Saturday, January 16, 2021

The Fallacy of the Heap Returns

The (il)logic of Obamaeconomics has returned:

  • Each $100 of weekly unemployment bonus has hardly any negative effect (some might say "no statistically significant effect") on employment or GDP.
  • Food stamp benefits have hardly any negative effect on employment or GDP.
  • Rental assistance has hardly any negative effect on employment or GDP.
  • Obamacare subsidies have hardly any negative effect on employment or GDP.
  • Minimum wage increases have hardly any negative effect on employment or GDP.
  • A new negative income tax has hardly any negative effect on employment or GDP.
My writings rarely express disagreement with any of the bullets by themselves.  For the sake of argument, I am not disputing them here.

Where I disagree is the assertion that the combination of all of the bullets, which is Biden's pandemic relief proposal, would have hardly any negative effect on employment or GDP.  We could talk about the convexity of deadweight costs, and the fact that the new redistribution goes on top of a lot of redistribution in the baseline, but this point was well known even among the noneconomist ancients.  It is the fallacy of the heap.

Every Econ 101 teacher has to confront this fallacy.  Invariably every class has a student pushing back on the law of demand, "Raise the price of a car by a penny and that will not stop anyone from purchasing the car."  Teacher has to say, OK let the seller of the car raise the price $10,000, just one penny at a time.  Each penny increase has no effect on sales ... therefore $10K has no effect on sales.

Economists  beware of vague predicates!  Biden's smorgasbord of redistribution will noticeably reduce employment and GDP.

Wednesday, January 13, 2021

Parler Competes Horizontally with Amazon, Apple, and Google?

Parler is a microblogging platform that was cut off from the internet by its web hosting service, Amazon.  Almost as drastic, Apple and Google took steps to prevent the use of Parler on their mobile operating systems.  Unlike Twitter, Amazon, Apple and Google do not describe themselves as microblogging platforms.  At first glance, these would seem to be vertical (i.e., supply chain) relationships with no potential to harm competition.  Wrong!

For brevity, I will not go into the competitive effects of vertical relationships; the recent guidelines jointly issued by DOJ and FTC are thought provoking.  I will also not go into dynamic effects, such as the possibility that Parler's success might ultimately prove to be complementary with "right wing"/"less woke" web hosting services that are obviously competing horizontally with Amazon Web Services (AWS).

My only point here is that an important market in the modern economy is the market for personal data.  Amazon, Apple, Google, Twitter, and Facebook profit immensely in this market.  By now everyone knows that Parler's business model involves "free speech," but if you used the service (as I have) you would be equally exhorted by the platform's attitude toward personal data.  "We never share or sell data. Privacy is our #1 concern.  Your personal data is YOURS" Parler tells its members.

If too many internet users hear and buy into this rhetoric, the incumbent harvesters of personal data -- including especially Amazon, Apple, Google, Twitter, and Facebook -- will pay more (perhaps in kind) and profit less.  From this perspective, AWS' action looks like McDonald's severing the electric lines going into Subway [sandwich] locations at a time when Subway was just gaining traction.

Whether Parler's data rhetoric is correct (I openly questioned it whereas Jaron Lanier predicted that the personal data conflict would flare up particularly among the middle class) is hardly relevant to its harms to big tech.  Analogy: How many employers would like to sponsor classes on Marxism?  Marxism, which paints employers as thieves, is wrong but it nonetheless could harm an employer if it were discussed too much.

The incumbent harvesters of personal data do not want even a slight ideological disturbance of their cash cow.  That looks like horizontal competition to me.

[update: Parler filed a reply today in Parler v. AWS.  The reply noted another type of competition between Parler and Amazon, which is related to the complementarity conditions noted in the vertical merger guidelines.  Specifically, Parler asserts that (a) Twitter is client of AWS and (b) AWS did mention termination of services, even on/after Jan 6, until it learned that Trump was banned from Twitter and thereby likely headed to Parler with millions of Twitter users.]

Monday, January 11, 2021

Updates on Parler's War with Big Tech

Amazon turned off Parler’s servers last night, disconnecting from the internet, and with it the social media accounts of almost 20 million people.

