pushing the unemployment rate upo 10% in two months is truly unprecedented so that the upturn will not be all that fast, the outcome will not be a neat W, but a Wiggly W.

Use of letters is recent, but debates on the shapes of macro fluctuations is very old, dating back into the 19th century.  Up until the 1930s, nearly all the discussion focused on "commercial crises" generating sharp downturns that then were asymmetrically followed by slower upturns.  This was still the view in 1913 when Wesley Clair Mitchell of the NBER and Columbia published his Business Cycles, coining that term.  I have been recently over on Econbrowser taken to describing such a pattern as a "Lazy J."  Think of a J but then tilt it to the right so its upslope gets flatter until it is flatter than the downturn.  I think this is what we are going to see now in the US, although it could turn into a Wiggly W.

In the 1930s, driven by Mitchell associated at the NBER, it became conmon to use sine curves to describe business cycles, so symmetric, and if one cuts one off at the inflection points going down and up, somethign that looks like a U.  Over on Econbrowser, Jeffrey Frankel recently posed that the current situation might end up looking like a U, although I doubt it.

After WW II it looks like quite a few fluctuations actually had more rapid upswings than downturns, asymmetric but in the opposite direction of a Lazy J, more an alert proper J, with a rapid upturn.  Over on Econbrowser David Papell posed something like this, although I really see no likelihood of a more rapid upturn to follow this massive downturn we have just seen.  This just seems out of the question.  My Lazy J looks more likely.

We have also seen some that do look like the V that the Trump gang hopes for.  Probably the most obvious and impressive candidate would be the fluctuation that bottomed out in 1982 under Reagan with an unemployment rate ovet 10%, higher even than the peak in 2009 during the Great Recesson.  After the deal was cut between Volcker and Baker for no more tax cuts in return Volcker would end his high interest rates after visiting and incoming Mexican Finance Minister Jesus da Silva threatened to default on Mexican debts to New York banks bearing those high interest rates, the evonomy zoomed back upwards through 1983, giving Reagan his "Morning in America" to run for reelection on, taking 49 states, certainly what is the hoping gleam in Trump's eye for now.

Then we have candidate L. Near as I can see the US has nver shown suvh a pattern, but recently John Cochrane was out there posing it as a possibility and claiming that was what we had during and aftwer the Great Recession.  We certainly had the sharp decline upfront, but an L suggests that the economy then does not grow at all, simply lies flat.  We may have seen such a pattern in Mexico after the 1982 debt crisis and maybe also in Japan in the 1990s after its debt crisis.  But in the US we saw growth ranging from 1.5 to 3% annually following the turnaround, certainly not a flat line, although the "no growth" story fits ongstanding GOP propaganda repeated by Trump regarding the performance of the economy under Obama, even though the growth rates after he came in were not noticeably superior to those under Obama.

As it is, what happened then looks like a throwback to the 1800s, and maybe also the most likely scenario now if we avoid another near term downturn, an asymmetric pattern of a sharp downturn followed by a much slower upturn, in short the Lazy J.

Barkley Rosser

Thursday, May 7, 2020

RIP John Horton Conway

I am late to issue this RIP as John Horton Conway died on April 11, 2020, having been born in England, Dec. 26, 1937. He died of coovid-19.  I was aware of his death when it happened, but have since become aware of things he did that I did not know about that have pushed me to post this.

Conway was one of the world's best known mathematicians, most famous for creating the Game of Life a half century ago in 1970, which was publicized by Martin Gardner in Scientific American.  It is what I knew of him mostly about, as the canonical cellular automata model that generated simulation modesl capable of generating chaotic and unprredictable emergent outcomes within a Turing complete framework, the sort of thing that goofy complexity theorists like me salivate over.  However, it inspired similar models that have been used in nearly every science, and I am quite sure that such models are being used in the current research push to find a vaccine for the disease that did Conway in.  It was an enormous achievement and enormously useful.  He deserves  recognition for this alone.

