Age ___ Do you smoke Y/N Will you get vaccinated Y/N

Jonathan Meer wrinkled my brain:

“Hospitalizations for COVID are almost entirely confined to those who are not vaccinated, often at the cost of tens or hundreds of thousands of dollars…why should the vaccinated bear those financial costs? Insurers, led by government programs, should declare that medically-able, eligible people who choose not to be vaccinated are responsible for the full financial cost of COVID-related hospitalizations, effective in six weeks….Standing up for your beliefs means being willing to bear the consequences. Otherwise, it’s just cheap talk.”

In summary, anti-vaccination positions are effectively being subsidized by taxpayers, members of insurance pools, and the vaccinated. It’s an expressive form of moral hazard. It’s selfishness, signaling, and group identity as club good. It’s cheap talk. It’s at least 5 different chapters of your microeconomics textbook. It’s a great article and I want to talk about it.

  1. “Cheap talk” doesn’t mean “costless.”

“Cheap talk” means you don’t have sufficient costs or benefits committing you to follow through on the future behavior you are promising. But I think a lot of people have painted themselves in a very public corner. If you spend 6 months telling everyone who will listen that Covid is just the flu, that the vaccines are dangerous or don’t work, then you’ve got a lot of social capital within your peer network (or audience) that will be destroyed if you publicly change your mind or are observed getting vaccinated. For most private citizens, the answer may be found in a hat and fake moustache. Nonetheless, the talk isn’t that cheap. Only a 1/3 of unvaccinated people claimed they’d be more likely to get vaccinated for $100. What Meer proposes is to “uncheapen” their talk at a far greater level, where $25k to $100k price tags are not out of the question. I think such a policy would work specifically because it creates an expected incentive greater than either peer stigma or any feasible reward policy for vaccination, and at levels large enough where loss aversion may likely kick in. Funny thing about people – we don’t plan for low probability events very well, often treating ~1% negative events as an impossibility. I know it may sound crazy, but a 10% chance of being impoverished may actually be a more powerful incentive than a 0.5% chance of dying.

2. It’s really hard to write complete contracts i.e. your health insurance company desperately wishes it could have included vaccination in your premium calculus.

“Knightian Uncertainty” i.e. when you don’t know what you don’t know remains one of the all-time “obviously important, but hard to operationalize” concepts in an economic analysis. If you write an economic model where people are purely backward looking you will get a lot of pushback for making your agents too myopic, too stupid. At the same time, if anyone out there has started a museum of apartment leasing contracts, I have no doubt they have grown at a near perfectly linear rate over time, as tenants forever explore the space for unanticipated holes and landlords continue to supplement their contracts in response. Every new paragraph in a lease tells the story of a previously unanticipated cost. Your health insurance is the same. For decades you’ve had to tell them if you smoke. Here’s a prediction: In the future you’ll have to tell them if you’ll receive FDA-approved vaccines.

3. Given the state of modern democracy, even for problems where government mandates are the first-best solution, we may have little choice but to rely on market- and community-based solutions going forward.

One of the big advantages of government mandated solutions over market alternatives is completeness i.e. you can make everyone do it (with concomitant provision, monitoring, and punishment). What the pandemic has made clear is that simply isn’t the case anymore, for the simple reason that our politics are so polarized and, more importantly, so efficient in polarizing any policy. Any issue where a universal mandate is the optimal policy will immediately be polarized into for/against constituencies, which will slow down and eventually weaken any possible mandate.

I’m honestly not sure we could pull off the small pox vaccination program today, and it is arguably the greatest government program in world history. That was the first-best means to eradicating small pox. So what’s the second-best means to coping with Covid? If health insurance wrote separate premium contracts for vaccinated and unvaccinated customers, maybe that could get us to herd immunity. Medicare and Medicaid could have similar contingencies for reimbursement, but I suspect it’s hospitals that would end up on the hook. If hospitals refused care to unvaccinated Covid patients, I don’t think it would go down very well politically.

What this leaves are the smaller groups within our nesting doll of associations (state, local… church, synagogue, university, Rotary club, hockey league, pub trivia, the eight people you always see on the bus). It may be within these smaller, more voluntary groups, with their easier entry and exit, that we may observe that necessary accepted coercion to produce club immunity. And while vaccination mandates as a series of parallel club goods is clearly inferior to its provision as a monolithic national public good, its still superior to purely independent production.

4. Could HMO’s have their moment?

Health Management Organizations (HMOs) have been pretty stagnant for a while. Skepticism over management incentives to provide optimal healthcare has always lingered, combined with the fact that health insurance does seem to work pretty well for the people that have it (it’s the 28 million Americans that don’t have health insurance where the bulk of problems lie). Given limits on in-network care and the difficulties assuring prospective members that physician and patient interests are aligned, HMOs have always had a hard time presenting a compelling sales pitch relative to traditional insurance.

The club nature of HMO’s, however, may give them a new structural advantage in the post-Covid world. They can exclude people from membership, from taking up limited resources and sharing space with potentially vulnerable members. Would I at this very moment prefer being sent to a hospital that only allowed vaccinated people to work or receive care in it? Yes, I would. If Covid variants become seasonal, if we’re entering an age of pandemics, or if we’re simply watching the emergence of costly medical luddites as a significant portion of the population, then a lot of us might give HMO’s a second look. (NB: This ability of HMOs to “exclude” is, of course, also their potential downfall. The power to exclude is, historically, almost always abused. The idea that healthcare would become a domain not just characterized, but driven, by the power to exclude should cause trepidation. If you thought there were going to be solutions without tradeoffs to the problem of vaccine refusal, get used to disappointment.)

5. Would universal healthcare (or “Medicare for All”) mandate vaccinations? Can they?

I’m genuinely curious about where policy proponents sit on this. If vaccinations are required to receive care, then it requires denying sick people care. Healthcare policy is a great topic to argue about on twitter, but it’s all cheap talk until orderlies are shoving dying patients out the door.

