The Wire

  • New tunnel, premium RV section at Talladega Superspeedway on schedule despite weather

    Excerpt:

    Construction of a new oversized vehicle tunnel and premium RV infield parking section at Talladega Superspeedway is still on schedule to be completed in time for the April NASCAR race, despite large amounts of rainfall and unusual groundwater conditions underneath the track.

    Track Chairman Grant Lynch, during a news conference Wednesday at the track, said he’s amazed the general contractor, Taylor Corporation of Oxford, has been able to keep the project on schedule.

    “The amount of water they have pumped out of that and the extra engineering they did from the original design, basically to keep that tunnel from floating up out of the earth, was remarkable,” Lynch said.

  • Alabama workers built 1.6M engines in 2018 to add auto horsepower

    Excerpt:

    Alabama’s auto workers built nearly 1.6 million engines last year, as the state industry continues to carve out a place in global markets with innovative, high-performance parts, systems and finished vehicles.

    Last year also saw major new developments in engine manufacturing among the state’s key players, and more advanced infrastructure is on the way in the coming year.

    Hyundai expects to complete a key addition to its engine operations in Montgomery during the first half of 2019, while Honda continues to reap the benefits of a cutting-edge Alabama engine line installed several years ago.

  • Groundbreaking on Alabama’s newest aerospace plant made possible through key partnerships

    Excerpt:

    Political and business leaders gathered for a groundbreaking at Alabama’s newest aerospace plant gave credit to the formation of the many key partnerships that made it possible.

    Governor Kay Ivey and several other federal, state and local officials attended the event which celebrated the construction of rocket engine builder Blue Origin’s facility in Huntsville.

6 days ago

Cheating, trust and prosperity

(MLB Network/YouTube, YHN)

The Houston Astros played at the Los Angeles Dodgers last weekend for the first time since the revelation of Houston’s sign-stealing during their 2017 championship season. The biggest offseason story led to the firing of Astros manager A.J. Hinch and general manager Jeff Luhnow and two other managers. Yet, according to a saying, “If you aren’t cheating, you aren’t trying.” When does the pursuit of self-interest imperil trust and prosperity?

During 2017, Houston used electronic surveillance to view the catcher’s signs and signaled the batter by banging on a trash can. The Astros defeated the Dodgers that year in the World Series. The Dodgers and their fans have not taken the news of cheating kindly. Earlier this season, Dodgers pitcher Joe Kelly was ejected and suspended for throwing at Astros batters. Fans with trash cans (who can’t attend games this year) greeted the Astros’ bus at Dodger Stadium, and a plane circled the stadium with a banner.

Major League Baseball’s response though is somewhat puzzling. Pitchers and catchers use complicated signs to keep a runner on second base from stealing signs. Coaches and players cover their mouths to guard against lip reading. Some actions to gain competitive advantage are part of the sport.

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Standards regarding conduct to gain advantage have changed over time. In the 1970s and earlier, pitchers would throw at batters who “got too comfortable” at the plate. After back-to-back homers, the next batter would likely be brushed back.

When does the pursuit of competitive advantage become cheating, and how does this matter for business and economics? Is there any reason to expect people to follow rules except when in their self-interest?

Economics assumes that people act in their self-interest. As Adam Smith put it, “It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love.”

Professor Smith, though, also understood that people can follow rules due to moral and legal force, and even in conflict with narrow self-interest. Most of us do not shoplift because we believe this is wrong. We do not pay for merchandise only after we determine we could not get away with stealing.

Voluntary rule-following is enormously valuable. Still, we generally use a mix of prevention and voluntary rule-following. Stores take measures to combat shoplifting but do not strip search all customers. Shoplifting costs retailers around $20 billion annually, a significant but manageable total.

Business dealings employ a similar approach. Contracts give parties an incentive to perform as specified. But business is also conducted on a handshake basis. Parties expect each other to resolve problems, not merely rely on the exact terms of a contract.

Crime can be viewed as a type of cheating with enormous costs. America employs one million police officers and 750,000 security guards to control crime and incarcerates 2.3 million persons for their misdeeds. Expenditures on security devices like cameras, bars, and alarms increase the cost further. The costs of crime would be enormously lower if more people would never steal.

The flip side of cheating is trust. Trust that others in business will not cheat or steal is enormously important for prosperity. Business loans will not exist if investors fear that every new business is a scam. Lending occurs only within families in low-trust societies, which generally remain poor.

Good rules for games and laws for business benefit all parties and broadly align rule-following with self-interest. In games, good rules produce challenging competitions exhibiting skill which players and fans enjoy. In business, good laws support value-creating economic activity. Punishing rule-breakers reinforces the self-interest in following the rules.

Playing by the rules or following the law is enormously valuable. I cannot explain why Major League Baseball tolerates normal sign-stealing yet punished the Astros so harshly. Yet wherever we draw the line, crossing the line erodes the trust on which our prosperity depends.

Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.

3 weeks ago

Same story, different day

(Good Morning America/YouTube, YHN)

The police shooting of Jacob Blake in Kenosha just months after the death of George Floyd sparked new protests. The video appears to clearly show another excessive and unnecessary use of force. What can we do to enact the reforms needed to curb police misconduct?

Numerous sound reforms have been offered. Secrecy laws protecting officers’ duty records could be relaxed to stop hiding officers with multiple misconduct complaints. The ability of police unions to protect the bad apples to the membership’s detriment could be curbed.

We could also reduce the number of laws the police must enforce. An officer never knows when an encounter could become life-threatening. Consequently, officers might misinterpret erratic or nervous behavior as threatening or mistake a cell phone for a gun. Research by economists shows that likelihood of deadly violence in a police encounter does not depend on a subject’s race; the greater rate of minority deaths stems from more frequent stops and arrests. Systemic racial bias appears to be in the types of activities criminalized.

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Lawmakers could also end qualified immunity, the doctrine under which government employees cannot be sued for doing their jobs. Only where courts create exceptions do government officials face civil liability. Qualified immunity has protected a prison guard who tased an inmate in his cell and a cop who shot a child while trying to shoot a non-threatening dog.

Civil suits provide an alternative to criminal prosecution. Prosecutors are reluctant to file charges against officers and jurors often give police the benefit of the doubt. Lawsuits would make cities pay for bad cops like Derek Chauvin, who had over a dozen complaints against him before he killed George Floyd.

The bigger challenge is enacting reforms. Politicians dutifully promise change after each high-profile case. The lack of change fuels the frustration we have witnessed this summer, reflected in the slogan, “No justice, no peace.”

Ours is a government “by the people,” so what responsibility do we bear then for police misconduct? I study public choice economics, which examines how the information and incentives of votes, politicians and bureaucrats together produce policy. One important insight is how citizens individually do not decide outcomes. No one changes an election with their vote or can induce lawmakers to pass a bill by writing a letter. How exactly citizen sentiment drives government policy is complicated; there is no switch to flip to enact police reforms.

The week following Jacob Blake’s shooting offered two paths toward reform. The first is increasingly violent protests. Of course, most protesters over the past three months have not engaged in violence. A clear line can be drawn; as Democratic presidential nominee Joe Biden said recently, rioting, looting and setting fires is not protest.

Does a failure of politics as usual justify violent protests? This question is more philosophic than economic. I can offer two observations. Many Minneapolis businesses burned this summer were owned by recent immigrants from Ethiopia and Somalia. The owners were not part of any inner power circle, if you happen to believe that inner circles run things. And violence exacerbates the fears of crime and demands for “law and order” which lead to disregard of police misconduct.

Boycotts staged by players in the NBA, WNBA, NHL and MLB offer a second path. Several prominent NBA players reportedly favored boycotting the rest of the season. I find sports boycotts a better alternative. They send the message that normal life will not continue without meaningful reforms without destroying small businesses which families rely on for their livelihoods.

The average sports fan is not part of any inner power circle, and sports are providing emotional sustenance during the COVID-19 pandemic and recession. Are sports boycotts therefore unfair? Perhaps, but team owners and their corporate partners likely have significant political influence. And inconvenienced sports fans should remember that George Floyd will never watch another game.

The excessive use of force by the police is ultimately done on our behalf. To disown the acts of rogue police officers, we must accept that life cannot be normal until reforms occur.

Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.

4 weeks ago

No more ridesharing?

(Pixabay, YHN)

Ridesharing companies Uber and Lyft almost exited California last week over a dispute regarding their drivers’ legal status. In 2019, the California legislature passed Assembly Bill 5 (A.B. 5) making the companies’ drivers employees and not independent contractors. A judge stayed an August 20 compliance deadline. Politicians’ efforts to restrict contractors could arrest the development of the sharing economy, hurting us all.

All work in a market economy must be voluntary. I must induce assistance I would like from others, which usually involves paying them money. If I run a business and want a task done repeatedly, we might formalize this into employment, as governed by law.

Voluntary employment makes both parties better off. Suppose I paid someone $50 to rake leaves. (This is a hypothetical, as I live to rake leaves.) I would prefer to pay the money to doing the work myself, and the person doing the work must prefer the $50.

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Our national, state and local governments pass laws regulating employment. The laws impose payroll taxes, regulate wages (minimum wages and overtime pay), require workplace safety, and mandate benefits family leave and health insurance.

A business will only hire an employee if she generates enough value to cover the full cost of employment. Mandates and taxes make hiring employees more costly, reducing employment and potentially forcing businesses to close.

Employers would voluntarily offer many government-mandated benefits. Managerial economics recommends offering fringe benefits and improved job conditions valued by workers more than they cost to provide. If Walmart made cashiers work a six-hour shift without any breaks, hourly pay would likely have to be significantly higher. And some mandated benefits, like parental leave, will benefit some workers and not others.

The law offers independent contractors, with many fewer mandates, as an alternative to employment for businesses to hire for short term or limited positions. People can also put together “gigs” as independent contractors for several different employers to earn a living.

Not surprisingly, businesses try classifying workers as contractors instead of employees to avoid mandates and taxes. California’s A.B. 5 attempts to rein this in. In addition to Uber and Lyft drivers, A.B. 5 significantly affects free-lance writers.

Many people see greed behind classifying employees as contractors. One of sponsors of A.B. 5 wrote, “California is home to more millionaires and billionaires than anywhere else in the United States. … One contributing factor is we have allowed a great many companies … to rely on a contract workforce, which enables them to skirt labor laws [and] exploit working people.” Owners get rich while impoverishing independent contractor workers.

