Known Unknowns


Hello,

Welcome to Known Unknowns, a newsletter that embraces living with what we don’t know.

About the $2000 checks

I think it’s better to provide well-targeted aid rather than a large check for everyone. And though I tend to err on the side of being a deficit hawk, even I can agree that these are extraordinary times, and that there’s also an end in sight. So I’m on board with showering money on small businesses, landlords, and people who’ve lost their jobs. It’s not about how much we spend right now, but whether we’re spending it in the best way.

I’m open to the idea that almost every household should get $2000 per person. However, I have yet to hear a good economic justification for it, other than the fact that unemployment insurance programs can sometimes be clunky, or take a few weeks to distribute checks. The fact that people are upset and had a hard year is not a good enough reason, nor is some weird, dogmatic, undergraduate Keynesian understanding of how the economy works that assumes that every shock must be demand-driven.

But what concerns me most, and does not portend well for the future at all, is the conversation around the extra stimulus checks. In the next few years, we’ll be debating the role of government and how much it should guarantee, insure, spend, and be present in our everyday lives. After a big crisis, we often need a reset. A crisis exposes weaknesses in our safety net and reveals the ways in which the economy has changed, while also accelerating further change.

Ideally, we'll have a productive conversation about this. We need to acknowledge that while interest rates are low at the moment, our ability to spend is not infinite. And even if it were, how we spend is still important to consider. Money should be put to its most productive and non-distortionary use.

When I heard people arguing that the $600 stimulus check was all the financial relief that Americans are getting, ignoring enhanced unemployment insurance and new PPP money, or when people piled on Larry Summers for pointing out that $2000 is a lot of money with little justification, it was disappointing. First of all, crisis or not, we don’t just print money and give it away to everyone. We simply can’t do this. Sure, rates are low now, but carrying debt—which we roll over with short-term paper—increases risk for decades into future, which means there will be less fiscal space available the next time there’s a crisis. And if you don’t have an economic justification for it other than the fact that people had a hard year, that’s a problem. I worry that misrepresenting aid and demonizing anyone who brings up trade-offs is setting a terrible precedent. It feels like non-experts throw out large numbers with no talk of trade-offs, and then somehow it becomes our actual policy.

It has become popular to say that a budget is a moral document, but it’s not. Economic policies are about tradeoffs, and they inevitably create winners and losers, delaying consumption today—or taking it from the future. And there’s a lot that we don’t know, as well as unintended consequences that we simply can’t predict. Any budget reflects hard choices and guesswork. We all want shared prosperity for all, but there many different, valid ways to achieve that. Questioning the best way to spend, and being mindful about future risks, is not immoral. It is both mature and intellectually honest.

Lessons learned

I just reviewed Scott Galloway’s new book, Post Corona: From Crisis to Opportunity. It was a big risk to write an entire book over the summer about how the pandemic would change our lives and the economy. As for myself, I feel like I can’t predict what the world will look like in two months, so I admire undertaking such a big risk. Because no matter how smart you are, odds are that you’ll be wrong about many things when making such bold predictions.

And that might be why he hedged, and most of the book was not about the pandemic, but rather about his concerns about the size of the tech industry. Now, I can forgive making incorrect predictions about the course of the virus. Absolutely everyone has been wrong about something during all of this. But I’m less forgiving of not gaining much humility during the past year. Galloway is doubling down on his view that big tech is destroying America and our society at large. There’s no discussion that while the scale of Amazon is worrisome, the scope of its distribution network also made quarantine possible. It may have even saved lives. And if competition is such a big problem, how did the break-out stars like Zoom and Peloton manage to thrive?

Yet, despite these misgivings, overall, I liked the book, especially when Galloway talked about the power of marketing and how it has evolved. And it got me thinking about what I’ve learned this year, as well as how it has made me revisit my priors. I’m not totally ready to write a book on it yet, as I’m too risk-averse to commit to writing the history of events that are still unfolding. But I’m rethinking the safety net, including how it needs to be bigger in some ways and smaller in others. I’m leaning more towards insurance and the fact that we need fewer guarantees. I’m a little more conflicted when it comes to federalism. In some ways, it was good that each state could take risks in line with their culture and preferences—and that Americans can choose to live somewhere that aligns with their preferences. On the other hand, a more coordinated federal response would have been better for some things. Flexibility has both costs and benefits. I’m also rethinking the best way to manage risk, as well as the role of the government, when individual risk-taking impacts the lives of others. Individuals are better at taking risks than I thought, but our bureaucracies don’t know how to support and that anymore, and simply can’t tolerate any ambiguity.

Tim Hartford has a nice summary about what we’ve learned about productivity and remote work, and I’ve softened some on the issue. Even if we are more productive working from home—and I’m not totally convinced that we are, at least when it comes to long-term innovation—I think I underestimated the social value of people working together and interacting every day, especially people who wouldn’t otherwise know and collaborate with each other.

The economy and our society are in some ways more resilient than I expected, and I do believe that we’ll get through this a little wiser and humbler than before. But I also think we're more fragile, as it felt like we were at the brink of completely coming apart a few times, too.

This next year will certainly be interesting. Until then, Pension Geeks!

Allison