Lying With Statistics: Fareed Zakaria’s Terrible, Horrible, No-Good, Very Bad Op-Ed

Example sales tax receipt showing both county and state sales taxes applied to spending.
Sample sales tax receipt. Source: https://math.andyou.com/94

Lying with statistics is an art. It requires not only numerical literacy on the part of the liar, but manipulating the audience’s lack of the same. After all, we are taught from an early age that numbers are factual. Two plus two always equals four. It’s only years later that a student can choose to learn otherwise. So, reading Fareed Zakaria’s op-ed in the Washington Post last week infuriated me.

Let’s start with this: I have not personally fact-checked every single statistic cited by Zakaria in his piece, but I’m fairly confident nothing he said is intentionally inaccurate. Lying with statistics is about sleight of hand, not blatant deception. In this case, the deception is rooted in context.

Zakaria’s op-ed is in support of a national sales tax and he relies on a couple of numbers and stats to support his call to action: $33 trillion of national debt, a relatively high marginal tax rate compared to other countries, and a relatively high percentage of income taxes being paid by high income earners. The point that I found particular enraging was the idea that a national sales tax would be fair as “[it would be] paid at the same rate by everyone, whether they earn $45,000 a year or $4.5 million. “

Again, I am not going to dispute a single number or statistic he cited in support of his argument. The national debt is $33.51 trillion. The US does have one of the highest marginal tax rates in the world. High income earners do pay the majority of total taxes. I will even concede that the majority of existing spending on social safety net commitments like Medicare and Social Security and spending of the military is untouchable for political reasons and new sources of income are necessary to reduce the deficit and tackle the national debt. I am going to argue that his use of statistics to support his arguments goes beyond persuasion and is deceptive.

Let’s start with the concept of a national tax itself. The national tax Zakaria proposes is the same Value-Added Tax (VAT) used in most other countries. He proposes a modest 5% tax. He does explain that a VAT is applied at each stage of the transaction – “Most countries call it a value-added tax, or VAT, because it is collected at each stage along the chain of production, rather than just once at the point of final sale” – but doesn’t explain what that means. What it means, in practice, is that each time the good is sold, the VAT is applied. The intermediary stages, such as when a manufacturer sells a product to a wholesaler, who then sells it to a reseller who then sells it to a consumer, are also supposed to be taxed as well. According to the Tax Foundation, those intermediary stages are typically credited back so that only the end consumer is taxed. The assumption is that the intermediaries don’t pass along that VAT they paid as part of the price they charge. If that assumption doesn’t hold – and how would that be determined since the intermediaries can and do include their costs and profit margin in the price they charge the next buyer – then the end consumer pays not only the end point tax, but some or all of the VAT applied along the way. For a $10 object passed from manufacture to seller to consumer – a single intermediary, the effective VAT can be 10.25% – 5% as it passes from manufacturer to seller ($10.50), then another 5% at the end point ($11.03).

But, let’s assume that businesses play by the rules and don’t pass on their VAT to the consumer. 5% sales tax isn’t terrible, right? I live in Nevada. The base sales tax, statewide, is 4.6% and counties and municipalities can and do apply additional sales tax. Every county in the state does; the rate in Las Vegas is 8.38%. Like Nevada, most states do apply a sales tax:

US Map with sales tax percentages listed for each state, color coded to indicate the percentage of the tax.
US Map of state sales tax rates. Source: TaxFoundation.org

So, would VAT apply in lieu of state and local sales taxes or in addition to? As some states rely heavily on sales tax, it is more likely that a national VAT would be applied in addition to the existing sales taxes. This would raise the effective sales tax rate to nearly 15% percent in the five states with the highest current tax rates. Keep this in mind as we look at the most enraging part of Zakaria’s analysis: the tax burden borne by high income earners.

Do high income earners really pay more? Yes, they do. The way the tax code is structured, high income earners face a higher marginal tax rate on their income. Welcome to tax brackets; higher earners are taxed at a higher rate in their income. Let’s say you earn $150,000 in 2022. Assuming you are filing as single with no dependents, when you files taxes for that year you’ll be in the 24% tax bracket where, before deductions, you would owe just shy of $30,000, or 20%, in taxes for the year. if you earned the median household income in the US for 2022, $74,580, you would fall into the 22% bracket, and owe, before deductions $12,024 – or 16%. However, that extra $75K the high earner brings in, even after paying an extra $18,000 in taxes – before deduction – still leaves them with more that $50,000 a year to spend. The increased tax burden on higher earners is why Zakaria correctly calls the US tax code progressive.

However, this is taxes on income. Non-income earnings, such as capital gains, are taxed very differently. For both of the above examples, the rate on realized capital gains is 15%. A capital gain is when something of value is sold. For most of us, the most likely time we would ever see this is when we sold a home. If we realized a profit from selling a home, that profit would be considered a capital gain and, in our examples, be taxed at 15%. But what if you never sell your home? What if it just gains value that you can borrow against through HELoCs (Home Equity Line of Credit) or refinancing? Turns out, nearly every big mortgage firm will tell you that you can dodge the capital gains tax by cashing out value by refinancing. This is just one example of additional funds that are available to higher earners that are not taxed as income and evade the goal of progressive income taxation. Other examples, just in the capital gains section, include stocks and investments.

This ability to access funds outside of standard income is something that those other countries Zakaria cites with lower marginal tax rates crack down on much more than the US does. Denmark has the highest capital gains tax rate in Europe at 42%. Sweden’s is 30%. Singapore doesn’t tax capital gains, but the cost of living is very high – about 80% of the cost of living in New York City. The city is also known as a tax haven for billionaires. Maybe there’s a reason that high earners live in the US despite how “in all those cases, by the way, they would get universal health care and high-quality public education from kindergarten to universities.”

At this point, we can see that high earners do face a disproportionate tax burden on their income, but that burden still leaves them with far more funds than the median household, which they can use to invest in assets that allow access to greater funds and, when divested, are taxed at far lower rates than their income. But what about the idea of fairness? Zakaria rightly states that Democrats consider sales taxes as regressive. In the earlier example of how VAT could be applied, the sales tax increased the price of the overall good. The reason sales taxes are regressive is because lower income earners spend a greater proportion of their overall income on taxable goods and services than higher income earners. Let’s take our median earner and high earner again. We’ll keep things simple – let’s say they both spend $50,000 of their income on taxable goods and services with a 5% sales tax. So, they both spend $2500 on sales tax. For the median earner, that’s 3.4% of their overall earnings, 2/3 of which they spent on goods and services. For the high earner, it’s 1.67%, or half the burden, and they still have the median earner’s income to spend. For lower income earners, that bite is proportionally larger. Econ 101 tells us that taxes inflict a deadweight loss on both producers and consumers. While that loss is miniscule for a high earner, for a lower income earner, that loss is much larger and can and will change spending patterns. But it’s applied fairly, right?

