Adventures in why you should never do contract work while getting unemployment insurance

DH was offered the chance to do some contract work by some former colleagues who needed his skill-set to help with a grant proposal.  He would have done it for free as a favor, but they had money for it so they wanted to pay.  It also turned out to be more work than they initially said it would be.

Before he agreed, I was like, what will this do to your employment insurance?  And he said that he’d looked it up and they would prorate it and then give it back if he ran out of weeks (that is, he could stay on unemployment insurance a little longer up to the amount that he was prorated).  He would have to declare the weeks he actually worked, not when he sent in the invoice or when he actually got paid.  (He has not yet been paid.)

Turns out that they don’t ask for all of the information that they need on the form to declare contract work.  We found this out later.  Here’s how we got to that part:

So three weeks after he turned his stub in, I noticed he hadn’t been paid the week before like he should have been.  So he went on the online site and it said there was a problem with his unemployment insurance and they had stopped it and he needed to call some number.

So he called the number and it said leave your number to call back.  So he did.  Then he waited a few days and the weekend and a few days and nobody called back.  So he called again and was on hold for over an hour (maybe an hour and a half?) then that office sent him to another office and he was on hold for a while, but under an hour.  Then he got someone and was giving them his information and the other person’s phone went out (are they doing this from home? was it a cellphone?)  So DH was like, surely they will call me back (HAHAHAHA), but of course they did not!

So the next day DH looked up what to do on reddit, and they gave him the number for the place he’d been transferred to rather than the first place, so he would only have to be on hold for part of the time.  Except, that second number was overburdened so instead of being on hold, it would give a message that it was overburdened and to try again later.  Reddit says this is normal and to just keep trying.  So he did.  And eventually he got through, after maybe half an hour of continuously redialing.  Then they got his information, then got the information for the place he contracted from *which they could have requested online when he declared income,* but didn’t.  They didn’t even tell him they’d cut off his benefits.  He just … didn’t get them.  They have his email address and could have sent him something, but they didn’t.  They could have warned him this would happen when he submitted the form.

This is a hurdle.  This is not an accident.  They could fix it but have chosen not to.  Probably because they want people who can do contract work to give up on trying to get their unemployment benefits back and just to stay employed.  What it does instead, of course, is it keeps people from taking contract work because it’s just too much effort to declare (something I suspected when my sister’s boyfriend offered DH some contract work), and it causes people to get paid under the table or to just not report earnings.  (DH would never do that, but he would certainly do something for free instead of for pay because of the known effort cost!)  Since contract work often becomes full-time work, this could be costing people jobs.

This process is irritating to us and I was like, we need to pay someone to hit redial!  But imagine for people who actually need that money because they don’t have a high earning spouse.  How frustrating and terrifying.  And how many hours does it take away from actually looking for a job or getting education or taking care of kids etc.  Not to mention the time of the people answering the phones for something that could have been collected online when it was initially declared.

Stupid administrative burden.

Have you ever dealt with your state’s unemployment insurance system?  Did it work smoothly or did you have any problems?

There are better options than increasing the minimum wage

Recently Jen Doleac (a leading economist in the study of crime and a wonderful person*) came under fire on twitter for saying that if the minimum wage were increased to $15/hr where she lives in Texas, she would hire fewer undergraduate RAs (currently $10/hr) and more pre-docs (people who have graduated college and plan to go to graduate school in the future) at $22/hr, resulting in fewer hires overall.  (Note to people who live in Blue Coastal cities– remember that cost of living in the South is a lot lower than where you live.  $15/hr seems pretty high to me given how low rents are where I live– $500/mo for a studio, much less if you’re willing to share a multiple bedroom place with others, and you still get your own room.)

What bothers me about this, other than Jen being a stand-up person who cares a LOT about people and genuinely wants to do things that help rather than hurt people**, is that the attacks on her are a knee-jerk reaction to a policy option that we still don’t know for sure will help or hurt people overall, and the mitigation of potential hurts is not being taken seriously because somehow raising the minimum wage is supposed to solve problems and not create new ones.  Ignoring potential problems not only doesn’t make them go away, but it prevents us from having comprehensive policy solutions.

