April 15, 2020
This posting is taking a slightly different approach than the prior one. The next posting will go back to something more like the first’s format.
A Bit of Comic Relief
On March 30th, while the world was absorbed in COVID 19 a captain in the Venezuelan navy demonstrated that others have far more basic issues. His navy patrol boat, the Naiguata, intercepted a German cruise ship, the RCGS Resolute, in international waters off the coast of Venezuela. The cruise ship was told to follow the Navy vessel to harbor. The cruise ship captain refused; at which time some sailors began firing AK47s at the cruise ship. No one was injured, in part because there were no passengers on board. Then it gets crazy. The Navy vessel proceeded to ram the cruise ship, perhaps to force it towards the harbor. However, the Venezuelan vessel was no match for the double hulled cruise ship. Soon thereafter, the Navy vessel took on water, and eventually sank. Not surprisingly, the story is explained very differently depending on whose account you hear.
I Heard It On The Grapevine
The hashtag world doesn’t seem to need a “grapevine” anymore. However, it the old days (when I was growing up) the grapevine was a highly reliable source of news which hadn’t broken. Mostly about things happening in the community, not world events. You talk about “he said, that she said, that he said…..”
Monday morning I braced the cold winds and decided to walk around Lake Merritt. This is a gem of Oakland, not far from downtown. Easy to get to from anywhere in Oakland. Lots of people exercise here any various times of the day (including crews who row there), Forget about finding a place for a family picnic on a sunny Sunday afternoon. (Group gatherings in parks are forbitten these days.) In the course of a long walk (the lake is about 3 miles around) I saw the following messages, usually spray painted somewhere inappropriate. Signs of the times?
Capitalism is the virus
Despite my opinion we would do better with a much weaker central government, I concede we do need federal government to do some things. One of which is, on a limited basis, make sure capitalism doesn’t go amuck. I am troubled by income inequality in our society. I believe the answer to this pressing issue is to get closer to “equal access for all”. Note, that is different than the opinion we need “equal outcomes”, as some propose. Effort, intelligence, focus, and some luck should determine who “wins”. A very good place to start this transition is to vastly improve the schools attended by poor people.
Many members of society are not stakeholders in our robust, largely “free market”. They live in great uncertainty, have no capital reserves, are often in poor health because they can’t afford to see a doctor, and so on. Equally troubling to me is the sense that many Millenials (roughly those in their twenties to late thirties) have seen the downside of capitalism (2008 crash), and actually prefer a more socialist society. (I wish I could talk one on one with someone who fits that bill!)
I don’t believe capitalism is a virus. I assume the author thinks socialism is the cure. It is incredible to me the author can’t see that hundreds of millions who have gained a comfortable life in our free market. Further, I wish the author had considered the fact that many previously highly socialistic countries have chosen to reduce socialism in society. A good measure of the level of government spending as a percentage of GDP. Fareed Zakaria documented this recently on his Sunday morning GPS broadcast. In other words, what Bernie Sanders is pushing (a very large federal government with dramatically more spending than current) , isn’t really what those countries are doing today. Many have reduced the spending of the government in the economy.
Nationalize Amazon
This is actually quite interesting. The author may not be aware Amazon lost money for its first 12 years of operations, about half its corporate life. In addition, he/she may not know the company started by selling about 20 product lines, mostly books. How things change! Thanks to enormous growth they now are among the biggest businesses in the world. Last year they had $280bb of sales. They revolutionized many businesses, starting with the way we buy and read books. It boils down to one thing: Amazon’s founder, Jeff Bezos, understood something early on that others missed. When internet sales really started growing, the goal was to maximize “shelf space”, not generating a profit. Because of their commitment to grow the company by re-investing in the future, today you can buy just about anything at Amazon today. They dominate that sector.
It may be the author thinks Amazon is so large, it should be a regulated utility. No one can argue they aren’t large. In 2019 they delivered over 3bb packages world-wide. It had somewhere between 500-800,000 employees in 2019. (Different sources provide different results. This may stem from one counts only FTE’s while others count all employees.) However, usually bigness is not a sufficient condition to break up a successful company. (Look at the failed effort of the government to break up IBM, and the equally failed outcome of breaking up the phone company AT&T into RBOCs.) Bottom line, our markets have a way of self-correction. Does anyone worry about IBM’s dominance today?
