Economic Research on COVID-19

The past 12 months has been dominated by COVID-19, the related recession, the government response, and other matters. But it has not just dominated our lives, it has also dominated new research, including research by economists!

Working papers from the National Bureau of Economic Research are one place to track on-going research by economists. While not all economic research is released as an NBER working paper (there are other series, and some economists just post them on their own website or department page), the volume of NBER papers should tell us something about the trends.

Here’s a chart showing the weekly NBER working papers that are in some way related to COVID-19. The first batch of three papers was released in late February, one long year ago. The second batch of nine papers came one month later. Since then, there have been papers released every single week, with the exception of the week of Christmas.

In total, there have 373 papers released that relate to COVID-19. The peak comes in late May and early June, with 61 papers released in a 4-week period and 21 of those papers coming out on May 25 alone. Since the May-June peak, we’ve seen a slow decline in papers on COVID-19, and we are now at our lowest level, with just 14 papers released in the past 4 weeks.

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The Role of Prices in an Emergency, Winter Storm Edition

When natural disasters and other emergencies strike, two things are certain. First, many essential goods will run out of stock at stores. Second, economists will complain that if only prices would rise in response to the increase in demand, shortages could be avoided.

Let’s take the current winter storm passing through much of the center of the nation, importantly including the southern US where both individuals and governments are unprepared for major winter storms. Here is a sign up at Home Depot in Arkansas:

I can verify that many people in Arkansas don’t have snow shovels. I’ve seen folks using dust pans and leaf rakes to try and clear their driveway. This video is a few years old, but I have no doubt that someone in Arkansas right now is strapping a widescreen TV box to their lawn tractor to clear snow.

So why no snow shovels in Arkansas at Home Depot? The common answer: it doesn’t snow much here, so the stores don’t stock many, and then when it does snow everyone rushes out to buy them.

Simple enough, but the economist says: WRONG! The reason Home Depot doesn’t have any snow shovels in Arkansas is because they didn’t raise the price. Why do economists insist on this?

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Broad Base, Low Rates: Every US State Fails on Good Sales Tax Principles

In a previous post, I contrasted the income and property taxes, but I left out the other important tax: the retail sales tax. So let’s rectify that omission.

The retail sales tax is like the “Little Engine that Could,” delivering a steady stream of revenue to governments, while mostly staying out of the passionate debates surrounding the income and sales taxes. About 23% of state and local tax revenue comes from general sales taxes in the US, roughly equal to income taxes, and if you include selective sales taxes it’s slightly larger than the property tax share.

But there’s a problem with sales tax. The sales tax “base,” basically the extent of economic activity that the base covers, has been shrinking. A lot. As Jared Walczak has recently written, in just the past 20 years the “breadth” of the sales tax (how much of the potential base it covers) has fallen from about 50% to 30%.

As Walczak also notes, there are seven or so broadly agreed on principles of sales taxes, but I would say there are two primary ones (the first two on his list):

  1. An ideal sales tax is imposed on all final consumption, both goods and services.
  2. An ideal sales tax exempts all intermediate transactions (business inputs) to avoid tax pyramiding.

But US states violate these two principles in various ways, leading to (oddly enough) a tax base that is simultaneously too narrow and too wide. Why is this?

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Coase and COVID

Update: I added a comment on the post to clarify why I don’t think that having seniors stay at home is the correct Coasean solution. In short: social isolation has high costs!

Bryan Caplan has an interesting post on COVID and reciprocal externalities. Caplan starts off with the straightforward Coasean statement: “Yes, people who don’t wear masks impose negative externalities on others. But people who insist on masks impose negative externalities, too.”

For those not familiar with Coase’s 1960 article, one of his fundamental insights about property rights is that when property rights are not clearly defined, both parties can be imposing costs on one another. The externalities are reciprocal, not just in one direction. The efficient outcome, when bargaining is not possible, is to allocate the property right such that the “least cost avoider” is the one that adjusts their behavior. In other words, you allocate the property right to the party who would obtain the property right if bargaining were possible.

But Caplan uses this Coasean framework to come to the opposite conclusion that I would. Why?

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Minimum Wage vs. EITC: Who Pays?

My co-blogger Mike Makowsky has a great post earlier this week about the minimum wage. Go read it before you read my post. When Mike said he was bothered by the notion that “the welfare state must be channeled through employment,” I very much nodded in agreement. It reminded me of a frustration I have with the entire debate about the minimum wage vs. the Earned Income Tax Credit as policy tools to help out the least well-off in society (yes, some argue they are complements, but let’s put that debate aside for the moment).

