Month: January 2022

Does crypto add to the money supply?

That is a reader request from Jerry Kate:

Is crypto effectively adding to M2 or M3 money supply and hence inflationary (outside the control and models of central banks), or is the velocity of crypto so low that it acts (like stocks) as a store of value having no impact on inflation? Will the answer to the prior question change if the market cap of crypto doubles or if crypto is tweaked to add velocity, or incorporated into the banking system to generate multiplier effects? Should central banks be worried?

I think you could ask this question of monetary economists, and get “confirmed” answers, yet the answers would disagree with each other.  My views are as follows:

1. If crypto prices are bubbles, they will encourage more spending and thus they would be inflationary, though only mildly so.  And that process could not continue for very long.  In the old school “Gurley and Shaw” sense, crypto is a kind of outside money and net wealth, and so spending will rise.

2. Alternatively, let’s say crypto assets have use cases that justify the current prices, but those use cases are not yet actively in use at this moment.  The crypto assets are then mildly inflationary now, but an offsetting deflationary impetus will kick in once those use cases arrive and lower the prices of goods and services in the marketplace.

3. Or, let’s say crypto prices are not bubbly, and are justified by current uses.  You then have a more or less offsetting boost in both aggregate demand and aggregate supply.

4. An additional question is whether the velocity of (traditional) money is higher or lower in the crypto sector.  I don’t know the answer to that question.  It is a possible effect, though probably not a major one.  If crypto soaks up money in a kind of “segregated from the real economy” shell game, it can be mildly deflationary.

5. Jerry also asks about “incorporating crypto into the banking system.”  That could mean a number of things.  Under one scenario, stable coins are told to become banks and then they are regulated like banks.  It would then be like having more money market funds, and that could be broadly inflationary on a modest, one-time basis, though of course you would have to compare the effects of those money market funds to the “wild west crypto effects” they were displacing.

Any other views or scenarios to consider?  Overall I don’t see this as a significant effect in quantitative terms, but it is nonetheless worth thinking through the logic of the question.

Your Presidential Picks

Conor Friedersdorf asks:

“You can appoint any American citizen to one term as president,” I wrote earlier this week, “so long as your choice has never run for president before. Who do you appoint to the White House and why?”

and gets some interesting answers including these two:

“Austin makes a case for the public-radio host Kai Ryssdal, highlighting parts of his résumé I’d never known about:

Born in the U.S., but grew up partially overseas. MA in national security studies from Georgetown. [Flew] airplanes off of aircraft carriers in the US Navy. Pentagon staff officer. U.S. Foreign Service. Great communication skills, as heard on his hit radio show Marketplace, where he breaks down economics and markets both foreign and domestic. After he left the Navy he would ride his bike to work at a Borders for $7 an hour. He’s got an unbelievably impressive résumé with real world experience in National Security, International Relations, China Policy, US Military policy, economics, and the markets. Plus he knows what it’s like to work a real job like the rest of us. And he speaks Chinese! That’s huge. I would get behind him any day of the week.

Russell picked one of my favorite public intellectuals:

I’d like to appoint Tyler Cowen as president—besides being an uber-rationalist, we should give him a chance to put his state capacity libertarianism idea into practice. He is also one of the best identifiers of talent possibly on Earth, so we know we would get a dream team administration, likely composed of heterodox thinkers of diverse and opposing views who could shake everyone out of complacency. Finally, he has studiously managed to avoid being labeled as particularly associated with either party, so it’s possible that popular opinion wouldn’t know what to make of it all, giving the Cowen administration a chance to chart some new path, independent of pre-established partisan biases. Magical thinking? Maybe, but no less than we’ve got permeating our politics now.”

Good picks. I’d imagine that Cowen would appoint a pretty good FDA commissioner, or at least try.

Kevin Erdmann was right

I will turn the microphone over to Scott Sumner:

I was just shooting from the hip when I questioned the housing bubble view that was so popular after 2006.  Credit should go to Kevin Erdmann, who produced a mountain of evidence against the bubble hypothesis in two very impressive books on housing.  His view, which was once highly contrarian, has now been completely vindicated.  Indeed, I don’t see how any fair-minded person reading his books could still believe in the housing bubble theory.  Unfortunately, he’ll probably be ignored.  The media tends to focus on academic research from top schools like Harvard, not unaccredited individuals working on their own.  Better to be famous than to be right.

