The worst drug epidemics in American history

The New York Times said “The current opioid epidemic is the deadliest drug crisis in American history.” Last August, Donald Trump declared, “The opioid crisis is an emergency, and I’m saying officially right now it is an emergency… It’s a national emergency. We’re going to spend a lot of time, a lot of effort, and a lot of money on the opioid crisis.” But that was just a declaration to reporters at his golf resort without any official action. Two and a half months later, he finally got around to changing actual policy, but he stopped short of declaring an official state of emergency. Instead he declared a Public Health Emergency which doesn’t raise any additional funding, but allows the government to use a special fund that currently has just $57,000 in it. That is less than one dollar per death!  Vox said, “America’s opioid epidemic is so bad it’s causing average life expectancy to drop” because the problem has been skyrocketing:

In one year, drug overdoses killed more Americans than the entire Vietnam War did… a new report by Josh Katz for the New York Times, …calculated that 59,000 to 65,000 people died of overdoses last year… In comparison, more than 58,000 US soldiers died in the entire Vietnam War [over the course of 14 years], nearly 55,000 Americans died of car crashes at the peak of such deaths in 1972, more than 43,000 died due to HIV/AIDS during that epidemic’s peak in 1995, and nearly 40,000 died of guns during the peak of those deaths in 1993.

In contrast, in the fifteen years after 9/11, jihadi terrorists have only killed 94 people inside the United States according to the New America Foundation, but most Americans are much more worried about the war on Islamic terror than the war on opioids.  Of course most terrorist deaths in the US aren’t due to Jihadis, so all terrorism is a larger risk than just Islamic terror, but regular homicides, like the mass shooting in Las Vegas, are a much bigger problem yet.

As the above graphic illustrates, people are bad at rationally assessing risks. For example, we are more scared of terrorism than homicide and more scared of homicide than opioids.  But what we really should be scared of is another drug altogether because opioids are not even the deadliest drug in the US.  As German Lopez explains, The New York Times was wrong to call it “the deadliest drug crisis in American history.”

[another drug besides opioids] was associated with more deaths…  alcohol.

According to the Centers for Disease Control and Prevention (CDC), alcohol is linked to 88,000 deaths each year… it’s a very high death rate — making alcohol the third leading cause of preventable death in the US. What’s worse, the 88,000 number may, at this point, be an underestimate. The figure comes from an analysis of deaths between 2006 and 2010. But since then, we’ve seen some signs that alcohol deaths may have gone up: Between 2010 and 2015, the number of alcohol-induced deaths (those that involve direct health complications from alcohol, like liver cirrhosis) rose from nearly 26,000 to more than 33,000.

Alcohol isn’t even the deadliest drug in the US; that would be tobacco. Smoking is linked to, depending on the estimate, 480,000 to 540,000 deaths each year — the leading preventable cause of death in America. (This figure is potentially too high, since it’s based on mortality data from 2005 to 2009, and smoking rates have dropped since then. Still, it’s an extremely high death toll.)

Yet all of these deaths didn’t inspire President Donald Trump or the presidents before him to formally declare a public health emergency over tobacco or alcohol, as Trump finally did for opioids on Thursday. We don’t often call alcohol or tobacco “epidemics,” even as we regularly use that same language for opioids that are linked to a fraction of the deaths from alcohol or tobacco.

Maybe we should. We have a lot of evidence that we could do much more to combat alcohol and tobacco deaths. But we haven’t….

There are plenty of things we could do about alcohol and tobacco.

In drug policy discussions, we typically talk about drugs in a binary framework: You either legalize them or prohibit them… The reality, though, is there are plenty of policy interventions we could take on before reaching for prohibition.

For alcohol, the research backs raising the alcohol tax. It supports limiting the number of alcohol outlets. There are innovative evidence-based policies that temporarily yank a person’s right to drink if they get in trouble with the law due to alcohol. We could also put states, instead of private businesses, in charge of alcohol sales, which the research shows can keep prices higher, reduce access to youth, and reduce overall levels of use. And we could increase access to evidence-based addiction treatment.

