Month: August 2017

Saturday assorted links

1. Does cutting the corporate income tax boost the demand for labor?

2. “By threatening to sabotage their own interests but hurt the impatient state even more, citizens can compel the state to deliver broader policy benefits. We illustrate this logic with the case of polio vaccination in northern Nigeria, where entire communities have resisted the vaccine as a strategy to bargain for more desired services.”  Link here.

3. Germans who swim to work.  And Bill Kristol will interview me Sept.13 in Chicago.  And apply to become new host of NPR’s Planet Money.

4. The quickest and slowest economics journals.

5. When the government (Venezuela) loots checked luggage.

6. Why democracy is safe in America.  And are we overrating those North Korean ICBMs?

7. Ray Dalio’s succession plan.

Immigration flows are well below their postwar peaks

From Lyman Stone:

…the survey-based immigration method finds essentially no increase in immigration after the immigration reforms of the 1960s: indeed inflow rates may have declined. The implication here is that rising foreign-born population has its roots well before any changes to immigration law, and may be as much about declining outflows as it is about rising inflows.

Notably, both estimates give a similar 1940-Present estimate of average annual migration: 0.51% for the survey method, 0.57% for the category method. The category method is inflated by that bump around the 1950s, which was largely temporary, seasonal illegal immigration. Adjusted for that, it’s about 0.52%. In other words, both methods give similar long-run migration rates, at a long-run average level somewhat lower to the long-run average level in the previous migration period.

But the trend is different. The survey-based method suggests immigration rates peaked around 1970 and have fallen since. The category-based method suggests that immigration rates peaked in the 1990s, and have fallen since.

The longer piece covers a variety of other related topics, including stocks in addition to flows (longer lives and lower native fertility skew the stock), and the connection between immigration and pro-natalist policies.  Via Ross Douthat.

Can You Short the Apocalypse?

If the probability of nuclear war just went up why isn’t the stock market down? The stock market also didn’t fall during the Cuban Missile Crisis, as Lars Christensen points out:

If indeed we were on the brink of a nuclear exchange, one would certainly have expected the stock market to drop like a stone. Nothing of the sort happened. Instead, the S&P500 was little changed during the 13-day standoff between the United States and the Soviet Union.

Lars argues that the market must have figured out that MAD was a brilliant policy and thus the nuclear risk wasn’t anywhere near as large as most people thought (and nuclear war didn’t happen so the markets were right, right?)

Historian Arthur M. Schlesinger Jr., who was in the White House at the time, thought the Cuban Missile Crisis was the “most dangerous moment in human history.” None of the participants thought it was a yawn. I am inclined to accept their judgment. So why didn’t the market drop like a stone? It’s not so obvious that the apocalypse is priced into the stock market.

Let’s remember why markets are good at forecasting events. If you think IBM’s dividends are going to fall then you sell IBM stock and the fall in price signals the future event. But what do you do with the proceeds from the sale of IBM stock? You buy some other asset. Since IBM is only a small share of the market there are lots of other assets to buy.

If you think a nuclear war is likely, and you sell your stocks, what do you buy? It’s pointless to buy other assets like bonds–the bond markets probably won’t exist. You could buy land but who will enforce your property right? Even cash might be useless following a nuclear war. Maybe some gold coins and canned goods would be useful but you may not be around to enjoy them.

If the apocalypse really is coming your best bet is to cash out and spend it all now. But really how much fun would that be? Sure, you could have a great week of hookers and coke but I suspect a lot of people might prefer the cheaper option of a walk in the forest.

If the apocalypse were coming, I would have a second helping of chocolate cake and maybe a third helping but utility diminishes. Since utility diminishes you get a lot less enjoyment by consuming all your wealth now than by spreading it over a lifetime.

Diminishing marginal utility means that the optimal strategy to meet the apocalypse is very costly. Suppose you expect IBM dividends to fall and so you sell your IBM stock and use the proceeds to buy something else. If IBM dividends don’t fall, you haven’t lost much. But if you expect a nuclear war, cash out and blow it all, then you’ve lost a lifetime of consumption in return for a momentary buzz.

The bottom line is that selling stock doesn’t really help you to deal with a nuclear war or even to improve your life much before the nuclear war happens. The problem isn’t markets. An information market could still be used to produce information about the probability of a nuclear war it’s just that I wouldn’t necessarily expect that probability to correlate with the broader markets. Since any actions you might take in the broader markets are fruitless or very high cost, knowing that the probability of a nuclear war has increased is mostly useless information. You might as well ignore useless information and proceed to buy and sell stock as if the information didn’t exist.