Here is the full post, and I am honored to have Kevin as my colleague at Mercatus, including for some of the earlier years of his work on this topic.

The economics of exploding job market offers

I am hearing various Twitter reports that in the absence of AEA scheduling coordination, the junior economics job market is involving a lot of departments jumping the gun, interviewing early, and then making “exploding offers” with a short fuse, hoping to snap up desperate candidates.  I am not personally involved in that market this year, but my sources seem credible.  In any case, this is a problem worth thinking through.

As an economist, how should we think about exploding job market offers?

1. If you are a decently strong candidate who is highly risk-averse, you will end up with too low quality a job.  That said, the market is satisfying your risk-averse preference just as it does when you buy insurance.  And if you are so risk-averse, maybe your research record won’t be so important anyway, even if you manage to publish well.  I guess I am not that worried about these people.  I am happy enough to tax their risk-aversion, and in fact I suspect we should tax their risk-aversion all the more.

2. You might argue there are “thick market externalities,” and so it is efficient if most of the offers/trading occur closely bunched in time (see Niederle and Roth).  After all, many asset price markets have designated trading hours, rather than full blast trading 24/7.  While I find that analogy plausible, keep in mind what the efficiency here consists of, namely placing the more highly rated candidates in the more highly rated schools.  Is it so terrible if a “market inefficiency” shakes up that system a bit?  I thought the system was too elitist anyway.  Some would say “too white male patriarchical, etc.” anyway.  That is not exactly my view, but I agree that status quo ex ante methods were hardly sacrosanct.

2b. I am not one to trust a “managed intervention” into the previous job market methods more than a general disruption of trading.  Of course if you are an AEA elite leader, you might differ on this.

3. Private sector offers for economists are “always there,” as for instance Amazon and Uber are not locked into the same hiring schedule as academic departments are.  So at the margin these exploding offers will push more economists into the private sector.  I am fine with that, as arguably economists are currently excessively subsidized into academic institutions by government support.

4. Possibly the longer-term equilibrium is that everyone is pushed into acting in November, and perhaps with fewer flyouts.  I am not sure that is a bad option.  Is much extra, true information revealed between November and January?  If you are a good department and afraid of losing good candidates to exploding offers, can’t you just hurry up yourself?  That speed-up of the entire process also gives the secondary market, for those who did not get offers on the first round, more time to operate.  Surely there is room for the entire process to hurry up, yes?

4b. The more quickly the first tier of offers is cleared up, the more efficiently the queued candidates (say second or third in line for an offer) will be allocated.  Isn’t that important too?  For an egalitarian maybe more important?  And rapid, exploding offers may take some top candidates off the market more quickly, in a good way, and stop the places that have no chance at them from chasing after them and wasting time?

5. A speedier overall job market presumably would help the job candidates who are anti-procrastinators and hurt the candidates who are procrastinators.  I am fine with that!  On the offering side, maybe it would help private universities, which tend to be speedier, and hurt public universities?  YMMV.

6. Through the use of letters and phone calls and exclusivity norms, there has been a de facto preemptive market for the top schools for a long time.  And now others are jumping in early!?  Just exactly who is supposed to be fooled here?

7. What is the actual initial job market distortion we might want any change to address or improve?  Might it be that job market candidates are too “Top Five” oriented and too risk-averse?  I am genuinely unsure here.  But if that is the problem, I don’t see why having more exploding offers should be so terrible.

8. Aren’t a lot of the most important opportunities in your life to come similar to “exploding offers”?  Is it so terrible if you have to get used to this method early on?

9. If you really hate exploding offers, work on weakening the supposition that a candidate is not allowed to take one and then a month later “quit” and take another, better job.  Discussed here.

10. The best argument for a coordinated market is simply that it serves the interests of the top schools, and makes sure they get the best candidates, even the risk-averse ones.  Yet everyone is afraid to come out and make this explicitly elitist, anti-egalitarian, and so they resort to a lot of loose moralizing rhetoric (“ooh, it stresses people!” or “ooh, it’s unfair!”) that does not really befit how economists ought to be thinking about the problem.

Here are my earlier remarks on related issues.

The benefits system that is Irish

A dead man was brought to a post office this morning in an attempt to collect his pension in one of the most bizarre incidents that gardaí have ever seen.

