Unending nightmares

Sep 19 JDN 2459477

We are living in a time of unending nightmares.

As I write this, we have just passed the 20th anniversary of 9/11. Yet only in the past month were US troops finally withdrawn from Afghanistan—and that withdrawal was immediately followed by a total collapse of the Afghan government and a reinstatement of the Taliban. The United States had been at war for nearly 20 years, spending trillions of dollars and causing thousands of deaths—and seems to have accomplished precisely nothing.

Some left-wing circles have been saying that the Taliban offered surrender all the way back in 2001; this is not accurate. Alternet even refers to it as an “unconditional surrender” which is utter nonsense. No one in their right mind—not even the most die-hard imperialist—would ever refuse an unconditional surrender, and the US most certainly did nothing of the sort.)

The Taliban did offer a peace deal in 2001, which would have involved giving the US control of Kandahar and turning Osama bin Laden over to a neutral country (not to the US or any US ally). It would also have granted amnesty to a number of high-level Taliban leaders, which was a major sticking point for the US. In hindsight, should they have taken the deal? Obviously. But I don’t think that was nearly so clear at the time—nor would it have been particularly palatable to most of the American public to leave Osama bin Laden under house arrest in some neutral country (which they never specified by the way; somewhere without US extradition, presumably?) and grant amnesty to the top leaders of the Taliban.

Thus, even after the 20-year nightmare of the war that refused to end, we are still back to the nightmare we were in before—Afghanistan ruled by fanatics who will oppress millions.

Yet somehow this isn’t even the worst unending nightmare, for after a year and a half we are still in the throes of a global pandemic which has now caused over 4.6 million deaths. We are still wearing masks wherever we go—at least, those of us who are complying with the rules. We have gotten vaccinated already, but likely will need booster shots—at least, those of us who believe in vaccines.

The most disturbing part of it all is how many people still aren’t willing to follow the most basic demands of public health agencies.

In case you thought this was just an American phenomenon: Just a few days ago I looked out the window of my apartment to see a protest in front of the Scottish Parliament complaining about vaccine and mask mandates, with signs declaring it all a hoax. (Yes, my current temporary apartment overlooks the Scottish Parliament.)

Some of those signs displayed a perplexing innumeracy. One sign claimed that the vaccines must be stopped because they had killed 1,400 people in the UK. This is not actually true; while there have been 1,400 people in the UK who died after receiving a vaccine, 48 million people in the UK have gotten the vaccine, and many of them were old and/or sick, so, purely by statistics, we’d expect some of them to die shortly afterward. Less than 100 of these deaths are in any way attributable to the vaccine. But suppose for a moment that we took the figure at face value, and assumed, quite implausibly, that everyone who died shortly after getting the vaccine was in fact killed by the vaccine. This 1,400 figure needs to be compared against the 156,000 UK deaths attributable to COVID itself. Since 7 million people in the UK have tested positive for the virus, this is a fatality rate of over 2%. Even if we suppose that literally everyone in the UK who hasn’t been vaccinated in fact had the virus, that would still only be 20 million (the UK population of 68 million – the 48 million vaccinated) people, so the death rate for COVID itself would still be at least 0.8%—a staggeringly high fatality rate for a pandemic airborne virus. Meanwhile, even on this ridiculous overestimate of the deaths caused by the vaccine, the fatality rate for vaccination would be at most 0.003%. Thus, even by the anti-vaxers’ own claims, the vaccine is nearly 300 times safer than catching the virus. If we use the official estimates of a 1.9% COVID fatality rate and 100 deaths caused by the vaccines, the vaccines are in fact over 9000 times safer.

Yet it does seem to be worse in the United States, as while 22% of Americans described themselves as opposed to vaccination in general, only about 2% of Britons said the same.

But this did not translate to such a large difference in actual vaccination: While 70% of people in the UK have received the vaccine, 64% of people in the US have. Both of these figures are tantalizingly close to, yet clearly below, the at least 84% necessary to achieve herd immunity. (Actually some early estimates thought 60-70% might be enough—but epidemiologists no longer believe this, and some think that even 90% wouldn’t be enough.)

