The editors of the Wall Street Journal are again a bit more pointed in their criticism of the Biden Administration’s “infrastructure plan”:

Most Americans think of infrastructure as roads, highways, bridges and other traditional public works. That’s why it polls well, and every President has supported more of it.

Yet this accounts for a mere $115 billion of Mr. Biden’s proposal. There’s another $25 billion for airports and $17 billion for ports and waterways that also fill a public purpose. The rest of the $620 billion earmarked for “transportation” are subsidies for green energy and payouts to unions for the jobs his climate regulation will kill. This is really a plan to build government back bigger than it has ever been.

They go on to detail it out and conclude:

Note the political irony of all this. Mr. Biden says “public investment” has fallen as a share of the economy since the 1960s, and he has a point. But the main reason is that government spending on social welfare, entitlements and public unions have squeezed out public works. Now he’s redefining social welfare as public works to drive more social-welfare spending, which will further crowd out money for public works and government R&D to compete against China.

As usual, Mr. Biden professes to want to make this bill “bipartisan,” but also as usual he let Democrats on Capitol Hill write his plan. That explains its money-for-everybody-and-everything character. Along with his gigantic tax increases (see nearby), Mr. Biden has proven to be the perfect political front for the Warren-Sanders agenda.

I’ll point out a couple of other things I’ve reminded you of before. The first is that the ARRA was popular, too, until people began to figure out how the money was actually being used. Approval for an infrastructure plan in principle and approval for an actual plan are two different things.

The second is that when you have an “infrastructure plan” you’ll get “infrastructure” not infrastructure in the sense of an investment that will expand productive capacity. Consumption is consumption not investment. As the editors of the Washington Post pointed out when it comes to investment the private sector does a better job. Calling consumption investment doesn’t make it investment. It reminds me of what Lincoln said about the horse.

BTW I would wholeheartedly support an infrastructure plan that spent $150 billion on electrical grid redundancy and load expansion and stopped there and I wouldn’t be surprised if you couldn’t get real bipartisan support for such a plan.

The topic that I began the last post with the intention of discussing but somehow couldn’t manage to weave in is the question of how do you ensure probity in a $2 trillion program? How much money wasted is too much? One potential recent place to look is the PPP. Maybe its problems are attributable to the incompetent Trump Administration but, since every recent largescale government program implemented recently has suffered from similar defects, I think we need to at least consider the possibility that the Biden Administration’s “infrastructure plan” will suffer from some of the same defects.

First, how big a problem are we talking about here? As Ev Dirksen put it, a billion here and a billion there and pretty soon you’re talking about real money. Some observations from the Tax Policy Center might be a good place to start:

An October report by the House Select Subcommittee on the Coronavirus Crisis noted that over 20,000 loans, amounting to $4 billion, were potentially subject to fraud, waste, or abuse. The Department of Justice is currently investigating and charging those who engaged in PPP fraud. These cases comprise a small share of the total number of loans made, but they do raise questions about the tradeoffs of moving fast without sufficient due diligence, and whether a more targeted program in the first round would have been more equitable.

We can be pretty confident that 1% of the total was “waste, fraud, or abuse” but the honest truth is that we don’t really know and probably won’t ever know. Let’s pick an upper boundary at random, say, 10% of the total. In the case of the proposed “infrastructure plan” that would mean anything between $20 billion and $200 billion. Compared with the federal budget or the national debt that’s not an enormous amount of money but it’s not chickenfeed, either.

Ignore the boilerplate about job creation. It won’t create jobs any more than the ARRA did and for the same reasons. It will necessarily be administered through the states; bidding will be restricted to a handful of “qualified vendors” and those vendors simply don’t do that. By and large they’re large companies (think: Bechtel) and politically connected and rather than staffing up they’ll schedule the projects in such a way they don’t need to staff up or procure equipment.

