Month: December 2023

Housing affordability is an issue in cities around the world, and Albert Saiz performs yeoman’s work in pulling together a wide range of policy options and examples from many cities and countries in “The Global Housing Affordability Crisis: Policy Options and Strategies” (IZA Policy Paper No. 203, October 2023).

It’s nearly impossible to summarize the Saiz paper. He lists 30 different housing programs used around the world. He characterizes them in terms of local versus national implementation; supply versus demand orientation; public versus private ownership; and de jure versus de facto impact.” He points out that housing assistance programs can be focused in different ways: for example, is the goal to have affordably priced housing for sale to the middle class, or affordably priced rental units for the working poor, or available shelter for the homeless? Where will the affordable housing be located; in particular, should it aim to help people live in more expensive parts of urban areas? What should be the quality of “affordable” housing? Should the goal be to redevelop neighborhoods with a mixture of affordable housing and amenities, or on support for lower-income renters wherever they locate, or to support builders operating at smaller scale across many locations? And what about the role of nearby public amenities, schools, social programs, and jobs?

One reasonable takeaway from this report is that “affordable housing” has become such a big-tent term that it can obscure details. Here, I’ll focus on the comments from Saiz about one case study that may be unfamiliar to non-European readers: the Dutch rental housing associations. He writes:

Dutch Housing Associations (HA) are private, nonprofit enterprises that develop and manage affordable housing in the Netherlands. They account for approximately 75% of the three million rental homes and 35% of the entire housing stock, per 2016 estimates. HAs must lease 80% of their vacant units to low-income families and 10% to people with intermediate incomes. Ten percent can be leased to high-income families, which allows the associations to cross-subsidize their social mission. A government-regulated point system determines each unit’s rent, always
substantially at below-market levels. Twenty-five percent of the total points are based on the tax-assessed market value of the property and 75% on the dwelling characteristics (Schilder and Scherpenisse, 2018). The higher the number of points, the higher the allowed rental price. Points are also awarded based on factors such as size of the housing, facilities, and energy efficiency. The point system provides incentives to partially fund improvements with rental revenue growth. Subsequently, rents can only increase at a prespecified percentage annually (currently 3.3%). …

HAs gained financial independence through policies in the 1980s-1990s that decentralized, deregulated, and denationalized social housing. The most notable was the 1995 Grossing and Balancing Agreement, by which housing associations’ outstanding debts were written off against future government subsidies. Combined with strong prices in the housing market, this helped infuse associations with substantial equity. HAs utilized a revolving fund model that—in addition to their equity—is sustained through rental revenue from tenants and sale proceeds from parts of their stock to investors. Excess funds are reinvested into renovating existing buildings, developing new affordable housing units, or developing neighborhood regeneration projects.

For example, it is possible for HAs to nimbly sell properties in the most expensive neighborhoods and exchange them for larger housing portfolios in middle-class areas. However, the tradeoff between affordable housing and social outcomes comes to the forefront in these cases … The associations do not require outside investors and can accept a lower or zero return on their equity. These, and their lower credit costs, allow them to charge lower rents (Schilder and Scherpenisse, 2018). Importantly, they do not utilize direct government subsidies. Instead, they benefit from cheap loans obtained through a three-level guarantee structure …

This triple guarantee system has allowed the WSW [the Guarantee Fund for Social Housing] to maintain top credit ratings and gain access to public capital markets. HA finances its debt at large discounts. The approval for a WSW guarantee is based on the creditworthiness of the association, whose financial position is evaluated based on its assets. If admitted, the association must meet certain solvency requirements. … While driven by a social mission, the system currently relies on sophisticated financial know-how, professionalism, and prudent underwriting. To reach that point, nonetheless, excessive financial risk-taking from some HAs had to be curtailed (Aalbers et al., 2017). …

The CFV [Central Fund for Social Housing] operates as the chief financial regulator of the HAs. Financial assessments of key metrics such as loan-to-value and interest coverage ratios are made through mandated due diligence, involving annual reports and supplementary information. The CFV provides early-warning signals to the national government when an association is experiencing financial weakness. A distressed association cannot attain WSW guarantees, but CVF provides interest-free loans for three years until self-sufficiency. During that period, another CFV member will take on management responsibilities and engage in financial restructuring if necessary. …

In my view, the Dutch HAs model represents one of the most successful housing policies worldwide and is ripe for replication in other countries. The model has been perfected over the years through regulations providing the right economic incentives and checks and balances. Replicating the model requires careful legal and intuitional reform, stemming from a belief that decentralized, non-profit entrepreneurship can help solve housing affordability problems. This type of institution will not fare well in countries where politicians try to always be in control.

