Jaques in 1965: Original Meaning of Midlife Crisis

My beloved wife and I agreed many years ago that if I suddenly encountered a personal midlife crisis, such that I felt a desperate need to either a) buy a red sports car or b) run away with a 20-something blond, I had her advance permission to go ahead and buy the sports car. But the original meaning of “midlife crisis” was somewhat different than our formulation. The term seems to have originated in an essay by Elliott Jaques called “Death and the Midlife Crisis,” which appeared in the International Journal of Psycho-analysis in 1965.

This article–and in fact the journal as a whole, as far as I can tell from a quick glance–is not a place for describing research that uses a control group and a treatment group, with statistical comparisons of before-and-after results. Instead, the articles tend to be more conceptual, in an area of knowledge where I’m both skeptical and badly out of my depth. But it also offers some room to think about life patterns, then and now, as 2022 ebbs away. Let me describe a bit of the thesis from Jaques, and then offer some thoughts of my own.

In the course of the development of the individual, there are critical phases which have the character of change points, or periods of rapid transition. Less familiar perhaps, though nonetheless real, are the crises which occur around the age of 35–which I shall term the mid-life crisis–and at full maturity around the age of 65. It is the mid-life crisis with which I shall deal in this paper.

Those who know me will be relieved and heartened to know that in just a few short years, at age 65, I will attain full maturity. Jaques begins his article with a few pages ruminating on the midlife crisis for famous creative geniuses: Dante, Michelangelo, Shakespeare, Beethoven, Goethe, and many others. .

I first became aware of this period as a critical stage in development when I noticed a marked tendency towards crisis in the creative work of great men in their middle and late thirties. … This crisis may express itself in three different ways: the creative career may simply come to an end, either in a drying-up of creative work, or in actual death; the creative capacity may begin to show and express itself for the first time; or a decisive change in the quality and content of creativeness may take place.

We then get very brief comments on what Jaques calls a “random sample” of “310 painters, composers, poets, writers, and sculptors, of undoubted greatness or of genius.” And yes, indeed, some had a burst of creativity into their late 30s that then ebbed, some began a new surge of creativity in the late 30s for the first time, and some had a major shift in their creativity. (This approach to gaining insight is pretty far from how economists approach questions, but I am always trying to expand my personal horizons beyond economics approaches!) Jaques then turns to applying these insights to the rest of us:

Although I have thus far taken my examples from the extremes of genius, my main theme is that the mid-life crisis is a reaction which not only occurs in creative genius, but manifests itself in some form in everyone. What then is the psychological nature of this reaction to the mid- life situation, and how is it to be explained? The simple fact of the situation is the arrival at the mid-point of life. What is simple from the point of view of chronology, however, is not simple psychologically. The individual has stopped growing up, and has begun to grow old. A new set of external circumstances has to be met. The first phase of adult life has been lived.

Family and occupation have become established (or ought to have become established unless the individual’s adjustment has gone seriously awry); parents have grown old, and children are at the threshold of adulthood. Youth and childhood are past and gone, and demand to be mourned. The achievement of mature and independent adulthood presents itself as the main psychological task. The paradox is that of entering the prime of life, the stage of fulfilment, but at the same time the prime and fulfilment are dated. Death lies beyond.

I believe, and shall try to demonstrate, that it is this fact of the entry upon the psychological scene of the reality and inevitability of one’s own eventual personal death, that is the central and crucial feature of the mid-life phase–the feature which precipitates the critical nature of the period. Death–at the conscious level–instead of being a general conception, or an event experienced in terms of the loss of someone else, becomes a personal matter, one’s own death, one’s own real and actual mortality.

As I have suggested several times, the style of argument from Jaques offers little attraction for my economics-brain. There are substantial quotations from Freud, as well as comments taken from the literary geniuses previously mentions. The patient reader will need to persist through discussions of the “infantile unconscious relation to death,” which includes “unconscious infantile fantasies equivalent to death–the fantasies of the destroyed and persecuting breast.” There are case notes about interpreting the dreams of patients, like one who dreamed of waking up in a coffin. Here, I’ll push this method of (psycho-) analysis off to one side, and instead just offer some thoughts about the modern version of the mid-life crisis.

The ages that Jaques uses for major life changes seem peculiar from a modern view: indeed, given changes over the centuries, the age of, say, 35, presumably means something rather different at present than it did to Dante, Michelangelo, Goethe, Poe, Rimbaud. Even in 1965, the median age of first marriage in the US was about 22; now, it’s about 30. Jaques writes that people in their mid-30s, “children are at the threshold of adulthood. My first child was born when I was 37. I suspect that “threshold of adulthood” also happened earlier. I’m 62, and my youngest is a junior in college, which seems like the “threshold of adulthood” to me. In short, the entire life chronology assumed by Jaques seems out-of-date.

Jaques seems to see life as a path from “growing up” to “growing old.” My sense is that for a lot of modern people in the modern era, there is a considerable chunk of middle-age life–without any particular crisis–that is lived between growing up and without an acute personal sense of growing old and and the approach of death. For many people I know, it’s the death of parents that brings an awareness of one’s own mortality–and even then, there’s often a sense that death is not personal until you reach the age where your parents’ died. I just don’t see a lot of 35 year-olds in modern life who feel as if death is looming at their shoulder.

People do go through changes as they age. I suppose that some people can have a crisis at any age and for a wide range of events: adolescence, birthdays ending in zero, marriage, divorce, parenthood, career changes, geographical moves, and others. But not every change is a crisis. Here’s Jaques on the change in creative processes among his “random sample” of the geniuses he decided to look up.

The creativity of the twenties and the early thirties tends to be a hot from- the-fire creativity. It is intense and spontaneous, and comes out ready-made. The spontaneous effusions of Mozart, Keats, Shelley, Rimbaud, are the prototype. Most of the work seems to go on unconsciously. The conscious production is rapid, the pace of creation often being dictated by the limits of the artist’s capacity physically to record the words or music he is expressing. … By contrast, the creativity of the late thirties and after is a sculpted creativity. The inspiration may be hot and intense. The unconscious work is no less than before. But there is a big step between the first effusion of inspiration and the finished created product. The inspiration itself may come more slowly. Even if there are sudden bursts of inspiration, they are only the beginning of the work process. The initial inspiration must first be externalized in its elemental state. Then begins the process of forming and fashioning the external product, by means of working
and re-working the externalized material.

Or here’s Jaques on how the outlook of ordinary folks changes in the “mid-life crisis”:

For everyone, the on-coming years of the forties are the years when new starts are coming to an end. This feeling can be observed to arise in a particularly poignant way by the mid-forties. This sense of there being no more changing is anticipated in the mid-life crisis. What is begun has to be finished. Important things that the individual would have liked to achieve, would have desired to become would have longed to have, will not be realized. The awareness of on-coming frustration is especially intense. That is why, for example, the issue of resignation is of such importance. It is resignation in the sense of conscious and unconscious acceptance of inevitable frustration on the grand scale of life as a whole.