Speaking of administering the plan through the states, if there’s a way to prevent the states from using portions of the money to increase the pay of public employees or pay the pensions of retired public employees, it’s unclear to me what that might be. I don’t even consider that under the category of “waste, fraud, and abuse” but more along the lines of carrying costs, like paying off public officials in Third World countries. We don’t do that here but we have other ways of accomplishing the same thing. As the late Dan Rostenkowsi put it, don’t take a bribe just hand ’em your business card.

My best advice for ensuring the honesty, decency, and equitability of disbursing such large amounts of money is basically three-fold:

• Don’t do anything that’s “shovel-ready’. Those projects have already been funded. Funding them through a federal “infrastructure plan” will allow those funds to be used for other purposes which will accomplish very little of the presumed objective.
• Focus on market failures. Things like grid redundancy or greatly expanded capacity or better sewer systems. Anything the private sector just won’t do. A few years ago I would have said rural broadband but it looks like Elon Musk has that one well in hand.
• Lots of federal oversight with measurable performance criteria and clawbacks for non-performance.
• Concentrate the spending in poorer counties or in poor sections of more prosperous counties.

I’m open to other ideas IMO it’s genuinely a tough nut.

The editors of the Washington Post remark on the Biden Administration’s “infrastructure plan”:

PRESIDENT BIDEN bills his eight-year, $2 trillion American Jobs Plan as an “infrastructure” proposal, but its notion of infrastructure encompasses far more than the traditional definition of that term. Along with $621 billion for highways, bridges, water systems, ports and the like, the bill would provide $400 billion for the “care economy” — home- and community-based services for the disabled and elderly — and $50 billion to subsidize semiconductor manufacturing. And the list goes on, to be paid for over 15 years by significantly higher taxes on U.S. corporations. Mr. Biden’s plan represents an unapologetic commitment to a bigger federal government, with bigger responsibilities, for the foreseeable future.

concluding:

The caveat — and it’s a significant one — is that there is a reason Mr. Biden’s predecessor Bill Clinton once felt constrained to declare “the era of big government is over.” And that is that the public grew disenchanted with Democratic policies of the 1960s and 1970s, sometimes justifiably. The enduring lesson from that experience is that government should do more — of what it does best. Government has a comparative advantage in providing public goods — education, training, roads, ports, basic research — which indeed figure largely in Mr. Biden’s plan. When it comes to allocating investment capital, however — picking winners among alternative industries, companies, technologies and locations — the private sector ordinarily performs better.

At its heart, Mr. Biden’s plan shifts hundreds of billions of dollars from the private sector to the public sector on the theory that the latter can put them to better use than the former. It’s a bold and potentially historic move whose results could shape the country’s future, political and economic, for generations.

There’s so much there to comment on it’s hard to know where to start. “Public good” does not mean “a good for the public” or “good for the public”. It is a term of art in economics meaning a good that is non-rivalrous (my using it does not conflict with your using it) and non-excludable (you can’t be prevented from using it or benefiting from it). Going to college is a private good; an educated workforce is a public good. A road is a private good; a transportation network is a public good. Healthcare is a private good; a sanitary sewer system is a public good. National defense is a public good; so are legal systems and fire departments.

I agree with them that government should focus on public goods. A good guide for that is the U. S. Constitution in which the responsibilities of the federal government enumerated are overwhelmingly public goods. Most of what they list as public goods are in fact private goods. Defense, the judicial system, a sound currency. You will search in vain for healthcare, education, or housing. The “general welfare” is cited with an understanding lacking today. General welfare is not the same as individual benefit.

Believing that the government is able to make better use of resources places you in the ranks of science deniers. There is copious research illustrating that government’s substituting its own judgment for private judgments on how resources should be allocated results in less overall benefit than would otherwise be the case. Not too many years ago a Nobel prize was awarded for just such research. That’s what I’m talking about when I harp on deadweight loss. There are occasions when there is no other choice—that’s what’s meant by a “market failure”.

