Open up

Most covid-19 travel restrictions should be scrapped

The rules are ineffective, illiberal and often useless

For a lucky few, the mid-20th century was a golden age of air travel: there was plenty of room and the cabin crew were attentive. 

Back then foreign trips were glamorous and mass tourism was unknown. 

Sound familiar?

Because of covid-19, foreign travel is once again the preserve of a happy few. 

International tourist arrivals are down by 85% from pre-pandemic days. 

Nearly a third of the world’s borders remain closed. 

Many of the remainder are open only to those who have been vaccinated or can afford tests. 

For those who dream of a return to the old days, this might sound appealing. 

For the rest of humanity, it is a scourge.

Before the pandemic, travel accounted for 4.4% of gdp and nearly 7% of employment in rich countries. 

In tourist hotspots such as Thailand and the Caribbean the share was much higher. 

Business travellers helped their employers conquer new markets, while simultaneously creating jobs for concierges and cabbies. 

Foreign students subsidised their native-born classmates, brought a different perspective to campus and took new ideas back to their homelands. 

Last year some 280m people lived outside the country of their birth. 

Border closures often made it impossible for them to visit their loved ones. 

Some bade farewell to dying parents over WhatsApp.

Today’s travel restrictions are supposed to protect natives from imported covid. 

Yet they do a poor job of it. 

A few countries, mostly islands and dictatorships, have managed to keep out the virus through truly draconian restrictions. 

Even this has come at a cost in terms of reducing pressure to be vaccinated quickly. 

Only 21% of New Zealanders over 12 are fully vaccinated, for example, compared with 68% of Britons. 

Countries that put their faith in isolation are thus finding it hard to reopen.

Most countries have land borders and voters. 

For them isolation was never feasible. 

Instead, they have adopted a confusing, illogical mess of rules. 

America bars travellers from Britain and the European Union, its closest allies and trade partners, and also two of the most vaccinated big places in the world, while admitting those from South-East Asia, where the Delta variant is rampant. 

Thailand bans entry from some countries and requires all other travellers to submit to a two-week quarantine. 

Yet of 21,038 cases identified on August 10th, only 19 were imported. 

Once a variant of the virus has started to spread in the local population, infections double every couple of weeks. 

Entry bans make very little difference to the total caseload.

Many countries are starting to ease entry for vaccinated travellers. 

This is a good idea, but it has been incompetently executed. 

Some countries are needlessly fussy about the jabs they recognise. 

Britain, which has injected its citizens with some 5m doses of the AstraZeneca vaccine made in India, refuses to exempt from quarantine Indians inoculated with the same potion. 

It has donated doses to other countries but will not exempt people jabbed with them. 

For a while, China allowed entry only to those dosed with Chinese-made shots.

There is a better way of regulating global travel. 

The first principle is to default to open borders. 

This does not mean a free-for-all, but any restrictions should be limited, temporary and aimed at slowing the import of new variants—rather than the impossible mission of stopping it altogether. 

Once such variants are established in the destination country, as Delta is pretty much everywhere, restrictions are redundant and should be scrapped.

The second is for all countries to accept vaccines approved by the World Health Organisation. 

Few people have a choice about which vaccine they receive; banning only those Filipinos who received the Russian Sputnik V jab while accepting those with Pfizer in their arms turns travel into a lottery. 

Discriminating against people on the basis of something over which they have no choice is unfair. 

It also undermines the global vaccination effort by making some vaccines seem second-class.

The third is to ensure that rules are transparent and universal. 

Too often, political expediency trumps science. 

If Western countries are seen to favour each other while keeping out the rest of the world, the rest of the world will notice and remember.

The right to move around is one of the most precious of all freedoms. 

It should be curtailed only when limits will clearly save lives. 

It should be restored as soon as it is safe. 

In most cases that means now. 

US housing inflation: the sleeping giant that might tip the Fed’s hand

Higher rents and mortgage costs are quickly emerging as a pivotal indicator for the central bank

James Politi

Real estate agents host an ‘open house’ in West Hempstead, New York. Housing costs have been edging up after slumping during the pandemic © Raychel Brightman/Newsday/Getty

Todd David, the executive director of the Housing Action Coalition, a charity that works on housing policy in San Francisco, says all signs are pointing to a resurgence in rental costs in the Bay area after the pandemic-driven slump.

“A year from now, if we are not adding significant supply, which there’s no indication that we will . . . prices in San Francisco for rents are [going to be] at all-time high again,” he said. “The trend is up.”

Housing expenses are the sleeping giant that could tip the scales of the increasingly heated debate on US inflation. They are quickly emerging as a pivotal indicator for officials at the Federal Reserve, within the Biden administration, and among private economists.