This analogy isn’t a perfect one, but the Dutch Housing Association model reminds me a little of how US banks work. US federal and state government don’t run the banks, just as Dutch governments don’t run the Housing Authorities. Instead, US banks have the legal ability to accept deposits and provide other banking services, and they have considerable autonomy to make financial choices in a decentralized way, but they are held accountable by a mixture of government regulators and financial markets. It is especially striking to me that the Dutch Housing Associations run 75% of the rental properties and about one-third of the total housing stock for the Netherlands as a whole.

Although the overall purpose of the Trade Expansion Act of 1962 is captured by the title of the legislation, it also included some loopholes. One of the most infamous is Section 232, allow the president to impose tariffs on an imported product when it is “being imported into the United States in such quantities or under such circumstances as to threaten to impair national security.” Just to be clear, this providing is not about blocking exports of goods that might involve technologies including weapons or armaments–but instead about limiting imports.

One can easily imagine a few cases where the United States might have an interest in preserving and protecting certain products to assure that the US military would have a solid supply chain. Of course, it’s awkward to consider the possibility that foreign firms could be providing these products at equal or higher quality and lower cost, and that US industry is failing to match the international standard, but set that issue aside for now. But what appeals to industries looking for protection from imports is that Section 232 doesn’t require any additional fact-finding or legal action by Congress. The discretion of the president is enough.

Section 232 was used in relatively few cases from its passage in 1962 up to the Trump administration: instead, when tariffs on imports were imposed in the past, it was typically through legislation, or as part of “anti-dumping” actions. Section 232 was sometimes used to block the US from importing petroleum from certain countries (like Libya), but in other cases, the president would announce that although petroleum imports did threaten national security, no action would be take. But the Trump administration produced Section 232 findings that imports of six products violated national security: steel, aluminum, automobiles and auto parts, uranium ore and products, titanium sponges (used in aerospace applications), and transformers and certain grain-oriented electrical steel parts. The Trump administration used Section 232 to impose tariffs in two of these industries: steel and aluminum.

But the allure of using the Section 232 “national security” exception never goes away. Recently, Senator Rick Scott of Florida proposed that “national security” required limiting imports of garlic from China. In a letter written to the US Secretary of Commerce, he says:

Section 232 of the Trade Expansion Act of 1962 authorizes the Secretary of the Department of Commerce (Secretary) to conduct investigations “to determine the effects on [US] national security” of imports of an article. This law allows any “interested party” to request Commerce initiate such an investigation to ascertain the effect of specific imports on the national security of the United States. I write to request such an investigation into imports from Communist China of all grades of garlic, whole or separated into constituent cloves, whether or not peeled, chilled, fresh, frozen, provisionally preserved or packed in water or other neutral substance, and the threat they pose to U.S. national security. Food safety and security is an existential emergency that poses grave threats to our national security, public health, and economic prosperity. …

As garlic is a widely-used product for cooking and food preparation, the integrity and safety of this product are paramount to the entire population. To maintain a strong and stable economy, domestic tranquility, a productive society, public health and our national security, we must assure quality and confidence in our food supply to all Americans and their families. If our food is not safe to eat, we cannot expect our men and women in uniform to be equipped and able to do their jobs to defend our nation and her interests. Doctors, police officers, nurses, teachers, firefighters, military service members, retirement communities, moms and dads, and every American expects our government can and does make sure our food is safe to eat.

