The impact of professional sports franchises and venues on local economies: A comprehensive survey

By John Charles Bradbury, Dennis Coates & Brad R. Humphreys.

"Abstract

Local governments routinely subsidize sports stadiums and arenas using the justification that hosting professional franchises produces economic development and social benefits to the community. The prevalence of venue subsidies has generated an extensive and vibrant economics literature on the subject, which spans over 30 years and includes more than 120 studies. We chronicle the research from early studies of tangible economic impacts in metropolitan areas, using basic empirical methods, through recent analyses that focus on sub-local and non-pecuniary effects and employ more sophisticated estimation strategies. Though findings have become more nuanced, recent analyses continue to confirm the decades-old consensus that the economic effects of professional sports teams and stadiums are limited. Even with added non-pecuniary social benefits from quality-of-life externalities and civic pride, welfare improvements from hosting teams tend to fall well short of covering public outlays. Thus, the large subsidies commonly devoted to constructing professional sports venues are not justified as worthwhile public investments. We also investigate the paradox of local governments continuing to subsidize sports facilities despite overwhelming evidence of their economic impotence. We intend to inform academic researchers and policymakers to motivate future studies and promote sound policy decisions that are guided by relevant research findings."

Update on the Sri Lanka Organic Farming Disaster

By Alex Tabarrok.

"In Organic Disaster I wrote:

Sri Lanka’s President abruptly banned chemical fertilizers earlier this year in a bid to become 100% organic. The ban has resulted in reduced production and soaring prices that, together with declining tourism and the pandemic, have created an economic crisis.

Here is the latest update:

Sri Lanka has announced compensation for more than a million rice farmers whose crops failed under a botched scheme to establish the world’s first 100-percent organic farming nation.

…The government will pay 40,000 million rupees ($200m) to farmers whose harvests were affected by the chemical fertiliser ban, agriculture minister Mahindananda Aluthgamage said on Tuesday.

“We are providing compensation to rice farmers whose crops were destroyed,” he told reporters. “We will also compensate those whose yields suffered without proper fertiliser.”

The government will spend another $149m on a price subsidy for rice farmers, he added.

About a third of Sri Lanka’s agricultural land was left dormant last year because of the import ban.

A good example of central planning in action."

If You Want To Fight Monopolies, Fight Occupational Licensing

Legislators on a crusade against monopolies should tackle occupational licensing boards before they target Big Tech.

By Jennifer Huddleston. By Benjamin Hansen, Joseph J. Sabia & Jessamyn Schaller. She is the policy counsel at NetChoice and an adjunct professor at George Mason University's Antonin Scalia Law School.

"After a cascade of school shutdowns, supply chain issues, and soaring inflation, COVID-19 is still the biggest problem facing Americans. Congress remains at a policy standstill on many of these issues, yet some lawmakers seem focused on America's alleged tech company "monopoly problem" rather than dealing with the pandemic's ill effects. Zeroing in on the sectors of our economy putting out products that improve our lives is a mistake.

Interest in antitrust problems has increased thanks to progress of a misplaced legislative crusade by Rep. David Cicilline (D–R.I.), Rep. Ken Buck (R–Colo.), and Sen. Amy Klobuchar (D–Minn) against America's tech sector—an industry Americans trust more than the U.S. government. If legislators are interested in tackling antitrust in a way that improves the lives of all Americans, they should focus on antagonistic, state-empowered monopolies like occupational licensing boards. Tech companies are regularly facing new competitors, but these quasi-governmental boards that determine how, when, and if someone can work are not.

Roughly one-quarter of Americans face occupational licensing obstacles before they can do their jobs. For some jobs, like doctors, lawyers, and teachers, licensing requirements may serve a valid state interest in promoting health and safety. But for interior designers, florists, and creatives, licensing boards strangle economic opportunity.

In most cases, an individual licensing board controls who can practice a profession in a particular state. The time it takes to get a license is inexcusably long and entirely unrelated to the risks of a profession or the way it impacts the public. Even if an applicant has the proper training, licenses are still denied for convoluted reasons. Decisions like threatening to suspend critical health care workers' licenses due to their unpaid student loans not only harm consumers, but also the businesses that are short-staffed.

The fragmented, state-level control of quasi-governmental occupational licensing boards exacerbates the problem. Working across state lines is nearly impossible because most occupational licenses are location dependent. Online businesses that operate in multiple states jump through significant hoops just to keep themselves afloat. These costly and time-consuming licensing requirements prevent Americans from pursuing careers, opening new businesses, finding worthy job candidates, and affording child care.

Antitrust reformers can help consumers by taking on the "state action doctrine" that shields licensing boards from antitrust enforcement. Though it didn't eliminate the doctrine, in a 2012 case the Supreme Court refused to extend such immunity to North Carolina's dental board since it lacked government supervision and was composed of self-interested market members. Sens. Mike Lee (R–Utah) and Chuck Grassley (R–Iowa) are laying the groundwork to codify and clarify limitations through the Tougher Enforcement Against Monopolies (TEAM) Act, which would compel occupational licensing boards to meet specific requirements to earn immunity from antitrust enforcement.

Occupational licensing boards wouldn't disappear, but they would be subject to the same competitive forces that improve other industries. And they'll still serve legitimate public safety purposes while being prevented from engaging in the anti-competitive activities that overly burden new entrants to many industries.

Antitrust enforcement and competition policy are supposed to focus on protecting consumers from the harms of anti-competitive practices. If antitrust reformers really want to foster competition in a way that will have a significant upside, scrutinizing the monopoly status of licensing boards is more impactful than creating new barriers for innovative businesses."

The Fed’s Astonishing Quantitative Tightening in the Great Recession

By Alan Reynolds.

"“There Was No Housing Bubble in 2008 and There Isn’t One Now,” concludes Ramesh Ponnuru. Writing in Bloomberg, Ponnuru notes that, ” economists David Beckworth and Scott Sumner have argued that the timing of the last housing bust does not line up with the conventional wisdom that it played a central role in the recession that began in December 2007. The housing market peaked in early 2006, and sustained nearly two years of decline before the economy stopped growing as unemployment stayed low.”

“A monetarist explanation for the Great Recession,” he adds, “is that the Federal Reserve erred from late 2007 onward by failing to loosen monetary policy enough after initial signs of economic weakness, sending tightening signals to markets as the crisis developed, and then failing again to do what it would take to revive spending levels.”

There are couple of vital sub‐​plots I would like to add to this incisive investigation of economic policy history. First, the price of WTI crude oil soared from $50 a barrel in January 2007 to $89 by the start of the Great Recession, then continued rising to $145 by the middle of 2008, in mid‐​July. As in 2021, the rapid runup in crude oil prices in 2008 was associated with a simultaneous rise in CPI inflation when measured on a year‐​to‐​year basis. Second, as Ponnuru notes, both years were widely considered to be “housing bubbles” which supposedly deserved to be popped by the Fed.

The biggest difference between now and 2008 has to do with “quantitative easing” (QE) ­– that is, buying Treasury debt with bank reserves that have paid interest since October 2008. Today, the Fed plans to phase‐​out the latest of four dubious QE experiments. And the Fed also plans to raise the interest rate it pays on bank reserves, which is far more relevant than the fed funds rate in an era when the banks have been flooded with reserves by QE.

