Known Unknowns


Welcome to Known Unknowns, a newsletter about false, false trade-offs.

This should be the end of the UBI

This spike is different than the last one. Hospitalizations (case count comparisons are meaningless, because we only tested very sick people in April) are almost where they were during the last peak (though now spread out over more states and people), but so far there are way fewer deaths (even if they are increasing). We hope that it will stay that way. Also, the states with spikes aren’t in full lockdown, and even their rollbacks still leave them more open than New York City currently is (and probably will be until there’s a vaccine). So, it’s an important test. If hospitals can manage it, and deaths don’t rise too much, maybe we can have spikes without demanding that no one leave their home, and only close down high-risk activities and businesses. It will also be interesting to see whether being semi-open changes the pace of infections leveling off and then declining.

Economists on Twitter and in various editorials love to point out that the economy/public health trade-off is a false one—and that we can’t have a successful economy while there’s fear of the virus. But it also goes the other way: we can’t afford public health without a functioning economy. I’m very worried about unemployment. The unemployment rate in New York City is 20.4%, and now that the city is mostly “re-opened,” it’s hard to imagine it going much lower—and it may even go higher now that we are facing new restrictions, despite having a low case count.

The people I speak to who had the hardest time in lock-down were the ones who couldn’t work. They struggled even if they knew that their jobs were coming back, and also even if they were receiving more money than they were usually were paid because of enhanced unemployment insurance.

I think that policymakers underestimate how corrosive unemployment is. The CDC categorized widespread mass unemployment as a public health issue in 2015 (and are silent about that right now). Long-term high rates of unemployment cause depression, anxiety, and social unrest. It’s no wonder that so many young people are taking to the streets day after day and going to crowded bars. They need community, to find meaning, or just have something to do. If we lock down too much for too long, the high unemployment rates can undermine public health. It’s like a 150% income tax, which is ultimately self-defeating.

So, what can we do? We should watch the new spikes closely. So far, it seems that we can stay semi-open and that things won’t get nearly as bad nationwide as they did in New York. There’s not the stark trade-off for the economy and public health we thought there was. Some high-risk businesses may have to wait, but many of us can go about our modified lives, and live with the present circumstances while managing some necessary risk.

But we also need to think hard about enhanced unemployment benefits, in the form of the extra $600 that’s about to expire. This boost kept many families afloat during the last several months, but it may also keep some people from returning to work. Using this benefit as a return-to-work bonus may be wise as would lowering the extra benefit and capping the UI replacement rate at 100%.

And in the longer term, this whole “let’s pay people not to work” experiment (which was necessary for public health) seems to confirm that Universal Basic Income is a terrible idea. It’s not enough for people to get government benefits and not work. People need purpose, a community, an identity, and simply somewhere to go every day. Freeing people from work does not unlock creativity; rather, it just creates instability and messes with their heads.

For some reason, many people are coming to the opposite conclusion about UBI. They argue that because we don’t have the infrastructure to pay targeted benefits, we should pay everyone a guaranteed income. It seems like a better idea just to fix the infrastructure.

Shareholder value

Joe Biden recently released his economic plan/philosophy. It seems that globalists don’t have a home anywhere anymore, and Biden paid the obligatory lip service to stakeholder capitalism. That’s code for pushback against shareholder capitalism, where a corporation’s objective is to maximize shareholder value, which in turn is code for maximizing dividends and the share price, which is really just maximizing long- and short-term profits.

Now, what’s wrong with profit maximization? Much like the globalists, people like me who think that the economy isn’t zero sum are on the outs lately. If a company is successful, it seems that all stakeholders benefit (workers, the community, the country—everyone).

Now, of course there are instances of short-term profit-seeking at the expense of the community, workers, and longer-term goals. But a stakeholder model doesn’t fix that. Labor unions don’t have a great history of thinking long-term, either. More seats at the table just muddies accountability and make success that much harder to measure. Bad management is not new to the shareholder model. Also, now that 50% of Americans own stock, isn’t our community and our country now among the shareholders too?

In other news

Another case for perpetuities.
Dick Ravitch makes the case to bailout the states
Speaking of, I’m moderating a panel Thursday on state and local financial distress, hope you can drop in!

Until next time, Pension Geeks!