With tobacco, we have other evidence-backed policies: raising taxes to reduce access; improving access to safer alternatives to smoking like nicotine gum, nicotine patches, and e-cigarettes; using stronger warning labels; and raising the smoking age… These policy interventions, though, aren’t pushed with the same kind of vigor and all-hands-on-deck effort we see with opioids, at least rhetorically, today. That’s especially the case with alcohol, which is many Americans’ drug of choice and has a powerful, big lobby behind it — making lawmakers cautious about raising alcohol taxes even to keep up with inflation or instituting policies as simple as labeling alcohol with nutrition facts.

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Posted in Labor, Public Finance

Imputed rent

Suppose you own a house worth $240,000, but your job forces you to move to Chicago for two years where you will have to pay $12,000 ($1,000/month) to rent another house with nearly identical characteristics. Fortunately, you can rent out your house for $12,000, but this won’t completely cover your cost of housing because you will have to pay 25% income tax on the rent you earn ($3,000), so your gross housing bill goes up just because you are paying rent for the same kind of housing. As it turns out, your landlord is Jane who happens to have also relocated to your town and is renting your house and paying you $12,000. Legally, she also has to pay $3,000 income tax on the rent you are paying her, but if you can both just quietly agree to trade houses without any money being exchanged, you can both avoid paying these taxes.

Similarly, everyone who owns a home is getting an annual stream of economic benefit (an income) from owning the home whether they rent out the home or whether they live in it. If they rent it out, they get rent payments, and if they live in it themselves, then they are earning “imputed rent”. Imputed rent is the rental value that an owner would get from renting the home they occupy at market rates. A few countries including Iceland, Luxembourg, the Netherlands, Slovenia, and Switzerland do tax imputed rent, and where it is not taxed (like in the US) it is the biggest subsidy for home ownership. For example, suppose you were renting for $12,000 ($1,000/month), but you were earning $1,000/month on $240,000 in savings. If you use your savings to buy the house for $240,000, you would still be getting the same amount of earnings from your savings, but your taxes would drop under the American system. It isn’t fair to tax people more simply because they have invested their savings in stocks or bonds rather than in housing.

In addition, there are more tax breaks for homeowners like the mortgage-interest tax break that increase the government subsidy for home ownership. The mortgage-interest tax break would make sense in the above nations where imputed rent is taxed because it would be just like any other business expense, but in the US, it is just an extra subsidy on top of the tax savings from avoiding taxes on imputed rent. Below is a graph from the Urban Institute via VOX that shows how much the OTHER kinds of subsidies benefit owner-occupied households in different income classes, but with interest rates so low right now, the tax savings of untaxed imputed rent is probably much bigger than the more explicit subsidies in the graph below at least for families above the median income.

Posted in Medianism

Vox’s misleading gun death graph

In the wake of the mass shooting tragedy in Los Vegas, Vox posted an analysis showing that more guns lead to more gun deaths:

I was immediately suspicious because I’m living in Guatemala and I am constantly being reminded that Latin America has very high homicide rates, and although I see guards with massive guns all over the place, it has fairly low gun ownership rates. Whereas I agree that a lot of data supports the thesis that too many guns contributes to more gun deaths, gun availability isn’t the only thing that leads to gun deaths. Other factors are often more important. Otherwise the US would have the highest homicide rate in the world because the US has by far the most guns per capita.  I can’t figure out any simple rule that explains how they picked the nations they included in the above graph. It isn’t the list of OECD nations. It is pretty close to a graph that excludes all poor nations, but if so, then it should really include Panama and Uruguay which are richer than Argentina (which is included). But that wouldn’t fit the thesis that guns cause more deaths as nicely. The graph came from Tewksbury Lab, but they have taken down all reference to it, so I can’t see where they got their data, but it looks like they used data from the 2011 “Estimating Civilian Owned Firearms” by the Small Arms Survey. Nationmaster seems to have taken the Small Arms Survey data and added some estimates for other countries to come up with a more comprehensive data set of gun ownership which I combined with World Bank homicide data to produce this graph:

In fact, it appears that gun availability is actually somewhat correlated with fewer gun deaths. I tried excluding all nations poorer than Spain, but it still doesn’t give much support to the thesis that more guns cause more homicides because there is little correlation again:

Basically, there are two outliers, the US and Qatar, and they are so different from all other rich nations, that they should both probably be excluded. When you do that, again there is almost zero correlation between guns and homicides. That doesn’t mean that guns don’t contribute to the high homicide rate in the US, but it just isn’t a simple matter. Lots of other factors are also important such as environmental lead, criminal justice, inequality, etc.