Nothing Zakaria said was untrue, but the manner in which he presented the information is deceptive in its burden to lower income earners and requires a good deal of work to unravel into a more nuanced understanding. By avoiding discussion of this increased tax burden and declining to even mention the use of sales taxes in most states, his argument is easily refuted. But he does make a valid points about the need for additional revenue to address deficit spending and the growing national debt as well as the politically untouchable nature of the majority of federal spending.

What’s the alternative? There are no easy answers. A national sales tax may be needed to help increase national income to cover spending commitments. However, increasing taxes on assets, capital gains, and, yes, raising taxes higher on higher income earners should also be on the table. All ideas to be considered, right alongside painful spending cuts.

We don’t know why people are homeless

This post is 100% a downer. Consider this your content advisory.

This post is brought to you, in part, by the Washington Post, which recently published a story on how homeless people surprisingly used cash transfers to help house themselves instead of spending it all on drugs and alcohol. The article describes the study and its results – giving homeless people cash transfers led them to reduce the use of public services like homeless shelters by about 10% of the value of the cash transfer over the course of a year. And, to be fair, the only people really surprised by this are those who haven’t actually looked at the issue in any depth. That’s because, above and beyond public perception, we don’t know why people are homeless. Or, to be more precise, we don’t know why person A, who has the same known risk factors as person B, ends up homeless but person B does not. Take this (fantastic) John Oliver segment from 2021. In it, he talks about policy solutions and public perception, but even here, between the anecdotes and the statistics, he never says why someone ends up homeless. He can’t – and the scary part is we may never be able to do so. Instead, we end up with research that confirms what those who have looked at the issues surrounding homelessness know – and those who don’t have that understanding end up being shocked by the research without changing their prior assumptions.

So, let’s talk about what we think we know and clear that garbage out. Yes, poverty is absolutely a risk factor for homelessness. If you can’t afford a place to live and you’re alive, you still need to find a place to sleep. But not every person in deep poverty ends up homeless. Same for substance abuse and mental illness. Those are factors that make it more difficult to hold down a job and are strongly correlated with poverty, thus more at risk of homelessness. Another ditto for domestic violence. Abusive partners make the streets look like a better option.

I would bet money most that people will also think incarceration is a risk factor. They would be wrong. It turns out that because the conditions for parole typically include having a place to live, newly released felons are not more likely to be homeless. However, after their parole is complete, prior incarceration may be a risk factor, but that may also be linked to the risk of recidivism. After all, most public housing and housing assistance applications include questions about criminal history, making it very easy to discriminate against felons. So, if you can’t find a job – because companies won’t hire felons – and you can’t find a place to live – because housing assistance is difficult to obtain for felons – homelessness is more likely. (This is a whole mess of poor policy design that deserves its own focus.)

Despite all these risk factors, homelessness isn’t a given. It’s not even that likely for any given factor. In 2011, Australia did this amazing study of homelessness. They not only collected the usual socioeconomic data for people who were homeless, but they also interviewed people who were homeless and at risk of becoming homeless – what is known as housing insecure. They did follow-up interviews with them as well. Researchers are still mining this data for insights over ten years later. They learned that all of those risk factors we think make people homeless are the root causes of housing insecurity – being at risk of becoming homeless. And those risk factors are way more broad than most people think. Poverty isn’t the only financial risk factor; living paycheck to paycheck is a risk factor. Yes, drug abuse, mental illness, incarceration, and terrible bigoted parents are all risk factors for housing insecurity. But some people never actually end up without a home. And some do. In my review of the literature around homelessness, there are some interesting ideas about what makes the difference between homeless and not.

One of the most fascinating findings from Journeys Home is how important our social networks are, particularly when it comes to homelessness. Particularly among younger participants surveyed, those considered homeless according to the study were staying with friends – couch-surfing. By US standards, this is not considered homeless, only housing insecure. Another finding from Journeys Home is that homelessness is frequently precipitated by a major shock:

Respondents’ current circumstances on the other hand appear to matter a lot. The average
prevalence of homelessness is much higher for: those recently experiencing family
breakdown; those with current health problems, particularly when considering respondents’
self-assessed general health and psychological distress; the jobless and those reliant on
Centrelink payments; risky drinkers and those using illicit substances (cannabis or other
substances); and those recently incarcerated, with those recently incarcerated particularly
prone to primary homelessness. Homelessness and recent experiences of physical and sexual
violence are also closely related.

In other words, the best evidence we have to date is that a major negative life event makes the difference between someone being housing insecure and at risk of homelessness and actually tipping over the line to becoming homeless. That should scare everyone; none of us are immune to a bad turn.

In the end, we’re in a truly tricky situation. Scientists end up in a place where we can’t articulate the causes of homelessness, educate the public on why this happens, and target public policy specifically at those causes. While poverty, abuse, and incarceration are definitely involved in homelessness, they aren’t the root causes. They just make people more vulnerable to ill fortune, which can’t be prevented. However, the best approach we have is to address those vulnerabilities. We can’t predict when a health crisis or a financial crisis will occur. We can put in place more policies to help people deal with the risks of poverty, housing insecurity, addiction, and mental illness, and we can ban the box so that prior incarceration isn’t a disqualifying factor from life. And, when the worst happens, we can structure the response with compassion – there but for the grace of the gods go we.

Nevada 2022 Ballot Initiatives

Just like the title says, this post is about the three statewide ballot initiatives up for a vote this election. I’ve weighed in on individual initiatives in past elections, but I’ve decided to tackle all three this cycle because, well, there are only three, and they all matter. A full account of the ballot initiatives, arguments for and against, and actual legislative language is at the Nevada Secretary of State site linked above. All of my information on these initiatives comes from the state site unless otherwise cited.

Before I get going, my general philosophy on ballot initiatives: I lean NO by because they always involve modifying the state constitution and require multiple rounds of voting to be enacted – and modified when the sudden but inevitable “unforeseen consequences” occur. That said, I try to consider each on the merits.

