Current Affairs

Trading volumes of the most-traded steel rebar contract in Shanghai hit a record 1.3bn tonnes today, or enough to build the Sydney Harbour Bridge 24,621 times.

If skyscrapers are the preferred metric, fret not: trades today were also equivalent to approximately 41,401 Burj Khalifas.

…One could construct around 178,082 Eiffel Towers with the above-mentioned volume of steel rebar traded today in Shanghai.

Here is the FT story.  Hat tip goes to the ever-excellent Christopher Balding.

From a new Pew Study:

In our latest national political survey, released in March, 59% of the public say immigrants strengthen the country, while 33% describe them as a burden. In 1994, opinions were nearly the reverse: 63% said immigrants were a burden and 31% said they strengthened the country.

You will note that they views of Republicans and Democrats diverge after 2006.  Millennials are especially favorably inclined.


Last month, De La Rue, the world’s largest currency maker, sent a letter to the central bank complaining that it was owed $71 million and would inform its shareholders if the money were not forthcoming. The letter was leaked to a Venezuelan news website and confirmed by Bloomberg News.

“It’s an unprecedented case in history that a country with such high inflation cannot get new bills,” said Jose Guerra, an opposition law maker and former director of economic research at the central bank. Late last year, the central bank ordered more than 10 billion bank notes, surpassing the 7.6 billion the U.S. Federal Reserve requested this year for an economy many times the size of Venezuela’s.

…While the cash was still arriving — at times, multiple planeloads a day — authorities set their sights on the year ahead. In late 2015, the central bank more than tripled its original order, offering tenders for some 10.2 billion bank notes, according to industry sources.

But currency companies were worried. According to company documents, De La Rue began experiencing delays in payment as early as June. Similarly, the bank was slow to pay Giesecke & Devrient and Oberthur Fiduciaire. So when the tender was offered, the government only received about 3.3 billion in bids, bank documents show.

That is from Andrew Rosati.  Here is a sad and poignant post on the suicide of Venezuela, by Joel D. Hirst.

Since the Greek situation is heating up again, and not in good ways, I thought I would link to a recent interview I did.  Here is one bit:

Asked about what has gone wrong with Greece’s bailouts, Professor Cowen commented that “the bailout programs were never going to work in the first place. The debt is too high and is more of a political weapon than anything which can be paid back. And the Greek economy requires very serious structural reform, more than the Greek people seem to wish to accept. That is two impossibilities in the situation right there, and then on top of that we have a dysfunctional EU, slow global growth across the board, and the refugee crisis. In that setting, can one expect anything other than failure?”

“It’s all a big bargaining game, and at the end of the day pulling the plug will have to be up to the Greeks. Everyone’s expectations are unrealistic, and everyone knows that, including the IMF and EU and many others too. But who will pull the plug? Tsipras almost did, and then backed away. In my view, sooner or later Greece will leave this arrangement because it simply isn’t workable. I don’t look forward to the resulting economic carnage.”

Asked why he thinks Europe has been unwilling to consider a debt-write off for Greece, Cowen said that “because Italy above all would be next in line, but of course Spain too and others as well.”

Here is the conclusion:

Lastly, when I asked Tyler Cowen what policies he would recommend for Greece so the country can re-boost its economy and put people back to work, [he] said this:

“Do you know the old punchline? “Well, I wouldn’t start from here.” Greece has been deindustrializing for a long time, there isn’t enough to take the place of manufacturing, and tourism just isn’t enough. The interest groups seem intractable. I’d like to see Greece have much more of a free market economy, but that’s begging the question, isn’t it? And there is the ongoing distraction and stress of having to renegotiate the agreements every few years. By the way, I can’t bench press 600 pounds.”

The full interview is here.

Here is one summary of the recent brouhaha.  North Carolina made a mistake in signing the new law.  Not just a practical mistake, because of the backlash, but a mistake outright.  I’m not aware there was a problem needing to be solved, and yet new problems have been created.