It’s true that time’s arrow flies in only one direction. But describing this process as one of “no more changing” and “inevitable frustration” seems to me a considerable overstatement, at least as applied to the typical modern person. Most of us, it seems to me, do not live in a continual state of frustration over the fact that time passes. Jaques seems to be imagining a person who, if it was possible, would like to live a life like the movie “Groundhog Day”, in which you live in an endless time loop and can keep rethinking, reliving, and repolishing every day until all your desires and expectations are fulfilled. Yes, a person does not get to live out multiple lives, see how each one turns out, and then choose between them. And that not only just fine, but ultimately preferable.

I suppose all of this is just a way of saying that I’m not having a Jaques-style “mid-life crisis.” Of course, I do have friends who made major changes in their lives: divorce, remarriage, careers, locations. But I don’t think most of them would say that these changes happened because they felt the lurking presence of death in their late 1930s. They made changes because they were unhappy, and because they were living at a place and time where a wide array of changes were possible. What Jaques calls “mid-life crisis” is closer to what I would just call “living.”

Thinking about whether middle-age should be expected to cause a “crisis” reminded me of Mark Twain’s 1909 meditation in “Captain Stormfield’s Visit to Heaven”–the last story that Twain published during his life. Captain Stormfield flies across the universe to Heaven, and Twain’s insightful comic inventiveness takes over from there. At one point, the Captain is discussing the aging process in Heaven with a friend named Sandy, who is showing him the ropes. Here’s what they say:

“About how old might you be, Sandy?”


“I judged so.  How long you been in heaven?”

“Twenty-seven years, come Christmas.”

“How old was you when you come up?”

“Why, seventy-two, of course.”

“You can’t mean it!”

“Why can’t I mean it?”

“Because, if you was seventy-two then, you are naturally ninety-nine now.”

“No, but I ain’t.  I stay the same age I was when I come.”

“Well,” says I, “come to think, there’s something just here that I want to ask about.  Down below, I always had an idea that in heaven we would all be young, and bright, and spry.”

“Well, you can be young if you want to.  You’ve only got to wish.”

“Well, then, why didn’t you wish?”

“I did.  They all do.  You’ll try it, some day, like enough; but you’ll get tired of the change pretty soon.”


“Well, I’ll tell you.  Now you’ve always been a sailor; did you ever try some other business?”

“Yes, I tried keeping grocery, once, up in the mines; but I couldn’t stand it; it was too dull—no stir, no storm, no life about it; it was like being part dead and part alive, both at the same time.  I wanted to be one thing or t’other.  I shut up shop pretty quick and went to sea.”

“That’s it.  Grocery people like it, but you couldn’t.  You see you wasn’t used to it.  Well, I wasn’t used to being young, and I couldn’t seem to take any interest in it.  I was strong, and handsome, and had curly hair,—yes, and wings, too!—gay wings like a butterfly.  I went to picnics and dances and parties with the fellows, and tried to carry on and talk nonsense with the girls, but it wasn’t any use; I couldn’t take to it—fact is, it was an awful bore.  What I wanted was early to bed and early to rise, and something to do; and when my work was done, I wanted to sit quiet, and smoke and think—not tear around with a parcel of giddy young kids.  You can’t think what I suffered whilst I was young.”

“How long was you young?”

“Only two weeks.  That was plenty for me.  Laws, I was so lonesome!  You see, I was full of the knowledge and experience of seventy-two years; the deepest subject those young folks could strike was only a-b-c to me.  And to hear them argue—oh, my! it would have been funny, if it hadn’t been so pitiful.  Well, I was so hungry for the ways and the sober talk I was used to, that I tried to ring in with the old people, but they wouldn’t have it.  They considered me a conceited young upstart, and gave me the cold shoulder.  Two weeks was a-plenty for me.  I was glad to get back my bald head again, and my pipe, and my old drowsy reflections in the shade of a rock or a tree.”

“Well,” says I, “do you mean to say you’re going to stand still at seventy-two, forever?”

“I don’t know, and I ain’t particular.  But I ain’t going to drop back to twenty-five any more—I know that, mighty well.  I know a sight more than I did twenty-seven years ago, and I enjoy learning, all the time, but I don’t seem to get any older.  That is, bodily—my mind gets older, and stronger, and better seasoned, and more satisfactory.”

Says I, “If a man comes here at ninety, don’t he ever set himself back?”

“Of course he does.  He sets himself back to fourteen; tries it a couple of hours, and feels like a fool; sets himself forward to twenty; it ain’t much improvement; tries thirty, fifty, eighty, and finally ninety—finds he is more at home and comfortable at the same old figure he is used to than any other way.  Or, if his mind begun to fail him on earth at eighty, that’s where he finally sticks up here.  He sticks at the place where his mind was last at its best, for there’s where his enjoyment is best, and his ways most set and established.”

“Does a chap of twenty-five stay always twenty-five, and look it?”

“If he is a fool, yes.  But if he is bright, and ambitious and industrious, the knowledge he gains and the experiences he has, change his ways and thoughts and likings, and make him find his best pleasure in the company of people above that age; so he allows his body to take on that look of as many added years as he needs to make him comfortable and proper in that sort of society; he lets his body go on taking the look of age, according as he progresses, and by and by he will be bald and wrinkled outside, and wise and deep within.”

“Babies the same?”

“Babies the same.  Laws, what asses we used to be, on earth, about these things!  We said we’d be always young in heaven.  We didn’t say how young—we didn’t think of that, perhaps—that is, we didn’t all think alike, anyway.  When I was a boy of seven, I suppose I thought we’d all be twelve, in heaven; when I was twelve, I suppose I thought we’d all be eighteen or twenty in heaven; when I was forty, I begun to go back; I remember I hoped we’d all be about thirty years old in heaven.  Neither a man nor a boy ever thinks the age he has is exactly the best one—he puts the right age a few years older or a few years younger than he is.  Then he makes that ideal age the general age of the heavenly people.  And he expects everybody to stick at that age—stand stock-still—and expects them to enjoy it!—Now just think of the idea of standing still in heaven!  Think of a heaven made up entirely of hoop-rolling, marble-playing cubs of seven years!—or of awkward, diffident, sentimental immaturities of nineteen!—or of vigorous people of thirty, healthy-minded, brimming with ambition, but chained hand and foot to that one age and its limitations like so many helpless galley-slaves!  Think of the dull sameness of a society made up of people all of one age and one set of looks, habits, tastes and feelings.  Think how superior to it earth would be, with its variety of types and faces and ages, and the enlivening attrition of the myriad interests that come into pleasant collision in such a variegated society.”

For Twain, people keep gaining knowledge and experience, enjoying the stages of life as they come, and recognizing that you need to live through each one to reach the next. Heaven would be the place where this progression need never end. There seems to me more wisdom about the aging, midlife, and the human condition in Twain than in Jaques.

Homelessness: A Status Report

Each year the US Department of Housing and Urban Development conducts a “point-in-time” survey in which it seeks to count the number of homeless on one night in January. Because the point-in-time survey is conducted with the same methods each year, it offers a way of looking at trends in homelessness over time. The 2022 Annual Homeless Assessment Report (AHAR) to Congress was published a couple of weeks ago.

Here’s a figure showing trends for the last 15 years. As you see, there’s no datapoint for 2021, because the pandemic led to the survey being cancelled that year. In a big-picture sense, overall homelessness seemed to be on a downward, if slow, trend up to about 2018, and then rose. The bottom two lines shows that if you break up the overall pattern, “sheltered” homelessness continued to decline up to the pandemic, but “unsheltered” homelessness rose.