The shocking incident in which the deceased male was propped up by two other men happened at the post office on Staplestown Road in Carlow town…

No money was handed over and it is understood that the deceased man is well known to the two men who moved his body.

A local woman living beside the post office told how her daughter witnessed two men carrying a man into the shop.

“She was leaving my house at the time and said the man looked unwell as his feet were dragging the ground,” she said.

The woman, who did not want to be named, said there was a queue outside of the post office at the time.

“It’s a small shop and you’re only allowed three at a time with social distancing. People were in shock as they thought he was after having a heart attack,” she said.

Here is the full story, note that the postal workers became “immediately suspicious.”

Sunday assorted links

1. The dating culture that is D.C.

2. I don’t usually trust such papers, and indeed I don’t trust this one, but this result is deserving of further investigation: “The current data suggest that both increased salience of reward/loss information and reduced discrimination between reward and loss feedback could be factors linking SES with the development of human capital and health outcomes.”

3. Biden administration opposes plan to strengthen WHO.  Yet I am barely hearing a peep about this.  The Biden people are also wanting to enforce Trump’s Phase I trade deal with China.

4. N.S. Lyons thinks Wokeness hasn’t peaked yet.

5. Nate Meyvis on how to talk better to think better.

6. Paul Krugman is coming very close to admitting a) “real estate bubble” was not the best formulation, and b) Kevin Erdmann was right.

7. More on Germany.

The future of football, revisited

American football, that is.  Reader JB requests:

Do you still believe the death of American football is near? If not, what has changed your mind?

He is referring to this earlier 2012 Grantland essay, which by the way did not argue that “the death of American football is near.”  Nonetheless I have significantly upped my probability on American football continuing more or less indefinitely.  The relevant evidence is simple, namely a) the number of Americans who will not receive Covid vaccines, and b) the relative lack of high-profile litigation over Covid deaths and disabilities, while at the same time there is plenty of litigation over mandates!  I also might toss in c) the greater prevalence of federalism in American life, post-Covid.

There you go.

How should you talk to think better?

Being a natural non-dualist, I have been pondering this question.  For instance, I know someone who almost always gives charismatic and “thunderous” answers to questions posed.  These are typically smart answers, whether or not you agree, but I suspect over time that talk style makes this person somewhat stupider and more dogmatic.

I believe if you yell your answers all the time you are also likelier to become stupider.  Might the same be true for perpetual whisperers?  For a steady barking yelp?

Is it better to be smiling or frowning during your discourse?

Should you always sound polite and thoughtful and well-reasoned?  Even if your private conversations?  Maybe those people don’t generate enough new, disagreeable ideas.  And don’t many of the smartest and most successful people you know get plain, flat out excited in many of their best intellectual moments?

Keep in mind I am not discussing your optimal public image, I am focusing on how you should talk in order to think better.

What is the optimum median length of remark?  Number of humorous remarks you should be inserting?  Preferred volume?

If you have a really good point, does it make you smarter or stupider to lean forward while making it?

Should you ever start sentences with the exclamation “Look!…”?  With giggles?

You might think there would be thirty excellent pieces on this topic, but can you think of one?

Saturday assorted links

1. The forgotten medieval habit of two sleeps.

2. Serbian government strikes back.  What again is the CBA on that immigration decision?

3. Germany won’t let Estonia transfer weapons to Ukraine (WSJ).  I’ve been telling you for years that Germany is not really part of the Western alliance any more.  It is now all the more obvious.  Addendum: And get this (FT): “Ukraine said it had summoned Germany’s ambassador to protest comments by the head of the German navy, who was filmed saying Russia only “wants respect” and Ukraine would never regain Crimea, remarks that have plunged Kyiv and Berlin into a damaging diplomatic row.”

4. Excellent Colm Tóibín piece on James Joyce’s Ulysses at 100 years (FT).  One of the best pieces I’ve read so far this year.  And speaking of the FT, Janan Ganesh argues that Los Angeles is the West’s most underrated walking city.  Of course he is correct.

