Links to Consider, 9/7

Dominic Pino on non-economists; David Shaywitz reviews Sunstein and also Silver; Emily Oster on ultra-processed foods; Scott Sumner on capital taxation

Reviewing a book by a journalist, Dominic Pino writes,

Remember 2020? Governments in the United States ordered millions of people to stay home indefinitely and shuttered many businesses. Many European governments were as strict or stricter. China, the world’s second-largest economy and the home of large amounts of global manufacturing, became a full public health police state.

And despite all of that, the global supply chain that Goodman portrays as fragile and brittle was able, after a two-month drop, to deliver more goods to Americans and has continued to do so. It was hard to find toilet paper for a couple of weeks, some groceries were out of stock for a bit—we can all think of things that were frustrating about buying goods during a once-in-a-century pandemic. But can we give supply chains some credit for managing to facilitate an overall increase in goods consumption?

Journalists sensationalized “the supply chain” as brittle, when in fact the price system worked really well to deal with the shock caused by the pandemic and by government’s heavy-handed and inept shutdowns.

David Shaywitz also has a review essay, on two books on the topic of luck, one by Cass Sunstein and the other by Nate Silver.

Sunstein’s fundamental point is that “it’s a mistake to attribute spectacular success to the intrinsic qualities of those who succeed. Of course, it is true that those who succeed may well be extraordinary…but their extraordinariness was hardly sufficient to get them where they ended up. Countless extraordinary people never get very far.”

Looking at Silicon Valley, Silver sees an ecosystem consisting of founders—hedgehogs—who tend to have a singular belief in the promise of their company, and foxes—VCs—whose job is to “herd hedgehogs,” assembling them into portfolios. 

The issue of luck in economic outcomes is very important. I once spelled it out this way:

Consider two hypothetical farming villages, each with ten households and ten parcels of land. In both villages, each household occupies a parcel at random.

In Luck Village, nine of the parcels yield at most a subsistence level of food, no matter how hard their owners work. The remaining parcel yields a vast abundance of food, also regardless of whether the household works hard or not.

In Effort Village, each parcel is identical. Moreover, the yield on each parcel depends on how hard the household works. Diligent households will have larger harvests than lazy households.

In Luck Village, redistribution seems fair. In Effort Village, it doesn’t. Reality lies somewhere between those extremes.

Emily Oster writes,

The idea of “ultra-processed foods” comes from a system called the NOVA classification, developed in 2009 by researchers in Brazil. This group proposed that foods be classified in four categories: 

1. Unprocessed or minimally processed: foods that are either unprocessed or have undergone only minimal processing like crushing or freezing. Think: eggs, milk, plain fruits and vegetables, plain yogurt, spices.

2. Processed culinary ingredients: foods derived from group 1 foods through simple processes. Butter, olive oil, salt, sugar. This group is mostly seasonings.

3. Processed foods: “simple food products” made by combining group 1 and 2 ingredients. Things like cheese and bread, salted nuts, dried fish. 

4. Ultra-processed foods: foods that are made with industrial processing techniques, often involving the addition of products that are not in groups 1 or 2 or have no particular nutritional value. 

…“Ultra-processed” is really just one way to capture and characterize a particular dietary pattern, one that is (among other things) low in fruits and vegetables.

On his new substack, Scott Sumner writes,

In my view, the original sin of tax policy was the decision to focus on income, not consumption. Once we started down that road, we created a system where closing one loophole would inevitably create a couple more. Yes, if income really is the thing that should be taxed, then it makes logical sense to tax unrealized gains. But income is not the right base for our tax system; consumption is what matters.

An income tax punishes work effort, thrift, and risk-taking. Those are, of course, positive goods for society. Taxing excessive consumption is probably better. So a consumption tax with a high personal exemption seems to be the best way to go. Sumner has a long history of being on the right side of this issue.

substacks referenced above:

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Should we tax realized gains?