Who will fight?

by  Tyler Cowen in

Even setting aside the geography of the country, there is no instance I’m aware of in which a country or region with a total fertility rate below replacement has fought a serious insurgency. Once you’re the kind of people who can’t inconvenience yourselves enough to have kids, you are not going to risk your lives for a political ideal. When the US invaded Afghanistan and Iraq, their total fertility rates were 7.4 and 4.7, respectively…Ukraine is at 1.2. We see numbers like this and don’t stop to appreciate the wide chasm that separates the spiritual lives of nations where the average person has 1 kid from those with 3 or more, much less 6 or 7, each. On fertility, Russia isn’t that much better than Ukraine, but it’s got the tanks and a powerful air force, and the side that wants to fight a guerrilla war has to be the one that is willing to take a much larger number of casualties. There’s a consistent pattern of history where there’s a connection between making life and being willing to sacrifice it. This, by the way, is also why Hong Kong was easily pacified when China started clamping down, and why Taiwan will fold and not fight an insurgency if it ever comes down to it.

That is by Richard Hanania, via Zach Valenta.

Overcome your recency bias

by  Tyler Cowen in

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

For all the talk about how political and media bias distort people’s perceptions of current events, another kind of bias may have an even greater impact: recency bias. Put simply, recency bias is the practice of giving disproportionate weight to the events of the recent past when formulating expectations and plans.

And:

I fear we are committing a form of recency bias by not focusing more on nuclear weapons and the policies surrounding nuclear proliferation and nuclear-weapons use. Atomic bombs have not been used against humans since 1945, and so for many people they are not a major concern, having been supplanted by fears of climate change. But a broader lesson of human history is that, if a weapon is available, sooner or later someone will use it.

The plan for overcoming recency bias is pretty straightforward. Spend less time scrolling through news sites and more time reading books and non-news sites about how your issues of concern have played out in the distant past. If you are young, spend more time talking to older people about what things were like when they were growing up. If you had applied those techniques, Russia’s interest in taking over more parts of Ukraine would not be very surprising.

Recommended.

My excellent Conversation with the excellent Stewart Brand

by  Tyler Cowen

Here is the audio, transcript, and video, here is part of the CWT summary:

Tyler and Stewart discuss what drives his curiosity, including the ways in which he’s a product of the Cold War, how he became a Darwinian decentralist, the effects of pre-industrial America on his thought, the subcultural convergences between hippies and younger American Indians, why he doesn’t think humans will be going to the stars, his two-minded approach to unexplained phenomena, how L.L. Bean inspired the Whole Earth Catalog, why Silicon Valley entrepreneurs don’t seem interested in the visual arts, why L.A. could not have been the home of hippie culture and digital innovation, what libertarians don’t understand about government, why we should bring back woolly mammoths, why he’s now focused on maintenance and institutions, and more.

COWEN: As you know, San Francisco was a relatively small city. Why did it, and not Los Angeles, become the center of hippie culture?

BRAND: That’s a fair question. Los Angeles never had 49ers. Los Angeles never burned to the ground. San Francisco — the phoenix city, they still say sometimes — has waves of boom and bust. It’s not particularly infrastructural. Los Angeles is completely based on oil and then water infrastructure and major shipping, even more than the Bay Area.

There’s a frivolousness that the Bay Area is good at. It has two universities of significance, with Stanford and Cal. So does LA, but LA does not feel like a college intellectual world, whereas San Francisco somewhat does. Silicon Valley really is an outgrowth of the industrial park at Stanford [laughs] that was invented by one guy. Then those things, as you know, take off economically. They feed themselves, and then they become their own storm system.

There’re a lot of people like me from the Midwest who come to places like California, and one of the things I saw — because I spent time on the East Coast in prep school, and then in New Jersey as a military officer, and then a lot in New York as an artist — the sense I got is that people go to New York and LA to be successful. If you can make it in the Big Apple, you can make it anywhere — that sort of thing. Nobody says that about San Francisco. They never have, and I bet they never do.

People go to San Francisco to be happy, by and large, and then that leads to sort of a devil-may-care creativity, which is actually good for business startups of certain kinds, especially ones that have a low threshold, like anything digital or anything online. Screwing around is not only possible but encouraged, and screwing around is a way you discover new, useful things in the world, I think. I knew by the time I graduated from Stanford that I wanted to stay in the Bay Area. I went away to be in the army, and then I came right back.

Interesting throughout.

The need to deregulate legal advice

by  Tyler Cowen in

Offering tips on how to fight a suit would probably be illegal. Rules in New York, as in most states, forbid practicing law without a license, and giving individualized advice on how to respond to litigation is generally considered practicing law.

