Month: October 2021
That is the topic of my latest Bloomberg column, here is one excerpt:
The IMF is used by the G-5 nations and their allies to put their reputational capital behind the international monetary order. Obviously, the backing countries are only going to underwrite a system that they largely approve of and benefit from.
If the IMF didn’t exist, failed nations still periodically would be bailed out by rich ones, if only because the G-5 politicians wouldn’t wish to endanger the stability of the global financial order. But problems would arise as the bailouts would have to be organized anew each time. Which nation would put in how much? Who would pull the plug on failing nations and when? Who or what would enforce repayment? All those questions are regularized and institutionalized through the existence of the IMF.
The cronyist element is that the G-5 nations use the IMF and its lending facilities to protect the creditworthiness of their own banks and financial systems. In contrast, an IMF serving “the citizens of the world,” whatever that might mean, would be an IMF without much support from the biggest and most important financial players. It would be more like the undercapitalized Unicef than an institution that can move world markets or help preserve them…
If the directorship and board governance of the IMF were picked by a vote from all 190 member countries, the leading G-5 nations would put much less of their reputational capital behind the institution. The IMF is an international public good, but such public goods only get produced when it is in somebody’s selfish interest to do so.
And to close:
Successful international economic orders typically have been based on a fair degree of hegemony, whether it was the British-led gold standard of the 19th century, or the more recent post-World War II American dominance. Once you realize that, a lot of the current questions about the IMF answer themselves rather automatically. The real issue isn’t how to improve the IMF, but how we are going to cope as current hegemonies continue to lose their sway.
That is a new paper by Hendrik Döpper, Alexander MacKay, Nathan Miller, and Joel Stiebale, with striking results:
We characterize the evolution of markups for consumer products in the United States from 2006 to 2019. We use detailed data on prices and quantities for products in more than 100 distinct product categories to estimate demand systems with flexible consumer preferences. We recover markups under an assumption that firms set prices to maximize profit. Within each product category, we recover separate yearly estimates for consumer preferences and marginal costs. We find that markups increase by about 25 percent on average over the sample period. The change is attributable to decreases in marginal costs that are not passed through to consumers in the form of lower prices. Our estimates indicate that consumers have become less price sensitive over time.
Of course under this hypothesis, the supposed increase in monopoly is not so daunting after all. It would be an interesting question, however, why elasticity of demand might have fallen. Better matching to consumers? More complacency? Goods and services are these days more addictive?
2. Farhad Manjoo sanity about Instagram (NYT).
4. Average guy vs. 100 mph fastballs. What is the meta-lesson here?
7. Freddie on Ross. I tend to side with Ross, but still a good piece.
8. NYT covers Human Challenge Trials — amazing how lame is the quoted response of the biomedical establishment.
Sweden’s annual inflation rate rose to 2.5 percent in September of 2021 from 2.1 percent in August but below market expectations of 2.7 percent. It was the highest since November of 2011, mainly due to prices of housing & utilities (5.1 percent vs 3.8 percent in August), namely electricity and transport (6.2 percent vs 6.4 percent), of which fuels. Additional upward pressure came from education (2.5 percent vs 2 percent); restaurants & hotels (2.4 percent vs 2.6 percent); miscellaneous goods & services (2 percent vs 1.4 percent) and food & non-alcoholic beverages (0.9 percent vs 0.3 percent). Consumer prices, measured with a fixed interest rate, rose 2.8 percent year-on-year in September, the fastest pace since October of 2008, below market expectations of 3 percent but above the central bank’s target of 2 percent. On a monthly basis, both the CPI and the CPIF rose 0.5 percent.
Here is the link, they are an open economy facing lots of supply shocks, right? So what is up?
Denmark’s annual inflation increased to 2.2% in September of 2021 from 1.8% in the previous month. It was the highest inflation rate since November 2012, due to a rise in both prices of electricity (15.2%), pointing to the highest annual increase since December 2008 and gas (52.8%), which is the highest annual increase since July 1980.
I thank Vero for the pointer. In an email to me she asks:
“If supply issues are the only cause of our inflation woes, then why is it that countries that spent less than 5% of GDP on the pandemic are experiencing average inflation of 2.15%? While countries that spent over 15% of GDP are experiencing average inflation of 3.94%? I don’t know the answer but I think it is worth asking this question.”
