The Economics of Shortages

Ramsi A. Woodcock–

The price of food increased 2.6% in April, the largest single-month increase since 1974, but food industry executives are insisting that the country has enough food. So why are prices going up?

The explanation provided by the industry is that consumers are buying more than they need, creating shortages.

But a shortage is not a good excuse for increasing prices. Contrary to what you might have learned in Econ 101, there’s only one reason for which a shortage should give rise to higher prices: profiteering, as I explain in a forthcoming law review article.

If shortage were the only explanation for these price increases, then the increases would need to be condemned.

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Public Participation as a Privilege for the Immune? LPE on COVID-19 (vol. 5)

This post is part of our ongoing coverage of the COVID-19 Crisis from an LPE Perspective.

Sam Hull–

As the COVID-19 pandemic continues, debate has begun over when and how to restart society. Some proposals, such as those that call for seniors to sacrifice themselves for the good of “the economy,” expose the inherent inhumanity of those who valorize profits above all else.

Others have explored how to reinstate economic activity without abandoning public health considerations. German researchers have proposed the issuance of “immunity passports,” whereby workers who have already had COVID-19 and developed antibodies “could be issued with a kind of vaccination pass that would for example allow them to [be] exempted from restrictions on their activity.” Italian politicians across the political spectrum have adopted the idea, and the White House coronavirus task force is reportedly discussing it.

Even absent such policies, there is also the possibility that businesses (i.e. “the market”) could impose similar restrictions on their own employees. Worries about insurance payments, higher sick days, and potential shutdowns should an employee contract the virus might lead employers to restrict hiring to those who can prove immunity. And perhaps to fire those who cannot.

What to make of these possibilities?

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LPE on COVID-19 (vol. 4)

 

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Valeria Vital, an ER tech, holds a sign during a protest by medical professionals working for Kaiser Permanente in Oakland, Calif., and their supporters on March 23, 2020. Photo (via The Intercept): Carlos Avila Gonzalez/San Francisco Chronicle via Polaris

Dear Readers, 

 

As part of our ongoing coverage of the COVID-19 crisis from an LPE perspective, we bring you a round-up of recent work from our LPE community. We’re aiming to make these a (semi) regular feature of the blog throughout the crisis. Above all, we hope you are as well as can be expected. 

Take care,

LPE Blog


Last week, Amy Kapczynski and Gregg Gonsalves appeared on Democracy Now, where they talked about the ways market logic has created a woefully insufficient American healthcare system, and what kind of policies could build an alternative.

They also have another installment in their work on COVID-19 up at Boston Review- this one is called Markets vs. Lives – beating back the wave of hot takes suggesting that we ignore the epidemiologists in order to serve “the economy.”

“What is happening today has no analogue in mainstream economic analysis: a rapid retraction of our paid economy, and a vast expansion of the kind of unpaid work that has never been properly valued. We are doing it for deeply human reasons, with the best evidence we have at the moment: to save the lives of people we know, perhaps even our own, and to protect our health care system”

You can also follow the work they are doing to improve our response to COVID-19 as part of the Global Health Justice Partnership.

Up recently at The Guardian, Veena Dubal draws attention the choice facing Uber and Lyft drivers in the crisis: risk contracting the disease, or starve. She also appeared on NPR this week to discuss coronavirus and the gig economy.

Brishen Rogers is also writing about the future of labor, as in this Boston Review piece imagining work post-coronavirus:

“COVID-19 has exposed the fragility of our labor markets just as much as the fragility of our public health and welfare systems. As we take the economy out of its induced coma, we should ask what kinds of jobs we want and need.”

At Jacobin, Jedidiah Purdy-Britton writes that “the only treatment for coronavirus is solidarity.”

Mehrsa Baradaran explains how the CARES act fails to help those who need it most, and offered reflections on the crisis at The American Prospect. She recommends that LPE readers check out this symposium at Just Money, featuring many LPE Blog contributors.

Following the money and finance trail, on Wednesday, Saule Omarova posted on Just Money about Money in the time of Coronavirus,  calling for a contemporary analog to the New Deal-era Reconstruction Finance Corporation. She has also posted a memo on SSRN – “Why We Need a National Investment Authority.” 