The variation in rates of homelessness across states is considerable. Here are the states with the highest and lowest proportions of homeless, relative to their populations. One interesting pattern here is that a high level of homelessness is concentrated in western states. Specifically, California has both the highest proportion of homeless people and by itself account for half of all the unsheltered homeless in the United States Another is that New York state, perhaps counterintuitively, has had considerable success in keeping its proportion of homeless relatively low–and in providing shelter for those who are homeless.

The survey offers a detailed breakdown of homeless by a variety of factors: for example, three-quarters of the homeless are over age 24 and 60% are men. For a discussion that includes the numbers and also goes beyond them, I find it useful to turn to the State of Homelessness: 2022 Edition, a report published annually by the National Coalition to End Homelessness. That report notes:

Long-term progress has been modest. In 2020, the number of unhoused people was only 10 percent lower than in 2007 (the first year of nationwide data collection). … While overall progress on ending homelessness has been modest, there is significant variation among subgroups. Some have experienced striking reductions in their counts.

Veterans are a good example. Currently, 83 communities and 3 states have announced that they ended veteran homelessness (meaning that systems can ensure that homelessness is rare, brief, and one-time). Nationally, veteran homelessness decreased 47 percent since the point at which it peaked in 2009. Homeless families with children are another group that decreased in size — 27 percent between 2007 and 2020. 

Another pattern is that the number of people in shelters seems to be dropping, but for complex reasons. The report notes:

An easy assumption would be that systems are failing—that they’re providing fewer people with shelter, leaving more and more people to sleep outside. However, the reality is much more complicated.

Overall, homeless services systems have actually increased their capacity to serve people. … [S]ystems have been steadily growing their available bed numbers. However, they have been increasingly focusing their resources on permanent housing rather than temporary shelter. Thus, more and more people may be benefitting from housing and services, but an increasing share is living in permanent housing as opposed to languishing in temporary shelters. Further, growth in overall bed numbers is likely failing to keep pace with the number of new people entering homelessness, and specifically unsheltered homelessness.

The main policy push in the last 15 years or so has been “housing first”–where the guiding philosophy is is to get the homeless into (potentially) permanent housing as soon as possible. As the report notes: “Currently, 59 percent of all homeless system beds are designated for permanent housing.” While I have no great quarrels with “housing first” as a starting point, it seems to me to glide over some of the differences across the homeless population. For some, a one-time boost into permanent housing can be the major part of what they need to get their life back on track. For others, issues like substance abuse or mental health are issues that may need to be addressed if the “permanent” housing is to actually work over time. In different cities and states, the cost of providing “permanent” housing can differ considerably. And there are multiple meanings of “permanent”: one is that you can stay without fear of being sent out again in a day or a week or a month; another is that you would prefer to stay there, given the other subsidized housing options in your area. In these ways and others, homelessness is a multidimensional problem.

For a couple of other relatively recent posts on homelessness, see:

Interview with Jón Steinsson: The Economy as a Rumbling Volcano

Jeff Horwich serves as interlocutor in “Jón Steinsson interview: Forward guidance, the state of macro, and how the economy is like a rumbling volcano” (Federal Reserve Bank of Minneapolis, December 19, 2022). There are lots of interesting comments about how to do empirical cause-and-effect work in macroeconomics, whether Federal Reserve policy announcements move markets because of the policy change itself or because of what the policy change reveals about the Fed’s underlying opinion about the economy, why inflation expectations seem so sticky at present, whether members of the Fed Board of Governors should be giving more or fewer public speeches, and other issues. Here are a couple of comments that caught my eye:

The fundamental challenge of limited data in studying macroeconomics

We economists often get criticized for our inability to predict how things are going to turn out. I think people don’t fully appreciate the fact that we’re trying to predict something that is not only pretty complicated, but we’ve only seen very few instances of this thing we’re trying to predict. In the United States in the post-war period, we’ve seen maybe a dozen recessions. We’ve seen inflation really rise three or four times. This is a little bit like a weather forecaster who’s trying to predict the weather but has only ever seen 12 storms.

Now I’m overdoing it a little bit of course; there are many countries and we can learn from other countries. But countries are correlated. And the total number of events in terms of recessions and increases in inflation that we’ve seen—maybe on the order of a few hundred. It’s a fairly modest amount of data that we’re using to make inference about something extremely complicated. And recessions are heterogeneous: The COVID recession is very different from the Great Recession, which is very different from the Volcker recession.

There’s a similar thing going on in Iceland at the moment, because there’s this volcano that is rumbling and actually has erupted twice in the last two years. But this volcano hadn’t erupted for 800 years. The volcanologists are on TV every day being asked to predict when the next eruption is going to happen, how long is the eruption going to last, is it going to get bigger, is it going to get smaller.

I felt like it was very similar to us economists who are being asked the same questions about events that only happen every decade or so. I think the public is more understanding of the volcanologist than they are of the economist in this respect! I wanted to draw that distinction, because I think it’s important for people to understand that the amount of data we have to go on is very finite, and that’s playing a role in why we can’t forecast everything perfectly.

Why Federal Reserve decisionswill and should surprise the markets

The meetings [of the Federal Open Market Committee] only happen every six weeks or so. And in between those meetings there are all kinds of announcements and new data that are coming in. And for each of these, the market has to think about how it thinks the Fed is going to react to that new piece of data.

If we lived in a world where the Fed’s “reaction function”—the way it reacts to new information—was completely known to everybody, then there would never arise a discrepancy between what the market thinks the Fed thinks, and what the Fed actually thinks. But we don’t live in that world. I’d be surprised if the members of the FOMC could even, in their mind, fully articulate their reaction function. It’s just too complicated to do.

Differences between the market and the Fed are going to compound over those six weeks. At the next meeting, the Fed is going to want to tell the market again: “This is actually what we think, this is how we view the incoming data over the last six weeks, and this is what we think we’re going to do going forward.”

It’s inevitable that the Fed is going to surprise the market, and it needs to be willing to surprise the market. Otherwise, it’s putting the market in the driver’s seat of monetary policy—which doesn’t actually even conceptually make any sense because it’s circular, but certainly is not good policy. In that sense, I think it’s important that the Fed not be afraid of surprising the market.

Charles Dickens on Management and Labor

There’s a sort of parlor game that the economically-minded sometimes play around the Christmas holiday, related to A Christmas Carol, by Charles Dickens. Was Dickens writing his story as an attack on economics, capitalism, and selfishness? After all, his depiction of Ebenezer Scrooge, along with his use of phrases like “decrease the surplus population” and the sarcastic use of “a good man of business” would suggest as much, and a classic example of such an interpretation is here. Or was Dickens just telling a good story with distinct characters? After all, Scrooge is portrayed as an outlier in the business community. The warm portrayal of Mr. Fezziwig certainly opens the possibility that one can be a successful man of business as well as a good employer and a decent human being. And if Scrooge hadn’t saved money, would he have been able to save Tiny Tim?

It’s all a good “talker,” as they say about the topics that get kicked around on radio shows every day. As part of my own holiday break, I republish this essay each year near or on Christmas day.