I’m not the kind of person that reads a lot of philosophy, but that’s really what this boils down to– moral philosophy. It’s easy to call yourself a “libertarian” until your personal freedom not to get a shot in your arm is literally killing millions. It’s easy to call yourself a “socialist” until the newly created levers of power to coerce hundreds of millions into receiving a drug today will set the precedent for the “next Trump” to use those same levers for their own nefarious ambitions. There’s always a risk, a trade-off, no matter how many capital letters you use to yell at me.

It’s all cheap talk, but that doesn’t mean it’s costless.

What happens when you can’t pay your employees in cool anymore

I’ve previously written about the dangers of trying to make a career out of something 19-year-olds think is cool. There are risks on the other side of the paycheck as well, though.

There’s been a flurry of media attention paid to the difficulties restaurants are facing trying to re-staff their kitchens and servers. This piece is my favorite so far, for the simple reason that it pays less attention to policy and politics, and more to the actual jobs in question and what restaurants can actually do to convince employees to return. Rather than condescend to the service industry as a petri-dish for wage policy experiments in “unskilled” labor markets, it dares to recommend employers investigate both the goods they are selling and the value proposition to employees they are trying to hire.

The restaurant and service industries have long been a haven for employees who might otherwise find resistance in the labor market. St. Anthony Bourdain first found his way into our hearts with his love letters to the kitchen as pirate ship, and in doing so contributed as much as anyone to making the restaurant industry cool. Really cool. 2nd-tier rock star cool. Not Beatles cool, but more than few chefs found their way to third-to-last-band at Lollapalooza cool.

And from this pirate ship rebel identity and willingness to hire employees of fringe legality, the restaurant industry found itself with a capacity enviable for any employer: it could pay people with something other than money. It could pay you with a willingness to overlook, ahem…questionable work histories or I-9 employment eligibility. It could pay you in enabling a contrived identity. It could pay you in “No, you’re not selling out trying build a career in a kitchen and yes, you can totally reaffirm that to yourself with two full sleeves of ink.” It could (unfortunately) also pay you through tolerance of workplace aggression, misogyny, and sundry behaviors otherwise on their way out of the office Overton window of acceptable behavior.

There is risk, however, in growing reliant on paying people in non-pecuniary rewards, especially “coolness”. What happens when, whether via a pandemic or just, well, aging, employees realize they can’t pay their rent with cool? What happens if working in your industry stops being cool? What if the world changes, and it broadly stops tolerating the workplace hostility attractive to some of your previous employees? Absent such variously fleeting, juvenile, or outright terrible non-pecuniary indulgences, they’re going to demand higher pay. In money.

The restaurant industry was, quite likely, in exactly the kind of equilibria that major exogenous shocks can shake us out of, sometimes forever. And make no mistake – this isn’t just something that restaurant owners are going to have a tough time adjusting to. I expect a lot us frequent restaurant customers are in for a rude awakening as well. Increased restaurant labor costs pass directly into higher prices. By 2010 the average household in the United States had grown accustomed to dining out more than at home, a luxury enabled by prices kept lower in no small part by a labor force paid in non-pecuniary benefits. I am very much part of that average. Growing up in a family that dined out less than once a month (and that was usually at Pizza Hut), constantly eating out at an endless variety of restaurants has become my single favorite luxury enabled by my employment.

Yes, I’ll probably get a little wistful for the days when I could afford to eat-out almost every night. But it’s also exciting to imagine what a new and different restaurant industry might look like. As an economist, I’ll admit a bit of ironic amusement if it is not the $15 minimum wage that makes way for the oft-prognosticated wave of automated kiosks and labor displacement, but rather the end of a labor pool mythos that leads to a labor exodus. The sudden and collective realization that while, yes, we all concede that a 14-inch scimitar and a flask of Fernet Branca on your hip are cool, they’re not nearly as cool as health insurance and a 401k from a job where the sous chef doesn’t hump your leg every shift.

Which is a long way of saying:

Beware dependence on monopsony power born of coolness, for it is fleeting and full of bankruptcies. Just ask every magazine or media company staring down a writer’s union who’s members have hit their early 30s and realize they can’t pay Brooklyn rent with Williamsburg street cred.

Another marginal cost bites the dust?

The story of renewable energy changing the world for the better has always been about solving two parallel concerns: figuring out 1) how to produce clean, renewable power cheaply and 2)how to store the power generated for long periods of time. Over the last decade the cost of solar and wind power generation has plummeted. It’s not just that its cheaper per megawatt than fossil fuels, its also that the rate of cost decline shows not signs of slowing. But to fully displace fossil fuels also requires solving the “intermittency problem”. You can store piles of coal and barrels of oil, but how do store solar power for use when the sun doesn’t shine?

If we allow ourselves a moment’s credulous excitement and believe the press releases from Form Energy, a major step towards solving the intermittency problem has been made. I am in no position to judge the credibility of their technology or their capacity to effectively scale its development and distribution, but I find the opportunity to engage in a little futurism too exciting to resist. (Warning: I’m an economist, not an engineer. But even if I have the specifics wrong here, it’s still a fun exercise.)

The new technology in question is an iron-based battery that stores power for upwards of 100 hours. This reads to me as meaning two things:

  1. Power is going to become very cheap
  2. The batteries are going to be heavy

The second part is important. These aren’t the batteries that Tesla wants to put in their cars. They are, however, the batteries that can make for a local power station…or perhaps enable a perpetually self-powered large train?

If you’ve been daydreaming about high-speed rail remaking day-to-day American life, today is potentially a very big day for you. If you want to see millions of travelers speeding along rails in the 21st century, however, you need to lure them out of their cars and business-class flights with a speed and cost proposition that is not just better, but irresistible. Even more, you need to lure them in numbers sufficiently vast that cities (states? nations?) face a value proposition so great that its worth making fixed cost investments measured in hundreds of billions of dollars. A 10% reduction in cost isn’t going to do that. Appeals to community, civic duty, environmental stewardship — I’m pretty sure that will have much effect. What I think might do it, however, is cutting travel costs in half.

Why stop at half though? What happens if a $500 billion investment means urban residents can travel for a twentieth of the cost we associate with cars and planes today? What if that investment only truly pays off if other cities on a route make commensurate investments? It’s easy to point out the challenges of multi-state coordination in a country with highly polarized politics. What’s maybe easier to forget are the challenges that success might bring.

