Category: Current Affairs
What should I ask Ezra Klein?
Yes I will be doing a podcast with him. And he has a new and very good book coming out with Derek Thompson, namely Abundance. So what should I ask him?
50 Takes from Kevin Bryan
A very good list from Kevin Bryan. 49 out of 50 correct, excellent ratio.
1) Ukrainians are heroes who suffered a ton.
2) Putin obviously covets Georgia and the Baltics also.
3) EU not in talks because they basically have no hard power; France even lost the Sahel.
4) The far right European parties are bad.
5) Pretending parties that win state and EU elections, and are in govt in NL and AT and IT, aren’t legitimate will not end well.
6) And in fact EU & UK speech laws not on side of liberty.
7) (but EU food and kid culture is better!)
8) Europe’s demographic crisis is really severe; not sure what the solution is.
9) Engineer training esp in France, Italy, Switz is excellent.
10) That talent should produce better econ outcomes, so econ policy must be dreadful.
11) Trump clearly doesn’t value democracy.
12) Most of his actual actions are much milder than his words.
12) Would be a disaster if that changed.
13) Censorious right wing culture will cause backlash just like woke culture did (put another way, 90s civic culture was better!)
14) Decline in trust in universities, media, and public health was our own fault.
15) Broader ideological diversity would be a huge improvement.
16) “Smart people in private sector” are much more ideologically diverse.
16) Canada has resources and good demographics so future is strong.
17) But culture based on “we aren’t US” is a dead end.
18) CA attitude to US like Calif attitude towards Texas: many stereotypes, little knowledge, and getting crushed on growth.
19) Most Middle East problems easy to solve but populace even crazier than leaders.
20) With exception of Iran, who would be great ally of West based only on median “voter”.
21) Dubai isn’t somewhere I’d live, but economically it is most fascinating success of recent decades.
22) Future of India very bright – English, young, educated, democratic, globally focused, successful expats.
23) Bangladesh as well.
24) Pakistan has problems that are very hard to fix, though Hunza is prettiest place in the world.
25) China underrated: the growth is actually staggering and tech leapfrogging in many areas is clear.
26) Chinese universities getting very strong, many foreign students from dev world.
27) But society way more closed than when I worked there 20 yrs ago, HK stolen, Taiwan?
28) Korea and Japan are delightful, but what will happen to countries who lose 20% of population in a generation?
29) Vietnam and Indonesia are very interesting going forward, esp former, as important powers.
30) Australia as well: resources and culture.
31) The future is African: tautology based on demographics.
32) The Sahel can easily get much much worse.
33) As can Central Africa, largely because of Kagame.
34) Ethiopia, Kenya, Nigeria, Ghana, Bénin as growth miracles seems possible, though.
35) Latin America is joyous and way underappreciated for cultural interest.
36) But highly polarized Presidential systems make it so hard to improve.
37) And the educational underperformance is a real barrier to growth.
38) US is clearly economic engine of world, and more so now than 10 years ago, and you are deluded to think otherwise.
39) Why? Energy costs and tech sector, esp AI, plus growing pop of high grit immigrants. Have to get these right.
40) Avg US govt quality is not good but generally it doesn’t try to do very much, which makes it less of a problem.
41) But it isn’t filled with fraud – it is almost all old age transfers and military and interest.
42) More federalism, weaker courts would be better (this is Canada’s secret – federal courts don’t matter).
43) More transfers to young would be better: preK, service opps, parental leave, guaranteed vacation.
44) That said, US policy directionally right, and Germany has more to learn economically from Texas than vice versa (let people build, keep energy cheap).
45) Still, institutions matter, and hard to rebuild once destroyed.
46) EU = no war in W Eur for 80 years = it is good.
47) NATO, UN, World Bank have flaws, but they are so cheap and global stability so rare historically that they are good.
48) Greenland in CoFA, free labor movement with Canada and US: both good, made harder by DT rhetoric.
49) Shame is useful to keep public servants and regular Joes on straight and narrow path.
50) But at the end of day, success more important than words. Strong countries and societies and global orders are not build on words & soft power, but on growing liberty & prosperity.