There’s a problem with this narrative, however, namely that Uber and Lyft lose money. Uber has set records for losing money, including $5.2 billion in the second quarter of 2020. Of course, losses for the stockholders do not mean that some executives have not been well-compensated.

I think that more frequently businesses with thin margins turn to contractors because they cannot afford employees. Analysts estimate that reclassifying drivers as employees will increase Uber’s and Lyft’s labor costs by 20 to 30 percent. This is particularly burdensome in the sharing economy, which requires innovative was to utilize idle resources. Ridesharing uses drivers’ personal vehicles and available time to provide rides when demanded. While some people drive for Uber and Lyft full-time, the companies bring thousands of cars into service for a few hours a week.

Sharing businesses benefit us all. Economic studies document declines in drunk driving after Uber and Lyft begin operating in cities. Grocery shopping and delivery services like Instacart have helped Americans stay safe during COVID-19. The cost of government mandates on employees can prevent the unlocking of this potential value.

Companies in the sharing economy are experimenting with innovative ways to create value. These experiments use labor very differently than in manufacturing or retail. Reducing government-imposed burdens may be a better way to get more Americans hired as employees than disrupting the sharing economy.

Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.

1 month ago

Can we reclaim our freedom?

(PIxabay, Wikicommons, YHN)

Governments have implemented a range of unprecedented policy measures to slow the spread of the SARS-CoV-2 virus. Whether “non-pharmaceutical interventions” have slowed infections or produced health benefits exceeding their enormous cost are important questions. Today, I will consider whether these emergency measures will permanently diminish our freedom.

The policies of the COVID-19 lockdown were not without historical precedent. Cities closed restaurants during the 1918-1919 Spanish Flu pandemic, quarantines have been imposed, and schools occasionally close due to the seasonal flu. Yet, stay-at-home orders confining persons who are neither sick or have been exposed to the sick are unprecedented, as are open-ended business closures and checkpoints at state borders.

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I do not mean that the current restrictions on life will never be relaxed. When the COVID-19 pandemic ends, either through an effective vaccine or treatment or we reach herd immunity, sports and concerts will resume and schools will fully reopen.

Economic historian Robert Higgs laid out the “Ratchet Effect” of crises on the growth of government in “Crisis and Leviathan.” The crises of the 20th Century, most significantly the two world wars and the Great Depression, massively reduced our rights and freedoms. Freedom was compromised by World War I’s draft and the internment of Japanese-Americans. The draft was not to defend against invasion or rebellion, as during the Civil War, but to fight on another continent. Internment jailed citizens without probable cause of participation in espionage.

Economic freedom took an even greater beating. Washington ran the economy largely by command during the wars. The Great Depression’s state foreclosure moratoriums and Franklin Roosevelt’s abandonment of the gold standard obliterated the Constitution’s contracts clause. Since the 1930s, government has had virtually unfettered discretion to regulate business.

The Ratchet Effect does not deny the reality that government shrinks after a crisis. President Harding slashed spending and taxes in the early 1920s, and markets began directing most economic activity again after World War II. Government just never goes back to its prior size and never relinquishes powers first exercised during an emergency, remaining permanently larger.

Explaining the Ratchet Effect is harder than it appears. One seemingly easy answer is that politicians never give up power. Yet this does not quite suffice. How did we manage to ever restrain power-hungry politicians, and how does the crisis rob us of this ability? The crisis might let the government genie out of the bottle, but how did we ever get the genie in the bottle?

The government might remain larger after the emergency because citizens recognize the value of previously prohibited powers. Americans might want a government capable of the Manhattan Project to tackle societal problems and challenges. We have a ratchet, but only small government libertarians will object.

Will Americans demand our freedoms of travel, association, religion, and commerce back after COVID-19? And if so, will we regain our freedoms?

Professor Higgs’ thesis offers little optimism. “The great danger,” he writes, is of crises “depriving us at all times of the very rights the Constitution was created to protect.” Libertarians widely accept Higgs’ thesis and consequently deny that conditions ever require emergency action. Law professor Richard Epstein projected in March that COVID-19 would produce perhaps 50,000 deaths globally with perhaps 2,500 in the United States.

Political economists I believe do not fully understand all the ways citizens can constrain politicians. In America most people voluntarily comply with most laws, from stop signs to income taxes; governments relying exclusively on coercion seem weak. We can vote politicians out of office and bring them to justice for breaking the law. If we better understood the enforcement limits on government, we might realize how to put the genie in its bottle.

“Crisis and Leviathan” provides a solemn warning for the post-COVID world. To reclaim our freedoms, we must to insist on clearly defined limits on our governments’ ability to declare public health emergencies.

Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.

1 month ago

Dr. Daniel Sutter: Patents, profits and pandemics

(Pixabay)

Knowledge is the basis of economic prosperity, and the knowledge contained in a COVID-19 vaccine or cure would be enormously valuable. We have traditionally relied on patents to reward innovation, but an alternative exists that could be appropriate for vaccines during pandemics.

Patents reward knowledge creators with a temporary monopoly. Monopolists generally charge high prices, so patents let inventors recover the costs of research and development plus earn a profit. Patents helped spur the Industrial Revolution, demonstrating their effectiveness.

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Over 160 candidate COVID-19 vaccines are in development, with more than a dozen in human trials. Our patent system has succeeded: investors funded scores of teams of smart medical researchers. The danger exists, however, that price controls may be applied to a COVID-19 vaccine, making investors less likely to fund future vaccine research.

Patent purchases date back to France in 1839. A government patent purchase rewards the inventor immediately, as opposed to over time with profits on sales of the product. A fair price should reflect profits over the life of the patent, adjusted downward to reflect the immediate payout and for uncertainty about profits.

I advocate buying promising vaccines’ patents before testing for effectiveness, so the purchase price need not cover the cost of the Food and Drug Administration (FDA) approval. Economic theory suggests that patent purchases should incentivize research as effectively as patents.

The FDA approval process now represents the major challenge for the candidate vaccines. The process involves three phases. Phase I tests the vaccine on a small group of subjects to ensure safety and antibody production in subjects. Phases II and III involve tests on first several hundred and then several thousand persons to establish effectiveness. This lengthy process is why many believe a vaccine could not be on the market until 2021.

The 1962 Harris-Kefauver Amendments authorized FDA regulation of the effectiveness of new drugs. The rationale is fear that pharmaceutical companies will sell ineffective drugs to an unsuspecting public for profit using manipulative advertising.

This prospect seems particularly frightening with COVID-19. Absent regulation, many desperate Americans might pay thousands of dollars for an alleged vaccine. An ineffective vaccine could worsen the illness as “vaccinated” persons resumed normal activities.

A significant body of research by economists demonstrates that reputation works surprisingly well in the market for drugs. Hospitals and insurance companies police manufacturers’ bogus claims. Many free-market economists, including me, believe Harris-Kefauver should be repealed. FDA regulation endures because many Americans deeply fear deceitful profiteering.

Let’s take this fear seriously and remove the potential for profit from approval of a COVID-19 vaccine with patent purchases. Purchases will reward medical researchers for their work devising candidate vaccines. The federal government could then devise an expedited testing process, recognizing that each day a vaccine is delayed during a pandemic can cost thousands of lives. We need not fear corporate profit-seeking influencing the effectiveness evaluation.

We could hold an expedited approval “tournament” for several candidate vaccines, with selling the patent to the federal government a condition for inclusion. Eliminating profit might also make human challenge testing more acceptable.

In human challenge tests, researchers intentionally expose subjects to the virus after inoculation. The control group receives only a placebo and is thus deliberately infected with a deadly virus. I believe informed consent makes this acceptable, but others may view a drug company profiting from control group deaths as immoral.

Patent purchases should also ensure a vaccine’s affordability. All drug makers could access the formula without paying royalties, so a vaccine’s price should reflect only the normally modest cost of ingredients and manufacture. Competition will keep a vaccine’s price in line with cost. A company charging $500 for a vaccine which costs only $100 will get priced out of the market.

I see patent purchases as a win-win situation. Medical researchers get compensated, rewarding of knowledge creation. An expedited approval process could quickly identify an effective vaccine. And an effective vaccine should be as affordable as possible.

Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.

2 months ago

The source of our prosperity

(Pixabay, YHN)

Our world is more prosperous than ever, or at least was before the economic disruption from COVID-19. The ongoing search for a vaccine or cure illustrates how knowledge is the source of prosperity. For an even more prosperous future, we must ensure that people have the incentive to create and apply knowledge.

Economists and historians have offered explanations for prosperity, or what economic historian Dierdre McCloskey terms “the Great Enrichment.” Rich and poor countries clearly differ in levels of physical capital – the existence of machines, factories, computers, and robots which make labor, our ultimately most limited resource, more productive. When over 90% of humans grew and gathered food, little labor was available for producing clothes, homes or cars, to say nothing of writing books, painting works of art, or composing music.

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Investing in physical capital requires saving. Tom Hanks’ character in “Castaway” could not spend a day fashioning a spear to catch fish more effectively unless he had food to eat on that day. Saving is having consumption goods available when desired. Investing also requires secure property rights; a world with too much theft, by either bandits or governments, is destined to by poor.

Yet tools and factories require knowledge. Agricultural labor is estimated to have become at least a thousand times more productive since humans first started planting crops. Some innovations – like shovels, plows and tractors – involve better tools for tasks always done. Drought-resistant seeds and pesticides require applying abstract knowledge from plant biology.

Medical researchers are racing to find a vaccine for COVID-19. The race has likely concluded; we had over 160 candidates at the end of June, with 14 in human trials. I find it highly implausible that none of the 160+ candidates will prove successful. (I knocked on wood after writing these words to avoid jinxing the vaccines.)

This represents enormous knowledge production capacity. SARS-CoV-2 is a new virus, not a variant of influenza for which we could modify the existing vaccine. Researchers needed something brand new. The development of so many candidates so quickly suggests we may be on the cusp of a new golden age of vaccines.

Historically, we have ensured adequate compensation for knowledge production through the patent system. Knowledge has some characteristics making marketing difficult. Chemists can break down a new drug and engineers could reverse-assemble a flying car. Thus, any person who “buys” knowledge can resell it. Patents give the inventor a temporary legal monopoly on use of the knowledge.