In a world where public transit pushes the marginal cost of travel to a tiny fraction of that faced by travelers in regions without similar fixed cost investments, the urban-rural divide becomes all the starker. Furthermore, its not every urban center that participates – it’s only the ones in the network. Automobiles, while not necessarily inexpensive, evolved into a relatively democratic mode of travel. Combined with the interstate highway system, hamlets and towns could pop up all over the country, and sometimes hang around long after local industry had dissipated or fled. In a world extraordinarily low-cost transit, the gravity of the dense urban areas could become irresistible. Pick a side in a congress heavily gerrymandered along urban-rural lines, and imagine you’re a representative from either side, and it doesn’t take much reflection to realize that no one will be on the sidelines for these votes. If you’re from a rural district, your political life and the future of your party depends on stopping free high speed rail from ever seeing the light of day. Perhaps ironically, though, if the costs per mile of NYC subway are a relevant metric, union negotiated prices may be an even bigger obstacle.

We’ve spent the last year adapting to technologies that left us thinking half of us could work from home, that we could live anywhere, dispersing us to every corner of the globe in a thin layer of extremely online exurbanites. Today we got a glimpse of a different technology, one that might pull us closer together again while taking a major step towards addressing global climate change and increasing the wealth of billions of people at every decile of the income distribution. We’ve lived our lives on landscapes defined by the maps first drawn by sailors, caravans, and indigenous peoples. Maps full of rivers, mountains, and intricate webs of roads. If the next round of massive fixed costs investments allows those along its chosen network to enjoy the benefits of near costless travel, don’t be surprised when the defining maps of the future look like the London Tube.

Innovation in Consumption Goods will Never Stagnate

Was there a Great Stagnation in technological development? Definitely maybe! Are we still in one? Definitely maybe not! Am I the correct person to adjudicate such things? Absolutely not.

When we talk about stagnation, we focus on the sort of innovation that is most pertinent to economic growth, which means technology as it relates to production. More than just important, with any small amount of reflection on the human condition and how far we have come as a species, in a certain light the technology underlying production is very nearly the only thing that matters.

Only, in a far more comfortable and modern way, it’s not. With all due respect to the protests of those who used to hike 10 miles to three jobs, uphill all 4 ways, every day through the snow, our lives are about consumption. And before you cast me into The Pit of a Thousand Shopping Malls, I mean consumption in a very broad sense. Consumption of time with family and friends; consumption of the 5 senses; of active introspection and passive entertainment; of every new Zelda game they can possibly create.

And all I’d really like to do today is cheer you with a delightful reminder that there will never be a great stagnation of consumption goods. There really won’t be! Not because human genius is unlimited (though maybe it is, if you include exponential AI learning). Rather, it is because our wants are infinite, and from those wants we can fabricate a cheery synthesis of Say’s Law and the unrelenting optimism of Endogenous Technical Change – that Demand Creates its Own Innovation.

That might be overly cute, but I’m not taking the “infinity” in play here lightly. That infinity of wants is not a product of our imagination or the broad dimensions in which we can consume. That infinity is born of our capacity for niche refinement, for variation. If you don’t believe me, go a farmers market. Go a Wegmans. Go to your local Asian grocery store. Google “heirloom tomatoes.”

Our consumptive lives will never stop improving because each new good brings with it the infinite possibilities of small changes, of bigger/narrower/weirder/quieter/redder/hotter/faster/easier/drowsier/friendlier/adjective/adjective… And with each new variation comes a roll of the dice that just might send us down forking paths of inspiration and radical departure from past convention, toward that new way of living our lives that no one had thought possible before.

There was a time when we didn’t have enough calories, so we innovated ways to make more calories. Once we had enough calories, we invented better calories. Then we invented foods. Then meals. Then experiences. Then stories. Then identities. Each stage of innovation brings with it not the disappearing of low-hanging fruit, but an expanding horizon of all the possible ways our life-sustaining caloric consumption goods might evolve, and the infinite stories they might help us tell through the lives we live. And we will never run out of stories to tell.

It’s a Trap!

When I was 22 I applied to the MFA programs in creative writing at the Iowa Writers Workshop and Columbia. They summarily rejected me with a minimum of fuss. They were right to do so, but it is also without question one of the greatest pieces of good fortune to ever befall me.

Let’s talk about “trap” degrees – expensive, often multi-year endeavors that rarely lead to salaries commensurate with the investment and arguably carry negative signal value in the labor market. We could all dunk on the aspiring filmmakers and puppeteers who look as though they were sent from central casting to play exactly the sort of dude who forks over >$100K for the shortest path to becoming the next Spielberg without doing all the messy fundraising, friend-haranguing, lighting improvising, actor recruiting, writing, and film festival peddling that looks an awful lot like high-risk hard work. We could dunk on them, but…but I can’t think of a way to finish that sentence that isn’t arrogant and condescending.

Anyway, we really should put aside the “they did this to themselves” schadenfreude, at least for a second, because regardless of blame, a lot of high opportunity cost human life years are being scammed with the siren song of “look at this great investment in yourself that will feel just like consumption while you are doing it!” There’s nothing new here, mind you. “Eat yourself thin” diets cycle through the zeitgeist with regularity, conveniently next to the book/video/3-week courses that will help you get rich in real estate with no money down. But we should be concerned when an entire sub-industry appears to be selling a human capital investment with negative real value. They may not be the modal or flagship product of higher education, but neither was the Pinto.

There’s similarly no shortage of people eager to point out that a lot of undergraduate education looks like a 4 year cruise, a pretirement if you’ll excuse a shameless attempt at coining unnecessarily cute terminology. We shouldn’t be shocked that purveyors are bundling consumption within an investment where, by design, the check-writers face high monitoring costs — part of the point of college is leaving the nest, right? Think about it from the other side of the equation– higher education is a scammer’s dream. The money folks are out of sight and desperately credulous to believe their child is on the path to status and financial independence. The customer is naïve and unworldly, eager to follow any external entity (other than their parents) that will do their decision-making for them. But the best part is the con’s mark won’t know for sure they’ve been scammed until well after the check is cleared (but not before they’ll receive their first solicitation for alumni donations).