The graph shows that in 2008, the Fed went much further and engaged in aggressive Quantitative Tightening (QT). Federal Reserve Bank holdings of Treasury debt were deliberately reduced from $790.5 billion in the second quarter of 2007 to $478.2 billion in the second quarter of 2008. It is hard to imagine why Fed officials thought that was a clever idea unless they saw QT as a way to crash the world price of oil by crashing the world economy.

The fed funds rate was high at 4% in January 2008 and was still 1.8% in September 2008, ten months into a deep contraction. But that was mild poison compared to the astonishing Quantitative Tightening of 2008."

Covid-19 disruptions killed 228,000 children in South Asia, says UN report

From The BBC. 

"The disruption in healthcare services caused by Covid-19 may have led to an estimated 239,000 maternal and child deaths in South Asia, according to a new UN report.

It's focused on Afghanistan, Nepal, Bangladesh, India, Pakistan and Sri Lanka, home to some 1.8 billion people.

The report found that women, children and adolescents were the worst-hit.

South Asia has reported nearly 13 million Covid cases and more than 186,000 deaths so far.

Many countries, including those in South Asia, responded to the pandemic with stringent lockdowns. While hospitals, pharmacies and grocers remained open, almost everything else shut down.

The report - Direct and Indirect Effects of Covid-19 Pandemic and Response in South Asia - examines the effect of these government strategies on healthcare, social services, including schools, and the economy. 

It estimates that there have been 228,000 additional deaths of children under five in these six countries due to crucial services, ranging from nutrition benefits to immunisation, being halted.

It says the number of children being treated for severe malnutrition fell by more than 80% in Bangladesh and Nepal, and immunisation among children dropped by 35% and 65% in India and Pakistan respectively.

The report also says that child mortality rose the highest in India in 2020 - up by 15.4% - followed by Bangladesh at 13%. Sri Lanka saw the sharpest increase in maternal deaths - 21.5% followed by Pakistan's 21.3%. 

It also estimates that there have been some 3.5 million additional unwanted pregnancies, including 400,000 among teenagers, due to poor or no access to contraception.

The full effect of the pandemic - and ensuing lockdowns - is just starting to become clear as countries take stock of their public health and education programmes.

Experts in India already fear that malnutrition rates will be significantly worse across the country when the data pours in over the next few months.

Some countries in South Asia, like India, are still battling a surge in infections. While the nation-wide lockdown ended in June last year, several states and districts have resorted to intermittent lockdowns to arrest the spread of the virus.

The interruption to health services also affected those suffering from other diseases - the report predicts an additional 5,943 deaths across the region among adolescents who couldn't get treated for tuberculosis, malaria, typhoid and HIV/Aids."

Schools, Job Flexibility, and Married Women's Labor Supply: Evidence From the COVID-19 Pandemic

From NBER. By Benjamin Hansen, Joseph J. Sabia & Jessamyn Schaller.

"This study explores the effect of school reopenings during the COVID-19 pandemic on married women's labor supply. We proxy for in-person attendance at US K-12 schools using smartphone data from Safegraph and measure female employment, hours, and remote work using the Current Population Survey. Difference-in-differences estimates show that K-12 reopenings are associated with significant increases in employment and hours among married women with school-aged children, with no measurable effects on labor supply in comparison groups. Employment effects of school reopenings are concentrated among mothers of older school-aged children, while remote work may mitigate effects for mothers of younger children." 

Keeping kids home from school is even more harmful than we first thought

By James Pethokoukis of AEI. 

"If it wasn’t clear a couple of years ago, it should be clear by now. School is really important, and it’s really important that most kids are physically in the classroom with a teacher. Parents understand well that italicized bit without needing scholarly support. But if one desires such support, it exists.

For example: In a study out last April, “Learning loss due to school closures during the COVID-19 pandemic,” researchers looked at the Netherlands as a best-case scenario for at-home learning given that it had a short initial lockdown period, equitable school funding, and globally high rates of broadband access. Their finding: “Despite favorable conditions, we find that students made little or no progress while learning from home. Learning loss was most pronounced among students from disadvantaged homes.”

A more recent analysis makes the case for in-person school in even starker terms, going beyond the problems with online classes and remote teachers themselves. (More Zoom-savvy instruction will only go so far.) In “The triple impact of school closures on educational inequality,” researchers Francesco Agostinelli (University of Pennsylvania), Matthias Doepke (Northwestern University), Giuseppe Sorrenti (Amsterdam School of Economics), and Fabrizio Zilibotti (Yale University) look at two additional factors: the impact of peers and parents. From their analysis:

During school closures, children lose connection with friends, and friendships that are maintained are more likely to be confined to the neighborhood of residence. This increases socioeconomic segregation. We also find that children who already struggle in school are more vulnerable to the ill effects of losing peer connections, which further increases the impact on educational inequality.

In addition to peers, parents also matter. When children learn from home, active engagement from parents becomes even more important than in normal times. The support parents can offer varies dramatically across families’ socioeconomic status. Adams-Prassl et al. (2020b) show that low-income parents are less likely to work from home during the pandemic, which limits their ability to support their kids’ schooling during closures.

Agostinelli-Doepke-Sorrenti-Zilibotti point out that school is supposed to be the great equalizer, which is why the “triple impact” of school closures is exceedingly frustrating. They’re modeling finds that “among 9th graders, children from low-income neighborhoods in the US are predicted to suffer a learning loss equivalent to almost half a point on the four-point GPA scale, whereas children from high-income neighborhoods remain unscathed.”

And the problem probably goes beyond high school: “Four years down the road, the school closure causes an average 25% reduction of labor earnings for the poorest children when these [kids] enter the labor market. This implies that the future society will be more unequal and have less social mobility.”

Obviously a disturbing result. It’s also a reminder that policy choices have trade-offs. (And honestly acknowledging the existence of trade-offs is what makes for serious analysis as opposed to mere activism.) Lower speed limits would save lives, but they would also waste more of our time. Sharply higher taxes might raise more government revenue, but they could reduce incentives to work, save, and invest. You know, that kind of thing. Closing schools has trade-offs, too. And with the passage of time, we are finding out just how terrible those trade-offs are."

Is the US government causing the chip shortage?

By Scott Sumner.

"There’s a lot of discussion about how the computer chip shortage is causing problems for US manufacturers. But I rarely see any plausible explanations of why there is a chip shortage.

Articles on the subject occasionally mention the fact that auto producers did not order enough chips. But why should a reduced supply of chips cause a shortage? In the standard supply and demand model, a reduction in supply does not cause a shortage; it causes higher prices. I am still able to buy apples at the grocery store when there’s an unusually small apple crop; it’s just that the price is higher than usual. Why doesn’t that apply to computer chips?

There could be many reasons, but I suspect one factor is that chip manufacturers and/or wholesalers fear political retaliation if they raise chip prices to market clearing levels:

(Bloomberg) — The Biden administration has concluded that a global semiconductor shortage will persist until at least the second half of this year, promising long-term strain on a range of U.S. businesses including automakers and the consumer electronics industry.