Below is another graph using data from Wikipedia’s entry about firearm-related deaths which looks more reliable than NationMaster because Wikipedia cites where all their data comes from, and it is more up to date.  It tells a very similar story.

Guns don’t make that much difference because there are wide differences in the number of homicides per gun:

That is using the Nationmaster & World Bank data again. Each gun kills over 2,000 times more people in Tunisia than in Switzerland. Here is a close up of the left tail of the above graph to show the nations that have low levels of homicides per 1,000 guns like in the USA.  Only about 1 in 20,000 guns is used to kill people in America on average.  That is just a few bad apples.

UPDATE: I found the original graph on the Wayback Machine and the author’s methodology looks sound.  Also, this chart from Mother Jones is pretty convincing since US states are all relatively similar so the effects of differences in gun ownership can pop out more clearly:

Gun ownership tightly correlates with gun violence.

Posted in Health, Violence & Peace

US median income finally rises above record set in 1999. Yea!

Kevin Drum reports that the official census bureau measure of:

household income is now at an all-time high:

And now for the buzzkill portion of this post: this means household income has increased a whopping 0.6 percent since 1999. That’s $22 per year.

Posted in MELI & Econ Stats

Jaywalking in Guatemala

As a visitor to Guatemala, I’ve often heard cautions from Guatemalans to be extra careful crossing the road because cars have the right of way and might run me over.  Although cars give very little regard to pedestrian safety, there doesn’t seem to be any laws against jaywalking.  Pedestrians jaywalk across any street or highway anywhere (at their own risk).  In the US, it is illegal to jaywalk, but it is also illegal for cars to run over pedestrians, so whenever a pedestrian does get in a street, cars tend to give them the right of way.

On my first visit to Guatemala in the early 1990s, I was waiting for a bus along a two-lane highway in a small town that lined the highway with small businesses on both sides and was bustling with pedestrians.  At one point I heard a semi-truck blaring on its air-horn and I looked up to see an old indigenous man slowly walking across the highway.  The semi was barreling down the highway towards the old man who seemed oblivious to the traffic at that moment.  The truck kept blaring its horn as it barrelled straight towards the man without slowing.  It didn’t swerve an inch and ran right into the man, tossing him into the air like a limp rag doll.

As his body flopped down on the gravel along the side of the road, the truck stopped blaring its horn, but it otherwise kept driving down the road like nothing had happened. Nobody chased after the truck and no police ever showed up.  It was the only time I’ve seen someone die right in front of my eyes.

A small group of bystanders immediately gathered around the dead man on the side of the road and a short time later someone came with a pickup truck and they loaded up his body and drove him away.  Someone told me that rural people died frequently in accidents like that because they weren’t used to seeing much traffic and the traffic that they did encounter in their rural areas couldn’t drive much faster than walking speed anyway because the dirt roads are so badly potholed.

When they encounter the new highways where cars drive at ungodly speeds, they are as unprepared for how to react as a deer caught in headlights and some drivers don’t give them any more respect than deer. That has caused collisions between modern urban Guatemalans and the traditional rural world.

 

Posted in Development, Public Finance

Trickle-up economics

Supply-side economics is often derided as trickle-down economics. It is the idea that we should reduce taxes on the wealthy who will then use their increased disposable income to grow the economy so fast that it will benefit everyone. That isn’t what Thomas Piketty, Emmanuel Saez and Gabriel Zucman have found. The actual pattern is pretty much the reverse. The middle class (and the median) has had higher income growth when the income of the poor was growing faster than the income of the rich as you can see in this graph from NYT writer David Leonhardt.

