Month: August 2019

Crypto to make your head spin

We analyze a two-country economy with complete markets, featuring two national currencies as well as a global (crypto)currency. If the global currency is used in both countries, the national nominal interest rates must be equal and the exchange rate between the national currencies is a risk- adjusted martingale. We call this result Crypto-Enforced Monetary Policy Synchronization (CEMPS). Deviating from interest equality risks approaching the zero lower bound or the abandonment of the national currency. If the global currency is backed by interest-bearing assets, additional and tight restrictions on monetary policy arise. Thus, the classic Impossible Trinity becomes even less reconcilable.

That is a new paper from Pierpaolo Benigno, Linda Schilling, Harald Uhlig.

Warsaw notes

I recommend a trip here.  Imagine a European country with (roughly) a four percent growth rate and the streets full of young people.  Dining out here is much better than it was in Milan, and cheaper too (eat in the serious Polish place on the left side of the food hall, Hala Kozyski, and get gelato afterwards).  What seems to be the city’s second best hotel is less than half the price it would be in Western Europe.  For better or worse, e-scooters and bike lanes are everywhere.  The city has a lively concert life, even in August.

There aren’t many traditional tourist sites.  Construction workers will look at you funny if you visit the remnants of the Warsaw Ghetto, and the memorial plaque isn’t exactly prominent.  The city’s much-heralded Jewish Museum is as much a critique of the Jews during medieval times as anything else.  I don’t consider those sites as focal for the Warsaw population as a whole, but the official side of life here has not exactly taken the German tack of ongoing apologies.  It is now against the law to suggest that Poles were complicit in the Holocaust (now only a fine, the threat of imprisonment was removed).

These days the 1953 Stalin building downtown looks quite beautiful.  Cross the river to see more of Warsaw’s residential districts, such as the Praga district, and stop by to see the architecture — both new and old — near the Neon Museum.

“Poland issued more first-time residence permits to non-EU citizens than any other EU nation in 2017, with 86% of them going to Ukrainians, in the latest available European migration statistics. Those Ukrainians accounted for 18.7% of all newcomers to the entire EU.”  (WSJ link here).

Poland is a country where nationalism doesn’t seem to be going away.  In fact, there seems to be a kind of intertemporal substitution into a new nationalism, a secure nationalism, finally safe from the bullying of larger neighbors.  Polish flags are everywhere.  So many Poles, even secular ones, view the Catholic Church as the central institution of Western civilization, and indeed they have a concept of Western civilization as having a central institution (though a minus for gay rights).

The country is not on the verge of becoming a “Western liberal’s dream,” at least not in terms of mood or rhetoric.  Yet actual life here is fairly liberal, and is more prosperous every day.  2019 has been the best year in Polish history, ever, and you feel it palpably.

Do not be surprised if more and more of Western Europe sees Polish nationalism as a model to be copied.

A countercultural take on China

That is what I serve up in my Bloomberg column, note it is a reminder more than a modal prediction.  Here is one excerpt:

Is the rest of the world getting China wrong yet again? Maybe the country is not doomed to live out unending top-down rule. What is history, after all, but the realization of the wills of countless unpredictable human beings.

Past mistakes about China are too numerous to mention.

A list then follows.  And:

But has China suddenly become so predictable? Are events there now no longer contingent on the exercise of human will? Modern China is one of the most unusual and surprising societies humankind has created. There are no good models for it, nor are there data from comparable historical situations.

There is, unfortunately, a tendency for Westerners to impose superficial narratives on China and the Chinese, often based on scant observation.

To close:

For myself, I don’t have a coherent story about how the Chinese might move to greater liberty in the next 10 to 15 years. But I do think the actions of the current regime can be read as signs of vulnerability rather than entrenchment. Taiwan and Hong Kong, despite its current crisis, remain strong examples of the benefits of liberalization. Meanwhile, the notion of the internet — even with censorship — as a liberalizing force has been too quickly dismissed, especially in an America that has fallen out of love with Big Tech.

Which leads to a reality even deeper than China’s unpredictability: people’s continuing capacity to respond to current events and shape their futures for the better. As you listen, watch and read about China, keep in mind this essential human quality.

There is much more at the link.

The polity that is Poland

A new law that comes into effect in Poland this week will scrap income tax for roughly 2 million young workers.

It’s an attempt by the government to stop the dramatic brain drain Poland has experienced since it joined the European Union 15 years ago.

Prime Minister Mateusz Morawiecki said the tax exemption will bring new opportunities for young people “so they match those available in the West.” Poles under the age of 26 who earn less than 85,528 Polish zloty ($22,547) a year will be exempt from the country’s 18% income tax starting August 1. The allowance is generous, considering the average Polish salary stands at just below 60,000 zloty ($15,700) a year.