5. Dubov refuses to wear a mask and thus forfeits a chess game against Giri.

6. Who are various readers nominating for President?

That was then, this is now, January 21 edition

For my birthday, Yana constructed/bought me a book of NYT front pages for all of the January 21sts from the year I was born to the current day.  It is fun to read through these, here are a few headlines of note:

1962: Robert Kennedy Gets Invitation to Visit Moscow

[Shelby Cullom] Davis Family Gives Princeton $5 Million

1963: Turks Agree to U.S. Removal of Some Missiles

1964: Johnson Foresees Boom, But Warns of Inflation, Advisers Urge Price Cuts

Productivity Said to Cost Two Million Jobs Yearly [this one is a real howler]

1966: First front-page mention of the Vietnam War in the lot

1967: Price Rise Rate is Seen Slowing After Sharp Gain

1968 offers this disorienting number citation: $8.9 Billion Rise for U.S. Spending in 1969 Projected

1969: Soviet Tells U.S. That It Is Ready for Missile Talks

1970: Democrats React to Redistricting; Legal Moves are Hinted, but G.O.P. Lines Appear Final

Again, all of those headlines are from various January 21 dates from those years.  I will continue reading!  But so far my overall impressions, reading up through the early 1970s, are these: It is still recognizably the same world.  There is less about both race and Vietnam than a naive observer from 2022 might expect.  The “elites” from back then do not look so overwhelmingly wonderful.  Every single NYT headline is at least pretending to be super-serious and of great global or national import.  Presidents are indeed inaugurated on January 20, every four years.

Who’s Watching You?

John List has been chief economist for UBER and for Lyft. He’s also run experiments for United, the United Way, and the Chicago schools. In his new book, The Voltage Effect, he talks about a number of these experiments but what really comes through is how much fun he is having.

Several years ago, a company that provided loans to small business owners approached me and my friend and colleague Steven Levitt to help them try to do something intriguing: accurately evaluate the character of people who had applied for loans.

Now, I can imagine a lot of ways of doing this–a traditional approach, for example, would be to look at spending decisions, credit card reports, criminal records, marriage lengths, number of children. One can imagine a lot of potential correlations to be found using big data. That would be pretty clever but here’s what List and Levitt did:

Over the course of several weeks, a research assistant walked by each establishment whose owner had applied for a loan and “accidentally” dropped his wallet on the sidewalk out front. Seconds later, a different member of my research team would pick up the wallet (in which we had placed a slip of with a name and phone number) walk into the establishment, and turn in the wallet to the owner, saying that they had found it outside on the sidewalk and weren’t sure what to do.

Then we waited.

Our first metric coded how long it took for the loan applicant to call to tell us that they had our wallet–that is, if they called at all..[Next] we looked at how much money remained inside: the original $60 (in the form of 3 $20 bills), $40, $20 or no money at all….we were invariably treated to a declaration to the effect of ‘this is how I found it.’ I thanked each person who called; then once we had the data we needed, my team and I generated character/integrity scores for each business owner and sent our reports to the company that had hire us.

Moral of the story: if you ever find a wallet in Chicago, return it. You never know who is watching.

Did Ireland really have a housing bubble?

Ireland was not a story of overbuilding caused by laissez-faire policy, or an experience that defied standard economics. Ireland built very few ghost towns – housing excesses, where they occurred, were a product of government tax policy, rather than irrational markets. And supply and demand perform very well in explaining the trends.


How on earth, you might ask, has Ireland ended up with almost all parts of its policy system trying to get lots more housing built – but the key cogwheel doing its utmost to hold new housing back? The answer, ironically, is Ireland’s own policymakers falling for the myths of the last bubble. It seems that the key personnel of the OPR believe the north-west of the country built too many homes in the 2000s because of state inattention and a wayward market, rather than as the result of extraordinary state effort to bring about that outcome. Without those reliefs, there is now little risk that new homes will be built where there is no long-term need.

Here is more from Ronan Lyons at Works in Progress, volume 6.  Irish housing is for the most part very expensive today. Dublin is one of the most expensive rental markets in the world.  Here is the 2019 NYT on the housing crisis in Ireland:

Homeownership has dropped, evictions and homelessness have climbed sharply, surging demand for rental units has led to a shortage, and soaring rents are fodder for daily conversation, political campaigns and street protests.

So perhaps we should speak of the Irish housing panic of the downturn rather than the bubble of the upturn?  The full history here remains to be written.  Somehow these are episodes most commentators do not wish to revisit.