Recently Elrond, the blockchain startup for which I am an advisor, bought a payments processor (conditional on approval from the Romanian government). On the same day, Stripe, the payments processor, announced that they are moving into crypto. None of this is coincidental. Elrond understand that the payments market is a multi-trillion dollar opportunity. Stripe knows that crypto innovation could undercut them very quickly if they aren’t prepared.
How did Stripe turn into a multi-billion dollar firm almost overnight? Obviously, Stripe is a great firm, led by the brilliant Collison brothers, CEO Patrick Collison and President John Collison. But it’s also important to understand that the payments market in the United States is a $100 trillion dollar market. Yes, $100 trillion. Any firm that captures even a small share of this market is going to be big. Credit cards are actually a small part of payments, about $7 trillion with roughly a 2% transaction fee or a $140 billion market. (Quick check. Credit card companies had 2020 revenues of $176 billion). ACH debit and credit transfers are the big market, $65 trillion, which at a .5% transaction fee amounts to a $325 billion market (this is retail price, wholesale is lower). Thus, payments revenue is on the order of $465 billion. A small share of $465 billion is a very big market (and that is just the US market).
Now consider the following. Crypto payments are in principle at least an order of magnitude cheaper than ACH payments. On Elrond, for example, a very fast and low cost blockchain compared to Ethereum or Bitcoin, someone recently transferred $17.5 million for less than a penny. Moreover, crypto payments are global while every other payments system gets much more expensive as you cross borders. I recently sent $1500 to India and it cost me $100 in transaction fees! To be sure, payments made through the banking system have to obey “Know Your Customer” regulations and also include invoicing and billing services which adds both to value and cost. The main reason, however, that payments through the banking system are expensive is because the banking system rails are taped together with two hundred years of spit and duct tape.
Crypto payments are the future. Stripe knows it. Elrond knows it. The race is on.
CZs means “commuting zones”:
We find that larger and higher‐earnings CZs have much higher housing costs than smaller or lower‐earnings CZs, enough so to more than completely offset their larger effects on nominal earnings. Thus, movements to larger or to higher earnings locations mean reductions in real income.
Politics thus gained a new intensity after the Conquest, and yet they were also less bloody. In the great Anglo-Norman and English battles between 1106 and 1264, as in the more general ravaging warfare, very few nobles were ever killed. The immediate reason, as Orderic stressed, was the protection of armour, but ultimately any knight could be surrounded and disarmed. The key point was that when this moment came he simply surrendered and was taken off for ransom. The institution of ransom was, therefore, absolutely central to the failsafe warfare enjoyed by the nobility in this period. Indeed the whole aim in battle was to capture, not to kill, a noble opponent. There was here a wider context because politics too, not just warfare, was largely bloodless. It is a remarkable fact (and one quite contrary to usual perceptions of the Middle Ages) that between Waltheof’s demise in 1076 and Gaveston’s in 1312 not a single English earl, and indeed hardly a single baron, was executed (or murdered) in England for political reasons.
That is from the excellent and highly substantive book by David Carpenter, The Struggle for Mastery: The Penguin History of Britain, 1066-1284. Wasn’t there also a JLE piece about this kind of warfare?
Alan Auerbach and William Gale have a new paper on this topic:
Interest rates on government debt have fallen in many countries over the last several decades, with markets indicating that rates may stay low well into the future. It is by now well understood that sustained low interest rates can change the nature of long-run fiscal policy choices. In this paper, we examine a related issue: the implications of sustained low interest rates for the structure of tax policy. We show that low interest rates (a) reduce the differences between consumption and income taxes; (b) make wealth taxes less efficient relative to capital income taxes, at given rates of tax; (c) reduce the value of firm-level investment incentives, and (d) substantially raise the valuation of benefits of carbon abatement policies relative to their costs.
One core intuition here is that as the safe return goes to zero, capital taxes are not especially burdensome compared to consumption taxes. Of course “the safe return” may not be entirely well-defined within a corporate context, and capital taxes often hit returns to risk as well, so this is a bit more complicated than the abstract alone would indicate.
The authors also offer this intuition, which I do not quite follow:
In simplified environments, a wealth tax can be written as an equivalent tax on capital income. As the rate of return falls, the equivalent income tax rate of any given wealth tax rises. That is, a given wealth tax rate becomes more distortionary relative to a given capital income tax as the rate of return falls.
