Month: January 2017

What to protest Black Lives Matter continued

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.

China fact of the day

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.

Why aren’t you busy selling short?

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

My Conversation with Jhumpa Lahiri

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.

The FDA Fails to Prevent Traveler’s Diarrhea

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.

Black Lives Matter

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.

Understudied conflicts of interest in American government

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.

Will speech analysis determine your next promotion?

It works like this. Your 15-minute voice recording is analysed digitally — tone of voice, choice of words, sentence structure — to determine personality traits such as openness to change, enthusiasm, empathy. In a fraction of a second, a software program sums up your character. Charts and diagrams reveal how friendly, status-driven or well organised you are — compared to the recruiter’s ideal profile.

“There is no person in the world who would be able to analyse so many aspects of personality, skills and speech in just 15 minutes,” says Mario Reis, co-founder of Precire Technologies in Aachen, Germany. Their speech analysis tools are used by human resources giant Randstad, transport firm Fraport and vehicle insurance service provider Control€xpert, Reis says.

How about attaching a file analysis to your Tinder profile, or refusing to contact those who do not?  Here is the BBC story, via Michelle Dawson.

Tuesday assorted links

1. Esther Duflo’s Ely lecture, “The economist as plumber.”

2. Disappearing markets in everything: the last disco ball maker (there is noisy sound at the link).  And how bad is authoritarianism really?  And David Brooks on Bannon vs. Trump, I am always happy to see actual analysis of the Trump administration.

3. The best economic history works in the last decade? (pt. I)

4. AI now wins in heads-up, no-limit Texas hold’em poker.  That is a game of asymmetric information.

5. The books some Australian guy is looking forward to.

6. If they had served this up as parody, I would have thought it too exaggerated.  Did Darwinian processes really produce this?  I guess so.

7. Long Piketty blog post on productivity in Germany and France.  It does seem he is now blogging in English (and French) for Le Monde.

The tenth anniversary of the iPhone

Here is what I wrote in 2007, when Prospect magazine asked me to name the most underrated cultural development of the year:

The iPhone. The world really did change…We now have handheld personal computers and personal entertainment centres, yet they are no larger than a thin pack of cards. And no, I’m not a techie, a gadget freak or an Apple lover. The device itself is beautiful as well.

And here was my “overrated” answer:

Overrated: Hollywood movies. US ticket sales recovered this year, but to what end? This was a year for microculture, such as Facebook, Twitter and YouTube. The bigger visual productions of the year won’t much stand the test of time. On the bright side, television drama continues to rise in quality.

I am pleased to have bought an iPhone on the first day, I felt at the time it was like seeing the premiere of a Mozart opera.  Many people laughed at me for suggesting such an analogy, and they chided me for my infatuation with such a toy.  I recall Alex walking into my office, asking me what I thought, and I told him the product really did deliver what it promised and that it would change the world.

The funny thing is, I hardly use my iPhone anymore, much preferring the larger iPad.  I haven’t even bothered to order one of the larger iPhones, as for me it isn’t large enough and I marvel that others can use it as much as they do.  In other words, now that I have experience using the product my forecast, if I were to make one historically “blind,” but with that accumulated personal experience in pocket, would be far less accurate than what I said at the time.

Is capital share declining because mark-ups are rising?

From Simcha Barkai at the University of Chicago (pdf):

This paper shows that the decline in the labor share over the last 30 years was not offset by an increase in the capital share. I calculate payments to capital as the product of the required rate of return on capital and the value of the capital stock. I document a large decline in the capital share and a large increase in the profit share in the U.S. non-financial corporate sector over the last 30 years. I show that the decline in the capital share is robust to many calculations of the required rate of return and is unlikely to be driven by unobserved capital. I interpret these results through the lens of a standard general equilibrium model, and I show that only an increase in markups can generate a simultaneous decline in the shares of both labor and capital. I provide reduced form empirical evidence that an increase in markups plays a significant role in the decline in the labor share. These results suggest that the decline in the shares of labor and capital are due to an increase in markups and call into question the conclusion that the decline in the labor share is an efficient outcome.

For the pointer I thank David Levey.

Best classical music recordings of 2016

I found it to be a remarkably deep year for recordings, against all economic odds.  I could easily go twenty deep with little loss of quality, but these are the few that stood out for me:

The Complete Songs of Virgil Thomson for Voice and Piano, by the Florestan Recital Project.  This release wins the prize for “music I didn’t really know existed before.”  Here is one stellar review.

Inspired by Brahms: Music for Horn Trio, including works by Ewazen, Kellogg, and Brahms.  After German Requiem, the Horn Trio is perhaps my favorite work by Brahms.

Brahms Lieder and Liebeslieder Waltzes, by Andrea Rose, Thomas Quasthoff, et.al.  Finally a rendition as good as the classic Vronsky/Babin recording.

Domenico Scarlatti Sonatas, by Angela Hewitt.  This is the recording I feel most comfortable recommending to most of you.

Franz Liszt, Transcendental Etudes, by Danil Trifonov.  Probably the most widely and best reviewed release of the last year, here is some background information on the etudes.

Rêve d’un Enfant, works by Franck, Ravel, and Ysaÿe, by Sophie Rosa and Benjamin Powell, the Franck is especially fine.

Mozart, Don Giovanni, conducted by Teodor Currentzis.  I never thought I would be swept off my feet by an original instruments performance of this opera, but there you go.  From Gramophone:

…briskly paced, crisp, bristling attacks – it is also unlike anyone else’s take on the great opera. It isn’t weird or eccentric; everything feels just right. What separates it from the crowd is the depth of attention which is applied to every detail, the profoundly imaginative shaping of each and every phrase, and the extraordinary, razor-sharp precision of the ensemble playing. The stuff, in other words, that everyone else would like to do, but doesn’t know how. The singing, in accordance with Currentzis’s beliefs – and others in the HIPP world – is a touch “lighter” than usual: less “operatic”, more “natural”, if there is such a thing. All the roles are superbly sung (including a best-ever Don Ottavio) and the recording is rich, warm and finely detailed.

That’s the one that wins my top prize.

currentzis

Also new on my discovery list were the string quartets of Ben Johnston and also Robert Simpson, although these were not generally new recordings.  I listened to plenty of Haydn, rediscovered Idomeneo, for some reason was a bit bored by Beethoven, and rued the passing of Pierre Boulez.

From the comments, on the new Republican tax plan

The non-deductibility of imports is simply crazy. It will immediately increase inflation. Take IKEA, for example, they cannot source locally, they will increase prices immediately by 20%, or whatever the tax will be. At all effects, it is a flat tariff of 20% on every import. This guy seems to want to transform the US into North Korea. And think about the distortions: Boeing will become a purchasing company, making more money using the tax-credit to buy prosciutto and Camembert to sell to retailers at prices lower than the marginal cost, than producing planes.

That is Coasean reasoning from Massimo, there are other good comments as well.  For instance Bob noted:

There will be a huge move to asset based leasing. So Wal-mart, instead of borrowing money will sell thier real estate to a REIT and lease it back. They essentially can keep the deduction.