Friday assorted links

by on January 13, 2017 at 12:25 pm in Uncategorized | Permalink

1. Do lenders of last resort really make financial systems that much safer?  And the bullfighting economist and Federal Reserve governor.

2. Disney negotiating with Carrie Fisher’s estate for more Princess Leia.

3. Seoul opens a bookstore with no employees and no prices.

4. “Virginia man spends $1,000 to deliver 300,000 pennies to Lebanon DMV.”  (The penny, and wheelbarrow, as rent-seeking behavior…):

Still, Stafford had one final act planned. After collecting the hundreds of rolls of pennies he needed, he hired 11 people to help him break open the paper rolls with hammers Tuesday night. It took four hours and he paid each person $10 per hour, costing him $440.

Stafford also purchased five wheelbarrows to deliver the pennies. The wheelbarrows cost $400, and he wasn’t going to dump the coins on the DMV’s floor, so he left the wheelbarrows there, bringing his expenses to $840.

He also paid $165 for the three lawsuits, which means he spent $1,005 to get 10 phone numbers and the satisfaction of delivering 300,000 pennies.

Via Annie Lowrey.

5. Maybe the AIIB is better after all:

William Faulkner’s novels in particular stuck with Mr. Jin, now the president of China’s Asian Infrastructure Investment Bank, a major force in the country’s rush to secure a leading role in the world’s financial architecture. An underlined copy of “Absalom, Absalom!” is on his office bookshelves, along with Shakespeare and the Bible. He said he found inspiration in Faulkner’s complex human relationships.

NYT link here.

Washington Post: The cyberattack struck Los Angeles Valley College late last month, disrupting email, voice mail and computer systems at the public community college in Southern California. Then, school officials found a ransom note.

The missive advised the college that its electronic files had been encrypted and that the files could only be unlocked with a “private key.” The attackers would supply the key after receiving payment in the valuable digital currency known as bitcoin, which can be used anonymously without a centralized bank.

“You have just 7 days to send us the BitCoin after 7 days we will remove your private keys and it’s impossible to recover your files,” the attackers warned, according to a copy of the note obtained by The Washington Post.

Leaders of the Los Angeles Community College District decided to pay the ransom.

The college paid $28,000 and the files were restored.

ArsTechnica: According to the FBI, ransomware payouts in the United States jumped from $25 million in all of 2015 to over $209 million in just the first quarter of 2016.

Clearly, this is just the beginning.

In my latest Bloomberg column I consider William F. Buckley’s old conundrum:

William F. Buckley famously said he would rather be ruled by the first 2,000 people listed in the Boston telephone directory than by the faculty of Harvard University.

Here is part of my take:

For better or worse, direct rule by Buckley’s 2,000 American citizens probably would mean a slower pace of immigration, less emphasis on free trade, more law and order politics, and a blunter form of nationalism in foreign policy.

Those don’t match my policy preferences (I am more of a globalist, and also a professional academic), but I fear what the Harvard faculty could bring. I can imagine an America closer to Bernie Sanders’s vision, with single-payer health insurance, levels of taxation exceeding 50 percent of GDP, levels of immigration unsustainable with a large welfare state, too many aggressive attempts to legislate equal treatment for various groups, excessive fondness for a universal basic income, and too many humanitarian interventions abroad.

Don’t forget:

It’s a good rule of governance that policy cannot race too far ahead of the citizenry, and I don’t view faculty as a class of people well-suited for that kind of humility.

But for the Fed and the EPA, among other areas, I very much want Harvard.  My conclusion is this:

The real issue here isn’t intellectuals versus populism writ large. There is a time and place for populist sentiment, but an excess can be counterproductive on its own terms. As expertise is pushed out the door, the citizenry itself gets a bad name, precisely when we most need it to step up to the plate and demand some excellence.

Do read the whole thing.

I should note that on this topic I have been very much influenced by my colleague David Levy and also his work with Sandra J. Peart, see for instance their newly arrived book Escape from Democracy: The Role of Experts and the Public in Economic Policy.

