Blogwatch: July 2023🍋
Mergers, minimum wages, carbon costs, masks, housing, EVs, inflation & prohibition
Thinking big is ok, for some
At the Conversable Economist blog, Timothy Taylor asks an obvious and important question about corporate mergers. The answer to After that big merger, what happened? is “not much”. Taylor writes
… but they do show pretty clearly that dire predictions about ill effects of mergers need to be taken with a few spoonfuls of salt. I would only add that from the perspective of investors and shareholders, the promised benefits of mergers – those “synergies” that are conjured up every time a few consultants and investment bankers get in a conference room together – need to be taken with few spoonfuls of salt, too.
Minimum wages, good & bad
Taylor looks at another controversial topic when he considers Measuring how a higher minimum wage affects employment. Discussing the results of a recent study, Taylor says
The overall results are similar to those from a number of other studies. As one might expect, the effects are much smaller for the average of all jobs than for the most exposed industries. A minimum wage tends to raise wages (for those who still have jobs), but leads to a decline in job and a decline in hours worked. For the average job, the higher wages and lower hours worked pretty much balance each other out, so total earnings don’t change much. For the jobs most-exposed to a minimum wage increase, the drop in hours exceeds the rise in wages, so total wage earnings decline.
Firms & the cost of carbon
The cost of carbon hardly harms firms. So say Arjan Trinks & Erik Hille at the VoxEU.org website. Trinks and Hille use a comprehensive measure of carbon costs and data on over 3 million firms from 32 countries from 2000 to 2019. They argue that firms seem to have responded to rising carbon costs by adapting rather than relocating their business operations. Their results show that carbon costs hardly depressed the performance of an average industrial firm. Limited employment reductions were observed, along with a large number of firms ramping up their investments in response to higher carbon costs. Losses and exit probabilities have not noticeably increased.
Firms & economic sanctions
Also at the VoxEU.org website, Povilas Lastauskas, Aurelija Proškutė, Alminas Zaldokas, Mathias Juust & Janis Berzins look at adjustments by firms to another policy challenge — economic sanctions. In How firms adjust to economic sanctions they argue that despite the substantial increase in the use of sanctions as political tools, evidence on firm-level reactions to sanctions is rare. This situation makes the policy response challenging. They review the recent literature and international evidence, in particular from the Baltic region. The findings shed light on causal impacts of a sanctioned economy's adjustment.
To mask or not to mask, that is the question
Another controversial policy issue discussed on the VoxEU.org website is the use of masks in public places to reduce the spread of Covid. Writing on Unmasked! The effect of face masks on the spread of COVID-19, Klaus Wälde, Timo Mitze, Johannes Rode & Reinhold Kosfeld look at measures, in particular the wearing of face masks in public, implemented to reduce the spread of Covid in Germany since March 2020. They write
Requiring face masks to be worn decreases the growth rate of COVID-19 cases by about 40% in Germany.
Selgin keeps on keeping on
George Selgin is still going strong with his series of blog posts on “The New Deal and Recovery” on the Alt-M blog. Part 28 looks at, A New Deal for housing. Selgin argues that
In short, no other New Deal program seemed to deliver more obvious benefits at so little cost. But as we’ll see, although the relief the HOLC [Home Owners’ Loan Corporation] offered homeowners was palpable, it was mortgage lenders who benefited most from the bargains it struck. That this was so was a reflection of the HOLC’s overarching purpose of promoting recovery. Even so, the Corporation’s contribution to ending the Depression has proven difficult to pin down, and many say that its endeavors had far‐reaching long‐run consequences that were anything but benign.
Electric vehicles & climate change
John Cochrane writes about Electric vehicles, carbon taxes, supply and demand, virtue signals, and China at his The Grumpy Economist blog. Cochrane is discussing the situation in the US, but there are lessons there for us all. He outlines the basic situation as
If you have not been paying attention, our government has decided that all electric vehicles are the solution to the climate problem. At least as long as they are made in the US with union labor and benefits. California has committed to banning the sale of anything else.
Cochrane points out several problems with this line of thinking.
Inflation & debt
Cochrane also considers Inflation and debt across countries. He asks if the differences across countries in inflation lines up with the size of the covid fiscal expansion. The answer is apparently yes. An interesting question he asks about inflation is, Is it money or debt that matters?
When governments print money to finance deficits (or interest-bearing reserves), fiscal theory and monetary theory agree, there is inflation. Printing money (helicopters) is perhaps particularly powerful, as debt carries a reputation and tradition of repayment, which money may not carry. A core issue separating monetary and fiscal theory is whether a big monetary expansion without deficits or other fiscal news would have any effects. Would a $5 trillion QE (buy bonds, issue money) with no deficit have had the same inflationary impact? Monetarists, yes; fiscalists, no.
Prohibition fails, again
Alvin Roth at this Market Design blog reports on Black markets for alcohol in Iran. He says
Prohibition (of alcohol) didn't work in the U.S. from 1920-1933, and it's not working in Iran today, despite “the Islamic Republic’s longstanding ban on the sale and consumption of alcohol, which is punishable by a penalty of up to 80 lashes and fines.”
Roth notes that rather than stopping drinking, the ban has resulted in a flourishing and dangerous bootleg market. In the past three months, a wave of alcohol poisonings has occurred, with an average of about 10 cases per day of hospitalisations and deaths.
By Paul Walker
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