No Ordinary Panic – Bank Run in Russia

Link: https://www.city-journal.org/russian-bank-run-is-no-ordinary-panic

Excerpt:

The war in Ukraine and subsequent international sanctions have triggered a bank run in Russia. But this is no ordinary run—it may become a run on the central bank itself, one that holds important lessons for introducing central bank digital currencies.

Reports show Russians lining up at ATMs to withdraw their cash. For now, the run is largely driven by fears of withdrawal limits and the anticipation that credit cards and electronic means of payments will cease to function. If that happens, cash at hand is the better alternative. For that scenario, central banks know what to do: provide solvent banks with plenty of liquidity against good collateral, as Walter Bagehot recommended.

But will that be all? As Western countries freeze the Russian central bank’s reserves and limit the ability of banks to transact internationally, the exchange rate of the ruble has collapsed, falling by more than 40 percent. Prices for ordinary goods may begin to rise, perhaps dramatically so. If that happens, then rubles would no longer be a good store of value. Russians may seek to convert them into foreign currency, but that’s hard to do with the current sanctions. Consequently, they may start to hoard goods instead, dumping their cash as they go along. The situation would no longer be a run on specific goods, but a run away from fiat money and toward goods—a run, in other words, on the central bank.

Author(s): Linda Schilling, Jesús Fernández-Villaverde, Harald Uhlig

Publication Date: 7 Mar 2022

Publication Site: City Journal

Understanding the Covid Odds

Link:https://www.city-journal.org/understanding-the-covid-odds

Excerpt:

Those odds can be gauged from a study by researchers at the National Institutes of Health, published by the Centers for Disease Control. They tracked more than 1 million vaccinated adults in America over most of last year, including the period when the Delta variant was surging, and classified victims of Covid according to risk factors such as being over 65, being immunosuppressed, or suffering from diabetes or chronic diseases of the heart, kidney, lungs, liver or brain.

The researchers report that none of the healthy people under 65 had a severe case of Covid that required treatment in an intensive-care unit. Not a single one of these nearly 700,000 people died, and the risk was miniscule for most older people, too. Among vaccinated people over 65 without an underlying medical condition, only one person died. In all, there were 36 deaths, mostly among a small minority of older people with a multitude of comorbidities: the 3 percent of the sample that had at least four risk factors. Among everyone else, a group that included elderly people with one or two chronic conditions, there were just eight deaths among more than 1.2 million people, so their risk of dying was about 1 in 150,000.

Those are roughly the same odds that in the course of a year you will die in a fire, or that you’ll perish by falling down stairs. Going anywhere near automobiles is a bigger risk: you’re three times more likely during a given year to be killed while riding in a car, and also three times more likely to be a pedestrian casualty. The 150,000-to-1 odds of a Covid death are even longer than the odds over your lifetime of dying in an earthquake or being killed by lightning.

Author(s): John Tierney

Publication Date: 6 Feb 2022

Publication Site: City Journal

An Epidemic of Bad Budgeting

Link: https://www.city-journal.org/covid-19-lockdowns-exposed-cities-deep-seated-financial-troubles

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Excerpt:

The past year has been a fiscal nightmare for Nashville. Covid-19 helped punch a $332 million hole in the city’s $2.46 billion budget. Tennessee state comptroller Justin Wilson warned that, without drastic action, the state might take over management of Nashville’s affairs. In response, the city council raised property taxes 34 percent, spurring a citizen revolt in the form of a ballot initiative to overturn the tax hike. Without the extra revenue, however, Mayor John Cooper’s administration said that drastic cuts would be unavoidable: “Few corners of the Metro government, including emergency services and schools, would be spared significant reductions or eliminations.”

Nashville’s budget woes predate the pandemic: the city began borrowing money to cover deficits after the Great Recession of 2008–09. City leaders, at the same time, went into heavy debt to build new government-owned attractions, offered workers health retirement benefits that they haven’t funded, and deep-sixed pension reforms that saved the state billions of dollars. In fact, back in December 2019, the state comptroller issued a similar warning to Nashville about its shaky finances.

The Music City isn’t alone. The Covid health emergency and accompanying economic downturn caused budget crises for municipalities—cities, counties, and school districts—across America. A February letter from 400 mayors to President Biden said that the pandemic-inflicted strain on municipal budgets had “resulted in budget cuts, service reductions, and job losses” throughout local government. America’s largest city, New York, grappled with a nearly $10 billion budget deficit in the spring of 2020, while Chicago struggled with a $2 billion gap. Dozens of local governments used the crisis to justify budget maneuvers that fiscal experts generally frown upon, from borrowing money to close deficits to issuing bonds to fund employee pensions.

Author(s): Steven Malanga

Publication Date: Summer 2021

Publication Site: City Journal

Opioids and the Unattached Male

Link: https://www.city-journal.org/opioids-and-the-unattached-male

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Excerpt:

From 2010 to 2019, the drug-related death rate among never-married prime-age white men increased some 125 percent: from 52 deaths per 100,000 to 117 (including 2020 would show an even steeper rise, but the pandemic affected Census data collection). If single and divorced prime-age white men had seen opioid deaths rise by only the same rate as those deaths rose among their married counterparts, the U.S. would have seen 38,800 fewer deaths from drug-related causes over the past decade just among this demographic group.