Martin Feldstein had a recent piece in the WSJ that defended the idea of a border tax adjustment, which would be a part of the proposed corporate tax reform. He points out that if imports were no longer deductible, and exports received a subsidy, then the border adjustment would not distort trade. Rather the effect would be exactly offset by a 25% appreciation of the dollar. I certainly understand that this would be true of a perfect across-the-board border tax system. But is that what we will have?

1. Will the subsidy apply to service exports? (Recall that services are a huge strength of the US trade sector.) Let’s take Disney World, which makes lots of money exporting services to European, Canadian, Asian and Latin American tourists visiting Orlando. Exactly how will Disney determine the amount of export subsidy it gets? Do they ask each tourist what country they are from, every time they buy a Coke? That seems far fetched—what am I missing? If Disney doesn’t get the export subsidy, then the 25% dollar appreciation would hammer them, and indeed the entire US service export sector.

2. What about all those corporate earnings that are supposed to be repatriated? (And future earnings as well.) If the dollar appreciates by 25%, then doesn’t this hurt multinationals? Or am I missing something?

Update: It just occurred to me that corporate cash stuffed overseas is probably held in dollars. But future overseas earnings may still be in local currency.

Keep in mind that the prediction of 25% dollar appreciation is from the supporters of the plan, like Martin Feldstein. If you did this sort of adjustment without any dollar appreciation, the impact would be devastating on companies like Walmart. Given the Fed’s 2% inflation target, how could they pass along a (effective) 25% tariff on almost everything they sell?

There are other points of value at the link.  I agree with Scott’s most general claim that the case for this tax has not yet been made.

A few years ago I wrote this about Bolivia:

It is much debated in Bolivia whether corruption is going up or down.  I believe it is going up, but partially for good reasons.  For instance the construction sector is doing well, and construction tends to be corrupt in many countries, for reasons intrinsic to the activity itself (e.g., lots of big contracts, easy to claim invisible expenses, etc.).  That means higher corruption but also a better corruption than the penny ante bribes of a shrinking economy.

I still think that is correct, and at the time it didn’t meet up with mass moral opprobrium, even though with some very very small chance I may have condemned the citizenry of Bolivia to corrupt, exploitative rule for ever and ever.  I should add that such points are standard fare in the literature, see for instance the book on corruption by Susan Rose-Ackerman.

Now, these days, with more American status relationships on the line, everyone is up in arms because Peter Thiel had the following exchange with Maureen Dowd:

When I remark that President Obama had eight years without any ethical shadiness, Mr. Thiel flips it, noting: “But there’s a point where no corruption can be a bad thing. It can mean that things are too boring.”

As I interpret Peter, he is not saying it would have been good to have an exogenous increase in the corruption of Obama the individual.  Rather, had some other conditions been different/better, the overall level of corruption in government would have been higher and that combination might very well have been a net plus.  If you would like a “left wing example,” had the fiscal stimulus been twice as large, corruption in government probably would have been higher too (pointing out “the stimulus wasn’t very corrupt” is missing the point and in fact is a sign that you are a rampant mood affiliator, determined to restore the mood you feel is just, rather than tracing the analytic point at hand).  In other words, Peter’s point is entirely defensible and probably correct.  He’s not saying that “corruption is good.”

Now, to be sure, there is another dimension here.  The incoming Trump administration is showing too many signs of being corrupt, and many people are condemning it on these grounds.  Peter’s remark does not fit into that narrative and Peter has been a significant Trump supporter.  But let’s think about this a little more.   First, is there a role for some outsiders who eschew the dominant moral choruses of approbation and condemnation, in favor of making other, different points?  I certainly hope so, because often I try to be one of them (though unlike Peter I have not supported Trump).  Second, Peter is not an outsider in this process, rather he has taken on an important position on the Trump transition team.  Given that reality, you can’t expect him to produce a quotation here condemning Trump.  So he instead makes some other (valid) outsider-like point about corruption.  Now, you might object to Peter’s role on the transition team, but that is old news at this point.  You shouldn’t be holding any extra grudge against him for his corruption answer.  And above all, keep in mind these are reporter-chosen excerpts from a four-hour dinner/interview, and so we don’t know the surrounding context and qualifications and possibly accompanying off the record statements.