The problem with most conservatives is that they want money and power and don’t care who gets hurt (also they have stronger levels of disgust and really hate moral hazard).  The problem with many knee-jerk ultra-liberals is that even though they care a lot, they often advocate for things that sound good but actually hurt the populations they’re trying to help.  (This is why Public Finance is such an important class for everyone!)

We don’t know if raising the minimum wage helps or hurts, because if minimum wage gets too high, employment will drop.  Yes, in our current environment it is probably too low now.  Yes, $100/hr is probably too much and will result in more robots and fewer jobs.  (Or in the undergraduate RA case– fewer paid RA positions and more unpaid class credit positions.)  Is $15/hr the right number?  $25?  $10?  It is really hard to say.  There are well over 500 papers examining the effects of the minimum wage.***  We do know that when firms have monopsony power****, employment goes up when the minimum wage is raised a little or in environments that can bear the increase.  It seems likely that a minimum wage increase may have short term benefits to employment outcomes, but then decreases employment over the long term (that is, firms don’t fire people, but they don’t hire as much when people leave when the wages are higher).  There’s a lot of newer evidence showing heterogeneous effects of minimum wage increases and it helps white dudes most and in some cases hurts black men and sometimes women.  So even if it helps on average, there’s a good possibility that large increases in the minimum wage will hurt our most vulnerable.

What does work?  Well, the evidence for the EITC is extremely strong.  Even researchers and policy makers who were EITC deniers back in the 1990s have come around because the evidence is so strong.  (What is EITC?  it’s basically a tax program that subsidizes wages for low income people.  Sometimes knee-jerk folks think, this is the government subsidizing big companies, and they are not wrong.  But are you trying to punish companies or are you trying to help people?  What is the end goal?  In theory, the EITC could be combined with a stronger corporate tax, but in reality…)  So Jen Doleac says, we need to expand the EITC.

But the problem with the EITC (as with increased minimum wages) is that you have to work to get it.  There are a lot of people who, for whatever reason, cannot produce enough to make even $7.50/hr.  You’ve probably worked with people who actively decrease other people’s productivity (possibly even had a boss like that).  Then there are people who are just not capable of regular work.  Now, we do have a disability program and TANF and WIC and etc. but this is not a comprehensive social safety net.  I fully believe that in a country as rich as the US even people who are not capable of being productive enough for a firm to hire them at minimum wage should be fed and sheltered and clothed and provided healthcare.

So what is better than increasing the minimum wage?

Basic Income.  Give everybody enough income that they can live a minimal subsistence lifestyle without working.  Yes, there will be moral hazard– lots of people will work less under this system.  Even potentially productive people.  I don’t care.  Some people shouldn’t be working (though because discrimination is real, under our current system that doesn’t necessarily map to the people who aren’t working) and I am ok with this (not ok with discrimination though).  As long as the basic income isn’t too high, most people will still want to work at least somewhat because most of us don’t want minimal subsistence lifestyles.  Then you can combine basic income with EITC, single payer health insurance, and stronger corporate taxes and there’s no longer even a need for minimum wage or disability or TANF or a whole lot of other expensive red-tape programs.   Of course it’s easier to change one program than to change a number at the same time.  And it’s likely corporate taxes would be dropped later without changes to basic income or EITC, which could be problematic.  We don’t know that much about the effects of basic income because it’s never really been tried on a large scale, but in theory the effects aren’t ambiguous like they are for minimum wage.  Productivity will drop but average well-being will improve and children will benefit from the stability.  (There’s details… how much should geography be taken into account etc. Subsistence income in Manhattan is very different than say, rural Montana.)

Now, from a political standpoint, you may say that increasing the minimum wage is an easier sell than completely restructuring our welfare system to basic income, and you would be right.  Basic income is probably less feasible.  Expanding EITC may be more feasible, and may be a better option, but, of course, it does have the problem that it’s the government subsidizing firms that provide low wages.