U.S. officials plan to investigate claims of possible price gouging for chips used by auto and medical device manufacturers, Commerce Secretary Gina Raimondo said Tuesday.

Of course formal price controls are very bad. But laws against price gouging are equally bad. Even cultural norms against price gouging are bad. Price gouging is necessary for markets to do their job when there is a steep fall in supply or a steep increase in demand.

Foes of price gouging often assume that it’s a zero sum game. In fact, price gouging serves two important roles. First, it boosts quantity supplied. Supply is almost never completely inelastic over a period of several months or years. Second, it leads to the limited supply being allocated to those who place the highest value on the good.

Why don’t farmers get accused of price gouging?  One theory I’ve heard is that the public (and hence politicians) tends to sympathize with producers that appear in children’s stories.  Hence politicians favor farmers, teachers, fireman, police, etc."

N.Y. Can't Teach Kids To Read on $30,000 a Year

Inflation-adjusted revenue per student in public schools is up 68 percent in the Empire State—and 24 percent nationally—over the past two decades. Time for School Choice

By Nick Gillespie and Regan Taylor of Reason.

"One of the perennial defenses of mediocre public K-12 schools is that they just don't have enough money to work with. Liberal groups like The Center for American Progress routinely put out videos like this one denouncing the "underfunding of K-12 schools" that call for more and more money to be spent.

I don't know about you, but when I hear the phrase the underfunding of schools, my head explodes. Not because I dislike kids or public schools; my two sons exclusively attended public schools. What gets my goat is the demonstrably false idea that schools are being starved for resources. Tax revenue per student in public K-12 schools is up 24 percent nationally over the past two decades, and that takes inflation into account.

In New York, where I live, real per-pupil revenue has increased by a mind-boggling 68 percent between 2002 and 2019. Public schools in the Empire State are now shelling out more than $30,000 per kid. That's more than double the national average, and it doesn't even include the $16 billion extra that New York's system got in combined federal and state COVID-19 relief funding.

Yet New York's public schools are still as terrible as the Mets, the Jets, and the Giants, with only a third or fewer of students up to grade level in eighth grade reading and math, according to their scores on the National Assessment of Educational Progress (NAEP), widely considered the gold standard for judging school outcomes. Those scores aren't much different than they were 20 years ago.

In fact, $30,000 a year puts the lie to the argument pushed by unions and progressives that more money will fix schools. More money hasn't helped the rest of the country boost their scores either. According to NAEP, whatever minor improvements in reading and math that were made for students ages 9 and 13 since the early 1970s have flattened since the early 2000s. We're paying more for the same results.

None of this is a mystery. The connection between bigger spending and good outcomes is weak at best, whether we're talking about comparisons among U.S. states or international ones. 

Certainly the new money for New York hasn't gone to fundamentally reform what gets taught, or how, or under what circumstances. According to a report on spending trends in the 21st century by my colleagues at the Reason Foundation (which publishes this website), overall teacher compensation is way up in New York, especially when it comes to benefits like health insurance and pensions, which have grown by 147 percent. Nationwide, a dozen states increased spending on benefits for teachers by over 100 percent and only three states kept the increase below 10 percent. Costs for things like administration, support staff, and transportation are up another 24 percent. Just to reiterate: All these figures are adjusted for inflation. 

Dumping more money into a broken system is like trying to fix a leaky pipe by pouring more water into it. What needs to happen is a revolution in how education is conceived and delivered. Over the past 20 years, New York has allowed publicly funded charter schools to operate, which is a good thing because it allows for experimentation while insisting on accountability. Unlike conventional public schools that get students (and funding) assigned to them based on their addresses, charters must attract and keep students in order to stay in business. They start with zero dollars to spend. The best charters have massive wait lists even though they get less money per student than traditional public schools. Charters in New York City, for instance, get about 20 percent fewer dollars per kid than typical public schools.

But instead of expanding the number of charters, New York, like most states, caps it. According to the state's official data, there are just 359 charters compared to 4,411 public schools. Worse, New York doesn't allow education savings accounts (ESAs), tax-credit scholarships, and vouchers that would allow more families to escape traditional public schools and pick where their kids go to learn. 

Increasing the amount and variety of school choice, though, is exactly what New York and the country need to be doing (kudos to the 18 states that have started or expanded choice programs). We're not going to seriously improve educational outcomes for our kids if we don't fundamentally change how we educate them.

When you look back 20 years, virtually every other service in our lives—from coffee drinks to media to medicine—has gone through multiple revolutions in terms of what's available and the quality of what's being offered. Everything becomes more geared toward the individual, more responsive, and usually not just cheaper in real terms, but better too. This is obviously true when it comes to things like food and consumer electronics but it's also true of big-ticket items like cars, which cost the same as they did 20 years ago in inflation-adjusted dollars (but are massively superior today). Overall, medical costs are up, but think about how much better the variety and quality is. 

Public K-12 education is among the very few things that is still basically the same as it was when today's parents and grandparents were in school. The only difference is the price tag, which just keeps going up and up."

COVID Paycheck Protection Program: Promises Not Kept

By Veronique de Rugy.

"One of the U.S. government’s most popular recent programs is the Paycheck Protection Program, or PPP. Congress authorized $800 billion for PPP to provide loans to companies to help pay wages, rent, interest on mortgages, and utilities during the COVID pandemic. If a firm kept enough workers on payroll, then its loan would eventually be forgiven. Yet as I predicted, the program has been a mess in both its implementation and its results.

As is always the case, a certain number of ineligible companies— many of them publicly traded — got large loans approved before many other firms could even get access to a bank in order to apply. Meanwhile, a fair number of self-employed workers — who constitute 81% of all small businesses — could not get a PPP loan because, in the eyes of the federal government, they don’t exist as businesses.

Also unsurprisingly, PPP payments mostly benefited those least in need. For example, the study titled “Did The Paycheck Protection Program Hit the Target?” found that the funds didn’t flow to where the economic shock was greatest, as measured by declines in hours worked or by the number of business closures. Another piece of research – this one by MIT’s Lawrence Schmidt and Northwestern University’s Dimitris Papanikolaou – found that the professional and technical services sector received the largest number of PPP loans- around $65 billion in total. This sector also has the highest fraction of workers who are remote and, hence, least exposed to pandemic-related disruptions. These researchers also reported that nonremote, lower-paid workers were 15 percentage points more likely to be unemployed compared with workers in sectors where working remotely is an option.

A recent paper by economist David Autor and nine co-authors – a paper titled “The $800 Billion Paycheck Protection Program: Where Did The Money Go And Why Did It Go There?” – presents yet further and fresh evidence that PPP is problematic. Here are the main findings (highlights are mine):

“PPP had measurable impacts. It meaningfully blunted pandemic job losses, preserving somewhere between 1.98 and 3.0 million job-years of employment during and after the pandemic at a substantial cost of $69K to $258K per job-year saved. PPP also reduced the rate of temporary closures among small firms, though it is less clear whether it reduced permanent closures. The majority of PPP loan dollars issued in 2020—66 to 77 percent—did not go to paychecks, however, but instead accrued to business owners and shareholders. And because business ownership and share-holding are concentrated among high-income households, the incidence of the program across the household income distribution was highly regressive. We estimate that about three-quarters of PPP benefits accrued to the top quintile of household income. By comparison, the incidence of federal pandemic unemployment insurance and household stimulus payments was far more equally distributed.”