In the absence of a permanent institution specializing in capital allocation and management, the American public is forced to rely on ad hoc crisis-containment measures that are notoriously politicized, messy, and prone to corrupt influence by private interests. The task of national economic mobilization falls mainly on the U.S. Treasury and the Federal Reserve, whose modus operandi relies heavily on direct injections of public funds into—i.e., bailouts of—financial institutions and other private firms. As the 2008 experience shows, however, bailouts are difficult to execute without reinforcing the economically and politically damaging pattern of “privatizing gains and socializing losses.” Having a permanent federal agency with the authority and expertise to manage emergency bailouts would help to ensure that this process is handled in a transparent, democratically accountable, economically efficient, and distributionally just manner.

Robert Hockett has also been working to promote his Treasury Dollar plan, here on LPE Blog, and in a variety of other places. You can read the text of his proposed bill here, and further commentary in these two pieces at Forbes, and these two pieces on the democratic digital dollar at the Harvard Business Law Review and Stanford Journal of Blockchain Law and Policy.   Also this (paywalled) Wall Street Journal op-ed.

Finally, Lev Menand and Ganesh Sitaraman have a summary of lessons we should learn form the Great Recession in the face of another massive economic contraction.

 

 

 

 

Two Timelines of Covid Crisis

Frank Pasquale – 

We often hear that the current COVID crisis came “out of the blue,” that “nobody” was expecting it.* But anyone with a decent grasp of pressing issues in public health knew the risks of pandemics. As I wrote in 2014:

[R]eduction in hospital facilities and other resources, although “efficient” in normal times, may prove disastrous if there is an epidemic. For example, one national preparedness plan for pandemic flu estimated that, in a worst-case scenario, the United States would be short over 600,000 ventilators. “To some experts, the ventilator shortage is the most glaring example of the country’s lack of readiness for a pandemic,” one journalist noted. The lack of “surge capacity” throughout the health care industry is a major infrastructural shortcoming, likely to cause tremendous, avoidable suffering if a pandemic emerges.

So how did we get here? It’s critical, in the midst of the COVID crisis, to keep two timelines of missteps and mistakes in mind. There are short-term problems that have only emerged in 2020. And there is a much longer history of disinvestment (and poor investments) in American health care. In other words: ongoing rot has exacerbated the crisis, in Sandy and Jack’s temporal framework. It is the toxic combination of these two sets of problems that has left the U.S. one of the epicenters of COVID-related morbidity and mortality.

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Slumlord Capitalism v. Global Pandemic : LPE on Covid (vol 3)

As part of our ongoing effort to bring you the best LPE work on COVID-19, today we bring you this piece from John Whitlow, followed by a roundup of LPE COVID writing published elsewhere. 

John Whitlow –

The poet Langston Hughes once wrote, “I wish the rent was heaven sent.” With a record 10 million Americans filing for unemployment benefits in the midst of the coronavirus pandemic, Hughes’ words resonate now more than ever. As we hurtle toward a public health and economic catastrophe, we must reckon with the sobering fact that our federal government is helmed by landlords, real estate developers, and financiers whose fortunes have been made – and whose worldview has been shaped – by years of predatory and extractive business practices. These practices prefigured the federal response to the pandemic and overdetermine the nature of the state-led economic rescue that is already underway.

Jared Kushner is widely regarded as the Trump administration’s behind-the-scenes point person on the coronavirus. Kushner, like Trump, inherited his family’s real estate holdings, updated the business model and expanded its geographical footprint. A New York Times expose from 2017 sheds light on the day-to-day workings of Kushner’s properties in the Baltimore area, where tenants live amidst chronically poor conditions and are subjected to a relentless pattern of petty and meritless litigation. In New York City, Kushner’s residential real estate portfolio has benefited from generous tax incentives and exploited loopholes in the state’s rent laws to remove units from regulation, in the process converting affordable apartments to luxury goods.The extraction of value that is at the core of Kushner’s business model is based on the multiplication of rents-debts and the intensification of inequalities.

The business practices of Kushner – like those of the real estate industry more broadly – are emblematic of the shifting relationship between the state and the market economy over the past four decades. Beginning in the 1970s, after years of intellectual mobilization by right-leaning economists, neoliberal policies began to take hold in the US and Western Europe. The redistributive functions of the state, established during the New Deal and expanded during the Great Society, were whittled down to a nub, resulting in a tattered safety net and exploding inequalities. At roughly the same time, capital began to move more freely across borders, and once-vibrant economic centers saw massive losses of stable, relatively high paying industrial jobs.

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