I hate the way that well-meaning people often label people as terrible because they don’t think about the potential negative consequences of the programs they’re advocating for.  When I was living in paradise, I was constantly bombarded with requests to sign petitions in favor of rent control.  To help the poor people, they would say.  But what happens with rent control?  You end up with more condos, fewer rental units, and what rental units there are the landlords become abusive and stop keeping up the residences.  (And you end up with current tenants making a mint subletting…)  In the end, some people benefit enormously, but generally not the poor people who are likely to need to move from time to time for work.  What is a better policy?  To remove the rules that buildings can’t be more than 2 or 3 stories and allow high rise apartments to be built.  But nobody wants that!  It’s really a policy to protect people with safe jobs already living there and to keep outsiders out.  There’s simple economic theory behind it, just as there is for minimum wages (same graph, actually, taught in the same section of Micro 101), but there’s also robust empirical evidence that rent control never helps the people it claims to help.  Rent control hurts poor people.  Allowing more units to be built helps poor people.  But “people who care” listen to the NIMBYs with their specious arguments and want rent control, not high-rises.

Some economists are bad people.  I cannot disagree that there are some people who choose this field because they really identified with the simplistic assumptions of Econ 101 and then they never took a public finance course because they don’t believe there’s a role for government or that that could be a useful course.

But there are legitimate reasons that economists who do care about things will disagree on the minimum wage and the cut point for the minimum wage.  (And a lot of this is going to depend on geography!  Housing costs alone vary enormously.)  Bringing these potential problems up does not make an economist a bad person.  Good economists who are good people want to do things that genuinely help and they do not want to accidentally hurt the people they are trying to help.  Good economists care about unintended consequences and they advocate for policies that help the most vulnerable.  (Bad economists just care about reducing moral hazard at the expense of total social welfare.)

Don’t just knee-jerk say someone is a bad person because a tweet on a complex issue doesn’t agree with Bernie Sanders.  One of my colleagues from Vermont says that nobody ever goes to Bernie for help because even though he talks a good game, he doesn’t actually do anything.  Complex issues are complex.  There are trade-offs.  And you can’t demonize someone for bringing up the trade-offs.  Because when you do that, you end up hurting the people you want to help.  Republicans have blinders on.  Democrats don’t need them too.  Evidence-based policy for all!

*I don’t know her very well, but I have seen her present several times.  She’s an extrovert and very good with faces and names, so she knows everyone and everyone knows her.  I am basing her wonderful personness on the body of her work and her interpretations of said work.  She asks important policy questions that show she cares about people and doesn’t start with bigoted assumptions like some economists do.  As a caveat, I didn’t much care for her naloxone paper when it came out but I can’t remember why not.  I think there were competing papers and I found the other one more convincing, but I’m not sure.

**She has a wonderful Ban the Box paper that shows that it decreases hiring among young black men but increases it among women and older black men… and of course white men.  IIRC, she has another paper on how algorithms and machine learning predicting recidivism will be racist if their inputs are racist.

***Many of the people who study minimum wage are jerks to each other.  There’s two big camps that have nasty arguments because results are extremely sensitive to specification choices and I recently told my managing editor I did not want any more minimum wage papers as co-editor.  People working on minimum wage are mostly white dudes because nobody else wants to get into the fray.  But there are a lot of them.  Note that because there are over 500 papers, you can find a paper that supports whatever your agenda is!  And the top economists disagree with which ones are better quality (and yes, there’s a correlation between their political ideology and whether or not they believe they should include state specific time trends, for example).

****Monopsony power is like monopoly power except the firm is the only purchaser of inputs, for example, it’s the only employer in town.

Disclaimer:  I am currently paying undergrads $14/hr which is higher than the university average, new grad students $15/hr (I have to get special permission for this!), and experienced grad students $18/hr (for some reason the top salary allowed for experienced student workers is higher than for starting student workers).  I don’t have pre-docs or post-docs.

I imagine this post might spark some discussion, but my Monday only has an hour free between in-person class and zoom meetings, so I might not be able to moderate/respond until late or even Tuesday depending on how exhausted I am and how much attention I have to pay at the meetings.

How to write a referee report

Seriously cribbed from A Guide for the Young Economist.  This is how the majority (though not all) of economists do it, and when I’ve reviewed for other fields I’ve been complimented on the organization, so I don’t think you can go wrong using this format even if you’re not an economist.

