Category: Current Affairs
UK fact of the day
London has slipped out of the world’s top 20 initial public offering markets as the third quarter ends, overtaken by Mexico and Singapore in a fresh blow to its standing as a global finance hub.
The UK exchange has slipped three places to 23rd in a Bloomberg ranking of the world’s busiest IPO destinations, placing it behind the frontier market of Oman. Volume this year dropped 69% to $248 million, the weakest haul in more than 35 years.
This year’s largest London IPO — an April offering from accountancy MHA Plc — raised £98 million ($132 million). No deals have involved a major Wall Street bank; they were instead arranged by small local outfits like Cavendish Plc and Singer Capital Markets. The third-quarter picture is even starker with just $42 million of deal volume, down 85% from the same period last year, according to data compiled by Bloomberg.
Here is more from Bloomberg. Once your status as a financial center unravels…
Mark Skousen on recession warning signs
The White House and Wall Street were exuberant last week when the Commerce Department’s Bureau of Economic Analysis revised upward its second-quarter estimate of gross domestic product to show 3.8% growth in real terms, compared with a negative number in the first quarter. “US economy notches fastest growth pace in nearly two years in second quarter,” reported Yahoo Finance, “suggesting robust growth despite uncertainty set off by President Donald Trump’s tariff policy.”
Dig into the numbers, however, and you find the trade war is in fact wreaking economic havoc. Buried in last week’s BEA report is a much more reliable measure of the economy—gross output, or GO. It measures spending at all stages of production, totaling an estimated $63 trillion this year—more than twice GDP of $30 trillion.
GO revealed that economic growth is slowing to a crawl, ahead only 1.2% in real terms. If you include all transactions in wholesale and retail trade, the adjusted GO is up only 0.3%. More important, overall business spending fell sharply, by an annualized 5.6% in real terms. These results are much more consistent with the weak labor-market data.
Here is more from the WSJ.
Lerner Symmetry Bites
President Trump recently boasted:
.@POTUS: “We’re going to take some of that tariff money that we made — we’re going to give it to our farmers… We’re going to make sure that our farmers are in great shape.”
A practically textbook example of Lerner Symmetry! In an earlier post, I highlighted Doug Irwin’s Three Simple Principles of Trade Policy. Principle One is Lerner Symmetry—a tax on imports is a tax on exports:
Exports are necessary to generate the earnings to pay for imports, or exports are the goods a country must give up in order to acquire imports….if foreign countries are blocked in their ability to sell their goods in the United States, for example, they will be unable to earn the dollars they need to purchase U.S. goods.
…The equivalence of export and import taxes is not an obvious proposition, and it is often counterintuitive to most people. Imagine taking a poll of average Americans and asking the following question: “Should the United States impose import tariffs on foreign textiles to prevent low-wage countries
from harming thousands of American textile workers?” Some fraction, perhaps even a sizeable one, of the respondents would surely answer affirmatively. If asked to explain their position, they would probably reply that import tariffs would create jobs for Americans at the expense of foreign workers and thereby reduce domestic unemployment.Suppose you then asked those same people the following question: “Should the United States tax the exportation of Boeing aircraft, wheat and corn, computers and computer software, and other domestically produced goods?” I suspect the answer would be a resounding and unanimous “No!” After all, it would be explained, export taxes would destroy jobs and harm important industries. And yet the Lerner symmetry theorem says that the two policies are equivalent in their economic effects.
Thus, President Trump is having to subsidize farmers because farmers are exporters. Import tariffs make it harder for exporters to sell abroad. Using tariff revenue to subsidize the losses of exporters is a textbook illustration of Lerner Symmetry because the export losses flow directly from the tax on imports! The irony is that President Trump parades the subsidies as a victory while in fact they are simply damage control for a policy he created.
Why is Milei begging for a bailout?
There are two primary reasons.
First, he pegged Argentina’s real exchange rate too high, hoping this would appease voters by getting inflation down more quickly. That was a miscalculation. It also was a violation of market or libertarian principles. The problems here are not an instance of market failure, rather Milei forgot his own principles.
Second, the opposition did very well in a recent election. So everyone is afraid the reign of Milei, or like-minded leaders, is not going to last for so long. That precipitated a crisis in the markets. But that is hardly an argument against Milei, even though it happened on his watch. It is an argument against the likely alternatives to Milei.