What’s especially weird about the letter is that it also refers to regular issues of trade, like whether garlic in China is produced in safe and sanitary conditions, and whether it is being “dumped” in the US by selling at under the cost of production. I take no position here on these regular meat-and-potatoes (with or without garlic) trade issues. What’s interesting to me is the florid invocation of Section 232 and national security on behalf of a root vegetable.

Scott’s letter reminds me of one of the classic attempts to use national security as a justification for import tariffs. It’s from back in 1962, when the Congressional hearings before the Trade Expansion Act and Section 232 were passed into law. During the hearings, a representative of the scissors and shears industry offered testimony. Through the magic of Google Books, you can easily check the full testimony (starting on p. 1969), but here is an excerpt:

Mr. Chairman and members of the Committee on Ways and Means, my name is B. C. Deuschle. I am vice president of the Acme Shear Co., located in Bridgeport, Conn. I appear before this committee as president of the Shears, Scissors & Manicure Implement Manufacturers Association, the only national trade association of domestic manufacturers of scissors and shears. …

We realize that the domestic scissor and shear industry with its 1,000-plus employees accounts for only a fraction of 1 percent of the gross national product, but we see this as no justification for letting the industry be completely destroyed by imports produced with low cost labor. …The United States would then become wholly dependent on imported scissors and shears. We cannot understand how it could be in the national interest to permit such a loss. We would lose the skills of the employees and management of the industry as well as the capital investment in production equipment. In the event of a national emergency and imports cutoff, the United States would be without a source of scissors and shears, basic tools for many industries and trades essential to our defense.

The scissor and shear industry is one of the oldest in the world. … Scissors and shears of all sizes and types are used in every school, retail establishment, office, factory, hospital, and home in the United States. Scissors cannot be classified as a luxury, gimmick, or novelty. Scissors are used to separate us from our mothers at birth; to cut our toenails; to trim the leather in our shoes; to cut and trim the materials used in every piece of clothing that we wear. They are used to cut our fingernails, to trim our mustaches, the hair in our ears and nose, and to cut the hair on our heads—even down to the end of the road when our best suit or dress is cut down the back so that the undertaker can dress us for the last ride. Scissors are truly used from birth to death. They are essential to our health, education, and general welfare.

I ask you gentlemen, is this an industry that should be permitted to become extinct in this country?

You might not have previously believed that topics like garlic or scissors could galvanize such levels of oratory. But when national security is at stake, it is apparently inspirational.

Robert Solow (1924-2023) died last week. As a starting point for understanding his life and his work on growth theory, the Nobel prize website, since he won the award in 1987, includes an overall description, a biographical essay, and his Nobel lecture. I can also strongly recommend an interview that Steven Levitt carried out with Solow last summer.

For those of us who toil in the editorial pits of economics, Solow was among his other gifts one of the best expository writers the profession has known. For a flavor, consider a couple of paragraphs from the Presidential Address he gave to the American Economic Association in 1979, “On Theories of Unemployment,” published in the American Economic Review (March 1980, 70: 1, 1-11). Solow is setting the stage for his discussion of unemployment by talking about a more fundamental issue in economics: the tension between recognizing the advantages of market mechanisms and also recognizing the limitations and costs of market mechanisms. Most economists (perhaps contrary to popular belief?) try to do both. Here, Solow describes his own attempt to hold the balance–which to some extent involves a contrarian reaction to whoever is speaking. As you read, consider in particular Solow’s gift for fluently combining technical and nontechnical language.

There is a long-standing tension in economics between belief in the advantages of the market mechanism and awareness of its imperfections. … I think that outsiders, who tend to see economists as simple-minded marketeers, would be astonished to learn how much of the history of modern economic analysis can be written in terms of the study of the sources of market failure. The catalog runs from natural and artificial monopoly, to monopolistic competition, to the importance of public goods and externalities of many other kinds, to–most recently–a variety of problems connected with the inadequate, imperfect, or asymmetric transmission of information and with the likelihood that there will simply be no markets for some of the relevant goods and services….