The letter to the authors

Start with a paragraph called “Summary”.  There’s some disagreement if these are still needed or just waste time, but I think if you do the summary paragraph right, it can be useful to both the editor and the authors.  The summary should NOT just be a restatement of the abstract.  It should be a summary of what the actual paper is about, and not what the authors think it’s about.  So, for example, if it’s an experiment, you would have a sentence saying what you think the authors are trying to do (Ex. The authors explore the effect of salt water vs. fresh water on underwater basket weaving.)  Then you say briefly what they actually did.  (The authors did a randomized controlled experiment using a student population in which…)  You might end with a statement about how they extrapolate their claims to a broader issue.  Often the abstract doesn’t actually fit what the paper is about– it makes much larger claims about what happened.  The summary should be neutral and describe what the authors actually did.  This is helpful to the editor to know what the paper is actually about before they read through it, and helpful to the authors in case what your understanding of the paper is about is different than what they intended.  They can fix their writing to make the paper more clear.  I find it helpful to focus on the method section and tables only for this part.

Then create three sections:

Major:

Minor:

Minutia:

Major should include things that you think must be fixed before the paper is published.  If the paper is a reject, then this is where reasons for rejection would go.  If the paper is an R&R, these are the items that must be addressed for sure.

Minor:  This is where smaller questions go.  You might have things that need clarification, things that are incorrect, additional robustness checks that are not make-or-break but should be addressed, and so on.  It is helpful to include page numbers with these.

Minutia:  This is where all the typos, page proofing, etc. stuff should go.  You’re recognizing that they’re small mistakes that the authors will want to fix, but that they’re not big deals.  These definitely need page numbers.  (If one of your recommendations is “spellcheck” because there are multiple spelling problems, I would put that under minor, as opposed to saying “should it be here instead of hear on the first sentence of page 28?” which would be a minutia, but YMMV.)

Always be polite in your referee report, even if the paper is ridiculous.  Do not make a reject/R&R recommendation within the paper.  (Also:  as an editor I can say for certain that positive letters don’t always lead to R&R recommendations and negative letters don’t always mean the person recommended reject.  It’s insane how some people can say different things depending on the audience.)

Advice is generally that you do not have to spend as much time on reject papers as you do on R&R– some people will say just stating the major points is enough if you plan to reject.  As a reviewer I generally try to give advice for making the paper better should it go to another journal or should the editor disagree with my assessment, but sometimes a paper is just not publishable so it doesn’t matter if they never fix the typo in footnote 17 even if I found it.  I’ve found editing at a lower tier journal that reviewers tend to over recommend revise and resubmit (they’ll be like, “the paper says that correlation is causation, but if they could only get at causation, this would be a great paper, R&R”), and the explanations people give me are much more important than their actual recommendations.  My colleague who edits at a top journal says reviewers over reject (“this is the best paper I’ve ever read, Reject”), so the explanations are important.  When I was editing a top field journal, reviewers tended to get it “right” on average.

The letter to the editor

You will also generally have a letter to the editor.  I find the best editors letters provide a concise summary of the letter to the authors and possibly elaborate on the context of your comments– Basically reiterate the major points that led to your decision of reject, or explain what must be fixed before publishing.  If you don’t have much to say because it’s an obvious accept, use this space to fight for the paper.  You don’t have to be anonymous in the letter to the editor, so you can say more things that put it into context or explain what you’re not sure about because it’s not your area of expertise or what you are sure about because you are an expert.  If you’re not sure if it should be R&R or Reject, here is a good place to say so and explain why– what are the pros and cons?  These pros and cons should also be in your letter to the authors, but you can provide more context in your letter to the editor.  You can also put disclaimers in the letter to the editor like, “I didn’t realize when I accepted this paper that it was written by a former coauthor” or “I reviewed this paper for a top journal earlier and recommended it be sent to this journal instead.” Some dudes who read this blog think that there should never be anything said to the editor that isn’t in the letter to the authors, but I strongly disagree.  I appreciate the reiteration of the major points of the review (especially since some people don’t use must be fixed as their delineation between major and minor sections, but instead use difficulty of fixing etc.) and any context that I should know about (and I really don’t need to know about that typo on footnote 17 unless the paper is a revise and resubmit, but not everybody keeps those things to the minutia section).

