Ian Welsh

The horizon is not so far as we can see, but as far as we can imagine

Category: Economics Page 31 of 93

Economics of a Flu Pandemic: Part II

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On March 15, 2020

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Republication of this article from 2010

I just finished reading the Nesbitt Burns Investors Guide to Avian Flu. It’s a good report, but the advice to investors is limited (basically, expect a flight to safety such as gold and US treasuries and keep money on the side to buy up distressed properties after the pandemic.) They do a very good job of detailing the history of flu pandemics, the current state of preparedness and the likely consequences. (They’re essentially the same as the ones I discuss in my essay in the FluWiki, but Sherry Cooper and Donald Coxe run through them in much more detail and style.)

The more I look into this the more pathetic it all seems. Our society, as a whole, has no surge protection – no ability to take shocks. We have no excess beds, no excess equipment, no excess ability to produce vaccines or medicines, nothing. Everybody has worshiped at the altar of efficiency for so long that they don’t understand that if you don’t have extra capacity you have no ability to deal with unexpected events. And now some people are suing the Ontario government for their SARS handling, which I fear will perversely make the government less willing to do what needs to be done when a crisis hits.

Public healthcare in a pandemic or epidemic is a triage operation. You isolate people and you shut things down deliberately, and people are going to die because of the decisions you make. If nurses and doctors decide that their own lives are more important than those of the sick, or if ordinary citizens decide to break quarantine or travel restrictions, then there could be complete disaster. The moment of the SARS outbreak that caused me the most fear was when there were reports of people fleeing Beijing. In a real pandemic situation, all that would do is spread the disease further and kill even more people.

In a pandemic, no one should be out and doing things who doesn’t need to be. Take food – it should be delivered to each person’s door and left there, once the delivery person leaves, the occupant comes out to get the food. No interpersonal contact other than that which is unnecessary.

When I was approached to write about the economics of a pandemic, my first thought was: “Find out what happened during the Spanish Flu pandemic.” Apparently, Coxe thought the same thing and his conclusion is that because our society and economy is so much more integrated and so much more connected (for example the flu had to spread by ship back then), and so much more “just in time” that it isn’t really a model you can use. We’ll likely get hit harder, faster, and because many locations have such limited inventories, relying on getting it as they need it, the supply disruptions are likely to be much worse. I can’t find any flaw with his argument.

The lack of urgency on the part of governments is rather distressing:

It is hoped the Canadian studies will begin late next summer. February’s federal budget set aside $34 million for production of trial batches of an H5N1 vaccine. But Canada’s flu vaccine manufacturer, ID Biomedical, still has not been given the go-ahead to do the work.”We’re close to entering into a contract. Hopefully it will be done shortly,” Health Minister Ujjal Dosanjh said Monday.

The company has said it would take 12 months from contract signing to vaccine delivery, because it must build and license a special high-biosecurity facility within its existing vaccine plant.

Now, I don’t know the details of what is required to set up such facilities, but I’m not getting a huge sense of urgency from the government here. The contract should be signed now and whatever is necessary to build extra facilities should be done, as well as whatever is necessary to get them up and operating faster. I do understand that biosafety is an absolute necessity, but getting these facilities up too late is as good as “never.” Let’s be frank, 34 million is peanuts. How much money did they lose trying to create the gun registry (a database no larger than many commercial databases successfully brought in for much less)?

I would suggest to politicians that if an influenza pandemic does occur, and people decide you didn’t do everything you could have to prepare for it, that, at the very least, you will no longer have a political career. At the worst, well, you won’t be alive to worry about it.

There aren’t enough respirators, there aren’t enough hospital beds, there isn’t enough vaccine production capacity or antiviral production capacity. There is so little being done to deal with those deficiencies that there might as well be nothing being done. Doubling production isn’t what is necessary, production needs to be ramped up by orders of magnitude. If it’s never used, oh well, it’s better than building a bridge to nowhere in Alaska which even Alaskans don’t want.