Here’s my frustration. In both the popular discussion and occasionally among academics/policy wonks, the difference between the minimum wage and the EITC is often framed this way: employers pay for the minimum wage, but the government pays for the EITC. I know there are important questions about the incidence of the minimum wage, but let’s assume that the proponents of higher minimum wages are correct, and the full cost comes out of business profits.

But the distinction between “employers” and “the government” is not a useful one. Where does the government get its revenue to pay for things like the EITC (or alternatively, food stamps)? They must come from society. There is some diversion of real resources from Group A to Group B. Group A is, in the case of the minimum wage, the owners of businesses — in other words, individuals with high incomes. Group B is the workers. But this is true in the case of both the minimum wage and the EITC!

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How Should We Teach Public Goods Theory?

Joshua Hendrickson recently wrote about the provision of public goods, and how we teach public goods in economics. My post today is not so much a reply to Hendrickson, but is inspired by his mediation on public goods as I gear up to teach another semester of Public Finance.

The theory of public goods that economists discuss among themselves is pretty straightforward: when a good is both non-rival and non-excludable, there is a strong case for government intervention of some sort (though not necessarily public provision). The opposite is true when a good is both rival and excludable: there is a strong case for laissez faire.

Seems simple enough, right? But communicating this concept to undergraduates and the general public has been a major challenge. Part of the confusion arises from the term itself, “public good.” Non-economists tend to use the term interchangeably with the notion of “the common good, as is clear from Wikipedia, a dictionary, or a conversation with your grandma. For this reason, I sometimes substitute the awkward phrase “collective consumption good” (this is actually Samuelson’s term in his classic article on the topic), but all the textbooks so use it so I often default to the standard terminology.

From Jonathan Gruber’s Public Finance and Public Policy

But I think there’s a deeper problem than just terminology. Economists have put themselves in a box. Literally. Here’s a standard 2×2 matrix from Jonathan Gruber’s undergraduate public finance textbook. I don’t mean to pick on Gruber here — this is a pretty standard presentation. You can find it in many microeconomics textbooks too, or on Wikipedia. Everything goes in a box! It’s a nice stylized way to think of the terminology. It makes for nice test questions. But here’s the real problem with it as a pedagogical tool: it doesn’t seem to help many students! Or at least, it doesn’t seem to help them retain the knowledge between their micro principles courses and upper division courses (at least in my experience, I’d be happy to hear others chime in here).

So how can we teach this concept better? I have a few ideas. I’d like to hear yours too.

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What’s the Worst Tax?

It’s the most wonderful time of the year, when we start to get all those little documents in the mail and electronically showing how much you earned in the past year. The purpose of these little documents, of course, is to complete your federal and state income tax returns. While many Americans dislike paying income taxes, there is another tax that is rated as even worse in surveys: the property tax.

Why do Americans dislike the property tax so much? One popular explanation is that people don’t like the idea that “you never really own your property.” In other words, even after you have paid off your mortgage, you must continue to pay property taxes, which feels like a form of “rent” that you pay to the government. Of course, that “rent” does pay for a variety of public services, primarily K-12 education in most locations, but this still seems to rub many Americans the wrong way. The libertarian phase “taxation is theft” conveys a similar sentiment for income taxes, that you never “really own” your own labor if you must pay taxes on your earnings.

But there is also an economic explanation for the hatred of the property tax: it is very salient, especially to taxpayers that no longer have a mortgage. While those of us that still have a mortgage on our home pay property taxes through our normal monthly mortgage payment, Americans that have paid off their mortgage typically write a check (or two) to pay the full amount of their property tax bill. An interesting paper by Cabral and Hoxby finds that jurisdictions with more taxpayers using escrow for their property taxes (meaning they have a mortgage) also have higher property tax rates. And furthermore, they “find that owners with tax escrow report their taxes much less accurately than those without tax escrow” (look at Figure 2 in the paper to see the huge differences).

Income taxes, on the other hand, are not salient for most Americans. Payroll withholding means that the taxes are taken out before we even get our paycheck, and you’ll only notice them if you look at your pay stub. And about three-quarters of US taxpayers get a tax refund at the end of the year. For most Americans, the only salient part of the income tax system is a check they receive as a refund, rather than writing a check for their property taxes.

