You need a sense of humor to read the news today:

Bloomberg:

Long a voracious consumer of cable news, Trump has cut back how much he watches CNN and MSNBC in recent weeks, having sworn off the latter network’s “Morning Joe” after criticism from its hosts, according to a senior White House aide privy to the president’s viewing habits.

Instead, the president now spends hours some mornings watching Fox News, switching occasionally to CNBC for business headlines, along with a daily diet of newspapers and press clippings, said the official, who asked not to be identified discussing private information. On the evenings when he doesn’t have a dinner or briefing, Trump will spend most of his TV-viewing time watching Fox News shows hosted by Bill O’Reilly or Sean Hannity, the aide said.

I always wondered what kind of person watches Sean Hannity.  Now I know.  (What would Scott Adams say?)

Yahoo.com:

On Wednesday night, The Washington Post was the first to report on a private meeting between Sessions and Russian ambassador to the US. Sergey Kislyak, which took place in the senator’s office last September. The discussions could fuel new congressional calls for the appointment of a special counsel to investigate Russia’s alleged role in the 2016 presidential election and the suspected hacking campaign, according to the Post.

All of the sudden, the news media isn’t talking about Trump’s speech anymore, as it seems the Attorney General lied under oath when asked about contact with Russian officials.

This one probably pre-dates Trump:

Americans should be forced to apply for visas to travel to Europe, the European Parliament has said, in response to Washington refusing to allow all Europeans to travel to the States visa-free.

The WSJ:

WASHINGTON—Republicans blocked a Democratic attempt to obtain President Donald Trump ’s tax returns late Monday.

In a 229-185 procedural vote, the House of Representatives stopped a resolution from Rep. Bill Pascrell (D., N.J.) that would have requested the president’s tax returns from the Internal Revenue Service.

All Democrats voted with Mr. Pascrell. All Republicans voted against him, except for Reps. Walter Jones (R., N.C.) and Mark Sanford (R., S.C.), who voted present.

Undoubtedly the vote would have been identical with a Democratic president, as all our Congressmen and women are principled solons.  And the response of my loyal commenters will be completely uncorrelated with their political affiliation.  “This is about privacy.”  “This is about getting to the truth.”  There are principles involved here . . . somewhere.

And this:

A young woman in the process of renewing her permission as a “Dreamer” to remain in the United States legally was arrested Wednesday by Immigration and Customs Enforcement after speaking at a press conference where she urged President Donald Trump to protect people like her. Now two Democratic senators want answers.

Daniela Vargas, 22, was detained by ICE agents who pulled over a friend’s car on a nearby freeway after she left a coalition of clergy members, civil rights lawyers and other advocates for immigrants at Jackson City Hall, according to one of her lawyers, Nathan Elmore.

Let’s see what tomorrow brings.

A couple of years ago I raised funds for two NGDP prediction markets, Hypermind and iPredict.  The money for Hypermind all came from Valve CEO Gabe Newell. A larger amount of money was raised for iPredict, from about 15 people. Unfortunately, iPredict had to end its experiment after a brief run. For the past year I’ve being making inquiries about a refund, and it’s finally paid off.  Here is the information we received from iPredict:

Here is how the donors can go about requesting a refund.

They should contact Iain Devon, Viclink Senior Account Manager, at iain.devon@viclink.co.nz. Their donation has been held in NZ$ and will be refunded at the current USD/NZD exchange rate, which means they may receive less than their original donation due to change in exchange rates (assuming the donor wants to be refunded in US$). They should provide the details of the initial donation made, including date and value. Refunds will be issued via international bank transfer, so they should also be prepared to provide their bank account information.

I want to thank the people at Wellington Victoria University in Wellington, New Zealand.  Their willingness to return the funds further cements New Zealand’s reputation as one of the least corrupt countries on Earth. If you forgot how much you donated, you might check your old emails to me.  I believe all the donors emailed me and informed me of their intentions.  I also probably have that info, if you need it.

During the period after iPredict failed, I vowed not to try to raise additional funds until the issue of refunds could be resolved.  Now that a resolution seems imminent, it’s time to think about future plans for NGDP prediction markets.  My inclination would be to go back to Hypermind, but with a bigger donation this time. I also feel like the annual market is the most macroeconomically useful, even though it is a long time to wait for a payoff.  (Say a 2018:Q1 over 2017:Q1 contract).  I believe we already have about $10,000 to work with, which is double what the annual market had back in 2015.  More money could be raised. With Trump in office, there might be some interesting policy shocks which could impact the market (although it’s also quite possible that NGDP expectations are not greatly affected—either result would be interesting.)  I’m also open to other markets, if someone has a suggestion.

PS.  Thanks to my colleague Ben Klutsey for working with the iPredict people to arrange this refund.