I don’t know when there will be an influenza pandemic. No one does. It’s an odds game. But right now, the odds aren’t so good. It’s time to spend some money and buy some insurance against the possibility. Put the facility in your riding and tell your constituents how you just got them some jobs.

But do it.

(This is a reprint, at a reader’s request. You can find part one of Economics of a Flu Pandemic here.)

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The Justification for Great Wealth

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On February 27, 2020

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Great wealth is great power. If you have money, many people will do what you want them to do. This should be uncontroversial: Most of us have spent our lives doing tasks we wouldn’t do unless someone was giving us money.

Well, that and being scared of losing everything and dying on the street.

Great wealth is a matter of law. Property rights beyond, “What I can carry” are not natural. They require force and a series of professional classes–from accountants to cops–to maintain. Property rights, then, are actually a drag on the economy; they come with a cost. They doubtless have some benefits, but whatever those may be, they are not pure benefit. Whether any particular set of property rights is a net benefit is unclear; it might be the economy would do better with less.

Property rights are justified because they are supposed to lead to better outcomes. So are wealth and income differentials. If someone is earning more, they supposedly do more good in the economy.

The Wall Street bankers who crashed the world economy say “Hi!” and remind you that if they don’t get bonuses bigger than the rest of the country’s raises, they may not keep working.

So, let’s simplify this.

If you have a lot of money, say $64 billion, the question is “Are you doing more good with that money than would be done by simply splitting it up and giving it to everyone else in society.”

Or, better yet, what if you took that income and equalized it among all citizens?

Seems like the cost of having an overclass is rather high, isn’t it? Are they producing enough human welfare (any net human welfare?) to justify all that income they are taking?

When, of course, they actually crashed the economy in 2008 and when economic performance has been inversely proportionate to the amount we’ve taxed them?

Anyway, is having this elite worth $50K a year to you?

Hope you’re getting your money’s worth.

The results of the work I do, like this article, are free, but food isn’t, so if you value my work, please DONATE or SUBSCRIBE.

New Hope for a New Year

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On January 6, 2020

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This post is by Tony Wikrent.

I do not remember the New Deal, even though it’s probably what has had the greatest impact on my political memory. I’m 63 now, so I wasn’t even alive during the First Great Depression and the presidency of Franklin Roosevelt. For me, memory of the New Deal was transmitted by those who had lived it and embodied it: My foremost, formative experience of government was John Kennedy beckoning the nation to put men on the moon.

In Chicago, the Democratic Party took pride in getting things done. The construction of O’hare Field was completed while I was a toddler, as well as the Kennedy expressway connecting ORD to the Loop downtown. Construction of a new home for the University of Illinois at Chicago began in 1963; the 244 acre campus opened two years later. Today, UIC is the largest university in the Chicago area, with more than 33,000 students enrolled in 16 colleges. As a kid, I got to watch construction crews working to extend the CTA subway line down the middle of the Kennedy to O’Hare.

John Kennedy said, “The American, by nature, is optimistic. He is experimental, an inventor and a builder, who builds best when called upon to build greatly.”

Unlike conservatives and libertarians, I have always had faith that government can be an active force for good.

But over two thirds of my fellow citizens are younger than I. They have not had the same experiences. They have not, I fear, the same long-term optimism, which I think may have been the greatest achievement of the New Deal. In the world I grew up in:

  • Interest rates were strictly regulated
  • The average holding period in the stock market was eight years.
  • There was no retail means for investing in foreign economies.
  • The only futures contracts in existence were based on physical commodities.
  • Foreign exchange trading was only for individuals actually traveling overseas, paying the US military and for base leases, and companies importing and exporting.
  • the Cayman Islands were basically unknown: there were no tens of billions of dollars of dirty money scrambling around the globe for a place to hide.

