Thursday, October 28, 2021

Lessons from the Russian Steppe

This is Joseph

This paper explores the huge increase in mortality seen in Russa in the 1990's, when the old system was replaced by a new one. The most interesting piece was:
Age standardised mortality from all causes increased between 1998 and 2001 by 189/100 000 among men and 49/100 000 among women . .  Similar to the increase in mortality in 1991-4 and the decrease up to 1998, over 80% of the 1998-2001 increase was due to changes in those aged 35-69 years (middle age).

It is worth noting that the largest changes occurred among those residents who were old enough to be invested in the system and would need to start over when their whole economy change. While it is quite clear that alcohol was heavily involved, the key question is why was alcohol abuse suddenly so rampant in that age bracket.

Now look at the United States. In the 2000's we opened up trade with China, which the attached article notes was associated with a 17% permanent decline in US manufacturing jobs. Now we are discussing a declining life expectancy due to an opioid epidemic. This was a lesser economic shock then the fall of the Soviet Union, and so the expected consequences are less. But the winners of this bargain were not the blue collar workers in the US, even if gains over the US as a whole may have been realized. 

But, even just as a hypothesis, this would completely change my view of disruptive innovation that involves changing the rules in a way that disfavors the current market. For example, Uber destroyed the value of many Taxi medallions, but the reasons for its success are due to regulatory games. Consider this analysis:

 1) its ability to classify itself has a “technology company” instead of a transportation company, exempting Uber from expensive taxi laws and regulations, 2) the ability to classify their drivers as independent contractors instead of employees, which allows Uber to evade the costly protections and benefits guaranteed to workers in a standard employer-employee relationship, and 3) a depressed labor market in which workers  are willing to assume the burden of risks and costs associated with driving for the company.

Clearly, #3 applies to every large company. But #1 and #2 involve changing the regulatory framework in a way that benefits the oligarchs who run Uber at the cost of the previous Taxi workers. The deaths of despair narrative makes me wonder how much of the recent decline we are seeing is due to  these changes in the rules around which ordinary people have planned their lives. 

Finally, the last part of this whole puzzling mess that has become doctrine is that rich people are better at spending money and thus are job creators. This is logic we use in no other part of the economy. Do we really think the elite central planner is better than the free market? Why is it different if the central planner just happens to control a lot of resources? 

But I think the main point here is that economic disruption without some form of compensation on the losers of the new rules may have serious impacts including on health. The main benefit of the current system is the oligarchs who benefit from a windfall. 

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