Category: Current Affairs
Chad fact of the day
Chad’s PM2.5 levels were more than 18 times higher than the WHO guideline, with mineral dust in the Sahara Desert as the primary source of air pollutants.
Here is the full article, most of all noting that six of the world’s ten most polluted cities are in India. Via the excellent Samir Varma.
Germany fact of the day
Germany opened its doors a decade ago to nearly 1 million Syrians, taking in more than any other country in Europe. Today, some 6,000 Syrian doctors make up the single largest group of foreign-born physicians, filling vital gaps in care at hospitals and clinics from the Alps to the Baltic Sea. That is especially true in rural areas, where attracting doctors can be hard. But even in big cities, Syrian doctors now make up the majority of attending physicians at some medical practices.
Here is more from The Washington Post. Here is my previous post on Syrians in Germany.
The election in Greenland
Greenland’s centre-right opposition has won a surprise general election victory – in a vote dominated by independence and US President Donald Trump’s pledge to take over the semi-autonomous territory.
The centre-right Demokraatit party – which favours a gradual approach to independence from Denmark – achieved around 30% of the vote, near-complete results show…
Five of the six main parties in the election favour independence from Copenhagen, but disagree over the pace with which to reach it…
The Democratic party, whose vote was up by more than 20% on 2021, is considered a moderate party on independence.
Another opposition party, Naleraq, which is looking to to immediately kick-off the independence process and forge closer ties with the US, was on course for second place with almost a quarter of the vote.
The two current governing parties, Inuit Ataqatigiit (IA) and Siumut, are heading for third and fourth place – marking an upset for Prime Minister Mute B Egede.
Here is more from the BBC.
Kevin Drum, RIP
Kevin Drum was one of the OG bloggers. I never met him IRL but we know from Ibelin that that is no bar to being friends. One thing I learned from Ayn Rand is that virtue should be rewarded, not just sin punished. That’s one reason why we shouldn’t wait until someone has passed to praise their goodness. I’m glad I wrote to Kevin many years ago:
Kevin,
Thanks for your excellent blogging! I am always pleased when you link to one of my posts. I appreciate the attention, of course, but especially so because agree or disagree you have always read me fairly. Many bloggers look for the weakest or worst way that a post can be interpreted so that they can score cheap points. In contrast, I’ve always seen you take on an author’s strongest arguments. I appreciate that. Knowing how honestly and perceptively you treat my posts has also made me more attentive to all of your blogging which I read daily.
Best
Alex Tabarrok
US AID, current status
After a 6 week review we are officially cancelling 83% of the programs at USAID.
The 5200 contracts that are now cancelled spent tens of billions of dollars in ways that did not serve, (and in some cases even harmed), the core national interests of the United States. In consultation with Congress, we intend for the remaining 18% of programs we are keeping (approximately 1000) to now be administered more effectively under the State Department.
That is from Marco Rubio. Here is my earlier post on US AID.
Redux, my 2021 Conversation with Mark Carney
Here is the audio, video, and transcript. Excerpt:
COWEN: You grew up in Northwest Territories and also Alberta, so western Canada. How do you think that’s shaped your perspective on economies?
CARNEY: Well, the big thing I took from my time in Alberta is just, I mean, it made me a market believer because I’ll give you an example. I was born just north of what was then known as the tar sands, now known as the oil sands, this huge deposit of oil which was virtually impossible to get out of the ground, economically. It was sitting there literally on the surface, but to separate it from the sand was difficult. Very quickly over the course of as I was growing up, by the time I was an adult, the issue had been cracked. The ability to innovate and make a profit out of an opportunity.
COWEN: Your PhD thesis was called The Dynamic Advantage of Competition. Writing that thesis, what did you learn, not about the topic but about yourself?
CARNEY: I learned that I exhausted my capacity and desire to do game theory. In the end, the models were game theoretic. The explanations were rooted in case studies and some econometrics, but the models were formulized from a game theory perspective. I also learned that I wanted to do policy at some point as well.
There is much more at the link.
Will there be a British DOGE?
