Politics

Russia, The US, and Crude Data

Zachary Bartsch4 Comments

Overall, I’ve been disappointed with the reporting on the US embargo against Russian oil. The AP reported that the US imports 8% of Russia’s crude oil exports. But then they and other outlets list a litany of other figures without any context for relative magnitudes. Let’s shine some more light on the crude oil data.*

First, the 8% figure is correct – or, at least it was correct as of December of 2021. The below figure charts the last 7 years of total Russian crude oil exports, US imports of Russian crude oil, and the proportion that US imports compose.  That 8% figure is by no means representative of recent history. The average US proportion in 2015-2018 was 7.8%. But the US share as since risen in level and volatility. Since 2019, the US imports compose an average of 11.9% of all Russian crude oil exports.

As an exogenous shock, the import ban on Russian crude oil might have a substantial impact on Russian exports. However, many of the world’s oil importers were already refusing Russian crude. The US ban may not have a large independent effect on Russian sales and may be a case of congress endorsing a policy that’s already in place voluntarily.

Continue reading →

How Volodymyr Zelenskyy Went from Playing the Ukrainian President in A Sitcom to Actually Being the Ukrainian President

Scott BuchananLeave a comment

The man of the hour is Volodymyr Zelenskyy. Russia underestimated the amount of resistance they would face in their invasion of Ukraine, and Zelensky is the heart and face of that resistance. The usual pattern in countries like Ukraine with a history of corrupt leadership is that when hostile armies close in on the capital, the leaders stuff money and jewels into suitcases and disappear to some safe haven (think: Afghanistan). Zelensky has chosen to stay and fight against Vladimir Putin, a man with a fearsome reputation for brutal military tactics (see: Chechnya and Syria) and for political assassinations.

Where did Zelenskyy come from? American politicians are nearly all lawyers or businessmen. Zelenskyy was a professional comedian. He did get a law degree, but then went into stage and film comedy. He starred in a number of lightweight films such as Love in the Big City,  Office Romance, and the zany Rzhevsky Versus Napoleon:

In 2015 the actor created, produced and starred in a comedic television series, Servant of the People:

In this political satire, a young high school teacher happens to let loose with a rant about corruption in Ukraine. One of his students captures this rant on his phone and puts it out on the internet. That YouTube video goes viral, and (to his complete surprise) the teacher gets elected president of Ukraine. He then proceeds to govern honorably, amidst various comedic situations.

In a case of life-mimics-art, the real Zelenskyy ran for the presidency of the country in 2019. Fueled by the popularity of the TV series, Zelenskyy’s campaign was almost entirely virtual. It succeeded in unseating the incumbent candidate, with Zelenskyy receiving a landslide 73% of the vote.

Although his Ukrainian presidency began on a whimsical note, it has turned into a global epic. However, it is difficult to envisage an ending to this epic that is not tragic. Drawing on his acting skills, Zelenskyy has been a master of internet communications in the present crisis, but there is only so much that can be done in the face of hard military realities. While the images of Ukrainian resistance are inspiring, the Russians have far greater military might and have the will to employ it as needed. And as long as Europe continues to fund Russia by guzzling Russian natural gas, sanctions can only bite moderately hard.

Mises’s Bureaucracy, a Recap

Zachary Bartsch3 Comments

My favorite two economists are Ludwig Von Mises and Milton Friedman. They might consider one another from very different schools of thought, though there is reason to think that they are not so different. As an undergraduate student, I liked them both, but I became more empirics-minded in graduate school and as a young assistant professor.

As I progressed through graduate school and conducted empirical research, my opinions and policy prescriptions changed and were refined from what they once were. In graduate school, I didn’t study Austrian Economics, though it was certainly in the water at George Mason University. Recently, as an assistant professor with a few years under my belt, I picked up Bureaucracy (1944) and read it as a matter of leisure.

One word:

Continue reading →

Are Special Elections Special?

Jeremy HorpedahlLeave a comment

While the United States does have its problems with democracy, one area where we shine is direct democracy. Rare at the federal level, at the state and local level direct democracy is quite common in the US, much more so than most other democracies (Switzerland also stands out). Almost half the states have some form of citizen initiative or referendum process, and it is used frequently in most of those states. But even more direct democracy takes place at the local level.