People, you need to pick your targets.  Get upset about the things worth getting upset about, such as the absence of a sustained foreign policy plan to head off imminent volatility in global relations.

How many of you have been expecting that heading?  Of course it involves cows:

A Dutch woman has seen her request for Swiss citizenship refused for the second time by local residents who object to her media campaigning against cowbells and other Swiss traditions.

Nancy Holten, 42, was born in the Netherlands but grew up in Switzerland from the age of eight, speaks fluent Swiss German and has children with Swiss citizenship.

A vegan and supporter of animal rights, she gained a reputation in her community of Gipf-Oberfrick, in the canton of Aargau, after campaigning against cowbells, claiming they were damaging to cows’ health.

She has also objected to hunting and piglet racing, and complained about the noise of church bells in the village, campaigns that have seen her regularly interviewed in the Swiss press over the past few years.

Last November, Holten had her citizenship application turned down for the second time by the residents’ committee.  That’s despite her meeting all legal requirements and the municipal and cantonal authorities having no formal objection.

In Switzerland local residents often have a say in citizenship applications, which are decided primarily by the cantons and communes where the applicant lives, rather than federal authorities.

In Holten’s case it seems her campaigning has not won her many friends in the village, with the president of the local branch of the Swiss People’s Party, Tanja Suter, telling the media that Holten has a “big mouth”.

The commune did not want to give Holten the “present” of Swiss citizenship “if she annoys us and doesn’t respect our traditions”, said Suter.

Is this not what politics should be about, namely the relationship between man and nature?  Here is Gipf-Oberfrick, the community in question:

swiss

Here is the full story, with a variety of interesting points and examples at the link, via Ted Gioia and Dan Wang.

Thursday assorted links

by on January 12, 2017 at 12:14 pm in Uncategorized | Permalink

Following up on yesterday’s discussion, I received this in my email:

I think you protest society (and whatever you think the cause is) on the unconditional probabilities but only protest cops on the conditional probabilities.

That is from a very high quality correspondent.  Since I think BLM is in large part trying to raise consciousness about society at large, and not just complaining about the cops, it is fine for them to protest the large number of bad outcomes for many black people without getting too caught up in the “conditional upon x, y, and z, is a cop more likely to shoot a black or a white person?” sort of question.  Body cameras, reforming/ending the War on Drugs, stronger civil liberties, and other changes make sense for macro reasons, no matter what your view on the conditional probabilities.  So a big chunk of your 300+ comments are simply off the mark.

My response to the correspondent included the following good advice:

Every movement…has a smart version and a stupid version, I try to (almost) always consider the smart version.  The stupid version is always wrong for just about anything.

If you focus on the stupid version, you too will end up as the stupid version of your own movement.

RMB accounted for 98% global bitcoin trading volume over past six months

Here is the link, picture, and source.  Of course that is all about capital controls, and a capital control-evading mechanism is what Bitcoin has evolved into.  I wonder how it will evolve further, especially if the Chinese crack down on the practice, which they are more than capable of doing.

That is the topic of my latest Bloomberg column, I know that so many of you are full of excuses.  Here is one part of the column:

If we’re really headed off the cliff, selling all equities has to be better than doing nothing. Buying nonleveraged puts would be a possible Step 2, and most of the people in my Twitter feed have the smarts to figure out the mechanics. If it’s geopolitical and indeed market volatility you expect, deal in VIX options instead; VIX measures of volatility are lower than a few years ago, giving you a juicy target if you are sure volatility will rise. I get that this is somewhat hard, but if you’re right about Trump you can make a fantastic rate of return by acting on your worries. If you’re capable of getting an MBA at a good school, this learning should not be off-limits to you.