Parler CEO also reported (yesterday AM on Fox Business) that attorneys, email, and other suppliers are refusing to supply his company.  Although he said that transferring the company's software and data could be done in about 12 hours, today he wrote that "We will likely be down longer than expected" because of the time it takes to find vendors who are willing to supply the company.  Parler investor Dan Bongino said today that "Parler will be back by the end of the week."

The Jan 6 violence and lawbreaking was reportedly organized on Facebook, but Facebook continues uninterrupted.

I estimate that Parler has 20 million members (no bots), as compared to less than 60 million US accounts on Twitter.

This outrageous situation is best handled by the market, without government interference.  To the 20 million people temporarily disconnected, I say: do not be gullible enough to think that government bureaucrats or politicians represent your interests any better than the big tech employees.  Many of them have built followings on incumbent social media and do not want to work to build that again.  Any new regulations for social media will be written by allies of the incumbents.

[This is not an official Parler communication.  I have no financial interest in Parler.]

Saturday, January 2, 2021

White House Attitudes toward "Screening Agencies" (looking at you FDA)

The Food and Drug Administration (FDA) has been part of many conversations in 2020.  To the great frustration of tens of millions, it has to approve COVID tests and arguably applies the wrong (from economic and health perspectives) standards in doing so.  It is also tasked with approving COVID treatments and vaccines.  Vaccine approvals came much quicker than experts expected, although IMO not quickly enough.

With few exceptions, economists have “long been aware that the agency causes unnecessary deaths and suffering by” its “inexcusable delays in approval” (see esp. Klein and Tabarrok's collection).  Judging from 74 years of Economic Reports of the President, the White House has not traditionally given this issue much attention.  When the FDA does appear, the sentiment generally confirms that the approval delays are harmful and need reform.

Alan Greenspan's CEA was the first in 1975, when it included a paragraph about Sam Peltzman's famous study finding that the 1962 amendments were harming consumers.  A sentence of the 1977 ERP lamented further FDA bans.

Ronald Reagan's ERPs gave the issue more attention, and more bluntly.  "Screening agencies can dramatically affect the rate of innovation. A case in point is the Food and Drug Administration" it said in 1989, as part of a three-page section on the subject (pp. 218-20).  A sentence in the 1987 ERP noted how badly FDA regulation was failing cost-benefit analysis: "the average cost per life saved varies across regulations from as little as $100,000 for NHTSA's 1967 steering column protection rule to $132 million for the Food and Drug Administration's 1979 ban on diethylstilbestrol (DES) in cattle feed." (p. 183)

Both Presidents Bush included a sentence on the issue (1993 and 2001).  Consumer harms from FDA regulation was certainly top of mind for Mark McClellan, who was a member of the CEA at the beginning of the GW Bush administration until in late 2002 when he went on to head FDA.

Janet Yellen's CEA had a full chapter about regulation (Chapter 5 of 1998 ERP), especially climate change, which generally expressed the view that more federal regulation is needed.  Interestingly, five pages of that chapter express some sympathy for the view that FDA has overregulated.  It notes (p. 188) that FDA has been biased toward stopping "unsafe drugs that may cause injury or death" at the expense of "preventing sick people from getting more effective treatment."  The bias is especially questionable, it says, in the context of a life-threatening illness.

The historical context may be especially relevant to understanding ERP 1998: Yellen's boss President Clinton was dealing with a Republican Congress led by Newt Gingrich.  Both Republicans and AIDS advocates wanted to reduce FDA approval delays (the FDA review times for the AIDS treatments were still much longer than those under 2020's Operation WARP Speed), sponsoring the 1997 FDA Modernization Act that President Clinton signed.  The FDA would ultimately, as Scott Gottlieb put it, “steadily disregard[] many of the law’s provisions.”

I see only two exceptions in the 74 ERPs.  President Kennedy signed the Drug Efficacy Amendment that Peltman would later find to be so harmful.  The 1963 ERP characterizes the amendment as "protecting public health."

The second exception is the Obama Administration.  The 2012 ERP cites the FDA as a prototype of "a Smart Approach to Regulations."

By comparison to all previous administrations, President Trump's White House was arguably obsessed with FDA harms to medical innovation from the very beginning.  FDA critic Scott Gottlieb was immediately appointed to head the FDA.  The 2018 ERP had a full chapter about the health sector, half of which was about "Improving People’s Health through More Access to Medical Innovations" and "Encouraging Innovation, and Making It Affordable."  The 2019 ERP (p. 18) cites FDA deregulation as one of the highlights of the year, and devotes twelve pages to how FDA reforms increased competition and reduced prescription drug prices.  The same report also looks at the possible negative innovation effects of a proposed Federal ban on for-profit healthcare, which even Vox acknowledged as "a plausible downside."