But, you might be saying, graduate and professional schools are meant to be different. This is focused preparation for a narrow field of endeavor. These programs are decidedly not pretirement cruises. This is training. Why would anyone pay for training in something that has no payoff? I’ll offer a couple possibilities:

  1. This isn’t training, it’s consumption, and the buyers are fully aware of it.

I’m sure this accounts for a fair amount of fine arts training, particularly for retirees and hobbyists attending local community colleges, as well on the children of wealthy parents who have no intention of ever pursuing a vocation. More on them in a second.

2. This is training for aspiring men and women of leisure.

Remember gentlemen and ladies of leisure? They used to have their own Census occupation code! This might seem redundant with the previous point, but if your intention is to hob-nob with the rich and more-rich, there is something very much to be said for being able to discuss certain artistic fields at more esoteric levels. There’s also a modern middle-class version of this as well, what in an earlier, more coldly misogynistic, male-dominated time would have been referred to as an “MRS” degree. I imagine there are plenty of men and women who view school as a way of biding their time until a partner emerges who will be the primary earner. profiles and fix-ups are likely to be more economically fruitful for students mid-pursuit of a graduate degree than those working unimpressive jobs.

We also shouldn’t dismiss those opting for a graceful slide down the economic ladder. Generous families, perhaps a universal basic income, a rich artistic education, and comfortably living in a bohemian southern university town are for many the formula for a quiet, comfortable life unencumbered by the toils of a career. I’ve always enjoyed the company of such folks, at least until they try to tell me how the economy really works. Never follow these people to a second location.

3. This is a scam, and one with potentially far reaching costs.

Like so many scams, you could write a pithy story about well-dressed con-artists who open a “college” in an abandoned strip mall, throw on a coat of paint, and scam the spoiled children of upper-middle class social climbers by offering fake degrees that promise a shortcut to white collar riches and bohemian prestige. It’d be a two-act romp followed by a third where everyone ends up ok and kids learn the value of hard work.

In reality, though, no small number of the victims will be kids from higher education information deserts, who emerge from their undergraduate years with a relatively weak career they were guided towards after they struggled their first semester. Facing grim job prospects, they’re hoping two more years will thin the competition in the rarefied air of the applicants with “graduate education”. It is for these students that I fear the most.

It gives me pause when I see overly narrow masters’ programs that target a specific job rather than training in a set of tools. In service to my own cowardice, I won’t name specific programs, but suggest caution when considering a degree where the only job you’ll be qualified for is in the name of the degree.

I similarly worry about third- and fourth-tier MBA programs (especially if your employer isn’t paying for it). So much of the value of an MBA is the social network it will wire you into. If your parents haven’t heard of the school, it’s probably not much of a network.

Aspiring masters degree students, my advice is this: look up the individual courses you’ll be taking and then explain to the mirror what you’ll learn in each one and the market in which those skills are in demand. If you can’t do that, I advise reconsideration.

That’s all great, but what should we do?

I have no policy solutions, but I do have a piece of pedagogical advice. We need to update the standard operating procedure of guidance counselors in schools everywhere. We’ve been working so hard to convince kids they should go to college, we forgot to teach them how to be discerning customers of higher education. I’m all about caveat emptor as life advice, but if we want to hit people with it as an ex post I-told-you-so, we have to teach it to them ex ante, especially when we’re talking about 17-year-old and (ahem, perhaps mildly infantilized) 21-year-old kids. Just because you’ll walk away with a degree doesn’t mean that degree will be worth the time and tuition.

My guess is that we should up the status of community college, technical certificates, and not going to college at all. At the same time, we should probably lower the status of arts degrees for for artistic fields that are better suited to learning by doing and autodidacts.

Or maybe we just need guidance counselors to bring college seniors on field trips to carnivals across the country. Nothing will teach you the cold truth of scams faster than losing your last 20 bucks pursuing a fluffy bit of googly-eyed asbestos shooting on a bent basketball hoop in front of someone you planned on asking to prom but could never see value in you again after missing 10 shots in a row.

Trust me, that’ll stick with them.

DIY and The Limits of Comparative Advantage

I’ve been thinking a lot lately about the perils of over fetishizing comparative advantage and outsourcing in our personal lives, which is a long way of saying I bought a Sodastream.

Like many economists, I am wary of self-congratulations for doing something yourself. Don’t get me wrong, hobbies are good, but we shouldn’t suffer the delusion that making a table yourself is a particularly good use of your time. And, so help me god, if I hear you diminish the merits of any restaurant offering because “you could make for yourself for half the price” I will slap the menu out of your hands, hand you a crisp ten dollar bill, and send you home to make your own damn meal.

My loyalty to economics thus declared, I must say there is a case to be made for making exactly the thing you want. Ricardian comparative advantage- I make my low opportunity cost item, you make yours, we trade, everyone wins, it’s important at the micro and macro of our lives, but the bulk of rewards to purchasing private goods in the market instead of producing them yourselves is from the comparative advantage derived from specialization, capital, and scale. It would take me hours to make a batch of homemade Oreo-style cookies, but it’s pretty silly when you consider there are billions of dollars in technology, capital, and expertise dedicated to making just those specific cookies. Unless I were to get some sort of meditative three-steps-of-self-actualization-on-the-path-to-nirvana value out of the process of making those cookies, I’m far better off just grabbing a couple stacks at the grocery store and paying a professional to help me process the shame.

But what if I don’t want exactly the product being offered? Everything comes with a cost, and that includes scale of production. Nabisco sells $550M of just Oreos every year, but they don’t do that by trying to sell them to everyone. It might seem that way, but they really don’t. Yes, I know they have 25 flavors now, so yes, they having expanded into narrower niches since their single-flavor days, but their target remains the 4.29 million Americans consumed 8 or more packages in 2020. If you want to sell a half-billion dollars worth of cookies, you need to sell them cheap, and that means you need to sell a lot of them. You don’t sell a lot of cookies going door to door asking people what they want and then giving it to all of them. You sell a lot of cookies by hunting for the middle of the distribution. Observed used to call the implied bullseye here the lowest common denominator, but now that we are fully-evolved humans who don’t need to sneer at what most people want, we can simply say that sellers are looking for a part of the distribution of preferences with enough mass to support your business.