Indeed, the predominant tone I get from trying to keep up on the current news in epidemiology is fatalism: It’s too late, we’ve already failed to contain the virus, we won’t reach herd immunity, we won’t ever eradicate it. At this point they now all seem to think that COVID is going to become the new influenza, always with us, a major cause of death that somehow recedes into the background and seems normal to us—but COVID, unlike influenza, may stick around all year long. The one glimmer of hope is that influenza itself was severely hampered by the anti-pandemic procedures, and influenza cases and deaths are indeed down in both the US and UK (though not zero, nor as drastically reduced as many have reported).

The contrast between terrorism and pandemics is a sobering one, as pandemics kill far more people, yet somehow don’t provoke anywhere near as committed a response.

9/11 was a massive outlier in terrorism, at 3,000 deaths on a single day; otherwise the average annual death rate by terrorism is about 20,000 worldwide, mostly committed by Islamist groups. Yet the threat is not actually to Americans in particular; annual deaths due to terrorism in the US are less than 100—and most of these by right-wing domestic terrorists, not international Islamists.

Meanwhile, in an ordinary year, influenza would kill 50,000 Americans and somewhere between 300,000 and 700,000 people worldwide. COVID in the past year and a half has killed over 650,000 Americans and 4.6 million people worldwide—annualize that and it would be 400,000 per year in the US and 3 million per year worldwide.

Yet in response to terrorism we as a country were prepared to spend $2.3 trillion dollars, lose nearly 4,000 US and allied troops, and kill nearly 50,000 civilians—not even counting the over 60,000 enemy soldiers killed. It’s not even clear that this accomplished anything as far as reducing terrorism—by some estimates it actually made it worse.

Were we prepared to respond so aggressively to pandemics? Certainly not to influenza; we somehow treat all those deaths are normal or inevitable. In response to COVID we did spend a great deal of money, even more than the wars in fact—a total of nearly $6 trillion. This was a very pleasant surprise to me (it’s the first time in my lifetime I’ve witnessed a serious, not watered-down Keynesian fiscal stimulus in the United States). And we imposed lockdowns—but these were all-too quickly removed, despite the pleading of public health officials. It seems to be that our governments tried to impose an aggressive response, but then too many of the citizens pushed back against it, unwilling to give up their “freedom” (read: convenience) in the name of public safety.

For the wars, all most of us had to do was pay some taxes and sit back and watch; but for the pandemic we were actually expected to stay home, wear masks, and get shots? Forget it.

Politics was clearly a very big factor here: In the US, the COVID death rate map and the 2020 election map look almost equivalent: By and large, people who voted for Biden have been wearing masks and getting vaccinated, while people who voted for Trump have not.

But pandemic response is precisely the sort of thing you can’t do halfway. If one area is containing a virus and another isn’t, the virus will still remain uncontained. (As some have remarked, it’s rather like having a “peeing section” of a swimming pool. Much worse, actually, as urine contains relatively few bacteria—but not zero—and is quickly diluted by the huge quantities of water in a swimming pool.)

Indeed, that seems to be what has happened, and why we can’t seem to return to normal life despite months of isolation. Since enough people are refusing to make any effort to contain the virus, the virus remains uncontained, and the only way to protect ourselves from it is to continue keeping restrictions in place indefinitely.

Had we simply kept the original lockdowns in place awhile longer and then made sure everyone got the vaccine—preferably by paying them for doing it, rather than punishing them for not—we might have been able to actually contain the virus and then bring things back to normal.

But as it is, this is what I think is going to happen: At some point, we’re just going to give up. We’ll see that the virus isn’t getting any more contained than it ever was, and we’ll be so tired of living in isolation that we’ll finally just give up on doing it anymore and take our chances. Some of us will continue to get our annual vaccines, but some won’t. Some of us will continue to wear masks, but most won’t. The virus will become a part of our lives, just as influenza did, and we’ll convince ourselves that millions of deaths is no big deal.

And then the nightmare will truly never end.

Why are borders so strict?

Aug 15 JDN 2459442

Most of us don’t cross borders all that often, and when we do it’s generally only for brief visits; so we don’t often experience just how absurdly difficult it is to move to another country. I have received a crash course in the subject for the past couple of months, in trying to arrange my move to Edinburgh.