Germany facts of the day
Germany has lost almost a quarter of a million manufacturing jobs since the start of the Covid pandemic as companies and politicians sound the alarm that Europe’s industrial heartland is suffering an irreversible decline…
The contraction of Germany’s industry is evident in the fall of market value in the sector. Together, Dax constituents Volkswagen, Thyssenkrupp and BASF have lost €50bn, or 34 per cent, in market capitalisation over the past five years. From 2010 to 2014, carmakers on the Dax index were more valuable on average than their peers in any other sector, but valuations have slipped as demand has started to falter. VW’s deliveries to customers last year slumped by nearly a fifth compared with the pre-pandemic year of 2019.
In other industrials, steelmaker Thyssenkrupp has announced plans to reduce its production capacity by up to a quarter and cut 40 per cent of jobs. BASF is looking to cut costs at its Ludwigshafen headquarters, the world’s largest chemical site, by €2bn a year.
Here is more from the FT.
Italy’s Superbonus: The Dumbest Fiscal Policy in Recent Memory
Luis Garicano has an amazing post on “one of the dumbest fiscal policies in recent memory.” Launched in Italy during COVID by Prime Minister Conte, the “Superbonus” scheme subsidized 110% of housing renovation costs. Now if one were to use outdated, simplistic, Econ 101 type reasoning one would predict that such a scheme would be massively costly not only because people would rush to renovate their homes for free but because the more expensive the renovation on paper the bigger the bonus.
The proponents of the Superbonus, most notably Riccardo Fraccaro, were however, advocates of Monetary Monetary Theory so deficits were considered only an illusory barrier to government spending and resource constraints were far distant concerns. Italy still had to meet EU rules, however, so the deficit spending was concealed with creative accounting:
rather than direct cash grants, the government issued tax credits that could be transferred. A homeowner could claim these credits directly against their taxes, have contractors claim them against invoices, or sell them to banks. These credits became a kind of fiscal currency – a parallel financial instrument that functioned as off-the-books debt (Capone and Stagnaro, 2024). The setup purposefully created the illusion of a free lunch: it hid the cost to the government, as for European accounting purposes the credits would show up only as lost tax revenue rather than new spending.
In MMT terms, Fraccaro and his team effectively created money as a tax credit, putting into practice MMT’s notion that a sovereign issuer’s currency is ultimately a tax IOU.
So what were the results? The “free renovation” scheme quickly spiraled out of control. Initially projected to cost €35 billion, the program ballooned to around €220 billion—about 12% of Italy’s GDP! Did it drive a surge in energy-efficient renovations? Hardly. Massive fraud ensued as builders and homeowners inflated renovation costs to siphon off government funds. Beyond that, surging demand ran headlong into resource constraints. Econ 101 again: in the short run, marginal cost curves slope upward.
Construction costs sharply increased – the Construction Cost Index grew by roughly 20% after the pandemic and surged another 13% after September 2021, with the Superbonus directly responsible for about 7 percentage points of that rise, according to Corsello and Ercolani (2024). The price of setting up scaffolding, an essential first step for renovation, increased by 400% by the end of 2021.
…Even the program’s environmental benefits came at an astronomical cost – any calculation will yield far north of €1,000 per ton of carbon saved (versus an ETS Carbon price of around €80 per ton).
Moreover, as Garicano trenchantly notes once started the program’s structure made it fiendishly difficult to stop:
The benefits were concentrated among vocal constituencies: homeowners getting renovations, the environmental movement, and contractors seeing booming business. The costs, while enormous, were spread across all taxpayers and pushed into the future through the tax credit mechanism. No government—leftist, technocratic, or right-wing—was able to resist its logic. Parliament consistently pushed back against efforts to limit its scope, even after fraud estimates hit €16 billion. As prime minister, Mario Draghi, despite publicly criticizing the program for tripling construction costs, could not halt it — in fact, his initial action was to simplify access to it. When his government attempted to curb abuse, the Five Star Movement reacted with anger, and even modest controls on credit transfers were fought. By 2023, Giorgia Meloni’s right-wing government faced the same constraints—industry groups protested, coalition partners balked.
In normal times, the EU might have intervened to curb the reckless deficit spending—everyone knew what was going on, even if the numbers were temporarily kept off the books. But during COVID, the EU turned a blind eye, and the ECB kept interest rates low.