There is a large element of Rohrschach test in the way each of us responds to this tension. Some of us see the Smithian virtues as a needle in a haystack, as an island of measure zero in a sea of imperfections. Others see all the potential sources of market failure as so many fleas on the thick hide of an ox, requiring only an occasional flick of the tail to be brushed away. A hopeless eclectic without any strength of character, like me, has a terrible time of it. If I may invoke the names of two of my most awesome predecessors as President of this Association, I need only listen to Milton Friedman talk for a minute and my mind floods with thoughts of increasing returns to scale, oligopolistic interdependence, consumer ignorance, environmental pollution, intergenerational inequity, and on and on. There is almost no cure for it, except to listen for a minute to John Kenneth Galbraith, in which case all I can think of are the discipline of competition, the large number of substitutes for any commodity, the stupidities of regulation, the Pareto optimality of Walrasian equilibrium, the importance of decentralizing decision making to where the knowledge is, and on and on. Sometimes I think it is only my weakness of
character that keeps me from making obvious errors.

The critics of the mainstream tradition are mistaken when they attribute to it a built-in Panglossian attitude toward the capitalist economy. The tradition has provided both the foundations for a belief in the efficiency of market allocations and the tools for a powerful critique. Economic analysis by itself has no way of choosing between them; and the immediate prospects for an empirically based model of a whole economy, capable of measuring our actual “distance” from the contract curve, are mighty slim. The missing link has to be a matter of judgment–the Rohrschach test I spoke of a minute ago. For every Dr. Pangloss who makes the ink blot out to be of surpassing beauty, give or take a few minor deviations–the second-best of all possible worlds, you might say–there is a Candide to whom it looks a lot like an ink blot. Maybe there are more Panglosses than Candides. But that was true in Voltaire’s time too–just before the French Revolution, by the way–and has more to do with the state of society than with the nature of economics.

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:

“ON STRIKE”

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.

“Yes.”

“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 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:

A NIGHTLY SCENE IN LONDON

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?”

“Nothing.”

“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.

The group of technologies that go under the name of “carbon capture and storage” involve taking carbon out of the air directly. Oddly enough, some interest groups who express the strongest concerns about the risks of climate change often make ambivalent or even negative comments about this technology, I suspect because they fear that a belief that it may soon be cheap and easy to pull carbon out of the air would diminish support for other methods of reducing carbon emissions. But that’s a political judgement, not an environmental one. The more serious forecasts for how to reduce carbon in the atmosphere instead emphasize that a number of changes are likely to be useful, including a limited role for carbon capture and storage where it can be cost-effective.

For those looking to get up to speed, the Congressional Budget Office provides an overview of US efforts in “Carbon Capture and Storage in the United States” (December 2023), while for an international perspective, the Global CCS Institute has published its annual “Global Status of CCS Report 2023.“

Carbon capture and storage projects can be broadly divided into two categories: in the first, some carbon is captured where it is being emitted at electricity-generating plants and industrial facilities. The other category, direct air capture, would just pull carbon out of the air.

The CBO report notes that the US now has 15 experimental carbon capture and storage projects in operation. They all happen at plants that generate carbon, and they typically provide the carbon dioxide to oil companies that, in turn, inject it into oil wells to push more oil to the surface. The costs of reducing carbon emissions by this method vary considerably: as the figure shows, it’s a relatively cheap method when applied to natural gas processing or to production of ethanol or ammonia.

However, the industries where carbon capture and storage is relatively cheap are also relatively small in size. Looking ahead, the question is whether the technology develops to a point where it can be applied to the larger sectors, like industrial processes and electric power generation.

What about the idea of “direct air capture” of carbon? For the near-term and probably also the medium-term, this technology isn’t nearly ready for prime-time. The CBO writes:

The cost to capture CO2 is greater using DAC [direct air capture[ than using CCS [carbon capture and storage] because the concentration of carbon dioxide is much lower (more diluted) in the atmosphere than in energy- or industrial-sector emissions. In addition, the pressure of the exhaust gas from those sectors is often higher than the pressure of the atmosphere, making CO2 in that exhaust easier to capture. According to the International Energy Agency, the cost to capture a metric ton of CO2 using DAC ranges from $135 to $345, compared with $15 to $120 for CCS in various industrial settings. Because DAC is a more experimental process than CCS, estimates of its costs are more uncertain. Other analysts estimate that costs are likely to be much higher—$600 to $1,000 per metric ton, or more—over the next decade.