The government said 2 million people will qualify for the benefit.

Here is the full story. There are also baby bounties in Poland, and policies seem to be increasingly youth-oriented.  You can see this on the streets of Warsaw, which have more non-tourist young people than just about any other major city in Europe.

Tuesday assorted links

1. Hong Kong Straussians.

2. Pro-Brexit views are pulling more British voters into conservative views on redistribution.

3. Links on Progress Studies.

4. “Our counterfactual analysis suggests that a persistent increase in average global temperature by 0.04°C per year, in the absence of mitigation policies, reduces world real GDP per capita by 7.22 percent by 2100. On the other hand, abiding by the Paris Agreement, thereby limiting the temperature increase to 0.01°C per annum, reduces the loss substantially to 1.07 percent. These effects vary significantly across countries.”  Link here.

5. “Ironically democracy seems historically to be “in crisis” precisely when it is most proving its superiority to other systems, i.e. when it is managing us through a difficult, messy adjustment.

An email I sent on negative nominal interest rates

Some of the negative nominal premium comes from the fact that you need these govt. securities for collateral, REPOs, clearinghouse margin, etc.

That doesn’t explain *the change*, but this point is often overlooked and it makes the puzzle somewhat less mysterious.

In part, negative nominal (and real) rates reflect a scarcity of good opportunities *at the margin*, but of course inframarginal opportunities may be fine.

If you wish to try a further de-weirding of this, it may reflect a truth about agency problems rather than absolute pessimism.

If capital is relatively plentiful, and talent is super-scarce, and you don’t know how to find marginal talent, you may be stuck just storing your money.  But when talent and liquidity are combined — say Mark Zuckerberg — it will earn phenomenal returns, the other side of the coin.

In other words, this may all be a kind of correlate to income inequality and massive returns for founders…

…you have extra money, you really would like to lend it out for a real productive investment, rather than storing it at slightly negative nominal interest. [savings glut, a’la Softbank]

But whom to trust? Who is your local Mark Zuckerberg? You just don’t know. The uncle you might give it to will just rip you off and he is a dope anyway. [tech talent harder to spot because you can’t rely on traditional credentials]

If the agency wedge is larger, because the talented are already occupied for the most part, you might just have to store it.

This implies mega-returns for good talent spotters, which in fact we observe as of late.

Alexey Guzey on progress in the life sciences

I already linked to this piece, but wanted to recommend it again.  I don’t agree with all of the points, but it has many excellent arguments, here is one excerpt from the opening section:

I think that the perception of stagnation in science – and in biology specifically – is basically fake news, driven by technological hedonic treadmill and nostalgia. We rapidly adapt to technological advances – however big they are – and we always idealize the past – however terrible it was.

I mean – we can just go to Wikipedia’s 2018 in science (a) and see how much progress we made last year:

  • first bionic hand with a sense of touch that can be worn outside a laboratory
  • development of a new 3D bioprinting technique, which allows the more accurate printing of soft tissue organs, such as lungs
  • a method through which the human innate immune system may possibly be trained to more efficiently respond to diseases and infections
  • a new form of biomaterial based delivery system for therapeutic drugs, which only release their cargo under certain physiological conditions, thereby potentially reducing drug side-effects in patients
  • an announcement of human clinical trials, that will encompass the use of CRISPR technology to modify the T cells of patients with multiple myeloma, sarcoma and melanoma cancers, to allow the cells to more effectively combat the cancers, the first of their kind trials in the US
  • a blood test (or liquid biopsy) that can detect eight common cancer tumors early. The new test, based on cancer-related DNA and proteins found in the blood, produced 70% positive results in the tumor-types studied in 1005 patients
  • a method of turning skin cells into stem cells, with the use of CRISPR
  • the creation of two monkey clones for the first time
  • a paper which presents possible evidence that naked mole-rats do not face increased mortality risk due to aging

Doesn’t seem like much? Here’s the kicker: this is not 2018. This is January 2018.

Is the future of Venice Chinese?

Pino Musolino, president of the Port Authority of Venice, told: “Venice port has long worked to seize the opportunities that China’s New Silk Roads strategy offers, with the aim of having positive spillovers on local business and job levels.”

On February 11, Venice signed a memo of understanding with Piraeus to improve overall capacities of the two seaports as important hubs in the Belt and Road scheme. The two port facilities had already set up a weekly ferry service last October. Venice port also has a new rail link to Duisburg, in western Germany, which is the European hub for the land-based Silk Road Economic Belt.

“In regard with the dualism between Venice and Trieste, the two ports actually service different markets,” Musolino emphasised.

“Our facility is the main gateway to industrial clusters in northern Italy, importing raw materials and exporting high-added-value products. For its part, Trieste is focused on Central and Eastern Europe.”