Certain portions of the move would be inherently difficult: Moving a literal ton of stuff across an entire ocean is no mean feat, and really the impressive thing is that our civilization has reached the point where we can do it so quickly and reliably. (I do mean a literal ton: We estimated we have about 350 cubic feet and 2300 pounds of items, or 10 cubic meters and 1040 kilograms.)

But most of the real headaches have been the results of institutional policies.

First of all, there’s the fact that the university gave me so little notice. This is not entirely their fault; my understanding is that the position opened up during the spring, and they scrambled to fill it as fast as they could for the fall. Still, this has made everything that much more difficult.

More importantly, there is the matter of moving across borders.

In order to get visas to live in the UK, my fiance and I had to complete an application documenting basically our whole lives (I had to track down three parking tickets and a speeding ticket from as far back as 2011), maintain bank balances of a sufficient amount for at least 30 days (evidently poor people need not apply), and pay exorbitant fees (over $5000 in all for the two of us, which, gratefully, the university is supposed to reimburse me for). We had to upload not only our passports, but also financial documents as well as housing records to prove our relationship (in lieu of a marriage license, since we had to delay the wedding to this year due to the pandemic). But this was not enough; we had to pay even more fees to get expedited processing, and then travel to a US government office in the LA area to get our fingerprints done, and then mail our passports to another office in New York for further processing. We started this process the first week of August; we still haven’t heard back on our final approval.

Then there is the matter of moving our cat, Tootsie. UK regulations for importing a cat require an ISO-compliant microchip and certain vaccinations; this is perfectly reasonable. But they also require that you bring the cat with you when you move (within at most 5 days of your arrival), or else the cat will be legally considered livestock and subject to a tariff of over $1000.

This would be inconvenient enough, but then there is the fact that current regulations do not allow cats to be transported into the UK in the cabin of an aircraft. If they are to be flown in, they must be brought in the cargo hold. Since we did not want to subject our cat to several hours alone in a cargo hold on a transatlantic flight, we will instead be flying to Amsterdam, because the Netherlands has more lenient regulations. But then of course we still need to get her to Edinburgh; our current plan involves taking a ferry from Amsterdam to Newcastle and then a train from there to Edinburgh. In all the whole process will take at least a day longer (and cost a few hundred dollars more) than it would have without the utterly pointless rule forbidding cats from flying into the UK in the cabin.

All of this for, and I really cannot emphasize this enough, a routine move between two NATO allied First World countries.

The alliance between the US and the UK is one of the most tightly-knit in the world, and dates back generations. Our trade networks are thoroughly interconnected, and we even share most of our media and culture back and forth. There’s honestly no particular reason we couldn’t simply be the same country. (Indeed the one thing we did fight with them about in the last 250 years was over precisely that.)

There is probably less difference culturally and economically between New York and London than there is between New York and rural Texas or between London and rural Scotland. Yet a move within each country requires basically none of this extra hassle and paperwork—you basically just physically move yourself, register your car, maybe a few other minor things. You certainly don’t need to get a passport, apply for a visa, or pay exorbitant fees.

What purpose does all of this extra regulation serve? Are we safer, or richer, or healthier, because we make it so difficult to move across borders?

I can understand the need to hve some sort of security at border crossings: We want to make sure people aren’t smuggling contraband or planning acts of terrorism. (There is, by the way, a series of questions on the UK visa application asking things like this:”Have you ever committed terrorism?” “Have you ever been implicated in genocide?” One wonders if anyone has ever answered “yes”.) It even makes sense to have some kind of registration process and background check for people who plan to move permanently. But what we actually do goes far, far beyond these sensible requirements; the goal seems to be to ensure that only the finest upstanding citizens may be allowed to move to a country, while anyone who is born on the opposite side of that line need not meet any standard whatsoever in order to remain.

In my view, the most sensible standard would be this: You should only exclude someone from entering your country for actions that you’d be willing to imprison them for if they were already there. Clearly, smuggling and terrorism qualify. Indeed, any felony would do. But would you lock someone in prison for not having enough money in their bank account? Or for failing to disclose a parking ticket from ten years ago? Or for filling out paperwork incorrectly? Yet visas are denied for this sort of reason all the time.

I think most economists would agree with me: The free movement of people across borders is one of the most vital principles of free trade—and the one that the world has least lived up to so far.