However, the size argument doesn’t work for me. In almost all cases, Amazon has competition. In addition, while its user base is huge, there are lots of people who never use it. Also, more than half their sales come from third party sellers who are just using Amazon as a sales portal. Finally, one need only consider the operation of another operation which seems like Amazon. The US Post Office has five times as many delivery personnel but delivers 50 times as many items. (I get it the post office delivers everywhere, and Amazon delivers where demand is located.) In 2019 Amazon made $11bb, while the USPS lost $8bb. I wonder how satisfied the author is concerning Post Office “service”?
Gavin Has Rent Money
This one baffled me. Gavin is an unusual name, so it is a good guess this reference is to our governor. I admit it, I am not a big fan of his. However, I commend his early and clear interdiction concerning COVID 19. I also like the professional way he has managed this tricky situation. His daily briefings are important, and well done. I think our state is much better off because of his early decisions.
But was the intent to have people in need call his office for rent assistance? Clearly, deals are being made in this difficult area.
I understand California is a very expensive place to live, particularly in the bay area and Los Angeles. I did a quick search for some of the least expensive cities in the USA. There were 40 medium to large sized cities where a 2 bedroom apartment (about 750 sq. ft.) would be under $1,000 per month. In Oakland, only 4% of the market was under $1,000, while 82% were above $2,000. It looks like an average for Oakland is close to $3,000 monthly, with plenty of units well above that. It has been painful to watch as the market has gone through the roof, as the supply of rental units has not kept pace with the demand. This is particularly true for the lower end of the market.
I wonder if the writer realizes the very strong legislation which has been passed on a state and local level which greatly protects renters, and is generally adverse to the best interest of building owners. Contrary to popular impressions all landlords and not big corporations or “fat cats”. One of Oakland’s city council meetings I watched was devoted to protecting renters. A couple who were landlords stood up. They explained they had recently retired as school-teachers and had invested in a two unit apartment for their retirement. Their idealism probably will probably end up hurting them. Sad.
In addition, we have watched big east coast cities grapple with the steady pricing out of the market of long time, lower income residents. In the end, rent controls really don’t solve the problem.
Because of the expense, the state has developed many, many programs to help those who are having trouble “getting by”. Residents can get free phones, food stamps, free lunch programs for kids in school, subsidized energy, and the like. I am not against this.
Bottom line, there is a demonstrated need for some to get help to cover the basics. What doesn’t make sense to me is the focus of this note. I bet the grapevine is a very reliable source of information of what might be available.
The danger for me always is whether the risk of markets going amuck is higher than government going amuck. Case in point the Governor of Michigan - who believes she has absolute police power. But more to the point - I guess I am less concerned about the perceived inequalities in incomes. The problem first became visible with the work of A French and Berkeley economist. Thomas Piketty published a seriously flawed book which seemed to have concluded that inequality was there before looking at the data. Picketty and his colleague neglected to think about two key points - first, they ignored the effects of transfers on the distribution of incomes. Second, while there may be some inequalities the more important point is whether the lower income quintiles are better off than they were a decade ago.
ReplyDeleteThe evidence seems to be that even in the lowest income quintiles - people have larger houses and more amenities than people 30 years ago.
California is a demonstration project for the inequalities of incomes. A couple of stats should help understand the problem. The California income tax is driven by a very small percentage of taxpayers - most of that revenue comes from just four counties.
The other number which one needs to understand - is where the inequalities come from. If you look at the raw changes in incomes - the top 1% (1.6 million of about 160 million). Who are those people? One class is entertainers and athletes - and we can see why they get paid more than their predecessors did - the market is considerably larger. Caruso could only sing to a small audience - even with the advent of records. Baseball players in the bigs have a larger audience with TV rights and syndications. But then the others in that 1% are lawyers (and there is some evidence that pay for lawyers is beginning to top out or even beginning to drop). Then there are doctors and Financial Types (who get paid very well for the types of transactions they put together). Finally there are tech entrepreneurs who are getting paid very well for all of those innovations that we cannot live without. In the last tech expansion the innovators got paid a lot for a while. The question for me is if there is a real problem for this 1.6 million people -just how would you solve the seeming maldistribution? Clearly the knee jerk response from the left imposes significant costs on society and the economy. I believe that if there is a real problem in inequality (rather than are Americans in better situations than they were a decade ago) then what alternatives might be thought of to solve the problem? Why is California so expensive - a good part of the problem is the going and building restrictions that we have imposed for the last several decades. The metaphor of "Fat Cats" was created as a pejorative not as an analytical tool.