On Tuesday, Upsolve took a step aimed at undoing the catch: It filed a lawsuit against the state attorney general’s office in federal court in Manhattan, arguing that barring nonlawyers from giving the kind of basic advice Upsolve would teach them to offer would violate the First Amendment. Pastor Udo-Okon is a co-plaintiff.

Upsolve says a ruling in its favor would clear the way for thousands of lay professionals — social workers, clergy members, community organizers and the like — to help correct a gigantic imbalance in the legal playing field.

According to a 2020 Pew Charitable Trusts report, at least four million Americans a year are sued over consumer debt. Less than 10 percent retain lawyers, and more than 70 percent of cases end in default judgments against the defendant.

In 2018 and 2019, a total of 265,000 consumer debt suits were filed in city and district civil courts in New York State. Over 95 percent of the defendants were not represented by a lawyer, and of those, 88 percent did not respond to the suit, according to figures from the state court system.

Upsolve’s co-founder, Rohan Pavuluri, called the situation a “fundamental civil rights injustice.”

Here is the full NYT piece, and I am pleased that Emergent Ventures has been an early supporter of their work.

Where I differ from Bryan Caplan’s *Labor Econ Versus the World*

by  Tyler Cowen in

One thing I liked about reading this book is I was able to narrow down my disagreements with Bryan to a smaller number of dimensions.  And to be clear, I agree with a great deal of what is in this book, but that does not make for an interesting blog post.  So let’s focus on where we differ.  One point of disagreement surfaces when Bryan writes:

Tenet #6: Racial and gender discrimination remains a serious problem, and without government regulation, would still be rampant.

Critique: Unless government requires discrimination, market forces make it a marginal issue at most.  Large group differences persist because groups differ largely in productivity.

I would instead stress that most of the inequity occurs upstream of labor markets, through the medium of culture.  It is simply much harder to be born in the ghetto!  I am fine with not calling this “discrimination,” and indeed I do not myself use the word that way.  Still, it is a significant inequity, and it is at least an important a lesson about labor markets as what Bryan presents to you.

But you won’t find much consideration of it in Bryan’s book.  The real problems in labor markets arise when “the cultural upstream” intersects with other social institutions in problematic ways.  To give a simple example, Princeton kept Jews out for a long time, and that was not because of the government.  Or Princeton voted to admit women only in 1969, again not the government.  What about Major League Baseball before Jackie Robinson or even for a long while after?  Much of Jim Crow was governmental, but so much of it wasn’t.  There are many such examples, and I don’t see that Bryan deals with them.  And they have materially affected both people’s lives and their labor market histories, covering many millions of lives, arguably billions.

Or, the Indian government takes some steps to remedy caste inequalities, but fundamentally the caste system remains, for whatever reasons.  Again, this kind of cultural upstream isn’t much on Bryan’s radar screen.  (I have another theory that this neglect of culture is because of Bryan’s unusual theory of free will, through which moral blame has to be assigned to individual choosers, but that will have to wait for another day!)

We can go beyond the discrimination topic and still see that Bryan is not paying enough attention to what is upstream of labor markets, or to how culture shapes human decisions.

Bryan for instance advocates open borders (for all countries?).  I think that would be cultural and political suicide, most of all for smaller countries, but for the United States too.  You would get fascism first, if anything.  I do however favor boosting (pre-Covid) immigration flows into the United States by something like 3x.  So in the broader scheme of things I am very pro-immigration.  I just think there are cultural limits to what a polity can absorb at what speed.

If you consider Bryan on education, he believes most of higher education is signaling.  In contrast, I see higher education as giving its recipients the proper cultural background to participate in labor markets at higher productivity levels.  I once wrote an extensive blog post on this.  That is how higher education can be productive, while most of your classes seem like a waste of time.

On poverty, Bryan puts forward a formula of a) finish high school, b) get a full time job, and c) get married before you have children.  All good advice!  But I find that to be nearly tautologous as an explanation of poverty.  To me, the deeper and more important is why so many cultures have evolved to make those apparent “no brainer” choices so difficult for so many individuals.  Again, I think Bryan is neglecting the cultural factors upstream of labor markets and in this case also marriage markets.  One simple question is why some cultures don’t produce enough men worth marrying, but that is hardly the only issue on the table here.

More generally, I believe that once you incorporate these messy “cultural upstream” issues, much of labor economics becomes more complicated than Bryan wishes to acknowledge.  Much more complicated.