Scott Alexander has a post on the rapidly rising costs in areas like health, education and subway construction.  As usual, it’s excellent.  He considers many different theories, and does not find any of them to be all that persuasive.

I certainly don’t claim to have all the answers, but I do feel that much of the problem reflects the fact that governments often cover the cost of services in those three areas.  This leads producers to spend more than the socially optimal amount on these products.  I’m going to provide some examples, but before doing so recall that economic theory predicts that costs in those areas should be wildly excessive.  If the government paid 90% of the cost of any car you bought, and that didn’t lead to lots more people buying Porsches and Ferraris, then we’d have a major puzzle on our hands.

Scott mentions that private for-profit hospitals are also quite expensive.  But even there, costs are largely paid for by the government.  Close to half of all health care spending is directly paid for by the government (Medicare, Medicaid, Veterans, government employees, etc.) and a large share of the rest is indirectly paid for by taxpayers because health insurance is not just income tax free, but also payroll tax free.  I’d be stunned if health care spending had not soared in recent decades.

A sizable share of my health care spending has been unneeded, and I’m fairly healthy.  I met one person in their 80s who had a normal cold and went to see the doctor. They said it was probably just a normal cold, but let’s put you in the hospital overnight and do some tests, just in case.  There was nothing wrong, and the bill the next day was something in the $5000 to $10,000 range, I forget the exact amount.  This must happen all the time.  No way would they have opted for those services if Medicare weren’t picking up the tab.

Just to be clear, I don’t think any monocausal explanation is enough.  Governments also pay for health care in other countries, and the costs are far lower.  It’s likely the interaction of the US government picking up much of the tab, plus insurance regulations, plus American-style litigation, plus powerful provider lobbies that prevent European-style cost controls, etc., etc., lead to our unusually high cost structure.  So don’t take this as a screed against “socialized medicine.”  I’m making a narrower point, that a country where the government picks up most of the costs, and doesn’t have effective regulations to hold down spending, is likely to end up with very expensive medicine.

To be fair, there is evidence from veterinary medicine that demand for pet care has also soared, and that suggests people are becoming more risk averse, even for their pets.  But there is also evidence cutting the other way.  Plastic surgery has not seen costs skyrocket. (Both are medical fields where people tend to pay out of pocket.)

I started working at Bentley in 1982, teaching 4 courses a semester.  When I retired in 2015, I was making 7 times as much in nominal terms (nearly 3 times as much in real terms), and I was teaching 2 courses per semester. Thus I was being paid 14 times more per class (nearly 6 times as much in real terms).  No wonder higher education costs have soared!  (Even salaries for new hires have risen sharply in real terms.) Interestingly, the size of the student body at Bentley didn’t change noticeably over that period (about 4000 undergrads.)  But the physical size of the school rose dramatically, with many new buildings full of much fancier equipment.  Right now they are building a new hockey arena.  There are more non-teaching employees.  You can debate whether living standards for Americans have risen over time, but there’s no doubt that living standards for Americans age 18-22 have risen over time—by a lot.

As far as elementary school, my daughter had 2, 3, and once even 4 teachers in her classroom, with about 18 students.  We had one teacher for 30 students when I was young.  (I’m told classes are even bigger in Japan, and they don’t have janitors in their schools.  The students must mop the floors.  I love Japan!)

There are also lots more rules and regulations.  By the end of my career, I felt almost like I was spending as much time teaching 2 classes as I used to spend teaching 4.  Many of these rules were well intentioned, but in the end I really don’t think they led to students learning any more than back in 1982.  I wonder if Dodd/Frank is now making small town banking a frustrating profession in the way that earlier regs made medicine and teaching increasing frustrating professions.

People say this is a disease of the service sector.  But I don’t see skyrocketing prices in restaurants, dry clearers, barbers and lots of other service industries where people pay out of pocket.

The same is true of construction.  Scott estimates that NYC subways cost 20 times as much as in 1900, even adjusting for inflation.  The real cost of other types of construction (such as new homes), has risen far less.  Again, people pay for homes out of pocket, but government pays for subways.  Do I even need to mention the cost of weapons system like the F-35?

To summarize, the case of pet medicine shows that costs can rise rapidly even when people pay out of pocket.  But the biggest and most important examples of cost inflation are in precisely those industries where government picks up a major part of the tab–health, education, and government procurement of complex products.  And excessive cost inflation is exactly what economic theory predicts will happen when governments heavily subsidize an activity, without adequate cost regulations.  Just as excessive risk taking is exactly what economic theory predicts will happen if government insures bank deposits, without adequate risk regulations.  Let’s not be surprised if the things that happen, are exactly what the textbooks predict would happen. Even FDR predicted that deposit insurance would lead to reckless behavior by banks, and he (reluctantly) signed the bill into law.