You can’t short the apocalypse. As a result, I am not much comforted by the fact that markets appear steady in the face of apocalyptic risk.

Why isn’t Mexico growing more rapidly?

From Levy and Rodrik:

What is striking is that this dualism has worsened during the period of Mexico’s liberalizing reforms. Research by one of us (Levy) shows that informal firms have absorbed a growing share of the economy’s resources. The cumulative growth of employment between 1998 and 2013 in the informal sector was a whopping 115%, compared to 6% in the formal economy. For capital, cumulative growth was 134% for the informal sector and 9% for the formal sector.

The short article is interesting throughout.

I’m with the Mormons on this one — how about you?

One in eight American adults are alcoholics.  Here are some more details:

The article by Grant et al describes substantial increases in alcohol use and related problematic behaviors that occurred between the National Epidemiologic Survey on Alcohol and Related Conditions evaluations in 2001-2002 and in 2012-2013. The validity of the results is underscored by the impressive methodology, which at each time applied virtually identical well-validated face-to-face interviews and analytic approaches to about 40 000 nationally representative participants 18 years and older. The concept of high-risk drinking demanded 5 drinks per occasion for men (4 for women) at least weekly, with a standard drink defined as 14 g of ethanol, and alcohol use disorders (AUDs) were defined by the DSM-IV.

The results documented substantial increases in the prevalence of past 12-month drinking, high-risk drinking, and AUDs. The largest increase related to the rate of the most serious problems, AUDs overall, which shot up by 49.4%, from 8.5% in 2001/2002 to 12.7% about a decade later. These figures are limited to the past 12-month, or current, diagnoses and do not include individuals who are in potentially temporary remissions. Respondents with lifetime but not current AUDs are also likely to carry future health care costs through enhanced vulnerabilities for cancers, cardiac disease, and other serious disorders associated with histories of heavy drinking.

The overall changes in prevalence over the decade were even greater for several population subgroups including women (an 83.7% increase in AUDs over the 11 years), African American individuals (a 92.8% increase in AUDs), individuals aged 45 years to 64 years and 65 years and older (with 81.5% and 106.7% increases in AUDs, respectively), those with only high school educations (a 57.8% increase in AUDs), and individuals with incomes less than $20 000 (a 65.9% increase in AUDs). During that same period, high-risk drinking, described using the previously mentioned criteria, increased from 9.7% to 12.6% (a change of 29.9%), with similar subgroups as reported for AUDs demonstrating the greatest increases. The proportion of drinkers increased from 65.4% to 72.7% (an enhancement of 11.2%). Similar results have been reported in other national surveys, indicating that the National Epidemiologic Survey on Alcohol and Related Conditions findings are not anomalies.

As noted by the authors, in 2010, the cost to society for alcohol-related problems was estimated at $250 billion per year.

That is from JAMA, hat tip goes to Anecdotal.  Is limiting alcohol use one of your main issues?  If not, why not?  And what about causes?  Here is some media coverage:

There’s no single explanation for the increase. Researchers point to economic stress in the aftermath of the Great Recession; more easily available alcohol at restaurants and retailers; and the diminished impact of alcohol taxes. As a percentage of average income, than at any point since at least 1950.

Pervasive marketing by the alcohol industry and new products such as flavored vodkas or hard lemonade and iced tea may also be driving some of the increases among women and other demographics, says Jernigan.

Of course this also has implications for future health care costs, although whether higher yearly care costs will offset lower life expectancy I do not know.  In any case, it is unlikely to boost productivity.

Not from The Onion

‘BitCoen’ to become first electronic currency specifically for Jews

And this:

While anyone can purchase tokens, the company will be managed by a ‘Council of Six’ made up solely of Jewish representatives. The representatives will likely be prominent leaders in both public and private sectors, though there is no word yet as to the planned demography of the leaders.

As the currency is aimed specifically at Jewish communities, there will be an automation option so that trading operations may take place on Shabbat, when the handling of money is prohibited by Jewish law.

Just to be clear, I don’t think that all or even most of these new coins are viable entities…

Hat tip goes to Irrelevant Investor.