In other words, well over 200 million of the 327 million Americans alive today have no idea what a well regulated financial and monetary system looks like.

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It’s Not OK to Think Everything Is OK or Getting Better and Better

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On November 13, 2019

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Globe on FireI’ve discussed the “better-than-ever world” argument before. I find it questionable, for a number of reasons and if that interests you, read the linked article and the articles to which it links.

What I’ve been paying attention to lately is WHO likes and buys into this argument.

They fall into two groups: the first are techies, the second are neoliberals.

We’ll start with neoliberals first. Neoliberals want to claim that everything’s going great so they don’t have to make serious changes. If even the poorest are getting better off rapidly (50K a week, I saw as a recent claim, for improvements in “dire poverty”), then all that is required to the current system are tweaks: It’s working.

More importantly for the neoliberals, if the world is better than ever, the people who have the most don’t have to give anything up–not money, or power, or the way they do things. What they’re doing is basically working, their being rich and powerful isn’t hurting the poor; in fact, it’s lifting the poor up!

So statistics have to show that poor people are getting better off, and if a few show that the poor in parts of the first world aren’t (like certain groups in the US having decreased life expectancy), well that cost has been far outstripped by all the people lifted out of poverty elsewhere and why care more about Americans than people objectively worse off in other countries?

The world order is basically fine. No need to do more than “bend the curve,” as Obama famously said.

Techies have some of the same reasons, especially those who are doing well, like the ones who run Silicon Valley, or who are very well paid. The world is fine, no need to change what’s working.

But there’s something deeper to it for the techies. While neoliberals want to defend neoliberal capitalism–which is why they get offended when one points out that China used mercantalist capitalism to lift people out of poverty. Almost all poverty gains, no matter how you slice the numbers, have been made in China and China DID NOT do what economic orthodoxy says you’re supposed to do.

Techies don’t care about that. Instead they want to defend their legacy and current actions. Forget capitalism, communism, fascism, and all that guff: Really, virtually all the gains of the last 250 years come down to using hydrocarbons to power various engines.

Technological progress is the actual driver of what’s happened. Modern techies identify with the engineers and scientists of the past, especially now that programmers like to call themselves engineers.

Likewise, the computer/internet/telecom revolution which has been driving new industries (I wouldn’t quite say “growth”) since the mid 70s or so is their child, their project. They either worked on it or are still working on it. The world must be doing well because they created it or are creating it, or are maintaining the technology it runs on, the technology that is really responsible for supposed welfare gains.

They believe they are good people, who do good work, and therefore the results of their work must be good.

We all want to believe that the order for which we are responsible, the work we do, and the economics that works to our benefit, is justified, because we want to believe we are good people.

Neoliberals, elites, and techies feel they have created this world. Therefore, this world must be a good one.

Techies also want to think that technology can solve everything, because it’s what they’re good at. And hey, it does demonstrably work. It’s just not clear that it can do everything, or do everything soon enough, since we all will, well, die.

Anyway, the larger point of this is simple: We argue over these things because they are about legitimacy and people’s self-esteems and self-images.

Of course those (like myself) who oppose the current neoliberal order want these figures to be BS. We want to be able to argue that change is urgent, and needed, and that the existing order has failed.

It’s good to understand that, no matter what side you’re on. What do you WANT to believe. Then see if you’re still justified.

Of course, I think I am. This doesn’t mean there’s been no progress, there has. I just think the numbers are wildly over-inflated outside of China, and the progress is unsustainable due to climate change and the impending environmental collapse. I can live like a king if I have a ten million dollar credit card limit, but if I can’t pay it back, eventually that ends.

Also I grew up in the development community. My father worked for the UN’s Food and Agriculture Organization (FAO) in Bangladesh, and had worked before in various other developing countries. I spent time in India, and so on. I listened to development workers talk about what worked and (mostly) what didn’t. There are more cynical (or rather, realistic) groups in the world, but not many.