One of my biggest worries about a wealth tax is that it takes resources away from people who at the margin seem to be good at generating extra-normal returns. That comparative advantage might be more important as the safe rate goes to zero. So I am fine with the conclusion of the authors, but not sure if their intuition is equivalent to mine (I suspect it is not).
This one is clearer to me:
A major focus of potential tax reform has been the treatment of capital gains, given their tax-favored status, their high concentration among the very wealthy, and the distortions that the current method of taxation causes. A key element of the current system of capital gains taxation
is the lock-in effect, which discourages the realization of gains to take advantage of deferral of taxation. With very low interest rates, the deferral advantage loses much of its relevance, and this can make relatively simple reforms (such as taxing capital gains at death) achieve results very similar to more complicated schemes (such as taxing capital gains on accrual, even when not realized).
Overall this paper is very interesting and thought-provoking. Nonetheless, until we understand better why the safe rate of return has diverged so radically from “typical” (but still risky) corporate rates of return, I am not sure what implications we can draw from the model.
1. Sam Enright reviews Bryan Caplan on open borders. Very good piece.
2. The persistence of Paul McCartney (New Yorker).
5. Zena Hitz, The Catherine Project.
6. Against alcohol.
That is the topic of my latest Bloomberg column. Here is one bit:
Most fundamentally, some key nerve centers of the world economy have been hit by a mix of Covid and bad luck, especially in the latter part of this year. Transportation, energy and high-quality semiconductor chips all are experiencing big problems at the same time, for reasons which are distinct yet broadly related.
This combination has fueled price inflation. The demand is hitting the market, and the supply can’t catch up. And it’s not just one problem that has an easy, direct fix, but rather a series of interlocking paths of economic chaos and delay.
Don’t expect all of your Christmas shopping to run smoothly!
Here they have NIMHY rather than NIMBY — “Not in my horse’s yard.” And so the city is ringed by (protected) horse farms and the suburbs are further out. This makes the downtown core denser and more coherent than you might expect, to the benefit of the visitor but perhaps not the resident?
I was struck by how much everyone complains about “the traffic.”
You may recall that Lexington was the setting for Queen’s Gambit.
Overall I would be “long” the city. Downtown has a music and theater scene, albeit on a modest scale. There is a university and a basketball team (Anthony Davis, Rex Chapman, and John Wall, among many others) and lots of health care. And lots of bourbon.
I had an excellent meal in a Peruvian restaurant, saw a plausible Honduran restaurant and also a “West Indies” chicken restaurant under construction. The local steak house was very good, and they offer a $160 wagyu cut, not my order however.
Downtown has more historical plaques than are needed, and they can’t even fit the event descriptions on a single side of the plaque. By the end of the double-sided exposition, you are not sure what they are talking about.
As is common in the Appalachian and near-Appalachian regions, the quality difference between pre-WWII and post-WWII buildings is enormous, even larger than usual.
How many people could, off the top of their heads, name the third largest city in Kentucky? Overall, Louisville is larger and more charming, but Lexington arguably is less Midwest and “more Kentucky.”
Maybe it was just coincidence, but I sure saw and heard a lot of ambulances whizzing by.
It sounded like the ultimate COVID-era travel bargain: five-star hotels in Manhattan at a 60 percent discount. “I do not know exactly what hotel u would be place but I know it would be 5 star hotel … be cash app ready!!” read a Facebook post hyping the deal. A Cash App–only hotel promotion might raise a few red flags, but trust that the rooms were very much real — they were just supposed to be set aside for COVID patients and health-care providers. The scam was uncovered after four months of excellent business, and this week, federal prosecutors charged Chanette Lewis with fraudulently booking New York’s emergency COVID hotel rooms using health-care workers’ stolen personal information. Lewis, 30, and three other accomplices are alleged to have advertised the rooms on Facebook and to have made a whopping $400,000 by booking more than 2,700 nights’ worth of stays in the spring and summer of last year.
Lewis, whose actual job was to book quarantine rooms on behalf of the city, had access to health-care workers’ personal information through her work at the Office of Emergency Management. But she allegedly used their credentials to book stays for her guests instead, making it look like they had been exposed to COVID. “I stole some doctor numbers and emails … I was writing down they employed ID number lmao,” prosecutors say Lewis wrote in a Facebook message. The hotel rooms, which would normally run hundreds of dollars a night, went for only $50 a night and $150 for the week. She then took the cash, prosecutors say, and the city was billed for the rooms. The grift went so well that Lewis recruited others to help her out. “I wanna teach u the ropes of it,” she messaged her co-conspirator Tatiana Benjamin, 26, in June. Her guests did the opposite of quarantine; some threw parties and, as one special agent for the U.S. Attorney ominously put it, “engaged in violence.”