And much of that direct democracy at the local level takes place through what are called special elections. I’m not talking about elections to fill unexpected vacancies in office — though of course those do happen. I’m talking about actual voting on issues. Many of these issues revolve around questions of public finance: whether to raise a local sales tax, to approve a property tax millage, or to issue bonds for a capital project.

One very relevant example for me is an upcoming special election in my city of Conway, Arkansas. Citizens are being asked to approve the issuing of bonds to construct a community center, pool, soccer fields, and some other amenities. The bonds would be secured by a tax on restaurants. The tax already exists — city councils can put these in place without a public vote. But to issue bonds, the citizens must be asked. I wrote an op-ed about it in my local paper (if that is gated, try this blog post).

The key is that this is a special election. There are no other issues on the ballot. It takes place on February 8th, not a date that probably stands out in voters minds as an election date. What will this special election mean for voter turnout? A lot of academic research, including a paper that I wrote (currently under review, but summarized here), finds clear evidence that voter turnout will be much lower. Will the result be different? Again, a lot of evidence suggests yes. For example, property tax elections in Louisiana were less likely to pass with higher turnout, and less likely to pass in a general election (my research finds a similar result for sales tax elections in Arkansas).

But why are tax increases less likely to pass in special elections? On this question there are many theories, but they are hard to test. Is it because different kinds of voters show up at special elections, representing a different sample of the population? Possibly, but evidence is hard to find.

A new paper just published in the American Political Science Review sheds some light on these questions.

Continue reading →

South Carolina Certificate of Need Repeal

James BaileyLeave a comment

The South Carolina Senate just voted 35-6 to repeal its Certificate of Need laws, which required hospitals and many other health care providers to get the permission of a state board before opening or expanding. The bill still needs to make it through the house, and these sorts of legislative fights often turn into a years-long slog, but the vote count in the senate makes me wonder if it might simply pass this year. That would make South Carolina the first state in the Southeast to fully repeal their CON laws, although Florida dramatically shrunk their CON requirements in 2019.

Source: Mercatus Center at George Mason University

This seems like good news; here at EWED we’re previously written about some of the costs of CON. I’ve written several academic papers measuring the effects of CON, finding for instance that it leads to higher health care spending. I aimed to summarize the academic literature on CON in an accessible way in this article focused on CON in North Carolina.

CON makes for strange bedfellows. Generally the main supporter of CON is the state hospital association, while the laws are opposed by economists, libertarians, Federal antitrust regulators, doctors trying to grow their practices, and most normal people who actually know they exist. CON has persisted in most states because the hospitals are especially powerful in state politics and because CON is a bigger issue for them than for most groups that oppose it. But whenever the issue becomes salient, the widespread desire for change has a real chance to overcome one special interest group fighting for the status quo. Covid may have provided that spark, as people saw full hospitals and wondered why state governments were making it harder to add hospital beds.

Optimal Policy & Technological Contingency

Zachary BartschLeave a comment

A person’s optimal choice depends on what they know. To consume more ice cream? Or to consume more alcohol? It depends on what we know about the expected utility across time. If a person thinks that alcohol has few calories, then it is understandable that they would choose to drink rather than eat. The person might be totally wrong, but they are acting optimally contingent on their knowledge about the world. (FWIW, 4oz of ethanol has 262 calories and 4oz of typical ice cream has 228 calories.)

The case is analogous for good government policy. The best policy is contingent on accessing the distribution of knowledge that’s inside of multiple people’s heads. It’s not sensible to assert that a policy is suboptimal if the optimal policy requires knowledge that neither a single individual nor all people together have. Even if the sum of all knowledge does exist, it may not be possible to access it.

Economists like to tell their undergraduate classes that it doesn’t matter who you tax. But that’s contingent on 1) identical compliance costs among buyers and sellers and 2) identical relevant information. If a tax comes as a surprise to the buyer or the seller, then it absolutely matters who is taxed.

When I was in 1st grade in North Carolina, my class went on a field trip to a Christmas tree farm. We learned a bunch about maintaining the farm and we got to choose a pumpkin to take home. At the end of our visit we took turns perusing the gift shop. My mother had generously given me a dollar to spend  and I was eager to spend it (I rarely had money to spend). Unfortunately, even in the early mid-90s, most of the things in the shop cost more than $1. So, I settled on purchasing some beef jerky that cost 99 cents.