Yet it seems we are in the minority. Most people seem to think it’s perfectly sensible to have completely different rules for moving from Detroit to Toledo than from Detroit to Windsor.

The reason for this is apparent enough: Once again, the tribal paradigm looms large. Human beings divide themselves into groups, and form their identities around those groups. Those inside the group are good, while those outside are bad. Actions which benefit our own group are right, while actions which benefit other groups are wrong. The group you belong to is an inherent part of who you are, and can never be changed.

We have defined these groups in many different ways throughout human history, and our scale of group identification has gradually expanded over time. First, it was families and tribes. For centuries, it was feudal kingdoms. Now, it is nation-states. Perhaps, someday, it will enlarge to encompass all of humanity.

But until that day comes, people are going to make it as hard as possible to cross from one group to another.

An unusual recession, a rapid recovery

Jul 11 JDN 2459407

It seems like an egregious understatement to say that the last couple of years have been unusual. The COVID-19 pandemic was historic, comparable in threat—though not in outcome—to the 1918 influenza pandemic.

At this point it looks like we may not be able to fully eradicate COVID. And there are still many places around the world where variants of the virus continue to spread. I personally am a bit worried about the recent surge in the UK; it might add some obstacles (as if I needed any more) to my move to Edinburgh. Yet even in hard-hit places like India and Brazil things are starting to get better. Overall, it seems like the worst is over.

This pandemic disrupted our society in so many ways, great and small, and we are still figuring out what the long-term consequences will be.

But as an economist, one of the things I found most unusual is that this recession fit Real Business Cycle theory.

Real Business Cycle theory (henceforth RBC) posits that recessions are caused by negative technology shocks which result in a sudden drop in labor supply, reducing employment and output. This is generally combined with sophisticated mathematical modeling (DSGE or GTFO), and it typically leads to the conclusion that the recession is optimal and we should do nothing to correct it (which was after all the original motivation of the entire theory—they didn’t like the interventionist policy conclusions of Keynesian models). Alternatively it could suggest that, if we can, we should try to intervene to produce a positive technology shock (but nobody’s really sure how to do that).

For a typical recession, this is utter nonsense. It is obvious to anyone who cares to look that major recessions like the Great Depression and the Great Recession were caused by a lack of labor demand, not supply. There is no apparent technology shock to cause either recession. Instead, they seem to be preciptiated by a financial crisis, which then causes a crisis of liquidity which leads to a downward spiral of layoffs reducing spending and causing more layoffs. Millions of people lose their jobs and become desperate to find new ones, with hundreds of people applying to each opening. RBC predicts a shortage of labor where there is instead a glut. RBC predicts that wages should go up in recessions—but they almost always go down.

But for the COVID-19 recession, RBC actually had some truth to it. We had something very much like a negative technology shock—namely the pandemic. COVID-19 greatly increased the cost of working and the cost of shopping. This led to a reduction in labor demand as usual, but also a reduction in labor supply for once. And while we did go through a phase in which hundreds of people applied to each new opening, we then followed it up with a labor shortage and rising wages. A fall in labor supply should create inflation, and we now have the highest inflation we’ve had in decades—but there’s good reason to think it’s just a transitory spike that will soon settle back to normal.

The recovery from this recession was also much more rapid: Once vaccines started rolling out, the economy began to recover almost immediately. We recovered most of the employment losses in just the first six months, and we’re on track to recover completely in half the time it took after the Great Recession.

This makes it the exception that proves the rule: Now that you’ve seen a recession that actually resembles RBC, you can see just how radically different it was from a typical recession.

Moreover, even in this weird recession the usual policy conclusions from RBC are off-base. It would have been disastrous to withhold the economic relief payments—which I’m happy to say even most Republicans realized. The one thing that RBC got right as far as policy is that a positive technology shock was our salvation—vaccines.

Indeed, while the cause of this recession was very strange and not what Keynesian models were designed to handle, our government largely followed Keynesian policy advice—and it worked. We ran massive government deficits—over $3 trillion in 2020—and the result was rapid recovery in consumer spending and then employment. I honestly wouldn’t have thought our government had the political will to run a deficit like that, even when the economic models told them they should; but I’m very glad to be wrong. We ran the huge deficit just as the models said we should—and it worked. I wonder how the 2010s might have gone differently had we done the same after 2008.