The patent system works, as the machines and products of contemporary society prove. The 160-plus candidate SARS-CoV-2 vaccines prove that patents work for medicines. Investors have paid the salaries of scores of teams of medical researchers.

The patent’s monopoly allows the charging of prices to recoup the cost of investment in research (including for products and drugs which never pan out) and reward investors with profits. The chemicals in many drugs are not incredibly expensive; the value resides in the knowledge that these chemicals fight illnesses and save lives. High prices are a feature and not a flaw of the patent system.

Insurance coverage relieves individuals of the burden of high drug prices, yet this just burdens employers, Medicare and Medicaid. Exorbitant prices for life-saving drugs and vaccines also strike many people as morally objectionable price gouging.

This makes price controls for a potential COVID-19 vaccine attractive. In the near term, price controls will likely yield benefits. Once the investment in developing a safe and effective has been made, the vaccine will not be pulled from the market even if the price is set very low. The cost of price controls will be many fewer vaccine candidates for the next new virus to afflict humanity.

An alternative can avoid the monopoly prices of patents while still encouraging knowledge production. The alternative would also, I think, be appropriate for an expedited approval process during a pandemic. But the details will have to wait for next time.

Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.

2 months ago

Should we trust experts?

(Pixabay, YHN)

Experts in public health and epidemiology have driven policymaking during the COVID-19 pandemic. How much should we trust experts? Critics dismiss Republicans who voice distrust of experts as anti-science. Yet even experts know very little about complex economies and societies.

Frustration with experts does cross party lines. New York’s Democratic Governor Andrew Cuomo recently remarked of experts’ forecasts of hospital usage, “They were all wrong.”

The “Wisdom of Crowds” argument, wonderfully explained by James Suroweicki, provides a first reason for doubt. Numerous seemingly poorly informed opinions can be remarkably wise. Mr. Suroweicki relates a story from British scientist Francis Galton about a contest at a country fair in 1906. Nearly 800 people paid sixpence to guess the weight of an ox (after being slaughtered and dressed); the average was only one pound off.

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The theory of efficient financial markets illustrates another reason for skepticism. An old joke was that darts thrown at the stock page were as reliable as a broker’s recommendations. Why? Stock prices quickly incorporate all available information. With all information priced, a stock price is as likely to go up as down. The market can be consistently beaten only with inside information.

The central planning of socialism represents the most thorough application of expertise to an economy. Proponents thought that “scientific” socialism would replace the chaos and waste of the market with rationally ordered economic activity. Only a handful of economists in the 1930s and 1940s, notably Ludwig von Mises and Friedrich Hayek, argued coherently that socialism would fail.

Socialism failed in part due to the different nature of truths in the physical and social sciences. Truth in the physical sciences in general and timeless: water freezes at 32 degrees Fahrenheit and boils at 212 degrees. Truth in economics depends on time and place. Are trains the best way to travel between American cities? True in the latter half of the 1800s, but now flying and driving dominate.

Another factor is the subjective value of goods and services, meaning based on the wants, needs and desires of consumers. Goods are valuable because people will pay money for them. People differ greatly in their wants and needs, making it nearly impossible to predict what will be valuable, as pet rocks from the 1970s and the variety of videos on YouTube with millions of views illustrate.

Experts are disadvantaged on economic questions. Truths cannot be learned from a textbook, may not hold everywhere (or anywhere tomorrow), and depend on idiosyncratic consumer preferences.

The other part of the argument against socialism is the miraculous degree of coordination in markets. Thousands of products from around the world are available in a grocery store without preordering a week in advance. The times we can’t get what we want, like the recent toilet paper shortage, stand out.

By contrast, central planning in the former Soviet Union produced empty shelves. People would wait in line for hours to buy goods. Russians would join lines without even asking what people were waiting for.

No one would hold a high school dance without a committee to plan the event. Yet the market economy has no one in charge, no one with the power to command others. Coordination occurs voluntarily and is called spontaneous order. And the market does not merely repeat what was done yesterday, it offers improvements too. No one ordered Mark Zuckerberg to start Facebook, he just decided to try.

Politicians rely on experts to devise policies because America has, in Abraham Lincoln’s words, a government “for the people.” In America, restrictions on our freedom can be justified only if they make us – as opposed to the rulers – better off.

Politicians consequently seek out the experts willing to justify policies. Economists who do not understand economic knowledge, subjective value and spontaneous order will offer unrealistic claims about how government will improve our lives. Such experts exhibit what Professor Hayek called, “The Fatal Conceit.” We should not trust experts who are unaware of the limits of their expertise.

Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.

2 months ago

Rethinking medical care

(Pixabay, YHN)

Governor Ivey imposed a statewide mask mandate last week as Alabama’s intensive care units (ICUs) approached capacity. We have experienced unprecedented restrictions on freedom to prevent COVID-19 from overwhelming our healthcare system. The COVID pandemic will hopefully lead us to recognize that healthcare is an economic good.

Economists would identify a lack of hospital or ICU beds or ventilators as a shortage: the quantity people demand exceeds the supply. Shortages occur occasionally in markets, like the recent toilet paper shortage. Shortages can become permanent with government controls, as with apartments under rent control or basically everything in the former Soviet Union.

Shortages though do not normally lead to restrictions on freedom. The toilet paper shortage and the 1970s gas shortages (due to government price controls) certainly affected our lives. People curtailed driving, and long lines at gas stations were a pain. Yet states did not close businesses or issue stay-at-home orders to limit driving.

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Furthermore, no argument for freedom I know of says that people should be free only when certain goods are plentiful. The Declaration of Independence and the Bill of Rights are not void when hospitals are full. Yet in recent months, governments have prevented church services and funerals.

The difference stems, I think, from an economic confusion. We view healthcare as an objective good, not in subjective terms as we do other goods and services. The objective good fallacy rationalizes other government interventions into healthcare.

Subjectivity as used by economists means from the perspective and values of the subject (the consumer). Goods have value because we will trade our time, effort, or money for them. This makes voluntary exchange in markets possible. Consumers’ willingness to give up things of value for food, clothing or televisions gives suppliers an incentive to produce them.

Economics does not try to explain why people value certain things. And markets do not require justification of these values to anyone.

By contrast, we view healthcare objectively, or independent of subjects’ perceptions. Healthcare has an objective element; life or death is an objective fact. An elixir will not cure cancer just because we believe that it does.

This objective element, however, does not eliminate subjective value. Whether a car provides transportation is objective. The value people get from cars is largely subjective; driving a Corvette is not merely about getting from point A to point B.

The misperception that medical care is an objective good makes it seem like experts, namely doctors and bureaucrats, can efficiently ration it. Doctors determine the medicine or treatment needed to restore a person’s health. This illusion provides the rationale for Certificate of Need laws imposed by Alabama and other states. Under these laws, healthcare providers must get permission from state regulators to open a new hospital or clinic; experts decide what we “need” to avoid wasteful excess capacity. And objectivity means we must justify our desire for medicines to a doctor.

Shortages in markets are rare and short-lived, but capacity constraints affect many goods. Airplanes and hotels have fixed numbers of seats and rooms and can sell out. Markets manage such constraints through contracts. If you arrive at a hotel without a reservation, you might be out of luck; non-refundable reservations will guarantee you a room.

Our expert-driven system treats hospitals and ventilators as open access resources. This means that hospital beds are simply made available when someone is sick. We do not rely on contracts to determine access in the event of crowding.

Concierge medicine illustrates how markets might handle access to equipment. These doctors’ wealthy customers pay enough to ensure they have access to facilities when needed; I’m sure concierge doctors obtained ventilators as COVID-19 spread. While we might view this as hoarding or preferential access, I see it as empowering customers over experts.

Healthcare officials trampled our freedom to prevent excess demand for ICU beds. We would never consider stay-at-home orders to prevent the overcrowding of flights. If we find restrictions on freedom due to healthcare shortages intolerable, we should start thinking about medicine as a subjective good.

Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.

2 months ago

The freedom to speak and criticize

(Pixabay, YHN)

Harper’s magazine recently posted a letter signed by over 150 leading authors, journalists and public intellectuals calling for greater support for freedom of speech. The letter criticized the intolerance for opposing views frequently exhibited on Twitter and social media. Does the freedom to criticize speech threaten the free exchange of ideas?

Signers included David Brooks, Noam Chomsky, Malcolm Gladwell, Salman Rushdie, Gloria Steinem and Matt Yglesias. To quote from the letter, “The restriction of debate, whether by a repressive government or an intolerant society, invariably hurts those who lack power and makes everyone less capable of democratic participation. … We need to preserve the possibility of good-faith disagreement without dire professional consequences.”

A society organized for the benefit of people as opposed to the glory of rulers requires freedom for people to think, voice their ideas, and engage with others. Our rational faculties require critical exchange. And limiting government requires freedom to criticize our leaders.

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Some commentators have criticized social media censorship by companies like Facebook, Twitter and Google while others want more active removal of offensive content. The censorship claim is technically false, as only governments truly censor, whether through prior restraint to prevent publication of views or punishments for speech.

Is freedom from government coercion sufficient, or can the actions of private individuals neutralize freedom of expression? Negative reactions to the Harper’s letter ultimately turn on these questions.

Third parties can illegitimately chill speech, as Harper’s signatory Salman Rushdie can attest to. His 1988 novel The Satanic Verses was considered blasphemous by Muslims; Iran’s Ayatollah Khomeni issued a fatwah on – or order to Muslims to kill – Mr. Rushdie, who spent a decade in hiding. In January 2015, armed gunmen killed 11 employees at the offices of the French radical magazine Charlie Hedbo over offensive content.

Criminal acts are unacceptable. We will not have free exchange if violence is the price of speaking. Are other forms of outrage over or criticism of speech acceptable?

Some must be. People who found Mr. Rushdie’s book offensive should be free not to buy it. The writing of letters by newspaper readers or television viewers demanding that certain columnists or reporters be fired also seems acceptable.

Social media mobs seem more adept at getting offenders fired than letter writers ever were. A parallel for today’s events might be the Hollywood blacklist during the anti-communist McCarthy era. While Senator McCarthy and the House Committee on Un-American Affairs exercised government power, the blacklist was private reprisal. The entertainment industry feared public backlash from employing actors, actresses, directors or writers seen as communists or communist sympathizers.