That’s a sample of the academic work. Reporters pretty much came to the same conclusion once they looked at the program’s beneficiaries. For instance, here was the PPP news headline equivalent of “water still wet”: “Small Business Loans Helped the Well-Heeled and Connected, Too.”

Now, because PPP was intentionally untargeted, none of this should surprise anyone. The only restriction in the legislation was that the benefits shouldn’t flow to firms with more than 500 employees. But even this rule was later relaxed for some sectors.

However, benefits going to big firms and higher income individuals, with plenty of access to capital in the first place, as well and going to less affected areas, are common findings even in the case of more targeted business handouts. Bailouts notoriously benefit shareholders and creditors rather than workers. Also, the high cost of a “job saved or created” is a common feature of most business handouts. Adam Millsap makes that same point about state and local economic development programs for instance. He writes:

“A recent paper from economist Timothy Bartik notes that the cost per job created by state and local economic development programs often exceeds $150,000. Other research finds that in addition to being expensive, economic development programs typically fail to generate widespread economic growth.”

 

But I remember finding similar high costs when looking at the 1705 green energy program and a few others like it. Cost is no object when you are spending other people’s money!

And, of course, the bigger companies are the biggest beneficiaries even though most of them have no problem accessing capital. A few examples: 65 percent of the ExIm Bank’s activities benefit 10 major companies, 70 percent of sugar subsidies benefit 3 large companies, most farm subsidies benefit large mega farms, 90 percent of the 1705 green energy loan program went to energy giants, and so on and so forth.

The fact that PPP was poorly thought through, recklessly implemented and administered, and ended up benefiting those who are least likely to need it is, for politicians and bureaucrats, a feature, not a bug, and has little to do with the fact that the program was rushed through at the start of the pandemic. This is why I would get rid of all business handouts during good times. During bad times, especially when the government shutdown the economy, I would design a government rescue plan that targets mostly individuals, not businesses. Getting the incentives right is also important. Arnold Kling and I wrote a piece explaining what such a plan might could have look like.

And yet, who wants to bet that next time around, Congress will again rush to design a rescue plan that sends billions of dollars to unneedy businesses and bailout shareholders? I am."

Government Must Not Assign Scarce COVID Therapies By Race

By Walter Olson of Cato.

"I’ve got a piece in The Dispatch this morning. Excerpt:

Governments around the country have been directing medical providers to allocate potentially lifesaving COVID therapies among patients on the basis of race, a policy that is almost certainly unconstitutional as well as morally open to question.…

For those late to this controversy, here’s a few examples of how the preferences work. In dispensing the scarce kind of monoclonal antibody that is known to retain broad effectiveness against COVID, for example, the Minnesota Department of Health prescribed a point system in which BIPOC [black, indigenous, person of color] status was worth 2 points, the same as diabetes or age greater than 65. New York state adopted a similar policy of racial discrimination in making available the breakthrough antiviral Paxlovid: access to the drug would depend on having some risk factor for severe illness, but nonwhite status would count as such by itself, whereas white patients would have to demonstrate some extra factor putting them at risk. A Utah state framework for dispensing monoclonal antibodies “gives ‘non‐​white race or Hispanic/​Latinx identity two points, more than hypertension or chronic pulmonary disease,” reports Aaron Sibarium of the Washington Free Beacon, who has broken several stories on the issue. Further, the federal Food and Drug Administration has also issued influential guidance promoting racial preferences.…

I’ve been writing about this problem for a while, including pieces back in 2020 when the question was one of racial preferences in the distribution of vaccines as distinct from therapeutics. As I noted back then, the Fourteenth Amendment provides that:

citizens of all races are entitled to the equal protection of the laws. The Supreme Court has long interpreted this to mean that the government may ordinarily not dole out valuable benefits, or impose harms, based on a citizen’s race.

Courts thus apply “strict scrutiny” to any race‐​conscious law or policy, requiring proponents to show that it fulfills a “compelling purpose” for the government and is “narrowly tailored” to achieve that purpose, tests that this policy would be unlikely to pass.

There are a few major exceptions but they do not apply here. Compensatory preference is OK when there has been recent, systemic discrimination against a minority group by the same level of government that wants to adopt the preference. (Inequality by itself, even when traceable to society‐​wide discrimination, isn’t good reason.)

And while race can indeed correlate with COVID-19 vulnerability through the proxy role of factors like low socioeconomic status, diabetes, and asthma, courts expect government decisionmakers to make dispensing decisions based on these factors directly, rather than relying on generalizations based on race.

Much of my Dispatch piece is devoted to a critique of an Associated Press article that presents a misleading account of the controversy, quoting only once and briefly from anyone opposed to the policies — a mistaken assertion by cable host Tucker Carlson — while ignoring substantive criticism from both health and legal quarters. Why can’t the press do better?"

The Top 1% Hold a Record Amount of Wealth in the US. Here’s How Much—and Why

It appears 2020 was a textbook case of the Cantillon Effect—with a twist. 

By Jon Miltimore of FEE.

"In April 2020, Peter R. Orszag, the CEO of Financial Advisory at Lazard, made a prediction in a Bloomberg article.

“The Covid-19 pandemic will likely leave us with an economy in which larger companies play an expanded role, representing a higher share of both employment and revenue,” wrote Orszag, who previously served as President Obama’s Director of the Office of Management and Budget.

It would be the corporate version of the Matthew Effect: the strong would just get stronger. Nearly 15 months later, Federal Reserve economic data show Orszag was right. The strong did get stronger—and much richer.

A Great Year for the Wealthy (Especially the 1%)

Newly released data from the Fed show that the top 1 percent of income earners now hold 32.1 percent of all wealth in the United States. That is the highest percentage of wealth the top 1 percent has held since the Fed began publishing the data set in 1989 (see below).

That’s up nearly 20 percent from the period following the 2007-2008 Financial Crisis, and nearly 35 percent from 1990.

This data should not be surprising. A year ago, as small businesses were ravaged by lockdowns, pundits such as Jim Cramer were pointing out that we were witnessing “one of the greatest wealth transfers in history.” While small businesses were dropping “like flies,” the “Mad Money” host observed, the US was witnessing “the first recession where big business … is coming through virtually unscathed, if not going for the gold.”

It wasn’t just the super rich who got richer, however. As the Wall Street Journal recently reported, data show most Americans got richer in 2020, particularly wealthy households.

“U.S. households added $13.5 trillion in wealth last year, according to the Federal Reserve, the biggest increase in records going back three decades,” the Journal reported. “Many Americans of all stripes paid off credit-card debt, saved more and refinanced into cheaper mortgages. That challenged the conventions of previous economic downturns. In 2008, for example, U.S. households lost $8 trillion.”

This wealth surge, however, was not evenly dispersed. The wealthiest households—the top 20 percent—accounted for nearly $10 trillion of the $13.5 in new wealth created in 2020, data show.