When the poor had high income growth, everyone had high income growth. Even most of the rich had higher income growth than the average income growth in 2014, so the rising tide really did lift all boats.

More recently, the poor have actually been getting poorer and the rich have been getting a lot richer as the leave the rest of the population in the dust. The economy for most Americans has been fairly stagnant. This is a more crucial issue than another round of tax cuts for the wealthy.

Posted in Medianism, Public Finance

Why the long-run value of Bitcoin is near zero.

Economics textbooks say that the three main functions of money are 1) a unit of account (a measurement of value); 2) a medium of exchange; and 3) a store of value.

As I wrote earlier, only the first two functions are really unique to money. Lots and lots of things serve as a store of value and are better stores of value than money, so although it is a function of money, it is a distant third place function. There is an inherent tension between this function and the second function because whenever something gets used as a store of value, it stops being used as a medium of exchange. Just like you can’t have your cake and eat it too, you can’t store your money and exchange it too. Bitcoin is more like gold than money because both are primarily bought as a store of value rather than as a medium of exchange and this is one reason why Gold and bitcoin both have very volatile value. If the value of gold and bitcoin didn’t change, speculators would have no interest in holding them as a store of value except if they expected that an economic disaster would cause everything else to drop in value. Speculators capriciously speculate about future values and that drives the price volatility of goods that are primarily used as a store of value. In fact, the more that something comes to be seen as primarily a store of value rather than as something that is valued for its intrinsic usefulness, the more volatile its price becomes. For example, housing bubbles are not caused by people who just want an economical place to live long run, but by speculators who see housing as a growing store of value and are hoping to resell at a profit in the near future.  Although bitcoin proponents like to tout its rising value as a success, that appreciation causes a major problem for bitcoin as a medium of exchange.

In contrast, a modern fiat money almost never goes up in value, so the main reason people hold it is as a medium of exchange. Central banks actively manage the value of every successful modern money to keep it reliably predictable and one way they try to prevent money from being used as a store of value is by engineering a little inflation which steadily reduces the long-run value of money. Inflation gives speculators an incentive to buy other things (like stocks, bonds, money-market shares, gold or bitcoin) as stores of value rather than money. It is the “animal spirits” of speculators that cause most price volatility in financial markets and by making money a bad long-run bet for speculators, central banks make their job easier to reduce the volatility of the value of money. Because money is held as a medium of exchange, there is little speculation about how much it should be worth and so its value does not change unpredictably which makes it more useful as both a unit of account and a medium of exchange.

Nobody uses bitcoin (nor gold) as a unit of account (for measuring value) because the units jump around much more capriciously than the value of money. According to Mark Williams, as of 2014, bitcoin had volatility seven times greater than gold, eight times greater than the S&P 500, and 18 times greater than the U.S. dollar.  Even the Bitcoin Foundation sets its employee’s salaries in dollars rather than in bitcoins.  Because bitcoin (and gold) are bad units of account, they are rarely used as a medium of exchange except by criminals. Bitcoin has a major advantage for criminal exchanges because it is untraceable by any police, but for everyone else, the transactions costs due to high price volatility outweighs any other advantage of bitcoin.

The block chain technology that bitcoin is built on could offer a more efficient way of making payments, but prices will always be quoted in dollars (the unit of account) because dollars have more stable value. And as long as dollars are used as the unit of account, they will also be used as the de-facto medium of exchange too. For this reason bitcoin will never replace money as a unit of account nor as a medium of exchange, but the technology does have some advantages for reducing transactions costs. That could be the real legacy of bitcoin. Some of the technologies of bitcoin could be adopted by the banking system or a payment provider like PayPal to reduce transactions costs and replace our antiquated money
transfer system, but the new system will still exchange dollars rather than bitcoins.