Is there anything different and more dangerous about social media? For one, social media permanently records peoples’ misstatements and offensive actions. An inappropriate Halloween costume lives forever on Facebook or Instagram and cannot be denied. Furthermore, social media outrage organizes at warp speed compared to the letter-writing campaigns of yesterday.

Yet social media critics cannot fire businesses’ employees; they prevail only by persuading business managers of the merits of their complaints. I may think that businesses respond too quickly and overreact to social media outrage. As an economist, I recognize that business leaders know the challenges they face much better than I do.

Consider the recent resignation of CrossFit founder and CEO Greg Glassman in the wake of his criticism of protests over George Floyd’s death at the hands of Minneapolis police. Was his company “taken” from him unjustly? Not necessarily; the financial harm he caused was real. Reportedly 1,000 of the company’s 14,000 gyms ended their affiliations in response, and Reebok severed a decade-long licensing deal. CrossFit is privately held, but investors sought to make money, not lose due to Mr. Glassman’s comments.

Loss of one’s ability to earn a livelihood is a harsh penalty likely to chill speech, both now and during the Hollywood blacklist. Ultimately, however, social media protests only succeed by persuading others that someone’s speech is offensive. Persuasion and criticism are part of life in a voluntary society.

Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.

3 months ago

A victory in court for school choice

(Pixabay, YHN)

The U.S. Supreme Court recently delivered a “big win” for school choice and religious freedom. School choice enables competition, which economists find generally improves the quality of goods and services. I believe that this result will apply to education, and specifically public schools.

Espinoza v. Montana Department of Revenue involved 2015 legislation allowing tax-deductible contributions for scholarships to private, non-profit schools. The Montana Supreme Court struck down the act in 2018 as an unconstitutional use of public funds for religious purposes, including any school or college controlled by a church. Montana’s constitutional provision is a “Blaine Amendment” dating to the 19th century to prohibit state aid to parochial schools; 37 states, including Alabama, have Blaine Amendments.

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The constitutional issues involved were the First Amendment’s separation of church and state and religious discrimination in government policy. Chief Justice John Roberts’ majority opinion found the Blaine Amendment discriminatory: “A State need not subsidize private education. But once a State decides to do so, it cannot disqualify some private schools solely because they are religious.”

The Montana Supreme Court struck down the entire school choice program based on the Blaine Amendment. Although Montana’s legislature could have enacted a scholarship program applying to only non-church private schools, this would have significantly restricted parents’ choice. According to the Institute for Justice, which litigated Espinoza, Blaine Amendments are often used to block school choice. Only a narrow interpretation of Alabama’s provision allowed the Alabama Accountability Act to withstand challenge.

Separation of church and state is wise constitutional doctrine. Still, I do not see the scholarships as violating separation of church and state. The public “dollars” involved are taxes foregone. Church-affiliated schools often operate at a loss, so tuition scholarships will not yield profits to support other activities and presumably provide enough education to qualify as schools.

George Mason law professor Ilya Somin offers an illustrative comparison. No one worries that tax exemptions for religious charities or police and fire protection for churches constitute state support for religion. Tax deductions for scholarships do not establish a state religion.

Church-affiliated schools provide a variety of education consistent with their doctrine and moral teachings. The goal of school reform should be, as economist John Merrifield emphasizes, a diverse menu of options to suit students’ varied learning styles and parents’ values. Church-affiliated schools accomplish this.

School choice policies will make Americans more equal. Affluent Americans, who can afford private school tuition, have long enjoyed school choice.

American higher education features school choice. Alabamians can attend any of the state’s 14 four-year universities or more than 30 two-year colleges at in-state tuition rates. These institutions offer diverse educational options. Two-year colleges offer vocational programs and inexpensive core classes. Four-year universities include one modeled after a liberal arts school, large and small campuses, and numerous online degrees. Federal student aid and loans help make private colleges affordable.

By contrast, K-12 public schools require students to attend their assigned school. After paying taxes to support government schools, many families cannot afford private school tuition. The economic case for public education stresses ensuring all students can afford schooling, which school choice accomplishes.

Choices unleash quality-enhancing competition. Some of America’s best public schools are in affluent suburbs where districts must compete for students because parents can afford private schools. It is tempting to attribute suburban districts’ quality spending, but statistics show otherwise. In 2018, Baltimore city schools spent $250 less per pupil than Montgomery County (Maryland) and $1,000 more than Fairfax County (Virginia) in suburban Washington, two of America’s most affluent counties.

In time school choice will force beneficial changes in public school curriculum. Currently, the curriculum is a political football which both parties seek to control. Teachers educate children in classrooms; politicians in Montgomery or Washington shape learning only through bureaucratic controls forcing a curriculum on local schools. School choice will empower parents to find schools that help their children learn. To successfully compete for students, control will need to be devolved to schools and teachers, which I see as a very good thing.

Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.

3 months ago

Herds and the policy response to COVID-19

(YHN)

Governments implemented strict policies to stem the spread of the novel coronavirus. The widespread response suggests that governors and presidents saw COVID-19 as an unprecedented public health threat. Or did it? The economics of herding suggests possibly not.

The “Wisdom of Crowds,” also the title of James Suroweicki’s excellent book on this subject, implies this interpretation. Experts in each state reviewed knowledge on the virus, its potential lethality, and vulnerabilities of their state. Each lockdown decision provides evidence of a perceived threat.

Independent, informed evaluations represent our best way to approach the truth. The argument is not that voting establishes truth; experts can be wrong even if they all agree. The consensus of experts is more likely to be correct.

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The policy response could reflect other factors. We should remember that safety is a luxury good; as people and nations become wealthier, we spend more on safety. The potential for say 100,000 deaths from a pandemic will be far less acceptable today than 50 years ago. Yet crowds are not always wise; the “Madness of Crowds” is another possibility. The independence of expert judgments affects whether we gain wisdom or create a herd.

Training in public health affects experts’ independence. Experts in any field receive years of specialized, intensive training, in law school, graduate school, or medical school. Academic disciplines have a dominant paradigm or way of making sense of the world. Different public health experts may share the same way of thinking and make the same mistake on COVID-19.

“Information cascades” pose another problem, often seen in business. A group of managers assembles to discuss opening a new retail store. After independently assessing the merits and demerits, most of the managers see the new store as a mistake. Yet the first manager argues that the new store will be wildly successful, and the others agree. After the store fails, the managers all recall their initial misgivings.

What happened? Each manager knows her personal assessment of the venture could be wrong and revises her assessment based on others’ opinions. Managers do not want to appear incompetent – the only one unable to see the new store’s great value.

The visibility of errors also matters. There’s (allegedly) a saying among investment advisors that “no one ever got fired for recommending IBM.” Suppose an advisor recommends a stock no one else likes. If correct, the advisor’s clients make lots of money. If wrong, the advisor will need to find a new job. By making the same common recommendation, no advisor signals below average investment acumen.

An economy or business needs to encourage occasional deviations from the herd. We need contrarian investors and thinkers. In markets, profit rewards correct contrarians. And some people are naturally contrarian. As Henry David Thoreau wrote, “If a man does not keep pace with his companions, perhaps it is because he hears the beat of a different drummer.”

Does the policy response to COVID-19 reveal herding? The policies involved – business and school closings, stay-at-home orders – are called nonpharmaceutical interventions (NPI). NPI have their critics; a 2019 World Health Organization review found the evidence for the effectiveness most “limited.”

A divergence of opinion suggests herding was unlikely. If proponents of NPI won out in debate, this suggests that governors and presidents found them more promising. Vigorous debate usually improves decisions.

Our elected executives, I think, face a bias to action, worsened by the 24-hour news cycle and running tallies of COVID-19 cases and deaths. Yet the nearly 50 million jobs lost since March are also highly visible. Our inability to observe deaths without a lockdown ironically makes the benefits appear larger; perhaps millions have been saved.

Eight states never issued stay-at-home orders and nations like Sweden eschewed lockdown policies, so we have not witnessed complete herding. More likely the bias to take action resulted in excessive policies, and lockdowns imposed too early in some states.

Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.

3 months ago

Defund the CDC

(YHN)

The Centers for Disease Control and Prevention (CDC) have made numerous mistakes during the COVID-19 pandemic. Mission creep at the CDC has left America vulnerable to a communicable disease. We need a new agency solely dedicated to battling infectious diseases.

Let’s start with the mistakes. A lack of early testing let the outbreak spiral out of control. Some have criticized the CDC for not using a German test approved by the World Health Organization (WHO). I will give the CDC a pass here because the CDC is required to develop a test for the U.S. during pandemics. Contamination of the test kits, however, falls squarely on the CDC, a mistake resulting from a breach of basic protocols.

Another miscalculation was preparing only 200 test kits. Although each kit could test 700 specimens, this was still extremely limited capacity to contain an easily transmissible virus.

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The CDC equivocated and eventually flipped its position on masks. Throughout March, the agency claimed that only the sick or persons caring for the sick should wear masks. Dr. Anthony Fauci recently confirmed that this deliberate misinformation was intended to reserve masks for health care workers but was still misinformation.

Recently, The Atlantic reported that the CDC has been combining blood and nasal test results. Blood serum antibody tests only show that a person has had COVID-19 at some point. As a result, the case reports being watched so carefully as states reopen may include older cases.

Some commentators blame the CDC’s failures on Trump administration budget cuts. Yet as the Cato Institute’s Chris Edwards demonstrated, proposed cuts were never enacted; the CDC budget has remained steady (adjusting for inflation) since 2010 with a 12% increase in employees.

The CDC has spent money and time on efforts unrelated to infectious diseases. This is the essence of “mission creep,” or an expansion of tasks beyond an agency’s core competency. Bureaucrats seek out new tasks for additional funding, and sometimes Congress orders an agency to study something. As Cato’s Mr. Edwards writes, “How is CDC Director [Dr. Robert] Redfield supposed to remain alert to emerging epidemics when he is also supposed to manage programs on tiny teeth, colon cancer, opioids, child abuse, diabetes, workers’ compensation, lead-based paints, mold in buildings, and lifting heavy objects on construction sites?”