First up, State Question no. 1:

Shall the Nevada Constitution be amended by adding a specific guarantee that equality of rights
under the law shall not be denied or abridged by this State or any of its cities, counties, or other
political subdivisions on account of race, color, creed, sex, sexual orientation, gender identity or
expression, age, disability, ancestry, or national origin?

Nice, easy opener. My main argument against passage is that by defining protected groups, any groups not explicitly included are excluded from protection. Yet, that list is pretty darn inclusive and includes key protections for sexual orientation and gender identity, which lack protection in many jurisdictions. With that in mind and when I consider that the argument against basically boils down to “how will we discriminate if you protect all these groups,” this is a YES vote all the way. I’m confident bigots will find a way to be themselves.

Next, State Question no. 2:

Shall the Nevada Constitution be amended, effective July 1, 2024, to: (1) establish the State’s
minimum wage that employers must pay to certain employees at a rate of $12 per hour worked,
subject to any applicable increases above that $12 rate provided by federal law or enacted by the
Nevada Legislature; (2) remove the existing provisions setting different rates for the minimum
wage based on whether the employer offers certain health benefits to such employees; and
(3) remove the existing provisions for adjusting the minimum wage based on applicable increases in the cost of living?

I learned something new preparing this post: Nevada has a two-tier minimum wage system. Basically, employers who offer some health benefits to their employees can pay $1 / hour less than the minimum wage. As I am confident employers have been loopholing this provision for as long as it existed – and it predates the ACA – I am not persuaded that removing this provision removes an incentive for employers to offer health benefits to their employees. I’m okay with seeing it removed.

Likewise, I’m okay with setting the minimum wage at $12 because this provision does something to fix my #1 problem with constitutional amendments – it gives the legislature the authority to make future changes to the minimum wage. No, $12 an hour isn’t enough. It’s not a living wage. Even before rents skyrocketed the last couple of years, it wasn’t enough to pay for a decent apartment. But it’s better than it was and it makes it easier to improve the minimum wage in the future.

The tricky part of this question is part three – removing the automatic cost of living adjustments (COLA) from the minimum wage. On the surface, this seems like a terrible thing – the whole point of an automated COLA is to make the wage keep up with inflation. However, the current law caps that at 3% annually, based on CPI. I talked about this in my post on inflation. CPI is a lagging measure. Not to mention, the measure doesn’t capture volatile expenses like gas and energy. And, finally, in periods of high inflation, like now, the 3% cap means that COLA can’t keep up.

In the end, I think the benefits – a higher baseline wage, removing the two-tier wage system, and giving the legislature the power to increase the minimum wage without further amendments – outweigh the potential downside of losing the automatic, inefficient COLA. So, YES of question 2.

Finally, State Question no. 3:

Shall the Nevada Constitution be amended to allow all Nevada voters the right to participate in
open primary elections to choose candidates for the general election in which all voters may then rank the remaining candidates by preference for the offices of U.S. Senators, U.S. Representatives, Governor, Lieutenant Governor, Secretary of State, State Treasurer, State Controller, Attorney General, and State Legislators?

Well, at least the first couple of questions were a warmup. This is round one of this question [Nevada requires constitutional amendments like this pass twice in consecutive elections before they become law.] and one I’m divided on. I’ve been paying attention over the years to ranked-choice voting initiatives and open primaries like this amendment proposes. When the Nevada Democratic primary in 2020 allowed ranked choice voting, I found it easy to do and fairly intuitive. I also found it required me to think more about who I preferred and why, requiring me to dig more into candidates and their policies to help me make those choices. I do wonder, though, how easy others will adapt – ranked-choice voting hasn’t been as easy in practice as its supporters say, nor are the results quick enough to satisfy a 24-hour news cycle. And I do worry that the delay in reporting final results will spur Nevada’s homegrown MAGA contingent. What I don’t worry about is the argument that ranked-choice voting will lead to disenfranchisement. If someone votes, their vote will be counted. If they choose not to rank their choices and their preferred candidate doesn’t win, that doesn’t mean that they were disenfranchised, nor does it mean others got to vote multiple times. It means they left a section of the ballot blank.

On the other hand, the open primary proposal has me deeply concerned. I do not like the outcomes I’ve seen in the jurisdictions which opt for this system. It seems to lead to otherwise good candidates being excluded from the general (independent and third-party candidates), a lack of choices as the primary leads to multiple contenders from the same party (all-Democratic or all-Republican candidates), and little change to voter participation. I am not persuaded by the argument that closed primaries disenfranchise independent and third-party voters (the term “purity dildo” may or may not have been used in relation to this), though I am absolutely willing to concede that closed party primaries should not run by the state and local election authorities without compensation from the parties.

In the end, I’m voting NO on this question. I would love ranked choice voting, even at the loss of y beloved “None of the Above” option, and if this was separated from the open primary proposal, I would likely vote in favor of it. But the changes to the primary system bring little benefit to Nevada voters, which makes me wonder who – and why – is funding the pro-argument; it has out-raised the against by over 12 to 1.

Despite my preference for not modifying the constitution, I’m planning to vote in favor of two of the three proposals:

State Question no. 1: YES

State Question no. 2: YES

State Question no. 3: NO

Happy voting!

Inflation 101: What is Inflation (And Why It Doesn’t Include Your Rent Hike)

Everything costs more this year than it did last year and noticeably so in most cases. On one hand, this is true every year. On the other, this inflation spike is not typical at all. Housing prices are skyrocketing. So are rents. So is food. So is fuel. All of the building blocks of life cost more every month. Per the Bureau of Labor Statistics, Chained-CPI-U increased by 8.4% over the last 12 months in June 2022. The same Chained-CPI-U measure was 1.8% for December 2019.

What does that mean? Is inflation here to stay? Are prices going to keep accelerating out of reach?

Well, yes. And no.

Inflation always exists. Always. The Federal Reserve, the central bank for the US – which means it manages the flow of money in the economy at a very high level – has two mandates: maintain maximum employment and keep inflation around 2% a year. There’s nearly always some degree of inflation in the economy. When there’s not, things get ugly – like the Great Recession and Japan’s Lost Decade ugly. A lack of inflation means that there’s no demand for more money – no excess demand for goods and services, no call for people to invest in businesses to help them grow to meet that excess demand. That in turn means that it’s harder to provide returns on savings or investments. It’s bad, especially as it can easily become a self-reinforcing cycle. So, we want inflation. Low inflation, so wages and savings can keep pace, but positive inflation. What we’re experiencing now is not low inflation.

What’s happening now is different.