The 2020 ERP updated the status of the FDA reforms in its chapter about deregulation, its chapter about healthcare, and its chapter about competition policy.  It also cited the new Right to Try law, and regulatory barriers to treating chronic kidney disease.  FDA barriers were part of the discussion we had with President Trump when he was signing the 2020 ERP (see the photo below).  He clearly indicated to us that his experiences with FDA so far would be helping him remove still more barriers.  (That promise was kept within weeks when Operation WARP Speed launched).  

Citing a pandemic vaccine study finished in September 2019 (sic), page 193 of the 2020 ERP estimated that "the cost of delay in vaccine availability in the case of a pandemic is $41 billion per week."  As White House senior staffer Joseph Grogan put it, the September CEA report was “was part of the intellectual foundation to the modernizing pandemic vaccine production executive order that [the White House] did along with Tony Fauci and NIH.”

[For context versus the current pandemic, note that the 2020 ERP went to the printer in early January 2020 and the writing stopped in early December 2019.  In late March 2020, knowing about the COVID-19 pandemic, I estimated that vaccine delay would cost just the U.S. as much as $136 billion per week].

Friday, December 18, 2020

How Economics Helped End a Pandemic


Last March Dr. Fauci explained to a Senate committee that “a vaccine … will take at least a year or year and a half” until it is administered to the general public. In his next testimony, he added, “I don’t give advice about economic things.”  If Dr. Fauci had paid more attention to economics, at least what had reached his own inbox in the prior year via the White House Staff Secretary, he would have understood how different vaccine development during a pandemic would be, and should be, from that in normal times.


Dr. Fauci was refering to the lengthy process that the Food and Drug Administration (FDA) has for approving drugs, vaccines, and medical devices for use in the United States.  Long ago a wide range of economists had concluded that the FDA process was too cumbersome.  In 1973, the University of Chicago’s Sam Peltzman concluded that the FDA cure was worse than the disease, “consumer losses from purchases of ineffective drugs or hastily-marketed unsafe drugs appear to have been trivial compared to their gains from innovation” delayed or forgone entirely due to the costs of getting FDA approval.


M.I.T. professor Peter Temin said that there should be “less [FDA] surveillance at the premarket level” because the approval delays were too long.  Even 25 years ago, as Emory professor Paul Rubin put it, scholars had “long been aware that the agency causes unnecessary deaths and suffering by” its “inexcusable delays in approval.”


During those 25 years, Congress took some steps to reduce approval delays, especially in 1997.  However, the FDA “steadily disregarded many of the law’s provisions.”  The tide started to change in the Trump administration, where there were at least some staff who suspected that government regulation is part of the problem rather than the solution.


Early battles centered on President Trump’s campaign promise to lower prescription-drug prices.  He appointed FDA commissioner Scott Gottlieb, who had been critical of FDA delays.  Trump’s economic team (where I participated as part of the Council of Economic Advisers or “CEA”) predicted that deregulation would reduce drug prices because reduced FDA barriers would result in more new drugs and more manufacturers of existing drugs competing for consumer dollars.  On the other side was Health and Human Services (HHS) Secretary Alex M. Azar II, who proposed a “drug-pricing blueprint” that would add regulations on everything from television advertisements to business-to-business price controls.


As Gottlieb’s boss, Secretary Azar had an advantage in that he could exclude Dr. Gottlieb from Oval Office meetings and potentially prevent the president from hearing how well the deregulatory approach was going.  But Larry Kudlow and others invited Dr. Gottlieb anyway and, more important, the data were on Dr. Gottlieb’s side.


CEA got the first progress report on January 10, 2019, with the confidential advance release of the Consumer Price Index (CPI) report for December 2018.  It showed that 2018 was the first year since 1972 that retail prescription-drug prices actually fell (even while consumer prices generally were increasing).  We composed a message to be posted on the President’s twitter account the next day.  But this message had to be approved by HHS, which was loathe to release something so contrary to its perceived “need for regulatory action” in the face of [purported] “prices of existing drugs [that] have been rising in the United States much more rapidly than warranted by inflation or costs.”