Musolino believes North Adriatic ports should combine their efforts to better manage increased Mediterranean trade resulting from the Belt and Road plan.

Here is the full article.

The Greening Earth

The earth is getting greener, in large part due to increased CO2 in the atmosphere. Surprisingly, however, another driver is programs in China to increase and conserve forests and more intensive use of cropland in India. A greener China and India isn’t the usual story and pollution continues to be a huge issue in India but contrary to what many people think urbanization increases forestation as does increased agricultural productivity. Here’s the abstract from a recent paper in Nature Sustainability.

Satellite data show increasing leaf area of vegetation due to direct factors (human land-use management) and indirect factors (such as climate change, CO2 fertilization, nitrogen deposition and recovery from natural disturbances). Among these, climate change and CO2 fertilization effects seem to be the dominant drivers. However, recent satellite data (2000–2017) reveal a greening pattern that is strikingly prominent in China and India and overlaps with croplands world-wide. China alone accounts for 25% of the global net increase in leaf area with only 6.6% of global vegetated area. The greening in China is from forests (42%) and croplands (32%), but in India is mostly from croplands (82%) with minor contribution from forests (4.4%). China is engineering ambitious programmes to conserve and expand forests with the goal of mitigating land degradation, air pollution and climate change. Food production in China and India has increased by over 35% since 2000 mostly owing to an increase in harvested area through multiple cropping facilitated by fertilizer use and surface- and/or groundwater irrigation. Our results indicate that the direct factor is a key driver of the ‘Greening Earth’, accounting for over a third, and probably more, of the observed net increase in green leaf area. They highlight the need for a realistic representation of human land-use practices in Earth system models.

Do opioids contribute to social bonding?

It seems so (uh-oh):

Close social bonds are critical to immediate and long-term well-being. However, the neurochemical mechanisms by which we remain connected to our closest loved ones are not well understood. Opioids have long been theorized to contribute to social bonding via their actions on the brain. But feelings of social connection toward one’s own close others and direct comparisons of ventral striatum (VS) activity in response to close others and strangers, a neural correlate of social bonding, have not been explored. Therefore, the current clinical trial examined whether opioids causally affect neural and experiential signatures of social bonding. Eighty participants were administered naltrexone (n = 40), an opioid antagonist that blocks natural opioid processing, or placebo (n = 40) before completing a functional MRI scan where they viewed images of their close others and individuals they had not seen before (i.e., strangers). Feelings of social connection to the close others and physical symptoms commonly experienced when taking naltrexone were also collected. In support of hypotheses, naltrexone (vs. placebo) reduced feelings of social connection toward the close others (e.g., family, friends, romantic partners). Furthermore, naltrexone (vs. placebo) reduced left VS activity in response to images of the same close others, but did not alter left VS activity to strangers. Finally, the positive correlation between feelings of connection and VS activity to close others present in the placebo condition was erased by naltrexone. Effects remained after adjusting for physical symptoms. Together, results lend support to theories suggesting that opioids contribute to social bonding, especially with our closest loved ones.

Here is the full article, via the excellent Kevin Lewis.  Note the top item behind the Lewis link: “We find zero or modestly positive estimated effects of these [Haitian] migrants on the educational outcomes of incumbent students in the year of the earthquake or in the 2 years that follow, regardless of the socioeconomic status, grade level, ethnicity, or birthplace of incumbent students.”

The culture that is San Francisco

The words “felon,” “offender,” “convict,” “addict” and “juvenile delinquent” would be part of the past in official San Francisco parlance under new “person first” language guidelines adopted by the Board of Supervisors.

Going forward, what was once called a convicted felon or an offender released from jail will be a “formerly incarcerated person,” or a “justice-involved” person or simply a “returning resident.”

Parolees and people on criminal probation will be referred to as a “person on parole,” or “person under supervision.”

A juvenile “delinquent” will become a “young person with justice system involvement,” or a “young person impacted by the juvenile justice system.”

And drug addicts or substance abusers will become “a person with a history of substance use.”

“We don’t want people to be forever labeled for the worst things that they have done,” Supervisor Matt Haney said.

The resolution is non-binding, was not signed by the mayor, and it is not clear it will be implemented.  Here is the full article.

Some of those terms seem quite reasonable to me, such as “person on parole,” which for many people would be the natural term in any case.  But here is my worry.  It is we who decide how powerful language is going to be.  The more we regulate language, the more we communicate a social consensus that it has great power.  And in return the more actual power we grant to those linguistic “slips” and infelicities which remain.  It is better to use norms to regulate the very worst speech terms, but not all of them.  By regulating too many parts of speech, and injecting speech with too much power, we actually grant more influence to the people and ideas we are trying to stop.