So far this year, the shelter component of the consumer price index has shown smaller increases compared to the soaring expense of items such as used cars, airfares and energy.

But housing costs have nonetheless been edging up, showing a year-on-year increase of 2.6 per cent in June compared to a 1.5 per cent annual rise in February.

If shelter prices remains relatively contained, they are likely to help ensure that inflation can be controlled, validating expectations at the Fed and the White House that price pressures will subside.

But if they keep increasing at even a small but steady pace on the back of booming house values in many cities, it could signal that high inflation will be sustained for longer than expected.

Shelter costs account for about a third of the overall CPI, and comprise rental prices as well as what is known as “owner-equivalent rent”, the estimated cost of a house occupied by an owner if it were rented out.

“We calculate the market won’t be fully in balance until 2023 or 2024. 

So I’m not sure that the uptick in rents is particularly shortlived,” said Ali Wolf, chief economist at Zonda, a property market advisory group.

She added: “Assuming the economy continues to improve, and we continue to see the job growth numbers get better, I do think there will continue to be some upward pressure on rents.”

So far, the rise in rental costs in the economy has not been particularly large and has not even bounced back to pre-pandemic rates that were comfortably above 3 per cent.

But if it continues, or even accelerates, it might pose a significant problem for the Fed because the cost increases would be embedded in rental contracts, making them hard to reverse. 

Higher rents could also affect inflation expectations, which are a crucial factor in monetary policymaking.

The Fed’s preferred measure of inflation, the personal consumption expenditure index, does not weight housing costs as much as the CPI, but the central bank may find any rising expenses in shelter increasingly hard to ignore.

“People don’t buy a used car every month whereas many pay rent every month,” Tim Duy, a professor at the University of Oregon and chief economist at SGH Macro Advisors wrote in a note this week.

During a pair of congressional hearings last week, Jay Powell, the Fed chair, was repeatedly quizzed by lawmakers on the affordability of housing, in a sign that rising costs were becoming increasingly sensitive politically, for Democrats and Republicans alike.

“I don’t know what housing prices will do in the future. But there is just a lot of demand,” Powell said. 

“Even if mortgage rates go up as they ultimately will, I think we will be looking at a lot of demand. 

Then the question will be how much supply can be brought to the market? 

And that’s really out of our control.”

Housing experts say that supply constraints remain significant as homebuilders try to catch up with demand after pausing during the early stage of the pandemic. 

Changing zoning restrictions to allow for more housing to be built is an often contentious process that can take a long time to achieve.

At the moment, Wolf says the biggest rent increases are mainly occurring across the Sunbelt states like Arizona and Texas, with big coastal cities including San Francisco seeing much more tepid jumps.

One worry among some economists is that when pandemic-era moratoriums on evictions are lifted later this year, landlords might increase rents to make up for lost income, based on higher property values and the expectation that tenants are flush with income.

But other economists do not believe that housing inflation will become problematic, pointing to the fact that the shifts are slow and cyclical. 

“We’re just not all that concerned or convinced that we’ve seen a regime change in inflation yet,” said Julia Coronado, co-founder of MacroPolicy Perspectives.

Even so, Janet Yellen, the Treasury secretary, last week expressed some concern about excessive heat in the housing market, particularly to the extent that it is affecting low and middle-income families.

“I do worry about affordability and the pressures that higher housing prices will create for families that are first-time homebuyers or have less income,” she told CNBC.

At the Fed, the debate around housing inflation is occurring as the central bank is preparing to start slowing the rate of its monetary support for the economy, which has resulted in low interest and mortgage rates that have helped fuel the boom in house prices.

Some Fed officials are arguing for the central bank to more rapidly curtail its $40bn in monthly purchases of mortgage-backed securities in order to take some heat out of the housing market, but others argue the effect would be modest.

Joe Biden’s Pro-Market Agenda

With a new executive order cracking down on anti-competitive practices across the US economy, President Joe Biden has set his sights on a problem that has been building for years. Workers, consumers, and small businesses are all being shortchanged, and it is government, not the market, that offers them the best hope.

Katharina Pistor

NEW YORK – For free-marketeers, government is always the bad guy. 

As President Ronald Reagan memorably put it in his first inaugural address, “In this present crisis, government is not the solution to our problem; government is the problem.”

Since the 1980s, markets have been idealized as the only way to achieve an optimal allocation of resources. 

A sound economy is guided by the spirit of entrepreneurialism, not politics, because the price mechanism reliably conveys information about the value of goods and services. 

Buyers bid, sellers sell to the highest bidder, and all parties are well-informed, rational decision-makers. 

