Archive for May 2020


Revisiting the islands

On April 19, I did a post discussing the progress of various islands and quasi-islands. Let’s revisit what I said about those places:

1. Greenland had 11 cases, and now has zero. It was the first island to exterminate the virus.

2. Faeroe Islands had 185 cases. There are only 11 active cases today, and no new infections since April 6. No deaths, and no one is in serious or critical condition. They will likely eliminate the disease within a few weeks.

Greenland is still Covid-19 free, and Faeroe Island has now eliminated the disease as well.

3. Iceland has had 1771 cases and gets about 10 new ones each day, with the number steadily declining.  They will probably no longer be getting new cases after a few more weeks, and then in another 6 weeks or so will be virus free.  They’ve had 9 deaths.  Iceland is important because unlike Greenland and Faeroe Islands it’s a statistically significant sample.  Within a month or so we’ll have a good idea as to how many Icelanders will eventually die of the disease (I’d guess about 15), and this will begin to pin down the actual fatality rate.  

Today Iceland has only 10 deaths (fewer than I expected) and it will likely stay there as they have only 3 active cases (vs. 471 on April 19th.) I am no longer confident that these islands will get precisely to zero, due to inbound cases. But I do expect zero active cases excluding inbound passengers in quarantine.

4.  New Zealand has had 1431 cases and gets about 10 new ones a day, with the number steadily declining.  In other words, very much like Iceland.  As in Iceland, active cases are also falling very fast.  They’ve had 12 deaths, a modestly higher rate than Iceland.  This makes sense given that they’ve tested less comprehensively than Iceland, and thus missed a few more cases.  The NZ government intends to drive the case total to zero, at which time normal life can resume.

New Zealand had 507 active cases on April 19, and now they have 8. They’ve had no new cases for six days, and hence they’ll soon have no cases at all, except perhaps quarantined inbound passengers.

You see a similar pattern in other islands.  Taiwan had a spike of new cases today from a ship in their navy, but otherwise has almost stopped community transmission. Hawaii has bent the curve more than other American states. 

Taiwan’s active caseload has fallen from 225 to 14, and is still falling. Hawaii’s active caseloads is down to 27, and is falling fast. Both places will soon be virus free, except quarantined inbound passengers.

I’d also like to point to some quasi-islands:

1.  Australia looks a lot like New Zealand and nothing at all like Canada (which it closely resembled during the early weeks of the crisis.)  Its active caseload is falling fast, as is community transmission.  The mortality rate so far is a bit over 1%.  That will rise modestly, but of course they missed some cases.

2.  South Korea’s hard border with the North makes it a quasi-island.  Active cases are falling very fast, with rapidly declining community transmission.  The reported mortality rate is over 2%, but of course they missed some cases.

3.  Hong Kong has only 4 deaths in 1026 cases, and only 8 are in serious or critical condition.  Community transmission has almost stopped and active caseloads are falling fast.  Macao had only 45 cases, no deaths, and community transmission has stopped.

Australia has gone from 2311 to 467 active cases (about where NZ was in mid-April.) South Korea has gone from 2385 to 735 active cases, despite a recent second wave. Hong Kong has gone from 420 to 28 active cases. Macao has gone from 28 to zero.

In other words, I was mostly correct in assuming that island cases would continue to fall rapidly. There are many other success stories that I failed to mention in the April 19 post, also continuing to do very well—trending toward zero.

The next step will be to try to get tourism going again with other countries having virtually zero community transmission. Safe spaces.

Thank God for Chinese tourists!

PS. New Zealand uses a quite expansive definition when calculating coronavirus deaths.

Men in space bleg

Occasionally I see news stories that I’m too lazy to investigate. I’d rather have my commenters fill me in. I see that Elon Musk’s SpaceX is going to send a couple of men up into space. Why?

More generally, why does NASA still wish to send people into space? What’s the point? Here are some possible answers, none of which makes any sense. You tell me what I am missing.

1. Men and women can do useful things in space. Yes, but can’t unmanned space probes do those things much more cheaply (in terms of money and risk to human life?)

2. You never know what we’ll discover. Yes, but we can discover things much more cheaply with unmanned probes.

3. Mankind needs an inspiring goal. Yes, but we sent men into space 59 years ago, and to the moon 51 years ago. It would have looked pretty silly in 1962 (by which time people were routinely flying in 707s) to recreate the inspiring Kitty Hawk flight of 1903.

I get that sending men into space is an inspiring idea, and ditto for the Moon landing. I just can’t get inspired by doing it over and over again.

So what am I missing?

PS. In my view, the (unmanned) Voyager program was one of humanity’s most inspiring achievements, so I’m not immune to the allure of space. I just don’t see the point of our recent manned activities in space, much less returning to the Moon (which some have proposed.)

PPS. Here’s why I think people are silly when they lament the slowdown in (measured) technological progress after 1973. Does anyone seriously think that we could have had just as much progress in the first 59 years of manned space flight as in the first 59 years of civil aviation, if we’d just tried harder. Sorry folks, but the laws of physics cannot be brushed aside.

Perhaps unmeasured technological progress is higher than we think, but that’s an entirely different question.

Wage cuts

A decision by the Fed to cut its interest rate target is usually expansionary.

Falling market interest rates are usually a bad sign, an indication that money is too tight, and getting tighter.

A decision by a firm to cut wages is usually expansionary for employment.