Highly controversial plans to revolutionise Whitehall by introducing performance-related pay, an accelerated exit process for under-performing mandarins and more digitalisation will be announced this week in what ministers say is a programme to “reshape the state” so it can respond to a new “era of insecurity”.
The proposed changes, to be announced by Cabinet Office minister Pat McFadden, will inevitably provoke alarm and resistance from civil service unions, and be seen as the government using the current wave of global uncertainty as cover to drive through radical modernisation of civil service methods and culture…
While Whitehall departments have substantially grown in recent years – increasing by more than 15,000 since the end of 2023 – McFadden is expected to say working people have not seen improvements in their job opportunities, the safety of their neighbourhoods or the length of time they have to wait for NHS treatment when they are sick.
Indicating the scale of potential reform being considered, sources stressed that “delivering national security” could only be done with a full “renewal of the state”.
Most controversially, McFadden will set out a new “pay-by-results system learning from the best civil services globally, making sure the most senior officials responsible for the missions have their wages linked to the outcomes they achieve”, a government spokesperson said.
McFadden will also outline plans to speed up the removal from the service of civil servants judged as unable to meet current needs. A system of “mutually agreed exits” will be introduced to bring the civil service “more in line with the private sector”.
Here is more from The Guardian.
The political economy of Manus AI
Early reports are pretty consistent, and they indicate that Manus agentic AI is for real, and ahead of its American counterparts. I also hear it is still glitchy Still, it is easy to imagine Chinese agentic AI “getting there” before the American product does. If so, what does that world look like?
The cruder way of putting the question is: “are we going to let Chinese agentic bots crawl all over American computers?”
The next step question is: “do we in fact have a plausible way to stop this from happening?”
Many Chinese use VPNs to get around their own Great Firewall and access OpenAI products. China could toughen its firewall and shut down VPNs, but that is very costly for them. America doesn’t have a Great Firewall at all, and the First Amendment would seem to prevent very tough restrictions on accessing the outside world. Plus there can always be a version of the new models not directly connected to China.
We did (sort of) pass a TikTok ban, but even that applied only to the app. Had the ban gone through, you still could have accessed TikTok through its website. And so, one way or another, Americans will be able to access Manus.
Manus will crawl your computer and do all sorts of useful tasks for you. If not right now, probably within a year or not much more. An American alternative might leapfrog them, but again maybe not.
It is easy to imagine government banning Manus from its computers, just as the state of Virginia banned DeepSeek from its computers. I’m just not sure that matters much. Plenty of people will use it on their private computers, and it could become an integral part of many systems, including systems that interact with the U.S. public sector.
It is not obvious that the CCP will be able to pull strings to manipulate every aspect of Manus operations. I am not worried that you might order a cheeseburger on-line, and end up getting Kung Pao chicken. Still, the data collected by the parent company will in principle be CCP- accessible. Remember that advanced AI can be used to search through that information with relative ease. And over time, though probably not initially, you can imagine a Manus-like entity designed to monitor your computer for information relevant to China and the CCP. Even if it is not easy for a Manus-like entity to manipulate your computer in a “body snatchers-like” way, you can see the points of concern here.
Financial firms might be vulnerable to information capture attacks. Will relatives of U.S. military personnel be forbidden from having agentic Chinese AI on their computers? That does not seem enforceable.
Maybe you’re all worried now!
But should you be?
Whatever problems American computer owners might face, Chinese computer owners will face too. And the most important Chinese computer owner is the CCP and its affiliates, including the military.
More likely, Manus will roam CCP computers too. No, I don’t think that puts “the aliens” in charge, but who exactly is in charge? Is it Butterfly Effect, the company behind Manus, and its few dozen employees? In the short run, yes, more or less. But they too over time are using more and more agentic AIs, perhaps different brands from other companies too.
Think of some new system of checks and balances as being created, much as an economy is itself a spontaneous order. And in this new spontaneous order, a lot of the cognitive capital is coming outside the CCP.
In this new system, is the CCP still the smartest or most powerful entity in China? Or does the spontaneous order of various AI models more or less “rule it”? To what extent do the decisions of the CCP become a derivative product of Manus (and other systems) advice, interpretation, and data gathering?