It is true that stock markets don’t typically predict “black swan”-style political catastrophes, but that is like saying sports betting markets don’t usually predict upsets. The point remains that upsets are not the norm, and if markets don’t predict them probably you should not expect them. But if you do nonetheless, go ahead and bet (or invest) accordingly.

What about the notion that market timing is a bad idea for amateurs, and how would you know when to come back into the market with your funds? That’s a fair worry, but not if you think the U.S. is headed for fascist catastrophe or rule by a KGB cabal.

I do give an answer at the end, and it is all the more worrying.

So if people have bifurcated mental modes, and their behavior is ruled so often by inertia, opposing the worst aspects of a Trump administration is going to be all the harder for most of us.

Which is all the more reason to short the market.

By now I’ve queried quite a few people, and I’ve yet to hear of anyone being short.  You might argue that stock markets don’t reflect social welfare, which is fair enough.  But then what market prices would you propose we look at?  Consumer durables for instance are doing fine.  Or is there no market discipline on your view at all?

Wednesday assorted links

by on January 11, 2017 at 1:51 pm in Uncategorized | Permalink

I thought this was one of the very best of the conversations, Jhumpa responded consistently with brilliance and grace.  Here is the link to the transcript, podcast, and video versions.  In addition to discussing her books, we covered Rhode Island, Elena Ferrante, book covers, Bengal and Kolkaata and Bengali literature, immigrant identity, writing as problem solving, Italian authors, writing and reading across different languages, Indian classical music, architectural influences including Palladianism, and much more.  Here is one excerpt:

TYLER COWEN: …You’ve written a great deal about not having a native country, about not having a language of your own that’s clearly yours, or even a culture. Having read or reread all of your work and surrounding works, and if I think, “How do I frame you?” I would say I think of you as a Rhode Islander because that’s where you grew up. You were born in England but came here when you were three, grew up in Rhode Island. How would you react to that?

JHUMPA LAHIRI: Uncomfortably.

[laughter]…

LAHIRI: I mean, with all due respect. It’s true.

LAHIRI: Well, I think what was helpful about it is that it opened up the setting of The Lowland, which is set in part in Rhode Island, but it’s the first of my books in which I can actually mention Rhode Island by its name. Whereas the other books, the preceding books, are set in these sort of fake Rhode Island slash Massachusetts, this area, this terrain that really is Rhode Island, just to boil it down. But I couldn’t mention it. I couldn’t name it as such. And I think that’s telling.

It was saying something, the fact that in the earlier books I was writing about the ocean. I was writing about this small campus, this little town, and describing these settings that I knew very well, the settings I had grown up in, but I couldn’t come out and say that it was Rhode Island. I kept calling it some suburb of Boston. So I think the writing of that piece unlocked something. Then in The Lowland, they’re in Rhode Island, and I don’t pretend anymore.

And:

COWEN: If you compare Interpreter of Maladies to your other short story collection, Unaccustomed Earth, do you think of the latter, more recent work as being more about reconciliation and there’s a greater role for children or families in at least some of the stories? Or do you think, overall, your fiction with time is moving in the direction of Hardy and becoming darker?

LAHIRI: I think it’s becoming darker and I think that’s usually the case as we get older, right?

Jhumpa on Kolkaata:

…it’s a city that believes in its poets, that believes in its politics, believes in humanity in some sense. And life is so extreme there, in so many ways. People are put to the test, and you see life being put to the test constantly around you. There’s nothing you can really accept easily or take for granted about yourself or about the universe if you’ve been there. It’s a jolt to your consciousness, but a fundamental one, an essential one, to shake us out of this, whatever takes over, if you protect yourself.

Do read (or listen to) the whole thing.  Jhumpa’s last two books are excellent and highly underrated, both were written in Italian (!) and then translated.  One is on writing and reading in a foreign language, the other is on book covers.