In fact, Garicano argues that the Superbonus story is merely the most blatant example of deeper systemic issues which now trouble the entire EU:
This erosion of discipline isn’t limited to Italy. France’s deficit has drifted to 6.1% of GDP. Spain reversed its post crisis pension reform right around the time Italy was passing the Superbonus, with much larger negative consequences for fiscal sustainability. In a world where the ECB will always intervene to prevent bond market pressure and Brussels cannot credibly enforce fiscal rules on large states, sustainable fiscal policy becomes politically almost impossible.
The very mechanisms designed to protect the euro may now be undermining it.
How should government disclosure be done?
That is my recent Bloomberg column on this all-important topic. Here is one part:
The risk is that Trump would hoard the most sensitive information and disclose selectively, to manipulate the news cycle or to distract attention from other events. It also could give him more political weapons to use against what he calls the “deep state.” The president himself is hardly a model of transparency, whether the questions concern his tax returns, his medical exams or the possession of classified documents after leaving office.
But again, the issue is governmental disclosure, and so far, Trump’s record is 0 for 1. Before assuming office, he suggested that the US military knew more than it was letting on about the drones that had been sighted above New Jersey and other Northeastern states. Then, after Trump took office, his press secretary said only that they were “authorized” by the government “for research and various other reasons.” There has been no subsequent attempt to clarify matters. Personally, I am more confused than I was a month ago.
Perhaps there are good national security reasons for this silence. The point is that it is foolish to expect full and open disclosure from the president, no matter what his executive order says or what he has earlier promised.
One way to improve the process would be to appoint some independent auditors on a bipartisan basis, perhaps selected from Congress. Ex post, those auditors could judge whether disclosure, with transparent explanations, had actually occurred. They could grade the degree of disclosure, but they would not have the power to prevent it. Otherwise, there is a risk that — to choose an example not quite at random — evidence favoring the “two gunmen” hypothesis for JFK’s assassination is released, but conflicting evidence for the “lone gunman” hypothesis is suppressed. The auditors would issue a report saying whether disclosure was unbalanced or unfair.
And this:
Another problem with the task force is that it is authorized for only six months. Bureaucracies are by nature slow-moving, and can be even more so when they wish to be. A six-month deadline creates incentives to wait things out. Trump could threaten to extend the mandate, and perhaps he will. But then the disclosure campaign would turn out to be just a bargaining chip, rather than a genuine attempt to bring the truth to light.
Definitely recommended.
Ukrainian bond data correction
In the previous post, I cited data showing that Ukrainian bond prices had fallen over the last few months. But it seems that data source was faulty, and the value of Ukrainian bonds has been rising, including recently. You can find some sources here. Apologies for the error!
I thank JoshB. for drawing this to my attention. He writes in the comments on that previous post: “Ukrainian local debt is not widely traded but according to bloomberg data it has done nothing but rally over the last four months. The UKRGB 19.7 8/25 that the linked website claims to be quoting is trading 99.13 dollar price, up from 90 in the fall. The USD external bonds are much more widely traded and they have definitely rallied over the past few months – it has been a popular hedge fund trade. The UKRAIN 1.75 2/29 for example are now $73 up from $61 pre election. The thesis has been that the Ukraine external debt stock is small relative to reconstruction needs and the country will desire market access so it makes sense to favorably restructure the external bond holders. I’m skeptical personally, but the premise of the original post that Ukraine debt is going down in price is wrong.”
Steel Tariffs in Two Pictures
Recall Principle 2 of Three Simple Principles of Trade Policy, Businesses are Consumers Too. Case in point, steel. Justin Wolfers summarizes an analysis of Trump’s 2018 steel tariffs:
Going back further we have a good analysis from Lydia Cox of the Bush steel tariffs. Even though the tariffs were temporary, they led to a rearrangement of supply chains which led to long-lasting declines in exports and employment in steel using industries.