Continue reading →

The Justice Dividend

Zachary BartschLeave a comment

While I was listening to The New Bazaar and enjoying an episode with Tim Harford, I was reminded that economists don’t just have the job of understanding the world. We have a responsibility to our fellow man of keeping fallacy and economic misunderstanding at bay (a Sisyphean task).  That doesn’t mean that we just teach economic theory. We can and should advocate for good economic policy ideas and try to think up some policy alternatives that fit our political climate.

Here I was sitting, being grumpy at the US Federal deficit, when an idea came to me. I am full of ideas. Especially unpopular ones. So, I especially like ideas that make political sense to me given that the political parties care about their policy values and re-election. Asserting that people in congress actually care about policy apart from re-election is kind of a pie-in-the-sky assertion. But, here we go none the less.

Mancur Olson liked to emphasize the role of concentrated benefits and diffused costs in political decision making. Economists point to it and explain the billion-dollar federal subsidies that go to interest groups. A favorite example is Sugar subsidies. As of 2018 there were $4 billion in subsidies and sugar growers earned $200k on average. The typical family of four pays about $50 more in subsidies each year as a result. The additional tax burden of higher sugar prices is also relatively small. Therefore, says the economist, the few sugar beet and sugar cane farmers have a large incentive to ensure the subsidy’s survival while others pay a relatively small cost to maintain it. That small cost means that there is little money saved and little gain for any individual who might try to fight the applicable legislation.

That’s the standard story. But it’s so much worse than a story of concentrated benefits and diffused costs. The laity don’t know how the world works in two important ways. First, many people will simply say that they are happy to protect American producers for an additional $50 per year. That’s a small price to pay for ensuring the employment and production of our fellow Americans, they say. An economist might reply, in a manner that so automatic that it appears smug, that that $50 would instead go to producers of other goods and that our economy would be more productive if the sugar-producing resources were diverted elsewhere. This is Bastiat’s seen and unseen. Honestly, I suspect that neither economists nor non-economists can adopt the idea without a little bit of faith.

Secondly, people don’t know what causes a particular price to change. Hayek painted this characteristic as a feature of the price system. We are able to communicate information about value and scarcity without evaluating the values of others or the actual quantity of an available resource. However, lacking causal knowledge of prices makes for some bad policies. Say that the subsidies and protections subsided and the price of US sugar declined. The consumer would likely not know anything about the subsidies in the first place, much less that they were rescinded. Further, the world is a complicated place and people are apt to thank/blame irrelevant causes otherwise (corporate greed, anyone?).

When economists blame concentrated benefits and diffused costs, they often assume that there is perfect information. THERE ISN’T. People don’t know how the world works well enough to predict with confidence what will happen in an alternate version of reality without subsidies. Nor do they understand the particular determinants of prices in our current world. Half the battle is a lack of knowledge about the functioning of the world – not just that the costs and benefits fail to provide a strong enough incentive for legislative change.

Continue reading →

Hospital Merger Update

James Bailey1 Comment

The panel on the proposed merger of Rhode Islands two largest hospital systems I mentioned last week happened yesterday, I’ll post some reactions here, there was a lot I didn’t get to say since my section only had 45 minutes split across 4 panelists and Senator Whitehouse naturally got more of the time.

The Lifespan and Care New England CEOs trying to merge their systems opened with what to me seemed like their weakest argument, a general appeal to togetherness. They said that if the Patriots offense and defense had to be kept as separate teams, they wouldn’t be very good. To me the right metaphor is that if you merged all the NFL teams into one super team, they wouldn’t try very hard.

To their credit though, overall the hospital CEOs and President Paxson of Brown University were surprisingly honest about the risks, basically acknowledging that hospital mergers are often just a way to gain market power at everyone else’s expense, but arguing that for various reasons this one is different. They seem to realize that if you define the relevant market area as the state of Rhode Island (as e.g. the Dartmouth Atlas does in their “Hospital Referral Regions”) then the merged entity would have a nearly 80% market share and be challenged by the FTC as an obvious monopoly. So they argue that the relevant market should include Boston and much of Connecticut. They argue that it won’t just be an excuse to raise prices because they are non-profits and the state has rate regulations.

They identified two potential true efficiencies, integrating the electronic medical records of the two systems and being able to easily conduct research across both systems (both systems have many employees who are faculty at Brown Med School, including my wife). In a reasonable world these efficiencies could be gained without merging, though I suspect HIPAA prevents this, meaning one of its many perverse unintended consequences would be incentivizing mergers.