Once everyone realizes this, the value of bitcoin will collapse. The main reason people are excited about bitcoin is on the theory that it could eventually become our standard money, but it cannot beat central-bank money as a medium of exchange, and at some point this fact will inevitably enter the consciousness of the speculators that determine the price of bitcoin which will then collapse to near zero. Speculators base their hopes for bitcoin on the theory that its technology is more efficient at reducing transactions costs, but eventually the banking system will adopt those technologies and then bitcoin will cease to even have a theoretical advantage. At that point the only advantage bitcoin will still have is its usefulness for avoiding detection by those who are evading taxes, profiting from crime, and funding terrorism, so the long-run future value of bitcoin will depend upon the heath of the only arena where it is already being used as a preferred medium of exchange, the black-market economy.

Once the speculators abandon bitcoin and it becomes just a reserve of terrorists and criminals, the police will shut down the companies that exchange bitcoin for money which will make bitcoin virtually worthless for criminals too because they mainly rely upon money for most transactions and only use bitcoin for illegal transactions.

Bitcoin’s value will fall to zero once people realize its failure as a medium of exchange because it has absolutely no other source of value. All stores of value must have some underlying value. Fiat money (like the dollar) is truly useful because it really does minimize transactions costs as a medium of exchange which give it its underlying value. If there were something else that was better at facilitating exchange transactions (like bitcoin), we would use it instead of dollars and the dollar would become worthless because it has no other fundamental source of value. Commodity monies like gold and silver can rise and fall in value, but they cannot fall to zero (and did not fall to zero when fiat money replaced them for transactions) because they are inherently useful for other things besides facilitating transactions. They are used for industrial production and for making beautiful things like the shiny gold plating that Donald Trump likes to surround himself with. Neither bitcoin nor fiat money have any other value if they aren’t the cheapest medium of exchange in some market.  However, fiat money cannot fall completely to zero value as long as the government requires that everyone pay taxes using government-issued fiat money.  Almost a quarter of US income is paid in taxes each year, so that requires a lot of dollars and prevents the value of dollars from falling to zero even if they weren’t the best kind of money for every other transaction.

A fiat money like the US dollar is cheaper to use than bitcoin as a medium of exchange because 1) its value is more stable because it is actively managed by the central bank which makes it a better unit of account; 2) it is cheaper to use for paying taxes because the government requires it for paying taxes so Americans have to have the ability to pay in dollars; 3) the fact that everyone uses dollars creates a kind of economy of scale called a network effect which makes dollars more convenient to use simply because all other Americans are already using them; 4) bitcoin is structurally prone to deflation which would contribute to recessions if it were adopted for an entire economy.  That fact will prevent any large economy from adopting it.  Bitcoin has some other technological advantages, but they are small and don’t outweigh the advantages of the dollar.  Plus, the dollar system could copy the technological advances if they were truly important.

So far bitcoin speculators have been hoping that bitcoin’s technological advantages will eventually prove to be so much better than the dollar as a medium of exchange that everyone will someday want bitcoins for conducting all their daily business (except paying taxes presumably). But it is more likely is that the dollar system will eventually adopt some of bitcoin’s technologies and wipe out what little advantages bitcoin currently has for exchanges.  Plus, because bitcoin’s main advantage for exchange has been its ability to fund illegal activities, it will probably eventually be used to fund a major terrorist act and that will motivate large governments to clamp down on the exchanges that connect the bitcoin network to the global financial network.  That could be the sudden end of bitcoin except as a historical curiosity.

I hope that doesn’t happen because bitcoin is that it provides a backstop alternative for the fiat monies of the world.  Every fiat money is always in peril of being managed badly and that has dire consequences for the people who depend upon it such as in the Zimbabwe hyperinflation.  But if a fiat money ever becomes a worse option than bitcoin, then people can switch.  Bitcoin provides competition for the world’s fiat currencies.  So far that hasn’t panned out except in a few niche areas, but it is nice to have it as a possibility.  For example, in Zimbabwe’s case, people have been mostly using the fiat currencies of other nations, most commonly, the US dollar rather than bitcoin. There is simply no major economy where bitcoin has replaced fiat currencies as the main medium of exchange except in some networks in the criminal underworld.

Posted in Macro

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