Perhaps we’ve learned from some of our mistakes.

What Brexit means for you, Britain, and the world

July 6, JDN 2457576

It’s a stupid portmanteau, but it has stuck, so I guess I’ll suck it up and use the word “Brexit” to refer to the narrowly-successful referendum declaring that the United Kingdom will exit the European Union.

In this post I’ll try to answer one of the nagging questions that was the most googled question in the UK after the vote was finished: “What does it mean to leave the EU?”

First of all, let’s answer the second-most googled question: “What is the EU?”

The European Union is one of those awkward international institutions, like the UN, NATO, and the World Bank, that doesn’t really have a lot of actual power, but is meant to symbolize international unity and ultimately work toward forming a more cohesive international government. This is probably how people felt about national government maybe 500 years ago, when feudalism was the main system of government and nation-states hadn’t really established themselves yet. Oh, sure, there’s a King of England and all that; but what does he really do? The real decisions are all made by the dukes and the earls and whatnot. Likewise today, the EU and NATO don’t really do all that much; the real decisions are made by the UK and the US.

The biggest things that the EU does are all economic; it creates a unified trade zone called the single market that is meant to allow free movement of people and goods between countries in Europe with little if any barrier. The ultimate goal was actually to make it as unified as internal trade within the United States, but it never quite made it that far. More realistically, it’s like NAFTA, but more so, and with ten times as many countries (yet, oddly enough, almost exactly the same number of people). Starting in 1999, the EU also created the Euro, a unified national currency, which to this day remains one of the world’s strongest, most stable currencies—right up there with the dollar and the pound.

Wait, the pound? Yes, the pound. While the UK entered the EU, they did not enter the Eurozone, and therefore retained their own national currency rather than joining the Euro. One of the first pieces of fallout from Brexit was a sudden drop in the pound’s value as investors around the world got skittish about the UK’s ability to support its current level of trade.
There are in fact several layers of “EU-ness”, if you will, several levels of commitment to the project of the European Union. The strongest commitment is from the Inner Six, the six founding countries (Belgium, France, the Netherlands, Luxembourg, Italy, and Germany), followed by the aforementioned Eurozone, followed by the Schengen Area (which bans passport controls among citizens of member countries), followed by the EU member states as a whole, followed by candidate states (such as Turkey), which haven’t joined yet but are trying to. The UK was never all that fully committed to the EU to begin with; they aren’t even in the Schengen Area, much less the Eurozone. So by this vote, the UK is essentially saying that they’d dipped their toes in the water, and it was too cold, so they’re going home.

Despite the fear of many xenophobic English people (yes, specifically English—Scotland and Northern Ireland overwhelmingly voted against leaving the EU), the EU already had very little control over the UK. Though I suppose they will now have even less.

Countries in the Eurozone were subject to a lot more control, via the European Central Bank controlling their money supply. The strong Euro is great for countries like Germany and France… and one of the central problems facing countries like Portugal and Greece. Strong currencies aren’t always a good thing—they cause trade deficits. And Greece has so little influence over European monetary policy that it’s essentially as if they were pegged to someone else’s currency. But the UK really can’t use this argument, because they’ve stayed on the pound all along.

The real question is what’s going to happen to the UK’s participation in the single market. I can outline four possible scenarios, from best to worst:

  1. Brexit doesn’t actually happen: Parliament could use (some would say “abuse”) their remaining authority to override the referendum and keep the UK in the EU. After a brief period of uncertainty, everything returns to normal. Probably the best outcome, but fairly unlikely, and rather undemocratic. Probability: 10%
  2. The single market is renegotiated, making Brexit more bark than bite: At this point, a more likely way for the UK to stop the bleeding would be to leave the EU formally, but renegotiate all the associated treaties and trade agreements so that most of the EU rules about free trade, labor standards, environmental regulations, and so on actually remain in force. This would result in a brief recession in the UK as policies take time to be re-established and markets are overwhelmed by uncertainty, but its long-term economic trajectory would remain the same. The result would be similar to the current situation in Norway, and hey, #ScandinaviaIsBetter. Probability: 40%
  3. Brexit is fully carried out, but the UK remains whole: If UKIP attains enough of a mandate and a majority coalition in Parliament, they could really push through their full agenda of withdrawing from European trade. If this happens, the UK would withdraw from the single market and could implement any manner of tariffs, quotas, and immigration restrictions. Hundreds of thousands of Britons living in Europe and Europeans living in Britain would be displaced. Trade between the UK and EU would dry up. Krugman argues that it won’t be as bad as the most alarmist predictions, but it will still be pretty bad—and he definitely should know, since this is the sort of thing he got a Nobel for. The result would be a severe recession, with an immediate fall in UK GDP of somewhere between 2% and 4%, and a loss of long-run potential GDP between 6% and 8%. (For comparison, the Great Recession in the US was a loss of about 5% of GDP over 2 years.) The OECD has run a number of models on this, and the Bank of England is especially worried because they have little room to lower interest rates to fight such a recession. Their best bet would probably be to print an awful lot of pounds, but with the pound already devalued and so much national pride wrapped up in the historical strength of the pound, that seems unlikely. The result would therefore be a loss of about $85 billion in wealth immediately and more like $200 billion per year in the long run—for basically no reason. Sadly, this is the most likely scenario. Probability: 45%
  4. Balkanization of the UK: As I mentioned earlier, Scotland and Northern Ireland overwhelmingly voted against Brexit, and want no part of it. As a result, they have actually been making noises about leaving the UK if the UK decides to leave the EU. The First Minister of Scotland has proposed an “independence referendum” on Scotland leaving the UK in order to stay in the EU, and a grassroots movement in Northern Ireland is pushing for unification of all of Ireland in order to stay in the EU with the Republic of Ireland. This sort of national shake-up is basically unprecedented; parts of one state breaking off in order to stay in a larger international union? The closest example I can think of is West Germany and East Germany splitting to join NATO and the Eastern Bloc respectively, and I think we all know how well that went for East Germany. But really this is much more radical than that. NATO was a military alliance, not an economic union; nuclear weapons understandably make people do drastic things. Moreover, Germany hadn’t unified in the first place until Bismark in 1871, and thus was less than a century old when it split again. Scotland joined England to form the United Kingdom in 1707, three centuries ago, at a time when the United States didn’t even exist—indeed, George Washington hadn’t even been born. Scotland leaving the UK to stay with the EU would be like Texas leaving the US to stay in NAFTA—nay, more like Massachusetts doing that, because Scotland was a founding member of the UK and Texas didn’t become a state until 1845. While Scotland might actually be better off this way than if they go along with Brexit (and England of course even worse), this Balkanization would cast a dark shadow over all projects of international unification for decades to come, at a level far beyond what any mere Brexit could do. It would essentially mean declaring that all national unity is up for grabs, there is no such thing as a permanently unified state. I never thought I would see such a policy even being considered, much less passed; but I can’t be sure it won’t happen. My best hope is that Scotland can use this threat to keep the UK in the EU, or at least in the single market—but what if UKIP calls their bluff? Probability: 5%

Options 2 and 3 are the most likely, and actually there are intermediate cases between them; they could only implement immigration restrictions but not tariffs, for example, and that would lessen the economic fallout but still displace hundreds of thousands of people. They could only remove a few of the most stringent EU regulations, but still keep most of the good ones; that wouldn’t be so bad. Or they could be idiots and remove the good regulations (like environmental sustainability and freedom of movement) while keeping the more questionable ones (like the ban on capital controls).

Only time will tell, and the most important thing to keep in mind here is that trade is nonzero-sum. If and when England loses that $200 billion per year in trade, where will it go? Nowhere. It will disappear. That wealth—about enough to end world hunger—will simply never be created, because xenophobia reintroduced inefficiencies into the global market. Yes, it might not all disappear—Europe’s scramble for import sources and export markets could lead to say $50 billion per year in increased US trade, for example, because we’re the obvious substitute—but the net effect on the whole world will almost certainly be negative. The world will become poorer, and Britain will feel it the most.

Still, like most economists there is another emotion I’m feeling besides “What have they done!? This is terrible!”; there’s another part of my brain saying, “Wow, this is an amazing natural experiment in free trade!” Maybe the result will be bad enough to make people finally wake up about free trade, but not bad enough to cause catastrophic damage. If nothing else, it’ll give economists something to work on for years.