Chained-CPI-U is a version of the Consumer Price Index (CPI), which measures the price of goods and services and how they change over time. In the Core CPI, the goods and services used to evaluate prices exclude food and energy, as these fluctuate rapidly. Chained-CPI is the version of CPI where the goods and services are evaluated more frequently and with the assumption that people change their buying habits when prices change. The -U designation indicates it is specific to urban areas. This index does include a component for housing costs, specifically rent and the owner’s equivalent of rent. However, even when accounting for changes in the cost of living, rent increases are not fully accounted for as it takes time for those changes to be fully included in the CPI. For example, C-CPI-U for the year 2021 was 6.6%. Per the Washington Post, rents went up nationwide in 2021 an average of 11.3%.

Between the CPI numbers and the changes in energy, housing, and food I think a lot of this inflation is here to stay. In this, I actually disagree with many economists. I can only counter with the fact that I actually know what it’s like to work for minimum wage, be disheartened by a landlord raising the rent, and scraping pennies to put enough gas in the tank to get to and from work. Oh, and decades of trending home and rent prices.

Paul Krugman, for example, has somewhat dismissed inflation as a pandemic trick that will settle back out. And while the evidence he points to in support of this is fairly convincing, it is his dismissal of the increase in housing prices and pinning the perception of inflation on gas prices that, to me, marks his perception as profoundly out of touch. He is right that the rapid increase in gas prices did, has, and will continue to spark inflation fears in the non-economist. As the normal course of inflation means that the subtle shift in prices occurs over a long enough timeframe that grocery bills don’t significantly increase month to month and rents cannot usually be increased during the terms of the lease, gas prices are the first place that inflation can show up where everyone can see it. I also think Krugman fails to see the medium- and long-run impact of housing price inflation.

When Social Security increases benefits for recipients (cost-of-living adjustment aka COLA), they look at CPI. When employers adjust wages for inflation, they do the same thing. CPI, as noted above, does not include much anything that is driving inflation fears: the price of food, the price of energy, and the rapidly increasing home prices. Let’s look at housing. From FRED (Federal Reserve Economic Data), the median price of a home in the US has jumped by more than $100,000 since 2020:

FRED data: Median sale price of houses sold in the US 2000 – 2022

Home prices are just now starting to slow down. As rents (and owner’s equivalent) lag home sales in reflecting price changes, the changes renters are noting now won’t show up in the long-run data for a while. Yet, even when we look at the data since 2000, even in the wake of the Great Recession, rents barely ticked down before continuing their rise:

FRED data: Average Rent of Primary Residence in US Cities, 2000 – 2022

What this suggests to me is that the increase in housing prices and rents is likely here to stay. No COLA adjustment is going to cover a double-digit percentage change in housing costs.

So, yes, in the terms of economic indices such as CPI, inflation is high and is by no means an illusion, but it is unlikely to escalate or become something that damages long-term economic growth. By the metrics which everyone who is not an economist likely notices and cares about, inflation is rampant, targeting key expenses in a way that wages are not keeping up with, nor are they likely to in the short-term. Given the double-digit rent increases reported nationwide, I suspect that wages will not keep up in the medium-term either.

So, what’s the answer? For once, I don’t have a pithy response or policy to point to for this. The best I can offer is a refocusing of local housing policies to focus on affordable housing and multi-family homes. Even then, that is a long-term solution with a snowball’s chance in a Vegas summer of coming to fruition to an immediate problem. Might as well advocate for greener energy, more walkable cities, and better public transportation and high-speed rail. If you’re going to dream, dream big.

Rent Control Is a Terrible Idea

Few topics elicit a near-unanimous response in economics. One of them is rent control. Across the spectrum and over time, economists repeatedly agree that rent control is bad. In 1990, a poll of American Economic Association members found that 93% of respondents were against rent controls. A 2012 IGM survey from the University of Chicago – Booth has a similar result. The most nuanced take, from the Urban Institute, concluded that rent control benefits those who have it, but no one else.

In a field notorious for disagreeing on nearly every topic under investigation, why is there such a strong consensus on this? First, the body of available research supports it. That work has generally found rent control to be marginally effective for those who occupy controlled units – they do benefit from reduced rents, they are significantly less likely to move out – and of little benefit to anyone else. As the Brookings Institute summarized in 2018, “Rent control appears to help affordability in the short run for current tenants, but in the long-run decreases affordability, fuels gentrification, and creates negative externalities on the surrounding neighborhood.”

So, if the experts who look at this issue time and time again conclude that it is a terrible idea, why is it so popular? I think the answer is twofold: people think they will benefit and the negative effects will accrue to landlords, and a sustainable solution feels less likely and less immediate.

It is worth noting that research does support that tenants in a rent-controlled building do benefit. They pay less than the market rate on their living space and, depending on how the rent control laws are structured, they keep their more affordable rent as long as they maintain their tenancy. However, there is no such thing as a free lunch. If the market value for renting an apartment is, say $1500 / month, and rent control sets that to $1000 / month, that missing $500 has to be accounted for somewhere. I think there’s an assumption in a lot of peoples’ minds that landlords are greedy, milking tenants for rents according to what they can get away with, not what they need. So they see the $500 as costing the landlord profit and not doing any real economic damage. I am not going to disagree with the profit motive. Landlords don’t rent property because they think it’s cute. However, while there’s undoubtedly a level of said greedy bastards, a lot more are smaller landlords who own rental properties as an investment. And both groups are likely to charge more for rent because the cost of purchasing the rental property has increased so dramatically in the last couple of years. So that $500 may not be profit, but necessary to cover the property’s underlying mortgage or expenses.

That loss of rental income over time – as supported by research – is likely to lead to reduced investment in rent-controlled properties. In other words, with bare-bones income due to rent controls, those units are likely to be poorly maintained and lose value compared to non-controlled properties. This is a cycle that encourages the lowest common denominator to own and maintain rent-controlled units. Those who can do it with the reduced income will and may not be the ones that anyone wants in charge.

So, if rent control isn’t the answer, what is? The more sustainable answer is an increase in affordable housing. That includes multi-family housing, like apartment buildings. The problems here are manifold. Builders don’t profit as much from building apartments as they do from building houses. Fiancing multi-family is more difficult. I’ve touched on this before when I discussed Fannie Mae and Freddie Mac, but Fannie is the primary lender for multi-family housing and that makes up a small fraction of its portfolio. Zoning laws can also be an issue, as can NIMBYs who don’t want to integrate apartments into residential areas comprised of single-family homes. Even in southern Nevada, it can take months to build new apartment buildings. And yet, building more housing is the more sound solution. If you can rent an affordable apartment for $1000, you’re not going to rent one for $1500 unless you can afford to and you prefer it.