I went looking for some other perspectives on how Charles Dickens perceived capitalism that were not embedded in a fictional setting. In particular, I checked the weekly journal Household Words, which Dickens edited from 1850 to 1859. Articles in Household Words do not have authors provided. However, Anne Lohrli went through the business and financial records of the publication, which identified the authors and showed who had been paid for each article. The internal records of the journal show that Dickens was the author of this piece from the issue of February 11, 1854, called “On Strike.” (Lohrli’s book is called Household Words: A Weekly Journal 1850-59, conducted by Charles Dickens, University of Toronto Press, 1973. Household Words is freely available on-line at at site hosted by the University of Buckingham, with support from the Leverhulme Trust and other donors.)

The article does not seem especially well-known today, but it is the source of a couple of the most common quotations from Charles Dickens about “political economy,” as the study of economics was usually called at the time. Early in the piece, Dickens wrote: “Political Economy was a great and useful science in its own way and its own place; but … I did not transplant my definition of it from the Common Prayer Book, and make it a great king above all gods.” Later in the article, Dickens wrote: “[P]olitical economy is a mere skeleton unless it has a little human covering and filling out, a little human bloom upon it, and a little human warmth in it.”

But more broadly, the article is of interest because Dickens, telling the story in the first person, takes the position that in thinking about a strike taking place in the town of Preston, one need not take the side either of management or labor. Instead, Dickens writes, one may “be a friend to both,” and feel that the strike is “to be deplored on all accounts.” Of course, the problem with a middle-of-the-road position is that you can end up being hit by ideological traffic going in both directions. But the ability of Dickens to sympathize with people in a wide range of positions is surely part what gives his novels and his world-view such lasting power. The article goes into a fair amount of detail, and can be read on-line, so I will content myself here with a substantial excerpt.

Here’s a portion of the 1854 essay by Dickens:


Travelling down to Preston a week from this date, I chanced to sit opposite to a very acute, very determined, very emphatic personage, with a stout railway rug so drawn over his chest that he looked as if he were sitting up in bed with his great coat, hat, and gloves on, severely contemplating your humble servant from behind a large blue and grey checked counterpane. In calling him emphatic, I do
not mean that he was warm; he was coldly and bitingly emphatic as a frosty wind is.

“You are going through to Preston, sir?” says he, as soon as we were clear of the
CharPrimrose Hill tunnel.

The receipt of this question was like the receipt of a jerk of the nose; he was so short and sharp.


“This Preston strike is a nice piece of business!” said the gentleman. “A pretty piece of business!”

“It is very much to be deplored,” said I, “on all accounts.”

“They want to be ground. That’s what they want to bring ’em to their senses,” said the gentleman; whom I had already began to call in my own mind Mr. Snapper, and whom I may as well call by that name here as by any other. *

I deferentially enquired, who wanted to be ground?

“The hands,” said Mr. Snapper. ” The hands on strike, and the hands who help ’em.”

I remarked that if that was all they wanted, they must be a very unreasonable people, for surely they had had a little grinding, one way and another, already. Mr. Snapper eyed me with sternness, and after opening and shutting his leathern-gloved hands several times outside his counterpane, asked me
abruptly, ” Was I a delegate?”

I set Mr. Snapper right on that point, and told him I was no delegate.

“I am glad to hear it,” said Mr. Snapper. “But a friend to the Strike, I believe?”

“Not at all,” said I.

“A friend to the Lock-out?” pursued Mr. Snapper.

“Not in the least,” said I,

Mr. Snapper’s rising opinion of me fell again, and he gave me to understand that a man must either be a friend to the Masters or a friend to the Hands.

“He may be a friend to both,” said I.

Mr. Snapper didn’t see that; there was no medium in the Political Economy of the subject. I retorted on Mr. Snapper, that Political Economy was a great and useful science in its own way and its own place; but that I did not transplant my definition of it from the Common Prayer Book, and make it a great king above all gods. Mr. Snapper tucked himself up as if to keep me off, folded his arms on the top of his counterpane, leaned back and looked out of the window.

“Pray what would you have, sir,” enquire Mr. Snapper, suddenly withdrawing his eyes from the prospect to me, “in the relations between Capital and Labour, but Political Economy?”

I always avoid the stereotyped terms in these discussions as much as I can, for I have observed, in my little way, that they often supply the place of sense and moderation. I therefore took my gentleman up with the words employers and employed, in preference to Capital and Labour.

“I believe,” said I, “that into the relations between employers and employed, as into all the relations of this life, there must enter something of feeling and sentiment; something of mutual explanation, forbearance, and consideration; something which is not to be found in Mr. M’CulIoch’s dictionary, and is not exactly stateable in figures; otherwise those relations are wrong and rotten at the core and will never bear sound fruit.”

Mr. Snapper laughed at me. As I thought I had just as good reason to laugh at Mr. Snapper, I did so, and we were both contented. …

Mr. Snapper had no doubt, after this, that I thought the hands had a right to combine?

“Surely,” said I. ” A perfect right to combine in any lawful manner. The fact of their being able to combine and accustomed to combine may, I can easily conceive, be a protection to them. The blame even of this business is not all on one side. I think the associated Lock-out was a grave error. And
when you Preston masters—”

“I am not a Preston master,” interrupted Mr. Snapper.

“When the respectable combined body of Preston masters,” said I, ” in the beginning of this unhappy difference, laid down the principle that no man should be employed henceforth who belonged to any combination—such as their own—they attempted to carry with a high hand a partial and unfair impossibility, and were obliged to abandon it. This was an unwise proceeding, and the first defeat.”

Mr. Snapper had known, all along, that I was no friend to the masters.

“Pardon me,” said I; ” I am unfeignedly a friend to the masters, and have many friends among them.”

“Yet you think these hands in the right?” quoth Mr. Snapper.

“By no means,” said I; ” I fear they are at present engaged in an unreasonable struggle, wherein they began ill and cannot end well.”

Mr. Snapper, evidently regarding me as neither fish, flesh, nor fowl, begged to know after a pause if he might enquire whether I was going to Preston on business?

Indeed I was going there, in my unbusinesslike manner, I confessed, to look at the strike.

“To look at the strike!” echoed Mr. Snapper fixing his hat on firmly with both hands. “To look at it! Might I ask you now, with what object you are going to look at it?”

“Certainly,” said I. ” I read, even in liberal pages, the hardest Political Economy—of an extraordinary description too sometimes, and certainly not to be found in the books—as the only touchstone of this strike. I see, this very day in a to-morrow’s liberal paper, some astonishing novelties in the politico-economical way, showing how profits and wages have no connexion whatever; coupled with such references to these hands as might be made by a very irascible General to rebels and brigands in arms. Now, if it be the case that some of the highest virtues of the working people still shine through them brighter than ever in their conduct of this mistake of theirs, perhaps the fact may reasonably suggest to me—and to others besides me—that there is some little things wanting in the relations between them and their employers, which neither political economy nor Drum-head proclamation writing will altogether supply, and which we cannot too soon or too temperately unite in trying to
find out.”

