Category: Current Affairs

The new U.S.-China Cold War

That is the topic of my latest Bloomberg column.  It’s not my most fun piece, but in terms of content arguably the most important.  Here is one short bit:

The new dynamic affects people as well as products. China is asking state firms to avoid travel to the U.S. and its allies. And if you were an American or Canadian tech company executive, would you travel to China right now, given that Canada has detained a leading Huawei executive (and daughter of the company’s CEO) for extradition to the U.S.? Meanwhile, many American universities are kicking their local Confucius Institute off campus, most notably the University of Michigan, amid complaints that those institutes are spying on Chinese nationals who attend those schools. Whether or not that is true, this is another sign of the collapse of trust.

This is the deeper issue with the U.S.-China relationship: the continuing erosion, in an era of rapid deglobalization, of previous ties built at least partly on a common sense of purpose. Looking back at 2018, it now seems obvious that this was the most important story of the year.

Do read the whole thing.  It is much easier to break trust than to rebuild it.

The wisdom of Arnold Kling (a Kamala Harris parable)

Here is the opener of my Bloomberg column:

One of the worst tendencies in American politics is to restrict supply and subsidize demand. (The phrase is from the economist Arnold Kling.) The likely result of such policies is high and rising prices, restricted access and often poor quality. If you limit the number of homes and apartments, for example, but give buyers subsidies, that is a formula for exorbitant prices.

That is what makes early accounts of Senator Kamala Harris’s economic plans so disappointing. There is still room for course corrections as she campaigns for president, but too much of what is being bandied about seems designed to annoy Arnold Kling.

Do read the whole thing.

Facts that contradict the standard housing bubble story

Here I am doing a mix of quoting and paraphrasing the excellent Kevin Erdmann:

1. “Housing construction has been constricted in our most prosperous cities.”

2. “Home prices in many developed countries rose at least as sharply as inthe US.”

3. “…rent inflation has been persistently high for 20 years.”

4. “Growth in real rent expenditures generally had been declining throughout the supposed boom period.”

5. “During the boom, the relative income of the typical homebuyer did not decline.”

6. During the boom, homeowners were not “buying up.”

7. Homeownership rates, even at their peak levels in 2004, among age groups under 65 years old, were no higher than homeownership rates had been in the late 1970s and early 1980s.”

8. “…when taking into account all types of housing, the number of new housing units never even rose very far above the long-term average.”

Those are all from Kevin’s new and very important book Shut Out: How a Housing Shortage Caused the Great Recession and Crippled Our Economy.  The simple “housing bubble” story is not in fact as true as it might seem, as Kevin shows, and furthermore just look at how many parts of America now have home prices at or above their “bubbly peaks.”  I hope this work gets the attention it deserves.

Short-term lending in response to the government shutdown

Gridlock in Washington over President Donald Trump’s plans to build a wall on the border with Mexico has deprived hundreds of thousands of government employees and contractors of their wages. As a result, some have turned to specialist consumer-finance companies to bridge gaps between earnings and outgoings. Shares in World Acceptance, a South Carolina-based short-term lender, are up 22 per cent since the shutdown took effect about a month ago. EZ Corp, a pawnshop operator based in Austin, Texas, is 20 per cent higher over that period. In both cases, the rises are much more than benchmarks, suggesting investors could be betting on a surge in demand to cover unexpected expenses.

…Chad Prashad, chief executive of World Acceptance, said his company was seeing demand in Texas and the south-east of the US where there were big airports employing government workers. In response to the shutdown, World Acceptance is offering cash-strapped government employees deferrals on their loans without interest or fee penalties. New customers can get up to $1,250 in a 10-month loan with 0 per cent interest and no fees.

Here is the full FT article by Nicole Bullock.

The polity that is Sikkim

High in the Himalayas, Sikkim is one of the tiniest states in India. But it is about to embark on an experiment of global interest.

Sikkim’s ruling party has announced an ambitious plan to implement a universal basic income for every one of its 610,577 citizens.

If successful, the scheme would represent the largest trial run anywhere in the world…

Here is the WaPo article, overall I am most bullish about the UBI idea for very poor countries, where the humanitarian upside is greater and the incentive to work still remains.  Elsewhere, Buddhist poker player donates $600,000 to charity.

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.


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.


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…

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.


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.