When rents increase by more than 20% in two years and there’s no corresponding change in wages, it’s hard to argue that the system isn’t rigged against renters. The problem is that those who own properties for income are going to do what they can to maximize their profit even in the face of rent controls. So there may be more affordable housing for some, but not for everyone who needs it and not for the long run. The better, more sustainable solution is to build more multi-family housing. It’s a lot less sexy but it’s better policy.

TINSTAFL: Selling Sheepskin

In a previous post, I looked at Elizabeth Warren’s plan for student loan debt forgiveness. I set aside the linked idea for free tuition in favor of looking at the price tag and value of debt forgiveness. However, the two ideas should be examined in tandem and this post is focused on the value of providing free college to all students. With the ideal of free community college and trade schools reduced to increases in Pell Grants and higher investment in higher education institutions that focus on minority groups (also worthy!), I think it’s worth looking at the idea of free tuition and seeing whether or not it is a good idea to come back to in the future.

Warren was not alone in proposing free tuition; Hillary Clinton proposed free tuition at community colleges as part of her platform in 2016. Bernie Sanders proposes free university for all. Warren, Kirsten Gillibrand, Kamala Harris, and Cory Booker co-sponsored the “Debt-Free College Act of 2019.” which would provide federal funding to colleges that commit to helping students pay for admission and avoid acquiring debt. Even in April of this year, Biden’s agenda still included free community college tuition. So, is this a good thing? Is it worth spending tax dollars to fund college education for all at any level? At every level?

Let’s begin by examining the value of a college degree. Much of the conversation around the value of a college degree comes down to the Sheepskin Effect, i.e., the theory college degree signals an applicant’s value to employers. If that is correct, that college is less about education and more about showing future employers that the student can complete a long-term program, then the education itself is worth little of the expense of the degree. Bryan Caplan, the author of The Case Against Education, excerpted his book in The Atlantic in 2018 and makes this point. His argument is that a college education is largely wasted on students as they gain little from the experience and the cost largely goes to securing significantly higher earnings as a college graduate. The premium for a 4-year degree is 70%+ percent more in earnings than a high-school graduate. Research supports the idea that higher earnings earlier in life continue to elevate earnings later in life. For example, earning more when you start out working means you will earn more later in life compared to someone the same as you except for the salary difference. So, a lifetime of higher earnings can well be worth the thousands of dollars of student loan debt acquired to purchase it. Even Caplan, who argues against higher education en masse, says it absolutely should be considered for the individual.

Next, let’s look at the cost of obtaining these degrees. Even those who argue against the collective value of college education, such as Caplan, acknowledge that for the individual, the premium for earning a 4-year degree makes it worth pursuing. At a time when the desire for college quails in the face of the price tag, and the cost accrued by Millenials is crippling their futures, what’s the actual cost of obtaining a degree? Well, the aptly named collegedata.com says:

Colleges estimate the total cost to attend their institution for a single year–not including grants and scholarships–in a figure called the Cost of Attendance (COA). Think of the COA as a college’s “sticker price.” Need-based aid, merit aid, and scholarships can reduce your total cost.

Generally, colleges include the following expenses in their COA:

  • tuition and fees
  • room and board
  • books and supplies
  • transportation and personal expenses

Although college tuition and fees are separate costs, colleges usually report a combined tuition and fees figure. For the 2020-2021 academic year, the average price of tuition and fees came to:

  • $37,650 at private colleges
  • $10,560 at public colleges (in-state residents)
  • $27,020 at public colleges (out-of-state residents)

Ouch. Anyone who has had to buy a textbook can tell you tuition is only one part of the picture. And even raw tuition at a public university for an in-state student is unaffordable for a student with a part-time job unless they have additional sources of funding. Let’s suppose our fictional student is working 20 hours a week for $15 an hour. Their gross pay, not their take-home after taxes and deductions, is $300 a week, or $15,000 a year. So, if they live at home and said home happens to be located close enough to a four-year public university for them to attend while living at home and they can find a job that will schedule them for consistent hours so they can work around their classes, they might be able to afford tuition. Maybe. If any one of those assumptions is not met – they aren’t co-located with the said university, can’t find a part-time job that allows them to work around classes and pays well enough to cover tuition, or they wish to buy the occasional cup of coffee – they will need some additional sources of funding to cover all of the costs of higher education.

Right or wrong, the cost of education is not something that can be covered by a job at a local restaurant or retail store. And the extra funds to cover the costs of higher education often come from the government already in some form. For those who manage to qualify, Pell Grants are available. However, Pell Grants max out at less than $6500 for the entire 2021-2022 academic year – half of the average price of in-state tuition at a public university. For the rest, there are loans, subsidized and unsubsidized, that students and parents can take out from the federal government. And after that, there are private loans.

Yes, there are also scholarships and grants. Yes, those can help cover a generous amount of the costs of attending a university. And I would be remiss in not pointing out that some private colleges with multi-billion dollar endowments do their best to ensure that their aid packages cover the costs of attending. But, given that students owe over $1.7 trillion in loan debt, obviously, that is not a statement many schools can make.

With the value of a four-year degree so high, the debt load taken on to attain it can seem reasonable. And yet, that same debt is choking a generation of students out of building real wealth. Debtors are not buying homes. They are not starting businesses. They are not starting families. $1.7 trillion is a lot of economic activity lying fallow. It may be worthwhile then, to consider not only loan forgiveness but also addressing the cost of education itself.

In the fiscal year 2020, the Department of Education projected $131 billion for student aid through its programs, including both Pell Grants and direct loans. This amount is projected to help 12 million students. However, there are an estimated 20 million college students in the US. Assuming all 20 million pay the in-state tuition average above, that’s just over $211 billion annually. With that in mind, supporting in-state public tuition may be feasible.

However, providing debt-free higher education at public universities will increase demand. The price of higher education is absolutely a sticking point for many people and their families. How much will demand increase if education is publicly funded? I suspect less than expected. Those determined to obtain a degree and lacking the funds, grants, and scholarships to cover the costs currently take on loans to do so. Those who balk at doing so are likely only marginally interested in a college education. Let’s say that we increase the student population by 25% by providing free tuition. That’s roughly $275 billion a year, just over double the student aid budget for the fiscal year 2020. It could be considered a worthwhile investment.

