Times of uncertainty and fear often provide the opportunities for authoritarian governments to consolidate their powers. From the New York Times:
“As the coronavirus pandemic brings the world to a juddering halt and anxious citizens demand action, leaders across the globe are invoking executive powers and seizing virtually dictatorial authority with scant resistance.
Governments and rights groups agree that these extraordinary times call for extraordinary measures. States need new powers to shut their borders, enforce quarantines and track infected people. Many of these actions are protected under international rules, constitutional lawyers say.
But critics say some governments are using the public health crisis as cover to seize new powers that have little to do with the outbreak, with few safeguards to ensure that their new authority will not be abused.”
Hungary, whose Prime Minister was granted the authority to rule by decree, Israel, where intrusive cell phone surveillance is being imposed, and Chile, where the military has been granted nearly boundless control and ordered protesters off the streets, are some of the starkest examples. But they are far from the only offenders.
Reasonable people can disagree about whether particular emergency powers are worth the risks they entail. But we should all recognize the risks.
Money-market mutual funds (MMMFs) have had a turbulent couple of weeks. On March 18, the Federal Reserve System created a Money Market Mutual Fund Liquidity Facility (MMLF) to "assist money market funds in meeting demands for redemptions by households and other investors." What's the source of the trouble?
The story begins with an investor flight, driven by fears of coronavirus-related corporate defaults, out of private debt and into safer and more liquid Treasury debt. Prices of US Treasury bonds have been pushed way up, dramatically lowering their yields. Three-month US Treasury bonds, as of March 27, are yielding only 0.04 percent, down from 1.49 percent a month earlier. MMMFs that hold only government bonds have seen record inflows of funds ($286 billion or 7.3 percent growth in the week ending March 25; nearly 12 percent growth if we add the previous week).
The flight out of private bonds, even short-term AAA-rated bonds, includes large outflows from the mutual funds and exchange-traded funds (ETFs) that hold them. "Investment-grade bond funds experienced a record $38 billion outflow in the week through March 25," reports Bloomberg News. Some "prime" MMMFs, which mostly hold short-term commercial paper issued by banks, have been hit by outflows of more than 40 percent.
These outflows from prime funds should not be thought of as "runs" in the usual sense. Because mutual funds issue no debts, only equity claims, there is no "me-first" reason to hurry to withdraw from fear of insolvency. A mutual fund can't become insolvent by suffering asset losses—total claims can't exceed total assets—when share claims are promptly marked down as soon as, and as much as, portfolio value.Read the rest of this post »
The economic damage from COVID-19 business shutdowns could be massive. We’re starting to see the effects with initial unemployment claims spiking to a record 3.3 million last week.
In an effort to keep businesses in one piece, the $2.2 trillion federal relief package provides loans to large businesses, and essentially provides grants to small businesses that retain employees. We will nonetheless see many bankruptcies in coming months.
Another part of the downturn will be less visible—the tens of thousands of businesses that won’t be started in coming months. In a normal year, about eight percent of the nation’s businesses disappear along with the jobs and incomes they support. Fortunately, entrepreneurs replenish the economy with the creation of more than 400,000 new businesses employing about 2.5 million workers in a typical year.
Due to the crisis, many entrepreneurs are likely shelving their startup plans and many new jobs will not be created. The Wall Street Journal profiled an innovative startup that the crisis has sadly pushed into bankruptcy:
Satellite venture OneWeb Global Ltd. has filed for bankruptcy after raising more than $3.4 billion from SoftBank Group Corp., Airbus SE and other investors to build a satellite network that would beam cheap internet connectivity from space.
… The company pioneered low‐cost, automated production of such satellites, fueled by funding from Japan’s SoftBank and other investors, including aerospace giant Airbus, Qualcomm Technologies Inc. and the government of Rwanda.
The bankruptcy filing raises new questions about the financial viability of such broadband‐via‐satellite projects largely targeting developing regions. Entrepreneur Elon Musk and Jeff Bezos, founder of Amazon.com Inc. are among those pursuing the same markets.
OneWeb said it had exhausted its financing to build out an orbiting constellation of roughly 70 spacecraft and was seeking more capital just as the coronavirus pandemic roiled financial markets and shut swaths of the global economy. SoftBank is OneWeb’s largest creditor, owed $903 million, and shareholder, according to court papers.
OneWeb set up a manufacturing site near Florida’s iconic Kennedy Space Center able to turn out satellites for roughly $1 million apiece while initiating work on ground stations and inexpensive antennas designed for developing countries. Airbus executives praised the production initiatives as major advances reducing the time and expense of satellite manufacturing.