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ReplyDeleteI'm not sure how I feel about any of the three graffiti you quoted. I don’t share any of those sentiments, but I think they tap into a real feeling of loss of control that has gotten worse over the last dozen years. That feeling has clearly seeped into our political systems, giving rise to a streak of populism and a weakening of centerist policies that is foreign to what most of us have experienced in our lifetimes. You can set up logical arguments countering any of the individual points, but I think it’s harder to dismiss the root of the complaints implicit in the graffiti – that inequality is a glaring problem, that systems aren’t equitable, and that people feel deeply insecure.
ReplyDeleteI think the COVID-19 epidemic will be a shared trauma that will exacerbate those feelings. I don’t think we have begun to feel the full brunt of its impact on our society. And I think it will push people further in the direction of thinking that we need to try new ideas. I’m not predicting revolution, but I think we should be prepared for changes that seemed unimaginable two months ago. One month ago, I thought the idea that the COVID-19 crisis could change the conversation on universal healthcare in the United States laughable. Today, thinking about millions of Americans across the political spectrum who have lost their jobs, and therefore their health insurance, due to an epidemic that also puts their health at risk, the idea seem less funny.
Steve
ReplyDeleteThat is a very carefully reasoned approach, which I appreciate. I sure understand the frustration which is being expressed by the authors. You and I are also frustrated that our leadership can't seem to craft appropriate responses to the major problems we face. We are no closer to solving our immigration issues, balancing our budgets, addressing energy issues, solving our health care system issues, income inequality and dealing with the climate, than we were more than a decade ago. (The one exception is the CARE act, which approved over $2 trillion of spending money we don't have to address the immediate needs of many. I agree we needed to pass this sort of legislation.) The question is what should society do to address these issues? You and I have talked about that many, many times. I hope there is a balanced debate in the country so we can decide on some ways to improve. I wish I could be optimistic about the upcoming election.
I think part of the answer comes from an appreciation that the government plays an important role in solving many of these issues. While it's too early to give a final tally on COVID-19, it looks like a lot of countries of all types are better positioned to weather the epidemic than the United States. The countries that have been successful to date tend to have had governments with proactive, coordinated, and data-driven responses. In my opinion, the US government has not been any of those. Part of that is due to the unique ineptitude of the Trump administration, but there are deep structural and cultural reasons, too. Bill Barr’s threats to support suits against states with aggressive stay-at-home policies would have less bite if there weren’t already a court judgement against those policies. Trump’s missives about liberating swing states from closure wouldn’t carry the same weight if our country didn’t have such a strong bias towards individualism and against government authority.
DeleteI would love to see a government and a polity that used reason and best practices from other countries to find policy solutions that were effective while recognizing some of our unique characteristics. I think there are lots of examples of successful policies that combine government and free enterprise to address core issues. Central in many of them is an idea that a stronger role from the government doesn’t automatically mean a government takeover.
Healthcare is what is closest to me, so healthcare is what I’ll return to. Today, I read a white paper by McKinsey titled 'Five Stages for Healthcare Leaders During the COVID-19 Battle' which stated:
“Emergency government action to shield patients from COVID-related costs may spark broader healthcare reform to make healthcare more affordable in countries such as the United States. Providers will similarly expect new protections to reduce focus on liquidity and solvency in times of crises. In addition to these important but relatively modest reforms, the likelihood of transformational government reform of the healthcare system has become more probable. For many years, a broad range of stakeholders has been paying into a system that, while inefficient and expensive, was presumed to be able to deliver top quality care. When the immediate COVID-19 crisis has resolved itself, providers may face a public discouraged with the healthcare system.”
We’ll see if their prediction holds and how it plays out in different countries, but this crisis seems like a great argument for a health system that is more cohesive, cost-effective, and comprehensive. If I were a Democratic speechwriter or policy maker, I would be using the COVID-19 crisis like a cudgel to push for the transformational care the McKinsey article hints at.
I think the Democrats will push for a public option, and I think they’ll get it in one of the next election cycles. To me, the Republican messaging of Repeal and Replace has gotten muddier with time, especially given their lack of a constructive alternative. I think the COVID-19 epidemic will make their position untenable. It seems like public opinion is moving towards universal coverage.
I think there may be a more aggressive stance on prices, as well as coverage. Legislation to address surprise medical billing, which has been lingering in Congress for the last two years or so, will be resolved. Whether Congress chooses arbitration (more likely) or price caps (less likely), something will be done. I’m not sure Congress will stop there, though. Last month, it came as a huge surprise to read two opinion pieces by Ezekiel Emanuel, one of the architects of the Affordable Care Act, and Avik Roy, one of its harshest conservative critics, both agreeing that the government should play a larger role in regulating commercial prices for healthcare services. Given how abnormally expensive prices are in the US, and how large the variation in prices are, I think that is in the cards, too.