As long as a diploma is so valuable, students will rightly continue to choose to attend college to gain it. They will continue to take on debts to pay for it as well. Since there’s no way to reduce the value of a degree by fiat, the next best option is to invest in ourselves by funding tuition at public universities. Eliminating the stifling debt load caused by student loans by coupling free tuition with loan forgiveness could be a bright economic boon. And those obsessed with cost-cutting should consider that such measures may well pay for themselves with a larger, stronger tax base. In addition, student loan interest payments are tax-deductible.

Finally, for those marginal students who may or may not attend a public university, the pandemic has shown us that some of the most critical jobs in our economy are not knowledge-based, but service-based. We need people who are skilled and trained for working in our supply chains and service providers. Not just health care providers, but truckers, mechanics, and electricians. We need people skilled in making things and distributing them. We need hairstylists and chefs. These fields cannot be outsourced and are essential to the lives we want to live today. If we are willing to invest in higher education for knowledge workers, we should consider doing so for service jobs as well. We need skilled workers of all kinds, not just workers with diplomas.

Do Cities Actually Dream of Cubicle Workers?

The Cubicle Farm

A New York Times article in March of 2021 discussed the rapid decline in commercial office space occupancy in Manhattan due to COVID, speculating how the city will never be the same. If we’re lucky, it won’t.

The pandemic has forced significant changes in how white-collar work is done and those changes have been in place long enough for us to really think about the nature of work and how we want to work moving forward. Let me emphasize that I am talking about white-collar work here – office work, work that COVID has shown us can be done from anywhere effectively. I am well aware that for those not in these lines of work, the nature of work has not greatly changed. However, I think that the changes that can occur in the wake of COVID can benefit more workers than those who used to occupy offices and cubicles.

The NYT article above talks about how companies are shifting to permanently remote workforces, abandoning office spaces in “prime” locations. Twitter’s Jack Dorsey deliberately shifted the company’s stance on remote work in 2018. The Washington Post article includes pictures of the company’s now-abandoned headquarters in San Francisco. Others, such as Google, are pulling employees back into the office as quickly as the pandemic allows. Why? What’s the benefit here?

On one level, it’s about technology. Remote work technology is not in its infancy – though such widespread use of it is new. The term “telecommuting” is often attributed to Jack Nilles of NASA, who coined it in 1973. Since then, companies such as IBM, JC Penney, Yahoo, and Best Buy have tried remote working with varying degrees of success. One CEO quoted in the New York Times on the topic, felt that remote work failed because he could never find his employees when they worked remotely: “Every weekend became a three-day holiday,” he said. “I found that people work so much better when they’re all in the same physical space.” This is a common complaint for managers with remote workers. Another is, as a Yahoo memo put it when the company ended its remote work program in 2013, “Some of the best decisions and insights come from hallway and cafeteria discussions, meeting new people and impromptu team meetings.” Technology that supports remote work doesn’t support traditional management supervision, nor does it appear to replicate the “innovation” expected from face-to-face interactions.

On another, this is about the bottom line. Let’s compare Twiter and Google again. Office space in a major city is not cheap. Twitter, per their 2019 annual report, does not own their office space. In that report, between office space and data center facilities, they spent over $100 million in the fiscal year 2019. While the majority of that is assuredly data center driven, not all of it is. Google, by contrast, owns its Silicon Valley office complex and its Manhattan offices. Google has to pay for maintenance, upkeep, taxes, etc. regardless of occupancy. Using the space for employees likely makes more sense for Google’s short-term and long-term plans.

Finally, it’s about the nature of work itself. What is work in this context? How is it measured? Also, how important is supervision, hierarchy, verification, socialization – the culture of a company? In Dorsey’s 2018 announcement of company support for remote work, he specifically cited opportunities for employees to work better away from the office environment. Not to put a halo on it, but his context appears to be maximizing employee productivity and satisfaction. Google’s culture is specifically built around collaboration – something that is, again, arguably more difficult to achieve in a distributed workforce.

All of these factors – and more that may well have never crossed my mind – are involved in shaping how we will work post-COVID. It’s not just big flashy tech companies making these calculations either – it’s every firm, every business. And, as the NYT article shows, those choices will cascade across everyone’s life in ways great and small. For example, let’s say that remote work becomes the new normal and cubicle farms a pre-COVID relic. How does that ripple outward? Let’s start with Manhattan. With only a fraction of the in-office employees to support, it’s not just office buildings left wanting. So too the myriad service and retail workers whose livelihood depends on traffic from those now remote workers. Will they all shift to gig work like Uber and Doordash in the wake of stores and restaurants slashing their workforces or shuttering altogether?

COVID has generated rapid shifts in how goods and services are provided in general. A University of Chicago poll last year indicated that while the use of ride-sharing services dropped rapidly, the use of grocery delivery services increased – among households with an income of $100,000 or greater. And therein lies the crux of the problem. Those secondary spillovers from the move to remote work, the shifts to delivery services are primarily concentrated among higher-income households. Work isn’t changing for in-person services, such as restaurant work or retail or warehousing.

Based on the above factors, I think we will see the rapid shift to remote work rollback to a large extent this year. Too many companies have too many assets tied up in onsite work for that to change, not to mention the ripple effect of those businesses dependent on commuting office workers needing them to commute. However, I don’t expect it to completely reverse itself. Workers who have the option to work remotely will likely take it up. Moreover, there’s an opportunity in this percentage change in how we work to change where we work as well.

If a worker prefers a more rural setting, they can have it and the jobs they desire as well – especially if the broadband infrastructure proposed by the Biden Administration comes to fruition. (Sorry, satellite internet. I have very bad memories of you from my days in IT support.) High-income work doesn’t have to be the primary domain cities anymore. That too can have a ripple effect all its own. The shift can happen in so many ways that its hard to model or predict.

The bottom line is that a lot of the work that occurs in “cubicle farms” and the abandoned offices of Manhattan can be done just as well remotely. We’ve had over a year to figure this out and see it in action. The technology exists and, despite some hiccups and growing pains, it is working fairly well. The question remains do we want to go back to the way we worked before and, for many employees, the answer is a firm no. If that holds true, it’ll soon be time to figure out how to better use commercial office space.

COVID Killed the Radio Star

If I had to take a guess about the post-COVID world, there would be two businesses I would not expect to survive in their current forms. I expect Broadway to survive. I expect the NFL to do well as well. Sporting events, concerts, conventions and festivals: those, I think, will thrive once treatment or a vaccine becomes reality. I don’t think the same can be said for movie theatres and car dealerships.