What I think we’re seeing emerge is an unholy chimera of what I’ve called “folk Keynesianism” with what I’ve called “folk Modern Monetary theory (MMT)”. Keynesianism does not claim that all government spending will stimulate the economy. MMT does not claim that a monetary sovereign can issue itself credit indefinitely with impunity. But those are precisely the beliefs of their folk variants and they’re wrong, disastrously wrong. What is missing from the folk variants is any notion of expanding aggregate product and that’s where our grave economic problem is today.

One more observation. When you enact an infrastructure plan you get more or improved infrastructure. When you enact an “infrastructure plan” you get more “infrastructure”. That’s what we should be afraid of.

At RealClearPolitics Bill Briggs argues that the Payroll Protection Program worked:

But did the Paycheck Protection Program deliver on its promise? The evidence reveals that it did — and in more ways than most realize.

As the economy shut down a year ago, there were dire warnings of unemployment rates exceeding 20%, perhaps even 30%. Department of Labor data from March 2020 to April 2020 shows unemployment quickly surging from 4.4% to a COVID-era peak of 14.8% before steadily receding over subsequent months.

[…]

Any clear-eyed assessment of these efforts would recognize that the program wasn’t perfect, as no government program that had to be set up in under a week and distribute over $700 billion could be. However, recent academic studies have suggested that the program was inefficient, even unnecessary. However, much of that snapshot analysis examined just the past year.

Here’s another scenario to consider: As noted above, DOL data reveals that PPP and other measures stemmed economic freefall. Economists and other experts didn’t consider how these programs prevented “deaths of despair” over a longer time horizon. Such horrific events have many contributing factors, but job loss and economic dislocation are all too often the trigger.

Some studies suggest that the opioid epidemic accelerated on the heels of the Great Recession. Humans innately understand how economic hardship can lead to despair: a person loses their job along with their employer-supported health care, then eventually gets hurt or sick, is unable to access proper care, and ultimately becomes addicted to deadly opioids in just a few short years.

The true value and lasting legacies of PPP and other COVID relief programs will rest on their mitigation of both economic and human tolls over time.

It’ll only become clearer over time that the Paycheck Protection Program averted mass unemployment and restored calm to both labor and small business markets while balancing the need for nationwide social distancing. These measures prevented a death toll with a longer tail that could have amounted to millions more deaths over several years.

I have no strongly held views of the efficacy of the PPP one way or another but I would say he’s arguing the wrong thing. We should be doing a cost-benefit analysis rather than just a benefit analysis and I honestly don’t know how the program would fare under such scrutiny. I do know that there was a substantial amount of fraud involved in the disbursement of funds, some intentional, some not.

I also think that we should avoid what I think of as “the masterstroke phenomenon”. While a PPP that operated over an even shorter period might have been worthwhile, it’s equally possible that the desire to solve the problem with a single “masterstroke” may have increased the costs while reducing the effectiveness of the program.

As Mr. Briggs suggest, I think the PPP should be assessed with clear eyes and that means considering other alternatives and reckoning the costs while tallying the benefits.

In an op-ed in the Wall Street Journal Yochai Re-em responds, presumably to the same op-ed I commented on last week:

The lack of a positive Covid test doesn’t mean a patient never had Covid or doesn’t have long Covid. There is significant research both establishing the presence of prolonged Covid symptoms and laying out possible explanations for these symptoms. A literature review published this month in Nature Medicine, a leading scientific journal, posits that organ damage from infection, immune issues and inflammation can partly explain long Covid. These explanations are supported by the data significantly better than the psychosocial argument.

Medicine has been burned in the past by misattributing physical symptoms to psychological issues. Think of lobotomies used to treat ulcerative colitis and Freud’s attribution of physical symptoms to repressed thoughts. That some repressed thoughts can be transformed to physical symptoms doesn’t mean that all unexplained physical symptoms are caused by psychological processes.

Many healthcare providers seem to assume a psychological link when traditional medical work-ups don’t turn up an immediate cause. That medicine doesn’t have all the answers seems too readily forgotten in favor of a simple explanation: “It’s all in your head.” We know that medical science is always evolving. So why is the default approach doubting patients instead of believing them?