The annual report from the Global CCS Institute provide a detailed overview of carbon capture and storage projects around the world, which are expanding rapidly, along with related issues like transportation of carbon dioxide, availability of financing, and government permitting processes. I was interested to notice that the US is encouraging some of the world’s largest “direct air capture” efforts. The report notes:

The US: Construction commenced on the first large-scale DAC [direct air capture] project, STRATOS, and operations are planned to start in 2025. The project aims to capture up to 500,000 tonnes of CO2 per year. … One DAC [direct air capture] project is in construction and two more are being developed in the US. DAC projects are supported by the billions of dollars flowing from the US government into research and development, through both the DAC Regional Hubs funding opportunity and the DOE Carbon Negative Shot, which aims to reduce carbon removal costs $100/net tonne. In August, the US Department of Energy announced up to $1.2 billion funding to advance the development of two commercial-scale direct air capture facilities in Texas and Louisiana.

As noted before, I’m skeptical about the prospects for direct air capture in near or medium term. But one practical advantage of this approach is that facilities for direct air capture could be located in the places where storage of carbon dioxide was especially safe and cheap–thus minimizing the need for transportation.

The Hart-Scott-Rodino Antitrust Improvements Act of 1976 requites that all mergers above a certain size–now $101 million–must be reported to the federal government before they occur. This gives the authorities at the Federal Trade Commission and the Antitrust Division at the US Department of Justice a chance to challenge mergers, if and when warranted. The law also requires an annual report on the state of antitrust enforcement, and the report for fiscal 2022 has just been published.

One part of each annual report just provides a count of the mergers that were reported, the size of the mergers, and how many were challenged. Here’s a figure from the Hart-Scott-Rodino Annual Report Fiscal Year 2022, showing the boom in mergers in 2021 and 2022.

Here’s the size distribution of the reported transactions: 611 of the deals were more than $1 billion and another 643 were between $500 million and $1 billion. (The total here differs slightly from the figure above, because in a few cases, both parties to a merger file a report, and the double-reported mergers are not included in this table.)

Of the 3,152 reported to the antitrust authorities in 2022, how many were challenged? Given the tone of arguments about antitrust, you might assume the number is pretty high. But as the report notes:

During fiscal year 2022, the Commission brought 24 merger enforcement challenges: eleven in which it issued final consent orders after a public comment period; seven in which the transaction was abandoned or restructured as a result of antitrust concerns raised during the investigation; and six in which the Commission initiated administrative or federal court litigation. The 24 merger enforcement challenges the Commission brought in fiscal year 2022 is the second highest figure in the last ten years

This relatively low number seems reasonable to me, in the sense that companies proposing a merger know that the antitrust authorities will be taking a look, and so become less likely to proposed egregiously anticompetitive mergers. Also, the job of the antitrust regulators is not to second-guess whether a proposed merger is a wise business decision, but only whether it will have anti-competitive effects.

Each year, the report also does a bit of gentle bragging about the cases it has won–either in court, or as part of a consent decree (that is, the firms agreed to certain changes or to selling off certain parts of the firm before the merger), or because a merger was dropped when it was challenged. For example:

In January 2022, the Commission issued an administrative complaint and a authorized staff to seek a preliminary injunction to prevent Lockheed Martin’s proposed acquisition of Aerojet. The complaint alleged that this proposed vertical merger would likely allow Lockheed to harm rival defense contractors by cutting them off from Aerojet’s critical components needed to build competing missiles. Shortly after the Commission filed its complaint, the parties abandoned the transaction. This lawsuit represented the first time in decades that the Commission had sought to outright block a defense industry transaction.