Businesses that survive the pandemic largely unchanged will be ones that have models that are either 1) unaffected by large shocks to consumer demand or 2) models that should return to near normal once the demand shock ends. For option 1, a prime example is grocery stores. While many people who live in areas covered by delivery service have learned that they personally don’t need to shop for groceries, somebody must. I don’t think anyone, pre-COVID, had stockboy on their essential jobs bingo card. The grocery store business model has not undergone any significant shifts in response to COVID; post-COVID shifts are likewise unlikely. For option 2, I would point to experience-oriented fields as the most likely to return to near-normal post-COVID. Broadway shows, for example, will likely return to near-normal demand once limits on public gatherings are lifted. The demand for entertainment is unabated; it’s artificially limited by social distancing. Once people can go back to seeing shows, they likely will.

Even with a thriving entertainment sector, I don’t expect leisure and hospitality to emerge from the pandemic quickly. Between reduced demand and the 1-2 year timeframe for a vaccine, I would not be surprised to find that hotel occupancy rates remain depressed for some time to come. Even when travel becomes an acceptable risk in the post-COVID era, and I do think these industries will eventually return to near-normal, I expect it to be a long and protracted recovery. I would also expect those businesses that reform themselves around providing entertainment experiences versus mere travel or luxury to come back sooner.

It’s those businesses that do not sell essential products and services nor sell experiences that I believe will truly struggle in a post-COVID world. In particular, I single out movie theatres and car dealerships as examples of businesses whose core model is built around selling a product that this pandemic has taught us does not need to be sold in person. Take the example of Trolls: World Tour. The movie released straight to streaming platforms, no theatrical release, and thrived, banking more in weeks than its predecessor did in months of theatrical showings. Also, look at how many movies delayed release or production specifically to prevent public gatherings. Streaming platforms are a relatively mature technology with wide reach to audiences. This pandemic has made them key parts of the entertainment options for households. Post-COVID, movie theatres offer very little that consumers cannot get at home as long as they continue to sell movies. Movie theatre chains that had begun the work to provide more experience-oriented showings have a better chance to survive, but it would not surprise me at all if movie theaters became like theatre performances or drive-ins: niche experiences tailored to people who want an entire experience with their show.

As with movie theatres, so too with car dealerships. Car dealerships are modeled on the sales experience, making them somewhat more survivable. But the bulk of that sales experience can now be done online. Cars can be browsed online, apps to determine the right price range are easily accessible on the fly to buyers, qualifying for a loan can also be done without ever stepping foot in a dealership. If anything, a car buyer who had done all this in advance has little need for a sales person to sell them a car; they need someone to facilitate the paperwork. I see this business model lingering on more, but the pandemic has provided a golden opportunity to reshape the car buying experience without this model in the way. If dealerships survive unchanged, I would be shocked. Rather, I would expect that dealerships would be relegated to glorified parking lots and paper management teams; we need much less of these than we do now.

I kinda want to put a pin in this post. I don’t like making predictions, but I’m fairly confident in these for all they are worth. This pandemic is intersecting with changes in how we like, work, and play. On the economic front, that change is manifesting as a dramatic shock to consumer demand and limitations how that demand can be met. In the end, we all know that the post-COVID world will not be the same as the one we knew, but it should be fairly familiar in a lot of ways. So, pin this and let me know when I get it wrong – or right.

The Invisible Hand is Wearing PPE

Or, why thinking the country is going to reopen any time soon is as realistic as living in a soap bubble. The answer to that is simple: it’s not up to the governors. Or the president. Or the mayor or any other body politic. Reopening the country and navigating our way to a post-COVID normal will happen when a majority of people believe it is safe to do so. And the reason for that is rooted all the way back to Adam Smith and his invisible hand.

In The Wealth of Nations, Smith says:

Every individual… neither intends to promote the public interest, nor knows how much he is promoting it… he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.

Adam Smith, The Wealth of Nations, page 380

This maps onto the key ideas of aggregate supply and aggregate demand. When economists model economic activity they look at the whole. But that whole is made up of individuals – those invisible hands of each person making their own decisions and choices in the world building up to a whole that, generally, grants more benefits to everyone than would occur if those choices were dictated by a central authority. And it is this aggregation by individuals that I believe does not support reopening the economy until those same individuals, en masse, can be confident that they can go to the store or work or a movie without risking infecting themselves, their loved ones, or random individuals. To understand why means taking a look at game theory.

Game theory is used to simulate interactions (both once and repeated) and model expected behaviors. Using this as a framework, we can make assumptions about those who participate in the game we design and see what choices make the most sense given those assumptions. For those who haven’t been in deep (academic!) lust with the Prisoner’s Dilemma for entirely too long, here’s the basics to understand what we’re going to model.

I’m going to use some of the language of economics here to help establish that this is a model and not reality. It’s a basic model that I think relates fairly well to reality, but they are not one and the same. And as one of my professors liked to say, “live in the model.” Anyway, economic agents – our stand in for real people – have what we call utility functions. Utility functions are a way of understanding an economic agent’s preferences. They provide a very flexible framework that allow us to include so-called “irrational” motiviations, like emotions and ethics, in the model without breaking it. Instead those motivations alter the utility curve, changing where maximum utility is derived. For example, when we look at whether or not people prefer to go to work or stay home and watch Netflix all day (aka leisure time), we don’t actually model a line showing a preference to stay home all day. Here’s a basic work-leisure utility curve:

A simple work-leisure utility curve. Source: https://en.wikipedia.org/wiki/File:Labour_economics-shortrun_supply_smaller.png

What this graph shows is that choosing between work and leisure is a sliding scale. The more we need goods and services – like rent and groceries – the more likely we are to choose work. The more those needs are met, the more likely we are to choose leisure. The balance between the two is shown on the graph as the IC curve, or indifference curve. That curve represents where our economic agent is indifferent to spending more time working versus spending more time at home. Where that intersects the utility curve is the sweet spot for our economic agent, the right balance between work and play. That point on the curve, A, is where the economic agent maximizes their utility. Maximizing one’s utility is the goal of every economic agent.

When we use utility to understand an agent’s preference in game theory, we do it by assigning payoff values to the different options in the game. For example, in the work-leisure model, going to work for an hour is worth X, staying home for that hour is worth Y. Y could be worth 0, as leisure doesn’t earn money and you still need to pay your rent for the month. Alternatively, Y could be worth more than X as all of your bills are paid or you have a movie you want to see. Even in this simple slice of a model, the choice will vary on whatever factors we choose to include.

