Author: Jeremy Horpedahl

How to Get People Vaccinated for 93 Cents

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We’ve talked a lot about vaccines on this blog, including both the benefits of vaccines and how to get people vaccinated. For example, last month I posted about Robert Barro’s estimate on the number of additional vaccines needed to save 1 life. Barro put it at about 250 vaccines. Using some reasonable assumptions, I further suggested that each person vaccinated has a social value of about $20,000. That’s a lot!

But how do we convince people to get vaccinated? Lotteries? Pay them? In addition to just paying them (the economist’s preferred method), another good old capitalist method is advertising (the marketer’s preferred method). And a new working paper tries just that, running pro-vaccine ads on YouTube with a very specific spokesman: Donald Trump.

Running ads on YouTube is pretty cheap. For $100,000, the researchers were able to reach 6 million unique users. And because they randomized who saw the ads across counties, they are able to make a strong claim that any increase in vaccinations was caused by the ads. They argue that this ad campaign led to about 104,000 more people getting vaccinated, or less than $1 per person (the actual budget was $96,000, which is how they get 93 cents per vaccine — other specifications suggest 99 cents or $1.01, but all of their estimates are around a buck).

Considering, again, my rough estimate that each additional vaccinated person is worth $20,000 to society (in terms of lives saved), this is a massive return on investment. Of course, we know that everything runs into diminishing returns at some point (they also targeted areas that lagged in vaccine uptake). Would spending $1,000,000 on YouTube ads featuring Trump lead to 1 million additional people getting vaccinated? Probably not quite. But it might lead to a half million. And a half million more vaccinated people could potentially save 2,000 lives (using Barro’s estimate).

I dare you to find a cheaper way to save 2,000 lives.

Inflation During the Pandemic in the OECD

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Inflation is definitely here. The latest CPI release puts the annual inflation rate in the US at 8.5% over the past 12 months, the highest 12-month period since May 1981. That’s bad, especially because wages for many workers aren’t keeping up with the price increases (and that’s true in other countries too).

But what about other countries? Many countries are experiencing record inflation too. The same day the US announced the latest CPI data, Germany announced that they also had the highest annual inflation since 1981.

Using data from the OECD, we can make some comparisons across countries during the pandemic. I’ll use data through February 2022, which excludes the most recent (very high!) months for places like the US and Germany, but most countries haven’t released March 2022 data quite yet.

Let’s compare inflation rates and GDP growth (in real terms, also from the OECD), using the end of 2019 as a baseline. We’ll compare the US, the other G-7 countries, and several broad groups of countries (OECD, OECD European countries, and the Euro area). The chart below uses “core inflation,” which excludes food and energy (below I will use total inflation — the basic picture doesn’t change much).

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Deficits Are Here to Stay

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Last week President Biden released his Fiscal Year 2023 budget proposal. The annual release of the budget proposal is always exciting for economists that study public finance. The president’s proposal is the first step in the federal budgeting process, which in some cases leads to the full passage of a federal budget by the start of the fiscal year in October (though perhaps surprisingly, the process rarely works as intended).

This year’s budget is especially interesting to look at because it gives us our first look at what post-pandemic federal budgeting might look like. And while the budget has a lot of detail on the administration’s priorities, I like to go right to the bottom line: does the budget balance? What are total spending and revenue levels?

The bottom line in the Biden budget this year is that permanently large deficits are here to stay. Keep in mind that a budget proposal is just a proposal, but it’s reasonable to interpret it as what the president wants to see happen with the budget over the next 10 years (even if Congress might want something different). Over the next 10 years, Biden has proposed that budget deficits remain consistently right around 4.5% of GDP, with no plan to balance the budget in the near future.

How does this compare to past budget proposals? For comparison, I looked at the final budget proposals of Biden plus his two predecessors. I start Obama’s in 2021 to match Trump’s first year, and all three overlap for 2023-2026. I put these as a percent of GDP so we don’t have to worry about inflation adjustments (though we might worry about optimistic GDP forecasts, see below).

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$5,000 Worth of Vaccines Saves One Life

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I’ve written about the social benefits (in terms of the value of lives saved) of COVID mitigation measures, such as wearing face masks, before. But at this juncture in the pandemic (and really for the past 12 months), the key mitigation measure has been vaccines. How much does it cost to save one life through increased vaccination?

Robert Barro has a new rough estimate: about $5,000. In other words, he finds that it takes about 250 additionally vaccinated people in a state to save one life, and the vaccines cost about $20 to produce (marginal cost). So, about $5,000.

Barro gets this number (specifically, that 250 new vaccinated people saves one life) by using cross-state regressions on COVID vaccination rates and COVID death rates. Of course, there are plenty of potential issues with cross-state regressions. It’s not a randomized control trial! But Barro does a reasonable job of trying to control for most of these problems.