How this happened is quite clear. To prevent an economic collapse once huge swathes of the economy were closed by government lockdowns, the US borrowed, spent, and lent trillions of dollars.

“[These actions] powered much of the stock market’s unexpected boom,” write WSJ reporters Orla McCaffrey and Shane Shifflett. “Rock- bottom interest rates lured more investors into stocks; workers stuck at home tried their hand at trading and tech giants gained even more ground during the shutdown.”

The result? Wall Street (i.e. the stock market) became the single biggest generator of new household wealth, accounting for close to half of all new wealth. While it’s true the federal government dropped roughly $850 billion in stimulus checks that went to low-income and middle-class families, wealthy Americans were by far the biggest beneficiaries of the spending bonanza.

“The Americans who gained the most during 2020 were the ones who had much more wealth to begin with,” the Journal notes. “Houses, stocks and retirement accounts—which wealthier people are more likely to own—soared in value, and those boosts are likely to endure.”

A Textbook Case of the Cantillon Effect

For people concerned about inequality and basic fairness, the scenario described above is alarming, perhaps even infuriating. But, once again, it shouldn’t be surprising.

More than a quarter millennium ago, Richard Cantillon suggested that printing new money doesn’t impact everyone the same way. The Irish-French economist outlined how price increases impact different economic sectors in different ways depending on when the money reaches each sector.

In a 2018 article on the Cantillon Effect, economist Jessica Schultz explained that those first in line (so to speak) benefit most from sudden cash infusions.

“[The] first sectors to receive the newly created money enjoy higher profits as their pay increases, but general costs are still low,” wrote Schultz, a Predoctoral Fellow at the National Bureau of Economic Research. “On the other hand, the last sectors in which prices rise (where there is more economic friction) face higher costs while still producing at lower prices.”

In the 21st century, the speed with which this happens is astonishing. Schulz offered a hypothetical example of how the financial sector responds to huge injections of cash.

“Let’s say the Fed decides to lower interest rates (by expanding the supply of money in the economy). Soon after the Fed makes its announcement, investors anticipate new earnings from increased investment. In fact, once even a few people get wind of the Fed’s intentions, investors expect prices to rise, whether they rely on algorithms or rumors for their information. Investors flock to the financial markets, hoping to get there first; if they can buy stocks while the prices are still low, they can reap enormous profits once prices rise.

However, the sudden increased demand for stocks in the financial market bids up asset prices, and this happens rapidly. Within minutes—seconds, even—the expected increase in the price level has been factored into the financial markets. The first place where ‘inflation’ is felt is in the financial marketplace.

This means that people who are most invested in the market are the first to benefit from inflation.”

This is precisely what happened in 2020. The people with the most wealth were able to gobble up stocks (and other assets), banking on higher prices later (in the form of inflation). It wasn’t just financial speculation, however.

Tilting the Playing Field

Many corporations were in the cat bird’s seat in the middle of a recession because their competitors were sidelined by pandemic restrictions. For example, with many small retailers around the country ordered closed because they were deemed “non-essential,” Target set sales records as their market share (and stock price) swelled. In April 2020, Target shares were trading at roughly $ 92.50; as of Wednesday morning, their shares were trading at roughly $242.

With a chance to refinance homes on the Fed’s cheap money, invest in corporations playing on a tilted field, and work from home, it’s not hard to see why wealthier Americans did well—and why many of them were happy to mouth “stay home, stay safe” platitudes.

For Americans with few assets and little wealth, it was a very different story. Besides a meager stimulus check and perhaps some unemployment benefits if they lost their job, these Americans saw little from the unprecedented money printing other than higher prices—which are rising with alacrity.

For these Americans—and there are many of them—the pandemic was not a cornucopia, but one more hurdle in their quest toward the American dream.

“Those who missed out on wealth creation during the pandemic will be less equipped to weather the next major strain on their finances,” the Journal notes. “In 2020, more than a third of adults said they might not be able to cover a sudden $400 expense in cash, according to the Fed.”

Favoring the Connected

Economic populists often call for big government to redistribute wealth from the rich to the poor to even the playing field, especially during times of economic crisis.

But big government has demonstrated a clear and pervasive tendency to do the opposite: to reward those with influence and power at the expense of ordinary citizens. This is clearly what happened in 2020.

“When the federal government stepped in with its ‘assistance’ via the Coronavirus Aid, Relief, and Economic Security (CARES) Act, it clearly favored the big, wealthy, and well connected,” author Carol Roth points out in her new book, The War on Small Business.

While small business owners were left to “duke it out” over limited Paycheck Protection Program funding, lawmakers in DC were doling out favors to “friends of government,” notes Roth, a former investment banker. These “friends” included the Kennedy Center—which furloughed its orchestra and staff after receiving $25 million in no “strings” attached funds—as well as colleges with multibillion-dollar endowments (some of which were shamed into giving the money back).

The new Fed data simply bear out the thesis. Following one of the biggest expansions of government in history, the most well-off Americans—the ones with the most influence, wealth, and power—have more wealth than ever, despite a global recession. Meanwhile, the poorest and most vulnerable suffered the most.

Some will naturally blame capitalism for this gross exacerbation of inequality. And in doing so, they’ll miss the irony of it all.

It was not the free market that allowed “the rich get richer, and the poor to get poorer” during an economic crisis created by the state. It was government privilege."

Price Controls and the Old-Fashioned Doctor

No paperwork, no insurance, no privacy forms, no computers

Letter to The WSJ.

"Regarding Devorah Goldman’s op-ed “The Doctor’s Office Becomes an Assembly Line” (Dec. 30): The main issue in the decline of private doctors’ offices is the imposition of price controls. Since the Centers for Medicare and Medicaid Services (CMS) instituted an arbitrary formula called RBRVS for establishing the value of physicians’ services, prices have been rigidly controlled.

With CMS, doctors by law may not charge more than Medicare and Medicaid allows. Pay for doctors’ services in independent offices have been held down, forcing doctors to sell out to hospitals. Private carriers pay doctors more than CMS, but they enforce de facto price controls by following RBRVS and making take-it-or-leave-it provider contracts with doctors.

Patients are now hostage to big-box, hospital-owned providers and clinics. The doctors work according to their employment contracts, which hinge on pleasing the “suits” of the administration, their diktats and their practice guidelines.

I recently retired from a small independent practice. The office personnel answered the phone with a human voice. The secretary, medical assistant and bookkeeper were longstanding employees who got to know each patient by name. The doctor actually listened, took the patient’s history himself and did physical examination. But I practiced with the heritage of two parents who had been GPs in the old style. Now deceased, they are still remembered and revered in the community they served.

Tom Gumprecht, M.D.

Seattle"

Bias in PPP Loans

See U.S. to Spend $10 Billion to Boost Small Businesses by Amara Omeokwe of The WSJ. Excerpt: 

"An analysis of census-tract data from the Federal Reserve Bank of Cleveland found that PPP loans in 2020 weren’t proportionally received by businesses in low- and moderate-income areas. Businesses in areas with majority Black, Hispanic, American Indian or Alaska Native populations also received fewer PPP loans on average, the research found."