So there’s always been an off-smell to these numbers to me. I know what works for development (mercantalist policies with the cooperation of the current hegemonic powers, and virtually nothing else, unless you’re a city state) and what doesn’t (anything orthodox development economists tell you to do).

I know who’s been allowed to actually bootstrap up and industrialize (American allies and China–because they bribed American leaders), and who hasn’t (almost everyone else).

And I know something else: If you’re forced off your land into a slum, you make more money, but you’re worse off. The economic and Western obsession with $$$$ as a measure of quality of life is unwise. Even calories (though better) are not great, because for example, when NAFTAs tortilla manufacturers were bought out after NAFTA, their nutritional content plummeted.

So it all smells off, to me.

But even if it didn’t, even if it was all true–that the world was “never better,” radical change is needed because climate change and ecological collapse are on their way, with the leading edge already causing problems. We can’t even keep industrializing the way we have been. If every developing country was allowed to industrialize properly, and we gave them what they needed to do it, we’d just bury ourselves deeper.

The fundamental WAY we have run our economies, both in terms of any type of capitalism (and communism back when, but they’ve been gone for 30 years now, so grow up) and in terms of technology is fucked. Fucked. It cannot continue or we risk civilization collapse. Worse case scenarios are great die-offs which take us down too. Good case scenarios are one or two billion deaths.

No matter what, we are past the point where we aren’t going to be able to change the environment in a way that prevents the climate from being fundamentally warmer and different from the environment and climate which has existed for the entirety of human civilization.

That’s not an economic or technological system which is more or less OK, or producing more or less good results even IF the triumphalists were right about everything.

It requires change, and radical change, if we are to avoid, not disaster (we’ve already had those), but multiple catastrophes of civilization-shaking levels.

It’s not OK to think everything is OK.

The results of the work I do, like this article, are free, but food isn’t, so if you value my work, please DONATE or SUBSCRIBE.

 

 

There Are No Good Billionaires (Bill Gates Edition)

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On November 7, 2019

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So, Elizabeth Warren has a two percent wealth tax plan with three percent on people with more than a billion dollars. She’s suggested raising the over a billion percentage to six percent… And Bill Gates says….

I’m all for super-progressive tax systems,” he said. “I’ve paid over $10 billion in taxes. I’ve paid more than anyone in taxes. If I had to pay $20 billion, it’s fine.

“But when you say I should pay $100 billion, then I’m starting to do a little math about what I have left over,” he added. “You really want the incentive system to be there without threatening that.”

Mr. Gates is the second-richest person in the world, according to Forbes magazine, with a net worth of $106.2bn.

Well, of course, she didn’t say that, she said six percent. A little over six billion in the first year. Bill’s 64, and of course, the actual nominal amount will decrease each year unless he can grow his money faster than six percent, in which case, what’s the problem?

Elizabeth Warren

He’ll never, ever be anything less than a multi-billionaire, in other words. His bullshit about 100 billion is just that, fear-mongering bullshit.

And if he’s paid ten billion on 106 billion, well his tax rate was about ten percent. Most middle class families would love to have that low a tax rate. (Yes, I know it’s on income, not wealth, but the point is he obviously paid very low income taxes. Which, actually, is what the data shows–the middle and working classes pay a higher percentage than the rich.)

Bill, of course, is the “good” billionaire.” But he’s the guy who gave straight-up fascist Modi a reward. He’s the guy who spent millions to change the educational system in the US, then admitted that the model he successfully pushed doesn’t actually work. He’s the guy who used brutal, monopolistic practices to build Microsoft.

And he doesn’t want to pay a six percent wealth tax that will be used to provide universal healthcare.

Billionaires are bad, and, as an even more radical and willing-to-take-on-billionaires candidate, Bernie Sanders, said, they shouldn’t even exist.

As for Billy, he thinks he deserves to be one of the richest people in the world because he created the Wintel monopoly and crushed rivals with practices which were, under black-letter law, illegal.

