Raghuram Rajan & Post Covid Society

Raghuram Rajan writes in Project Syndicate-

Even with the COVID-19 pandemic still raging, speculation has turned to what society will look like afterward.

The pandemic is global. Societies differ greatly from each other. Economic arrangements can change quite drastically in response to an exogenous shock with relatively little impact on 'what society looks like afterward.' We may speak of 'hysteresis' or the inertia of Paretian 'residues and derivations'. If history is any guide, 'speculation' on what society will look like is simply an exercise in self-indulgent fantasy.

Citizens, shocked by how easily their lives can be upended, will want to reduce risk.

They will want to pool risk with those with similar exposure while separating from being pooled with those with a different exposure profile.  This militates for 'Tiebout sorting'. Different regions are likely to make different trade-offs depending on demographic and economic conditions. Obviously, highest risk groups will adopt stricter protocols.

A separate point has to with not risk but Uncertainty. 'Regret minimizing' behavior will displace 'Utility maximization'.

According to the emerging new consensus,

there is no such thing- this is just ultracrepidarian hot air which the lockdown's enforced leisure has produced from the chattering classes

they will favor more government intervention to stimulate demand (by pumping trillions of dollars into the economy), protect workers, expand health care, and, of course, tackle climate change.

But, at the threat of higher taxes, all these concerns will disappear. As for 'climate change', we see Government action to bail out the oil industry. What we won't see is anything concerted on climate change because yellow vests we all have with us in the boot of our cars.

But every country has many layers of government, so which one should expand?

Layers of Government are already maximally expanded on the basis of willingness and ability to pay.
It is clear that some 'layers of government' are wholly worthless and should be quietly euthanized.

Clearly, in the United States, only the federal government has the resources and mandate for nationwide decisions on issues such as health care and climate change.

Clearly, the opposite is the case. The Federal Government has neither the incentive nor the constitutional power to do any such thing. Does Rajan not get that the days of the Warren Court are long gone? Has he never heard of the Federalist capture of the Bench?

Yet it doesn’t necessarily follow that this level of government should grow larger still.

No shit, Sherlock!

After all, it could adopt policies that protect some constituencies while increasing the risks faced by others.

You mean, it could do what it has always done? Thank you for your service, Captain Obvious!

In the case of COVID-19, some countries have centralized decision-making about when to impose and lift lockdown measures, whereas others have left these choices to state governments, or even municipalities. (Others, like India, are in transition between these approaches.) What has become clear is that not all localities face the same trade-offs.

How was it not a priori clear to Rajan?  Does this Tamil Brahmin, my age- albeit much brighter and better looking- really not get that America aint like India?

The Econ Theory of localized, idiographic, trade-offs is known as Tiebout Modelling. Why not explain that to your audience?

In crowded New York City, a strict lockdown may have been the only way to get people off the streets, and its economic impact may have been softened by the fact that many there work in skilled services like finance, which can be done remotely. Moreover, even laid-off waiters and hotel workers know they won’t get their jobs back until the public feels safe going out again. Health concerns seem to be paramount.

So, externalities differ depending on demographic and occupational factors. This militates for Tiebout sorting. Why not explain this concept and admit that American Law already incorporates this in a 'bottom up' fashion?  Is it the case that Rajan doesn't want to trespass on 'Law & Econ' territory? Why? It isn't an ancient Indian burial ground. It's stuff you should have studied as an Undergrad.

In contrast, in Farmington, New Mexico, the New York Times reports that, “few people know anyone who was ill from the coronavirus, but almost everyone knows someone unemployed by it.” The lockdown, imposed by the state’s Democratic governor, seems to be unpopular across a community that was already in serious economic decline before the pandemic. In this case, economic concerns have trumped more modest health worries.

Bravo Rajan! You just came out and said that Gov. Grisham is as stupid as shit! Speaking personally, I don't agree. I love her. The blame belongs to the cretins in her Party.

These differences show the drawbacks of a centralized, one-size-fits-all approach.

But, Rajan, if idiographic factors have salience, then your own nomothetic approach represents a waste of resources.

But decentralization can also be problematic.

No. We are speaking of Aumann type 'correlated equilibria' here. It doesn't matter if the 'Public signal' is emitted by the 'Center' or any other Schelling focal source. Yes, in India, Modi did a great job. True, BoJo & Trump & whichever meatball heads up Sweden, shat the bed. But, this may not be their fault. It may be that charismatic pointy-heads like you screwed the pooch.

If regions have contained the virus to different degrees, is travel between them still possible?

Yes. Of course. Don't be stupid.

It stands to reason that safer regions would want to bar visitors from potential hot zones – or at least subject them to lengthy quarantines.

Playing the Race Card, are we, Rajan? Shame on you. I thought us Iyers were better than that.

A fast, cheap, reliable testing system might solve the problem, but that is currently unavailable.

Sez a dude who literally has no idea what he is talking about!

Some degree of harmonization between regions can therefore be beneficial, not least in the procurement of medical supplies.

If so, it will occur absent Rajan's proforma comment.