I never met him or even saw him speak, but by all accounts he was highly extroverted and lively to the point of becoming at least for awhile "the rock star of mathematics."  Not unrelated with that he invented an enormous array of games, none of which I have ever played, but apparently he would invent them on the spot as he  interacted with people he met.  Of course in some sense the Game of Life is a kind of game, and Conway himself on more than one occasion claimed that doing mathematics is fundamentally a game.

I had known that he did a lot of work in other areas of math, but had not really checked it out in details, but have recently become more aware of just how widely across math his work varied and how important and innovative so much of it was.  I shall not list all these areas and theorems and discoveries as it is a long list that will probably be meaningless to most of you if it is just put out here, but anybody who wants to see a pretty complete version of it, well, his Wikipedia entry provides a pretty thorough one.

Anyway, I shall talk a bit more about a couple of the more out there high level stuff that relates to things that my father and I have long been interested in.  My late father was a friend of the late Abraham Robinson and someone Robinson consulted with at length when he developed non-standard analysis, presented in a book of that title in 1966.  Non-standard analysis allows for the existence of superreal numbers that have infinite values, real numbers larger than any finite real number.  The reciprocals of these numbers are infinitesimals, numbers not equal to zero but smaller than any positive real number.  These are ideas originated by Leibniz when he independently invented calculus, and allowed for viewing derivatives as ratios of such infinitesimals, an essentially more intuitive way of doiing calculus.

This extension of real numbers into transfinite and infinitesimal values led to further expansions of what might be numbers, with a further extension being hyperreal numbers that can be constructed out of the superreals.

Then in 1979 Conway would push this even further by conceptualizing surreal numbers, an even broader set that includes within it all of these sets, reals, superreals, and hyperreals.  To give an idea of how one constructs these numbers one should think in terms of numbers represented by their decimal expansions, which are in effect sums of ever smaller numbers, although in the case of a whol number, the numbers added after the first one are all zero.  In any case, for surreal numbers these numbers that get added in the equivalent of the infinite decimal expansion can include powers of infinite and infinitesimal numbers, which can lead to an incredibly array of pretty strange numbers, think something like "infinity plus one," hence deserving the name, surreal numbers.

Another concept he coined, and which reportedly occupied much of his attention in recent years, is that of the Monster group, a name Conway coined (it  is also tied to monster moonshine, with the "moonshine" part reflecting how "crazy" all this is, according to Conway).  I confess that this object, whose existence has been proven, is something I do not fully understand, although apparently really understanding it was what had Conway so occupied.  It is really very complicated.

So, drawing on a lot of ideas in abstract algebra, thi object is a group constructed out of 26 classes of algebras, collections of ordering functions and numbers and relations, finite and infinite, that have important connections with each other and that somehow in total cover the complete group of these mathematical structures.  Something Conway did in 1981 was to calculate the dimensionality of the space that this object exists in, which happens to be 196,884. Indeed.

OK, this sounds indeed like something verging on lunacy, if not outright total lunacy, monster moonshine indeed, something of no use whatsoever.  However, it turns out that maybe this monster is not as totally useless as it might seem.  In 2007, leading string theorist Edward Witten wrote a paper that suggests that in fact this Monster Group may actually be useful in understanding string theory.  Sorry, I am not going to try to explain how this might be or is the case, but there it is: this incredibly complicated idea to the point of total mind-blowing may in fact have an application to understanding the deepest structures of the physical world, as string theory is the leading approach to Grand Unified Field Theory of the universe.

So, while the Game of Life probably has more practical uses and applications, and is certainly a whole lot more accessible and comprehensible, Conway also has been operating at some of the most esoteric and difficult limits of mathematics, with some of the most difficult of all to understand may well have practical applications as well.

So, RIP, John Horton Conway.

Barkley Rosser

Tuesday, May 5, 2020

A Very Grey Swan

Keynes and Knight famously simultaneously in 1921 identified the concept of fundamental uncerainty as a situation not understandable by using a probability distribution, an idea popularized by Nassim Taleb just as the 2008 crash happened as a "black swan."  Taleb defined white swans as situations describably by Gaussian normal distributions.  For situations not full uncertainty or white swans Taleb coined the idea of "grey swans," situations exhibiting "fat tails" and more generally lots of extreme outcomes, but yet possibly describable by probability distributions allowing more readily extreme outcomes.