So it is a mistake to read recent events as somehow a repudiation of market or libertarian principles.
Claims about interest rates
Based on this analysis, I believe the appropriate fed funds rate is in the mid-2 percent area, almost 2 percentage points lower than current policy. The Federal Reserve has been entrusted with the important goal of promoting price stability for the good of all American households and businesses, and I am committed to bringing inflation sustainably back to 2 percent. However, leaving policy restrictive by such a large degree brings significant risks for the Fed’s employment mandate.
And there is this point:
Given that roughly 100 million Americans rent, net zero immigration going forward would imply 1 point lower rent inflation per year.
That is from Miran’s recent speech about monetary policy. I do believe the speech is a useful guide for how some parts of the Trump administration are thinking about economic policy. From my side, I view this as a highly inflationary monetary policy, pursued on the basis of a bunch of unconfirmed conjectures.
Not the best news from Argentina…
US Treasury Secretary Scott Bessent has said “all options” are on the table for the Trump administration to support Argentina through a bout of severe market volatility, throwing a lifeline to libertarian president Javier Milei.
In comments on X, Bessent said that financial assistance could include purchases of Argentina’s currency or sovereign debt by a fund controlled by the US Treasury. Milei, a close ally of Donald Trump, is trying to contain a run on the peso and slide in asset prices after a disappointing local election result unnerved markets.
Milei and Bessent are set to meet Trump in New York on Tuesday…
He said that options for a support package “may include, but are not limited to, swap lines, direct currency purchases, and purchases of US dollar-denominated government debt from Treasury’s Exchange Stabilization Fund”.
But that is not surprising either, not if you have been reading MR. Here is more from the FT.
The United States is Starved for Talent, Re-Upped
I wrote this post in 2020. Time to re-up (no indent);
The US offers a limited number of H1-B visas annually, these are temporary 3-6 year visas that allow firms to hire high-skill workers. In many years, the demand exceeds the supply which is capped at 85,000 and in these years USCIS randomly selects which visas to approve. The random selection is key to a new NBER paper by Dimmock, Huang and Weisbenner (published here). What’s the effect on a firm of getting lucky and wining the lottery?
We find that a firm’s win rate in the H-1B visa lottery is strongly related to the firm’s outcomes over the following three years. Relative to ex ante similar firms that also applied for H-1B visas, firms with higher win rates in the lottery are more likely to receive additional external funding and have an IPO or be acquired. Firms with higher win rates also become more likely to secure funding from high-reputation VCs, and receive more patents and more patent citations. Overall, the results show that access to skilled foreign workers has a strong positive effect on firm-level measures of success.
Overall, getting (approximately) one extra high-skilled worker causes a 23% increase in the probability of a successful IPO within five years (a 1.5 percentage point increase in the baseline probability of 6.6%). That’s a huge effect. Remember, these startups have access to a labor pool of 160 million workers. For most firms, the next best worker can’t be appreciably different than the first-best worker. But for the 2000 or so tech-startups the authors examine, the difference between the world’s best and the US best is huge. Put differently on some margins the US is starved for talent.
Of course, if we play our cards right the world’s best can be the US best.
My excellent Conversation with David Commins
Saudi Arabia and the Gulf are the topics, here is the audio, video, and transcript. Here is the episode summary:
David Commins, author of the new book Saudi Arabia: A Modern History, brings decades of scholarship and firsthand experience to explain the kingdom’s unlikely rise. Tyler and David discuss why Wahhabism was essential for Saudi state-building, the treatment of Shiites in the Eastern Province and whether discrimination has truly ended, why the Saudi state emerged from its poorer and least cosmopolitan regions, the lasting significance of the 1979 Grand Mosque seizure by millenarian extremists, what’s kept Gulf states stable, the differing motivations behind Saudi sports investments, the disappointing performance of King Abdullah University of Science and Technology despite its $10 billion endowment, the main barrier to improving its k-12 education, how Yemen became the region’s outlier of instability and whether Saudi Arabia learned from its mistakes there, the Houthis’ unclear strategic goals, the prospects for the kingdom’s post-oil future, the topic of David’s next book, and more.
And an excerpt:
COWEN: Now, as you know, the senior religious establishment is largely Nejd, right? Why does that matter? What’s the historical significance of that?