A marriage certificate is no prophylactic against the scourge of drug overdoses, of course. Marital status is correlated with income, race, and age; while death certificates don’t report income, we know that married decedents are more likely to be white, older, and better-educated. Controlling for those factors still shows single men to be at greater risk of dying from drug-related causes than married ones.

Author(s): Patrick T. Brown

Publication Date: 14 Jan 2022

Publication Site: City Journal

Heaping on the SALT

Link: https://www.city-journal.org/will-biden-restore-the-state-and-local-tax-deduction

Excerpt:

The Biden administration will need practically every Democratic representative in Congress to vote for its proposed $2 trillion package of tax increases, which would be the largest in 54 years. To gain that support, the president may have to season his legislation with some SALT. The bill, which raises corporate taxes and boosts capital-gains levies, among other things, doesn’t restore the full federal deduction for state and local taxes that Donald Trump’s 2017 tax-cut bill capped.

Democrats in key high-tax blue states, including New York representative Tom Suozzi and New Jersey representative Josh Gottheimer, have been complaining that Trump’s tax bill placed an undue burden on their states’ residents. Some have vowed not to support any tax legislation unless it reinstates the full SALT deduction. The problem: federal data show that restoring the deduction would overwhelmingly profit rich taxpayers—and lawmakers in many blue states have already raised their own levies on the rich.

…..

Subsequent data have shown that the SALT changes fall heavily on the rich, while the vast majority of taxpayers in high-tax states have benefited from the Trump cuts. An analysis of 2018 New York tax returns found that the number of residents subject to the higher rates of the Alternative Minimum Tax declined to just 0.2 percent of all returns, down from 5.9 percent in 2017. Thanks to the doubling of the standard deduction, the number of New Yorkers itemizing their deductions shrank by nearly two-thirds that year, according to an Empire Center report. A recent report by the left-of-center Brookings Institution found that 57 percent of the benefits of restoring a full SALT deduction would go to the top 1 percent of households, providing them with an average tax cut of $33,000.

Author(s): Steven Malanga

Publication Date: 17 Sept 2021

Publication Site: City Journal

A Cure for Government Incompetence

Link: https://www.city-journal.org/britain-successful-vaccine-program

Excerpt:

Almost everyone I know in Britain has been surprised—for once, pleasantly so—by the success of the country’s vaccination program against Covid-19. We are so accustomed to the abject failure of our public administration in almost everything, from its political dithering, followed by self-evidently wrong (and costly) decisions, to its bureaucratic incompetence and moral corruption, that when something goes right, we stand amazed. What, indeed, can explain why something should at last have gone right?

…..

The government decided that everyone should be immunized according to risk—first the oldest people and health workers, then the slightly less old and those with compromised immunity, and then the still less old, and so forth, until all adults will have been covered. By spring, more than half the population had received a first (and most important) dose of a vaccine. Almost no opposition to, or even criticism of, this manner of proceeding has arisen— unlike with almost everything else the government has done in its response to the pandemic—and the uptake of the vaccination offer has been high, except among some ethnic minority groups.

The government website to make a vaccination appointment could hardly have been better designed. It gave a large choice of locations, based on their distance from one’s home; we could select time and place. My wife and I chose the following day at noon at Ludlow Racecourse, where a large vaccination center was operating. We could have had our vaccination at my local doctors’ office, 300 hundred yards away from where we lived, but in a time of lockdown, we wanted a day out: so reduced have been our horizons of late that a drive of 20 miles or so seemed almost exciting.

Author(s): Theodore Dalrymple

Publication Date: Summer 2021

Publication Site: City Journal

Stay in Your Lane

Link: https://www.city-journal.org/fed-is-not-the-right-institution-to-tackle-economic-inequality

Excerpt:

While the economic case for reducing inequality isn’t clear, a moral case can be made. One could argue that it’s wrong for the few to have so much while the many have so little. But it’s not the Fed’s job to make moral decisions about the ideal distributions of wealth. This is an inherently political calculation—one that should be addressed through institutions directly accountable to voters. Moreover, the tools at Congress’s disposal—tax rates and control over benefits, for example—are better suited for taking on inequality. And these policies involve costs, too, in terms of growth. Voters should be the ones to decide whether they want to pay them.

The Fed’s role is to balance short- and long-term interests, making the hard choices that may harm the economy now in exchange for long-term stability and expansion. Once politics are involved, however, it becomes difficult if not impossible to make this trade-off. The Fed can do what it does because it has a narrow mandate: reasonable inflation and maximum employment. It needs to stay in its lane.

Author(s): Allison Schrager

Publication Date: 2 September 2021

Publication Site: City Journal

What’s Keeping Women Out of the Workforce?