In soda-land, that means you are definitively not selling to me. Coca-Cola is a literal miracle product, but its also obesity-in-a-can for 43-year-old dudes who count walking somewhere as exercise. I enjoyed the “TEN” calorie product series, but those lasted less than 3 months on the market and probably ended the careers of no fewer than a two dozen career soda executives. At the other end of the sugar spectrum, I don’t like a lot of the Lacroix flavors and they tend to be over-carbonated for my precious bubble-specific sensitivities. Where is the perfect soda for those of us who want 1 to 3 grams of fructose from real fruit juice suspended in a matrix of lightly-bubbled seltzer water?

Where it’s not is the marketplace. That’s fine, the world doesn’t owe me exactly my preferred bundle of product dimensions in everything I consume. I wouldn’t want them to either. Like most people, if the market did ever produce a good just for me, I couldn’t afford it. We need the scale that comes from meeting lots of wants all at once, even when those wants don’t perfectly match my own.

And that’s why we buy Sodastreams. And woodworking tools. And sewing machines. And pizza ovens. Sometimes we go DIY not because we’re denying the merits of comparative advantage, but rather because we’re accepting that there of some products where second-best market solution just won’t cut it.

Which, by the way, is one of the great ironies of modern life in a developed economy. We’re so rich, we can absorb the opportunity cost of our hobbies and weird DIY hyper-niche consumption preferences. We can make our own stupid mole-cherry-lime soda at home because that’s what we want. Because in the modern world, the greatest bourgeois luxury isn’t the stuff you buy, it’s the stuff you make yourself.

Information Deserts

I am a tenured professor at an R1 research department who gets to work every day with scholars at universities all over the world. In 2002, when I applied to get my PhD at a local school, I did not know how grad school, academia, or research worked. More importantly, I didn’t know that I didn’t know, so I didn’t try to find out. I tell you this only to illustrate, via personal example, the depth of ignorance that is possible among exactly the people who, in theory, should be be the most informed, or at least trying the hardest to become informed. 1

When you spend enough time with the same group of people, there is a tendency to treat shared in-group knowledge as universally common knowledge. I don’t think this tendency is unique, or even especially strong, among academics, but it is something I am acutely aware of when discussions turn to higher education. The paper linked to in the tweet below reports the results of a field experiment where subjects in the treatment group received a packet of information regarding the availability of financial support to attend the University of Michigan for qualified applicants. It was impeccably designed and well-funded, and included the composition of informational materials rivaling any educational marketing I have ever seen. Go read the paper yourself, but the punchline is that the exogenous shock of information mattered, significantly increasing applications and subsequent matriculation to the University by students from economically disadvantaged backgrounds.

The results did not surprise me in the slightest (that is not a dig at the paper, which is tremendous). What surprised me when I saw the paper presented was the shock expressed by so many fellow members in the audience, who simply could not reconcile the implication that students (and their families) were unaware that college education was accessible to them. How did they not know? How could they not know? The information was everywhere.

Ivory tower academics live in bubble, yeah yeah. Shrug. I don’t think this is an ivory tower phenomenon, to be honest. This is, instead, a story about information deserts. Food deserts, yeah they’re not real. But information deserts, in my carefully cultivated opinion very much are. Academics expressing shock that people don’t know how much financial aid is available, that Harvard of all places is entirely “need-blind” in their application process (and to be clear, every university with a multi-billion endowment should be ashamed to not be need-blind in their application process). It’s easy to forget that the majority of people don’t get an undergraduate degree. They don’t interact with the aid process, it’s not something that people discuss with their neighbors. I don’t buy a lot “economic class as causal mechanism” theorizing, but there is something to be said for the fact that, culturally, we don’t discuss money with our friends. We don’t talk about our salaries and loans, how we are paying for education or how your kid might be able to pay for theirs. It’s simply not the kind of information that fills the air, doubly so in communities where most of the parents never attended college. Compounded the with greater urgency of day-to-day living for poor families, there just aren’t a lot of channels through which students can get a first moment’s traction to start asking the question about how they can go to college, let alone arrive at answers.

When smart and good technocrats like me are looking for policies that can stand up to the rigors of cost-benefit analysis from skeptics, information campaigns manage to be some of the very worst and very best ideas out there. When they’re bad, they talk down to disadvantaged communities with condescending messages filled with information they already have (crack is bad!), common sense everyone has (guns are dangerous!), or the kind of avuncular suburban conservative wisdom that leaves no one an ounce more informed.

But, when they’re good, they’re great. Information campaigns scale, with manageable marginal costs and often zero downside risk. They provide a very specific kind of information– information you didn’t even know you were missing, often answers to questions you didn’t know you should be asking. Did you know there was a Hepatitis vaccine? Did you know that you can save for our kid’s college education tax free? Did you know you qualify for the EITC and if you file your taxes you’ll get a check for $4,600? Did you know the flagship university of the state, one of the very best in the world, guarantees sufficient financial support to allow 100% of admitted students to attend without being financially crippled for life?

Rather than focus on what you think people know and don’t know, just start from the basics. What is the information that you relied on when making the biggest decisions in your life? Do other people have that information?

Are you sure?

1 I’ll abstain from telling the long version here, but I had absolutely no clue how graduate school and academia worked when I applied to a PhD program. I was a public high school teacher, I thought I’d work hard, write a dissertation, and make 50k a year teaching in a local community college. It’s funny in hindsight because what was then an ocean of unknowns is now the entirety of our academic working lives. Being told that families don’t know how college works is can feel like being told people don’t know the water we live in is wet.

Rules, Discretion, and Privilege

I’m often wary of personal stories that illustrate an idea too perfectly, but here we go.

I was in a small local grocer purchasing tonic water, which elicited a comment from a White middle-aged man about the importance of never running out of tonic when there is gin to drink, followed quickly by an unsolicited story of his drinking and driving, only to get pulled over by a police officer and be told to “Go straight home, I don’t want to see this car on the road the rest of the night.” This prompted innocent confusion on the part of the young Black cashier, who asked

“Wait, were you drunk?”