Special topic:  Top journals

For top journals (for which I have not yet been an editor but have done a lot of reviewing), you may want to keep in mind the following points:

1. Is it clean/well-done?  (This is the bare minimum)
2. Is it Novel? (Doesn’t always have to be, but it helps a lot… though you can’t be too novel or it gets rejected because it’s “not economics” even if it actually is.  grrrr.)
3. Does it make a major theoretical and/or empirical contribution to the field?  (Sometimes papers don’t need to add to empirics, but they do need to have a theory base even if not literally a theoretical model.)
4. Is it Important/ of general interest? (This is highly subjective and where many of my papers strike out because it turns out they’re ahead of their time.  grrr.)

Update:  Here’s xykademiqz on the same topic for her science field.

Do you do a lot of referee reports?  How does your field handle them?

Ask the grumpies: Should economists not teach anything about race?

SLAC prof asks:

In a tweet, Trevon Logan says

Message to 99.7% of Econ professors: This coming academic year, do NOT attempt to teach about race, racism, or racial inequality. Just don’t. Even if you’ve published papers on it. Respect this as a body of knowledge and refer students to appropriate academic units.

— Trevon D Logan (@TrevonDLogan) June 21, 2020

The whole thread has more information.  It makes me want to give up.  He says economists do race all wrong.  What do you think?  And what does one need to do/know to be qualified to teach about race?

Ok, so first off:  I am not black.  Also I know and hugely respect Trevon Logan and his work (and I’m fairly sure we referee each other’s papers and I’ve always been impressed with his!)

But I disagree with him.  I think this is ok for two main reasons:

First, I have had a relatively large number of black (mostly female) students, many of whom have taken some of these cross-campus classes he discusses, and they have always asked me for more on race, not less.  You just cannot teach health economics without discussing disparities (and many of the big papers in this area are from epidemiologists and demographers, not economists).  You cannot teach labor economics without having a huge section on discrimination, and while many of the white male economists working in this area have blinders on, it is fairly easy (if you have been listening to people, or if you’re female/minority) to point that out and modify their theories into something more realistic and less bigoted.  Like, of course taste-based discrimination exists, we don’t have competitive markets, duh.  (And current US events during my last semester’s class made it very clear that discrimination can lead to monopoly power, not just be a consequence of it.)  Theories of statistical discrimination should include incorrect stereotypes because we don’t have perfect information, honest to FSM.  Your (not privileged white male) students can generally point out these flaws themselves just using their own experiences and common sense.  You cannot teach public finance without talking about the political economy of race and how these programs affect different groups.  Heck, Political Economy is less than half a class without discussing race.  Similarly, Law and Economics (even if you’re planning on limiting to patents and contract law, race is still a factor!).  Sports economics!  You just cannot do justice to any subject that affects money or people without discussing how race impacts it.  So I include these topics and every year my students have more ideas for things to add.  (Like yes, in health economics we do need to talk about how white doctors have used black women’s bodies and DNA without their permission, you are absolutely right.  That would be a great addition to the Tuskeegee paper we already discuss.)

Second, I have listened to the troubles of our young black female faculty across campus (I was on a university-level thing to improve things, which we sort of did but also mostly didn’t … in any case, we did a lot of listening in addition to convincing the university to allow salary equity bumps and a few other things) who primarily teach these classes that Dr. Logan is suggesting we send our econ majors to.  It is really unfair to them to inundate them with mostly white male econ majors who have been taught that it’s just fine to play devil’s advocate and haven’t really examined their implicit biases at all.  I have enough trouble breaking them in in my intro stats classes.  Can you imagine how disruptive they would be in a discussion based class with women and minorities from what they consider to be lesser majors?  That is going to have huge negative spillovers.

I have other reasons to disagree which may be less ok, and I would modify his advice some.  (Note that since I wrote this post– several other people in the comments of the twitter thread have made these or similar suggestions.)