Mr. Snapper, after again opening and shutting his gloved hands several times, drew the counterpane higher over his chest, and went to bed in disgust. He got up at Rugby, took himself and counterpane into another carriage, and left me to pursue my journey alone. …

In any aspect in which it can be viewed, this strike and lock-out is a deplorable calamity. In its waste of time, in its waste of a great people’s energy, in its waste of wages, in its waste of wealth that seeks to be employed, in its encroachment on the means of many thousands who are labouring from day to day, in the gulf of separation it hourly deepens between those whose interests must be understood to be identical or must be destroyed, it is a great national affliction. But, at this pass, anger is of no use, starving out is of no use—for what will that do, five years hence, but overshadow all the mills in England with the growth of a bitter remembrance? —political economy is a mere skeleton unless it has a little human covering and filling out, a little human bloom upon it, and a little human warmth in it. Gentlemen are found, in great manufacturing towns, ready enough to extol imbecile mediation with dangerous madmen abroad; can none of them be brought to think of authorised mediation and explanation at home? I do not suppose that such a knotted difficulty as this, is to be at all untangled by a morning-party in the Adelphi; but I would entreat both sides now so miserably opposed, to consider whether there are no men in England above suspicion, to whom they might refer the matters in dispute, with a perfect confidence above all things in the desire of those men to act justly, and in their sincere attachment to their countrymen of every rank and to their country.

Masters right, or men right; masters wrong, or men wrong; both right, or both wrong; there is certain ruin to both in the continuance or frequent revival of this breach. And from the ever-widening circle of their decay, what drop in the social ocean shall be free!

Charles Dickens on Seeing Poverty

Charles Dickens wrote what has become one of the iconic stories of Christmas day and Christmas spirit in A Christmas Carol. But of course, the experiences of Ebenezer Scrooge are a story, not a piece of reporting. Here’s a piece by Dickens written for the weekly journal Household Words that he edited from 1850 to 1859. It’s from the issue of January 26, 1856, with his first-person reporting on “A Nightly Scene in London.” Poverty in high-income countries is no longer as ghastly as in Victorian England, but for those who take the time to see it in our own time and place, surely it is ghastly enough. Thus, I repeat this post each year on Christmas day.

Economists might also wince just a bit at how Dickens describes the reaction of some economists to poverty, those who Dickens calls “the unreasonable disciples of a reasonable school.” Dickens writes: “I know that the unreasonable disciples of a reasonable school, demented disciples who push arithmetic and political economy beyond all bounds of sense (not to speak of such a weakness as humanity), and hold them to be all-sufficient for every case, can easily prove that such things ought to be, and that no man has any business to mind them. Without disparaging those indispensable sciences in their sanity, I utterly renounce and abominate them in their insanity …” 

Here’s a fuller passage from Dickens:


On the fifth of last November, I, the Conductor of this journal, accompanied by a friend well-known to the public, accidentally strayed into Whitechapel. It was a miserable evening; very dark, very muddy, and raining hard.

There are many woful sights in that part of London, and it has been well-known to me in most of its aspects for many years. We had forgotten the mud and rain in slowly walking along and looking about us, when we found ourselves, at eight o’clock, before the Workhouse.

Crouched against the wall of the Workhouse, in the dark street, on the muddy pavement-stones, with the rain raining upon them, were five bundles of rags. They were motionless, and had no resemblance to the human form. Five great beehives, covered with rags— five dead bodies taken out of graves, tied neck and heels, and covered with rags— would have looked like those five bundles upon which the rain rained down in the public street.

“What is this! ” said my companion. “What is this!”

“Some miserable people shut out of the Casual Ward, I think,” said I.

We had stopped before the five ragged mounds, and were quite rooted to the spot by their horrible appearance. Five awful Sphinxes by the wayside, crying to every passer-by, ” Stop and guess! What is to be the end of a state of society that leaves us here!”

As we stood looking at them, a decent working-man, having the appearance of a stone-mason, touched me on the shoulder.

“This is an awful sight, sir,” said he, “in a Christian country!”

“GOD knows it is, my friend,” said I.

“I have often seen it much worse than this, as I have been going home from my work. I have counted fifteen, twenty, five-and-twenty, many a time. It’s a shocking thing to see.”

“A shocking thing, indeed,” said I and my companion together. The man lingered near
us a little while, wished us good-night, and went on.

We should have felt it brutal in us who had a better chance of being heard than the working-man, to leave the thing as it was, so we knocked at the Workhouse Gate. I undertook to be spokesman. The moment the gate was opened by an old pauper, I went in, followed close by my companion. I lost no
time in passing the old porter, for I saw in his watery eye a disposition to shut us out.

“Be so good as to give that card to the master of the Workhouse, and say I shall be glad to speak to him for a moment.”

We were in a kind of covered gateway, and the old porter went across it with the card. Before he had got to a door on our left, a man in a cloak and hat bounced out of it very sharply, as if he were in the nightly habit of being bullied and of returning the compliment.

“Now, gentlemen,” said he in a loud voice, “what do you want here?”

“First,” said I, ” will you do me the favor to look at that card in your hand. Perhaps you may know my name.”

“Yes,” says he, looking at it. ” I know this name.”

“Good. I only want to ask you a plain question in a civil manner, and there is not the least occasion for either of us to be angry. It would be very foolish in me to blame you, and I don’t blame you. I may find fault with the system you administer, but pray understand that I know you are here to do a duty pointed out to you, and that I have no doubt you do it. Now, I hope you won’t object to tell me what I want to know.”

“No,” said he, quite mollified, and very reasonable, ” not at all. What is it?”

“Do you know that there are five wretched creatures outside?”

“I haven’t seen them, but I dare say there are.”

“Do you doubt that there are?”

“No, not at all. There might be many more.”

”Are they men? Or women?”

“Women, I suppose. Very likely one or two of them were there last night, and the night before last.”

“There all night, do you mean?”

“Very likely.”

My companion and I looked at one another, and the master of the Workhouse added quickly, “Why, Lord bless my soul, what am I to do? What can I do ? The place is full. The place is always full—every night. I must give the preference to women with children, mustn’t I? You wouldn’t have me not do that?”

“Surely not,” said I. “It is a very humane principle, and quite right; and I am glad to hear of it. Don’t forget that I don’t blame you.”

“Well!” said he. And subdued himself again. …

“Just so. I wanted to know no more. You have answered my question civilly and readily, and I am much obliged to you. I have nothing to say against you, but quite the contrary. Good night!”

“Good night, gentlemen!” And out we came again.

We went to the ragged bundle nearest to the Workhouse-door, and I touched it. No movement replying, I gently shook it. The rags began to be slowly stirred within, and by little and little a head was unshrouded. The head of a young woman of three or four and twenty, as I should judge; gaunt with want, and foul with dirt; but not naturally ugly.

“Tell us,” said I, stooping down. “Why are you lying here?”

“Because I can’t get into the Workhouse.”

She spoke in a faint dull way, and had no curiosity or interest left. She looked dreamily at the black sky and the falling rain, but never looked at me or my companion.

“Were you here last night?”

“Yes, All last night. And the night afore too.”

“Do you know any of these others?”

“I know her next but one. She was here last night, and she told me she come out of Essex. I don’t know no more of her.”

“You were here all last night, but you have not been here all day?”

“No. Not all day.”

“Where have you been all day?”

“About the streets.”

”What have you had to eat?”