“Oh yeah, I was completely hammered”

That’s it, that’s the whole story. The young woman was flabbergasted that an officer would pull over a clearly drunk driver and let them off the hook. I doubt she was unaware of the concept of White Privilege, but rather I suspect she was shocked to find it extended to something as socially stigmatized as drunk driving. She rang up my bill, her face frozen in a “Really?” that for all I know she is still wearing to this day.

The optimal balance of unbending rule adherence/enforcement versus pure discretion in judgement/enforcement will always be an open debate at the level of macro institutions and the day-to-day micro decisions of the agents presiding over our lives. Rather than further adjudicate how much discretion is optimal, I ask that you only grant me that the median voter in nearly every context demands that discretion remains > 0.

In the context of law enforcement, what I would like to contend is that we have chosen the wrong kind of discretion. Or, perhaps more precisely, the emphasized discretion in the wrong direction. With rare exception, our rules dictate overly-harsh punishments, and it is in the agents of enforcements that we have both imbued, and burdened, the power of discretionary lenience. The officer can let you off with a warning or record a speed below a key punishment threshold, the judge can sentence you to probation instead of jail time or suspend your sentence entirely. We are, many of us, comfortable with this construct because at some level we have faith in the humanity, the sympathy, of the enforcer.

This construct has consequences. Most obviously, it means the system will be harsher on groups of people with whom the enforcing agents have less sympathy, in whom they see less in of themselves (or their children). Showing how ticket speeds “bunch” on different sides of a punishment threshold for white and black drivers, Goncalves and Mello neatly show officer discrimination, not in the form of targeting black drivers with additional cruelty, but rather in excluding them from the relief afforded White drivers from a harsh system of rules.

This is an important distinction. In a system with gentle rules, the burden is placed upon the discretionary agent to ensure punishment is sufficient to the transgression. They have to bear the burden of what happens to the punished; they have to be the villain in that person’s story. When the rules are cruel and the system allows for sympathetic lenience, they get to be that person’s hero. Even for those humans with whom officers have less sympathy, it will still be easier for guilt averse officers to fail to be someone’s hero than opt to be their villain. Perhaps most importantly, it displaces accountability for punishment outcomes from the discretionary agent to the system as a whole. Few will ever be fired or shunned for failing to intervene on behalf of a transgressor, but those who opt to dispense additional punishment may be asked to defend their choice. If you want accountability, strictness has to be someone’s choice.

How did we end up with a variety of brutal punishments that we count on discretionary agents to protect us from? I can imagine a variety of origin stories. When Nixon sold White Southern voters on “Law and Order” it was by design a promise to lock away the Black men that White southerners were terrified of. White southerners had every reason to believe they, and more importantly their sons, would be protected from draconian drug laws by, what were then, almost exclusively White officers and judges. I also don’t think we should underestimate how the median American views the prospect of being arrested as something that happens to other people. Strict punishments are exactly what criminals deserve. In the unlikely event you interact with the system, the professionals in the system will quickly see their error or, at worse, will see you as someone who doesn’t deserve to be punished harshly. Discretion will save you.

Lastly, harsh punishments and discretionary lenience allows observers from the privileged group off the psychological hook with a simple bit of reasoning: “They broke the rules, that’s the punishment according to the rules. They made their choice.” But is that the line of reasoning you follow when you interact with an officer?

When you see red and blue flashing lights in your rearview, what runs through your mind? Do you plan your story– the job interview you’re rushing to, the bathroom emergency you’re in the midst of? Do you prime your system for the Stanislavskian production of tears? Or do you get out your license and registration, put them in your left hand, roll down your window, and place both hands squarely at the top of the steering wheel hoping desperately not to spook the officer you expect will unbutton their sidearm as soon as they see the color of your skin?

A post script

When racial discrimination and White privilege are levied as explanations of social phenomena, even though the two are, for all intents and purposes, outcome equivalent, I often can’t help but think that the wrong rhetorical option is chosen. If and when employers discriminate against Black job applicants, this privileges White applicants, but those White applicants don’t actually observe the discrimination first hand. To frame this as an example of White privilege is to tell them they don’t deserve the job they’ve worked hard to acquire– their resistance to the explanation maybe shouldn’t be so surprising. Discrimination, not privilege, is the easier rhetorical sell because you are telling them a story about something negative that happened to someone else that they had no direct part in– they don’t have to be the villain in the story, they simply have to accept the evidence put before them and sympathize with those being harmed.

Conversely, stories of positive discrimination, such as the criminal justice system extending greater lenience to White citizens, are precisely examples of privilege. No one should feel unjustly villainized simply because they are receiving additional benefits when they did in fact break the rules. Furthermore, the policy goal to be pursued here is not to eliminate the privilege of lenience enjoyed by one group, but to extend that lenience to everybody else.

When framed as such – that negative discrimination is something to be eliminated, while positive privilege is something to be expanded, it becomes easier to persuade people because you’re never asking them to give something up or confess to a transgression they don’t recall committing. You’re letting everyone remain a hero in the story they tell themselves everyday.

Unless, of course, they’re just racist and want to use the government and market institutions we live within to cause as much harm as possible to others. There’s no rhetorical fix for that; they’re going to fight the rest of us every step of the way no matter how much evidence is found or how it is presented. But then again, they don’t really matter in this story, do they? They’re just inframarginal obstacles in our quest to persuade the median voter to accept the evidence of positive and negative discrimination, and work together to make the world just a little better, one policy at a time.

Should student debt be dischargeable in bankruptcy?

I’m not an economist who studies education or bankruptcy, and I’m not 100% confident I spelled dischargeable correctly. I am, however, above average at highlighting the difficulty of a question when dissuading a grad student from attempting an impossible thesis question, so let’s dig into this one, which sounds pretty hard to me.

First of all, it is very difficult to discharge student debt during Chapter 7 or 13 bankruptcy, but I think you still can do it if you convince a judge that continued attempts at repayment would create undue hardship i.e. put you in a state of poverty in the wake of previous good faith efforts.