First off, I agree with him 100% that most of the white dudes in econ who gatekeep and work on racial discrimination start from racist assumptions and for many of them, their main goal is to show how it is Black people’s fault (or women’s fault etc.) for not being more like White men.  It’s only recently that economics has started thinking that no, maybe Black people and women are rational, they’re just playing a different game.  This problem can easily be solved by just saying, “Don’t teach any papers on race by white men (or by Roland Fryer who may be black but has serious issues).”  You can even modify this advice to “Teach only papers on race by black scholars (except not Roland Fryer).”  There’s plenty of great work by black scholars and some by other minorities and women that don’t start with racist assumptions or trying to bend evidence to “prove” racist ideas.  There are even textbooks and summary articles that would be great for lower-level undergraduate classes (William Darity Jr. is a good author/editor to start with).

And there are a LOT of white economists who could themselves benefit from reading this work.  Maybe they should start with So you want to talk about race and/or White Fragility and following Black scholars on twitter.  Then they can move on to articles in academic journals.

In terms of whether or not economists think about discrimination incorrectly… some of them do, but I think we benefit from looking at how different social sciences deal with race and discrimination.  NONE of them give a complete picture.  The assumptions and questions asked are different.  We gain tremendously from thinking about these different viewpoints and different ways of modeling.  (I took Race and the Economy from an amazing Black woman and she incorporated overviews from other fields in the class.  It can be done.)  I could go into huge detail about this, but that would get too long… suffice to say that these different viewpoints complement each other; they are not substitutes.  An economist can learn a lot from how anthropology, sociology, psychology and other fields conceptualize discrimination and other questions involving race.  (Insert rant about irritating white male gate-keepers in labor economics here who think innovation and interdisciplinarity is incorrect.)

Maybe the better advice would be for economist professors themselves to take a few classes across campus, or at the very least, read a textbook from another field, before adding race to their classes.  They should also read up on how to make their classroom more inclusive so that students don’t feel scared to speak up when the professor screws up.

As for me, I have been including race in my classes since I started and I cannot imagine stopping now.  The more I teach, the more I listen to my students, and the more I learn from them, which helps students the next time I teach.  It is a learning process for everybody.  Did I have some cringeworthy moments when I first started, probably, but minority students have been gentle with me and each year I’ve learned more and gotten better and future students benefit from that.

Update:  The more I talk with my colleagues interested in adding a race unit in their classes, the more I’m convinced that my suggestion about only using papers written by minorities is the correct one.  I had no idea that people didn’t know Becker was a huge racist misogynist jerk(!)  I mean, I thought everybody knew that.  People knew it back when he was still young, like decades ago.  So no, DO NOT read Becker in the raw original.  Many of his theory structures are lovely, but read them with the sexist and racist assumptions removed by someone else; there are great minority scholars who have explained the baseline theories and added to them, so go with them.  (William Spriggs talks about some of the problems still inherent today.)

I swear, my colleagues are all going to give up and just end up covering Bertrand and Mullainathan, though I did convince one to try Quillian et al. (in PNAS) instead.  Look, it’s not that B&M isn’t a great paper, it is, but the really horrible overlying thing is that it got into the AER because everybody, including labor economists who should have known better, thought this was the first time a correspondence audit had been done, completely ignoring ALL of the correspondence audits done by Black scholars or non-Americans– I learned about them in my undergrad economics class on Race in the economy.  What I mean is, I’m fairly sure that racism is the reason those earlier audits by black people aren’t known at all.  Quillian and coauthors do a good job of collecting them and plotting their results over time.  (It should have been published in Science, but the racist editor overruled like 7 referees who all said it was must publish.)  Quillian is also white, but he’s a sociologist, so maybe he gets a pass?  Plus he’s very nice.  I’m not sure if there are any minorities in the “et al” portion.  (Plus the econometrics textbook we use has B&M as one of their datasets and students replicate all the ttests and regressions, so it’s not adding that much for our majors.)  Any time I explain this to a White labor economist they get really mad at me because B&M is somehow the first hardcore proof they’ve ever seen about racism against black people other than those small scale in-person audits from like the 70s that somehow Jim Heckman “disproved”  in the 1990s (spoiler:  he didn’t really).

Update 2:  Last night we talked to a number of students and alumni (mostly underrepresented minorities) and they said to be careful to make sure that the lesson is integrated into the curriculum, and to not just have it as a separate unit unconnected with the rest of the class.