States imposed draconian “nonpharmaceutical interventions” (NPI) to slow COVID-19. Evidence demonstrating these policies’ effectiveness was very limited. A 2019 WHO review observed, “The evidence base on the effectiveness of NPIs in community settings is limited, and the overall quality of evidence was very low for most interventions.” Furthermore, “much of the evidence base is from observational studies and computer simulations.”

The role of computer models deserves further discussion. Computer models produced the “worst-case” scenarios predicting 1.7 million to 2.2 million deaths in an unconstrained pandemic and claiming that measures like closing schools and shutting down business could avoid most of these deaths. The projections were based on assumptions, not evidence, that NPIs would reduce interactions between people.

Lockdown policies might not reduce interactions due to offsetting personal actions. For example, children not interacting at school may interact instead at parks, day care centers, or malls. Grandparents’ taking on babysitting duties could potentially increase transmissions to the elderly. Evidence from actual school closings would be required to validate assumed reductions in interactions.

Instead of researching vaping and gun violence, the CDC could have extensively examined NPIs. We did not need to take a shot in the dark with polices that cost 40 million American jobs.

Limited government not only keeps government within its proper scope, it avoids mission creep and ensures that critical tasks get done well. Governments generally underprepare for rare events like disasters and pandemics. This makes an agency focusing exclusively on communicable diseases invaluable.

After the COVID-19 pandemic is behind us, we should seriously consider replacing the CDC with an agency focused exclusively on infectious diseases. Other CDC functions (like collecting vital statistics) can be moved elsewhere within the Department of Health and Human Services. We need an approach to ensure preparedness for the next pandemic.

Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.

3 months ago

Sports and COVID risk

(Pixabay, YHN)

Sports across the world are beginning restarts. Germany’s top soccer league resumed in May, while NASCAR, the UFC and the PGA tour are back underway. Yet are sports truly worth risking a deadly illness?

The assumption of risk provides a guiding principle. Adults should be free to engage in risky activities. Voluntary, informed consent makes many activities acceptable; boxers and UFC fighters would be committing felonies against unwilling participants. Sports participation involves numerous risks, of which COVID-19 could be one.

Pro athletes are well compensated, so a stronger case exists for resuming pro than college sports. In 2019, baseball’s minimum and average salaries exceeded $500,000 and $4 million respectively. Yet because we allow 18-year olds to join the military, I think college athletes should be able to accept COVID-19 risk if they choose.

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Sports are group activities, raising a thorny issue. A league will either return to action or not. Dealing with risks of death is a fundamental and personal part of life. In America. we believe that people should get to make fundamental life decisions for themselves. For instance, as restaurants reopen, people can choose whether to accept the risk.

All players must live with a league’s decision. For some, the league decision will differ from what they would choose based on their personal values. The league’s decision may appear coercive; for example, NBA players may feel “forced” to report for the league’s restart. Yet this is not truly coercion. No player will face jail time for refusing to play; they can give up their contract and roster spot.

As leagues grapple with resuming play, remember that safety is a luxury good. People generally choose more safety as they become richer. Star players worth millions of dollars may be unwilling to accept much risk. We should expect leagues to exercise abundant caution and some stars to step away.

Events with few or no fans seem likely for the near term. Consequently, leagues relying more on gate receipts than television broadcast rights should be less likely to restart. College football depends more on ticket revenues (including donations tied to tickets) than the NFL, and the NCAA seems unenthusiastic about playing games with empty stadiums.

Televised sports will recover one of the pandemic’s significant economic losses. Economists call the difference between the value of a good or experience to people and the price they must pay consumer surplus. Millions of Americans watch and follow sports while paying very little to do so; sports generate a lot of consumer surplus. The cost of the sports shutdown far exceeded its contribution to GDP.

One factor receiving surprisingly little attention is athletes’ benefits from competition. For example, athletes train for years to compete in the Olympics. Missing out on the experience of a lifetime seems like a significant loss. The Summer Olympics have not been canceled, just postponed to 2021.

The potential availability of a vaccine or cure matters significantly for restarting sports. President Trump’s Operation Warp Speed promises a vaccine by December. As a Troy Trojans football season ticket holder, I would favor starting the season in January if we will have a vaccine.

States’ business closure orders this spring exempted “essential” businesses. Perhaps sports should be essential. Workers in health care, meatpacking, grocery stores, and package delivery have been expected to work despite COVID-19. Meatpacking plants have proven particularly vulnerable yet were ordered by President Trump to remain open. Many essential workers probably never realized they were working such potentially dangerous jobs.

Other Americans, myself included, have been working safely from home. Yet we rely on essential workers putting themselves at risk; college classes can only go online if someone keeps the power grid and internet functioning. Sports comprise an important part of the lives of many Americans. A resumption of sports could be viewed as essential for the well-being of essential workers.

Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.

4 months ago

Dr. Daniel Sutter: Will things ever change?

(Minnesota Police Department/Contributed, Benjamin L. Crump, Esq./Facebook, YHN)

The killing of George Floyd by Minneapolis police officer Derek Chauvin ignited nationwide protests. While we advise jurors to withhold judgment until presentation of all the evidence, video of the incident seems definitive. Mr. Floyd joins a much too long list of minority victims of police violence.

Justice may be served in Minneapolis. The four officers involved were fired the next day and Mr. Chauvin charged with third-degree murder within a week (which has since been upgraded to second-degree murder). Does this render the protests moot? Not necessarily. Mr. Chauvin was not charged with first-degree murder, and the charges could be reduced when attention focuses elsewhere.

I am something of an anomaly, a law-and-order libertarian. I have great respect for the police because of the injustice of crime. When someone takes your belongings – whether milk money or a car – we naturally feel the injustice. Bullies and criminals violate social peace. The police respond to our calls for help. Bullies and criminals terrify many of us, but not the police.

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Police use of excessive force is a danger for all Americans. Minorities, however, have far more such encounters. Jason Riley is a member of the Wall Street Journal’s editorial board guest. In “Please Stop Helping Us,” Mr. Riley details his encounters with the police as a law-abiding youth, often for nothing more than “driving while black.” He observes, “Was I profiled based on negative stereotypes about young black men? Almost certainly. But then everyone profiles based on limited knowledge, including me.”

I have never faced such discrimination nor experienced the ensuing reactions. Mr. Riley did not let profiling poison his life view, and this is admirable. I also appreciate that some young men will show resentment, which might provoke police wrath. Minorities bear the brunt of police mistakes, like Breonna Taylor, killed in a botched police raid this March.

We should hold police officers to an extremely high standard because they can use deadly force. We should also remember how police officers experience encounters with us. While the majority of traffic stops will be routine, an officer never knows when a confrontation might occur.

Minimizing inevitable tragic accidents provides the first place for change. Yale law professor Stephen Carter tells his first-year students to never push for a law they would not want people killed to enforce. Mr. Floyd was apprehended for spending a counterfeit $20; Eric Garner was killed in 2014 while evading New York’s cigarette taxes. We should not criminalize so many things.

I believe that the Derek Chauvins are a minuscule fraction of police officers. We lack institutional controls on misbehavior. Police officers have a common interest in disciplining their bad apples, but this rarely happens.

Misbehavior is likely tolerated because police officers, like firefighters or soldiers, depend on each other in matters of life-and-death. I have never served in such positions and may not appreciate this need to trust colleagues. Nevertheless, bad apples abuse toleration; Mr. Chauvin ruined the other officers’ lives in addition to ending Mr. Floyd’s life.

Police unions vigorously defend and enforce privacy rules shielding rogue officers. A retired New York Police commander wrote, “The unions, at least in New York City, outright just protect, protect, protect the cops.” Minnesota Attorney General Keith Ellison cites the Minneapolis police union as contributing to the department’s problems.

Asset forfeiture laws and militarization also contribute. Police departments can seize and keep cars, money and other property from people not convicted of crimes, often minorities unable to contest the seizure. For decades, police departments have received surplus military equipment. Militarization and policing for profit must make officers feel like part of an army of occupation, not public servants.

Law enforcement is a noble profession when the police “protect and serve” citizens. Police should get the benefit of the doubt when using force but this is only possible if departments fire miscreant officers.

Some encouraging incidents have occurred this past week. In Genesee County, Michigan, Sheriff Chris Swanson took off his riot gear and walked and talked with protestors. The cycle of violence will never end if police and citizens view each other as adversaries.

Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.

4 months ago

Did the lockdown save lives?

(Pixabay, YHN)

In March, states undertook dramatic and unprecedented measures to stem the spread of the SARS2-COV virus. And yet COVID-19 has claimed 100,000 lives in the United States. Was the lockdown effective? Economists frequently address such questions in our research.

Seeing the unseen, or the path that we did not choose, is the key here. It is the fundamental challenge of economics, as illustrated by Frederic Bastiat’s parable of the broken window. A shopkeeper must replace a broken window. A neighbor, perhaps offering solace, points out that if windows never got broken, the town glazier would starve. To avoid believing that broken windows boost the economy, we must recognize what the shopkeeper did not buy due to replacing the window.

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Economists visualize the alternative paths we could choose. What would have happened if we didn’t pass NAFTA, or hadn’t bailed out banks during the financial crisis, or if we raised the minimum wage to $15 per hour? The term counterfactual refers to the unchosen path.

Economists devise principles for constructing counterfactuals. Scenarios must be logically coherent and consistent with the available evidence. We must avoid overly optimistic or pessimistic alternatives.

I have never estimated potential deaths in an outbreak of a disease but have researched tornado warnings and “worst case” tornadoes. Like most economists, I recognize the challenges in evaluating the lockdown.

Here’s a first challenge. WalletHub has scored the strictness of states’ COVID protection measures. The average COVID fatality rate for the 10 states with the strictest lockdown policies is 686 per million residents, versus a fatality rate of 68 for the 10 least strict states, or one-tenth as much. The three highest fatality rate states are among the ten strictest states.

Does this show that lockdowns cause COVID-19 deaths? No. The states suffering the worst outbreaks will impose the strictest measures. This is the endogeneity of policy problem. Ignoring this issue would lead us to conclude that hospitals cause death because many people die there. Controlling for policy endogeneity is a major research focus.

Another problem arises because states imposed policies and Americans realized that COVID-19 was a serious health threat at about the same time. The NBA suspended its season March 11, people sharply reduced travel around March 15, and the first state stay-at-home order took effect March 19. We have very few data points to tease out the effect of various policies from behavioral changes.