Falling aggregate wage rates are usually a bearish indicator, a sign that money is too tight.

Most people have trouble wrapping their mind around these seeming contradictions.

The recent surge in unemployment has caused massive distortions in the labor market. Due to “composition effects” we don’t have good data on aggregate wage changes for a given skill level. (Average hourly wages are rising, but only because it’s mostly the lowest skilled workers who are losing jobs.) Nonetheless, Bloomberg suggests there is strong anecdotal evidence of falling wage rates in a number of firms:

Companies across the U.S. are cutting salaries as they fight to survive the coronavirus, upending a key assumption in modern economics and raising another hurdle to rapid recovery.

The hard numbers won’t be in for months, but anecdotal evidence is piling up. On earnings calls, big businesses including The Container Store Group and Lyft have cited what they say are temporary salary reductions. Federal Reserve officials also have found plenty of supporting evidence.

As is often the case with wage cuts, people wrongly assume that this phenomenon contradicts sticky wage models:

That’s not supposed to happen, according to ideas that have dominated economics for the better part of a century, since John Maynard Keynes unveiled his famous “General Theory” during the Great Depression.

The phenomenon is known as “sticky wages.” Employers may be able to cut inflation-adjusted pay by raising wages less than prices, the argument goes. But it’s harder to cut pay in nominal terms — in other words, by putting a smaller number on people’s paychecks.

That’s why supply and demand get out of balance in a slump, according to the so-called New Keynesian model that Fed officials and other policy makers lean on.

There may be some economists who are so ignorant of history that they don’t know about nominal wage cuts, but most of us are aware of the phenomenon.

Sticky wage models predict that hourly nominal wage rates will fall much less sharply than NGDP during a slump. And that’s exactly what’s happening right now.

As an aside, I don’t believe the sticky wage model is particularly helpful in explaining the recent slump in the economy (which is primarily due to a real shock), but I do fear that the model will be useful next year, at least if NGDP is still depressed.

To find declines in NGDP comparable to the second quarter of 2020 you need to go back to the early 1920s or the 1930s. And nominal wages also fell on those occasions. There’s nothing new under the sun.

Nick Rowe on money illusion

Craig Fratrik sent me a Nick Rowe twitter thread discussing the way that central banks create a nominal anchor. I think I agree with the substance of the thread, but I’m not certain. My hesitation has to do with what seems like an unconventional use of terms like “rational” and “money illusion”. I hope commenters will tell me whether I actually disagree with Nick, or if we just define terms differently. Here’s a portion of the thread:

I’d like to present two imaginary conversations. Both occur in a country where inflation has been running at 10%/years for several decades:

First conversation:

Jack: I’m bummed out.

Jill: Why is that?

Jack: My boss just gave me a lousy 6% pay raise for next year.

Jill: Yikes, that’s not very much given the 10% inflation rate.

Second conversation:

Jack: I’m on cloud nine today.

Jill: Why is that?

Jack: My boss just gave me a 6% pay raise for next year!

Jill: Umm, you do know that the inflation rate is 10%?

In both conversations, Jack is describing his situation using an unstable measuring stick—money. His account of his pay raise is in money terms, and by itself doesn’t accurately convey his actual economic situation. On the other hand, in the first conversation Jack seems well aware of the 10% inflation rate, and understands that his real wage is declining. In the second he does not. In my view, the second conversation exhibits irrational behavior and money illusion, while the first conversation does not.

As I read Nicks twitter thread (especially #9), it almost seems like he’s saying that merely setting monetary measures of value is ipso facto evidence or irrationality, or money illusion?

Do I have a substantive difference with Nick, or is this just semantics?

My view is that the “public good” aspect of money is so strong that even a highly flawed numeraire is far superior to no numeraire at all. I believe that it’s more rational to talk about a 6% raise in a world of 10% inflation than to talk about one’s pay raise without any reference to a numeraire. I don’t want someone telling me that last year they got paid 30 shares of Google stock per month and this year their pay was changed to 40 ounces of gold per month. I want all my information in dollars. The math is easier and I’ll sort out the real implications myself.

Amoral familism in America

Dysfunctional societies tend to be tribal, and the strongest form of tribalism is family bonds. Leaders of dysfunction countries often use family ties to get around term limits. (Term limits are a method for reducing corruption.) When I was young, I recall some governors in the Deep South using their wives to get around fixed term limits. You also see this technique used in some highly corrupt countries in the third world.

As the US becomes more and more like a banana republic, we are beginning to adopt what is sometimes called “amoral familism” at the national level. Consider:

1. Hillary Clinton was the Democratic nominee in 2016.
2. A draft Michelle Obama for VP movement is getting underway.
3. Jared Kushner is called the “de facto President“.
4. George Bush’s son was elected president in 2000.

I will ignore any comments discussing the competence of these four individuals, which is not the point. And I don’t believe the two Democratic wives would be mere puppets, as in some other countries. And yes, this is not entirely new—Bobby Kennedy was made Attorney General.

Nonetheless, it seems to me that the problem is getting worse in the 21st century, at least at the federal level. Voters seem increasingly drawn to people based on family connections, which is a really bad sign. Just one more area where the US is becoming a bit more like a banana republic.

China is also increasingly suffering from this problem, more so than even 20 years ago.

PS. Thank God that Melania was born in Slovenia.