I think this is what we are dealing with, although I claim no special expertise here.  Indeed, for me the issue is whether or not this current pandemic actually a black swan of fundamental uncertainty rather than "just" a very grey swan.  The reason it is the latter, despite the highly unusual outcomes on both health and economic outcomes, is that large numbers of experts have been warning for several years that we were facing with high probability a serious pandemic.  The current administration has in fact been officially faced scenarios not all that different from what has happened.  Among those is a largely ignored study in the president's own Economic Report for last year, where economists at the largely ignored CEA made such a study.  But, heck, who in this administration reads the Economic Report of the President, hahhahah!?

So, beyond my wisecracks, a very hard fact is that we do not yet really understand the statistical dynamics of this particular virus.  There is a lot more unexplained noise going on, which manifests itself at a superficial level in the wildly changing official projections of what is to come. To pick the greatest extremes, at one point our POTUS declared that while there were 15 cases in the US, this number would soon go to zero, but than not all that long later same individual at one point suggested, based on a model, that  deaths in the US could be in the millions.  But those numbers hae since been cut way back. But since then we have seen these forecasted numbers going all over the place.

In any case, I am struck by how much bizarre noise there is in all this.  So to get personal where I live, Harrisonburg, VA is a hotspot: with a 50,000 population we have 485 cases and over 20 deaths.  A city 25 miles to the southwest I once lived in and only slightly smaller, Staunton, has a whopping 14 cases and zero deaths so far.  I can think of many similar cases.  Why  has Greece had very few cases while fellow Med nations Italy and Spain have been among the hardest hit on the planet?

I think it was Einstein who said that the more we know, the more we understand how little we know.

Barkley Rosser

Monday, May 4, 2020

Potential Pricing for Remdesivir

The FDA has approved Remdesivir for emergency use and Gilead Science will denote its current 1.5 million vials, which could potentially treat 300 thousand patients as it takes 5 to 10 treatments per patient. The WHO wants more Remdesivir:
The World Health Organization said Monday that it will speak with the U.S. government and Gilead Sciences on how antiviral drug remdesivir could be made more widely available to treat Covid-19 as data of its effectiveness emerges.
At some point we will need to consider pricing. This report considers two approaches with the first being to price at the economic cost of production:
For remdesivir, we used evidence on the cost of producing the next course of therapy from an article by Hill et all in the Journal of Virus Eradication (2020). Their methods sought to determine the “minimum” costs of production by calculating the cost of active pharmaceutical ingredients, which is combined with costs of excipients, formulation, packaging and a small profit margin. Their analysis calculated a total cost of producing the “final finished product” of $9.32 US for a 10-day course of treatment. We rounded that amount up to $10 for a 10-day course. If a 5-day course of treatment becomes a recommended course of therapy, then the marginal cost would accordingly shrink to $5.
In other words, $1 per vial. The report also estimates a value based price known as Cost-Effectiveness Analysis:
In this preliminary modeling exercise, remdesivir extends life and improves quality of life versus standard of care. In public health emergencies, cost-effectiveness analysis thresholds are often scaled downward, and we feel the pricing estimate related to the threshold of $50,000 per incremental qualityadjusted life year (and equal value of a life-year gained) is the most policy-relevant consideration. In the case of remdesivir, the initial ICER-COVID model suggests a price of approximately $4,500 per treatment course, whether that course is 10 or 5 days
In other words each patient would generate $4500 for the course of the treatments. Even if we assume 10 vials per patient, that comes to a price equal to $450 per vial. Someone call Dean Baker as he might want to write another one of his classic condemnations of the patent system. While I agree with the WHO on their call for an all hands on deck on getting this treatment produced and given to the patients who would benefit the most of this treatment, the policy debate over pricing should begin immediately. Update: Gilead Sciences is serious about ramping up production:
Gilead is in discussions with some of the world’s leading chemical and pharmaceutical manufacturing companies about their ability, under voluntary licenses, to produce remdesivir for Europe, Asia and the developing world through at least 2022. The company is also negotiating long-term voluntary licenses with several generic drug makers in India and Pakistan to produce remdesivir for developing countries. Gilead will provide appropriate technology transfers to facilitate this production. Finally, the company is in active discussions with the Medicines Patent Pool, which Gilead has partnered with for many years, to license remdesivir for developing countries. To further facilitate access in developing countries during this acute health crisis, Gilead is in advanced discussions with UNICEF to utilize their extensive experience providing medicines to low- and middle-income countries during emergency and humanitarian crises to deliver remdesivir using its well-established distribution networks.