“Come!” said I. “Think a little. You are tired and have been asleep, and don’t quite consider what you are saying to us. You have had something to eat to-day. Come! Think of it!”

“No I haven’t. Nothing but such bits as I could pick up about the market. Why, look at me!”

She bared her neck, and I covered it up again.

“If you had a shilling to get some supper and a lodging, should you know where to get it?”

“Yes. I could do that.”

“For GOD’S sake get it then!”

I put the money into her hand, and she feebly rose up and went away. She never thanked me, never looked at me— melted away into the miserable night, in the strangest manner I ever saw. I have seen many strange things, but not one that has left a deeper impression on my memory than the dull impassive way in which that worn-out heap of misery took that piece of money, and was lost.

One by one I spoke to all the five. In every one, interest and curiosity were as extinct as in the first. They were all dull and languid. No one made any sort of profession or complaint; no one cared to look at me; no one thanked me. When I came to the third, I suppose she saw that my companion and I glanced, with a new horror upon us, at the two last, who had dropped against each other in their sleep, and were lying like broken images. She said, she believed they were young sisters. These were the only words that were originated among the five.

And now let me close this terrible account with a redeeming and beautiful trait of the poorest of the poor. When we came out of the Workhouse, we had gone across the road to a public house, finding ourselves without silver, to get change for a sovereign. I held the money in my hand while I was speaking to the five apparitions. Our being so engaged, attracted the attention of many people of the very poor sort usual to that place; as we leaned over the mounds of rags, they eagerly leaned over us to see and hear; what I had in my hand, and what I said, and what I did, must have been plain to nearly all the concourse. When the last of the five had got up and faded away, the spectators opened to let us pass; and not one of them, by word, or look, or gesture, begged of us.

Many of the observant faces were quick enough to know that it would have been a relief to us to have got rid of the rest of the money with any hope of doing good with it. But, there was a feeling among them all, that their necessities were not to be placed by the side of such a spectacle; and they opened a way for us in profound silence, and let us go.

My companion wrote to me, next day, that the five ragged bundles had been upon his bed all night. I debated how to add our testimony to that of many other persons who from time to time are impelled to write to the newspapers, by having come upon some shameful and shocking sight of this description. I resolved to write in these pages an exact account of what we had seen, but to wait until after Christmas, in order that there might be no heat or haste. I know that the unreasonable disciples of a reasonable school, demented disciples who push arithmetic and political economy beyond all bounds of sense (not to speak of such a weakness as humanity), and hold them to be all-sufficient for every case, can easily prove that such things ought to be, and that no man has any business to mind them. Without disparaging those indispensable sciences in their sanity, I utterly renounce and abominate them in their insanity; and I address people with a respect for the spirit of the New Testament, who do mind such things, and who think them infamous in our streets.


I sometimes see articles that don’t feel worthy of a post here, but might interest the sort of discerning, intelligent, thoughtful, quirky, oddball readers who drop by this website. I tweet about these articles, but thought I might pass along some recent examples as well. If you click on the image, it should take you to the underlying article.

Some Economics of Antivenom

When there is glaring human need, there is often an opportunity for a business or a government program, or some combination of the two, to do some good. Deaths from snakebite are a glaring human need, but at least so far, neither private nor public organizations have stepped up sufficiently. I’ve written before about “The Problematic Market for Snakebite Antivenoms” (September 7, 2018). Mathias Kirk Bonde sketches and updates the parameters of the problem in “Advancing antivenom” (Works in Progress, December 8, 2022).

As a starting point, here’s a figure showing global deaths from snakebites in context of major tropical diseases: behind cholera, but ahead of hookworm.

A French bacteriologist named Albert Calmette demonstrated the efficacy of anti-cobra venom serum back in 1895. But as Bonde writes:

For decades the cost of antivenom in the third world has refused to fall, and in some instances has gone up. In many countries, major antivenom producers are even ceasing production of high-quality antivenom. This has left markets flooded with low-quality products that work less well.  … Need for antivenom is increasing each year, yet the supply of quality antivenom fails to keep up. A 2011 study found six companies producing antivenom sold in sub-Saharan Africa. These companies produced 410,500 ampoules of antivenom, just enough to treat 96,000 cases. That’s only one third of the total estimated cases on the continent. Their sales totaled just $11 million. The two largest manufacturers, responsible for producing 350,000 of the 410,000 ampoules, were known to use venom immunogens from snake species irrelevant to Africa, a red flag that their product might not work as well as advertised. In 2014, the French producer Sanofi ceased production of its dependable FAV-Afrique, exiting the African antivenom market for good and dealing another blow to the availability of working antivenom. The global antivenom market in 2016 was valued at $1.1 billion and was projected to reach $1.5 billion by 2021. It instead fell to $1.02 Billion.

What are the problems? As Bonde lays them out:

  1. The technology of producing antivenom hasn’t developed much.

Since its invention, the way we produce antivenom has not fundamentally changed. Around the world snake handlers are manually milking snakes for their venom, injecting it into large animals, typically horses, and tapping their blood to extract the antiserum. This is an expensive procedure that involves keeping horses in stables, keeping snakes in cages, employing animal handlers to milk the snakes, and investing in numerous pieces of technical equipment to tap the blood, extract the antivenom, and purify it.

2. In many places where antivenom is needed, there is no “cold” supply chain of continuous refrigeration. Thus, antivenom must be produced in a shelf-stable freeze-dried form, which drives up costs.

3. Snake antivenom needs to apply to a fairly specific snake, but when someone shows up at at a health clinic with snakebite–and the clock is ticking on treatment–it’s not always clear what kind of snake did the biting. Thus, it becomes necessary to make combined antivenoms that from several different kinds of snakes, and hope you managed to cover the correct one. Bonde writes:

Antivenom targeting a snake species that primarily produces neurotoxic venom will be next to useless against venom that primarily is cardiotoxic. Not only does each species significantly differ, but the composition will differ regionally within each species of snake. … Producing polyvalent antivenoms that verifiably work against the many species of snake across sub-Saharan Africa is a massive undertaking. You need to collect and breed farms of every common species of venomous snake from each region where the antivenom needs to work.

4. Snake antivenom would be much cheaper with large-scale production facilities, which (mostly) do not exist. Many of those who suffer from snakebite have very low incomes, so the funding for large-scale facilities will need to come from other sources.

One can imagine a version here of the “advance market commitment” approach that was used in developing the anti-COVID vaccines: that is, government (and perhaps international organizations as well) need to define a certain level of workability and cost for specific antivenoms, but then guarantee to purchase a substantial volume at that cost. With this guarantee in hand, producers of antivenom would have a basis for larger-scale investment. The potential research targets here are not just antivenoms. If there were cheap and accurate tools for diagnosing types of snakebite, then patients could be treated with a cheaper antivenom aimed at their specific case, rather than hoping that a more expensive polyvalent antivenom would cover their situation. In addition, if antivenom could be made synthetically, rather than derived from snakes and rabbits and horses, it might potentially be cheaper as well. Bonde points to a number of ongoing research successes along these lines.

Ultimately, Bonde writes: “If the cost of antivenom could be brought down one order of magnitude, antivenom treatment has the potential to be among the most cost-effective causes in the world.” Reducing cost by an order of magnitude isn’t simple, but we’re talking here about updating a production technology that has been fundamentally unchanged since its invention in 1895. Substantial gains should be possible.