In February 2022, the two largest healthcare systems in Rhode Island, Lifespan and Care New England Health System, called off their merger after the FTC, in conjunction with the Rhode Island Attorney General, sought to block the merger. On the same day in June 2022, the Commission voted to block two proposed hospital mergers: HCA’s acquisition of Steward Health Care System and RWJBarnabas’s acquisition of Saint Peter’s Healthcare System. Both of these acquisitions were later abandoned. The Commission will continue to identify and aggressively challenge hospital mergers that threaten access to critical healthcare services. …

One of the Division’s most notable successes was its efforts to block Penguin Random House’s proposed purchase of a major publishing rival, Simon & Schuster. The merger, if completed, would have eliminated competition that had led to higher advances, better services, and more favorable contract terms for authors trying to sell their work. The merger also jeopardized the breadth, depth, and diversity of written work by authors. The Division filed suit to block the merger in November 2021; after a thirteen-day trial in August 2022, the U.S. District Court for the District of Columbia found that the proposed acquisition violated Section 7 of the Clayton Act based on the harm it would cause to a specific class of workers in this case, authors.

The government antitrust authorities at the US Department of Justice and the Federal Trade Commission have also just released the final version of the Merger Guidelines. As the website notes, the Guidelines are “describe factors and frameworks the Agencies often utilize when reviewing mergers and acquisitions,” and “are a non-binding statement that provides transparency on aspects of the deliberations the Agencies undertake in individual cases under the antitrust laws.” The draft version of the guidelines released last summer engendered considerable controversy, as I noted here, here, and here.  Between the ongoing wave of merger activity and the more pugilant stance of the current antitrust authorities as expressed in the guidelines, antitrust topics are going to make some news in 2024.

Back in 1790, when Congress was arguing about process for the first Census, one argument was that the Census should limit itself to counting heads, for purposes of determining how many representatives each state should receive. But James Madison argued that it was important to seize the opportunity of the Census to gather additional information, as he put it, “in order that they might rest their arguments on facts, instead of assertions and conjectures.”

I suppose there was a time, pre-internet, when being surveyed by a government agency or a political campaign might have felt like the exciting part of your day. But those days are long behind us. But as people become less willing to answer survey questions, the database for understanding our society and policy choices diminishes.

Here’s a figure from the US Census Bureau about the decline in response rates to surveys over just the last decade. For the uninitiated, ATUS is the American Time Use Survey; CE is the Consumer Expenditures Survey, which can be carried out either by people keeping a diary or by an interviewer; CPI-Housing is a survey for measuring what people spend on housing for inclusion in the Consumer Price Index; CPS is the Current Population Survey uses for many purposes, including measurement of employment; and TPOPS is the Telephone Point of Purchase Survey used to gather consumption data.

The obvious problem is that lower response rates are probably not randomly distributed across the population: as a result, lower responses mean that the numbers will include a potentially changing degree of bias over time.

What might be done? As one step, the Census Bureau is experimenting with survey methods that can be conducted via the internet, rather than via interviewers. But an array of other approaches are under consideration, including use of “administrative” data that the government collects for an array of other purposes: Social Security, K-12 attendance and grades, unemployment insurance data, Medicare and Medicaid data, and others. There are also efforts to see if private-sector sources of data should be incorporated. Of course, new data sources may not be directly comparable to earlier data, which raises additional issues. But government spending on data collection is about 0.18% of the federal budget: to be clear, that’s not 18%, but less than one-fifth of 1 percent. We could jack that spending all the way up to a hefty, say. 0.25% of total spending, and it would still be indistinguishable from rounding error in the federal budget.

David A. Price of the Richmond Fed carries out an interview titled “Angus Deaton: On deaths of despair, randomized controlled trials, and winning the Nobel Prize” (Econ Focus: Federal Reserve Bank of Richmond, Fourth Quarter 2023, pp. 18-22). Here are a few of Deaton’s comments that caught my eye:

On his shift from “cosmopolitan prioritarianism” to “domestic prioritarianism”

If you try to find out what an economist believes philosophically, they will say it’s utilitarianism. … And so there’s a widespread belief in economics that poorer people deserved our attention more than less poor people, because an extra dollar given to someone who is really poor would do more good than an extra dollar going to someone who already had plenty. Philosophers nowadays call that “prioritarianism,” meaning people who have the lowest level of well-being are the ones who deserve the most at the margin.