There is nonetheless a relevant argument for the law which I believe resonates with many Americans:

Cruz’s argument centers on the idea that allowing transgender women to use the women’s restroom would lead to deviants dressing up as women and preying on young girls. His campaign released an ad accusing Trump of capitulating to the “PC police” and asking viewers whether a grown man pretending to be a woman should use a restroom with your daughter or wife.

Whether you agree or not, that argument helps us rephrase the dilemma as follows: should there be a legal definition of who is a transgender person and why?  And should transgender people wish that there were such a legal definition?

If there were such a definition, problem solved, at least in principle.  Transgender individuals could use the bathroom which their legal stipulation entitled them to, or would entitle them to, were a court case to arise.

Women’s colleges of course face a private sector version of this issue (here is one pending change).  Private companies have policies on bathroom use, and gender-specific sporting events must make rulings.

So what to do with the law?  I see at least three options.

#1: The first and most libertarian view is to refuse to offer a legal definition of transgender.

The transgender concept seems so…fluid.  This page from Wikipedia illustrates the underlying legal problems:

These include people whose identities are not exclusively masculine or feminine but may, for example, be androgynous, bigender, pangender or agender — often grouped under the alternative umbrella term genderqueer[5] — and third-gender people (alternatively, some references and some societies conceptualize transgender people as a third gender).[6][7] Although some references define transgender very broadly to include transvestites / cross-dressers,[8] they are usually excluded, as are transvestic fetishists (because they are considered to be expressing a paraphilia rather than a gender identification) and drag kings and drag queens (who are performers and cross-dress for the purpose of entertaining). Intersex people have genitalia or other physical sexual characteristics that do not conform to strict definitions of male or female, but intersex people are not necessarily transgender, since they do not all disagree with their assigned sex. Transgender and intersex issues often overlap, however, because they both challenge the notion of rigid definitions of sex and gender.

Facebook has introduced about fifty different terms related to gender identification.  It is not difficult to argue the current legal system won’t be “getting this one right,” whatever that might mean.  For a start, would you trust the legal system in North Carolina?  (From my understanding, it would indeed be a state matter.)  Probably some people who right now “slip by” would be caught on the wrong side of an unpleasant dragnet.  And what exactly is the final test to be run to determine the right answer to a contested issue concerning a transgender individual?  If there were ever a time for some creative ambiguity in the law, it seems this might be it.

In this view, yet another problem with the North Carolina bill is that it may end up forcing everyone’s hand on constructing a legal definition of transgender.

If we stick with no legal definition of transgender, let’s tackle the remaining problems directly.  For instance we could significantly increase the penalties for men who abuse women or young girls in or near women’s rooms, if indeed that is an ongoing problem.  You can tax either inputs or outputs and in this case it seems to make sense to place the higher tax on the outputs.

#2: Offer two parallel legal systems for gender.

In one of the parallel systems, you can apply formally for a change of gender status, although I suspect this could not end up handling more than two or three categories, hermaphrodites perhaps being the third.  In the second of the parallel systems, you can decide not to apply for formal legal designation of gender and instead live under creative ambiguity.  The practical import of that ambiguity often will depend on how clearly a person fits traditional social categories of gender in a simple and visible way.  In any case, a person can choose which legal system to live under.

The formal legal designation would matter for which prison you would be assigned to, which bathroom you could visit, and which chess tournaments you can play in, among a variety of other questions.  Here is a brief survey of legal approaches around the world, with some countries opting for versions of the parallel approach.

#3: Use the law to force everybody’s hand.

In this view, the current status quo is not very good for many transgender individuals, so something must be done.  Forcing a legal solution to these issues might raise social consciousness, even if some state rulings on transgender issues are objectionable in the meantime.  Let’s create something to fight over.  With a full legal definition of transgender in place, the logic of individual rights will turn its wheels, as it so often does in America, and eventually transgender individuals would fall under the protection of anti-discriminatory laws.  Perhaps this is better than the parallel legal systems approach, because under the latter too many individuals slide along in a state of creative ambiguity and transgender issues will remain underemphasized.  In this vision, the law — whatever its limitations — is likely to prove the friend of transgender individuals, so things should be sped along as rapidly as possible.