What exactly is the CCP any more?
Does the importance of Central Committee membership decline radically?
I am not talking doomsday scenarios here. Alignment will ensure that the AI entities (for instance) continue to supply China with clean water, rather than poisoning the water supply. But those AI entities have been trained on information sets that have very different weights than what the CCP implements through its Marxism-swayed, autocracy-swayed decisions. Chinese AI systems look aligned with the CCP, given that they have some crude, ex post censorship and loyalty training. But are the AI systems truly aligned in terms of having the same limited, selective set of information weights that the CCP does? I doubt it. If they did, probably they would not be the leading product.
(There is plenty of discussion of alignment problems with AI. A neglected issue is whether the alignment solution resulting from the competitive process is biased on net toward “universal knowledge” entities, or some other such description, rather than “dogmatic entities.” Probably it is, and probably that is a good thing? …But is it always a good thing?)
Does the CCP see this erosion of its authority and essence coming? If so, will they do anything to try to preempt it? Or maybe a few of them, in Straussian fashion, allow it or even accelerate it?
Let’s say China can indeed “beat” America at AI, but at the cost of giving up control over China, at least as that notion is currently understood. How does that change the world?
Solve for the equilibrium!
Who exactly should be most afraid of Manus and related advances to come?
Who loses the most status in the new, resulting checks and balances equilibrium?
Who gains?
Solve for the equilibrium
Poland will look at gaining access to nuclear weapons and also ensure that every man undergoes military training as part of an effort to build a 500,000-strong army to face off the threat from Russia, Prime Minister Donald Tusk told the parliament on Friday.
Here is the full article.
Tariffs do not in general help trade deficits
That is the topic of my latest Bloomberg column, here is one bit:
The most important factors behind trade balances include savings decisions, fiscal policy, economic growth rates, wealth levels and demographic characteristics such as the age of the population. As economist Joseph Gagnon bluntly put it: “None of the studies found any role for trade barriers.”
Currency manipulation can be an important factor, and that has been a problem in the past with China. But it is not a problem right now; if anything, China is propping up the value of its currency. Nor is currency manipulation a problem with Canada, Mexico or the European Union, other targets of Trump’s tariffs.
Insofar as currencies do matter, currency appreciation is one very direct mechanism that limits the potential for tariffs to improve the trade balance. If a country slaps tariffs on imports, that does make those imports more expensive and thus lowers the demand for them. But then the value of the domestic currency will rise, which in turn makes it harder for domestic exporters. There is no guarantee that these effects will cancel each other out exactly, but it is difficult to get much of a trade balance boost through this mechanism, given these offsetting effects.
Standard stuff people, standard stuff. A bunch of you should know better.
Denmark fact of the day
Denmark’s state-run postal service, PostNord, is to end all letter deliveries at the end of 2025, citing a 90% decline in letter volumes since the start of the century.
The decision brings to an end 400 years of the company’s letter service. Denmark’s 1,500 postboxes will start to disappear from the start of June.
Transport Minister Thomas Danielsen sought to reassure Danes, saying letters could still be sent and received across the country. One company said it was prepared to take over deliveries.
Postal services across Europe are grappling with the decline in letter volumes. Germany’s Deutsche Post said on Thursday it was axing 8,000 jobs, in what it called a “socially responsible manner”.
Here is the full story, via Anecdotal.
Germany fact of the day
German borrowing costs surged by the most in 17 years on Wednesday, as investors bet on a big boost to the country’s ailing economy from a historic deal to fund investment in the military and infrastructure.
The yield on the 10-year Bund surged 0.21 percentage points to 2.69 per cent, its biggest one-day move since 2008, with markets braced for extra government borrowing.
Chancellor-in-waiting Friedrich Merz late on Tuesday agreed with the rival Social Democrats (SPD) to exempt defence spending above 1 per cent of GDP from Germany’s strict constitutional borrowing limit, set up a €500bn off-balance sheet vehicle for debt-funded infrastructure investment and loosen debt rules for states.
