1. Tyler Cowen continues to question the caliber of the practitioners of epidemiology. I would add that
–John Ioannidis in his classic work around 2005-2007 debunking published papers was particularly hard on epidemiological research.
–Robin Hanson was quickly able to point out the problem with treating R0 as a fixed parameter.
–I am frustrated that epidemiology is determined to rely on observational data rather than experiments
–I am frustrated at the eagerness to embrace computer models regardless of the faulty data and parametrizations.
Having said all that, I am also dismayed that laymen put such pressure on epidemiologists to make forecasts. Imagine if it was your job when you see a leaf falling from a tree 40 feet overhead to place your foot on the exact spot where you “forecast” that the leaf will land. As I pointed out when Dr. Fauci forecast between 100K and 240K deaths for the U.S. that this would require the number of deaths to double no fewer than 5 times and no more than 6 times. And this was when the 3DDRR was 2.0, which meant there was no way that such a narrow forecasting range was defensible.
2. A reader recommends that I re-link to a classic essay, lenders and spenders. It clarifies the problem with deficit spending.
3. Do you know about the phenomenon at the shore known as an undertow? On rare occasions at a section of a beach, a strong current will carry people out to sea. If this happens to you, the guidance I have read says that you need to swim parallel to the shore until you no longer encounter the current. Then you can make it back to land.
Think of the economic losses from the virus as an undertow. But instead of swimming, everyone is looking at a boat, the USS Government, where sailors from Congress and the Fed are busily tying ropes, with life preservers on one end and the railing of the boat on the other. The people in the water are each waving their arms and screaming “I need a life preserver. Throw one to me.” They are so frantic that the sailors think that the only way to keep order is to keep tossing more and more life preservers.
But there is a problem. The USS Government has a big hole in the bottom, called the deficit. It is likely to sink. And at that point a school of sharks, called inflation, will arrive on the scene.
We would have been better off swimming. There are some people who really could not swim to safety, and the better swimmers should try to pitch in to help them. But we should not be attributing so much capability to the USS Government.
2) Deserves a stand-alone post. But, I feel nostalgia being re-introduced to Sammy Spender and Lois Lender after all these years.
I think you mean “rip current” rather than “undertow”.
From wikipedia (Undertow):
In popular usage, the word “undertow” is often misapplied to rip currents. An undertow occurs everywhere underneath shore-approaching waves, whereas rip currents are localized narrow offshore currents occurring at certain locations along the coast. Unlike undertow, rip currents are strong at the surface.
https://graphics.reuters.com/HEALTH-CORONAVIRUS/yxmvjqywprz/index.html
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If you bet the reatment trials, this site has a good summary.
About half are tacking the macrophage flare up like this:
Monoclonal antibody approved for rheumatoid arthritis and also for treating the “cytokine storm” immune overresponse in cancer patients
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I would bet on these trials, where can I bet?
If one of these effort yields general method for cytokine storms then is leads to better results for a whole bunch of diseases. I would buy stock in a drug company that has promising research.
I posted this a few minutes ago in response to an earlier blog post, but since the above states, “And at that point a school of sharks, called inflation, will arrive, I’ll post it here too:
I believed every economist who guaranteed that the 2008-2009 financial crisis government deficit spending would inevitably lead to rampant inflation and then I watched as those same economists rationalized its failure to happen. I honestly don’t know what to believe now, but I appreciate humility in making any economic forecast.
We suffer deflation until we are broke. The inflation is a result of a compromise decision to allowr government default, devaluation. High debt by itself causes deflation.
When government has high debt the the central bank issues an implied tax as it returns gains back to government. That tax is a burden on retail prices. Transaction rate slows and people buy in larger bulk at smaller unit prices, home production actually. Amazon is a beneficiary of the effect, they shorten the chain to accommodate the implied fed tax.
E=It is a sudden developing spiral because government has no good estimate of future taxes as transaction become unobservable. Nor can government get a good estimate of future costs. Pricing quit work and we get a government default.
I think Tyler Cowen is coming to the realization he has been head.
However, Cowen cannot make an about-face without looking like he has egg on his face. He has assented to policies that wrecked an economy on behalf of wildly over-inflated claims about death rates.
Like US policy makers halfway into Vietnam, he wants an exit strategy that saves face and at least appears to justify horrendous losses.
+1
Does Tyler have enough chess moves in his repertoire to cover his tracks? We shall see, but not looking too good so far.
So, is Tyler, flying blind again or flying high again?
People think I’m crazy but I’m in demand
Never heard a thing I said
…
Got a crazy feeling I don’t understand
Gotta get away from here
Feelin’ like I shoulda kept my feet on the ground
Waitin’ for the sun to appear
https://youtu.be/-3La80T72y8
Thx for try – but lyrics are better than the OK music; with a few cool effects. And medium good guitar.
Didn’t know that song.
#2) Nice essay. However, I think it illustrates why progressives like Krugman want to downplay the significance of debt. Government borrowing seems to be equivalent to pre-committing to either a private loan or one-time redistribution from lenders to spenders but not deciding until later which of the two it will be. As Kling notes, that sets us up for political strife. When resolution day comes, however, it seems like it will be much more likely to resolve in spenders’ favor. We are much more likely to tax people on what they have or earn on resolution day than on the government benefits that they received in the past. Poor Lois 🙁 In fact, some will even point to her “wealth”, i.e., ownership of government debt, as reason to tax her more than Sammy Spender! Ahem, wealth tax.