The United States was slow in rolling out testing for COVID-19, creating another challenge. If we compared the number of COVID-19 cases in the month before and after lockdowns to test effectiveness, the total would rise simply because many more people were tested. Can we detect a decline in infections during a period of expanding testing?

Even if March’s lockdown was effective, the policies may not be effective in another time or place. Policy effects may not transfer for several reasons. For the COVID lockdown, an important factor is peoples’ willingness to comply. If Americans do not favor shutting down the economy for a second wave of the virus, stay-at-home orders may prove ineffective when reimplemented.

Researchers at Columbia University have evaluated the lockdown, based on computer simulations with travel data between cities and reported cases and deaths. The policies appear to have stemmed the illness; indeed implementation of the same policies two weeks earlier could have avoided 83% of U.S. deaths through May 3.

The sophisticated technical analysis here, I think, obscures a bigger point. “Nonpharmaceutical interventions,” as epidemiologists call such policies, do not prevent COVID-19 deaths. Americans who did not get COVID this spring can still get sick next fall. Only a vaccine or effective treatment will truly prevent deaths.

Whether school closings and stay-at-home orders slow an outbreak is an important and really challenging research question. This question must be answered before we compare economic costs and health benefits. Ultimately a lockdown is merely a delaying action. Delaying actions are only worth fighting as part of a larger strategy.

Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.

4 months ago

The future of college

(Pixabay)

COVID-19 has disrupted almost all aspects of life, including higher education. Colleges moved classes online during the spring semester and some observers believe that this will permanently change higher education. I think this will create new focus on how college creates value.

Online education has existed for years. Arguably though, the willingness of the nation’s most prestigious universities to shift online affirms the quality of online instruction. I would caution about reading too much into any response to this unprecedented pandemic.

Higher education’s predicament becomes much greater if the 2020-21 year ends up online. I will not try to forecast the progression of COVID-19 here, but the California State University system recently announced online classes for fall. An online year would produce an immediate financial crisis and a longer-term viability challenge.

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Universities take on considerable debt for classrooms, dorms, dining halls, and recreation centers. Tuition may pay for classroom buildings, but room and board payments service the bonds for dorms and dining halls. Similarly, many football schools have financed stadium improvements using revenue from long term television contracts. Universities will almost certainly create a need for a government bailout.

The longer-term issue would begin when campuses reopen. Will students return in the new normal? Focusing on college’s value proposition for students helps here.

Most traditional academics believe that online education is low quality, but this may simply reflect our biases. I see student learning styles as more relevant; some students’ can learn readily online. A parallel I think is the large state university versus a smaller college. Some students can succeed with the anonymity of the giant lecture hall; others need a personal connection with professors and classmates.

Why employers value college degrees is also relevant and there are three competing sources here. First and most prominent is human capital. In this view, classes teach skills and knowledge used in jobs. A second explanation is signaling, in which a college degree provides valuable information about a student’s talents even though course content is not used in jobs. Finally we have legal restrictions; laws, primarily licensure, require a person hired for certain jobs to have a specified degree.

Online education can most readily supply legally required degrees. When job seekers and employers view the degree as merely checking a legal box, both will want to meet the requirement with minimal cost.

The signaling function might be the most difficult to replicate online. Education works as a signal when only students possessing certain traits (e.g., the ability to learn challenging material quickly) earn a degree or high grades. Credible signaling requires a level of familiarity only face-to-face interactions have traditionally afforded.

The usefulness of online education for human capital depends on the skill or knowledge. Consider learning to play a musical instrument (something I know only from reading about). Such instruction is usually one-on-one or in very small groups; watching a how-to video by one of the world’s leading musicians does not work well. Music teachers have offered lessons on Zoom during the pandemic; perhaps virtual instruction will prove effective.

Higher education involves valuable experiences outside of the classroom. While this might sound like an apology for parties and football games, for many people, college is a valued part of growing up. People make lifelong friends and often meet their spouses. College is about more than just book learning.

A four-year party might seem unnecessary, but life is about more than mere survival. Fine food and elegant dining is not just about efficiently ingesting calories. Clothes for many people are fashion statements. This is normal in a prosperous society; the quality of the journey becomes paramount, not merely getting from A to B.

The economic slump, I think, threatens higher education’s long term viability more than COVID-19. The pandemic may trigger a depression leaving the United States and the world substantially poorer than at the start of 2020. If so, we will be able to afford fewer luxuries, including traditional college.

Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.

4 months ago

Did we give informed consent?

(Pixabay, YHN)

Our federal and state governments implemented unprecedented measures beginning in March to stem the spread of COVID-19. Informed consent provides a foundation of medical ethics. Did our elected officials and public health experts get our informed consent for policies that have put 30 million Americans out of work?

Medical experiments have often been performed on unsuspecting subjects, like the infamous Tuskegee Experiment. The U.S. Public Health Service in 1932 began studying the health effects of syphilis on African-American men recruited with a promise of free health care. Even after penicillin emerged as a treatment, the study participants still only received placebos and went untreated until public revelation in 1972.

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Informed consent became the ethical dividing line. According to the American Medical Association, “The process of informed consent occurs when communication between a patient and physician results in the patient’s authorization or agreement to undergo a specific medical intervention.” A patient should be provided information on “the burdens, risks, and expected benefits of all options, including foregoing treatment.”

We canceled sports and public gatherings, closed schools and universities, and shuttered nonessential businesses to “flatten the curve.” The new coronavirus can be transmitted by persons without any symptoms, so isolating the sick is not necessarily effective for COVID-19. Millions of cases over just a few months would overwhelm hospitals; avoidable deaths would result from critically ill patients not receiving the best possible care.

Several epidemiological studies offered frightening worst-case scenarios. The highly influential study from Imperial College in London projected that 81% of Americans would get the illness with 2.2 million deaths. Stay-at-home orders seemed prudent to prevent such a disaster.

Yet, even extreme social distancing will not prevent COVID-19 cases and deaths, only delay them. Everyone is potentially susceptible to a brand-new virus; staying home to keep from getting sick does not change this fact. That two weeks or two months of lockdown would prevent the feared deaths from ever occurring was a false hope.

The epidemiological models did not hide this. The Imperial College study warned that with relaxation of suppression measures, “transmission will rapidly rebound, potentially producing an epidemic comparable in scale to what would have been seen had no interventions been adopted.” To avoid these 2.2 million deaths, our current policies would “need to be maintained until a vaccine becomes available (potentially 18 months or more).”

Herein lies the potential lack of informed consent. Was it ever clearly explained that our policies were merely going to delay the health crisis? Would we have chosen to bear such immense economic pain for only a stay of execution?

The policies implemented in March will likely prove unsustainable. The nationwide lockdown was inevitably going to either be relaxed or simply collapse as Americans began ignoring the orders, and long before a vaccine or cure would be available. The policy debate has been couched as a choice between public health or the economy, an unconstrained pandemic or a depression. Our unsustainable policies might deliver a depression and a pandemic.

Our delaying action though has bought us time. We have learned more about the foe. We have controlled trial evidence that Remdesivir effectively treats COVID-19 (it is not a cure, but it helps). Doctors have learned that some healthy young persons who have fallen seriously ill were having an immune system overreaction to COVID. And some patients may have been ventilated too quickly.

We have also expanded health care system capacity. Temporary hospitals have been established and ICU beds added. We can test many more people for the virus now and have antibody blood tests as well. We should soon have adequate supplies of protective equipment for health care and nursing home workers.

Knowledge and preparedness should save lives in a potential “second wave.” We can use lessons learned to help reopen businesses and schools safely. Buying time may prove to be the shutdown’s greatest benefit.

Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.

5 months ago

Dr. Daniel Sutter: Challenges and a coronavirus vaccine

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President Trump recently announced “Operation Warp Speed,” a plan for a novel coronavirus vaccine by the end of 2020. I welcome the announcement because the greatest impediment to a vaccine now is the Food and Drug Administration’s (FDA) approval process. Speedy development of a vaccine is not without precedent.

The president’s comparison to the Manhattan Project, however, seems excessive. A vaccine is knowledge, which we may already possess. At least three candidate vaccines are in human safety testing, with perhaps thirty more in development. We hopefully have the recipe for an effective vaccine.

The FDA vaccine approval process starts with animal testing to evaluate safety and the production of antibodies followed by three phases of human testing. First is a very small sample to test safety; vaccines sometimes induce immune system reactions which damage organs. If judged safe, two rounds of randomized control trials ensue involving hundreds and then thousands of participants.

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Only a safe and effective vaccine will benefit Americans. A vaccine will likely be part of returning life to normal. An ineffective vaccine may unleash another COVID outbreak and thousands of deaths.

Can this be accomplished quickly? Dr. Anthony Fauci has repeatedly stated that developing a vaccine will take 12 to 18 months; other experts suggest years. History shows otherwise, at least in one case. In 1957, a new strain of influenza, the Asian flu, was detected in Hong Kong in April. Dr. Maurice Hilleman, chief of respiratory diseases at Walter Reed Army Institute of Research, wanted a vaccine ready before it reached the United States. When the flu arrived four months later, 40 million Americans had been inoculated. The pandemic claimed 70,000 American lives, but the total likely would have been much higher without a vaccine.

Dr. Hilleman devised both an effective vaccine and a plan for manufacturing it. In devising his plan, according to History.com, Dr. Hilleman “bypassed regulatory agencies in his efforts to push the vaccine forward because he worried those agencies would slow the process down.”

How could we expedite the process today? I am not a medical researcher, but we could probably combine the two phases of effectiveness testing and test several candidates with a common control group.

We could also employ human challenge testing and deliberately infect participants with the virus. We would administer participants a vaccine, give their immune systems time to develop antibodies, and then infect them with the coronavirus. Trials normally rely on participants running into a virus during their daily routines.

Human challenge testing offers several advantages. A trial would require fewer participants since all get exposed. The test concludes faster as exposure occurs immediately after the vaccine has had a chance to work. And researchers can control the exact exposure.

A significant ethical issue arises, as control group participants receive a placebo. Medical researchers would be intentionally infecting unprotected people with a deadly virus.

A paper in The Journal of Infectious Diseases, however, argues that human challenge testing could be ethical. We could include only young adults with no known risk factors, who face a low risk of death from COVID-19, provide them with the best healthcare available if needed, and seriously test informed consent.