Another way to restate these numbers: if we assume that the VSL of an elderly life is somewhere around $5 million, then the social benefit from each person getting vaccinated is around $20,000. In other words from a public policy perspective, it would have made sense to pay each person up to $20,000 to get vaccinated!

Or thought of one more way: each $20 vaccine is worth about $20,000 to society. That’s an astonishing rate of return. And we’re not even including the value of opening up the economy earlier (from both a political and behavioral perspective) than an alternative world without the vaccines.

What Was a “Normal Person” 50 Years Ago?

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If you spend much time on Twitter, you may have seen the following cartoon or something like it:

The implication here is that many of the social beliefs we hold today are very different from what people held 50 years ago, and (possibly, therefore) it’s not radical to still hold those beliefs today. The Tweet above doesn’t specify exactly what those beliefs are, but we can use survey data to dig into what those might be. Thankfully, one of the greatest social surveys out there was first conducted in 1972, exactly 50 years ago: the General Social Survey.

What exactly did a normal person believe around 1972, according to the GSS?

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The Transition to a Market Economy: Did Former Soviet Republics Fail?

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This semester I am participating in a reading group with undergraduate students that focuses on the history and prospects for capitalism and socialism. Lately we have been reading Joseph Stiglitz, who has long argued that China’s transition to a market economy has gone much better than the former Soviet Union. Gradual transition is superior to “shock therapy,” according to Stiglitz.

There’s an extent to which this is true. If we just look at economic growth rates since, say, 1995, China has clearly outpaced Russia.

Source: Our World in Data

It’s hard to know exactly what year to start, since GDP figures for former planned economies immediately after transition aren’t reliable, but the start date is mostly irrelevant for everything I’ll say here (please play around with the start year in the charts to see if I’m cherry-picking years). 1995 seems a reasonable enough year to start for reliable post-transition starting point.

As we see above, while Russia has had a rough doubling of GDP per capita since 1995 (respectable, and yes, it’s all adjusted for inflation!), China has soared almost 600%. Wow! But this is something of a cheat. Despite all that growth, average income in China is still lower than Russia: only about 60% of Russia in 2020. China started from a much lower level, meaning that faster growth, while not guaranteed, is at least easier to achieve. In fact, if we go back to 1978, when China’s first reforms began, GDP per capita in the Former USSR was about 6 times as high as China (that’s according to the latest Maddison Project estimates, which will always be speculative for non-market economies, but are the best we have).

Furthermore, Russia hasn’t really transitioned to a democracy either. China clearly hasn’t, but no one doubts that. But despite having the outward symbols of democracy (elections, a legislature, etc.), Russia still scores low on most indexes of democracy and civil liberties. For example, Freedom House scores them at 19/100, a little better than China (9/100), but nothing like Western Europe.

So, did the quick transition to market economies fail? Not so fast. While it did fail in Russia, in most of Eastern Europe and the eastern part of the former USSR seems to have been a major success. Take a look at this chart, which shows the former Soviet Republics in and near Europe (I exclude Central Asian FSRs).

Source: Our World in Data
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Gas Prices are High — But Don’t Adjust Them for Inflation!

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Gasoline prices are high and rising. Anecdotally, they seem to be increasing at the pump by the hour. And indeed, in nominal terms they are now the highest they have ever been in the US (this is true with both the AAA daily price level and the EIA weekly price level). At over $4.10 per gallon, the price now exceeds the peaks briefly hit in 2008, 2011, and 2012. And it’s looking like this peak might not be so brief.

But we all know you can’t compare nominal dollars over long periods of time. We need some context for this price! Plenty of news stories provide what they think is the right context: adjust it for inflation! For example, USA Today reports that today’s price “would come to around $5.25 today when adjusted for inflation.”

$5.25: that’s a pretty concrete number. But it’s not really useful. OK, so clearly that’s higher than the current price, about 20% higher in fact. Still, it doesn’t really give us the right context.

As I argued in a previous post on housing costs, inflation adjustments aren’t always the best way to contextualize a historical number. Yes, when you want to compare income or wages over time, it’s good to adjust for inflation. It’s necessary, in fact. And a good economist will always do that.

However, when comparing particular prices over time, it doesn’t really make sense to adjust for other prices. All you are really saying is “if the price of gasoline increased at the same rate as the average price level, here’s what it would be.” Perhaps slightly useful, but it doesn’t really get at the thing we’re really try to address: is gasoline more or less affordable than in the past?

The best approach is to adjust the prices for changes in wages or income. Which measure of wages or income you choose is important, but it’s the best adjustment to make. No need to make any inflation adjustments, are worrying about whether the index you choose is properly accounting for quality changes, substitution effects, etc. If you want to know how affordable something is, compare it to income.

Here’s what I think is the best simple comparison for gasoline, which I’ll explain it below. In short, it tells us how many minutes the average worker would need to work to purchase one gallon of gasoline.