COMMINS: Right. Nejd is the region of central Arabia. Riyadh is currently the capital. The first Saudi empire had a capital nearby, called Diriyah. Nejd is really the territory that gave birth to the Wahhabi movement, it’s the homeland of the Saud dynasty, and it is the region of Arabia that was most thoroughly purged of the older Sunni tradition that had persisted in Nejd for centuries.
Consequently, by the time that the Saudi government developed bureaucratic agencies in the 1950s and ’60s, the religious institution was going to recruit from that region of Arabia primarily. Now, it certainly attracted loyalists from other parts of Arabia, but the Wahhabi mission, as I call it — their calling to what they considered true belief — began in Nejd and was very strongly identified with the towns of Nejd ever since the late 1700s.
COWEN: Would I be correct in inferring that some of the least cosmopolitan parts of Saudi Arabia built the Saudi state?
COMMINS: Yes, that is correct. That is correct. If you think of the 1700s and 1800s, the Red Sea and Persian Gulf coast of Arabia were the most cosmopolitan parts of Arabia.
COWEN: They’re richer, too, right? Jeddah is a much more advanced city than Riyadh at the time.
COMMINS: Somewhat more advanced. Yes, it is more advanced, it is more cosmopolitan than Nejd. There is the regional identity in Hejaz, that is the Red Sea coast where the holy cities and Jeddah are located. The townspeople there tended to look upon Nejd as a less advanced part of Arabia. But again, that’s a very recent historical development.
COWEN: How is it that the coastal regions just dropped the ball? You could imagine some alternate history where they become the center of Saudi power and religious thought, but they’re not.
COMMINS: Right. If you take Jeddah, Mecca, and Medina — that region of Arabia, known as Hejaz, had always been under the rule of other Muslim empires. They were under the rule of other Muslim powers because of the religious value of possessing, if you will, the holy cities, Mecca and Medina. From the time of the first Muslim dynasty that was based in Damascus in the seventh and early eighth centuries, all the way until the Ottoman Empire, Muslim dynasties outside Arabia coveted control of that region. They were just more powerful than local resources could generate.
Hejaz was always, if you were, to dependency on outside Muslim powers. If you look at the east coast of Arabia — what’s now the Eastern Province of Saudi Arabia and the Persian Gulf — it was richer than central Arabia. It’s the largest oasis in Arabia. It is in proximity to pearling banks, which were an important source for income for residents there. It was part of the Indian Ocean trade between Iraq and India. The population there was always — well, always — for the last thousand years has been dominated by Bedouin tribesmen.
There was a brief Ismaili Shia republic, you might say, in that part of Arabia in medieval times. It just didn’t have, it seems, the cohesion to conquer other parts of Arabia. That’s what makes the Saudi story really remarkable, is that they were able to muster and sustain the cohesion to carry out a conquest like that over the course of 50 years.
COWEN: Physically, how did they manage that? Water is a problem, a lot of transport is by camel, there’s no real rail system, right?
Recommended, full of historical information about a generally neglected region, neglected from the point of view of history at least rather than current affairs.
Stop blaming them
That is the title of my latest Free Press piece, and it is more political than I usually get:
One of the most dangerous collectivist arguments in the wake of Kirk’s murder is to blame the “trans community.” Some have reported that Robinson lived with a transgender romantic partner. Regardless of whether this proves to be true, there is no good evidence that trans individuals are especially likely to commit murder (try asking Grok). There is also no evidence that this particular trans individual contributed to the murder plot; rather, reports indicate the person in question is cooperating with the authorities.
If there is generalized evidence for anything, it is that trans individuals are likely to be the victims of violent attacks.
And yet, Elon Musk is approvingly reposting the following: “It’s time for a complete and total ban on cross-sex hormones. They cannot change your sex. They turn men with perverse fetishes into deranged bioweapons, and women trying to escape sexual trauma into androgynous osteoporotic goblins. These people need to spend a long time in an asylum—some of them, indefinitely.”
Constitutional rights, anyone? The right for peaceful individuals to avoid involuntary incarceration? How about basic toleration? Musk is an individualist in many other contexts, but it appears not this one. As a strategy matter, why go out of your way to make left-wing charges against the right seem plausible?
There is much more at the link.