With this in mind, let’s set the rules for a simple game to model whether or not economic agent J is going to go out shopping or stay home in our current world. We’re going to open this up with a few assumptions – feel free to question these assumptions in the comments.

  • Assumption #1 – J is mostly rational. They do not believe COVID-19 is a hoax, nor do they believe that prudent social distancing measures, quarantines, lockdowns, stay at home orders, etc. are unreasonable in the midst of a pandemic.
  • Assumption #2 – J is not an essential worker. This means that J’s decision to leave their residence is optional.
  • Assumption #3 – J is reasonably aware of the risks of leaving their residence. They know that going out risks exposure to the virus. They do not know exactly how much an individual activity leads to risk of exposure.
  • Assumption #4 – J does not know whether or not they have or have had the coronavirus. They have not been tested, nor do they know if they have been exposed to it.
  • Assumption #5 – J believes, based on credible news reports and sources that the current statistics for infection are (as of 4/27/20):
    • Approximately 1,000,000 Americans have tested positive for COVID-19. This breaks down into about 1 in 320 Americans infected. However, given the lack of testing available in most areas, the number of infected people is plausibly several times as many.
    • Approximately 60,000 Americans have died from COVID-19 since the outbreak began. This means the odds of death from infection is over 5%. This does not account for under-counts, which are strongly suspected of occurring, particularly in hard-hit areas.
    • Approximately 5.4 million Americans have been tested for COVID-19. This breaks down to 1.6% of the population being tested and of those, nearly 1 in 5 are testing positive at this time. (NB: I am well aware of the biases involved in the total testing vs. positive test ratios, however, it does provide a rough idea of how much is known or unknown.)

Within this framework, I’m going to start with J making a simple decision – are they going to go to the store today? Well, using the rules above, what’s the payoff for J in each scenario? If J goes to the store, they risk exposure to COVID-19 but also take care of some necessary business. So, let’s say that the payoff is -1 if they go to the store because they risk infection. If they choose to stay home, let’s say the payoff is 1 because they stayed safe. As long as J has a reasonable risk of exposure and no pressing need, they shouldn’t want to go to the store. If J needs some essential item, then the payoffs change – now going to the store is still -1, but not going is -2, or leaves J worse off. So J will go to the store.

This is a very simple framework; let’s expand it to something more realistic: let’s add a second person, K, who is subject to all of the same assumptions as J, with one addition: J and K have no way of knowing if anyone they meet is a carrier of the virus. This includes each other and themselves. So, J and K both need to decide if they are going to go to the store. But they could encounter other people at the store who may or may not expose them to the virus; they could also be a carrier and expose others unknowing.

This sets up as a 2×2 matrix. J’s payoffs are in the bottom left triangles in GREEN, K’s payoffs are in the top left in BLUE.:

2×2 Matrix. J’s payoffs are in the bottom left triangles, K’s payoffs are in the top left.

If we look at the available options, you’ll notice some of the payoffs have changed. Without a pressing need to go to the store, the payoff for staying home is the same for J and K: 1. However, because J and K are aware of the potential to infect others as well as the potential to be infected, their payoff if they go out depends on whether or not other people are out and about. If people are generally not sheltering in place (IE: both J and K are going out) the payoff is -4 for each: they are actively risking passing the disease to others or being infected and they know it. If, however, people are generally sheltering in place and keeping errands to a minimum (IE: J or K goes out, but not both), then the person who goes out has a payoff of -2 and the person who stays in has a payoff of 1. This leads to staying in being a dominant strategy; no matter what option the other chooses, J and K are both the same or better off by staying in.

So, what about masks? How does that change J and K’s behavior? Let’s say that masks cut the risk to themselves and others in half, -1 if they go out while the other stays in, -2 if they both go out. That still leaves staying in a dominant strategy.

Let’s keep in mind, the scenario we are talking about is going to the store – one where human interaction is fairly minimal and where it is possible to practice some degree of social distancing. Gatherings of people – like a movie theatre or a restaurant – are outside this model. Were they to be incorporated in this model, their payoff matrix would – and should – look significantly worse than simple, brief trips as 1) larger groups preclude social distancing while upping the odds of at least one infected person being present, and 2) preclude the use of masks to protect oneself from exposure.

It sucks, but as long as it is reasonable to assume that you and/or the people you encounter are infected with COVID, it is not reasonable to return to pre-pandemic life. For it to be reasonable, testing must be widespread enough to have confidence that people who are out in public are not a health risk and people who are exposed to someone infected know as soon as possible to quarantine themselves and prevent spreading the virus. Until then, no reasonable mammal is going to choose to go anywhere they don’t have to go.

Blowing Up the Company Town

Stay home for Nevada
Stay home for Nevada. Image from @RalstonReports

This post is brought to you by the following tweet:

Look, I get it, I really do. It’s a terrible look for industries like casinos and cruise lines to beg for bailouts. But my initial response to this tweet was to reply, “I’m in Vegas.” Then I remembered I don’t need to start fights on Twitter. So, let’s talk about company towns in the context of gaming and Nevada.

According to Nevadaresorts.org, leisure and hospitality make up approximately 25% of all employment in Nevada. For comparison, the national average is about 10%. No other state comes close to Nevada’s dependence on the hospitality industry. The next closest state to Nevada is Hawaii:

Top ten states, by percent employed in leisure and hospitality industry, 2018. Source: https://www.bls.gov/opub/geographic-profile/home.htm

So, when Governor Sisolak declares all casinos closed for 30 days, it’s not an industry “printing money” going hat in had to Congress asking for a bailout, it’s the largest industry in the state of Nevada and the economic engine that has driven this state’s growth for my lifetime asking for relief. It’s also the mass idling of a full quarter of the state, one that if past market shocks that damaged tourism is anything to go by, will be hard pressed to return to normal once the crisis has passed.

Casinos, cruise lines, airlines, hotels, and other members of the hospitality industry are getting wrecked in real time. Given a choice of policy solutions, I would much rather have bailout funds spent on cash payments to Americans across the board for the duration of the crisis – defined as the time required to end quarantine and social distancing restrictions for the affected area. No restrictions because those eat up time and money. Yes, it takes extra time and money to means test. Don’t waste it on a temporary measure. Anyway, given a choice, that is my preferred policy tool right now. But I don’t begrudge the hospitality industry bailouts because I know that otherwise, those temporary measures, even the ones I prefer, are all too likely to become permanent.