The Inflation Takeoff: Four Hypotheses

The behavior of inflation was already a mystery before it started rising in 2021. For example, back in 2016, then-Chair of the Federal Reserve Janet Yellen gave a talk about important research topics in macroeconomics, and one of the topics was: “What determines inflation?” Other macroeconomists at about that time were also grappling with what I called the “mysteries of modern inflation.”

At that time, the main puzzle was that inflation seemed overly stable for the previous 20 years or so. Inflation had not noticeably taken off during, say, the boom years of the dot-com revolution in the late 1990s or the housing boom of the early 2000s. Inflation had not also not dropped in any sustained way during the Great Recession of 2007-9 or the earlier recession in 2001. The Federal Reserve had revamped monetary policy, pushing the policy interest rate (the “federal funds rate”) down to essentially 0%, as well as making large purchases of government and government-guaranteed debt in policies of “quantitative easing,” and inflation barely budged. So why was inflation so stuck? And why did it come unstuck?

Ricardo Reis discusses some possibilities in “The burst of high inflation in 2021–22: how and why did we get here?” (Bank of International Settlements, December 16, 2022, Working Papers #1060). He starts with a striking figure, using data from the Millenium dataset of the Bank of England, providing in this case 800 years of inlation data for the British economy. The data is grouped into 20-year periods. Average annual inflation in consumer prices is measured on the horizontal axis. The vertical axis measures the standard deviation of inflation during that 20-year period: loosely, you can think of this as how much variation in annual inflation rates during a certain period. Thus, if inflation spiked way down, or way up, the level of variation would be high.

The 20-year period of 1997-2016 is at the bottom middle: that is, the inflation rate was 2%, but the amount of variation in that inflation rate was the lowest for any of the 20-year time periods. Historically, whether inflation was lower or higher on average over a 20-year period, it involved a lot more movement–and bursts of deflation or inflation pose a challenge for economic performance. When inflation rates are moving, a lot of time and energy needs to go into reducing the risks of such changes; when inflation is stable, economic actors can focus more clearly on actual decisions about production, consumption, and investing.

Reis then moves to four arguments about why inflation came unstuck.

#1: Shocks and Misdiagnoses

When the pandemic hit in early 2020, there was a reasonable fear that the economy would suffer enormously, which led to a major burst of expansionary monetary and fiscal policy. This policy worked in the short run. For example, the pandemic recession was only two months long, and when the “Delta” variant of COVID hit in late 2020 with high numbers of deaths and widespread lockdowns, there was no follow-up recession. However, inflation did get underway. Reis writes: “The amount of fiscal and monetary stimulus in 2020 was perhaps excessive, although this judgement comes with the benefit of hindsight. A more pertinent criticism is that policy did not reverse course until at least the end of 2021, even as the signs that the fast recovery was leading to overheating became clearer.”

The pandemic shock was then followed by the supply chain shocks of 2021 and the Russian-invasion-of-Ukraine shocks in February 2022. In each case, Reis points out, these shocks were interpreted by central banks as having only a temporary effect on inflation–so the main policy response was to keep stimulating demand in the economy, to overcome these supposedly temporary issues. But an alternative interpretation was that these shocks were having real and at least moderately lasting effects in raising prices while reducing production. Reis writes:

Three times in a row in a short period of time, a set of shocks pushed inflation up. Three times in a row, monetary policy interpreted them using the lenses of the Phillips curve in the direction that concluded that monetary policy should be kept loose. Three times in a row, this diagnosis was plausibly right but disputable, and the risk was that inflation would rise too much and too persistently. After the fact, in all three cases this risk became reality. A policy framework should be robust to shocks, and it should correct misdiagnoses. So many successive errors in the same direction indicate more systematic problems.

#2: Short-term Expectations

One legacy of inflation being stuck in place from the 1990s up through 2020 was that people’s expectations of inflation–rationally enough–also seemed stuck in place. To put it another way, the memory that inflation could rise had faded for a generation of people and policymakers. Indeed, looking at survey data on inflation expectations in 2021 and into 2022, it looked as if inflation expectations still had not moved by much–which was one reason why many policymakers were not worrying about inflation. But as Reis points out, while the median expectation did not move move, the spread in opinions about inflation was rising. He writes: “The expectations anchor had left the seabed after a couple of decades during which it had barely moved.”

#3: Long-term Credibility

Behind the idea that inflation should be expected to stay low is a credible belief that even if inflation bumps up and down in the short run, policymakers will act as needed to keep inflation low in the long run. The anti-inflation credibility of policymakers was pretty high in 2020, after several decades of low inflation rates during a wide array of economic events. But again, Reis points out that if one looks at expectations of long-run inflation–as measured by survey data or as estimated by financial markets–the risk that inflation might still be exceeding 4-5% five years from now has risen. The anti-inflation credibility of policymakers is wavering.

#4: R-star and the Tolerance of Inflation

In the lingo, “R-star” refers to the level of interest rates that lead to an economy where there is no underlying pressure for the rate of inflation to rise or fall. But R-star can be set at a level where the resulting inflation is relatively low, with no tendency to rise or fall, or at a level where the resulting inflation is relatively high, with no tendency to rise or fall. As you might expect, estimating R-star is more art than science. But up to about 2020, it’s a common theme in the comments of central bankers like Jerome Powell at the Fed that perhaps inflation is too low, and thus when setting inflation rates the Fed should err on the side of tolerating a little more inflation.

Notice that all of these factors suggest that the Federal Reserve ultimately has power over whether inflation takes off or not. They also suggest that even if one can come up with arguments or justifications for Fed decisions to not raise interest rates in 2020 and 2021, and only to start doing so in March 2022, those earlier arguments and justifications in fact have turned out to be incorrect. Central banking is a results-oriented business. If you let inflation out of the cage, the quality of your earlier arguments and intentions doesn’t change the reality that you have failed in one of your main tasks.

Interview with Steven Davis: Jobs and Startups Since the Pandemic

David A. Price interviews Steven Davis “on remote work, changes in recruiting, and business startups after the pandemic” (Econ Focus: Federal Reserve Bank of Richmond, Fourth Quarter 2022 , pp. 22-26). Here are a few of his comments that caught my eye:

On the rise in business start-ups since the pandemic

Business formation rates rose sharply in the wake of the pandemic. And that’s after, as you say, a long period of decline. It’s also entirely unlike the U.S. experience during and after the Great Recession of 2007 to 2009. Business formation rates tanked in that recession, they were very slow in recovering, and then they resumed a long downward slide. Something quite different happened in the wake of the pandemic. In my view, there are three forces at work.

