I’ve long been a lurker on r/kitchenconfidential. I did a few brief tours in the service industry when I was younger and my partner used to manage a successful upscale restaurant. If you’ve spent anytime in a restaurant after closing in the last ten years, then you probably aren’t surprised by the continuing labor shortage in the service industry. Things have been bad for a while, with a pervasive sense that the industry was dependent on employees with weak outside options (i.e. a criminal record) or high exit costs (i.e. can’t afford to be on entry-level wages in a new career track). As I’ve written before, we’ve been eating on borrowed time: the pandemic game shifted the calculus for a lot of marginal employees who have left the service industry and likely aren’t coming back. The service industry is important, but not such that a great reorganization is likely to have catastrophic short term consequences for broader society.

Which bring us to nursing.

Nurses are burned out.

If the daily threads at on r/nursing subreddit are even mildly representative, the status quo in nursing is unsustainable. It’s not just that the job has become more dangerous, more tiring, and less rewarding. Tough jobs exist all over the place, with employees taking them on in return for higher wages than they might otherwise enjoy. No, the bigger problem in nursing is that it is not what these people signed up for. It has become dangerous and unrelentingly exhausting. It requires increasingly greater education and training that is highly specialized, with little in the way of outside options likely to reward that education and training. Can you think of a job with equivalent background requirements, that places the same physical demands on you, and forces you to interact at a personal level in the general population? I can’t, and if you did, I can almost guarantee that the pay is considerably higher.

The broad shortage of nurses in the US has gotten a fair amount of attention. That article points to a lot of causes, most entirely valid (the idea that travel nurses are a cause, rather than symptom, of the nursing shortage is silly, but we’ll let that slide- the broader point stands), but this is one of those cases where it seems to me the diagnosis is best kept simple: nursing has become a worse a job, in part because of the pandemic, and that has tipped the cost benefit analysis towards labor exiting.

While cooks and nurses decided that the pandemic was a good time to get out, let’s not make the mistake of ignoring one of the most martyred vocations in the US.

Teaching sucks, and this time they mean it.

You could go to r/teachers and read the resignation posts, but there isn’t a lot of new information to be gleaned. Everyone knows teachers are undervalued and underpaid. I was a public school teacher for two years, and I endured lots of third drink questions of “Why?” to go along with daily complaints about pay and “continuing education” requirementss with my colleagues. The rate of exit, was pretty predictable. More than half of teachers left the profession in their first 5 years, the rest stayed for life.

I’ll wait for the data to come out before I make broad pronouncements, but this wave of resignations could be different. If we lose a generation of teachers (>80% of those in their first 5 years), there really will be a massive shortage down the road. The pandemic is interesting because it’s taught us two things:

1. Online teaching is inferior
2. The value of schooling as “mass daycare” is hard to overstate

If we step into massive teaching shortage five years down the road, there’s not going to be a “scale education online” solution. The only solution will be to raise compensation for teachers and bring labor into the industry and, well, the failure to raise teaching salaries is maybe the single greatest of example of the divergence between what people publicly support and what they actually vote for. A mass teacher shortage would certainly given teachers unions across the country the opportunity to negotiate better pay scales, but I’m cynical enough to expect they will find a way to waste it on even more job security for their worst members while ensuring that the best teachers still never see a dime in extra compensation. But hey, prove me wrong, yeah know?

What do Cooks, Nurses, and Teachers have in common?

I can’t help but see what these three vocations have in common in the US labor market – a frequent sense of being trapped. Sure, working grill for $15/hour might not sound like something you couldn’t bring yourself to leave, but if you’re 34 with a high school diploma, a felony drug arrest, and a mortgage to pay, the intermediate stage between the status quo and something better might not seem so great. No, you did not enjoy being threatened by a patient who backed you into a corner and told you he “knows what you are trying to inject in him”, but you have a masters degree in nursing, which makes the pay gap between nursing and not nursing a miserable prospect, especially if you’re going to pay off the student loans that got you the job that makes you miserable. You know you essentially can’t be fired, but you’ve also seen the pay scale by seniority, and the prospect of teaching 5th grade for 25 more years fills you with a dark melancholy you did’t know possible. But your degree is in teaching, which essentially means you’d have to find a way to start from scratch at twenty-six. Or thirty-three. Or forty-one.

But then the pandemic happened and everything you already hated got even worse. So you did it. You quit.

But how many of you quit? How many of you are laying out your exit strategy? What will these industries look like in 2 years? We won’t know for a while, but I do think we’re going to learn which industries have been dependent on squeezing every ounce of juice out of trapped labor pools (with what you might call actual monopsony power), versus those industries where the standard “work sucks” complaints simply get more attention for whatever reason.

Personally, I’m betting on two out of the three, but I’m not telling you which two. Working in two of these industries is going to look very different in the wake of the pandemic, both in terms of labor characteristics and compensation. And one will just return to the previous normal, like it never happened.

It’s a debt we will never be able to pay back, but that doesn’t mean we shouldn’t keep trying.

David Friedman recently got into an online debate with Walter Block that could be seen as a boxing match between “Austrian economics” and the “Chicago School of Economics”. In the wake of this debate, Friedman assembled his thoughts in this piece which is supposed (if I understand properly) to be published as a chapter in an edited volume. Upon reading this piece, I thought it worthy of providing my thoughts in part because I see myself as being both a member of both schools of thought and in part because I specialize in economic history. And here is the claim I want to make: I don’t see any meaningful difference between both and I don’t understand why there are perpetual attempts to create a distinction.

But before that, let’s do a simple summary of the two views according to Friedman (which is the first part of the essay). The “Chicago” version is that you can build theoretical models and then test them. If the model is not confirmed, it could be because a) you used incorrect data, b) relied on incorrect assumptions, c) relied on an incorrect econometric specification. The Austrian version is that you derive axioms of human action and that is it. The real world cannot be in contradiction with the axioms and it only serves to provide pedagogical illustrations. That is the way Friedman puts the differences between the schools of thought. The direct implication from this difference is that there cannot be (or there is no point to) empirical/econometric work in the Austrian school’s thinking.

Now, I understand that this is the viewpoint shared by many — as noticed by a shared distrust of econometrics and mathematical depictions of the economy among Austrian-school scholars. In fact, Rothard was pretty clear about this in an underappreciated book he authored, the A History of Money and Banking in the United States. But I do not understand why.

After all, all models are true if they are logically consistent. I can go to my blackboard and draw up a model of the economy and make predictions about behavior. That is what the Austrians do! The problem is that predictions rely on assumptions. For example, we say that a monopoly grant is welfare-reducing. However, when there are monopolies over common-access resources (fisheries for example), they are welfare-enhancing since the monopoly does not want to deplete the resource and compete against its future self. All we tweaked was one assumption about the type of good being monopolized. Moreover, I can get the same result as the conventional logic regarding monopolies by tweaking one more assumption regarding time discounting. Indeed, a monopoly over a common access resource is welfare-enhancing as long as the monopolist values the future stream of income more than than the future value of the present income. In other words, something on the brink of starvation might not care much about not having fish tomorrow if he makes it to tomorrow.

If I were to test the claims above, I could get a wide variety of results (here are some conflicting examples from Canadian economic history of fisheries) regarding the effects of monopoly. All of these apparent contradictions result from the nature of the assumptions and whether they apply to each case studied. In this case, the empirical part is totally in line with the Austrian view. Indeed, empirical work is simply telling which of these assumptions apply in case X, Y, or Z. In this way of viewing things, all debates about methods (e.g. endogeneity bias, selection bias, measurement, level of data observation) are debates about how to properly represent theories. Nothing more, nothing less.

It is a most Austrian thing to start with a clear model and then test predictions to see if the model applies to a particular question. A good example is the Giffen-good. The Giffen good can theoretically exist but we have yet to find one that convinces a majority of economist. Ergo, the Giffen good is theoretically true but it is also an irrelevant imaginary pink unicorn. Empirically, the Giffen good has simply failed to materialize over hundreds of papers in top journals.

In fact, I see great value to using empirical work in an Austrian lens. Indeed, I have written articles (one is a revise and resubmit at Public Choice, another is published in Review of Austrian Economics and another is forthcoming at Essays in Economic and Business History) using econometric methods such as difference-in-difference and a form of regression discontinuity to test the relevance of the theory of the dynamics of interventionism (which proposes that government intervention is a cumulative process of disequilibrium that planners cannot foresee). n each of these articles, I believe I demonstrated that the theory has some meaningful abilities to predict the destabilizing nature of government interventions. When I started writing these articles, I believed that the body of theory I was using was true because it was logically consistent. However, I was willing to accept that it could be irrelevant or generally not applicable.

In other words, you can see why I fail to perceive any meaningful difference between Austrian theory and other schools of economic thought. For year, I realized I was one of the few to see like this and I never understood why. A few months ago, I think I put my finger on the “why” after reading a forthcoming piece by my colleague Mark Koyama: Austrians assume econometrics to be synonymous with economic planning.

I admit that I have read Mises’ Theory and History and came out not understanding why Austrians think that Mises admonished the use of econometrics. What I read was more of the domain of the reaction to the use econometrics for planning and policy-making. Econometrics can be used to answer questions of applicability without in any way rejecting any of the Austrian framework. Maybe I am an oddball, but I was a fellow Austrian traveler when I entered the LSE and remained one as I learned to use econometrics. I never saw any conflict between using quantitative methods and Austrian theory. I only saw a conflict when I spoke to extreme Rothbardians who seemed to conflate the use of tools to weigh theories and the use of econometrics to make public policy. The former is desirable while the latter is to be shunned. Maybe it is time for Austrians to realize that there is good reason to reject econometrics as a tool to “plan” the economy (which I do) and accept econometrics as a tool of study and test. After all, methods are tools and tools are not inherently bad/good — its how we use them that matters.

That’s it, that’s all I had to say.

This caught my eye.

Puzzle: the Large Hadron Collider cost $279 million per mile to build. It has 10,000 superconducting magnets, 96 tons of liquid helium for cooling, and is all custom made.

New York City's subway costs between $1.5 to $3.5 *billion* per new mile to build 🤯

5-13x more expensive pic.twitter.com/YGgS5K0ugJ

— Marcelo P. Lima (@MarceloPLima) January 8, 2022

This isn’t just expensive or inefficient. This is obstructive at a level only just short of an executive veto. Regardless of what sits at the top of your dream infrastructure list, this is the problem you have to solve first. Doesn’t matter if it’s high speed rail, the hyperloop, or offshore windfarms. Heck, maybe your big policy dream is universal healthcare or public education. If governments can’t build anything short of a 10X markup, then every large scale government provided solution has no value besides giving us something to argue over.

If I might put my even-more-cynical-than-usual hat on for a moment, the fact that this isn’t a top line item in every policy discussion is politically telling. This is relevant to the policy ambitions for everyone to the left of the politest anarchist you know. However, the urgency and relevance should increase exponentially as we move leftward across our political spectrum since those are the people most excited about the government actually building things. With a handful of exceptions, that’s just not what I am seeing, quite the contrary even.

Maybe it’s union indolence, conservative obstructionism, or just the quiet manifestation of all the reasons that public choice theory is actually more relevant as a left-wing school of thought than a conservative one. The fact remains that the incentives within modern politics and governance has brought us here, to a place where people want the same thing they always have: everything. And they’re willing to pay exactly as much as they always have: nothing. The difference is that our institutions used to give people incentive to bargain within the political marketplace and hammer out a deal where prices, both in dollars and political support, led to an an actual outcome where everyone ended up better off. Maybe it wasn’t as efficient as the private marketplace, but that’s almost besides the point. Sometimes the most important thing isn’t maximizing efficiency, but just managing to build the public good at all.

Instead, we seemed to have arrived at an equilibrium with enough legacy rent-seekers that the system is choking on them, with no one willing to flinch unless they continue to enjoy the previously established flow of benefits. We can try to blame this on conservative obstruction, but the fact remains that there just isn’t that much work for them to do. It’s a lot easier to tell voters they shouldn’t have to pay taxes when those taxes are disappearing into the suppurating maw of insatiable contractors, unfunded pension obligations, unplacatable union reps, and a menagerie of regulations that accomplish nothing but make a advocate 2 years removed from an overpriced BA in communications feel good about levying just one more papercut on a bloated corpse.

I have no idea if “supply-side” progressivism will gain anymore purchase than any of the other ad hoc attempts to coin a school of thought or political identity. But the idea stands, and I think it’s unescapable: if we want the government to be able to build stuff while leaving the 13th Amendment intact, they’re going to have to be able to pay market prices, and market wages, for it. Not much more, not much less.

I enjoy simple methods in economics. For economic history, which is my field of specialization, its often by constraint that I have to use them. Because of that, one has to be creative. In the process, however, one spots how well-used simple methods can be more powerful (both in terms of pedagogy and explanatory uses) than more advanced methods. Let me show you an example from Canadian history: the fur trade industry.

Yes, Canada’s mighty beaver! Generally known for its industriousness, the beaver has been mostly appreciated for its pelt which was the main export staple from Canada during the 17th and 18th centuries. In fact, if one is pressed to state what they think of when they think about Canada, fur pelts come in the top 10 (if not the top 5). It is thus unsurprising that there are hundreds of books on the business history of the fur trade in Canada.

One big thesis in Canadian economic history is that the fur trade was actually a drag on economic development (here and here and, most importantly, here with a wikipedia summary here). The sector’s dominance meant that the colony was not developing a manufacturing sector or other industries such as the timber, cod fishing, agriculture or potash. Political actors were beholden to a class of fur merchants who dominated. In a way, it looks a lot like the resource curse argument. And, up to 1810-1815, the industry represents the vast majority of exports (north of 60% always and generally around 75%). During the French colonial era, they represented 20% of GDP at some ponts.

Its only after 1815 that furs collapse as a staple — and quite rapidly. It represented less than 10% of exports and less than 2% of GDP by 1830. To explain the rapid turnaround, most of the available work has focused on demand for the industry’s output (see here) or internal industry factors. In a weird way, the industry is taken in isolation.

And that is where a simple tool like the elasticity of substitution between inputs becomes useful. First, I want you to notice the dates I invoked for the turning point: 1810-1815. These are not trivial years. They mark the end of the contest at sea between Britain and France and the beginning of the former’s hegemony on the sea. This means few trade interruptions due to war and insecurity at sea. Before 1815, the colonies in North America would have experienced nearly one year out of two.

What does that have to do with the fur trade’s dominance and elasticity of substitution? Well, it could be that war affects industry differently. Lets look at isoquants for a second to see how that could be the case. Imagine a constant elasticity of substitution function of the following shape:

Where L and K are your usual terms for labor and capital and r is the elasticity. Now, for the sake of argument, let us imagine what happens to the isoquant of a production function as r tends to infinity. As it tends to infinity, the marginal rate of technical substitution between L and K approaches zero if L > K. This means that there is a form of pure complementarity between inputs and no substitution is possible to produce the same quantity of output. The isoquant looks like this.

On the other hand, if r tends to -1, there is perfect substitutability between both L and K. The isoquant then looks like this.

What if the fur industry’s isoquant looked more like the latter case while other industries looked like the former? More precisely, what if wars affected the supply of one input more than another? With a simple element like our description of the production function above, we see that if wars did not evenly affected the supply of one input, then one industry would be forced to contract output more than another. In our case, this would be the timber, potash, cod and agricultural sectors versus the fur trade.

Does that fit with the historical evidence? We know that the fur industry frequently changed the inputs it used in trading with the First Nations of Canada to buy furs. Whatever was deemed most valued by the natives would be what would be used. It could be alcohol, clothing, firearms, furnishings, silverware, tobacco, spices, salt, etc. This we get clearly from the work of Ann Carlos and Frank Lewis (a book linked to above). There was great ability to substitute. In contrast, other industries could not shift as easily. Take the timber industry which needed to import axes, saws, hoops, iron and nails from France or the United Kingdom for most of the 18th century. If wars disrupted the supply of these capital goods from Europe, there was very little substitution available which meant that the timber industry would have to contract output considerably to reflect the higher cost of these items. The same thing applies to the cod fishing industry whose key input was salt. No salt, no drying of the cod for preservation and export, thus no cod exports. And salt needed to be imported. In wartime, salt prices tended to jump much faster than other goods because its supply was entirely imported. Thus, wartime meant that the cod industry had to contract its output quite importantly.

The cod fishing industry is an amazing example of this if you take the American revolutionary war. During the war, the colony of Quebec (which represented 85% + of Canada’s population at the time) was invaded by the Americans and the French’s alliance with the Americans jeopardized trade between Quebec and Britain (its mother country at that point). The result was that salt prices jumped rapidly compared to all other goods and the output of the cod industry contracted. In contrast, the fur trade sector was barely affected. Look at this graph of the exports of beaver skins and codfish. Codfish output collapses whereas beaver skins barely show any sign of a major military conflagration.

In a longer-run perspective, its easy now to understand why the industry was dominant. It was the only industry that was robust to wartime shocks. All other industries would have had quite large shifts in factor prices causing them to contract and expand output in a very volatile manner. Now you may think this is just a trivial re-arranging of the argument. It is not because it invalidates the idea that the colony was poor or developed slowly because of the dominance of the fur industry. Rather, it shifts the burden on wartime shocks. Wars, not the dominance of the fur trade itself, meant that the economy was heavily mono-industrial.

A simple tool, the elasticity of substitution (which we can derive from the marginal rate of technical substitution), changes the entire interpretation of Canadian economic history. Can you see what I mean by the claim that simple tools combined with simple empirical observations can lead to powerful explanations? I hope you do! 

Omicron is highly contagious, but has far lower rates of associated hospitalization and death. By one estimate it is essentially 3 times deadlier than the standard flu, which is bad, but modest compared to previous variants of Covid-19. The vaccines, especially the mRNA vaccines, appear to help a lot towards further mitigating the cost of infection. That all said, there’s no reason to yet be confident it precludes one from “long Covid” symptoms, many of which are moderately terrifying to a relatively healthy person such as myself.

But, after being vaccinated and begging everyone in your life to get vaccinated, is there anything else we can do at this point? There is a cost-benefit analysis happening in all of our heads now, and many of us who were stridently in the “isolate at home and wait until the vaccine miracle arrives” camp got our miracle, only to find out other people were…less enthusiastic. Then Omicron showed up and it started to feel like the only options are to either return to home isolation (perhaps even more strictly than before) or just accept that you’re going to get it.

I don’t know the answer to this question, but as I sit here, wondering if any body ache or cough is the beginning of “my turn” with Covid, there isn’t the fear or rage I would have previously expected. Just a quiet resignation, a hope that my to-do-list doesn’t grow to unmanageable proportions while I am down, and a gratitude that my entire family (in the broadest possible definition) is vaccinated and boosted.

The road here has been long and dumb, but it also might be near the end. Not because we won, but because we’ve arrived at a point where more people will survive their bad decision-making while imposing a far smaller cost on the rest of us than before. Which is fine, I guess.

But is it? Or have we just let the experience of the last two years beat down our expectations to the point where we’ll willing to accept an endemic version of mild Covid and move on with our lives? You’d think the main take away would be that mankind has arrived at a point where we can make a bespoke vaccine in 18 months (it probably should be), but in all honesty I find our incredible innovation less shocking than how easily grotesque anti-science fictions have become not just limits on public health, but bonafide popular campaign strategies, rigid spines capable of supporting functioning political coalitions. Angry, dangerous people have found each other, found community, and many very ambitious people have figured out how to speak directly to them. I don’t see any way that isn’t a problem going forward.

I remain more optimistic than pessimistic with regards to our global future, but I can’t shake the feeling that this particular denouement to the pandemic should be viewed cautiously in how it portends for the near future.

I have a few friends who are physicians. Often, they tell me tales of crazy patients who did/said (both) crazy things. Often, the topic of eHealth platforms like WebMD comes up. Each of those friends has expressed a variant of anger at those platforms because patients self-diagnose. Thinking about it, its clear that they think that the platforms make health outcomes worse.

But is that correct? One could reply that there are a few studies suggesting that the platforms are providing reliable information. One could also reply that it solves a problem of asymmetric information whereby the doctors cannot easily “hide” information to their patients. But both replies are, in my opinion, a bit lazy. A more important question is: did it save lives?

Let me take a personal example. A few months ago, my two year old got sick. He had a fever with a temperature of 38.8 celsius. That had me worried a bit. However, I googled the information and found that children tend to have higher body temperatures than adults and the range of “worrisome” temperatures is thus a slight notch higher. This information got me reassured and I simply waited it out and kept monitoring the temperature. I did not consume any medical services in the end.

Now, lets do a proper counterfactual in which the technological constraint facing me is that of the 1970s or 1960s — not medical dark ages by any means. What would I have done absent the internet? Most likely, I would have gone to a clinic for a consult. The physician doing that consult would not have been available for another patient while he told me to go home, wait three days (or give him baby tylenol), visit back only if the temperature increased above 39 celsius.

That example may appear trivial, but it illustrates the point about how WebMD and other eHealth platforms might be saving lives: they liberate medical resources by eliminating ignorance about trivial problems that are time-consuming for physicians. In fact, I might go a step further by pointing out that there were numerous “grandmother’s remedies” still being held as true in the 1960s and 1970s — beliefs that may have been counterproductive and would have forced physicians to needlessly expend resources.

I tried to find economic studies about the effect of eHealth platforms (especially if they tested the mechanism above). Unfortunately, I found absolutely nothing. This is a paper that needs to be written.