Friday assorted links

1. The body language of Angela Merkel.

2. University of Georgia limits professorial stress reduction policies for students.

3. “1,800 toadlets an hour…

4. Why is American chess great again?

5. Josh Barro of BI.

6. How reliable are North Korean nuclear weapons?

7. From the Philip Tetlock people: “It’d be fantastic if you could share the signup link – – with your readers, to whom I can promise a rare chance to work with a range of prototype human-machine hybrid forecasting systems in the experimental stage…”

On the importance of the hegemon, with reference to Macedonia but not only

That is my latest column for Bloomberg, here is one bit from it:

In other words, a country can experience hundreds of years of bad events, but if it succeeds in attaching itself to a benevolent, moderately competent protector, it still can have a fantastic future of peace and prosperity, even if it does not stand on the global cutting edge.


If Macedonia doesn’t make it into the EU, it is not difficult to envision a future where the country ends up being picked apart by a variety of pressures from Russia, Serbia, Bulgaria, Albania and Greece, in some unknown combination. Keep in mind that an independent Macedonian nation has existed for only a few decades over the course of many centuries, and so its continuing existence cannot be taken for granted.


But when it comes to economic development, don’t just look at demographics or economic policy. Ponder the hegemon.

I wish to thank J. and P. for conversations that spurred some of these thoughts.

*For They Know Not What They Do*

…the Party needs “dissidents”, for this that it needs “Goldstein”: it cannot express its truth in the first person — even in the “innermost circle” it can never come to a point at which “the Party knows how matters actually stand”, at which it would recognize the tautological truth that the aim of its power it just power itself — so it can achieve it only as a construction imputed to someone else.  The circle of totalitarian ideology is thus never closed — it necessarily contains what Edgar Allan Poe would call its “imp of perversity” compelling it to confess the truth about itself.

That is from Slavoj Žižek”s book, the subtitle being Enjoyment as a Political Factor, one of his best, intermittently lucid and sometimes brilliant, most of all on Hegel.   Žižek also reminded me of an old Christopher Hitchens quotation: “mass delusion is the only thing that keeps a people sane.”

Skopje notes

Skopje, capital city of Macedonia, is a dream world for lovers of concrete communist architecture.

Link here, photos recommended.  It seems it is also the roast pepper capital of the world, and this:

The city center holds concrete masterpieces sitting alongside every possible era of architecture from the last two millennium. An ancient Castle fortress looks down from one side, and the world’s biggest cross sits atop an inner city mountain on the other. On one side of the Vardar river that cuts through the city center, is a ancient neighbourhood that could be straight out of Istanbul. On the other, the city square with an enormous “Man On a Horse” statue (just don’t say it’s Alexander the Great, believe me) is a pleasurable and walk-able area normally bustling with activity. Connecting the two areas, is the Stone Bridge, built about 700 years ago – on top of much older Roman foundations. The layers and the contrast is unique for any city of this size.

Imagine a city that is part Habsburg in style, part Ottoman, part communist brutalism, and part Las Vegas/Venetian kitsch except it isn’t kitschy, and with a dash of 300 thrown in for good measure, distributed across dozens or is it hundreds of large statues?

The earthquake of 1963 is mentioned fairly often; it destroyed about 80 percent of the city.

Mother Teresa was born in Skopje, and there is a museum in her honor.  A good day trip from Skopje is the St. Jovan Bigorski monastery, some of the finest woodcarving I have seen.  It is striking to view the church in conjunction with the Saudi-financed mosque across the valley, thereby inducing one to ponder the use of stones to capture space in the game of Go.

I am told there are Macedonian enclaves in Totowa, Clifton, and Garfield, New Jersey.

The food is phenomenal, in addition to the roast peppers there are breads, baked pies, meats stewed with vegetables, white beans, stuffed peppers, trout, and Balkan cheeses, all with that farm to table touch.  Further to the south I recommend the garlic spread.

There is sexual dimorphism in Skopje, and I am told that Donald Trump is more popular in this country than in any other.

The major Macedonian exports are chemical goods, machinery, clothing, iron, and steel.  The measured unemployment rate is about 23 percent, and there is a comparative advantage in producing “fake news.”  There are varying estimates for per capita income, but about 13k (PPP) seems in the ballpark.

Politics was discussed and maps were shown.  To put a twist on the famous quotation about religion in India, when it comes to history, every Macedonian is a millionaire.