In the absence of federal coordination, US states have been in a bidding war with one another over scarce medical supplies from China.

Why not simply say- in the absence of a One Party State in the wholly Unitary State of America (formally known as the United States)- the same sort of stuff is happening as people in the UK and Germany and India and China and everywhere else are complaining about?

In normal times, competitive markets would allocate such goods most efficiently.

Fuck off! Competitive markets CAN'T allocate 'such goods' efficiently at all. Why? Externalities are huge when it comes to communicable diseases. Does Rajan not read over what he writes?

But in a health emergency, markets may perform poorly, allocating goods according to buyers’ ability to pay rather than their need; rich states would buy up all the ventilators and testing kits, leaving poorer states with none. The country’s ability to contain the pandemic would suffer.

Oddly, the reverse is the case because of 'Knightian Uncertainty'. We benefit if there are more and more 'separating equilibria' because different Structural Causal Models get a crack of the whip. Risk pooling should be on the basis of 'costly signals' where the fitness landscape is radically Uncertain.

In this situation, centralized procurement could keep prices lower, potentially enabling more need-based allocation.

This cretin just advocated hydrochloroquinine for everybody! Where Knightian Uncertainty exists, we don't want 'centralized procurement' of anything. We want to maximize 'psuedo-random'  exploration of the fitness landscape.

But “could” and “potentially” are the operative words.

As opposed to 'shut the fuck up'.

If a central government has questionable motives or simply is incompetent, the calculus changes.

In which case, there is no 'calculus'. Does Rajan think that Newton and Leibniz worried about the 'motives' or 'competence' of infinitesimals?

As we have seen in Brazil, Mexico, Tanzania, and the US,

Tanzania? Racist much, Rajan? Why not mention Sweden or the United Kingdom? Is it coz their leaders are White?

when heads of government minimize the dangers of the pandemic, they can do considerable harm to their country’s response.

Though, as Economists, we both know they could do much more harm by pretending that some 80 year old's life is as important as an 8 year old.

Among other failures, Brazil’s federal government seems to have had difficulty distributing ventilators it bought.

No kidding! The thing was built to be a giant 'car-wash' for dirty money.

In the United States, Republican-governed states have allegedly had easier access to central medical supplies than states where Democrats are in control.

Allegedly? You mean it might not actually have happened?

And in India, the central government imposed a stringent lockdown without making the necessary arrangements for millions of migrant workers, who were forced to flee the cities for their home villages.

In other words, the Government did not ensure the purpose of the lockdown was defeated before it could be implemented.

Families with children walked hundreds of miles, helped only by the kindness of strangers and local authorities, and potentially carrying the virus with them.

Since they were potentially carrying the virus with them, the Government should have helped them get home more quickly because....urm... that's what Rajan himself would do.

A decentralized decision-making process might have allowed states that locked down later (because they initially had fewer cases) to learn better management from those that went first.

So, India already had a 'decentralised decision making process' according to which States locked down on their own timetable. The Center was a mere 'Aumann signaller'.

Given that extremes of centralization and decentralization can both be problematic, a coordinated middle ground may work best.

Rajan- you fucking cretin- you are supposed to be an Economist. All that is needed is a Schelling focal Aumann signaller for better correlated equilibria. This is what is happening anyway.

The federal government might establish minimal standards for closing down and opening up, while leaving the actual decision to states and municipalities. That said, if there is to be a bias, it should be toward decentralization, following the principle of subsidiarity, whereby powers are delegated to the lowest-possible administrative level that will be effective.

Government's can affect expectations by announcing lockdowns or wage-price freezes etc. But the thing is short term- in the region of 90 days . Economists know this.

Subsidiarity is a crock of shite unless locally raised funds are spent locally. That means local mechanism design is incentive compatible. Sadly, this seldom happens and even when it does the thing turns into a Tiebout Model with Manorial rents

There are important reasons to favor a carefully managed decentralization.

Just as there are important reasons to favor a carefully managed trajectory for this solar system around a Milky Way which has been revealed to have Black Hole tendencies of a decidedly Fascist type.

Not only do members of smaller political entities tend to face similar problems; they also typically demonstrate greater social and political solidarity, which makes it easier for them to engage with one another and find solutions.

This is only true if there is 'Tiebout sorting'. You have to end 'cheap talk' based risk pooling and institute 'costly signalling' separating equilibria. Otherwise, Rajan will go on writing shite like this.

While local politics might occasionally resemble the Hatfield-McCoy feud of nineteenth-century Kentucky and West Virginia,

Rajan is Indian- not the good sort, in this context- and is perpetuating a myth. "Local Politics' was wholly unaffected by the feud.

it generally suffers less gridlock and antagonism than what one finds in central legislatures today.

Rajan is speaking of a country he only emigrated to relatively recently. Under Trump, very significant changes in US policy have occurred without any 'gridlock'. The truth is the thing can be sidestepped by a smart, or very ruthless, Chief Executive wherever it occurs. Academics however can make a little money pretending otherwise.

And people feel a greater sense of ownership over decisions taken by their locally elected or appointed bodies. This empowerment can help them devise policies to benefit from national and global markets, rather than being at their mercy.