Their biggest admission against interest was that “the primary benefit [of the merger] comes from scale” and that “scale matters for purchasing supplies and staffing”. To me this implies “don’t worry, we won’t use our monopoly power against consumers, we’ll just use it against suppliers and staff”. But the FTC just repealed their consumer welfare standard, and so I think these statements could come back to haunt the merging parties.

Eliminate the National Debt: Mint Trillion-Dollar Platinum Coins

Scott BuchananLeave a comment

The American patriots funded their Revolution largely by printing paper money, since they had no gold with which to buy supplies or pay troops. That got the immediate job done, but ended in disastrous inflation. Thus, when the U.S. Constitution was drafted a few years later, the states were explicitly forbidden to print paper money, and the federal government was deliberately not granted that authority.

Currently, printing of paper money is done by the Federal Reserve, which is essential a private bank on steroids, though under a certain amount of government oversight. What the U.S. Treasury (a part of the executive branch of the federal government) can do to cover its expenditures is to collect taxes, issue bonds and other debt, and also mint metal coins. 

These coins are considered legal tender. The size and value of most of these coins is spelled out in31 U.S. Code § 5112 – Denominations, specifications, and design of coins . For instance, gold coins can be struck in certain denominations between $5 and $50. Sharp legal eyes have noticed, however, that the value of platinum coins is left unspecified. The definition of such coins is left up to the discretion of the Treasury Secretary. 31 U.S.C. 5112(k) reads:

The Secretary may mint and issue bullion and proof platinum coins in accordance with such specifications, designs, varieties, quantities, denominations, and inscriptions as the Secretary, in the Secretary’s discretion, may prescribe from time to time.

Thus, in theory at least,  Treasury Secretary Janet Yellen could authorize the U.S. Mint to stamp 5 platinum coins, each bearing the words “One Trillion Dollars”. She could then (under heavy armed escort) walk these coins over to the Federal Reserve, and exchange them for nearly all of the $5.4 trillion in federal debt held by the Fed. These coins are by definition “legal tender”, which means that any creditor (bond-holder) must accept them to settle the debt represented by the bond.

Poof, the government would have another five trillion dollars to spend as it wished. No more bothering with issuing bonds to fund deficit spending, and no more pesky debt ceiling. This is a proposal which arises every few years, whenever the debt ceiling becomes an issue.

The Mint could even go ahead, pump out a total of 29 such coins, and retire the whole federal debt. No more interest to be paid on the national debt, no more hand-wringing over “can we afford it”. We can afford anything. Build it back better, tear it all down, and build it again even better. Jobs for all! And if people won’t work, send them money anyway. This puts us in a Modern Monetary Theory paradise.

Cooler heads have so far prevailed when the trillion-dollar coin ploy is proposed. Most parties agree it would be a violation of the spirit, if not the letter of the laws and customs of the land for the government to outright mint such quantities of fiat money. Arguably the purchase by the Fed of government debt  effectively amounts to the same thing, since the Fed conjures money out of thin air with which to buy these bonds. (Furthermore, the Fed remits to Treasury the vast majority of the interest that Treasury pays on those bonds, so the Fed purchase of these bonds really is free money for the government). However, the interposition of the overall bond market in the process and having the Fed as a quasi-independent counterparty maintain at least the semblance of traditional government funding via public debt.

Also, as Cullen Roche has pointed out, the trillions of dollars of secure, interest-bearing government debt floating around the financial markets serve a number of very useful purposes to keep those markets lubricated and functioning. Such bonds also provide a seemingly safe place for citizens and pension funds to park their funds. To redeem all these bonds with platinum coins and thus to yank them off the markets and out of millions of brokerage accounts would be a major upset. Not to mention the raging inflation that would surely follow such naked, unconstrained money printing. But this all makes for entertaining financial theater.

Polarized Americans in 1840

Joy Buchanan1 Comment

I’m reading a new book Liberty Power by historian Corey Brooks. It is about how abolition was accomplished through American politics. Something that stood out to me in the introduction is that abolitionists claimed that they had been “cancelled” by proslavery dominant powers in Congress. Americans did not like to see someone getting cancelled, and it created sympathy for abolitionists.