First, the pandemic was a major reallocation shock. What I mean is that there was a big shift from spending at bricks-and-mortar retail outlets to online shopping, a shift from dining in restaurants to takeout and meal delivery, a lot of experimentation with remote delivery of health care and other services. There was a lot of reallocation across activities, often within industries, but just providing the same kinds of goods and services in different ways. There was also a big geographic component to this reallocation. Workers and businesspeople now spend a lot of dollars in different places than before the rise of remote work. …

The second force is that household balance sheets are in much better shape than they were after the Great Recession. Not only that, they’re in great shape by the standards of recent decades in general. That’s for several reasons. First, in the wake of the pandemic, we had a housing market boom as opposed to the bust we had in the 2006-2010 period. Instead of a stock market crash, the market rose — at least until fairly recently. So both in terms of home equity values and in terms of financial asset portfolios, households were in good shape. There was also government pandemic relief — really enormous, unprecedented amounts of cash funneled to households and businesses. All of that left households, including current and prospective entrepreneurs, with the resources and the willingness to start new businesses and to grow existing businesses.

Then there is a third force, perhaps more important in the longer term: Business formation and development costs fell in the wake of the pandemic. Even before the pandemic, it typically was cheaper to start an online business than a bricks-and-mortar business. You don’t need a building or at least you don’t need nearly as much space. You can often start it out of your own home. Online businesses also face lighter regulatory costs and restrictions, partly because they run afoul of fewer zoning and permitting requirements and partly because they can very easily gravitate to business-friendly jurisdictions. … In addition, there have been advances in communication platforms … They make it easier to start a business and to operate a business on a small scale. You can hire somebody who is a hundred miles away to do your bookkeeping for you; you don’t even necessarily need to meet your bookkeeper in person. All of these things make it easier to start businesses in smaller cities and in other out-of-the-way places where it’s harder to get the ingredients of a company together. Now, this third factor is one that, unlike the other two, may well persist indefinitely, leading to persistently higher rates of new business formation.

A dynamic economy and social mobility

Economies that are characterized by a lot of business entry and exit, up-and-out type behavior, also tend to generate opportunities for people all along the earnings distribution. So in economies that are characterized by lots of dynamism and fluidity among businesses and in labor markets, it’s easier to get a job if you want one — and at least get a toehold on what might, with hard work, become a career path, even if you’re somebody who doesn’t have strong credentials at the outset.

If you’re some guy who didn’t really like school that much — you’ve got some basic skills and you graduated from high school — what’s the path to upward mobility for somebody who fits that profile? In the United States after World War II, the answer was often to go get a job in a local manufacturing plant. That rarely happens these days. But you can start a landscaping business or work for somebody else for a couple of years in a landscaping business and then start your own. Or you might become a hairstylist or a tree trimmer or set up your own dog-walking business. There are many ways that the regulatory process can make that easy or hard. Having an economic system that makes it relatively easy to start new businesses and to grow some businesses if you have something to offer to consumers is a good path to upward mobility for a broad population. That’s a positive social consequence of business dynamism.

Missing workers in the aftermath of the pandemic

Millions of people left the labor force in spring 2020 when the pandemic struck. … . It would seem like a simple thing to know exactly how many, but it turns out not to be so easy … [T]he data sources that actually track large numbers of people over time in a way that makes it possible to get a precise answer to this question don’t become available for two or three years after the fact. And even then, they’re hard to access. …

There are a few things going on, but let me mention two that I think are important. One is that there is increasingly good evidence that out of the tens of millions of people who had COVID-19, a small fraction of them have symptoms that endure for months and months. For a portion of that small fraction, the symptoms are severe enough that they really aren’t able to work effectively. You might think well, how can this amount to much? But let’s say you have a hundred million people who had COVID-19 —I’m just going to use round numbers here — and 15 percent of them have symptoms that last a long time. The numbers are in that ballpark. Of that 15 percent, let’s say a third of them, just to make the arithmetic easy, have pretty serious debilitating conditions like shortness of breath or brain fog, that kind of thing. Now we’re talking about 5 million people. Well, you take 5 million people out of the labor force, that’s a reduction on the order of 3 percent. That’s the long COVID impact on labor force participation, which others have worked on.

And then there’s long social distancing, which is the subject of my recent paper with Nick Bloom and Jose Maria Barrero. We provide two kinds of evidence that some people who used to be in the labor force are now staying out of the labor force because they worry about infection risks associated in the workplace or on the commute to and from work. I think both long COVID and long social distancing are part of the story as to why labor force participation rates haven’t recovered fully.

Social Security: Evolution by Cohort

The benefits received from the US Social Security system and the taxes paid have evolved over time, and the changes have not been the same across income groups. The Congressional Budget Office describes some of the shifts in “CBO’s 2022 Long-Term Projections for Social Security” (December 16, 2022).

The top figure shows the initial average benefits received by a retired worker from Social Security, adjusted for inflation. It rises over time, because wages have gradually risen over time, which has also led rising revenues from payroll taxes, and thus (by formula) to higher benefits. The bottom panel is a breakdown by income level, for those born in the 1950s (and thus retiring now) along with projections for those born in the 1970s and 1990s. Again, because Social Security links your payroll taxes to your benefits received, albeit with some degree of redistribution from higher to lower incomes, those in the upper quintile of incomes will receive higher Social Security benefits.

A different way to look at this data is in terms of “replacement rates”–that is, what share of your previous earnings is being replaced by Social Security, and how has this amount shifted over time. The top panel shows that over time, the average replacement rate hasn’t changed by much. The bottom panel shows that the replacement rate for those with lower incomes is higher than for those with higher incomes. This isn’t a surprise, because the Social Security taxes are capped at a certain income level ($147,000 in 2022), so the program is not designed to have a high replacement rate for those who consistently have income above that level. You also notice that in the current design of the program, the replacement rate is rising for those with lower incomes, and falling for those with higher incomes.

Here’s a view from the tax side, showing Social Security taxes as a share of lifetime income. The calculations make the standard assumption that Social Security taxes “paid” by the employer are actually “paid” by the employee in the form of lower wages. Again, the average share doesn’t change much over time. Those with lower income levels pay a higher share of lifetime income in Social Security taxes, because they don’t hit the annual income ceiling for these payroll taxes.

Of course, the ultimate evolution of Social Security by cohort is that the system is financially unsustainable under current law. During the 1980s and the 1990s, the Social Security system took in more in payroll taxes than it paid out in benefits. The idea was to build up a trust fund, so that when the “baby boomer” generation born in the 15 year or so after World War II started retiring in force around 2020, there would be funds to cover that demographic transition–at least for a few decades. During the 2010, Social Security spending caught up with revenues, and as ratio of America’s elderly to workers rises, Social Security spending kept rising, too. The trust fund that was built up in the 1980s and 1990s runs out in 2033, on the current estimates. There will still be payroll taxes incoming to pay for some benefits, but not enough to pay for what has been promised.

I’ve written often enough in the past about the need for solutions (for example, here) but as other writers have pointed out, it seems more likely that our political parties will wait until the insolvency of the system is upon us before taking action. Why solve today what you can put off for tomorrow? In addition, a sizeable share of Republicans only want to fix Social Security if they can turn at least part of it into a system of private retirement accounts, and a sizeable share of Democrats only want to fix Social Security if they can include substantial increases in the payments made to the elderly poor. For both groups, actually fixing the existing system come is second behind other priorities–at least until the insolvency hits. Meanwhile, those of us who paid higher payroll taxes in the 1980s and 1990s to buy extra time for the retirement of the post-World War II “baby boom generation through the 2010s and 2020s are looking at a system that won’t have the funds to cover the promises made for our own retirements in the 2030s. It’s enough to make a person feel cynical.