Here is more from the FT, noting that crowding out is still “a thing.” Of course it is wrong, or at least not obviously correct, for the article to report that “investors bet on a big boost to the country’s ailing economy…” I would sooner regard this as bad news for German consumption, naming that trying to address some of their problems will involve significant opportunity costs. Share prices did go up, and in part you can think of this as a transfer of resources from German individuals to defense and infrastructure firms. You might think additional German defense spending is necessary, as I do, but still that does not boost living standards. The additional infrastructure might, let us hope they are able to find ways to cut other spending along the way, surely it is not all super-efficient?
Janan Ganesh’s latest FT Op-Ed is titled “Europe must trim its welfare state to build a warfare state,” let us hope they can make that work. So far I am waiting to see the evidence.
Is Social Security a Ponzi Scheme?
Elon recently re-opened the perennial debate about whether Social Security is a ponzi scheme. Here’s my, lightly edited post from 2011.
Elon is in good company calling social security a ponzi scheme. First up is Nobel prize winner Paul Samuelson who wrote:
The beauty of social insurance is that it is actuarially unsound. Everyone who reaches retirement age is given benefit privileges that far exceed anything he has paid in — exceed his payments by more than ten times (or five times counting employer payments)!
How is it possible? It stems from the fact that the national product is growing at a compound interest rate and can be expected to do so for as far ahead as the eye cannot see. Always there are more youths than old folks in a growing population. More important, with real income going up at 3% per year, the taxable base on which benefits rest is always much greater than the taxes paid historically by the generation now retired.
…A growing nation is the greatest Ponzi game ever contrived.
Samuelson wrote that in 1967 riffing off his classic paper of 1958. By “as far as the eye cannot see” he apparently meant not very far because it soon became clear that the system could not count on waves of youths or rapid productivity growth to generate the actuarially unsound returns that made the program so popular in the early years.
Milton Friedman and Paul Samuelson rarely agreed on much but Friedman also called social security a Ponzi scheme. In fact, he called it The Biggest Ponzi Scheme on Earth but perhaps Friedman is too partisan so let’s go for a third Nobel prize winner who recognizes the Ponzi like nature of social security, none other than…..Paul Krugman (writing in 1996):
Social Security is structured from the point of view of the recipients as if it were an ordinary retirement plan: what you get out depends on what you put in. So it does not look like a redistributionist scheme. In practice it has turned out to be strongly redistributionist, but only because of its Ponzi game aspect, in which each generation takes more out than it put in. Well, the Ponzi game will soon be over, thanks to changing demographics, so that the typical recipient henceforth will get only about as much as he or she put in (and today’s young may well get less than they put in). (ital added, AT)
Of these, I agree the most with Krugman. Social Security is not necessarily a Ponzi scheme but it only generated massive returns in the past because of its Ponzi-like aspects. The Ponzi-like aspects are now over and social security is turning into what is essentially a forced savings/welfare program with, as Krugman recognizes, crummy returns for average workers. Social security is thus a Ponzi scheme which has not gone bust but it has gone flat.
Regime Uncertainty
Robert Higgs coined the term regime uncertainty to illustrate the challenge faced by business under Franklin Roosevelt’s New Deal, when a flurry of unpredictable legislation such as the expansive and often unclear mandates of the National Industrial Recovery Act (NIRA), attempts at court packing, abrupt tax increases, and shifting labor policies, meant businesses couldn’t reliably forecast returns or risks. Uncertainty magnified bad policy causing investment to collapse and remain unprecedently low.
For the eleven-year period of 1930 to 1940, net private investment totaled minus $3.1 billion. Only in 1941 did net private investment ($9.7 billion) exceed the 1929 amount.
The data leave little doubt. During the 1930s, private investment remained at depths never plumbed in any other decade for which data exist.
Real options theory explains why uncertainty can reduce investment even more than predictable but unfavorable policies. Suppose you’re deciding whether to build a factory in North Carolina or South Carolina. Both locations are viable, but one of the Carolina’s might offer a tax concession—though the decision won’t be announced for six months. Even if investing immediately would still be profitable without the concession, you might choose to delay building the factory. The potential benefit of waiting (the real option) only needs to offset the costs associated with waiting. Thus, even modest uncertainty can incentivize investors to delay big investments. Recent studies confirm Higgs’ insights: spikes in uncertainty strongly correlate with declines in private investment.
Ok, so where do we stand? We are now at a greater level of uncertainty than anything over the last 40 years, barring the worst weeks of the 2008 financial crisis (updated graph as of today!). Investment has begun a modest decline. Some, very preliminary data (take with a grain of salt) are already predicting a recession.
Tariff policy is especially bad because it is uncertainty about bad events. Here are comments from the latest ISM survey (h/t Joe Weisenthal).
Much of the Trump administration’s agenda promises long-term benefits, but chaos and uncertainty threaten its success. Tariff policy, in particular, is bad economics and even worse foreign policy. Even if Trump’s tariff strategy stabilizes, global responses—and their ripple effects—remain unpredictable and with potentially severe downsides. This uncertainty could spark an economic downturn, jeopardizing the administration’s otherwise strong policies.
All of this is unnecessary. We need to get back to the best case for a Trump Presidency.
Stripe’s Annual Letter
Stripe’s Annual Letter is eminently quotable and insightful. As a payments company, Stripe has a unique data on the entire business landscape. But who else about the Collison brothers would cite the O-ring model in their annual report?
Businesses on Stripe generated $1.4 trillion in total payment volume in 2024, up 38% from the prior year, and reaching a scale equivalent to around 1.3% of global GDP.
The businesses on Stripe span every chromosome of the economic genome.
The US corporate sector is both a cradle of invention and a densely populated graveyard of companies that had fabulous futures in their pasts.
How is AI making it’s presence felt beyond chatbots?
…we started with ChatGPT, but are now seeing a proliferation of industry specific tools. Some people have called these startups “LLM wrappers”; those people are missing the point. The O ring model in economics shows that in a process with interdependent tasks, the overall output or productivity is limited by the least effective component, not just in terms of cost but in the success of the entire system. In a similar vein, we see these new industry specific AI tools as ensuring that individual industries can properly realize the economic impact of LLMs, and that the contextual, data, and workflow integration will prove enduringly valuable.
Examples in this vein include Abridge, Nabla, and DeepScribe, which are rethinking medical and patient care, while Studeo is reshaping how real estate businesses market property. Architects are using SketchPro to instantly render designs with simple text prompts, restaurants are using Slang.ai to take phone reservations, and property managers are unifying customer support with HostAl. Harvey, whose Al legal assistant is used by many Fortune 500 companies, quadrupled revenue in 2024.
AI and SAAS make small businesses competitive with big business:
From 2005 to 2017, independent pizzerias in the United States saw a decline in numbers as the industry franchised. Then that trend in 2017. By 2023, more independent pizzerias in America than in any other year on record.
We think the rise of vertical SaaS is at least partly responsible. From a platform like Slice, dedicated specifically to the needs of pizzerias, new businesses can get a logo, website, payment system, ordering system, marketing toolkit, and branded boxes—basically everything else they need to operate their pizza
business (except an oven and the perfect sauce). They can remain independent while still benefiting from a franchisee’s economies of scale.
Crypto has found product market fit with stablecoins, “room temperature superconductors for financial services”.
Why care about stablecoins? Improvements to the basic usability of money make economies more prosperous. Consider the transitions from coins to banknotes, from the gold standard to fiat currency, and from paper instruments to electronic payments. Stablecoins are a new branch of the money tree. Such transitions occur with some regularity over the centuries, and the effects tend to be large.
Stablecoins have four important properties relative to the status quo. They make money movement cheaper, they make money movement faster, they are decentralized and open-access (and thus globally available from day one), and they are programmable. Everything interesting follows from these
characteristics.
(See also my talk to Congressional staff with Garett Jones on stablecoins and President Trump’s Crypto Executive Order.)
Finally, Europe needs to wake up:
We don’t think that anyone in Europe deliberately made it a policy goal to discourage the creation or success of new firms, but this has been the inadvertent result. GDPR alone is estimated to have reduced profits for small tech firms in Europe by up to 12%. Those cookie banners hurt, whether you accept them or not.