When we are over the worst of the health crisis, attention will turn to rebooting the economy. We will need an army of startups to help create that V‑shaped growth trajectory that unemployed workers will desperately need.
To spur high‐tech startups such as Oneweb, policymakers should cut the capital gains tax rate, which would increase incentives for entrepreneurship and stimulate the flow of risk capital. Tax reforms would also lend support to industries gaining new attention during the crisis, such as biotech, telemedicine, and other health‐tech activities.
To spur lower‐tech startups such as restaurants, policymakers should repeal minimum wage laws, particularly state laws that set wages above the federal level. Millions of people will need work, but many startups and struggling small businesses will not be able to afford the high wage rates imposed in states such as California, New York, and Washington.
To spur self‐employed startups, policymakers should start repealing occupational licensing rules, which are state restrictions on the entry into hundreds of occupations. Climbing out of the recession, many people will be looking for new types of work after prior jobs have disappeared. Licensing rules can impose expensive and time‐consuming requirements that unemployed people will not be able to afford in a struggling economy.
States impose licensing rules not just for doctors, but for interior designers, travel agents, bartenders, makeup artists, animal trainers, and massage therapists. Licensing rules “often bear little relationship to public health or safety,” with more training typically needed for a cosmetologist than an emergency medical technician. The share of U.S. jobs requiring an occupational license increased from 5 percent in the 1950s to about 29 percent today.
While federal and state policymakers are holed up in their homes in coming weeks, they should be thinking about tax and regulatory reforms to spur short‐term recovery and long‐term growth.
When thinking through the wisdom of COVID-19 lockdowns and orders, commentators often compare the value of lives saved against some loss of economic output (GDP) to determine whether the measure was cost‐effective. But this is an apples vs. oranges comparison.
The value of a statistical life is some calculation of what the average U.S. citizen is willing to pay for a reduction in their probability of dying. Suppose I’m willing to pay $20,000 to avoid a 0.2 percent chance of death. The value of a statistical life for me is thus $20,000/0.2 percent = $10 million per statistical life saved. If this number were applied across the population, then a measure that prevented 500,000 deaths would create $5 trillion in value.
But note carefully what this represents: it’s not about output or spending. The value we place on our lives through our choices represents our expectation of the pleasure we’d get from a full spectrum of things we’d miss if we died. Not just the consumption we’d forgo, in other words, but the value we place on time with friends and family, travel experiences, enjoying all the new non‐market leisure activities we can engage in, and more. The value of a statistical life used to calculate a dollar measure of the value of lives saved in a lockdown is therefore an economic welfare measure, not a GDP measure.
So the correct comparison when weighing up the wisdom of a lockdown is not “GDP lost” but “economic welfare lost.” That means we must account for the value of our lost liberties from shutdowns, stay‐at‐home orders, and closure of non‐essential businesses. As British economist Andrew Lilico has said, that includes “the cost of lost enjoyment, lost advance in our skills, lost spiritual development, lost self‐expression, delayed marriages, missing of windows of opportunity to ever have a baby, missing the chance to sit at the bedside of a loved one dying of cancer,” and much more besides. These non‐market losses mean the loss of economic welfare from lockdowns is much greater than observed losses to GDP.
One of my friends has had to cancel his bachelor party as a result of the lockdowns; another probably won’t now have her ill Dad around to give her away at her wedding; some students are missing out on lessons that might permanently impair their understanding for life. It should be obvious these losses are greater than any hit to consumption or earning potential. My guess is that many of you at home feel like your evening time is worth less without the option of doing something different. You valued that option even if you wouldn’t act on it. In economic terms, Casey Mulligan writes about all this as a loss in the productivity of leisure time.
Now, accounting for this lost value accurately is difficult. Especially because, even if governments lifted lockdowns, many of us would likely continue to curb our own non‐market activities to avoid the risk of infection or spreading the virus to loved ones. The problem is in large part the virus, not just the policy response. In normal times too, libertarians would balk at the idea you could “aggregate” in some way these very personal valuations of liberties. And, just so my views are not misrepresented, I am not saying that trying to account for them necessarily changes the calculus to what is optimal policy either way.
When thinking through how much pain we are willing to incur to save lives though, it’s essential that we do not place an implicit value of zero on our personal, non‐market freedoms. The value of lives saved accounts for our ability to live those lives. Cost estimates of lockdowns should account for the value of our restricted liberties too.
Lots of very important stories are going to get passed by, very understandably, due to the ongoing COVID-19 national emergency we’re all trying to survive. Here’s one story that I hope does not get permanently subsumed by our public health crisis: the total debacle that is the FBI Foreign Intelligence Surveillance Act (FISA) surveillance application process.