Omicron Makes Biden’s Vaccine Mandates Obsolete

There is no evidence so far that vaccines are reducing infections from the fast-spreading variant 

By Luc Montagnier and Jed Rubenfeld. Dr. Montagnier was a winner of the 2008 Nobel Prize in Physiology or Medicine for discovering the human immunodeficiency virus. Mr. Rubenfeld is a constitutional scholar. Excerpts:

"As of Jan. 1, Omicron represented more than 95% of U.S. Covid cases"

"some of Omicron’s 50 mutations are known to evade antibody protection, because more than 30 of those mutations are to the spike protein used as an immunogen by the existing vaccines, and because there have been mass Omicron outbreaks in heavily vaccinated populations, scientists are highly uncertain the existing vaccines can stop it from spreading."

"mandating a vaccine to stop the spread of a disease requires evidence that the vaccines will prevent infection or transmission (rather than efficacy against severe outcomes like hospitalization or death). As the World Health Organization puts it, “if mandatory vaccination is considered necessary to interrupt transmission chains and prevent harm to others, there should be sufficient evidence that the vaccine is efficacious in preventing serious infection and/or transmission.” For Omicron, there is as yet no such evidence.

The little data we have suggest the opposite. One preprint study found that after 30 days the Moderna and Pfizer vaccines no longer had any statistically significant positive effect against Omicron infection, and after 90 days, their effect went negative—i.e., vaccinated people were more susceptible to Omicron infection. Confirming this negative efficacy finding, data from Denmark and the Canadian province of Ontario indicate that vaccinated people have higher rates of Omicron infection than unvaccinated people."

"vaccinated people with breakthrough infections are highly contagious, and preliminary data from all over the world indicate that this is true of Omicron as well."

"boosters may reduce Omicron infections, but the effect appears to wane quickly, and we don’t know if repeated boosters would be an effective response to the surge of Omicron."

"According to the CDC, the overwhelming majority of symptomatic U.S. Omicron cases have been mild. The best policy might be to let Omicron run its course while protecting the most vulnerable, naturally immunizing the vast majority against Covid through infection by a relatively benign strain."

" Justice Stephen Breyer suggested that if mandatory vaccination went forward, that would prevent all new Covid infections—750,000 new cases every day, he said. This is wildly false. So is Justice Sonia Sotomayor’s assertion that “we have over 100,000 children . . . in serious condition, many on ventilators.” According to Health and Human Services Department data, there are currently fewer than 3,500 confirmed pediatric Covid hospitalizations"

How to Mess Up a 5G Rollout

We’re from the FAA and we’re here to blame you for our mistakes 

WSJ editorial. 

"It’s hard to know which is more messed up these days—air transportation, or the Biden Administration. As another case in point, consider the clash between airlines and wireless carriers over 5G.

Verizon and AT&T said Tuesday they’ll delay a 5G rollout planned for Wednesday after airlines complained it would disrupt flights across the country. President Biden took credit for preventing anarchy in the skies, though his Administration created the mess.

At issue is the C-band spectrum that carriers plan to use to blanket metro areas with 5G. Carriers paid the U.S. government $80 billion for this valuable spectrum, but the Federal Aviation Administration now won’t let them use it. The agency says the signals could potentially interfere with plane altimeters that measure the distance to the ground.

The Federal Communications Commission reviewed these concerns during notice-and-comment on its plan to repurpose C-band from satellite operators. In March 2020, it approved a 258-page decision that included a safe buffer between the bands occupied by altimeters and 5G—larger than many other countries require.

Yet some 20 months later, the FAA demanded to relitigate the FCC decision and took airlines and carriers hostage. If Verizon and AT&T didn’t pause their 5G rollout, the FAA would order flights grounded or diverted. AT&T and Verizon didn’t want to be blamed for that, so they twice agreed to scale back and delay their rollouts.

Two weeks ago they struck a deal with the Transportation Department to limit C-band signals within a mile of airport runways for six months and delay deploying 5G until Jan. 19. The FAA said it wouldn’t ask for another delay. And if you believed that . . .

On Sunday the FAA said it had cleared only 45% of U.S. commercial airplanes to land in low-visibility conditions at only 48 of the 88 airports it deemed at highest risk from potential 5G interference. This didn’t cover Boeing’s wide-bodied 777 and 787 models, which are flying in countries around the world with fewer 5G restrictions.

This meant airlines would have to reroute or cancel thousands of flights. The disruptions would cause immediate havoc while forgone 5G service wouldn’t be felt by Americans. Wireless carriers would be blamed for the chaos, which is probably why they conceded Tuesday to more “voluntary” and “temporary” restrictions.

“At our sole discretion, we have voluntarily agreed to temporarily defer turning on a limited number of towers around certain airport runways as we continue to work with the aviation industry and the FAA to provide further information about our 5G deployment, since they have not utilized the two years they’ve had to responsibly plan for this deployment,” AT&T said.

That’s far too charitable to the FAA and Transportation Department. Transportation Secretary Pete Buttigieg rolled FCC Chair Jessica Rosenworcel, who has supported the carriers’ 5G rollout behind the scenes. And now he and Mr. Biden are portraying their blundering as a diplomatic victory. This Administration needs less political spin and more competent governance."

Florida Is Living With Covid—and Freedom

The state’s surgeon general, Joseph Ladapo, on his advice against tests for the asymptomatic, his opposition to vaccination mandates, and life in Los Angeles under lockdown. 

By James Taranto of The WSJ. Excerpts:

"The Omicron surge has triggered a mutation in the conventional wisdom about Covid-19. The virus “is here to stay,” oncologist Ezekiel Emanuel and two other experts who advised the Biden transition proclaimed in a Jan. 6 article for the Journal of the American Medical Association, “A National Strategy for the ‘New Normal’ of Life With Covid.” That means no more “perpetual state of emergency”: “The goal for the ‘new normal’ . . . does not include eradication or elimination.”

Joseph Ladapo reached the same conclusion almost two years earlier. “Please don’t believe politicians who say we can control this with a few weeks of shutdown,” Dr. Ladapo, then a professor at UCLA’s medical school and a clinician on Covid’s frontline, wrote in USA Today on March 24, 2020. “To contain a virus with shutdowns, you must either go big, which is what China did, or you don’t go at all. . . . Here is my prescription for local and state leaders: Keep shutdowns short, keep the economy going, keep schools in session, keep jobs intact, and focus single-mindedly on building the capacity we need to survive this into our health care system.”"

"As policy makers’ views began to converge with Dr. Ladapo’s, he became a policy maker. His writings caught the attention of Florida Gov. Ron DeSantis, who in September 2021 appointed him surgeon general, the state’s top health official."

"The governor declared a state of emergency in early March 2020, followed in April by the first in a series of executive orders reopening the state. Restaurants, bars, gyms and movie theaters were back in business by June 2020, and public schools were in session that fall. In May 2021 Mr. DeSantis suspended all local Covid-19 restrictions, including mask mandates, and signed legislation ending them permanently. Last summer’s Delta wave hit Florida hard, but the Sunshine State imposed no new restrictions."

"One way to bring the case count down is by testing fewer people. “Historically in public health, for respiratory viruses in the general population, we consider ‘cases’ to be people who have symptoms, not a PCR test,” Dr. Ladapo says. “But during the pandemic, you can have a positive PCR and be completely healthy but be considered a case and be required to behave like a case, which is to isolate and those types of things.”