That said, maybe you shouldn’t have to face literal starvation to discharge student loans. That’s a reasonable idea, but what would the broader consequences be? This is tricky question to untangle because there are both welfare consequences and knock-on effects where we are put down different forking paths of politics and policy.

If debt is dischargable, then lenders will expect lower rates of repayment. This increase in lender risk and decrease in return on capital would likely have immediate consequences in the form of:

  1. Higher interest rates
  2. Lower rates of loan approval
  3. Greater dependence on loan collateral
  4. Greater lender interest in what the loaned funds will be applied towards.

Before we tackle those, we also have to consider the different policy environment paths lenders may have to anticipate:

  1. The government stops subsidizing loans. This would lower tuition, but also lower access for low income students.
  2. A loan forgiveness program. Great for people with outstanding debt, but changes how expectations are formed forever going forward.
  3. The government launches a massive “free college” program that covers tuition at state colleges and universities. This would have all kinds of consequences potentially.

But where this really leaves us is with a billion dollar question: will dischargeable students loans lead to lower costs of higher education? I am confident that the answer is a definitive, unassailable maybe.

Higher interest rates is a pretty straightforward prediction, but the consequences are less clear. Higher interest rates could lead to less college matriculation, greater barriers for lower income individuals, and higher expected rates of bankruptcy, in part because decisions are being made by young people who don’t know the future, their future, or, really, anything. Related to this, lenders will become more discerning regarding who they lend to, giving more money on more favorable terms to matriculants from wealthier backgrounds, in no small part because wealthy parents are filled to the brim with collateral, making for excellent co-signers and providers of high school graduation gifts nicer than any car I ever hope to drive.

That is all boring and moderately obvious. It’s 4) that I’m most curious about. If you get into medical school, there is no shortage of institutions eager to dump several hundred thousand dollars in the foyer of your home. Part of the reason for this is the expected future income of physicians and their high graduation rates from medical school thanks to rigorous admission screening. But what is underappreciated is the 100% rate at which medical school students study medicine.

Not so with undergraduate education. You might study electrical engineering with a minor in computer science. You also might study something a senior tells you is the easiest major at your school. You might major in something that sounds fun or interesting. You might study Miscelleneous Studies, where Miscelleneous is a subject that is likely interesting and possibly extremely important, but within which you can choose classes that facilitate your avoiding learning anything useful or applicable in the labor market.

Herein lies the problem. Lenders treat loans for consumption very differently than loans for investment. Nursing and statistics degrees are investments. Art History classes (for most people) are consumption. What’s going to happen to higher education when the lender tells you you can have $200K at 3% to study any STEM field or $75K at 6% to study anything in the humanities? Will the demand for humanities degrees drop? Will the supply of humanities education recede? Are humanities and STEM education complements or substitutes?1

Let me phrase it a different way? Are wealthy fine arts majors cross-subsidizing STEM majors pursuing the first college degrees in their family? Or are they driving up the price of tuition because heavily subsidized credit is facilitating pre-career retirement lifestyles for 4 years?

All of this leaves me with the suspicion that dischargeable student loans will lower tuition for some while raising it for others. This heterogeneity would likely shift the electoral popularity of free tuition programs while also shifting the nature of those program. Maybe “free college” turns into a means-tested program. Maybe “free college” becomes “free STEM college”. Maybe both.

We could speculate what this means for loan forgiveness or subsidies, but this post is too long already and, as should be already clear, we’re not going to solve anything today. My elegant and succinct point is this:

When you massively subsidize a [knowledge, signal] bundled good for so long that it transforms into a [knowledge, signal, 4-year luxury cruise with your peers] bundle, and to accommodate that subsidy you protect your poorly constructed macro-investment in human capital by exempting it from bankruptcy proceedings, and as a result of this weird landscape a bizarre higher education industry emerges that is both one of the greatest achievements in US history but also a trap that 19-year-olds fall into because, really, is there any trap we don’t fall into when we’re 19, and from which thousands of people never financially recover, but if you just fix one part of it no one knows what will happen, and if you try to fix all of it at once in the back of your mind you’re afraid it could turn into the US healthcare industry part deux, well then what you have is a real and important problem that I don’t know how we will solve but I remain confident that other people will be very confident that they know how to solve it and they will get extremely cross with me for not sharing their confidence.2

So maybe don’t try to solve that in your dissertation.3 Might be safer to just definitively estimate the natural rate of interest that underlines all monetary transactions. That’ll be easier.

1The answer is “Yes”.

2 This is, to be extremely clear, not me picking on Ms. Reisenwitz’s tweet which was good and interesting and left me thinking about student loans for two days when I should have been working on the research topics I have actual expertise in.

3 Of course, if you do find a natural experiment where huge chunks of student debt were accidentally made dischargeable in a state for 2 years because of a legislative SNAFU, you should write that dissertation and put me in the acknowledgements.

Academic Publishing: How I think we got here

Fabio Ghironi, whom you should be following on twitter already, threaded the #econtwitter needle the other day, managing to write about the growing problems within academic economic publishing without falling victim to the sorts of whining and nihilism that discussions of publishing experiences often degenerate into. Below I’ve included a sample. Do go read the whole thing.

I don’t want to adjudicate the merits and flaws of the economic journal system. I have no idea how it would fare in a benefit-cost analysis or how to improve it, and I’m deeply skeptical of anything that has a whiff of “easy fix” for what is a very complex system of scientific incentives, social benefit, and academic sociology.

Instead, I’d like to discuss how I think we got here. A couple stylized facts about how research in economics has changed over the last 50 years, none of which I expect to be controversial

  1. There are a lot more people writing academic journal articles.
  2. There is a lot more well-executed economic research.
  3. The teams of co-authors on papers/projects have become much larger.
  4. The number of journals whose prestige is commensurate with a tenured position at an elite school has grown slower than the total faculty employed by elite schools.
  5. Economics research has become more expensive and labor intensive.

What is immediately obvious from 1-4 is the journal space squeeze, resulting in journals with vanishingly small acceptance rates. The American Economic Journal: Microeconomics (one of the very top journals that isn’t part of the holy Top-5, hallowed be thy names) managed to go an entire year without accepting a paper! Their editorial team, as any Murphy’s Law aficionado would have predicted, interpreted this as evidence they should publish fewer papers.