Saturday, May 2, 2020

Planet of the Humans: A De-Growth Manifesto

Planet of the Humans, directed by Jeff Gibbs but featuring Michael Moore as its “presenter”, has been viewed by almost five and a half million people since it popped up on YouTube last month.  In case you haven’t heard, it’s quite a provocation, and the response from almost every quarter of the environmental movement has been outrage.  It traffics in disinformation and scurrilous personal attacks, they say, and I can’t argue.  Two big problems: it falsely claims that more carbon is emitted over the lifespan of a photovoltaic cell than by generating the same energy through fossil fuels, and it uses dishonest editing techniques to portray activist Bill McKibben as having sold out to billionaire ecological exploiters.  You can read about the misrepresentations elsewhere; my point is that, whatever else it is, the film is a logically consistent statement of the de-growth position.

Alas, much of the “left” has concluded that the chief obstacle to meeting our climate and other environmental challenges is the “capitalist” faith in economic growth.  Capitalism requires growth, they say, and growth is destroying the earth, therefore we must abolish capitalism and embrace de-growth.  Anything less is a sellout.

This philosophy is central to Planet; twice (at least) Gibbs proclaims, “You can’t have endless growth on a finite planet.”  He shows charts depicting human population and consumption growth that portray us as a metastasizing cancer.  Early in the film, when he’s setting the tone for what’s to come, he asks, “Is it possible for machines made by industrial civilization to save us from industrial civilization?”

But movies are not just words; they make their arguments visually as well.  Planet has horrific scenes of mining and logging, as well as speeded up, frenzied shots of manufacturing, warehousing and shipping.  It ends with heartbreaking footage of doomed orangutans amid a wasteland of deforestation.  The message is clear: human use of nature is a travesty, and any activity that imposes a cost on Mother Earth is immoral.

There are two fundamental problems with this worldview.  The first is that it is based on the mistaken idea that all economic value derives from the despoliation of nature, the second that it can’t be implemented by a viable program.  Let’s look at each.

While Gibbs is the director and narrator of the film, its guru is one Ozzie Zehner, not only interviewed on camera as an expert but also, remarkably, its producer as well.  Zehner is the author of a book entitled Green Illusions, and he has drunk deeply from the de-growth Kool Aid.  In an article he wrote a year after his book, he announces
The cost of manufactured goods ultimately boils down to two things: natural resource extraction, and profit. Extraction is largely based on fossil-fuel inputs. Profit, in this broad stroke, is essentially a promise to extract more in the future. Generally speaking, if a supposedly green machine costs more than its conventional rival, then more resources had to be claimed to make it possible.
There it is, quite directly: economic value equals resource use.  Truly, this can only be called an anti-labor theory of value.  If I see two chairs in a store, one for $60 and the other for $600, the second has to consume about ten times the resources of the first—as if human skill, knowledge and care have nothing to do with it.  Crazy, but that’s what you have to believe if you think that the only way to reduce our burden on nature is to de-grow consumption.  (The alternative, of course, is to replace the degradation of the natural world by an expansion of the application of human skill, knowledge and care.)

Meanwhile, the attack on renewable energy, anti-factual as it is, is of a piece with this deep-seated hostility to “industrial civilization”.  If economic production is the enemy, then how can green energy technologies, which embody this production in themselves and allow us to continue consuming energy-using products, be OK?  There has to be something wrong with them, and mere evidence can’t be allowed to get in the way.  Imagine trying to make a movie along the general lines of Planet without these attacks on wind and solar installations.  Can’t be done.