I do not have a good sense of which of these three approaches would be best in the United States.  In any case, it seems to me the question “how should the law deal with or define transgender individuals, if at all?” is more fruitful and fundamental than asking “how should North Carolina regulate bathroom admission policies?”  I would be interested to read a law and economics paper on these issues.

Addendum: Here is a paper on whether LGBT inclusion boosts economic growth in emerging economies, though I doubt if the effects are causal.

Second addendum: Henderson and Cordato make good points, and favor a version of option one.  That said, I don’t think all judgments can be left to markets, given prisons, the continuing existence of public bathrooms, etc.  Here are yet further comments.  Here is a good Jacqueline Rose piece from LRB.

Ten weeks after BoJ governor Haruhiko Kuroda startled both financial markets and parliamentarians with Nirp, the yen has appreciated by some 8 per cent against the dollar. The stock market has rebounded sharply this month, however the Topix bank index remains 11 per cent lower since the advent of Nirp.

Under such a policy, risk assets were supposed to rise, but instead demand for Japanese government bonds rallied, rewarding the risk averse. Meanwhile, even finance ministry officials concede that the deflationary mindset is more entrenched than ever. There is agreement that Nirp has backfired and such an unsustainable monetary policy cannot support growth, let alone help financial asset prices.

That is from Henny Sender at the FT.

Nonetheless it is worth reading.  From Tim Redmond, here is one bit:

…let’s remember: San Francisco is already by far the densest city West of the Mississippi, and third in the entire country…

And another:

Seriously: If you take the city’s own studies, which show that every 100 units of market-rate housing create a demand for 30 units of low-income housing (because new rich residents want people to serve them coffee and fine wines and clean their clothes and their toilets and provide security etc., and those new jobs mean new people who need places to live), then any high-end housing that isn’t 30 percent affordable is making the crisis worse. Got that? When you are in a hole, stop digging. If you’re in a crisis, don’t make it worse. And right now, building luxury housing is a net loser for the city.

The same goes for Muni. It costs the city far more to serve new housing than the new housing pays. Which means every time the rest of us pay higher fares for Muni, we are in effect subsidizing market-rate housing developers.

And yet another:

Please: Show me any evidence, any credible evidence at all, that allowing the private market to build, baby, build in San Francisco today (without demolishing hundreds of thousands of rent-controlled units and creating a city like Manhattan or Hong Kong without the social housing, that none of us want to live in) will actually bring down rents and allow the middle class to stay, and I will listen. But as far as I can tell, that evidence doesn’t exist.

In contrast I would stress that we need to count the welfare of the in-migrants.  But I nonetheless hope that market urbanism can do a better job outlining how cheaper housing might be expected to come to San Francisco, and with which complementary regulations if any.

On the limits of restrictive housing policy in San Francisco, this NYT story is also worth reading:

The Chamber of Commerce and the tourist board are calling for harsher measures to improve what is euphemistically called the “condition of the streets,” a term that encompasses the intractable homeless problem, public intravenous drug use, the large population of mentally ill people on the streets and aggressive panhandling. The chamber recently released the results of an opinion poll that showed that homelessness and “street behavior” were the primary concerns of residents here.

It’s funny but also sad how many people attacked me when I predicted this in my book Average is Over:

Visitors come to bask in the Mediterranean climate, stroll through the charming streets and marvel at the sweeping views of the bay and the Pacific. But alongside those views are tent encampments on sidewalks and rag-covered homeless people in front of some of the most expensive real estate in America.

Property crime is up more than sixty percent since 2010.

I say they eventually get cleared out, but to where?  Here is my previous post on market urbanism and whether it is overrated.

The female coyote nurses the pups after they are born, yet they are hard to feed and the mother is not in ideal condition for hunting.  She therefore regurgitates her food regularly for the pups, and furthermore the biological father brings food too.  And yet:

Dogs have evolved a different parental strategy.  Human waste tends to show up at the same place daily and so the dogs, as we have noted, have very low transportation and acquisition costs.