Ask the grumpies: Bang for the buck with stimulus funds

Becca asks:

What are you doing with stimulus funds? Do economists know which kinds of ways to spend it will ripple the furthest?

The very short answer is that economists don’t get stimulus funds (they earn too much).

Right now donating to food banks is probably the best bet because getting people fed has huge beneficial effects on everything that creates or costs.  Basically anything that helps kids will have bigger bang for the buck than things that help adults (There’s a really interesting not technically meta-analysis, but colloquially meta-analysis, on this by Nate Hendricks and Raj Chetty and someone else, I think, but basically programs to help kids help the economy in the short and long term by more than anything else).  Feeding people makes them more productive, less hangry, helps their mental facilities, decreases their stress, increases their growth etc. etc.  There’s a reason it’s near the base of the hierarchy of needs.  An email I just got says that “40% of households are reporting moderate to high levels of food insecurity and 20% of children are experiencing food insecurity.”  Many food banks (at least those in the Feeding America network, according to an employee who gave a guest lecture in one of my classes a few years back) also have access to the wholesale food markets, meaning that all that food that isn’t getting bought by restaurants can be distributed to foodbanks from the larger networks.  Money to grease those wheels can do a lot of good.  (Here’s a webinar.)

Also (less mainstream economics opinion now): activism is going to have a huge impact over the next year—if we lose the post office, if they don’t take steps to make outside safer, if they re-elect Trump, all of this will have lasting impacts on the economy for generations.  So… call your congresspeople about the post office.  Buy some post-cards and stamps or printer paper and stamps and do post-cards to voters or letters to voters.

In terms of buying things that you want and not just giving money away?  That’s harder… I mean, oil prices are down, but long-term we don’t really want more driving because climate change is bad for the economy long-term.  Stick to buying from small shops not through amazon or places like instacart or grubhub.  We want to decrease the monopoly power of these companies– competition is a good thing.   I have been using amazon as the last resort these days even if it takes longer to get things elsewhere.

What are you doing with stimulus funds?  

Not all electricity is the same

California’s new law requiring solar panels in new residential builds has just gone into place.  That’s pretty cool– I’m hoping that the resultant increase in demand will cause technology improvements that will make solar worth it for my house by the time we need a new roof.

California already has cleaner energy which means it’s a great place to drive an electric car.

But not every state gets a lot of energy from renewables and (not great but still) relatively cleaner forms of energy generation such as nuclear power or natural gas.  Some still have electricity generation that may be dirtier than the same amount required to fuel a gasoline-powered hybrid car.  In these places, it’s better for the environment to buy a hybrid than to buy an electric vehicle.

Here’s an article from 2015 that describes this situation in more detail.

And here’s a nifty NYTimes article from 2018 that shows where your state gets the majority of its energy (or at least where it did back in 2017):

The US government also has a tool that’s hopefully more up-to-date (but actually looks like it’s still using 2017 data) that provides a ton of information on energy generation and consumption by state.  You can see why CA is a great place for electric cars, but say, West Virginia should stick to hybrids.

What kind of electricity do you have?  Has this influenced your decision about what kind of car to buy?

 

Ask the grumpies: How to subvert the Tragedy of the Commons

Leah asks:

Is there any way to subvert the tragedy of the commons, or are we doomed to that fate? I seem to remember learning some examples way back when I took environmental economics but they all escape me . . .

I just happen to teach a class on this!

The first way we learn about is with government setting property rights and facilitating costless Coasian bargaining.  In the canonical example, there’s a river and a factory and a fisherperson.  The factory pollutes the river which kills some fish.  If the factory owner owns the river, then the fisher can pay it to pollute less.  If the fisher owns the river, then the factory owner can pay them to allow some pollution.  There’s problems with this solution when there’s not costless bargaining, when there’s multiple fishers (that can cause a holdout problem) or multiple factory owners (and they don’t know which ones are causing the pollution), but that’s the “preferred” government intervention when it works because it leads to the least amount of deadweight loss.

Fancier versions of this solution include things like the government setting a specific number of pollution credits and allowing firms to bargain over them.  That’s the idea behind Cap and Trade.