English proficiency is high, as Macedonian has only slightly more than 2 million inhabitants and none of the immediate neighbors has a language that is very useful elsewhere.  The people are very friendly and helpful, and it is quite safe here for a tourist.

On the television I watched the first quarter of “NBA Team Africa vs. NBA Rest of the World,” Serge Ibaka vs. Dirk Nowitzki, etc., a real game with refs and a crowd, does the NBA even tell the American market about contests such as this?

If food, architecture, and history interest you, visit the fresh and vibrant Skopje.

The immigration policy of the future?

ICE’s hope is that this privately developed software will help go far beyond matters of legality to matters of the heart. The system must “determine and evaluate an applicant’s probability of becoming a positively contributing member of society, as well as their ability to contribute to national interests” and predict “whether an applicant intends to commit criminal or terrorist acts after entering the United States.” Using software to this end is certainly in line with Trump’s campaign rhetoric — during a rally in Phoenix, he described how “extreme vetting” would make sure the U.S. only accepts “the right people,” using “ideological certification to make sure that those we are admitting to our country share our values and love our people.”

That is from The Intercept, by Sam Biddle and Spencer Woodman.  Here is Wikipedia on China’s proposed social credit score system, currently in experimental form.  What would Patrick McGoohan say?

Why Bitcoin and alt coins will offer “a new money menagerie”

That is the topic of my latest Bloomberg column, here is one excerpt:

Alt coins may be effective hedges for at least two reasons. First, the value of the coin may depend on how well the original rules for the coin were written, or how well it is governed in the case of managed coins like Ethereum or Ripple. Those factors may be fairly independent of what’s driving returns in traditional stocks and bonds, which in turn creates an opportunity for diversification.

Under these scenarios, alt coins are primarily stores of value rather than media of exchange. There is a notable tendency for exchange media to consolidate into a dominant currency in a given geographic region. But the very large number of financial assets in the world shows that thousands of stores of value can coexist and compete without much consolidation.

Second, alt coins to some extent are used for money laundering. If you think the world might be moving toward greater authoritarianism, the demand for money laundering could go up, to evade capital controls or asset restrictions. The value of alt coins would rise in turn, and that means alt coins would provide partial insurance against this very possible but unpleasant future path.

There is much more at the link.  Overall I believe it is a mistake to focus too much on the medium of exchange function of such coins (“Can I use it in the store?  I heard there are some food trucks taking Bitcoin!”, etc.).  Instead think of them in terms of services offered.  A new coin also may back, complement, and introduce a new protocol, though I didn’t have space to cover that in the column.

A few of you have asked me about the recent Bitcoin fork, here is one technical look at the issues.

I am struck by the notion that, of the two forked assets, the old-style, slow, and “immutable” Bitcoin retained most of the market value and trading interest.  While that happened for a few reasons, I wonder if the market isn’t telling us that, at least when it comes to selecting the most dominant asset, it prefers a “rigid coin” to a coin managed by a company such as Ethereum or Ripple, or to a coin “managed” by votes and forks.  In other words, the governance problems with coins may be larger than we had thought, and voting may deepen rather than solve those problems.  The market seems to like fairly rigid constitutions.  And for all the pledges made by company-run coins, is there really no way for those companies — in their post-founder futures if not now — to pursue their own interests over those of other coin holders and users?  Since Benjamin Klein (1974) or earlier, we have known that is a classic problem with non-convertible private monies.

To what extent does the market prefer the “dogmatism” of classic Bitcoin to the discretion of private management?  Not long ago, I had edged toward the view that Ethereum and its neat properties will displace Bitcoin, but now I suspect both kinds of coins will persist.

The brilliant Matt Levine will make your head spin.

Moral hazard from Sicilian volunteers

Fifteen volunteer firefighters have been arrested in Sicily on suspicion of starting wildfires and reporting non-existent blazes so they could earn €10 (£9) an hour for putting them out.

Police in Ragusa province, in the south of the Mediterranean island, said the fire department became suspicious when it emerged that the auxiliary brigade had responded to 120 incidents compared with just 40 tackled by other volunteer teams over the same period.

The brigade commander, a refrigeration technician identified as DDV, was deemed dangerous enough to be held under house arrest, the Ansa news agency reported, because he was suspected off continuing to start fires after others had stopped.

Most of the remaining team members, whose private phone calls were recorded as part of the investigation, have since admitted calling the 115 emergency number or getting friends or relatives to do so.

Here is the full story.