Here’s a prediction made back in January:

Based on today’s GDP release, it appears that the US economy is slowing but not near any sort of massive collapse.

Peter Schiff begs to differ.

The CEO and chief global strategist for Euro Pacific Capital, and noted perma-bear, said that serious economic destruction is just a few months away.

“I think the Fed is going to have negative interest rates before the election because we’re going to be in a serious recession,” Schiff told Business Insider on Friday.

In fact, Schiff said that we may already be in recession and this one is going to be a doozy.

“We’re in worse shape now than we were in 2007,” he said.

And here’s a prediction from early 2012:

While Bernanke delivered calm to bond markets on Monday in a speech that promised “continued accommodative policies,” the violence of the sell-off speaks to Schiff’s argument.  “We consume more than we produce and we borrow abroad, but we are never going to be able to pay them back,” says Schiff.

The controversial investor and commentator expects a massive crash over the next two to three years as a bond market bubble, coupled with the U.S. dollar, collapses under the weight of excessive debt.  Schiff, like PIMCO’s Bill Gross, doesn’t believe in the current deleveraging cycle.  While households have reduced their leverage, government debt has ballooned on the back of stimulus programs, but, argued Schiff, the government’s debt is the people’s debt, thus overall leverage has actually increased.

If you google Peter Schiff, it’s gloom and doom all the time.  Even worse, when I debated him a few years ago he turned out to be one of those conspiracy theorists who thinks inflation is far higher than the government claims, which of course implies RGDP growth has been negative since 2009, despite roughly 200,000 new jobs every month.  So why does anyone pay attention to him?  I suppose some would claim that he predicted the 2008 recession.  But if you are predicting recessions over and over again, then it stands to reason that when a recession does occur you will have predicted it.  So that doesn’t answer my question.

Some will claim that I’m being an elitist, insisting that the press only pay attention to credentialed economists.  Actually, I don’t have any problem with the press paying attention to well-informed people, even if not an economist.  Matt Yglesias often has good posts on the economy.  Interview him instead of Schiff.

I think it’s the press that is being elitist.  Economics reporters are in awe of wealthy people in business and finance (but not entertainment), and think they are a good source of ideas.  But they are not.  It’s elitist to think that Schiff’s comments are worth reporting while my plumber’s are not worth reporting.  I’m sure there are 1000s of plumbers who “predicted” the 2008 recession.  So why not interview them?  Is it just because they are not rich? Isn’t that elitist?  And why not interview LeBron James on the economy? He’s rich. Isn’t it elitist to assume that Schiff knows more business cycle theory than James?  (I’d guess that neither knows any business cycle theory).  Or how about a guy who owns a 7/11 store?  The press is simply not interested.  A union leader?  Not interested.  You need to be rich and in business or finance.  Business and finance have absolutely nothing to do with economics, but most reporters don’t seem to know that.

(I think this is part of the reason Trump was successful.)

So am I saying that the press should just completely stop reporting what Peter Schiff has to say?

Yes, I am.  It’s elitist to give rich people like him a mouthpiece.  I’m not saying that only experts should be interviewed—it’s fine to interview the average man on the street.  But Schiff is not the average man on the street.  He’s not average and he’s not an expert.  So what is he?

Noah Smith has a column at Bloomberg, discussing the economic plight of the Midwest:

When big Midwestern states like Michigan, Pennsylvania, Wisconsin and Ohio voted for Donald Trump, they chose to roll the economic dice. It’s not clear yet whether President-elect Trump will or can follow through on his promises to revamp U.S. trade policy. It’s even more dubious whether that will have any kind of positive effect on the Midwest. But it’s obvious that his promises resonated with a lot of people in that region.

There are a number of economic and political lessons to take away from Trump’s Midwestern conquests, but the first one should be that the Midwest needs help. . . .

I propose four new pillars of a regional revitalization policy for the Midwest.

No. 1 Infrastructure

Sick economies and shrinking population have left Rust Belt states and cities unable to pay for infrastructure improvements. As a result, many cities look like disaster areas. The federal government should allocate funds to repair and improve the Midwest’s roads, bridges and trains, and to upgrade its broadband. Sen’s pension bailout idea could also be instrumental in helping states buff up their infrastructure. Better transportation makes it easier for people and goods to flow between cities in a region, and for the region to export products to other places. Infrastructure is doubly important in a region like the Midwest, where winter weather can quickly make travel difficult.

No. 2 Universities

Universities are helpful for regional economic growth. The Midwest has a number of good schools (I went to one of them for my Ph.D.), but more could be built, and existing universities could be expanded. Perhaps even more importantly, local and state governments in the Midwest could work with universities and local companies to create more academic-private partnerships and to boost knowledge industries in places like Ann Arbor, Michigan, and Columbus, Ohio. As things stand, Midwesterners tend to move away as soon as they graduate from college. Creating more industries specifically for these graduates would keep talent in the region.