What does all this mean? Should income taxes be made more salient? Should property taxes be made less salient? A simple answer could be that all taxes should be equally salient. Or if you view one tax as superior in some way, maybe that tax should be less salient, so there is less opposition to it.

I don’t have the answers to these questions. But I do have a question for readers: do you know your own income tax rate? Specifically, what is the marginal rate on your federal income taxes? I invite readers to write down their guesses, then look up the correct answer. How close were you? Please leave a comment, and be honest!

Excess Mortality in 2020

My last post of 2020 tried to end the year on an optimistic note: the rapid innovation of a new vaccine was truly a marvel. But I also warned you that I would have a post in the new year talking about the deaths of 2020 during the pandemic. And here it is.

Throughout 2020, I have tried to keep up with the most recent data, not only on officially coded COVID-19 deaths, but also on other measures. An important one is known as excess mortality, which is an attempt to measure the number of deaths in a year that are above the normal level. Defining “normal” is sometimes challenging, but looking at deaths for recent years, especially if nothing unusual was happening, is one way to define normal. The team at Our World in Data has a nice essay explaining the concept of excess mortality.

One thing to remember about death data is that it is often reported with a lag. The CDC does a good job of regularly posting death data as it is reported, but these numbers can be unfortunately deceptive. For example, while the CDC has some death data reported through 51 weeks of 2020, but they note that death data can be delayed for 1-8 weeks, and some states report slower than others (for reasons that are not totally clear to me, North Carolina seems to be way behind in reporting, with very little data reporting after August).

So there’s the caution. What can we do with this data? Since 2019 was a pretty “normal” year for deaths, we can compare the deaths in 2020 to the same weeks of data in 2019. In the chart at the right, I use the first 48 weeks of the year (through November), as this seems to be fairly complete data (but not 100% complete!). The red line in the chart shows excess deaths, the difference between 2019 and 2020 deaths. From this, we can see that there were over 357,000 excess deaths in 2020 in the first 11 months of the year, or about a 13.6% increase over the prior year.

Is 13.6% a large increase? In short, yes. It is very large. I’ll explain more below, but essentially this is the largest increase since the 1918 flu pandemic.

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Vaccine Innovation: A Marvel of Modern Science and Modern Markets

We’ve already talked about different methods for distributing the vaccine in the face of limited supply on this blog (see my post and Doug Norton’s post). But today I want to talk about something different: the speed at which this vaccine was developed. It is truly amazing.

Timeline showing a comparison of vaccine development timescales from Typhoid fever in 1880 to SARS-CoV2 in 2020.

This chart from Nature (adapted from the fantastic Our World in Data) dramatically shows just how quickly the COVID-19 vaccine was developed compared with past vaccines. What used to take decades or even a century was done in mere months (yes, even with all the regulatory barriers today).

Exactly how we developed this vaccine so quickly is a complex story that involves the advanced state of modern science, incentives offered by concerned governments, and the harnessing of the profit motive to advance the public good. We don’t know all the details yet, and likely won’t for a long time since, like a pencil, no one person knows how to make and distribute a vaccine.

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Logrolling: An Efficient Institution

Along with the colorful phrase “pork barrel” spending, logrolling is a term used to describe the process of vote trading in elected legislative bodies. The process has long been maligned by political scientists, pundits, and the general public. It’s also come up in the debate about the proposed Budget/COVID Relief Bill.

President Grant tried to stop logrolling. He failed.

What’s bad about logrolling? I think there are two general lines of argument. First, it just seems immoral. Citizens can’t legally trade their votes, and many see any attempt to do so as wrong. You get one vote, and one vote only. For someone to have more votes than others rubs our intuitions the wrong way, similar to the ability for wealthy individuals or corporations to essentially have more votes by influencing politicians through campaign contributions.

More pragmatically, logrolling gets a bad name because it could lead to wasteful spending, particularly the “pork barrel” type that Americans really hate (unless it is coming to their district, of course). If you vote for my bill, I will vote for yours, even though I might not care about your bill. Maybe even I think your bill is kinda bad, but I think my bill is really good, so I am willing to hold my nose and vote for your bill, if it gets me what I want.

Buchanan and Tullock (1962) turned this logic on its head. Logrolling is efficient because it allows members to express their preferences, specifically the intensity of their preferences. Moreover, it allows legislative bodies to get things done that are beneficial for society, even if none of those things would pass in a simple referendum.

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