The pregnant female village dog can stay by her food source all through pregnancy and lactation.  She can locate her den in the middle of the food source.  frequently, she goes to some quiet place outside the village (but not too far outside).  There are many quiet places in the Mexico City dump.  All over the dump are fat nursing pups.

Regurgitation is occasional rather than regular, and the father is absent altogether.  In evolutionary terms, it seems that is the result of cooperation with humans.

That is all from the new and excellent book What is a Dog?, by Raymond Coppinger and Lorna Coppinger.  The best parts of this book draw inferences from what is observed in Mexican town dumps.

James Crabtree directs our attention to this symbol at Nanyang Technological University:


That is in fact the motto of their School of International Studies.  Right now the Singaporean improbable is deflation for seventeen consecutive months, let’s hope for better news on that front.

It offers many interesting facts and angles (pdf here).  Here is one instructive paragraph of note:

Relative to other factors, rising prison admission rates have been the most important contributor to the increase in incarceration. Raphael and Stoll (2013b) decompose the growth in the prison population into changes in crime rates, prison admissions and time served. If criminal justice policies remained the same as they were in 1984, State imprisonment rates would have actually 20 declined by 7 percent by 2004, given falling crime rates. Instead, State prison rates increased by over 125 percent. After accounting for falling crime rates, over two-thirds of this increase was attributable to rising prison admission rates, and 14 percent to increases in time served. In Federal prisons, longer sentences and rising admissions rates have been equally important, each accounting for approximately 20 percent of the growth in the Federal prison rate that is not due to changes in crime…

That is from pp.19-20.  Here is a related post from last year.

Last week, the U.S. Department of Agriculture (USDA) confirmed that it will not regulate the cultivation and sale of a white-button mushroom created using CRISPR

In this case, no foreign organism’s genetic material was introduced into the food, and that makes all the difference. If Yang had tackled mushroom browning by adding bits of genetic code from another organism, it would have been subject to USDA scrutiny as other non-browning produce has been. Until recently, genetic modification required the insertion of foreign viruses or bacteria, but CRISPR is more advanced than that. Because of that loophole, it’s not under the USDA’s jurisdiction. The EPA only regulates GMOs designed for pest control, and the FDA considers all GMOs to be safe. That leaves this non-browning mushroom cleared for take-off.

Scientists are excited. Anti-GMO advocates are disturbed. The public will probably continue to be more confused than anything else.

Here is the Rachel Feltman piece.  For the pointer I thank Cleveland Cavaliers fan Philip Wallach.

The business models of German financial institutions depend critically on the presence of positive nominal interest rates. The International Monetary Fund noted in its latest Financial Stability Report that the pre-tax profits of German and Portuguese banks are most affected by negative rates.

German life insurers are also vulnerable. They have to guarantee a minimum rate of return, which is now 1.25 per cent a year. This is hard to do when the yield of the 10-year German government bond is only 0.13 per cent. Germany and Sweden are the two EU countries where life insurers face the biggest gap between market rates and guaranteed rates. To achieve the promised returns, the insurers have to take on more risk, for example by buying corporate bonds or tranches of complex financial products. If, or rather when, the next financial crisis arrives and triggers a change in the valuation of these assets, we may find that sections of the German financial sector are insolvent.

Of the German banks, the Sparkassen and the mutual savings banks are most affected. They are classic savings and loans outlets in that they lend locally and fund themselves through savings. Credit demand is more or less fixed. So when savings exceed loans, as they now do in Germany, the banks deposit their surplus with the ECB at negative rates — known as “penalty rates” in Germany. They cannot offset the losses by cutting interest rates on savings accounts because of the zero lower bound. Savers would switch from accounts to cash in safe deposit boxes.

That is from the always superb Wolfgang Münchnau at the FT.  Regulatory and federalistic issues are another and underdiscussed reason why the eurozone is not an optimal currency area.

Singapore, 5 May 2015 – The Graciousness Index has continued to move up, from 53 in 2013 to 55 in 2014, and to 61 in 2015. This year’s rise is led by a growing sense of positive perceptions about kindness and graciousness in Singapore, with respondents rating both themselves and others higher when it comes to being considerate, courteous and showing appreciation.