I convinced the President’s communications team that the CPI is reliable and is telling us something important.  The President would brag about the result in everything from impromptu press briefings to his State of the Union address.  Being results-oriented rather than ideological, he was noticing what administrative manuevers could remove FDA barriers to consumer welfare.


Although COVID-19 would not arrive in the U.S. for two more years, the National Security Council’s biodefense team asked the CEA to look at the economics of vaccine innovation during pandemics.  CEA concluded that “improving the speed of vaccine production is more important for decreasing the number of infections than improving vaccine efficacy” and emphasized the need for large-scale manufacturing and the possible advantages of public-private partnerships.


The CEA vaccine report prompted an executive order, also before the pandemic, noting that “viruses emerge from animals … that can spread efficiently and have sustained transmission among humans.”  President Trump concluded that “vaccination is the most effective defense.”  As two of Trump former senior staff members put it, “when COVID-19 emerged, the White House was ready and expeditiously applied the report's deregulatory and fiscal lessons to streamline FDA approval for vaccines and their parallel manufacturing on a large scale.” 


I was in the Oval Office with the president and his economic team in February (when COVID-19 cases were beginning to spread).  His staff was worried that the FDA would not be interested in removing any more approval barriers.  But the President was confident, telling us that “I’ve done it before and will do it again … bring the FDA management in here.”  President Trump initiated his Operation Warp speed, led by HHS, to give many private companies incentives for “speed and scale” of vaccine production and to give all companies the opportunity for streamlined FDA approval.


COVID-19 vaccines are now being administered to the general public at least six months earlier than Dr. Fauci expected.  The economists were correct that accelerating medical innovation is both possible and worth trillions of dollars to Americans.



Saturday, November 7, 2020

Look at Article II of the Constitution before Censoring Trump

Article II, Section 1 of the U.S. Constitution says [emphasis added], 

Each state shall appoint, in such manner as the Legislature thereof may direct, a number of electors, equal to the whole number of Senators and Representatives to which the State may be entitled in the Congress....
I am not a lawyer, let alone Constitutional scholar.  I welcome such scholars to engage and clarify what follows (suspecting that most of these scholars are currently retained by either Rs or Ds and therefore will not comment outside of legal proceedings).

My point in what follows is about free expression of reasonable ideas, which is a set of ideas that includes elements that may be ultimately rejected by the U.S. Supreme Court as valid legal arguments.  I am not using the term "reasonable" as a legal opinion because, to repeat, that is not my profession.

A reasonable assertion is that officials in the executive branch of the states, such as a Secretary of State certifying elections, are not part of "the Legislature."  On this premise, a reasonable person could refer to any meaningful election procedure established by the executive branch without the approval of the state legislature as "illegal."  Again, because passions are high, I must repeat that this is not a legal conclusion but a statement of what a reasonable person could say.

This reasonable statement could have been, and I suspect was, uttered before election day.  Furthermore, this reasonable person could have publicly directed Trump supporters not to participate in those procedures and instead participate in procedures that HAD been established by state legislatures, such as in-person voting and absentee voting (i.e., ballots specifically requested by voters, as distinct from "mail-in" ballots).

Now that Election Day has passed, we have enough evidence to reasonably assert, if not prove, that Trump got more in-person and absentee votes than Biden did in the swing states.  At the same time, it looks like Trump lost most of the swing states in terms of in-person + absentee + mailin.

Now let's look at four recent events in chronological order:

(1) Two days after the election, Trump claimed in a press conference that he won on "legal" votes.

(2) Trump said that the Supreme Court would likely be considering his argument.

(3)  Trump's legal-votes claim was immediately described by "impartial media" as "a lie without evidence" and reeking of fascism that must be condemned by all.  These impartial media further asserted that Trump had no path to the Supreme Court.

(4) Discussion or interpretation of Trump's legal theory was censored from Facebook, Twitter, etc., if it had any sympathy for Trump's argument.

I am disturbed by (3) and (4).  All people should be allowed to make their case.  Not everyone can be correct, which is why we have a court system.  The Supreme Court may reject Trump's legal theory, but until then (at least) he should be allowed to articulate it in public.

