22 December 2021

Four Dimensions of Progress and The Dramatic Setback to Progress in 2020

You all know that I'm fascinated by economic progress and development. Medieval serfs had very few rights, on average died in their early or mid-30s and had almost nothing in the way of income or goods (or certainly nothing in contrast to what we now have). The fact that the world gradually began to transform its technology - from equipment to institutions - to bring us to today's reality is for me the most delightful thing. Our freedoms, income and life expectancy gives us millions more options than our medieval ancestors had.

There are four simple measures of progress.

1. Did real incomes go up? Do you have a greater choice each year of goods and services to buy and enjoy? Do we have a choice of more great products for each hour of work?

2. Did the community gain more freedoms? Can you be a practicing Protestant without threat of death or expulsion or exclusion from certain key positions and rights? How about Hindu? Or atheist? Are two men free to marry just as a man and a woman are? Can women hold positions of power? Do you have more choice about how to live your life and not just more products to buy?

3. Have life expectancies gone up? Do you have more time in which to live your life choices, to pursue happiness? Between 1900 and 2000, life expectancy rose from 47 to 77. That didn't just radically alter the life span. It meant that one of the coolest inventions of the 1900s was retirement, a period of life in which someone didn't just live decades longer but was free from the obligation of work for some portion of that added time.

4. Are your gains sustainable? Are you reliant on energy sources that your great grandchildren can also enjoy, energy sources that when used don't threaten ecosystems? Are you investing as well as spending so that your grandchildren have a good shot at continuing the progress that you're the beneficiary of?

Progress means progress on these four measures: income, life expectancy, rights and sustainability.

The drop in life expectancy of 2 years in men and 1.5 years for women between 2019 and 2020 is a huge setback to progress.

I'm optimistic enough to think that the advances this pandemic is forcing / facilitating in things like advances in mRNA technology that could actually result in a longer term increase in life expectancy. Setbacks do sometimes force changes that result in a later step function in progress. But that's speculative. The reality, for now, is that COVID, deaths of despair and our responses to both have translated into a setback to progress.

19 December 2021

Comorbidities, COVID and the Excuse du jour for Dismissing a Dangerous Disease

"Well, comorbidities explain a lot about who is dying of COVID," say the same folks who have - at various times - dismissed COVID as no worse than the flu, then explained it as just a blue state or urban problem, then a hoax in that deaths from COVID are grossly over-reported because doctors are keen to collect special COVID premium fees from deaths by other causes like falling out of windows or microwave explosions and falsely attribute the cause of death to COVID. Now the argument is, "Well, comorbidities."

Comorbidity would include conditions like old, obese, or asthmatic. The argument du jour is that COVID isn't real because it is comorbidities that are the real cause, sort of a more subtle twist on the "doctors are falsifying documents" argument.
It's another wave of nonsense and misinformation. Allow me a comparison.

Imagine that you lived on the British Isles in the year 1000 or thereabouts. Vikings periodically invade to rape, pillage and kill. You're trying to discuss this problem.

"This is an atrocity. They killed Elwood and raped his wife and stripped everything valuable from his farm."
"Well of course they killed Elwood."
"Comorbidities. You know how scrawny Elwood was. I mean, of course he couldn't stand up to a Viking attack."
"You're saying that he wasn't killed by Vikings but instead because he wasn't sufficiently buff?"
"Essentially, yeah. I mean, it's almost always the scrawny or old guys who are most likely to die."
"And the convent of nuns they attacked and raped?"
"Well, nuns. I mean. They have almost no upper body strength."
"Which explains why the Vikings raped and pillaged their convent?"
"And the problem isn't that Vikings are raiding our coast raping and pillaging?"
"Vikings are going to rape and pillage. Vikings are going to do what they do. You aren't going to change that."
"You don't think that maybe we could form some kind of coastal defense so that it isn't so easy for the Vikings to attack us?"
"That seems like a lot of hassle. And sounds very expensive. Just keep a broad ax handy. And do something to increase your upper body strength. You are not going to have much luck fending off Vikings."

Comorbidities is a fancy way of saying, "COVID is more likely to kill people who are vulnerable." It's self-evident nonsense presented as if it is insightful.

COVID raises the probability of death the same for everyone. It is true that different groups - young and fit high on that list - are less vulnerable and increasing their odds of dying still leave them highly unlikely to die compared to, say, an asthmatic 94 year-old who is incredibly vulnerable. (And of course death isn't the only bad thing that can happen. Long COVID can change your health for ... well no one really knows for how long.)