But one can understand why he might prefer a Republican president. After all, it was George Bush, Jr. who withdrew the anti-trust suit which would have broken up Microsoft and left Bill worth a lot less than a 106 billion dollars.

Trump, of course, massively dropped tax rates on the rich.

Money comes first, ethics come second. Bill’s always understood that.

Republicans have been pretty good to Bill. Performative wokeism and his good image aren’t worth a six percent wealth tax. As for people without healthcare, welll, better they die than he pay taxes which would leave him a multi-billionaire for the rest of his life.

The results of the work I do, like this article, are free, but food isn’t, so if you value my work, please DONATE or SUBSCRIBE.

Is California a Third World State?

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On October 31, 2019

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So, there are fires again in California and it turns out the largest fire was caused by a downed PG&E power wire–despite the fact that PG&E cut power from vast swathes of the state to try and make sure that didn’t happen.

What’s hilarious about this is that PG&E has, ummm, a record:

As early as 1990, years before worsening drought and higher temperatures began pushing wildfire season into apocalyptic overdrive, PG&E was facing criminal charges for failing to trim the trees growing alongside its power lines as required by state law. In 1997, the utility was convicted of no fewer than 739 counts of criminal negligence for a fire that burned 500 acres and leveled 12 homes in the High Sierra town of Rough and Ready. State regulators later charged PG&E with more than 500,000instances, between 1994 and 1998, of failing to trim trees near their electric lines. (my emphasis)

This is mind-boggling. The sheer fucking incompetence, venality, and stupidity of both the government and PG&E. Half a million times they were fined, so obviously the fines weren’t working; PG& simply viewed them as part of the cost of doing business. This was going on in the 90s and the government DID NOTHING.

You have two acceptable choices in this case: You either nationalize the utility, or you change the law from requiring the imposition of fines to require criminal sentences for executives and board members (and probably anyone earning more than X dollars, so they don’t try and silo people from criminal penalties).

As with bankers, where the fines for widespread fraud (including stealing people’s houses by falsely signing documents), were far less than the gain, PG&E had no reason to stop.

This was especially exacerbated by an ideological choice: The decision that the only responsibility corporations had was to their shareholders, and not to anyone else. (This choice also wound up enriching executives far more than shareholders.)

Corporations are bundles of vastly valuable rights, the most important of which is that shareholders and executives are largely insulated from both bankruptcy and the law. In every case, it should be necessary for a corporation to make clear what the public gets in return for granting these rights.

But in the case of PG&E, only a moron would think that the proper solution is anything other than nationalization. Utilities are, in fact, natural monopolies.

But more to the point, they are critical infrastructure. How can California, the home of Silicon Valley, be so fucking incompetent as to have power outs because they aren’t doing basic maintenance? This is third world shit. This is Nigeria. This is pathetic.

In any actually functional society, this shit would get sorted out ASAP and heads would roll, metaphorically or literally.

Instead, we have California governor Gavin Newsom whining about how he’d like Warren Buffet to buy PG&E. Pathetic doesn’t cut it. He’s the governor of a state with an economy larger than most countries. Take it over and sort it out.

Frankly, this is the sort of incompetence that ought to have him thrown out of office, if he isn’t lynched–along with PG&E’s executives. But Americans have become the sort of people who just take abuse by their “betters” lying down, so I’m sure everyone involved will stay rich and important and live in a house with backup generators.

Pathetic.

(Note that this is categorized under “class warfare.” And yes, I know some rich people are getting hit too. Maybe they should realize they aren’t /that/ rich.)

The results of the work I do, like this article, are free, but food isn’t, so if you value my work, please DONATE or SUBSCRIBE.

Profit Is Just Another Word for Destruction

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On October 11, 2019

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Here’s the basic proposition of capitalism: If something can be done for a profit, it creates more value than the sum of its inputs.