When the Coasian solution is difficult to implement, generally because of bargaining problems or informational aysmmetry, the government can step in a bigger way.

First:  The government can mandate that firms not be allowed to pollute more than a certain amount or fish more than a certain amount or hunt more than a certain amount.  Associations can also take the role of government in order to say, prevent over-fishing, though it’s often harder for a non governmental association to enforce these kinds of mandates.  Mandates are most enforceable when there’s jailtime associated (not just a shell company going bankrupt), though that tends to be unpopular.

Second:  The government can tax things like pollution or things that cause pollution.  Think gasoline taxes or hunting fees.

Third:  The government can subsidize companies to not pollute or to not fish etc.  This option tends to be the most popular with industry.

All of these methods have situations in which they work better or worse than the other solutions.  With nuclear waste, you want a mandate because even a little bit of waste is bad.  With air pollution you might want a tax or subsidy or cap and trade system.  The government can make money with taxes or by selling property rights in a Coasian situation.  Companies tend to lobby for subsidies which makes them more politically feasible.

So the short answer is:  yes, government can subvert the tragedy of the commons.  Market failure is why there is an economic role for government and the tragedy of the commons is one of the causes of a main source of market failure (negative spillovers).  But we need political will for it to work.

Ask the grumpies: Which is more important: Macro or Micro?

Leah asks:

Which is more important, macro or micro economics?

For most people, microeconomics is more important.  Both, however, are very important for the government, particularly the federal government.

Macroeconomics tells us about whether there should be a Fed, how should we peg the monetary system (if we should), when should the government spend and when should it pay back debt, how can the government lower unemployment and inflation using monetary policy, and so on.

Microeconomics tells us everything else.  How do we best invest in kids?  How to firms set prices?  How do we help marginalized groups?  How much should people save for retirement?  How do we best finance schools?  And on and on and on…

So… both are incredibly important, but there are a lot more microeconomists out there.

Ask the grumpies: How to address the affordable housing crisis in expensive cities

Yet another pf blog asks:

What policies do you think are best to address the affordable housing crisis in expensive cities?

Definitely not rent control!  I cannot tell you how many lectures I’ve suppressed on this topic when being a tourist.  (Instead I say, “Sorry!  I’m registered to vote in another state and cannot sign your petition.”)

The big answer is:  Loosen up zoning to allow more high-rise apartment buildings to be built.  It is as simple as that, so long as you make sure that the developers and additional taxes contribute to the additional pressure on local public goods.  But there are a lot of SF suburbs that only allow 2 or 3 stories to be built.  The second big answer is reliable public transportation (my favorite is light rail, but commuter rail and buses with special highway lane access are also good) to places outside that have affordable housing so people can commute to work.  Even our best subway and elevated systems could use expansion in terms of number of trains, number of lines, and just plain maintenance.

Ask the grumpies: Macro 101– why can the US have so much debt?

First Gen American asks:

I don’t get the deficit and printing money in general. Why is the US able to be in such enormous debt and continue to grow it without short term negatives consequences aside from servicing the debt. I just read that something like 70% of foreign countries still use USD as their reserve currency Despite President Obama adding something like 7 trillion to the deficit during his 2 terms and Trump is continuing the spending spree with tax cuts. There are a number of articles in this question and I figured as economics people you may have more of a clue.

At some point it’s not sustainable. Does anyone even know where that cliff is? Does anyone care? Is there a real risk of economic collapse at some point?

The short answer is:  We’re ok so long as enough folks believe we will not renege on our promises.

Longer answer:  We’re ok so long as there’s still decent GDP growth.  We’re better off if that spending is investing in our future and worse off if it’s contributing to widening income inequality.  (This was one reason I loved HRC– she really got that.  Spend on investment.)

Let’s see if I can find a good longer answer somewhere online.  There must be a wikipedia page or something… This investopedia article seems reasonable, laying out all the different arguments.

Basically, some debt is good because it contributes to investment so long as the rest of the world believes in the continued existence of the US as a country (and not one that will refuse to pay).  Too much debt can cause problems.

Here’s a planet money podcast that doesn’t go into too much detail, but is somewhat interesting.