I should stress that Bryan’s book is nonetheless a very good way to learn economic reasoning, and a wonderful tonic against a lot of the self-righteous, thoughtless mood affiliation you will see on labor markets, even coming from professional economists.

I will remind that you can buy Bryan’s book here, and at a very favorable price point.

*Labor Econ Versus the World*

by  Tyler Cowen in

The author is Bryan Caplan and the subtitle is Essays on the World’s Greatest Market.  It is a collection of his best blog posts on labor markets over the last fifteen years or so.  A Bryan blog post from 2015 gives a good overview of much of the book, which you can read as pushback against a lot of doctrines held by other people, including the mainstream:

What are these “central tenets of our secular religion” and what’s wrong with them?

Tenet #1: The main reason today’s workers have a decent standard of living is that government passed a bunch of laws protecting them.

Critique: High worker productivity plus competition between employers is the real reason today’s workers have a decent standard of living.  In fact, “pro-worker” laws have dire negative side effects for workers, especially unemployment.

Tenet #2: Strict regulation of immigration, especially low-skilled immigration, prevents poverty and inequality.

Critique: Immigration restrictions massively increase the poverty and inequality of the world – and make the average American poorer in the process.  Specialization and trade are fountains of wealth, and immigration is just specialization and trade in labor.

Tenet #3: In the modern economy, nothing is more important than education.

Critique: After making obvious corrections for pre-existing ability, completion probability, and such, the return to education is pretty good for strong students, but mediocre or worse for weak students.

Tenet #4: The modern welfare state strikes a wise balance between compassion and efficiency.

Critique: The welfare state primarily helps the old, not the poor – and 19th-century open immigration did far more for the absolutely poor than the welfare state ever has.

Tenet #5: Increasing education levels is good for society.

Critique: Education is mostly signaling; increasing education is a recipe for credential inflation, not prosperity.

Tenet #6: Racial and gender discrimination remains a serious problem, and without government regulation, would still be rampant.

Critique: Unless government requires discrimination, market forces make it a marginal issue at most.  Large group differences persist because groups differ largely in productivity.

Tenet #7: Men have treated women poorly throughout history, and it’s only thanks to feminism that anything’s improved.

Critique: While women in the pre-modern era lived hard lives, so did men.  The mating market led to poor outcomes for women because men had very little to offer.   Economic growth plus competition in labor and mating markets, not feminism, is the main reason women’s lives improved.

Tenet #8: Overpopulation is a terrible social problem.

Critique: The positive externalities of population – especially idea externalities – far outweigh the negative.  Reducing population to help the environment is using a sword to kill a mosquito.

Yes, I’m well-aware that most labor economics classes either neglect these points, or strive for “balance.”  But as far as I’m concerned, most labor economists just aren’t doing their job.  Their lingering faith in our society’s secular religion clouds their judgment – and prevents them from enlightening their students and laying the groundwork for a better future.

I will say this: Labor Econ Versus the World, while not written as a book per se, still is the best free market book on labor economics I know of.  And it is very reasonably priced.  I agree with much of what is in this book, but by no means all of it.  I’ll consider my differences with it in a separate blog post, to come tomorrow.

“But are you short the market?”

by  Tyler Cowen in

“But are you short the market?” That is my favorite rejoinder to expressions of radical pessimism. It came to mind recently when I read an opinion piece suggesting that “the United States as we know it could come apart at the seams.”

…Besides, shorting the market does not have to be impossibly risky. Just buy some unleveraged market puts each year until that position pays off. That’s not a great investment tactic for most people, but it makes sense for diehard pessimists. Are they even asking around about how to do this, the way you might ask for recommendations for a good restaurant or a masseuse?

I do have friends and acquaintances who work in finance who short particular assets. If they short the entire market, it might be in frothy times — when things seem good and indeed are good, albeit not as good as sky-high prices indicate. That trading tactic, whether prudent or not, is hardly an indicator of mega-pessimism.

There are committed pessimists in the world. Argentina, for instance, is full of pessimists about the Argentinian economy. Typically they have dollar-based bank accounts abroad, which take time and trouble to set up. So there are ways of expressing true pessimism, if you mean it.

Another curious response I hear from pessimists is that they aren’t short the market because the death of democracy in the U.S., or the birth of fascism, isn’t going to be bad for the stock market. That is at least a consistent view — but it is wrong and oddly anti-democratic.

I for one think that America’s biggest and best companies will do better in an era of stability, freedom and economic growth. Fascism is too terrible to succeed for very long.

That is from my latest Bloomberg column, I conclude that very few Americans are truly pessimistic.

Does crypto add to the money supply?

by  Tyler Cowen in

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.