Intertemporal substitution
Across several Central American nations money transfers have jumped 20 percent.
The reason, officials, migrants and analysts say, is that people afraid of being deported are trying to get as much money out of the country as possible, while they still can.
The money transfers, called remittances, are a critical lifeline for many countries and families around the world, especially in Central America and the Caribbean. There, the funds sometimes make up a huge chunk of a nation’s economy — as much as a quarter of a country’s gross domestic product, as in Honduras and Nicaragua.
Here is more from James Wagner at the NYT.
What should I ask Cass Sunstein?
Yes, I will be doing a Conversation with him soon. Most of all (but not exclusively) about his three recent books Liberalism: In Defense of Freedom, Manipulation: What It Is, Why It Is Bad, What To Do About It, and Imperfect Oracle: What AI Can and Cannot Do.
So what should I ask him? Here is my previous CWT with Cass.
The polity that is Albania
Albania has become the first country in the world to have an AI minister — not a minister for AI, but a virtual minister made of pixels and code and powered by artificial intelligence.
Her name is Diella, meaning sunshine in Albanian, and she will be responsible for all public procurement, Prime Minister Edi Rama said Thursday.
During the summer, Rama mused that one day the country could have a digital minister and even an AI prime minister, but few thought that day would come around so quickly.
Here is the full story, we will see how this develops. Diella also is tokenized. Via MN.
That was then, this is now
My prediction from 2021:
If Russia and Belarus became a single political unit, there would be only a thin band of land, called the Suwalki Gap, connecting the Baltics to the rest of the European Union. Unfortunately, that same piece of territory would stand in the way of the new, larger Russia connecting with the now-cut off Russian region of Kaliningrad. Over the long term, could the Baltics maintain their independence? If not, the European Union would show it is entirely a toothless entity, unable to guarantee the sovereignty of its members.
Even if there were no formal political union between Russia and Belarus, the territorial continuity and integrity of the EU could soon be up for grabs. The EU has more at stake in an independent Belarus than it likes to admit.
Here is the Bloomberg column from that time. I had always thought such an altercation would occur before Russia moved on Ukraine, but of course that prediction turned out to be wrong. My view was that Putin would first seek to weaken NATO, and Ukraine would be closer to the end of the menu than the beginning. In any case, I have been saying to some friends lately that, in history, the Trump presidency will (that is will, not should) be judged by how he handles the eastern European “situation.” Do note by the way that the recent Russian drones were launched from Belarus.
My Hope Axis podcast with Anna Gát
Here is the YouTube, here is transcript access, here is their episode summary:
The brilliant @tylercowen joins @TheAnnaGat for a lively, wide-ranging conversation exploring hope from the perspective of insiders and outsiders, the obsessed and the competitive, immigrants and hard workers. They talk about talent and luck, what makes America unique, whether the dream of Internet Utopia has ended, and how Gen-Z might rebel. Along the way: Jack Nicholson, John Stuart Mill, road trips through Eastern Europe, the Enlightenment of AI, and why courage shapes the future.
Excerpt:
Tyler Cowen: But the top players I’ve met, like Anand or Magnus Carlsen or Kasparov, they truly hate losing with every bone in their body. They do not approach it philosophically. They can become very miserable as a result. And that’s very far from my attitudes. It shaped my life in a significant way.
Anna Gát: I was so surprised. I was like, what? But actually, what? In Maggie Smith-high RP—what? This never occurred to me that losing can be approached philosophically.
Tyler Cowen: And I think always keeping my equanimity has been good for me, getting these compound returns over long periods of time. But if you’re doing a thing like chess or math or sports that really favors the young, you don’t have all those decades of compound returns. You’ve got to motivate yourself to the maximum extent right now. And then hating losing is super useful. But that’s just—those are not the things I’ve done. The people who hate losing should do things that are youth-weighted, and the people who have equanimity should do things that are maturity and age-weighted with compounding returns.
Excellent discussion, lots of fresh material. Here is the Hope Axis podcast more generally. Here is Anna’s Interintellect project, worthy of media attention. Most of all it is intellectual discourse, but it also seems to be the most successful “dating service” I am aware of.
UAP okie-dokie
The real action starts at 0:54:
Here is the same video with under oath reactions from witness experts. Here are remarks from Dylan Borland.