[Update: 6/2/21 A reader has pointed out that AEJ:Micro has over the past year managed a more than respectable turnaround time on submissions and eventually accepted 33 papers in 2019, 20 in 2020, yielding acceptance rates of 5 to 9%. Editors Report here]

One of the things that economics has become, and maybe always has been, obsessed with is “super stars”, and not just those who get medals. Within every subfield there are a handful of current researchers who are known to everyone else, whose papers are always top of the list in the best working paper series, who tour the country tirelessly promoting their latest papers. And they are often promoting multiple papers. How is it that they find the time to do so much research?

Well, first and foremost, they are incredibly conscientious, with work ethics bordering on obsessive. But a not distant second is the change in the nature of their jobs. They are not just working at a chalkboard by themselves or analyzing the latest batch of data. They are managing research teams. They are applying for grants that support grad students and post-docs. They are meeting for 3 hours each day with different teams of scholars, some at different institutions. They are coming up with their own ideas and refining the ideas of others, they are guiding the research of apprentices while also collaborating with equally experienced peers. They are the CEOs of miniature research empires.

Let’s assume that for a second that the number of super stars in the field has remained constant (it’s grown, but lets keep it simple). In 1950 the top 5 journals probably could have published every single full research paper written by super stars and still had room to spare. Nowadays I’m not sure the top 5 journals could handle the research output in a given year just from MIT. I don’t think the top 10 journals could handle all of the research from the Boston metropolitan area

Let’s visit the other side of the fence now. If you are a co-editor at one of the 5 elite journals in economics, you are allotted roughly 13 acceptances per year. These are fixed. For these slots you review roughly 200 papers. Let’s say 50 of those papers are trash and 50 are good but below the bar. These you desk reject. Of the remaining 100, another 25 are a bad match for the aesthetic or substantive targets laid out by the editor-in-chief(s). Another 25 are good, but the reviewers are, upon closer inspection, able to identify real problems that will undermine the impact of the paper, ruling it out for an elite journal such as yours.

That leaves you with 25 papers for 13 slots. That might not sound like a problem, but think about the process of elimination you just went through. These are really good papers that make important contributions to the field and you need to reject half of them. The discipline will not accept you flipping a coin. You need reasons to reject some of these papers. Well, let’s look at the co-authors. You don’t want to be a jerk, but you’re both desperate and don’t want to be remembered in your hallway at work as the person who rejected that massively influential paper that reinvented the field. You’d feel bad, but 20 of the papers have at least 1 superstar on them. Sorry, but status is a heuristic for a reason. You still need to reject 7 more.

Let’s go through those referee reports again. Was there anything questionable? Any possible source of bias speculatively hypothesized by a person who spent two days thinking about the paper that the people who worked on it for three years never thought of? Are they relying on econometrics that someone has recently posited might sometimes fail to calculate error terms optimally? Is it a theory without an application? Is it an application without a theory? Are the coefficients too small to be interesting or too large to be believable?

Now, let’s remember the single most important thing: everyone knows this is happening. This is not a secret process and academic researchers have responded accordingly. Superstars have responded by managing bigger teams, producing even more research, adding more and more layers of robustness checks, alternative specification designs, even entirely different research designs serving as papers within papers that put Hamlet to shame. At the same time comparably excellent, but perhaps slightly less famous, authors with outstanding research records are thrilled to work with a star, knowing that it will increase their odds at a top journal. When designing the research they know what is in vogue, what is falling out of favor, and how to shape their papers to fit the ambitions of current editors. Research designs are defensive from the start, anticipating as many angles of attack as possible. When the research is completed, it will go on the presentation circuit for a year or two, subject to the slings and arrows from the pool of economists where your future referees will be drawn from. It is from these comments that your appendix will grow. And grow. And grow. You must anticipate every attack, lest your paper’s shortcomings make the editor’s job easier.

Now try to imagine what the research lives of everyone start to look like. For the bulk of good researchers, this means working on 3-6 projects at all time, with each of those projects stretching out over 3 to 5 years. Even if you land a 2 year post-doc, submitting your tenure packet in the fall of your 6th year means you have 7 total years to get multiple papers through a process accepting less than 3-5% of submissions and, more importantly, less than half of all the objectively outstanding research. At the same time, superstars are stretching themselves impossibly thin, expected to meet impossible expectations and get papers accepted at journals with impossible standards knowing full well the careers of their co-authors depend on those acceptances. A faculty appointment should come with a free clonazepam prescription.

To sum up: academic economics has more star researchers, managing larger teams producing more high-quality papers than there is space in the elite journals which have been forced to invent impossible acceptance criteria to produce the singular output that journal editors absolutely cannot shirk: rejections.

And if you think the easy answer is to just increase the size of journals, you are missing the entire function of journals. Journals no longer function as disseminators of economic science.** Rather, they are criteria for tenure and promotion. There are a finite number of faculty slots and schools need reasons to keep/dismiss/promote/retain/recruit. If the number of elite journal articles published were to change, the prinipal effect would be to shift the threshold for success or failure in tenure and promotion.

Of course, increasing the number of publication slots in historically high prestige journals might still be a good thing. Going back to our editor’s dilemma, if they could accept the entire 12.5% of papers that our editor-under-truth-serum genuinely believes are significant contributions, then everyone’s CV would more accurately reflect the subjectively assessed merit of their work, and less their luck and ability to tirelessly play a zero-sum game. Sure, the high-low prestige bar would inflated upwards, but it would nonetheless increase the signal-to-noise ratio on everyone’s CV.

This, of course, would lower the value of every CV that already includes a Top-5 publication, but such is the struggle of every YIMBY vs NIMBY movement. Increasing the supply of elite journal publications won’t be a Pareto improvement (what is?), but it seems likely to me to be welfare improving. So I lied. I do think I know how to improve the system. Big shocker, an academic who thinks they can solve a complex system in one blog post.

** That role has been entirely usurped by the NBER and their working paper series. Now that I have tenure, I would literally rather receive an email permitting me to distribute my future work as NBER working papers than an acceptance at a Top 5 journal. It’s not even close, actually.