The other dimension is “cosmopolitan,” meaning you apply this idea across the whole world, without paying attention to national boundaries. Many do seem to embrace cosmopolitan prioritarianism, in which you metaphorically line up everybody in the world from worst off to best off and you prioritize the people at the bottom — without regard to where they are.

I certainly believed this for a long time, and I spent many years consulting for the World Bank where this view was strongly held. But I now think it’s wrong for a number of reasons … One of them is that national boundaries really do matter. … We accept obligations for other people in our country, which we don’t accept for other people outside the country. So whether we like it or not, we’re locked in this tangle or this system of reciprocal obligation … Our fellow countrymen, whether we care for them because we feel like them or not, we have a responsibility for in terms of our taxes and welfare systems, such as they are, and so on. So that’s part of it.

The other part is my suspicion, and this is deeply controversial, that some of the poorest people in America are every bit as poor in terms of overall well-being as the people in Africa or India or wherever the aid agencies like to hold up in front of us. And again, that’s not just money. It’s living in a functional society with societal supports. For instance, if you read some of the ethnographic literature about the Mississippi Delta, there are horrible things going on there in people’s lives. I don’t know how to estimate those in terms of numbers, because we don’t have very good tools for that. But I do challenge the idea that there’s no global poverty in America. So I am increasingly drawn to a form of domestic prioritarianism in which I worry a lot about others in my country who have the least.

On his doubts about the research methodology of randomized control experiments:

In the old days, we used to say here’s a regression and here’s a bunch of regression diseases. There’s a bunch of randomized controlled experiment diseases, too, which can get in the way.

People seem to think if you randomize — if you have two groups picked at random and one gets the treatment and one doesn’t — they say the only difference between the two groups is the treatment. But it’s dead wrong. When I used to teach this class, I would say, if I pick one of you at random with my eyes shut, and I pick another one with my eyes shut, does that make you identical? Of course not. You could argue that’s a large-sample or small-sample thing: If you pick a million people at random, then on average, they’re going to be the same in the two groups. And that’s true. But we don’t know how big it really has to be. And a lot of the experiments are pretty small. So it could be that the two groups you’re looking at are different at random but still different.

The other thing is that randomization can’t control for things that are the same in the two groups. That’s the external validity issue. One of my co-authors in the field of randomized controlled trials, the philosopher Nancy Cartwright, has an example that I like to give. There is famous work that Ed Miguel and Michael Kremer did on worms and deworming. They gave deworming pills in Kenya, and the kids who got the deworming pills did much better in school. Nancy lives in Oxford, and she said, “I have my granddaughter living with me and she’s not doing very well in school, so now I know what I should do, which is I should give her deworming pills, right?” But somewhere between Kenya and Oxford, the pills stop working.

So then, why and where? Of course, what’s on the line is there has to be worms or there has to be lack of sanitation or people are not wearing shoes or something, which is never in the experiment, because everybody in the experiment doesn’t have shoes. Or everybody in the experiment is walking around in an unsanitary field or something, and that’s not what you get in Oxford, so it’s not going to work there. But you have to know what these conditions are if you’re actually going to use those results. So sometimes these little experiments are not much more than anecdotes. You don’t really know what to take away from them. To paraphrase Bertrand Russell, you need a deeper view of the structure of reality.

. Is the rise in US health care spending slowing down? For perspective, health care spending as a share of GDP had been rising steadily over the half-century prior to 2010: 5% of GDP in 1960, 6.9% of GDP in 1970, 8.9% of GDP in 1980, 12.1% of GDP in 1990, 13.3% of GDP in 2000, and 17.2% of GDP in 2010, and US health care spending reached a peak of 19.5% of GDP in 2020.

However, 2020 was the first year of the pandemic. The most recent figures on US health care spending show that it was 17.3% of GDP in 2022, similar to the average of the pre-pandemic years from 2016-2019.

Understanding health care spending matters. After all, back in 1960 health care spending was one-twentieth of the US economy; now, it’s closer to one-fifth. For workers whose employers pay for their health insurance, it has been common over the years to see pay “raises” in the form of more costly health insurance coverage, rather than equivalently higher take-home pay. For government, the soaring costs of health care programs like Medicaid and Medicare are a substantial part of what is driving higher long-run budget deficits.

