Macro vs. Micro

I have been periodically reading The Grumpy Economist (http://johnhcochrane.blogspot.com), published by professor John Cochrane.  Normally I don't lean towards academics as they are too theoretical, however, John seems to have a more applied viewpoint of economics.  Obviously I agree with the post below, otherwise I wouldn't be re-posting.

Cheers

Ned

Micro vs. Macro

The cause of sclerotic growth is the major economic policy question of our time. The three big explanations are 1) We ran out of ideas (Gordon); 2) Deficient "demand," remediable by more fiscal stimulus (Summers, say) 3); Death by a thousand cuts of cronyist regulation and legal economic interference.

On the latter, we mostly have stories and some estimates for individual markets, not easy-to-use  government-provided statistics. But there are lots of stories.

Here is one day's Wall Street Journal reading while waiting for a plane last Saturday:

1) Holman Jenkins,

... unbridled rent seeking.  That’s the term economists use for exercising government power to create private gains for political purposes. 

Channelling Jefferson,

Mr. Obama’s bank policy dramatically consolidated the banking industry, which the government routinely sues for billions of dollars, with the proceeds partly distributed to Democratic activist groups. 

His consumer-finance agency manufactured fake evidence of racism against wholesale auto lenders in order to facilitate a billion-dollar shakedown.

 His airline policy, urged by labor unions, led to a major-carrier oligopoly, with rising fares and profits. 

His FDA is seeking to extinguish small e-cigarette makers for the benefit of Big Tobacco and Big Pharma (whose smoking-cessation franchise is threatened by cheap and relatively safe electronic cigarettes). 

His National Labor Relations Board, by undermining the power of independent franchisees, is working to cartelize the fast-food industry for the benefit of organized labor.

Summing up,

We could go on. Mr. Obama’s own Council of Economic Advisers complains about the increasing cartelization of the U.S. economy—as if this were not a natural output of regulation. In a much-noted Harvard Business Review piece this spring, James Bessen, an economist, lawyer and software entrepreneur, cites increased “political rent seeking” to explain the puzzle of rising corporate profits in the absence of job creation and economic growth.

The truth is, government playing neutral arbiter over the private economy doesn’t produce rents. A stable and predictable regulatory system produces only mingy or non-existent rents.

2) Uber class action buffet

Federal judge Edward Chen on Thursday rejected a $100 million settlement in a class action alleging that Uber misclassified drivers as independent contractors. That’s a big pot of cash, but the judge says the ride-hailing company can be raided for billions more....Judge Chen complained, however, that the settlement required class members to drop all employment-related claims (e.g., minimum wage, rest and meal breaks and workers’ compensation) ...he settlement would have pre-empted at least 15 lawsuits for employment-related claims as well as cases “before various administrative bodies such as the NLRB.”...the settlement would have scotched lawsuits brought under California’s Private Attorneys General Act—known among businesses as the “bounty hunter law”—that lets private attorneys litigate labor, safety and health code violations on behalf of the state. California pays the lawyers’ fees and keeps 75% of the bounty. The state’s Labor & Workforce Development Agency carped that the statutory penalties against Uber could exceed $1 billion.  

Uber brings flexible employment to thousands, and dramatically better and cheaper rides to consumers and businesses. Whatever you think of contractors vs. employees, nothing in this improves productivity and economic growth, or encourages the needed massive investment towards self-driving ubers.

3) You don't need a dentist to fill a cavity Whether (cheaper, less licensed) dental therapists will be allowed to provide basic services especially in poor areas where there are no dentists.

4) How Obama’s FDA Keeps Generic Drugs Off the Market

 One of the biggest factors fueling the angst over drug prices in the U.S. is that some older medicines that should be sold cheaply as generics are still priced very high, often owing to a dwindling number of generic competitors ..in recent years the Food and Drug Administration has imposed on generic firms many of the same costly requirements that the agency applies to branded-drug makers.  

In 2003...we estimated that it cost less than $1 million for a firm to file a generic-drug application. ...Today, filing a generic application requires an average of about $5 million and can cost as much as $15 million.... 

For generics filed in 2009, the median review time exceeds three years. Yet generics launched in 2015 took about four years for the FDA to approve, since less than 2% of applications were approved on their first submission.    

A new FDA draft regulation...would force the generics to clutter their drug labels with defensive advisories to avoid “failure to warn” lawsuits. Legal fees stemming from the regulation would add over $5 billion to annual health-care costs, rising to $8.6 billion by 2024, ...

And this is just one morning's reading of one paper's opinion section while sipping coffee at the airport. Even the New York Times is waking up to the apres-Obama regulatory deluge.

As these stories make clear, the problem is not benevolent but ham-handed interventionism. The problem, much tougher, is best described as "cronyism." A veneer of public purpose stifles markets, to drive profits to connected parties in return for political support.

Can we really screw up every single market but make it all up with "demand?" The "ideas" and "stimulus" approaches presume everything else in the economy is working just fine. Is investment really slow only because there are, fundamentally, just no good ideas to invest in any more?

The deeper economic issue is whether "macro" and "growth" outcomes really can be separated from "micro" distortions in each market.