Is Rajan aware that some locally elected bodies want young, well built, black people, who may or may not have committed some minor crime against property,  to be shot and killed? The Global Market that many Americans want to be protected against is the Market for the Labor of smart Asian immigrants- like Rajan.

This is why, as we prepare policies to aid the recovery and strengthen post-pandemic health, education, and regulatory systems, we should also think about who will make the decisions and where.

Rajan says 'we prepare' some shite and then says we should first 'think about who' will prepare that shite. What one earth does he mean?

For example, a fair share of stimulus spending on infrastructure should take the form of block grants to communities, which are in the best position to allocate funds according to need.

Or just run away with the money. 

And while national climate policies cannot be determined separately in every community, they can at least reflect a bottom-up consensus.

No they can't. Look at the Yellow Vest movement. There is no bottom up consensus. There is merely virtue signalling.

Rising authoritarianism around the world reflects widespread yearning for charismatic political leaders with whom ordinary people can identify with.

But, Democracy can provide a wide choice of 'charismatic leaders'. Why does Rajan think Democracies will throw up leaders 'ordinary people can't identify with'? Is it coz Rahul Baba was crap? Yet, if the fellow had just read from a teleprompter, he'd have become P.M prior to 2014 and saved Congress from oblivion. Shame Rajan hitched his wagon to the wrong Party. The fact remains, any leader can talk in a way that 'ordinary people identify with'. All that needs to be done is to hire a good speech-writer. 

Such demagogues have used their popular support to avoid constitutional checks and balances, taking their countries down ruinous paths.

In which case, 'constitutional checks and balances' were worthless.

Expanding government further while limiting the risk of authoritarianism requires independently powerful bodies that also enjoy popular support. Constitutionally decentralizing more powers to regional and local government may be the way forward.

The following was my comment which, no doubt, Project Syndicate will censor sooner or later- 

Ultracrepidarian 'public intellectuals' can come to any 'consensus' they like but they are wholly irrelevant. Consider the fate of the Indian public intellectuals (luckily Rajan wasn't one) who signed on to 'activist' Yogendra Yadav's' 7 point plan to tackle the pandemic. Too late they realized that they had committed themselves to the expropriation of all private property! Now they are practicing 'intellectual distancing' from ultracrepidarian academics who blithely witter on about subjects they know nothing about.

The reason both Economists and many Epidemiologists have looked foolish is because of 'Knightian Uncertainty'- in plain terms, this means the people building the models don't know what they are talking about. They pretend there is an underlying probability distribution which will quickly become apparent. The truth is that superior results come from competing idiographic 'structural causal models'. Mimetic effects yield rapid, relatively efficient, solutions. Going back to the drawing board yields nothing buy stupidity and concurrency deadlock.

What we have seen is not that 'heads of Government' matter but that 'Institutional Memory' at a much lower level of decision making is what determines outcomes. The fact is, 'centralization' and 'decentralization' are hysteresis driven and idiographic. They aren't frictionless, memory-less, menu options- as one might pretend in a classroom teaching eighteen year olds.

Obviously, pandemics- like everything else- do involve 'trade-offs' and this is is an idiographic matter. This militates for 'Tiebout sorting'- nothing more. But, that already obtains purely because 'public goods' are actually 'club goods' and incentive compatibility requires local mechanisms with a degree of 'manorial rents'.

Rajan mentions India- which he knows something about. Health is a State, not a concurrent, subject under the Indian constitution. Furthermore, only the State, not the Central Civil Service, is empowered to deal with problems such as those posed by migrants. It is foolish to pretend that the Center's response could have been very different. In a country where the Center could, at best, spend 200 dollars extra on those whose livelihoods are at risk, it is obvious that sooner or later, only those who can afford to isolate will be able to do so. The gamble is- as a witty Indian epidemiologist put it- that this foreign Virus will find the Indian climate so demoralizing and inhospitable that it will lose the will to live faster than it can kill.

In the short run, any Government can create compliance through a sort of shock and awe effect. Older people will remember President Nixon's 90 day wage and price freeze. The 'Nixon shock' did affect expectations temporarily. But then people realized that a Democracy can't actually jail a whole bunch of Teamsters and CEOs. After all, America couldn't even jail any sizable number of Draft Dodgers.

Governments only have as much power as citizens give them. Academics have no say in this. They may feel this is because 'charismatic leaders' are misusing their sex-appeal to seduce the masses. The solution is not far to seek. Public intellectuals must take off their lab coats and don fishnet stockings and stilleto heels. They should take the hairpins out of their tightly coiled hair bun and let their glistening blonde locks tumble over their heaving bosoms. I'm not saying it worked for me- but Rajan is a few years younger than me and weighs at least 20 kg less.

On the other hand, if you believe 'authoritarian' populists are running amok- then, for God's sake, don't start talking as if changing the Constitution is a quick fix. Why? The guys who will get to change the Constitution are the guys you consider evil. Thus, for the nonce, you must pretend that nothing much can change because hysteresis rules, Theoretical Econ is just an armchair activity of an essentially peurile type.