I think I can provide one answer to his concluding question although certainly not the only one. Blaming the patient obviates the physician from the unpleasant chore of confessing the limitations of his or her and, indeed, the entire profession’s knowledge.

I think that some of the long-term effects are, indeed, psychological in origin but probably not all of them.

IMO the editors of the Washington Post exhibit a serious lack of understanding in their remarks about the need to know the origins of SARS-CoV-2:

THE WORLD HEALTH ORGANIZATION joint investigation with China into the origins of the coronavirus looked into a dark chasm and saw darkness. The report offers theories about pathways of a zoonotic spillover from animals to people, but not a single animal source among thousands has tested positive with SARS-CoV-2. The investigators did not conduct a forensic probe into the possibility of a laboratory leak. The origins of the pandemic remain obscure. Finding the answer is as important and elusive as ever.

with the remarkably tone deaf conclusion:

China has a responsibility to open its doors. This is not a blame game, but an essential investigation into the cause of this pandemic to make another one less likely.

At this point there is no way to separate “an essential investigation” from a “blame game”. The Chinese authorities have staked their collective reputation on the virus having originated anywhere but China so they will naturally leap onto any explanation which would support that supposition. Frozen food. Some as yet untested animal species. Anything regardless of lack of evidence.

I think that ultimately we’ll need just to accept that we’ll never have iron-clad evidence for how or when the virus originated but, given the very large number of animals that have been tested without finding any results, we should formulate our policy responses as though the virus was spread from an accidental leak from the WIV. What sort of policies would would that imply? I would suggest at the very least we should impose an absolute ban on U. S. government funding on virological research in China for the foreseeable future.

Update

The editors of the Wall Street Journal are more pointed in their conclusions:

The U.S. and 13 other governments released a statement Tuesday expressing “shared concerns” that the WHO study “was significantly delayed and lacked access to complete, original data and samples.” That’s nice, but it sounds like they’re prepared to conclude that Covid’s origin story is unknowable and move on.

That shouldn’t be the end of it. The Biden Administration knows the underlying intelligence and should release it to the public. Unless it does, China’s propaganda backed by the WHO’s failure will prevail in much of world opinion. The Biden Administration says it wants to revitalize multilateral institutions, and that should start with refusing to accept the WHO’s Wuhan whitewash.

That, too, is nice but IMO we should be prepared to proceed, armed with the realization that we’ll never know the real story.

I didn’t learn anything I didn’t already know from David Byler’s article in the Washington Post on how much California’s “population boom” has changed over the last few years. Here’s its opening passage:

For more than a century, California’s population has grown with astonishing speed: On average, the state added more than 300,000 people per year. But now the state’s growth has stalled.

The slowdown began before the pandemic. California gained about 230,000 people between July 1, 2016, and July 1, 2017, but between July 1, 2019, and July 1, 2020, the state’s population growth hit the brakes, adding only 21,000 new residents.

The slowdown has three primary causes: an exodus to other states, a larger-than-normal baby bust and an immigration halt. Each of these trends reveals deep problems within the state.

Changes in the type and dynamics of California’s population is nothing new. There was a point of inflection in the late 60s-early 70s when the aerospace sector collapsed. The engineers, scientists, and other skilled professionals that sector had employed needed to find other jobs quickly. Some moved within California; others left the state entirely. The people who replaced them, largely illegal migrants, earned a lot less money. That has been the pattern for decades. California has experienced substantial domestic outmigration since the 1990s. What kept California’s population growing were largely immigrants—both legal and illegal. That’s reflected in the demographic trends in the state since 1970. In 1970 85% of California’s population was white non-Hispanic; if the percentage of Hispanic population in the state is not 50% now it soon will be.

The article is full of interesting charts and graphs.

I hasten to point out that the factors Mr. Byler identifies:

• Outmigration
• Reduced immigration
• Lower birthrate

are not unrelated. The people leaving California tend to be younger than those who remain. As young people leave California, seeking lower taxes, affordable housing, and jobs, it tends to depress the birthrate.