The Graciousness Index is an annual study commissioned by the Singapore Kindness Movement to track experience and perceptions of kindness and graciousness in Singapore, as well as study attitudes towards various pertinent community issues. Over a six-week period from December 2014 to February 2015, a demographically representative sample of 1,850 respondents was asked to share their experiences and perceptions of graciousness in Singapore.

There was a marked increase in optimism, with 44% of respondents indicating that graciousness in Singapore had improved, compared to just 28% last year. 84% rated their own gracious behaviour as either good or excellent, and 69% felt the same about overall Singapore society. They also felt that Singapore was improving across the graciousness pillars of being considerate, being courteous and showing appreciation to others.

Dr. William Wan, General Secretary of the Singapore Kindness Movement, believes that this is a promising sign. “The increase in positive perceptions and overall sense of improvement is encouraging. If we as a nation continue this positive trend, then kindness and graciousness can become part of our norms and national identity.”

That which cannot be measured…

Here is the link, via James Crabtree.

The new gdp figure came in at 6.7%.  No matter what you believe “the real number” to be, this is probably more important:

Chen Xingdong, China chief economist at BNP Paribas, notes that first quarter growth was bolstered by industrial production, fixed-asset investment and an “astonishing” acceleration in construction starts while service sector growth moderated. That is exactly the opposite of what is supposed to be happening. “The pick-up in SOE investment and slowdown in private sector investment will cause problems for structural change,” Mr Chen said.

The first quarter this year also saw record credit expansion in China, even though most economists believe the country needs to be deleveraging. Here is David Keohane citing Wei Yao:

In Q1, increases in total credit exploded to CNY7.5tn, up 58% yoy and equivalent to 46.5% of nominal GDP – one of the highest ratios ever. Credit growth accelerated to 15.8% yoy to end-March, the quickest pace in 20 months.

Also from the FT (see the first link) is this:

Meanwhile, the “Mr Li got lucky” argument suggests that the most powerful player is not the country’s much feared president, Xi Jinping, but rather Janet Yellen, chair of the US Federal Reserve. According to this theory, Ms Yellen’s pause on US rate rises saved China from what looked like the beginning of run on the renminbi and Beijing’s foreign exchange reserves, which fell precipitously in January and February.

These falls moderated only after the Fed suggested it would not raise interest rates as aggressively as it had indicated late last year.

“The Fed’s reversal has taken a lot of pressure off the renminbi and without the currency looking like it’s going to collapse, people are feeling better,” said one Asian investment strategist, who asked not to be named.

The simplest China model for 2016 is this.  Due to the prevalence of SOEs and state influence in the economy, the country can in fact (for now) achieve almost any gdp target it wishes, at least within reason.  But it trades off the quantity of gdp for the quality of gdp, and this time — again — the Party opted for the relatively high growth figure.  That is bad news, not good news.

Here is an unpacking of some parts of the gdp number.  Here is Nerys Avery.

Don’t forget market size!  Via the excellent Kevin Lewis, there is a new paper on this topic, by Amandine Aubry, Michal Burzynski, and Frédéric Docquier.  Here is the abstract:

This paper quantifies the effect of global migration on the welfare of non-migrant OECD citizens. We develop an integrated, multi-country model that accounts for the interactions between the labor market, fiscal, and market size effects of migration, as well as for trade relations between countries. The model is calibrated to match the economic and demographic characteristics of the 34 OECD countries and the rest of the world, as well as trade flows between them in the year 2010. We show that recent migration flows have been beneficial for 69 percent of the non-migrant OECD population, and for 83 percent of non-migrant citizens of the 22 richest OECD countries. Winners are mainly residing in traditional immigration countries; their gains are substantial and are essentially due to the entry of immigrants from non OECD countries. Although labor market and fiscal effects are non-negligible in some countries, the greatest source of gain comes from the market size effect, i.e. the change in the variety of goods available to consumers.

New Zealand, are you listening?