No. 3 Business Development

Some cities in Colorado have embraced a development policy it calls economic gardening. The program helps provide resources for locals to start their own businesses. It furnishes them with market research and connects them with needed resources. Small businesses provide more employment than large ones, and offer a ticket to the middle class. They also have a chance of growing into large businesses. The Midwest should consider emulating Colorado’s plan, which seems to be getting results.

No. 4 Urbanism

Tech hubs like San Francisco and Austin, Texas, are using development restrictions to keep their population densities in check. That gives Midwestern cities an opening to attract refugees from the high-rent metropolises of the two coasts. Cities like Detroit and Cleveland can work on creating neighborhoods that are attractive to the creative class, while allowing housing development to keep rents cheap. College towns like Ann Arbor can reduce their own development restrictions and allow themselves to become industrial hubs. And cities can copy the crime-fighting techniques of cities like New York and Los Angeles that have become much safer during the past few decades.

Let me take these points one at a time.  There is no single Midwest, as it’s a mix of different economies.  Trump did unusually well in Iowa, which is not a rust belt state at all, but is a state that would be hurt significantly if he pursues a protectionist trade policy regime. (I doubt he will, given that his nominees generally supported the TPP treaty.)

1.  Since I grew up in Wisconsin, and visit there occasionally, let me focus on that state.  I really don’t see how better infrastructure would help.  The Madison and Milwaukee airports seem fine, much better than Boston’s.  The roads in Madison are better than in affluent Newton MA (where I live now.)  Wisconsin doesn’t have a big problem with traffic jams, compared to America’s two coasts.

2.  Wisconsin certainly doesn’t need either more universities or better universities. The University of Wisconsin system has many campuses with more than 180,000 students in all, in a state of only about 5 million people.  And there are also some fine smaller private colleges.  The Madison campus is easily an above average quality university, better than the best state university in many larger and more prosperous states.  Whatever ails Wisconsin, it’s not a lack of good universities.  At best they might want to spend a bit more on the Madison campus, as they seem to have slipped a bit in the rankings.  (They were around #10 when I was young, now they are probably around #15 or #20 for US universities.)  On the other hand, it’s hard to get Wisconsin taxpayers to pay more when the graduates often end up leaving the state (as I did).

3.  There’s always been an emphasis on business development, and Madison has lots of companies that are spin-offs from the University.  The Wisconsin Alumni Research Foundation (WARF) invented the drug that saved my father’s life (Warfarin). The problem is that metro Madison is only about 10% of the state.  It’s the rest of the state that is struggling.

4.  Milwaukee is the largest city, but has not been able to reinvent itself for the post-industrial economy that way Minneapolis, Pittsburgh and lakefront Chicago have. Unfortunately, there is only a market for a limited number of those cities in the Midwest, and Wisconsin’s only realistic prospect is small (Madison.)

So what’s my solution?  I don’t really have any good ideas.  In fact, I’d guess that Wisconsin is doing about as well as it can, given the headwinds it faces.  And what are the headwinds?  I see two big ones.  Wisconsin is second only to Indiana as a manufacturing state (per capita).  If that surprises you, recall that Wisconsin is heavily German.  Unfortunately, the entire world is switching from manufacturing to services.  The 4.4% unemployment rate in Wisconsin is actually pretty good, given that the state concentrates in the “wrong” sectors.

The other big headwind is weather.  Today’s forecast calls for a high of minus one in Madison.  (For you international readers, that’s more like 18 below zero centigrade–as a high temp!)  And it’s technically still fall, winter starts in a few days.  So far the state has been held together by a strong civic culture.  The college and professional football teams have unusually rabid support.  The culture is a bit “tougher” than on the coast, composed of Northern Europeans used to cold weather and snow, although I’m told it’s softer than when I lived there.  Unfortunately, some aspects of the culture are a turnoff to certain highly educated millennials (deer hunting, meat eating, heavy drinking, etc.)  When I lived in Wisconsin the educational levels in the state were well above the national average.  Today I’d guess they are only slightly above average.  (This site has them #10, but I’d guess it would be lower if you controlled for ethnicity.)

I don’t mean to suggest that literally nothing can be done.  I’m sure if you took a close look you could find 100 things the state government could be doing better. But I doubt any of them would be a game changer.  On the plus side, it’s possible to have a perfectly enjoyable life in Wisconsin.  There are many fewer hassles than in cities like Boston, and the cost of living is much lower.

And we aren’t West Virginia!  (Even when I was young, in the 1960s, “hillbillies” were regarded as a sort of degenerate group off in the mountains of Kentucky and West Virginia.  We all saw Deliverance, and vowed to stay the hell out of there.)

My mom got married in 1948, and the same year Life magazine named Madison the best place to live in America: