Category: Current Affairs

Who again has the power to end the government shutdown?

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

The real power here is held by government employees, especially those in critical jobs. Let’s say that more TSA screeners decided to walk off the job. It’s already the case that the TSA absentee rate has gone up to 7.6 percent, from 3.2 percent a year ago. It is possible to imagine screeners staying home in much greater numbers, thus crippling the entire nation. That could either force President Donald Trump’s hand or lead to a congressional override of a potential presidential veto.

Yet:

As a rationale for showing up to work, “I’m helping both the TSA and my colleagues” can work for a while, because of both cooperative norms and peer pressure. But I don’t think it can hold things together for more than a few months. They may not have the right to strike, but federal employees can still gum up the works with high absenteeism and poor performance.

I really don’t expect anything good to come of this entire episode.

John Bogle, RIP

In 1974, Paul Samuelson wrote Challenge to judgement, a searing critique of money managers. Samuelson challenged the money managers to show that they could beat the market. He concluded that “a respect for evidence compels me to incline toward the hypothesis that most portfolio decision makers should go out of business.” Samuelson hoped for something new:

At the least, some large foundation should set up an in-house portfolio that tracks the S&P 500 Index — if only for the purpose of setting up a naive model against which their in-house gunslingers can measure their prowess.

Inspired by Samuelson, John Bogle created the first index fund in 1976 and it quickly…failed. In the initial underwriting the fund raised only $11.3 million, which wasn’t even enough to buy a minimum portfolio of all the stocks in the S&P 500! The street crowed about “Bogle’s folly” but Bogle persevered and in so doing he benefited millions of investors, saving them billions of dollars is fees. As Warren Buffet said today:

Jack did more for American investors as a whole than any individual I’ve known. A lot of Wall Street is devoted to charging a lot for nothing. He charged nothing to accomplish a huge amount.

The creation of the index fund is a great example of how economic theory and measurement can improve practice. Our course on Money Skills at MRU is very much influenced by Bogle. Tyler and I recommend index funds and Vanguard in particular. In the videos and in our textbook we present data from Bogle’s book Common Sense on Mutual Funds. Here’s the first video in the series.

My Conversation with Larissa MacFarquhar

This was a really good one, here is the text and audio.  The opening:

TYLER COWEN: I’m here today with the great Larissa MacFarquhar. She is a staff writer for the New Yorker, considered by many to write the very best and most interesting profiles of anyone in the business. She has a very well-known book called Strangers Drowning. The subtitle is Impossible Idealism, Drastic Choices, and the Urge to Help. It’s about extreme altruists. And she’s now working on a book on people’s decisions whether or not to leave their hometown.

Here is one excerpt proper:

COWEN: If you’re an extreme altruist, are you too subject to manipulation by others? If you care so much about so many other people, and those people actually can be harmed pretty easily at low cost, does this mean that you, the extreme altruist, you just go through life being manipulated?

MACFARQUHAR It’s funny you say that because one thing that I have noticed about the extreme altruist . . . You know what? I don’t want to call them extreme altruists. I think they’re people with a very strong sense of duty.

The people I met were very, very different from each other, but one thing they had in common is they really, really barely cared about what other people thought. They had to feel that way because almost everyone they met thought they were at best weirdos, and at worst dangerous megalomaniacs. So they were unconventional in their degree of duty but also in many other ways.

COWEN: They didn’t care at all what people thought about anything they did like how they dressed or . . . ?

MACFARQUHAR: Things like that. I don’t mean they didn’t care about anything about what people thought because obviously —

COWEN: In this context they didn’t care.

MACFARQUHAR: Obviously they cared about making other people’s lives better. But yes, in terms of opinions of themselves, they were much less sensitive to that than most of us.

And:

COWEN: Your view on how much you should be lied to if you have dementia — is that the same as what you would propose for a sibling or a child, someone you loved and knew?

MACFARQUHAR: With dementia?

COWEN: Right. Would you be consistent and apply the same standard to them that you would want for yourself?

MACFARQUHAR: Ohhh, I don’t know.

COWEN: I would say don’t lie to me, but, in fact, for others, I would be more willing to lie to them than I would wish to be lied to myself.

Try this part too:

COWEN: If during a profile, when you describe people’s looks, are you worried that you are reinforcing stereotypes?

MACFARQUHAR: No. But I have —

COWEN: But isn’t there a thing, looksism?

MACFARQUHAR: Well, of course.

COWEN: There’s sexism, there’s racism, and looksism — people who look a certain way, you should make certain inferences. Is there any way we can describe people’s looks that doesn’t run that danger?

MACFARQUHAR: Probably not. But I’ll say two things about this.

First is, I think there is far too much emphasis on describing people’s looks. Because the thing about humans is that their faces are unique, so you can describe somebody, but you’re never going to be able to call up an exact picture in a reader’s mind about what the person looks like. So what you’re doing is not really describing what they look like — what you’re doing is evoking something which, I guess, the malign form of that is looksism.

But I’ve started avoiding describing what people look like, not because it results in looksism — though I’m sure that’s true — but because, unconsciously or not, it puts the reader in a position of being outside the person, looking at them.

And also, from me:

COWEN: Could the same person be both, say, a Rwandan killer in the 1990s and an extreme altruist? Or is that a contradiction?

Definitely recommended.

A new World Bank rumor

Ray Washburne, the Texan property developer who heads the US government’s development finance institution, has emerged as a contender in the race to be Donald Trump’s nominee for the presidency of the World Bank, according to people familiar with the matter. Mr Washburne became a candidate following his efforts to bolster the Overseas Private Investment Corporation since taking up the reins in September 2017, earning new funding from Congress that could help counter China’s sweeping investments — and influence — across many developing economies. Before taking on that role, Mr Washburne’s career spanned commercial property and restaurants in his hometown of Dallas, Texas. He was also a prominent Republican party donor, including helping raise money for former president George W Bush and former Republican presidential nominee Mitt Romney.

That is from James Politi and David Pilling at the FT.

Ivanka might be an improvement

Yes, yes, I know she is only running the interviewing process, but that is how Dick Cheney ended up as vice President.  Here is one excerpt from my Bloomberg column:

You might argue that Ivanka is not qualified to run the World Bank, and I might agree with you. (She would not be my personal pick; how about Carly Fiorina, Kristin J. Forbes or Arthur Brooks?) Yet consider that the previous president, Jim Yong Kim, was highly qualified on paper. He co-founded a famous foreign-aid public health group, has a Ph.D. in anthropology, was a professor at Harvard Medical School and the Harvard School of Public Health and then president of Dartmouth. As an Asian-American, he had the potential to be a powerful symbol of multicultural governance.

Yet by most accounts his tenure at the bank was a failure. He alienated much of the staff, and his organizational changes (after first creating chaos and bad morale) were largely reversed.

Now he is leaving suddenly, years before his term is up, allowing Trump to appoint his replacement. Not only that, Kim is moving to a for-profit infrastructure firm, hardly the best symbolism for the leader of an institution that is supposed to be about helping the global poor.

The sad reality is this: If Ivanka took over the reins of the bank, she probably would be an improvement.

And she might not even use the word “and” so much.

Noah Smith debates the 70 percent marginal tax rate with a bunch of us

Here is the Bloomberg link, here is a sentence from Noah on AOC:

Her proposal, which would make the tax structure similar to the one the U.S. had in 1921, is pretty much symbolic — a way of expressing disapproval of inequality, while kicking off a lively discussion of income taxes and redistribution.

We do not all agree.

China fact (?) of the day

China Daily reported Friday that unnatural deaths have taken the lives of 72 mainland billionaires over the past eight years. (Do the math.)

Which means that if you’re one of China’s 115 current billionaires, as listed on the 2011 Forbes Billionaires List, you should be more than a little nervous.

I don’t know about you but I find it somewhat improbable that among such a small population there could be so many “suicides,” “accidents” and “death by disease” (the average age of those who died from illness was only 48).

Here is the Forbes story by Ray Kwong, I am not sure how confirmed to treat this as being.

From the comments:

According to the original Chinese version of the news report, the base (number of billionaires) should be 60k, not just 115. I think ‘billionaires’ refers to 100M CNY in the original news report. It’s still shocking though…
“2010年,这一数字同比增长了9.1%,达到6万人左右。” http://www.chinadaily.com.cn/dfpd/shehui/2011-07/22/content_12957783.htm

Right. The Chinese number units are ones, tens, hundreds, thousands, ten thousands, and ten thousand ten thousands. The “billionaires” in the article are ten thousand ten thousandaires.

+1 (Google Translate confirms that the base is 55k people 🙂 )
The mortality rates now seem far more reasonable…

Some thoughts on second chances in the #MeToo era

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

Whether we like it or not, as the list of wrongdoers grows, questions of forgiveness will begin to outnumber questions of punishment. The thing is, questions of forgiveness are never entirely easy.

Much Christian doctrine, and especially Catholicism, emphasizes the value of confession, forgiveness and redemption. Thus it is not hard to convince many Americans that sinners should be given a second chance. This impulse occasionally finds its way into policy; just last month, a prison-reform bill became law, reflecting notions that criminals can indeed be rehabilitated. In her book “The Up Side of Down,” Washington Post columnist Megan McArdle stresses how many features of American life, including bankruptcy law and startup culture, depend on second, third or even more chances…

The more delicate truth is that, in the context of the #MeToo movement, forgiveness carries great dangers. I am not referring to those asking for it; rather, I am talking about those in a position to offer it. The survivors of such abuse often feel shame, guilt and a loss of confidence and self-esteem. It is very costly, both psychologically and practically, for such individuals to step forward and levy charges. An emphasis on forgiveness could reinforce victims’ tendencies to bury the crimes and wrongdoings.

And:

The result is a set of conflicting and probably irreconcilable values. America believes in equal treatment before the law. But America’s increasingly powerful system of social pressures and sanctions does not provide for equal treatment.

Do read the whole thing, which also considers both John Lennon and Picasso.

That was then, this is now

Obama’s goal now is to make clear to adults in Central America that there is no payoff for sending their children on the dangerous journey northward, said Cecilia Muñoz, the White House domestic policy director. “He feels intensely a responsibility to prevent an even greater humanitarian crisis,” she said.

That, however, means speeding the deportation of most of those who have already arrived, which many in Obama’s own party are resisting.

That is circa 2014, here is the full story.  I thank an MR reader for the pointer.

People, the streets are empty here, in and around D.C.

…sales have slowed, with one exception: Happy hour. People are coming in earlier and staying longer, but often not having dinner.

“It’s increasing happy hour and decreasing dinner,” he said.

He said he had moved happy hour earlier to 3 p.m. from 4 p.m. for anyone showing government identification, and that people were coming in as early as 2 p.m.

And this:

On Tuesday, the City Council gave the mayor emergency authority to issue marriage licenses, because the Marriage Bureau, funded by the federal government, is closed.

That is all from Sabrina Tabernise in the NYT, the article has other interesting points.

The World Bank reappointment process

Kim had been a lame duck for some while, and few outsiders grasp how active is the role of the Board in the World Bank.  So it is probably good they got him out of there sooner rather than later.

I know you’re all aghast that Trump will pick the successor, but remember the good ol’ days when everyone fell apart when Bush picked Paul Wolfowitz, considered to be one of the architects of the Iraq War?  Whatever you think of Wolfowitz and his tenure at the Bank, it was not The End Times or even the beginning of the end.

It is very hard for a bad Bank president to shut down the works.  The World Bank has borrowed a lot of money and to pay it back the Bank needs to make profitable loans.  The mechanism for this to happen is already in place, and short of bankrupting the institution it is hard to imagine how a Bank president can totally gum up the works.  That is also why good Bank presidents find it hard to reform the place.

It is trendy to call for a “meritocratic” approach to this appointment and who could be opposed to that?  That said, there are plenty of plausible candidates ex ante, but it is not so easy to determine who will be effective ex post.  So if you read someone calling for meritocracy here, odds are they have some other political agenda in mind (which may be fine, but evaluate that agenda on its own terms).  There are plenty of Americans qualified at the highest level for this post.

I think America and yes DT should pick the next Bank president and should pick an American.  How do you think it is going to go the next time the Bank calls for more capital from the US and UK?  Whose certification there do you think is most important?  And which country is the most nervous about the World Bank doing something geopolitically unpopular, as say the UN repeatedly has done?  All this will run most smoothly if the U.S. feels, to some extent, that the Bank is its preserve.  And of course the “we’ve really got to up China’s quota and get it more involved” days are long since past.

You’re all out there saying Trump should not disengage America from the world, blah blah blah etc.  I agree.  But let’s be honest about what the terms of that engagement were in the first place, and be willing to swallow the whole package deal once again.

Here is some FT analysis, noting that not all of its suggested candidates are good ideas.

Border Crime

Alex Nowrasteh at Cato shows that crime is lower in counties adjacent to the Mexican border than in the rest of the United States:

If the entire United States had crime rates as low as those along the border in 2017, then the number of homicides would have been 33.8 percent lower, property crimes would have been 2.1 percent lower, and violent crimes would have dropped 8 percent.

Obviously border counties are different than non-border countries, more rural etc. Nevertheless, the raw fact is striking in comparison to the heated rhetoric about illegal immigration and American blood.

The new committee to re-elect Donald Trump

It has some surprising members:

Rep. Alexandria Ocasio-Cortez has been promoting the idea of a 70 percent top marginal tax rate, and Paul Krugman has been defending it. Matthew Yglesias of Vox has written that 70 percent might be too low.

Here is my full Bloomberg column on the topic.  You will note by the way that if you only apply the tax on say $10 million and up, it will all be converted into capital income and the tax will distort without raising much revenue.  And here is a sentence toward the end of the piece, part of my advice for Democrats:

Recognize that you’ll never be that popular on the tax issue.

I see this as a kind of catnip issue, one where the Democratic Left is so, so tempted to make redistribution the central idea of the party, a disastrous urge in my view.

Ethereum Classic Double Spend Attack?

Yesterday, I warned that double spend attacks were cheap and particularly likely for smaller coins using standard hash algorithms. Coincidentally (?) later that day there was this:

It’s not entirely clear whether that is true or if there is an alternative explanation. Coinbase, however, says that approximately $500,000 was double spent. You can find a good discussion on Hacker News.  You can also find an interesting calculation of the cost of renting enough hashing power to 51% dominate various networks here. It’s cheap. The costs given are underestimates in one respect since they don’t include block rewards but overestimates in another as renting may not always be possible.

Here’s some back of the envelope calculations on the cost of the ETC attack. If I am reading the blockchain stats correctly, ETC has a block time of about 15 seconds and the chain was reorganized almost to a depth of 100 blocks or 1500 seconds, i.e. 25 minutes. The cost of dominating the ETC hasing power for an hour is around $5000. Thus, this attack could have been very profitable, even adding in substantial setup costs. Feel free to write in the comments if these numbers look wrong.

As I mentioned yesterday, it’s not surprising that this is happening now because with massive falls in prices in most cryptocurrencies there is an excess supply of computation. Expect more stress testing this year.

Hat tip: The excellent Jake Seliger.