But here’s the thing: This is an unproven assertion. In fact, in many cases, it is not true.

Worse, over the not-very-long run (a couple hundred years) it is almost certainly false.

You chop down the forests, you kill the animals, you loot and destroy entire cultures, you run your economy on planned obsolesence, and you pollute massively, causing runaway climate change (now effectively unstoppable) and ecosystem collapse.

All the value we have produced will be eaten up by this, and then some. If the carrying capacity of the Earth crashes anywhere between 50 to 80 percent (the current most likely scenario), then what we’ve accomplished is absolutely, almost unbelievably, a huge destruction of value, and nothing we have created is worth it.

Yet that is the current scenario.

It is isn’t all “capitalism,” of course. Communism couldn’t handle industrialization either. Democracy hasn’t handled it. Autocracy hasn’t handled. No one has handled it.

But this is the real situation, the odds that we will run into a collapse scenario are now very high. Because Sanders is the only candidate in the US with an adequate Green New Deal plan (Warren’s is not large enough), there’s only one chance to avoid worst case scenarios, because another four to eight years will put us even further behind. (In Britain, Corbyn is who you want if this is your priority. In Canada, no one is suggesting anything adequate, but Singh is the best candidate.)

Value isn’t just what you create. Value must also be measured by what you consume, what you pollute as a result of that consumption, and what you destroy.

Fools who go on about how this is the best time ever to be alive miss the point, even if they are right (this claim is dubious for billions of people). They are right in the same way as if, you sold everything you owned, then borrowed as much as possible, and then partied until you ran out of money, well, that may be the best time of your life…

Profit is not a proxy for adding value. The correlation is questionable, if it ever held any merit, and since the industrial revolution it has diverged more and more from being true.

We can’t afford “profit” as it is constituted today.

The results of the work I do, like this article, are free, but food isn’t, so if you value my work, please DONATE or SUBSCRIBE.

California Power Company Cuts Power to 800,000 Homes to Avert Wildfires

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On October 9, 2019

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PG&E.

The region’s utility company, Pacific Gas and Electric (PG&E), has warned the shutdown could last several days.

The company’s transmission lines started the deadliest wildfire in California’s history last year.

With weather forecasts predicting high winds, the move is intended to prevent the risk of fallen power lines igniting more wildfires.

So, of course, PG&E could have and should have upgraded their infrastructure so this would not be necessary, but they didn’t. They gave large dividends to their stockholders instead.

PG&E is also, well, bankrupt, because of the previous fires it caused, so it isn’t in a position to make necessary improvements now.

But let’s not pretend this is a one company issue. The US has needed massive power infrastructure upgrades since the 80s. Most of PG&E’s infrastructure is 60 to 80 years old. They need to cut back trees around the poles and they need to replace old poles.

This is also a public issue. San Francisco, for example, has had 12 ballot initiatives to create a public utility and refused to do so.

Image by Admit One

People wanted tax cuts, deregulation and overpriced houses. that’s what they got, and a 5 day power outage is one of the prices.

This isn’t a difficult problem. In the 30s through the 70s, utilities were regulated. They were guaranteed a certain profit and required to spend a certain amount of money on upgrades and repairs. Dividends were fixed, and investors knew what they would get every year.

In other words, they were treated as critical infrastructure which needed to be maintained and built properly, and it was worth a bit more cost do so.

You can do this publicly, you can do it privately, you can do it as a combination but you must regulate and inspect them.

Or you can have “cheap” power until there’s a crisis, like massive wildfires, or brown and blackouts, etc.

Waving one’s hands and saying, “The market fairy will make it all happen by the actions of an invisible hand,” gets the usual results.

As for PG&E, the only solution likely to work is to just have government take it over and pay for the necessary work. Once that’s done, don’t privatize it.

The results of the work I do, like this article, are free, but food isn’t, so if you value my work, please DONATE or SUBSCRIBE.

 

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