Since the price of gasoline is rising sharply every day lately, my chart will surely be out of date very soon. But right now, it’s the most current data I could provide with a comparable historical series: EIA weekly data current through March 7th, 2022 (Monday). We can see that at current prices, it takes about 9 minutes of work at the average wage to purchase a gallon of gasoline. At the peak in 2008, it took over 13 minutes of work to purchase a gallon, and it fluctuated between 10 and 12 minutes of work for much of 2011-2014.

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The Taxman Comes for Homer

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Last week I wrote about the Simpsons’ mortgage payment. In short, I found that using a reasonable assumption of Homer’s income, the median housing price, and the rate of interest, the Simpsons are likely paying less of their household budget on housing today than in the 1990s.

But what about the family’s taxes? Are they getting squeezed by the taxman? Taxes are referenced throughout The Simpsons series. Here’s an article that collects a lot of the references. And that makes sense: the Simpsons are a normal American family, and normal American families love to complain about taxes.

Using the same reasonable assumption about Homer’s income from last week’s post (that Homer earns a constant percentage of a single-earner family, rather than merely adjusting for inflation), we can calculate the family’s average tax rate and how it has changed over the year. Conveniently, “average tax rate” is just economist speak for “how much of your family’s budget goes to the government.”

First, let’s just look at the federal income tax, since this is where most of the changes happen. Don’t worry, I’ll add in payroll taxes below, though this is a constant percent of the family’s budget since it is a flat tax on income!

The chart below shows the average tax rate the Simpsons paid for their federal income taxes. I didn’t go through every year, because: a) it’s a lot of work (I’m doing each year manually); and b) it’s more interesting to look at years right after or before major changes in the tax code. So no cherry picking here — the years selected are picked to tell a mostly complete story.

I’ll now briefly explain each of the years chosen, and what changes in the tax code impacted the Simpsons. But as you can see, just like their mortgage payment, the Simpsons are now spending less of their household income on federal income taxes (don’t worry, the trend is similar with payroll taxes included). In fact, they are now getting a net rebate from the federal government, and have been since the late 1990s!

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Home(r) Economics

Jeremy Horpedahl5 Comments

Is it harder to buy a home today than in the past? Many seem to think so. Lately, some people have used the example of the fictional Simpsons family to make this claim. A recent Tweet with around 100,000 likes expressed the sentiment:

The unspoken implication is that today a “single salary from a husband who didn’t go to college” couldn’t buy a typical home in the US. Or at least, it would stretch your budget so thin that you would have to give up something else or need two incomes to support that lifestyle (famously dubbed “the two-income trap” by Elizabeth Warren).

And it’s not just a Tweet that caught fire. A December 2020 article in the Atlantic claimed “The Life in The Simpsons Is No Longer Attainable” and used housing as a prime example. And while a 2016 Vox article on Homer’s many jobs doesn’t mention the cost of housing, they draw a similar conclusion and implication: “Homer Simpson has gone nowhere in the past 27 years — and the same could be said of actual middle-class Americans.”

But is this an accurate picture of the Simpsons family over time? And does that picture accurately represent a typical family in the US? Let’s investigate. And let’s start by pointing out that as measured by the availability of consumption goods, the Simpsons do see rising prosperity over time. They have flat screen TVs now, instead of consoles with rabbit ears, as the late Steve Horwitz and Stewart Dompe point out in their contribution to the edited volume Homer Economicus. But with all due respect to my friends Steve and Stewart, I don’t think many would deny that TVs, cell phones, and computers are cheaper today than in the 1990s. The familiar refrain is “but what about housing, education, and health care?”

In this post I want to take on the question of housing, partially by using the Simpsons as an example. My main result is this chart, which I will present first and then explain.

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Is Global Capitalism Increasing Poverty?

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A few days ago on Twitter, Nathan Robinson made the claim that global capitalism wasn’t reducing poverty. In fact, it appears that poverty, using the threshold of $10/day (rather than the usual lower numbers) has increased from 1981 to 2017:

While there were a lot of critical responses to him on Twitter, he’s not wrong about the data: in 2017, there were 1.3 billion more people living on less than $10 per day (we’re going to assume in this post that the underlying data is basically correct, and correctly adjusted for inflation and purchasing power). It’s also true that at lower thresholds, such as $1.90 and $3.20, the absolute number of poor people has declined. And as a proportion of the world population, fewer people are under $10 per day. But in absolute terms there are more people under $10 per day. And not just a few: over a billion! There are also a lot more people above $10/day in the world than in 1981 (1.7 billion more!), but I agree that we should be concerned if there are more poor people too.

So how should we think about these numbers? Here’s what I think is the fundamental problem with Robinson’s claim: he asserts that the entire world has experienced something called “global capitalism” during this time period. But there has been considerable variation in the extent to which countries have experienced something we would call “capitalism,” and the degree to which it has increased in the past 40 years (I wrote a series of Tweets on this too).

The easiest way to see this is to break down that 1.3 billion people into different countries. Where were the biggest increases? Also, did any countries experience decreases in poverty? (Spoiler alert: YES!)

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