A moral society is based on voluntary interaction. Consent distinguishes gifts from theft and democracy from dictatorship. I believe that informed consent justifies deliberate exposure to the coronavirus. History sadly provides examples of despicable, unethical medical experiments, like the Tuskegee Experiment. We will not be doing anything remotely similar here.

As an economist, I would further suggest compensating participants with fame if not money. Any participants who unfortunately die in the testing should know that we will commemorate their lives and sacrifice in the COVID pandemic museum.

Operation Warp Speed has let Americans know that we can guide the process of vaccine testing, not bureaucratic rules. Let’s now devise an expedited process to get an effective vaccine to Americans as soon as possible.

Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.

5 months ago

Markets and medicines

(Pixabay, YHN)

Would you try an unproven drug to treat COVID-19? The Food and Drug Administration (FDA) has understandably not approved any drug for this brand-new illness. A willingness to try suggests seriously rethinking FDA regulation of drug effectiveness.

The FDA authority to regulate new drug safety dates to the 1930s, with effectiveness regulation added in 1962. Regulation is pre-market: a company must prove safety and effectiveness to the FDA before marketing in the United States.

Doctors can prescribe drugs already on the market, which have been demonstrated safe, to a patient for any purpose. Drugs introduced for one purpose will sometimes work on other ailments. For instance, Rituxan was introduced for one type of non-Hodgkin’s lymphoma but oncologists discovered it works on many lymphomas and some cancers. Companies cannot promote any such “off-label” uses of drugs.

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FDA regulation exists because many Americans fear that companies would market useless drugs to desperately ill patients. The fear makes sense. People lack the expertise to know if a medicine can deliver as promised. Doctors may not treat enough patients to judge effectiveness themselves, and drug companies may offer financial incentives for prescribing. Marketing could possibly offset research in boosting profits.

Yet economists have found otherwise. Very few drugs on the market before 1962 were ineffective. Why? Insurance companies and hospitals provide an important check. We may not remember how drug X was overhyped, but insurers will and may not pay for the manufacturer’s next drug.

One out of five U.S. prescriptions may be written off-label. As economist Alex Tabarrok notes, off-label usage further demonstrates that the market can evaluate effectiveness without the FDA.

Proving effectiveness, however, is difficult and costly. Two-thirds of the $3 billion average cost of a new drug approval is spent showing effectiveness. Some “effective” drugs might only work for 20 percent of patients, making a demonstration challenging. Drugs eventually approved by the FDA are often available in Europe months earlier, demonstrating that our regulation generates unnecessary delays.

FDA regulation has slowed our response to COVID-19, beginning with tests for the virus. U.S. law charges the Centers for Disease Control with developing a test for an emergency; non-CDC tests must receive FDA approval. The FDA did not approve any others until late February and only approved the first serum anti-body test on April 3.

At least a dozen drugs are being tested for treating COVID-19. The FDA has allowed many Americans into these trials using emergency authorizations. Machine learning using the novel coronavirus’ DNA and laboratory testing identified the most promising drugs, which quickly went into testing on patients. This is part of a worldwide effort to find a treatment, not bilk desperate patients and their insurers.

FDA approval represents a major hurdle for any vaccine. We have been told that a vaccine will not be available for one or two years, but this is largely due to the FDA’s approval process. President George W. Bush planned to deploy a vaccine against a new influenza strain within six months; a swine flu vaccine was available in nine months. Advances in biomedical research have developed potential vaccines for COVID-19 in record time, with at least three already in human safety testing.

Only a safe and effective vaccine will benefit us. Nonetheless, an expedited approval process could still yield results. One innovative proposal involves intentionally exposing immunized subjects to the novel coronavirus in “human challenge” testing, speeding up the process significantly. The candidate vaccines may not work, but any delay of an effective vaccine due to bureaucratic paperwork should be intolerable.

COVID-19 starkly highlights two competing worldviews among economists and policymakers. One sees the pursuit of profit imperiling people unless checked by government regulation. The other believes that businesses earn profits over time by benefitting customers. The former view drives FDA regulation. If we trust doctors in treating COVID-19, we should reexamine the case for FDA effectiveness regulation.

Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.

5 months ago

Is this a recession or a holiday?

(Pixabay, Wikicommons, YHN)

We have experienced unprecedented economic effects of the COVID-19 pandemic and social distancing policies. Twenty-two million Americans lost jobs in four weeks. The Federal Reserve Bank of St. Louis projects potentially 30% unemployment and a 50% decline in GDP by June. This looks like a depression, but is it really?

A recession or depression is visible – idle factories, reduced investment, and unemployed workers – but the causes are typically numerous and elusive. An economy in a depression is like a motor that has stopped working. Economists also note that recessions extend across most of the economy, as opposed to being a slump in one sector. The oil bust of the mid-1980s, for example, did not produce a recession.

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Our current slump meets the breadth requirement. While sectors like tourism and entertainment have been particularly hard hit, the 30% decline in global oil demand demonstrates widely reduced economic activity. The stock market tumbled over 30% as well, consistent with a broad slump.

Yet in a very important way, the COVID-19 slump, dubbed by some the Great Suppression, differs from recessions and depressions; the decline has resulted from closing businesses to stem the virus’ spread. Christmas Day, when GDP craters as most factories, stores and restaurants close, perhaps provides a more appropriate economic analogy. The Christmas shutdown is intentional; people do not want to work and businesses oblige. Is the COVID-19 slump a lengthy Christmas break?

If so, we could expect a vigorous rebound when we end government closures, just as on December 26 (or perhaps January 2). We do not fear the economy not returning to normal after the Christmas shutdown.

The aftermath of World War II provides another hopeful example. Many of America’s factories produced tanks, planes, ships, and munitions for the war. Measured GDP was high but consumption of goods and services was modest. Economists were unsure the economy would transition to peacetime production after fifteen years of limited consumer production due to the Depression and the War, but it did.

One important difference exists between the COVID slump and the Christmas crash: we plan and prepare for Christmas. The COVID crash was unanticipated and of uncertain duration. Households did not stock up on supplies or accumulate extra savings. The Federal government did not run budget surpluses ahead of the crisis.

In addition to Christmas, small businesses often close when the owner goes on vacation, and seasonal businesses survive months-long closures. How and when will the Great Suppression turn into a recession? Most likely when currently shuttered companies go out of business, or their employees take other jobs.

Closed businesses have no revenue to pay employees, their rent, or for leased equipment. They may potentially hibernate and come back to life. Laid-off employees may have few other job options and landlords may lack new paying tenants. The Payroll Protection Plan and supplemented unemployment will hopefully help businesses hibernate and not go bankrupt.

The pandemic has two distinct components: reduced economic activity as people try to stay safe, and government closure of non-essential businesses. These two actions occurred nearly simultaneously and now complicate business owners’ calculations. When states lift stay-at-home orders, will customers return to restaurants and gyms? The existence of COVID-19 will significantly alter our economy. Previously successful business may be unprofitable until we have a vaccine or cure.

Business owners must also evaluate a political uncertainty. In March we chose public health over the economy. If COVID-19 cases increase after states ease restrictions, will we choose public health again? If so, then owners may squander their savings reopening businesses which get closed a second time.

Business failures will have ripple effects. Landlords will feel financial hardship as businesses and tenants are unable to pay rent. Loans made to these businesses will go unpaid. The ensuing rounds of spending reductions will not be directly connected to the closed businesses. The shutdown will have become a recession or depression and it will be too late to “reopen” the economy.

Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.

5 months ago

Should we sue china over COVID?

(Pixabay, YHN)

Several lawsuits seek monetary damages from the Chinese government for the COVID-19 pandemic. Politicians seem to like the idea, too. South Carolina Senator Lindsey Graham said, “If it were up to me the whole world would send China a bill for the pandemic.” Tennessee Senator Marsha Blackburn thinks China should forgive the portion of our national debt it holds. Should anyone take financial blame here?

The lawsuits face an enormous hurdle in sovereign immunity. With limited exceptions, Americans cannot sue foreign governments based on a doctrine built into international treaties. I am not a lawyer, so I will not prognosticate on the lawsuits.

The new coronavirus originated in bats and began infecting people in Wuhan, China, in late 2019. This does not, to my mind, create liability. Viruses periodically jump from animals to humans; and each time, it happens somewhere. Should we have been financially liable for the 2009 H1N1 swine flu and 1918 Spanish flu pandemics which originated here?

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China initially denied the existence of the new virus and downplayed its spread. Yet this is not without precedent. The Spanish flu began in U.S. Army training camps. Even as hundreds of soldiers fell ill, units were sent to France with no warning offered, spreading the illness worldwide. The ensuing pandemic claimed an estimated 50 million lives.

International health experts have also made misstatements. The World Health Organization (WHO) equivocated on person-to-person transmission until late January and did not declare a global pandemic until March 11. The Centers for Disease Control (CDC) thought that isolating symptomatic travelers from China and very limited testing could contain the virus. The CDC only recently acknowledged the value of masks despite weeks of reports about presymptomatic and asymptomatic transmission.

China has almost certainly underreported numbers of cases and deaths. But so have other nations. Medical experts believe that the case fatality rate for COVID-19 is perhaps 1%. The official fatality rates currently are 4.1% in the United States, 12.8% in the United Kingdom and Italy, and 15.3% in France. These rates imply underreporting of cases by factors of four to fifteen. Pneumonia deaths among persons never tested are not necessarily getting attributed to COVID-19.

Health data is very inaccurate, even with our enormous medical establishment. The “fog of war” is thick during a pandemic. Misstatements must go well beyond the pale to rise to intentional distortion.

I think China can be fairly criticized for not fully cooperating immediately with the CDC and WHO. Emergent new viruses challenge humanity’s collective medical knowledge. The novel coronavirus’s DNA was posted on January 10, greatly assisting medical researchers. Still, every day matters with a new virus; the brightest medical minds must get to work as soon as possible.

COVID-19 will result in a fragile environment for international trade and global society. The novel coronavirus will not disappear once the current outbreak is controlled. Pandemic potential will exist until the virus circulates widely or a vaccine is developed. One contagion model suggests that 97% of Americans will not have had COVID-19 after this outbreak. Our current disaster could be repeated many times over.