By no means is it acceptable for members of the American Economic Association, who are not legal experts, to require me or anybody else without legal expertise to "condemn" Trump's assertion of what is "legal" even before it has its day in court.  (Yes they are doing so; all, even nonexperts, who do not condemn are purportedly "accomplices.").

I understand that the President is not a random person and respect (not the same as agree with) the opinion that there "should" be tighter bounds on his speech than "free expression."  But (1) looks like a reasonable (not the same as correct) assertion, although it might have been better communication for him to explain what I have explained here rather than packing so much into the single word "legal."  (political communications are also not my profession).

Let me quote from some legal experts writing on this last month,

Kavanaugh endorsed in a footnote Chief Justice William Rehnquist’s view in Bush v. Gore that state courts are limited in their ability to “rewrite state election laws for federal elections” because Article II states that rules in presidential elections are to be established by state legislatures.

Might state executive branch officials also be so limited?  This is a reasonable question and it is premature to condemn Trump or anyone else for asking it.  Ironically, Democrats are asking exactly the same question about the U.S. Post Office.

[Although it is hardly relevant to the free-expression question, let me add that, like many of Trump's politically incorrect predictions, (2) will prove to be correct.  His argument (1) will be compelling to many nonexperts and therefore it is desirable for the Supreme Court to weigh in].

[I also support the free expression of "unreasonable" ideas, but that is not relevant here].

Wednesday, November 4, 2020

Canaries in the Coal Mine

Although we still do not know the winner of the electoral college, it is clear that the polls were systematically wrong in the swing states and several others.  Here is a recap, with links, of what we knew in advance but few dared discuss openly.


Election forecasting became an economics-free zone


I wrote about this last week:


(1) Better information-aggregation methods were showing less Biden lead and sometimes a Trump lead.


(2) The incentives for individuals to truthfully participate in polls were skewed relative to a neutral situation, and relative to 2016.  Incentives matter!


(3) The costs to individuals of participating in the election are different during a pandemic.  During this pandemic, perceptions of the new costs were correlated with party affiliation.


The forecasters were dismissing these economic insights.  That they used foul language and straw men rather than real argument and measurement was a telltale sign to somebody (me) who is an expert on economics but not on election forecasting.  There were exceptions such as Trafalgar – they cited some of the effects above and made better forecasts – but of course they were maligned for being different from the crowd.



Forecast errors were correlated over time, questioning their rationality


The June 2016 Brexit vote was an early notable case where educated people in big cities had no clue what their fellow citizens were thinking and made little effort to learn about it.  The British polls had been closed for hours before currency markets absorbed what happened.


The Obama Administration and most other Democrats were very slow to understand what happened around Brexit.   I tell the story in my book of “a conversation between a Laotian woman and Ben Rhodes (Obama’s speechwriter). Citing the British populist victory, the woman expects that candidate Trump will win. Mr. Rhodes confidently assures her that Mrs. Clinton will be the new president.”  People living on the other side of the planet knew better what was happening in the 2016 election than the “30 people setting the direction for the entire U.S. government.”


Back to British populism, polls indicated that there was no way that their leader Boris Johnson could form a majority coalition in the December 2019 election.  In reality, Mr. Johnson was getting most of the votes from areas of Britain that had long been solidly with his opponents.  No electoral victory in Britain since Thatcher had been as overwhelming.


Still in 2020 the conventional wisdom was that the populists would not surprise us again.  Any surprises would be purely random.



Companies with enough data to know acted like small things mattered


Twitter and Facebook have products that have overwhelmingly passed the market test, and they are free of charge!  Except that we pay with our personal data.  They know a lot about us as individuals and, especially, as a group.


In the weeks leading up to the election, these two companies tried to suppress the viewpoints of those on the side of our populist president, ranging from a Stanford professor to one of the biggest newspapers.  Why would Twitter particularly drive millions of consumers to its competitor?  Likely the company thought that the election was close enough that even small news stories might matter.



The Rallies


Trump was holding up to five massive rallies per day.  Biden rarely came out of the house and then to tiny crowds.  This difference was a signal from both sides of the market.  On the voter side, this was a more stark difference than in 2016.  On the campaign side, given that with 20-years-ago technology the Bush campaign knew that Florida was close and to have their candidate there at the end, we can assume that the Trump campaign knew that it was close in the places where Trump visited at the end (AZ, FL, MI, MN, NC, PA, WI).