The other problem is that, aside from economic catastrophes like the 2008 financial crisis and the current coronavirus shutdown, there isn’t a way to implement the de-growth “program”.  And that’s what we see in the movie, too.  At the end, as we stare at those soulful orangutans, we feel a load of guilt but no sense of what we can do about it.  If the underlying problem is too many people, who among us should be chosen for extermination?  Or if it’s too much consumption, who will be made to cut back and what will they have to give up?  Or is there no program at all but just a mood, apologetic for who we are and how we live?

The worst thing that can happen to an irrational idea is for it to be taken seriously and followed to its conclusions.  That’s the fate of de-growtherism and Planet of the Humans.

Friday, May 1, 2020

Donald Trump Goes Absolutely Bonkers Over China

Yesterday President Trump erupted with a series of demands and threat against China, focusing on various claims about its role in the current pandemic.  I have here noted some issues with China's conduct, but Trump makes it completely impossible that there will be any of the much-needed cooperation between the US and China to overcome this virus.  He has gone absolutely bonkers.

He has now threatened to remove China's sovereign immunity so people can sue it, with a former lawyer of his organization, George Sorial  now of Berman and Associates, cooking up a class action suit against China; a threat to stop paying interest on US bonds held by China, which he probably will not do because it occurs to him that this default on the US national debt might "damage the sacred standing of the dollar" duh; and finally to impose yet more tariffs on China, a threat that promptly sent the stock market plunging after several days of rising, although we know he really likes putting tariffs on China. Probably the first of these would be the least harmful and the most likely he will do, very noisy but not amounting to too muc in the end as China will just ignore it.

I note that in this press conference he claimed that he has seen intelligence showing a "high probability" that the virus came out of a Wuhan lab.  So far no other sources have said that, although by all reports that possibility has not been ruled out.  But by this almost certain lie Trump has almost certainly killed any remaining chance that China might cooperate with the US on really determining the ultimate origin of the virus, something that would be scientifically and medically useful. It may be that this origin will be discovered, but it will not be through such cooperation.  It is completely reasonable that China will resist something they perceive as possibly leading to them being denounced and sued.

My own theory as to what triggered yesteeday's outburst is that he reportedly blew up at his campaign chied, Brad Parscal, onWedneday when Parscale reportedly showed him serious polls showing him losing to Biden in most of the swing states. He apparently was yelling and using the "f word."  of course public polling has been showing this for a long time, but Trump has apparenly up until Wednesday simply ignored or written off such polls.  In any case, this going after China big time and hard looks to me to be his response to these bad polls, a desperate attempt to regain an electoral edge by an aggressive foreign policy, one that is potentially very dangerous and damaging in this current situation, which apparently some of his economic advisers understand.  But he is reportedly now leaning to his national security hardliners like SecState Mike Pompeo.  This is not at all good news.

Barkley Rossr

PS: Happy May Day everybody!

RIP Robert May

Robert May died on April 28 at age 84 of unreported causes.  He has been described as "the grandfather of chaos theory," which I think exaggerates, but he was the second person to adopt the term after James Yorke first applied to a porticular type of irregular nonlinear dynamics subject to the "butterfly effect" of sensitive dependence on initial conditions (butterfy effect having been coined by the late Edward Lorenz to climate modeld, a reason we cannot make weather forecasts beyond a week or so usually), well ahead of May's work.  But May was one one of the most influential people working on chaos theory as well as many other important dynamical issues in a variety of disciplines, including ecology, medicine (he modeled pandemics), as well as economics and finance.

From Australia originally, he ended up in Britain where he served as Chief Science Adviser 1995-2000, which got him knighted in 1997, then made Baron of Oxford in 2000, and then an Order of Merit in 2001.  He has been pretty much universally admired, and his work has long been influential on mine as well as on that of many others, even predating my interest in chaos theory when I read his work on dynamics in ecosystems, which has been highly influential and original.

Probably his most famous paper, in which he was the first to suggest that chaos theory might be applicable to economics, along with many other disciplines, was "Simple mathematical models with very complicated dynamics," Nature, 1976, 261, 471-477.  May he rest in peace.

Barkley Rosser