Link: https://www.city-journal.org/government-policies-keeping-women-out-of-workforce

Excerpt:

Since last winter, 1.8 million women have left the labor force entirely—neither working nor looking for work. At first, closed schools and the high cost of child-care options seemed responsible. But economists who have crunched the numbers argue that closed schools can’t explain higher female unemployment. Women with young children make up only 12 percent of the labor force and were only slightly more likely to leave the labor force than were women without young children. The exception? Women with young children who don’t hold college degrees—they constitute only 6 percent of the labor force but saw the biggest drop in employment. Their employment rate has fallen by almost eight percentage points since the pandemic started.

This suggests that women aren’t working for various reasons. For most families, several factors—child-care options, how much a given job will pay, and their partner’s employment prospects—determine whether they will decide to return to work. Rarely in economics does a single cause explain a phenomenon; policies often affect behavior on the margins. If you’re struggling to find good, affordable child care and you are being paid more to stay at home, that extra factor can tip the scales.

Indeed, several current policies seem to be discouraging women from returning to work.

Author(s): Allison Schrager

Publication Date: 15 June 2021

Publication Site: City Journal

Ask the Experts Ep.12: Biden’s infrastructure plan and America’s largest cities

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Watch a recording of Truth in Accounting’s virtual event with special guest Steve Malanga, senior editor at City Journal. In this episode, we discussed the financial troubles of America’s largest cities and the effects of Biden’s infrastructure plan.

Author(s): Bill Bergman, Sheila Weinberg, Steve Malanga

Publication Date: 14 May 2021

Publication Site: Truth in Accounting at YouTube

Stick It to the Rich

Link: https://www.city-journal.org/bidens-costly-capital-gains-tax-hike

Excerpt:

And applying the higher capital gains rate to top earners, who tend to be wealthy, creates bigger distortions because these taxpayers have many tools to avoid the tax. For example, when you inherit assets subject to estate taxes, the capital gains tax that you pay is based on when the asset was transferred to you, instead of when it was bought. This is known as a step-up in basis. Doubling the tax rate makes this provision much more attractive, and word is that the Biden plan nixes it. High earners can find other ways to get around this tax with the right advice. Certain asset classes, such as investment real estate, offer a chance to lower liability. We may also see more high-net-worth investors move further into the murky world of private equity, where values are easier to distort.

There are better ways to collect investment-income revenue. Getting rid of step-up in basis is a start; the administration could also take on the myriad loopholes that favor different asset classes. But these approaches don’t offer the stick-it-to-the rich satisfaction of doubling the rate on investment income—even if we all wind up paying for it.

Author(s): Allison Schrager

Publication Date: 23 April 2021

Publication Site: City Journal

Industrial Policy Is a Bad Bet

Link: https://www.city-journal.org/bidens-infrastructure-bill-is-a-bad-bet

Excerpt:

We can see evidence of the market distortions that government subsidies cause in the market capitalization of electric-car maker Tesla—currently about $650 billion, or more than five times that of General Electric. Tesla benefits from many subsidies already, and the Biden infrastructure plan aims to divert even more to the electric-car industry. And by increasing the corporate tax rate to pay for part of these subsidies, the Biden plan will further distort the market by making the unsubsidized private sector even less attractive to investors.

The pandemic forced many businesses to adopt new technologies that could boost productivity for decades. Productivity gains don’t always come so fast. It took more than 100 years for the steam engine, a transformative technology, to show up in productivity estimates, for example. The pandemic’s acceleration of this process of technological adoption means that we could be poised for a big burst of follow-on growth and innovation. But government interventions on the scale of the Covid stimulus and infrastructure bill threaten to divert these energies into less productive investments.

True, the added government spending will provide short-term benefits to workers in the form of new jobs building roads, bridges, and airports or retrofitting buildings with green technology. But using industrial policy to create jobs can also generate long-term risks for those workers, by steering them away from gaining the skills and experience the market may need in the future. Research has shown that workers for the Depression-era Works Progress Administration were less likely to take higher-paying private-sector jobs when they became available because they preferred the security of a government guarantee. In the long term, that can lead to wage stagnation and a population less competitive in the global market.

Author(s): Allison Schrager

Publication Date: 19 April 2021

Publication Site: City Journal

Detroit’s Black Wealth Tax

Link: https://www.city-journal.org/detroit-racial-wealth-gap-property-tax-policy

Excerpt:

But this is Detroit, which has the highest effective property tax rate of any major city in America, at 3.58 percent of market value. If the tax man assesses your house at its full renovation cost, this would add $537 to your monthly mortgage bill, bringing it to $1,295.

That hefty charge might not look too bad if the quality of local government services is top shelf. As Charles Tiebout observed in his classic 1956 article on local public finance, people “vote with their feet” and shop for their preferred combination of services and prices among various localities. Some happily buy at the public services equivalent of Neiman Marcus, others at Walmart.

From public safety to education to infrastructure, however, Detroit is no Neiman Marcus. To be charitable, let’s suppose the city’s services are on par with those of other Michigan cities, where the average property tax rate is 1.54 percent. Elsewhere, then, a comparable $180,000 investment comes with a monthly mortgage bill of just $989, or $306 a month less than in Detroit.

Author(s): Stephen J. K. Walters

Publication Date: 9 April 2021

Publication Site: City Journal