For an overview of the just-released data on US health care spending in 2022, the baseline starting point is “National Health Care Spending In 2022: Growth Similar To Prepandemic Rates,” by Micah Hartman, Anne B. Martin, Lekha Whittle, Aaron Catlin, and The National Health Expenditure Accounts Team (Health Affairs, published online December 13, 2023, forthcoming in January 2024 issue).

The authors point out that in 2022, unlike in so many earlier years, inflation in other goods and services was faster than inflation in health care, which explains the lower ratio of health care spending to GDP in 2022.

In 2022, nominal GDP growth was largely driven by rapid economywide inflation (unlike in 2021), as the GDP price index increased 7.1 percent (the fastest rate since 1981), after growth of 4.6 percent in 2021. Medical price inflation, in contrast, increased only 3.2 percent in 2022 after even slower growth of 1.5 percent in 2021. Inflation in the medical sector might not follow the patterns of the overall economy, as prices for some goods and services that are predominantly paid for by insurance (such as Medicare, Medicaid, and private health insurance) tend to be set in advance through legislation, regulation, or contractual agreements.

They also point out that the share of Americans with some form of health insurance reached an all-time high in 2022: “The insured share of the population reached a historic high of 92.0 percent in 2022 as enrollment in private health insurance increased at a faster rate relative to 2021 and Medicaid enrollment continued to experience strong growth.”

Will US health care spending as a share of GDP tend to remain where it is in 2022, or perhaps even decline a bit? In late October, the Economist magazine pointed out that the rise in health care spending seemed to be slowing down, not just in the US, but in high-income countries across the world. The article put forward various hypotheses: supply-side technology changes and government pressures for lower prices. For example:

The nature of technological innovation in health care may now be changing. One possibility is that there has been a generalised slowdown in treatments that represent medical breakthroughs and are costly, such as dialysis. But this is difficult to square with a fairly healthy pipeline of drugs coming to market. Another possibility, which is perhaps more plausible, is that the type of advancements has changed, involving a shift from whizzy curative treatments to less glamorous preventive ones. There is decent evidence that the increased use of aspirin, a very low-cost preventative treatment, in the 1990s has cut American spending on the treatment of cardiovascular diseases today. …

Demand-side factors may also be keeping health-care spending in check. In America the Affordable Care Act (ACA)—which was introduced in 2010, at about the time costs tailed off—tightened up the ways in which the government reimburses companies that provide treatment. The aca also made it more difficult for doctors to prescribe unnecessary treatments (seven expensive scans, perhaps, instead of one cheap one) in order to make more money.

On the other side, the semi-official government predictions suggest that the rise in health care spending as a share of GDP is still proceeding. In a Health Affairs article back in June 2023, a team of government health care economists provided “National Health Expenditure Projections, 2022–31: Growth To Stabilize Once The COVID-19 Public Health Emergency Ends,” by Sean P. Keehan, Jacqueline A. Fiore, John A. Poisal, Gigi A. Cuckler, Andrea M. Sisko, Sheila D. Smith, Andrew J. Madison, and Kathryn E. Rennie.

These authors had health care spending data through 2021, and they forecasted the final spending levels of 2022 spending quite accurately. However, their projection is for US health care spending as a share of GDP to rise gradually through the rest of the 2020s, reaching 19.6% of GDP by the end of their projection window in 2031. One of the big drivers of the shift is the rise in the number of elderly and very elderly Americans. This forecast suggests that although the rise in US healthcare spending as a share of GDP paused in the 2010s, but will return in the 2020s.

But although the demographic patterns of an aging America are pretty much set in stone for the next couple of decades, the patterns of health care spending can be altered. As one example, I’ve argued in the past that although finding ways to support people in managing their chronic conditions (like high blood pressure and diabetes) has traditionally been outside what is regarded as “health care spending,” it could have large payoffs in terms of improved health and reduced need for expensive episodes of hospitalization (for discussion, see here, here, and here).