Reopening the American economy without triggering a new pandemic will require great care. Reopening international trade and travel will require even greater care and trust: an outbreak in any nation could ignite a repeat. I suspect Americans and Europeans will not accept a significant renewed pandemic risk due to trade and travel.

China is very significant in the global economy but the Chinese government’s lack of transparency has eroded the trust necessary for globalization. Will we trust China to be truthful so any renewed outbreak can be contained? I suspect not, with real economic consequences.

The global economy makes us wealthier and our lives richer. Globalization has drawbacks, but overall it is a very positive force for humankind. Loss of the trust globalization requires may be the most significant economic cost of COVID-19.

Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.

6 months ago

Litigation in the public interest?

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America needs billions of masks to protect against the coronavirus, particularly high-grade N95 masks for healthcare workers. Nonetheless, fear of litigation delayed delivery of millions of construction masks to healthcare workers. Should the law be slowing our emergency response?

America’s largest mask producer, 3M, will soon be producing 100 million a month. The company normally produces more construction than medical masks; while similarly effective, the medical masks must meet more stringent standards. The construction masks would certainly protect better than bandanas.

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As reported by the Washington Post, 3M executives feared potential liability. Even with protective equipment, some healthcare workers will get sick. The performance differences could provide grounds for lawsuits. 3M would not ship the masks without a Federal liability waiver, which Congress approved in mid-March.

Who is to blame for the delay? A professor of bioethics quoted in the Post article states, “Don’t talk to your lawyers if you’re making masks or gowns or ventilators.” Yet 3M executives and lawyers have a duty not to expose the company to potentially ruinous litigation. The federal government could have acted quicker, as mask makers raised the liability issue in early February.

Many might blame the lawyers who might file such lawsuits. Suing a company helping out in a crisis is hardly praise-worthy. But this misses the more significant question: Why should plaintiffs have any chance of winning such a suit?

Plaintiffs’ lawyers commonly take cases on a contingency fee basis. As the ads say, “We don’t get paid unless you get paid.” Consequently, these lawyers must carefully evaluate whether they can win a case and would only sue 3M if they thought they could win.

Plaintiffs should be able to sue and win when companies have done wrong. Litigation helps us learn about corporate misbehavior. I frequently discuss the decentralized nature of knowledge. In a world of decentralized knowledge, we rarely know enough to call new lawsuits frivolous. Once the legal process discovers the relevant facts, we might conclude that the plaintiffs should not win.

If plaintiffs can win when we believe they should not, this is a problem with the law. We should fix the underlying problem instead of hoping lawyers will not file winnable cases.

My interest is not in narrow questions like why liability arises in this specific instance. The difference between law and legislation provides perspective on why law today can produce injustice. Today we think these are the same thing, but historically they differed.

Congress, state legislatures and city councils pass laws today. But as economist Friedrich Hayek observed, law used to differ from government legislation. This was most apparent with England’s common law.

Common law emerged and developed as freedom increased, providing rules to order peoples’ business and personal affairs. Rules help us anticipate how others will act, because people usually follow the rules. Starting a business would be impossibly risky unless an entrepreneur knew the meaning of leasing a building, purchasing supplies, and hiring workers.

The rules emerged out of a common understanding, not acts of Parliament. A relevant analogy today is the difference between a company’s employee handbook and the informal ways to get things done.

The common law evolved as judges decided cases involving new issues. There were multiple judges who were not bound by precedent; they could adopt or modify other judges’ rulings. If a party to a case did not like a judge’s ruling, they could argue their next similar case before a different judge. Through trial and error, decisions were fine-tuned into rules satisfying most parties.

In the 1800s, governments decided to write the common law into legislation. This sounds reasonable: any person could read the text of any law. Yet this also let legislatures change laws, sometimes to advantage special interests.

The law helps people deal with each other in peaceful, socially beneficial ways and should protect us from charlatans who break the rules. And our laws should assist us in responding to emergencies, not create unnecessary obstacles.

Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.

6 months ago

Economic consequences of the pandemic

(Pixabay, YHN)

Our lives and economy have been disrupted on an unprecedented scale by COVID-19. How do we calculate the societal impact? Costs are tricky because they involve actions not chosen. Economics helps bring the consequences of the pandemic into focus.

The full costs involve much more than just monetary impacts. Economics and life are about human satisfaction or happiness; economics calls this utility. Eating food, watching sports on TV, socializing with friends and visiting relatives all generate utility. Money is valuable only because it enables the purchase of goods, services and experiences.

Our purchases typically generate benefits in excess of the price paid. A weekend family trip might cost $500, yet we might judge that the trip, which could produce lifetime memories, generates more than $500 in value. Let’s say we judge the trip as worth $1,200. The difference between the value of the trip and what we pay for it, in this case $700, is called consumer surplus. The cost of COVID-19 must include lost consumer surplus.

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Identifying costs requires careful thinking about the alternative, both for our daily life activities and business. Many factories, hotels, casinos and museums have closed. We are losing their production and services, some of which can be offset. Overtime can make up for lost production at a factory; vacations can be taken later. People are impatient so the delay generates a real cost.

The potential to shift production and vacations illustrates an economic law: we live in a world of increasing costs. The cost per week of extreme social distancing will increase with each passing week. One month’s production from a factory might be made up; one year’s lost output is largely gone forever.

The cost is the difference in value created by the new ways relative to the normal. The cost of working from home is the reduction in workers’ productivity. For college classes shifted online, the cost is the reduction in learning. We must also note any offsetting savings; working from home, for example, saves commuting costs.

A couple of patterns, I think, can be observed. First, many disrupted activities have high ratios of consumer surplus to consumer expenditures. Consider the NCAA basketball tournament and the Summer Olympics. Few people attend these events, but millions (or billions) watch them on TV. The value of sports and entertainment far exceed their contribution to GDP.

Second, COVID-19 impacts have been very unequally distributed. For many, the disruption has been relatively minor, perhaps not chatting with coworkers about the March Madness tournament. By contrast, entrepreneurs have had businesses they poured their life, energy, and savings into building ordered closed indefinitely. College basketball players who trained and practiced for months missed out on March Madness.

Can the government offset the economic impact of the pandemic through a bailout? The answer is yes and no.

The proposed Federal coronavirus stimulus can soften the impact on hard-hit businesses and workers. Closed hotels, restaurants and airlines might be kept out of bankruptcy; their employees can continue to get paid and know they will have jobs when life resumes.

Paid sick leave during this emergency measure is also likely beneficial. A person with mild COVID-19 symptoms might decide to work to avoid missing a paycheck. Paid sick leave could let such persons stay home and slow the virus’ transmission.

The best hope for the stimulus is containing the economic impact. If hotels and restaurants go into bankruptcy, the banks which lent to them might be in trouble. Bankruptcies and layoffs could produce a collapse requiring years to recover from.

Yet a real limit to government assistance exists. Giving shuttered businesses and idled workers money does not help produce the goods and services which ultimately generate utility. Getting a check from the government does not make toilet paper available.

Economics teaches us that life involves tradeoffs. COVID-19 significantly threatens public health, while shuttering large parts of our incredibly complicated market economy threatens our prosperity. We need to soberly evaluate these tradeoffs to minimize the impact of the coronavirus.

Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.

6 months ago

Sports cancellations explained by economics

(Pixabay, YHN)

Our world has changed almost unimaginably recently. The cancellation of the NCAA basketball championships brought us, in my son’s words, “March Sadness.” Why has our nation responded so dramatically and differently to COVID-19 than earlier pandemics, including H1N1 just 11 years ago? Economics offers a couple insights.

Things are certainly different. In 1919, hockey’s Stanley Cup was canceled due to the Spanish Flu. Not weeks ahead, however, but hours before Montreal and Seattle were to play Game 6. Montreal’s coach and five players had the flu; star Joe Hall died just days later.

The last global pandemic was H1N1. Schools and colleges remained open, and sports and entertainment did not halt. I remember the pandemic’s start and how the danger never seemingly materialized, but that wasn’t entirely accurate. The CDC estimates that the U.S. experienced 13,000 deaths, 275,000 hospitalizations, and 60 million cases; worldwide deaths may have exceeded 500,000.

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Sports leagues certainly made no effort to soldier through COVID-19. Why the change? For one, we are wealthier than ever, and safety is a luxury good. In economics, a luxury good is one where its percentage of consumer spending increases as income goes up. Items like jewelry and vacation travel fit this description.

I use safety here because dozens of choices we make create risks to our life and health. Travel, diet and exercise, leisure activities, and work all matter. As people get richer, they are less willing in these choices to put themselves and their families at risk. Differences in attitudes toward risk can obscure this. Some rich people enjoy dangerous activities like skiing and flying a plane, while not all hypochondriacs are wealthy.

Because safety is a luxury, our actions during a pandemic will change. I would not expect a sports league to play until the players were dying, and we will close schools and cancel festivals more quickly than before. Furthermore, our greater knowledge of diseases affects our choices. Death tolls that were “acceptable” in the past are no longer so.

But more than just changing preferences are at work here. The economics of capacity constraints also matter.

We live in a world of scarcity, so we cannot get everything we want. We must produce the goods and services we value with limited resources. Production takes time and uses tools like factories, assembly lines and bulldozers which themselves take time to make. We cannot ramp up production as quickly as we might want.

The capacity constraints for COVID-19 are in the health care system: hospital beds, beds in intensive care units, ventilators, and supplies of drugs and antibiotics. According to the American Hospital Association, there are 925,000 staffed beds nationwide, with about 100,000 in intensive care. We might wish we had more beds, but capacity is costly; imagine maintaining hospitals solely for use in a pandemic.

This is why social distancing, canceling sporting events and festivals, and working from home are so important. Epidemiologists refer to this as leveling the curve, meaning the curve you get when plotting the number of new cases per day. In a pandemic, this curve can grow fast; enough growth in cases will overwhelm any capacity constraint.

Germany’s Chancellor Angela Merkel recently said that two out of three Germans may get COVID-19. Let’s suppose that proportion applies here. The timing of the cases determines whether capacity will be exceeded. If they occur over one or two years as opposed to one or two months, every patient who develops pneumonia can get the very best care possible today.

The dynamics are in a way similar to the seasonal flu. Healthy young adults face little risk from the flu. A flu shot helps them relatively little, but can keep them from giving their grandparents the flu. We would be wise not to be excessively brave in the face of what for some of us might be little danger.

Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.