I’ve been getting lots of vaccinations in preparation for my sabbatical in India. A Canadian friend recommended Dukoral. Dukoral is a vaccine for cholera, a very serious disease although one that’s rare for travelers even in undeveloped countries. (It’s roughly comparable in prevalence to Japanese encephalitis, however, which most travel physicians recommend vaccinating for.) As a side-effect, however, Dukoral is also quite effective (60%) against the most common cause of traveler’s diarrhea, that caused by enterotoxigenic E. coli.

Dukoral was approved in the European Union in 2004 but it has not been approved in the United States (a different cholera vaccine was approved late last year but it is not yet widely available). Moreover, Dukoral is available without a prescription in Canada (and also I believe in New Zealand). It’s a big seller in Canada and widely used by Canadians abroad.

It has long been my position that if a medical drug or device has been approved in another developed country then it ought to be approved in the United States. If it’s good enough for the Canadians then it’s good enough for me.

Never let it be said that I don’t follow through on my beliefs. I arranged for someone to buy me some Canadian Dukoral and ship it over the border. Unfortunately, my “connect” is not as practiced in the art of evading U.S. customs as would be ideal and in a fit of regrettable honesty wrote “gift, diarrhea medicine” on the package. The ever-vigilant U.S. Customs intercepted and confiscated my package, thus saving me from the dangers of FDA-unapproved medicine. So I am out $150 (2 doses) and will be less than fully protected on my trip.

If my son or I become “indisposed” in India, I will know who to blame.

Several loyal MR readers requested I cover this topic.  My views are pretty simple, namely that I am a fan of the movement.  Police in this country kill, beat, arrest, fine, and confiscate the property of black people at unfair and disproportionate rates.  The movement directs people’s attention to this fact, and the now-common use of cell phone video and recordings have driven the point home.

I don’t doubt that many policemen perceive they are at higher risk when dealing with young black males, and that is part of why they may act more brutally or be quicker to shoot or otherwise misbehave.  I would respond that statistical discrimination, even if it is rational, does not excuse what are often crimes against innocent people.  For instance, a man is far more likely to kill you than is a woman, but that fact does not excuse the shooting of an innocent man.

I also don’t see that citing “Black Lives Matter” has to denigrate the value of the life of anyone else.  Rather, the use of the slogan reflects the fact that many white people have been unaware of the extra burdens that many innocent black people must carry due to their treatment at the hands of the police.  The slogan is a way of informing others of this reality.

“Black Lives Matter” is a large movement, if that is the proper word for it, and you can find many objectionable statements, alliances, and political views within it.  I don’t mean to endorse those, but at its essence I see this as a libertarian idea to be admired and promoted.

Roger Barris emails me:

I am not sure that this is a suitable subject for a blog post, probably more a project for an aspiring PhD student, but with all the discussion of conflicts of interest in the Trump cabinet, it strikes me that the most glaring conflict in the public sector is ignored: The CoI between state and local politicians elected with the support of public sector unions who then participate in compensation negotiations for the members of those unions.  Here the temptation of the politicians to buy the support of the unions with public money is overwhelming.  The impact of this is potentially trillions when public pension liabilities are included.

This is such an obvious conflict that I have looked to see if there are laws preventing this, but my initial research shows nothing.

It would be interesting to see if there is a statistical relationship between union support and subsequent pay rises.  I would expect this relationship to be especially strong with deferred compensation (such as pensions) since this is very difficult for voters to monitor and can be easily gamed with unrealistic assumptions about, for example, investment returns.

Are you aware of any work that has been done in this field?  I think that the looming disaster with underfunded public pension funds is one of the biggest financial risks in the economy, with ZIRP making it even worse.

Can any of you direct Roger to the appropriate secondary literature on this question?  A related question is whether this conflict of interest makes you more or less upset than the more corporate-connected conflicts of interest found in the incoming Trump administration.