All I have to add to Mr. Byler’s observations is that to a large degree the decline in immigration should not only have been expected but should be expected to continue. Consider Mexico’s population pyramid in 1970:

and compare it with its population pyramid now:

The decline in immigration from Mexico tracks with the decline in the growth in the number of people from age 15 to 35. It was to be expected. Similarly, we shouldn’t expect Guatemala, Honduras, and Salvador to make up the difference. They’re much smaller countries and they are experiencing the same demographic changes Mexico has—they’re just lagging behind Mexico by a couple of decades.

In an article in the Wall Street Journal Jillian Kay Melchior summarizes the perverse incentives that have been created for people from Mexico and Central America:

“It’s great that the U.S. is welcoming women and children,” Pastor Abraham Barberi tells me when I visit the migrant shelter he runs in Matamoros, Mexico. “But they’re also sending the message to families: ‘Let’s leave everything behind because our children will make it across the border.’ ” Andrea Morris Rudnik of Team Brownsville, a volunteer group that helps migrants, agrees: “We’re basically encouraging moms and babies to cross the river, which is not right. And they’re willing to do it.” Parents with infants, toddlers and young children are crossing together, while others make the difficult decision to entrust children over 8 to coyotes and send them to the U.S. alone. “The trauma of telling your child, ‘You have to go now, cross the river. I’ll reach you later’—they let go of their children and hope for the best,” Mr. Barberi says. “I can’t even think of how that would feel, the trauma of that for the parents and the kids.”

There are some heart-rending anecdotes in the article as well.

IMO it is possible to be merciful without strengthening the Mexican cartels. I’ll repeat and elaborate my proposals:

1. Create a guest worker program expressly for Mexican workers with a greatly expanded number of work visas.
2. Reinstate the practice of repatriating unaccompanied minors to their home countries.
3. Institute a tough program of workplace enforcement.
4. Reassert the purpose of asylum is for political asylum not economic asylum.
5. Congress should pass a DACA-type program and whatever standards it establishes and requires should be enforced.
6. Hire enough judges, etc. so that adjudication of asylum claims could be done quickly.
7. We should do what we can to encourage Guatemala, Honduras, and Salvador to liberalize their governments and improve their economies.

The main objective of these measures is to align incentives in the right direction. For everybody.

Looks like I called at least one outcome of the COVID-19 bailout bill correctly and it didn’t take long to materialize. The editors of the Wall Street Journal point out how the State of Vermont has figured out the formula:

Vermont’s Democratic Legislature broke the code when it dared to propose pension reforms while the state is flush with federal bailout money. Vermont’s pension funds are 35% to 50% underfunded, and rising payments are squeezing government services.

“From the standpoint of the General Assembly, whose job it is to pay [an annual contribution], I would say that we didn’t realize that we would have to pay [a cost] that increases by $36 or $60 million in a year,” said Democratic Rep. Sarah Copeland Hanzas.

Democrats are proposing to raise the retirement age to the ripe old age of 67 from 62; increase worker contributions by 1% to 2% of their pay; and limit cost-of-living adjustments to the first $24,000 of benefits. Oh, and they want to progressively index worker contributions so those who make more pay a larger share of their salaries toward their pensions. Whatever got into these Democrats, can they export it to Illinois and New Jersey?

The legislators figure that they can afford this because Vermont received about $1.3 billion in federal cash from the Cares Act and is now getting another $1.3 billion in budget relief. Altogether that’s about 40% of the state budget. Democrats say pension reforms are still needed because state payments will continue to grow, and they can’t count on Congress to send a check every year to cover the bill.

But to make the pension reforms go down easier with unions, Democrats are proposing to deposit $150 million of this year’s state budget surplus into worker pension funds. Money is fungible, and federal cash has helped create the surplus.

There is in effect no way for the Congress to prevent this sort of shell game other than not to provide bailouts for states.