Today, the Department of Justice Inspector General released a Management Advisory Memorandum (MAM) about its follow up audit work in the wake of its Crossfire Hurricane (i.e., Carter Page FISA surveillance scandal) report from December 2019. Even though the DoJ IG is still relatively early in its follow up audit of FBI FISA application practices with the Foreign Intelligence Surveillance Court (FISC) for applications to spy on U.S. Person, the DoJ IG’s preliminary findings were so alarming that they felt compelled to issue MAM now.
Regarding the FBI’s existing factual accuracy review procedures (known internally as “Woods procedures”), the IG stated (pp. 2–3):
(1) we could not review original Woods Files for 4 of the 29 selected FISA applications because the FBI has notbeen able to locate them and, in 3 of these instances, did not know if they ever existed;
(2) our testing of FISA applications to the associated Woods Files identified apparent errors or inadequately supported facts in all of the 25 applications we reviewed, and interviews to date with available agents or supervisors in field offices generally have confirmed the issues we identified;
(3) existing FBI and NSD oversight mechanisms have also identified deficiencies in documentary support and application accuracy that are similar to those that we have observed to date; and
(4) FBI and NSD officials we interviewed indicated to us that there were no efforts by the FBI to use existing FBI and NSD oversight mechanisms to perform comprehensive, strategic assessments of the efficacy of the Woods Procedures or FISA accuracy, to include identifying the need for enhancements to training and improvements in the process, or increased accountability measures.
Bottom line: none of the relatively small sample of FISA applications reviewed were likely worth the paper they were written on. And based on this relatively random sample, I’ll be very surprised if the IG doesn’t find exactly the same state of affairs for FISA applications at every one of the 56 FBI field offices in the country.
All of which leaves us with a very simple, and damning, question: Exactly how many Americans were wrongly targeted for FISA surveillance–and possibly prosecution–on the basis of bogus FISA applications? Hopefully, the final IG report, which likely won’t be out for many months, will tell us. The questions then will become whether Congress will actually do anything about it and will anybody at the Justice Department and FBI get sacked over this. If history is any guide, the answers are likely to be “no” absent a fundamental change in attitude by House and Senate members towards the Bureau and DoJ.
Tucked deep within the nearly 900 pages of H.R. 748 – the Coronavirus Aid, Relief, and Economic Security Act – is a provision designed to strengthen unions in industries that accept bailout loans. Bloomberg reports:
“Companies with between 500 and 10,000 employees applying for a direct loan from the Treasury Department would be required to “make a good‐faith certification that the recipient will remain neutral in any union organizing effort for the term of the loan.” New loans for businesses affected by the pandemic are available for up to five years under the bill.”
Who gets to define neutrality, I wonder?
As the “vast majority of states have closed public schools in an effort to slow the spread of the coronavirus,” reports NPR, “many districts are now faced with a dilemma: how to provide remote learning to students without running afoul of civil rights and disability laws.” Whether due to lack of accessibility in online lessons themselves or lack of personal attendants to see to their needs during lessons, many special ed students “may not be able to adapt or follow along.” That’s a potential legal problem because the Individuals with Disabilities Education Act (IDEA) requires that schools offer special ed students, who make up 14 percent of American students, an appropriate equivalent public education. (Two other disabled‐rights laws, Section 504 of the Rehabilitation Act (Section 504), and Title II of the Americans with Disabilities Act, also regulate school services.)
“These concerns have prompted many districts, like Chicago Public Schools, to only provide ‘enrichment’ while schools are closed, with no ‘new learning,’ and no grading or tracking of attendance.” And some disability advocates stoutly defend this stance: until schools can build accessibility, extra help, and needed personal attendant services into each and every online lesson, in their view, IDEA and the other laws should forbid schools from giving the majority of kids a reasonable hope to advance by completing the year’s scheduled curriculum.
This is destructive zealotry. Fortunately, in the view of the U.S. Department of Education and Education Secretary Betsy DeVos, it is not a result compelled by federal law. On March 21 the Department put out guidance advising public school systems that it would recognize and recommend a maximum of flexibility during this new and unprecedented emergency and that it was legitimate for schools to adopt a variety of different strategies to meet disabled kids’ needs, ranging from instruction delivered through alternative means and media to compensatory instruction after schools are able to resume normal operation.
The guidance should be applauded. It’s a legitimate focus of policy to invest in research and resources so that during and after this unplanned emergency kids with special needs can advance too, and in more than just an “enrichment” way. But in the meantime, the advancement of the student body as a whole should not be held hostage to anti‐discrimination principles applied in a spirit of ideological fanaticism.