1. Bye-bye white women Chicago docents. Solve for the equilibrium.
2. Bitcoin bodice rippers (MIE).
3. The world that was 1970 (Edison Lighthouse, short music video).
4. Sanity about Instagram (NYT). “Of the better studies [three separate links there] that have found a negative correlation between social media use and adolescent mental health, most have found extremely small effects — so small as to be trivial and dwarfed by other contributors to adolescent mental health. Complicating matters further is that in the Facebook surveys, twice as many respondents reported that Instagram alleviated suicidal thinking than said it worsened it; three times as many said it made them feel less anxious than said it made them feel more so; and nearly five times as many reported that Instagram made them less sad than that it made them sadder.”
5. “We examine how the net worth of billionaires relates to their looks, as rated by 16 people of different gender and ethnicity. Surprisingly, their financial assets are unrelated to their beauty; nor are they related to their educational attainment. As a group, however, billionaires are both more educated and better-looking than average for their age.” Paper here.
The evidence is taken from overseas bank accounts, and here is the abstract:
Do elites capture foreign aid? This paper documents that aid disbursements to highly aid-dependent countries coincide with sharp increases in bank deposits in offshore financial centers known for bank secrecy and private wealth management, but not in other financial centers. The estimates are not confounded by contemporaneous shocks such as civil conflicts, natural disasters, and financial crises, and are robust to instrumenting with predetermined aid commitments. The implied leakage rate is around 7.5 percent at the sample mean and tends to increase with the ratio of aid to GDP. The findings are consistent with aid capture in the most aid-dependent countries.
Francis Quinn emails me:
I’m an American man, 29, arrived in Amsterdam for the first time yesterday, and I am finding it to be the least crowded European city I’ve been to. Is this COVID-related possibly, do you think, or did the city used to be empty? I even thought I was on a college campus, almost. I’m loving it.
I’m now thinking of a new question for Tyler: *when* was the best year to have visited various places? From 1900-2100 (past and present, future possible travel times for all your readers)?
Good idea, let’s put aside Covid, here are a few observations:
1. The best time to visit the United States is now. The country keeps on getting better and more interesting, most of all the latter.
2. New York City is a big exception here. It probably was more interesting to visit NYC in the 1950-1978 period when it was clearly the world’s leading city, culturally and otherwise. San Francisco (1970s?) and Detroit (1960s?) are exceptions also.
3. Most of Western Europe probably was best to visit in the 1970s or 1980s? Modern enough to be comfortable, less ruined by excess tourists, and the internet doesn’t really raise the value of Europe much at all. Note that I am putting aside “visit in 1920 so you can be shocked by the novelty and then brag about it.” That is an interesting plan, but I think not the question at hand. And the danger of disease and poor medical care still would have been high.
4. Much of Eastern Europe was best to visit right after the Iron Curtain came down. Poland is an exception to this, and it is best to visit Poland now.
5. For most of Asia, the best time to visit is right now. Perhaps Japan was more exciting in the bubble years. Some parts of China were wrecked by the Cultural Revolution, and Hong Kong was more fun before the takeover. China was freer and more fun ten to fifteen years ago. So there are exceptions, but mostly the point stands. Asia as a whole is getting better and more interesting.
6. For most of Africa, the best time to visit is right now, wars aside. Ethiopia for instance was obviously much better to visit a few years ago. I am not sure about Nigeria. Obviously, for some anthropological or wildlife-related interests, much earlier times might have been better, but not for the typical educated tourist.
7. Right now is the best time to visit Israel. I suspect some of the Arab countries in the Middle East were better to visit much earlier — Beirut and Cairo for instance. Yemen was clearly better to visit in the early 1990s. Iran during the time of the Shah. And so on. Overall these points are not a promising sign for the region. Dubai and the like are clearly best to visit now.
8. Most of Latin America is best to visit now, as the region remains largely unspoilt. Brazil might be an exception to this, though I have not been lately. Some parts of Brazil seem to be more dangerous, and an earlier visit may well have been superior. Ever see the movie Black Orpheus, set in Rio?
9. The 1960s were the best time to visit Haiti.