An equilibrium price is always reached, ensuring an efficient outcome. 

It’s a perfect world.

The real world, however, is not perfect. 

Market participants face transaction and information costs. 

Negative externalities and market failures are inevitable. 

Even ardent advocates of laissez-faire agree that some government intervention is sometimes needed, though the state should not do anything that will distort market outcomes.

But what if the greater distortion is coming from market players themselves? 

Given that today’s overlapping financial, health, and climate crises are fundamentally different from the “present crisis” that Reagan had in mind, we should consider whether it is now the market that is the problem.

The current US administration seems to think so. President Joe Biden’s July 9, 2021, executive order on “Promoting Competition in the American Economy” reads like a litany of market distortion and rigging. 

The list is long, but among those singled out are big players in the agricultural, health, financial, pharmaceutical, technological, and transportation sectors.

The executive order is an opening salvo against several problems afflicting the US economy. 

These include excessive consolidation within key industries; a lack of market transparency; unfair, discriminatory, and deceptive pricing; barriers to market entry erected by incumbent firms; and anti-competitive distribution practices. 

Among the victims are average internet users, social-media and retail-platform users, airline customers, new entrepreneurs, and a range of small- and medium-size businesses, including independent brewers and farmers.

All of these groups are being shortchanged by companies that distort the market to their own advantage. In this new environment, “buyer beware” is a hollow adage. 

Once upon a time, a farmer could inspect a cow before buying it. 

If he failed to notice that the animal was limping, that was his problem. 

But this kind of simple exchange between relative equals has been replaced by a highly uneven arrangement in which anonymous customers are pitted against big businesses in an asymmetric relationship that admits of no bargaining or negotiation.

Worse, the same big businesses have consolidated their dominant positions through a host of deceptive practices such as misleading advertisements, ancillary fees and other pricing strategies that impede product comparison, and measures to frustrate customer attempts to recover fees charged for services that were performed poorly.

In the finance sector, fraud, deception, and misrepresentation have long been addressed through regulatory oversight. 

Companies wishing to issue stocks or bonds on official exchanges must disclose information that investors need, and this compliance actively monitored and enforced.

To be sure, this system is far from perfect. In recent decades, regulators have been under-resourced, and there has been an expansion of private securities offerings. 

Still, the broader point stands: markets work only when everyone plays by the same rules.

Companies will always be tempted to flout the rules in order to gain an advantage. 

But in some sectors today, the erosion of the market principle has gone far beyond cheating consumers or hard-balling potential competitors. 

Pharmaceutical companies, for example, are major beneficiaries of legalized monopolies. 

They routinely profit from patents on innovative products derived from government-funded basic research, and regularly attempt to renew patents by simply tweaking the original compound.

But even these substantial legal subsidies apparently have not been enough for the industry. 

Big Pharma companies have engaged in further rent-seeking by driving up prices for prescription drugs and blocking the production or dissemination of generic and biosimilar drugs – even during the pandemic.

As for Big Tech, controlling customers and clients, and preemptively acquiring potential competitors, has become de rigueur. 

Dominant platforms portray themselves as pro-consumer even as they deny consumers any meaningful choice. 

For example, Amazon not only extracts hefty fees from retailers who effectively have nowhere else to go; it also directly competes with them.

Similarly, the major social-media companies have pushed many news outlets into bankruptcy by allowing their content to be featured without compensation. 

When Australia passed a law requiring digital platforms to compensate media companies, Facebook temporarily blocked Australian news links on its platform and threatened to leave the country altogether. (The company released its virtual chokehold only after reaching a deal with Rupert Murdoch’s NewsCorp, while smaller news outlets remained far from the bargaining table.)

But the ultimate prize for market distortion goes to employers. 

Across the board, big companies have used every trick in the book to dominate workers rather than compete for them. 

After decades of undermining unions and outsourcing jobs to suppress wages, employers have increasingly resorted to non-compete clauses to tie employees at all levels to the firm.

Such arrangements now apply to 28-48% of all employed people in the United States – everyone from restaurant workers to higher-level employees who have innovated and contributed substantial value to their employer’s bottom line (while being denied any claim to intellectual property they helped create). 

Those who try to leave are threatened with litigation, and US courts have long taken the side of employers, who remain free to fire employees at will.

These asymmetrical arrangements all smack of hierarchy, not of free markets that efficiently allocate resources, including human capital. 

Now that the Biden administration has set its sights on these neo-feudal practices, free-marketeers should be cheering the loudest.

Katharina Pistor, Professor of Comparative Law at Columbia Law School, is the author of The Code of Capital: How the Law Creates Wealth and Inequality.