On Jan. 6 Dr. Ladapo issued guidance that only people who have Covid symptoms and a risk factor (old age, certain diseases, or current or recent pregnancy) “should” get tested. Those with symptoms but no risk factors are advised to “consider” a test. For the asymptomatic, the guidance discourages testing, saying it “is unlikely to have any clinical benefits.”

"“A test is most valuable when it’s most likely to lead to a change in a decision, a change in management,” he says. “I mean, that’s so basic.” To keep hospitalizations down, he adds, the state has made clear “that we expect clinicians to treat patients with risk factors”"

"He describes the asymptomatic as “a very special group, because this group—you can’t feel any better than not having symptoms. So this group can only be harmed from treatment”—not to mention the “personal downside to them” of being expected to isolate."

 "He says he’s spoken favorably of vaccination throughout his career, and he acknowledges that Covid shots provide “reasonable protection . . . against hospitalization and serious illness” and that “infection case rates are higher in people who have not received the vaccines.”"

"This week an official of the European Medicines Agency confirmed Dr. Ladapo’s intuition by warning that repeated boosters could eventually weaken the immune system.

The justification for mandatory vaccination is that the unvaccinated put others at risk of infection. Dr. Ladapo maintains that rationale doesn’t apply to Covid, especially given Omicron’s infectiousness. So many people have been vaccinated that “if the vaccines stopped spread, this pandemic would be over,” he says. “The argument for the negative externalities does not hold water.”"

"“The closing of the schools when the data was indicating that kids were at extremely low risk—that just completely looked like a bad decision"

"Miami-Dade County has had a higher per capita Covid case count than New York City for several weeks, but its hospitalization rate is somewhat lower. That sounds like a wash until you flip the question: Is the possible reduction in risk worth the price in freedom?

After the interview, an aide to Dr. Ladapo sends me a graph ranking all 50 states and the District of Columbia by age-adjusted Covid mortality rates throughout the pandemic. Florida comes in at No. 30. California does slightly better at 33rd, while New York ranks seventh.

Florida’s permissive policies didn’t stop Covid, but neither did other states’ restrictive ones. It’s an open question whether lockdowns, masking, forced vaccination and the rest have conferred any benefit at all. As the federal government and states like California and New York search for a “new normal,” they should consider following Florida’s example of simply being normal."

Slow the Spread? Speeding It May Be Safer

Tamping down on Omicron may increase the risk of an ‘antigenic shift’ to a far deadlier supervariant

By Vivek Ramaswamy and Apoorva Ramaswamy. Mr. Ramaswamy is founder and executive chairman of Roivant Sciences and author of “Woke Inc.: Inside Corporate America’s Social Justice Scam.” Dr. Ramaswamy is an assistant professor of otolaryngology at the Ohio State University Medical Center. Excerpts:

"Policies designed to slow the spread of Omicron may end up creating a supervariant that is more infectious, more virulent and more resistant to vaccines. That would be a man-made disaster.

To minimize that risk, policy makers must tolerate the rapid spread of milder variants. This will require difficult trade-offs, but it will save lives in the long run. We should end mask mandates and social distancing in most settings not because they don’t slow the spread—the usual argument against such measures—but because they probably do.

To understand why, first consider an important scientific distinction, between antigenic drift and antigenic shift. Antigens are molecules—such as the spike protein of SARS-CoV-2—that an immune system detects as foreign. The host immune system then mounts a response.

“Antigenic drift” describes the process by which single-point mutations (small genetic errors) randomly occur during the viral replication process. The result is minor alterations to antigens such as the spike protein. If a point mutation makes the virus less likely to survive, that variant gradually dies off. But if the mutation confers an incremental survival advantage—say, the ability to spread more quickly from one cell to another—then that strain becomes more likely to spread through the population.

Antigenic drift is a gradual, varying process: A single-point mutation alters one peptide, or building block, of a larger protein. Hosts with immunity against a prior strain generally enjoy at least partial immunity against “drifted” variants. This is called “cross-protection.”

Each time an immune host is exposed to a slightly different antigenic variant, the host can tweak its immune response without becoming severely ill. And the more similar the new strain is to the last version the person fought off, the less risky that strain will be to the host.

By contrast, “antigenic shift” refers to a discontinuous quantum leap from one antigen (or set of antigens) to a very different antigen (or set of antigens). New viral strains—such as those that jump from one species to another—tend to emerge from antigenic shift. The biological causes of antigenic shift are often different from those of antigenic drift. For example, the physical swap of whole sections of the genome leads to more significant changes to viral genes than those caused by individual point mutations.

But there’s a sorites paradox: How many unique point mutations collectively constitute an antigenic shift, especially when human hosts are deprived of opportunities to update their immune response to “drifted” variants?

Vaccinated and naturally immune people can revamp their immune response to new viral strains created by antigenic drift. Yet social distancing and masking increase the risk of vaccine-resistant strains from antigenic shift by minimizing opportunities for the vaccinated and naturally immune to tailor their immune responses through periodic exposures to incrementally “drifted” variants."

"The absolute risk of a more virulent strain of SARS-CoV-2 is low. That’s because viruses “care” more about propagating themselves than about killing the host: Most viruses evolve to become more infectious and less virulent. But this is only a rule of thumb, not a biological law."

"Enforcing social-distancing policies amid widespread vaccination makes the emergence of a vaccine-resistant superstrain more likely."

"even mRNA vaccines can’t be developed fast enough to outrun a vaccine-resistant supervariant."

"mask mandates and social-distancing measures will have created fertile ground for new variants that evade vaccination even more effectively. Significant antigenic shifts may create new strains that are increasingly difficult to target with vaccines at all. There are no vaccines for many viruses, despite decades of effort to develop them."

A Deceptive Covid Study, Unmasked

Duke researchers look at transmission in schools and end up reinforcing their prior assumptions

By Jay Bhattacharya and Tom Nicholson. Excerpts:

"‘Follow the science,” we keep hearing, but sometimes scientists and the media present findings in a misleading way. Consider a new study by Duke University’s ABC Science Collaborative, conducted in partnership with the North Carolina Department of Health and Human Services. Researchers examined the effect of a “test to stay” approach to schoolchildren identified as “close contacts” of Covid-positive people. Test to stay excuses these children from quarantining if they test negative for the virus. The study’s primary conclusion was that test to stay is a good way to move away from lengthy quarantine.

That’s reasonable and useful. But the researchers peppered their report with rhetorical sleights of hand aimed at misleading readers into other, less well-founded conclusions that were mostly inevitable products of their own study design. One of their primary conclusions is that “in schools with universal masking, test-to-stay is an effective strategy.” That invites readers to assume that test-to-stay doesn’t work without forced masking. But since they studied no unmasked schools, this conclusion is baseless. An honest report would either have said so or not mentioned masking at all."