From progressives’ perspective, its much easier gain political support for debt-financed welfare than one-time redistribution. Debt is a way to get the country to unknowingly commit to more redistribution than there is political support for by not calling it redistribution. Once debt is incurred, conservatives for their part will also try delaying resolution day because it will be quite unlikely that there will ever be a time when they can resolve by taxing Sammy to repay Lois.
The best hope for limiting government debt would be some sort of long-term balanced budget constraint that requires specifying at the time of spending/borrowing how that future debt will be repaid, i.e., by taxing today’s spenders or lenders. As we know though, passing a Balanced Budget Amendment has proven elusive. Another approach would be to offer loans instead of straight welfare, e.g., college loans or paying for family leave from future Social Security benefits, so that there is some hope that Sammy Spender will pay in the future for his benefits now. Even then, progressives may try to have those loans forgiven, i.e, “Cancel all college debt!”
Public choice seems to favor progressives on this one.
I met Paul Volcker in 1980, and watched him deliver three speeches in the next 20-odd years. In 1980, he warned (and I believed) that deficits would bring on inflation.
The last time I saw him was in Los Angeles, I guess the mid-1990s, at the Bonaventure Hotel. He was intoning solemnly about deficits and inflation. I left thinking America was soon to ruin.
I never met Martin Feldstein, but he more-or-less advised the same, at least judging from his writings.
So we have 40 years of pending higher inflation, as predicted by some of the best minds in economics.
Instead the secular trend has been for inflation and interest rates to go lower for four decades, and this year is no exception.
Maybe it is time for a re-think on inflation.
M2 and the monetary base and other measures do not tell you inflation is going to run rampant. Transactions cause inflation. It is those transactions where more money is traded for less value.
The relevant Milton Friedman quote…
“Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output.”
The quote seems badly worded. This quote does not contradict that inflationary transactions are necessary. To say something “can be” is to say that something will not necessarily be.
Excessive debt is corrosive and AK’s “Lenders and Spenders” essay is insightful but deficits do not necessarily cause high inflation when the spending has apparently been not sufficiently excessive.
Will there be a sudden stop or forced austerity? I don’t know but keep in mind there seems to be a savings glut. I think about 7T USD of federal debt is foreign held so about a third of federal debt or about a third of GDP. Some foreigners do not have good alternatives.
This blogpost reminds me that Arnold Kling offers the best reality check in times of crisis, whether the Great Recession or the pandemic.
People are measuring inflation by the Consumer Price Index. That has its own problems, among which are the bizarre way the cost of a place to live is calculated, such that there was no inflation in it during the bubble leading up to 2008. It may be that there is indeed inflation, but that it is seen primarily in the price of stocks, bonds, real estate, art, etc.
+1
Housing
In Zimbabwe & Venezuela, the market is not being allowed to function by the gov’t, and there is an alternative “gold”/US $ global reserve currency for the local gov’t’s inflation to be measured against.
Prices go up, hugely, because BOTH supply of money goes up AND supply of goods is NOT going up.
Almost no matter how much money the US gov’t prints, the supply of goods will expand to satisfy the demand.
Imagine a $100,000 stimulus check to everybody in America. Food prices do NOT go up by 1000% (10x), but by something much less. What does go up?
a) housing (in good school areas),
b) financial assets (including diamonds, gold, art) bonds, stocks, commercial RE
We have been, and are, seeing huge asset price inflation.
Germany’s hyperinflation included huge repayments of WW I debt, and an international gold standard against which the DMark was devaluing.
What is the standard against which the US dollar$ are devaluing? We will not, and possibly can not, see hyperinflation until there is some other value standard. Very unlikely to be China’s Renminbi (Yuan), nor the Euro. Until then …
print away.
And the “inflation is coming” chicken littles, including our Arnold (best economic writer I know of!) (Really, makes the most sense), will continue to be shown economically empty.
I’m actually really sorry about this conclusion, because it means Sammy spender really CAN keep spending, and I don’t think that’s good for human virtue and flourishing.
As the debt spirals out of control, governments of failing states resort to what economists call inflationary finance.
The US is not so close to being a failing state. It seems more likely to become one, with Dems getting power and spending & regulating irresponsibly, like Chavez in Venezuela, than that the current ($2 trillion????) deficits get out of control under a deregulation Trump or other Rep (only non-elite globalist?).
The inflation to fear is food, with clothes a distant second — and “good housing”, or housing in a good area, to continue inflating towards unaffordable with rising prices absorbing much of the money the gov’t is pumping into the economy.
John Updike wrote a book (The World According to Garp) that included a child mishearing “Undertow” and thinking it was “Undertoad” — caught by the Undertoad and lost at sea.
Ya, it’s a rip current – but Undertow is a much cooler term.
(Like the Lion King “Mufasa” as said by the hyenas is cool).
Regarding people’s faith in models:
I have spent much of my career in the supercomputing industry.
A coworker who worked in Computational Fluid Dynamics (CFD) when talking about the overconfidence people have in simulations said there is a saying in the aircraft design industry: “The only person who believes the result of a wind tunnel test is the person who did it. The only person who doesn’t believe the results of an aircraft simulation is the person who ran it.”