Saying that the vulnerable are more likely to die of any cause is not an explanation or an insight. It's just another way to dismiss COVID - a disease that has lowered life expectancy in the US for the first time since 1918 - rather than acknowledge its severity and impact.

11 December 2021

They're Making Inflation Sound Worse Than It Is

Inflation after a year of sharp contraction followed by a year of record growth is about as shocking as squealing tires on a car that goes from 75 mph to 25 mph to 65 mph within a couple of minutes.

A couple of thoughts about inflation.

One, inflation is typically overstated. Here's why.

Let's say that you have a local grocery store called Smith's in your town of River Run. They sell eggs for $4 a dozen. Then a Walmart opens in town. They sell a dozen eggs for $2.50. Lots of folks start shopping there. So, obviously this means prices have dropped, right? Nope. For consistency, the folks tracking prices now track the change in prices at Smith's separately from the prices at Walmart. If Smith's lowers their prices to $3.50 to compete, the official price drop will be 13%. If they don't drop their prices at all, the official inflation will be zero. What the officials don't do is calculate the price of eggs as dropping by more than a third in River Run. And then they track price changes for eggs at Smith's and Walmart over time. Or if you find a great supplier online who sells something for half of what they charge at your local hardware store, inflation measures don't show a drop of 50%.

The pandemic has changed buying habits. People are seeking out higher quality, greater convenience or lower prices from any of a number of retail sources - local brick and mortar or online. To the extent that this involves them finding better bargains (higher quality at the same price or lower prices for same quality) from new retailers, that shift is not showing up in measures of inflation. The period from 2020 to 2021 may have involved the most change in who people buy from of any year. That change is not reflected in inflation numbers.

Also, prices measured do not allow for changes in quality. In Robert Gordon's magisterial economics history book The Rise and Fall of American Growth, he compares the TV of his youth with one available in 2014. Electricity costs dropped as they became more efficient. They were so reliable they no longer required a service contract of $50 a year. The 1950 set was $350 for a black and white, 9 inch. By 2014, for $418 one could buy a 40" high-definition with theater surround sound and internet streaming capability. He compared two sets from 1952 and 1983 to make adjustments for quality differences. The official annual inflation rate for TVs in this period was -1.0%, prices dropping by 1% a year. His adjustment for quality improvements suggested a more dramatic annual price drop of 4.3%, a huge difference.

What's the point? Inflation is almost always overstated. It doesn't track changes in sources over time as people seek out cheaper products of the same quality from a different vendor or better quality products for the same price.

Second, stagflation is highly unlikely.

It seems to me that the great period of stagflation in the 1970s always misses a really important event. Stagflation is the worst fear of policy makers. Before the 1970s, people thought that you could have the problem of inflation with low unemployment or the problem of high unemployment with low inflation. There was a tradeoff. But in the 1970s, we had both high unemployment AND high inflation. This was called stagflation.

There were a lot of theories bandied about but I've never heard that one that makes the most sense to me. Throughout the world, former colonies were being transformed by rising nationalism. As the British and French empires were being unwound after WWI and WWII, new nation-states were emerging. Places like Iraq and Saudi Arabia that had huge oil deposits had previously gotten a token fee for their oil as companies like British Petroleum and Standard Oil operated drilling rigs there and shipped the oil to the West. In the 1970s, rising nationalism included the notion that the peoples in a country should be the ones who benefitted from their own land. They insisted on keeping a much, much larger portion of the oil revenue. This amounted to a shift in GDP from countries like the US and UK to countries like Saudi Arabia and Iraq. What happened in the US? Prices went up. (Oil was used for making and distributing a huge portion of the goods we enjoyed and now we were paying more.) GNP stagnated. (A portion of GNP that counted "their" oil as ours was shifted from the US to foreign countries.) Stagflation - it seems to me - wasn't so much a change in the tradeoff between unemployment and inflation as it was an oil shock that came from a shift in international GNP.

What does all this mean? Inflation is not as high as you think. And it is highly unlikely that we'll experience anything like stagflation over the next few years. As we start lowering unemployment less dramatically, measured inflation will probably drop.  Prices are higher now but job creation is at its highest rate on record. Monetary and fiscal policy stimuli have been huge - and rightfully so. That's going to taper off and as new job creation / reinstatement rates lower, the rate of inflation will likely taper off as well. There is still a relationship between inflation and unemployment and the 1970s don't seem to me proof that the relationship has changed.