"True, the ABC researchers found a higher rate of transmission during sports. But that was entirely a product of how the researchers defined Covid “exposure.” Students were counted as exposed only if they were unmasked during the interaction with an infected person. In mask-mandatory schools, that happened only during lunch and sports. If a transmission occurred in a masked classroom, the definition didn’t count it as a close contact. And the study found only three sports-related positives out of 352 tests. When combined with the three lunch-related positives, the six total positives resulted in a mere 1.7% of maskless exposures ending up with a Covid-19-positive contact."

Protectionism doesn't protect jobs (in aggregate)

From Scott Sumner.

"A recent study by Lydia Cox showed that the steel tariffs imposed back in 2002-03 ended up doing more harm than good:

In this paper, I study the long-term effects that temporary upstream tariffs have on downstream industries. Even temporary tariffs can have cascading effects through production networks when placed on upstream products, but to date, little is known about the long-term behavior of these spillovers. Using a new method for mapping downstream industries to specific steel inputs, I estimate the effect of the steel tariffs enacted by President Bush in 2002 and 2003 on downstream industry outcomes. I find that upstream steel tariffs have highly persistent negative impacts on the competitiveness of U.S. downstream industry exports. Persistence in the response of exports is driven by a restructuring of global trade flows that does not revert once the tariffs are lifted. I use a dynamic model of trade to show that the presence of relationship-specific sunk costs of exporting can generate persistence of the magnitude that I find in the data. Finally, I show that taking both contemporaneous and persistent downstream impacts into account substantially alters the welfare implications of upstream tariffs.

And the same sort of result occurred when the US imposed high tariffs on Chinese imports.  Here’s The Economist:

One reason why America levied tariffs was to encourage manufacturers to relocate there. Yet trade friction has in fact depressed business investment in America, suggests research by Mary Amiti of the Federal Reserve Bank of New York and others. The share prices of companies trading with China fared especially badly after tariff announcements. This reflected lower returns to capital and, by extension, weaker incentives to invest. All told, the annual investment growth of listed American firms was likely to have shrunk by 1.9 percentage points by the end of 2020. Aaron Flaaen and Justin Pierce of the Federal Reserve Board estimate that exposure to higher tariffs was associated with a decline in American manufacturing employment of 1.4%. The burden of higher import costs and retaliatory levies outweighed the benefits of being sheltered from foreign competition."

The greater the degree of government involvement in the provision of a good or service the greater the price increases over time

See Chart of the day…. or century? By Mark Perry. Excerpts:

"Based on last week’s BLS report on CPI price data through December 2021, I’ve updated the chart above with price changes through the end of last year. During the most recent 22-year period from January 2000 to December 2021, the CPI for All Items increased by 65.5% and the chart displays the relative price increases over that time period for 14 selected consumer goods and services, and for average hourly wages. Seven of those goods and services have increased more than average inflation of 65.5%, led by huge increases in hospital services (+211%), college tuition (+175%), and college textbooks (+150%), followed by increases in medical care services (+123%), child care (+112%), housing (+73%) and food and beverages (72%). Average wages have also increased more than average inflation since January 2000 — by 93.5% — indicating that hourly wages have increased 28 percentage points more over the last two decades than the average increase in consumer prices.

The other seven price series have been flat or have declined since January 2000, led by TVs (-97%), toys (-73%), computer software (-71%), and cell phone services (-40%). The CPI series for new cars, household furnishings (furniture, appliances, window coverings, lamps, dishes, etc.), and clothing have remained relatively flat for the last 22 years. Because average consumer prices increased by 65.5% and wages by 93.5% since 2000, the real prices of all seven of those consumer goods and services in blue above have fallen significantly and have gotten increasingly more affordable over time. Prices for (a) housing and (b) food and beverages have also risen less than wages and have therefore become more affordable even though they have increased faster than overall prices.

Various observations that have been made about the huge divergence in price patterns over the last several decades displayed in the chart include:

1. The greater (lower) the degree of government involvement in the provision of a good or service the greater (lower) the price increases (decreases) over time, e.g., hospital and medical costs, college tuition, childcare with both large degrees of government funding/regulation and large price increases vs. software, electronics, toys, cars and clothing with both relatively less government funding/regulation and falling prices. As somebody on Twitter commented:

Blue lines = prices subject to free-market forces. Red lines = prices subject to regulatory capture by government. Food and beverages are debatable either way. Conclusion: remind me why socialism is so great again.

2. Prices for manufactured goods (cars, clothing, appliances, furniture, electronic goods, toys) have experienced large price declines over time relative to overall inflation, wages, and prices for services (education, medical care, and childcare).

3. The greater the degree of international competition for tradeable goods, the greater the decline in prices over time, e.g., toys, clothing, TVs, appliances, furniture, footwear, new cares, etc.

What’s New?

4. The price series that has shown the greatest change in recent years is the CPI for Educational Books (mostly college textbooks). Textbook prices rose an average of nearly 6% annually between January 2000 and December 2016, nearly three times average annual inflation during that period of just over 2%. But starting in early 2017, the CPI for Educational Books flattened for the first time ever and has now been generally trending downward (see chart above). On an average annual basis, the CPI for Educational Books declined in both 2021 (-0.4%) and 2019 (-2.0%) with small increases in 2020 (0.7%) and 2018 (1.0%). Those falling and small positive increases have been an unprecedented departure from a half-century of increases in educational book prices that averaged 6.3% between 1968 and 2016. The flattening of the CPI for Educational Books over the last 6 years after decades or price increases faster than inflation is definitely the most dramatic change of the 14 items in the chart above.

We can expect future declines in the prices of college textbooks, as the traditional textbook market faces increasingly tough and disruptive competition from alternative options including hundreds of “open textbooks” that have been funded, published, and licensed to be freely used, adapted, and distributed. The University of Minnesota’s Center for Open Education maintains an “Open Textbook Library” website that lists hundreds of textbooks in more than 40 academic subjects that are available for free online or as a PDF file, or as a print copy at a low-cost ($33.50 for print copies from OpenStax). Just in the field of economics, there are 27 free open textbooks for Economics courses including Principles of Microeconomics, Principles of Macroeconomics, International Economics, Money and Banking, Economic Analysis, and Principles of Political Economy.

Based on the evidence in the chart above showing stagnating and now falling college textbook prices following half a century of rising prices, Hurricane Joseph (Schumpeter) appears to be hitting the college textbook market with a very large, tsunami of creative destruction called “The Open Textbook Effect.”

5. Following the lowest annual increase in college tuition and fees of only 0.78% in 2020 the tuition price series increased by 1.8% last year but marked the third straight year that college tuition increased less than the overall inflation rate. For college tuition to be falling in real terms for three years in a row is historically unprecedented and is perhaps a sign that the “higher education bubble” is showing some early signs of deflating? We can expect that bubble to continue to deflate as a result of the new pressure from the coronavirus pandemic on higher education that has accelerated the downward trend in college enrollment that has been ongoing for the last decade.

6. The recent annual increases through December in new car prices (11.8%), clothing prices (5.8%), and prices for household furnishings (7.4%) have all set multi-decade highs, as can be seen by the sharp recent upticks in those series in the chart above. Those increases might be a cause for concern, voiced by many economists, about continued rising inflation in the future.

MP: I’ll continue to update the price chart every six months, look for the next version on CD in July 2022 with data through June 2022."