Place Effects on Fertility Decision: Evidence from Mover Design
This paper investigates the causal impact of place-based factors on fertility decision using mover design and data from the Panel Study of Income Dynamics (1968-2019). We find that moving to a state with a 1 percentage point higher birth rate increases the probability of childbirth by 0.9 percentage points, with cumulative effects reaching 3.8 percentage points three years post-move. The response demonstrates concentration among first births and exhibits systematic variation across demographic characteristics—with particularly pronounced effects observed among white women who are married, younger, and have higher income levels. Our variance decomposition shows the contribution of place effects to fertility variance increased from 4.7 percent to 26.0 percent before and after the Great Recession, with geographical variation in contraceptive access and healthcare infrastructure showing the strongest correlations with these place effects. This research emphasizes the importance of considering contextual factors in fertility research and policy interventions.
That is from a new paper by Hantao Wu and Man Zhu. Via the excellent Kevin Lewis.
The danger of Trump disobeying court orders
Ilya Somin covers this question over at Volokh Conspiracy. I receive many queries about this, some of them panicky and anguished. I haven’t covered it, mostly because I don’t feel I have enough insights into the relevant matters of constitutional law, or for that matter what is going on inside the administration (for instance, how should one interpret those Vance tweets?)
I can tell you what I would find useful. If you are especially pessimistic on this front, which are the securities prices that would indicate an actual constitutional problem? Particular equities? Interest rates? The value of the dollar? Measures of volatility? Something else? Don’t restrict yourself to the absolute level of share prices, surely there are favored and disfavored companies and sectors, right?
I am allergic to the view that “fascism could come and market prices would not even budge.” In fact, I think it is extremely skeptical and subversive of democracy, or shall I better say a constitutional republic. I think fascism, or a constitutional collapse, would be a terrible outcome in a variety of very practical ways, in addition to its moral failings. At the very least it would matter for many particular enterprises.
In a variety of other contexts, such as tariffs, market prices have been super-sensitive to the actions of the Trump administration. So people, on this question, which exactly are the measurable, market price indicators? After all, you don’t want to be like those doomster AI skeptics who think no one can trade on the (supposed) truth.
In the comments section, I am not interested in your blah blah blah opinion full of adjectives. Just tell me which prices please. I do see this issue as constituting a real risk, if perhaps a sometimes exaggerated one. So I will follow those market prices with great interest. I just need to know what they are.
Addendum: In an excellent Substack today Matt Yglesias notes: “Republicans, meanwhile, are making very little forward progress on their legislative agenda.”
China fact of the day
Marriages in China plunged by a fifth to the lowest level on record last year, a setback to efforts by the government to reverse a demographic crisis threatening the world’s second-biggest economy.
The number of marriage registrations fell to 6.1 million, according to statistics released by China’s Ministry of Civil Affairs on Saturday, after a post-pandemic increase to nearly 7.7 million in 2023. The tally for last year marks the fewest marriages since public records began in 1986 and is less than half the peak reached in 2013.
Here is more from Bloomberg News.
What should I ask Jennifer Pahlka?
Yes, I will be doing a Conversation with her. From Wikipedia:
Jennifer Pahlka (born December 27, 1969) is an American businesswoman and political advisor. She is the founder and former executive director of Code for America. She served as U.S. Deputy Chief Technology Officer from June 2013 to June 2014 and helped found the United States Digital Service. Previously she had worked at CMP Media with various roles in the computer game industry. She was the co-chair and general manager of the Web 2.0 conferences. In June 2023, she released the book Recoding America: Why Government Is Failing in the Digital Age and How We Can Do Better.
Recently she has been working on the Niskanen Institute state capacity project. So what should I ask her?
Greenland Next
Hat tip: Max
The exhaustion of rents
A computer expert who has battled for a decade to recover a £600m bitcoin fortune he believes is buried in a council dump in south Wales is considering buying the site so he can hunt for the missing fortune.
James Howells lost a high court case last month to force Newport city council to allow him to search the tip to retrieve a hard drive he says contains the bitcoins.
The council has since announced plans to close and cap the site, which would almost certainly spell the end of any lingering hopes of reaching the bitcoins. The authority has secured planning permission for a solar farm on part of the land.
Here is the full story, via Michael Rosenwald. It is of course amazing that the local authority owning the dump has no interest in recovering the money for itself.
Dwarkesh’s Question
One question I had for you while we were talking about the intelligence stuff was, as a scientist yourself, what do you make of the fact that these things have basically the entire corpus of human knowledge memorized and they haven’t been able to make a single new connection that has led to a discovery? Whereas if even a moderately intelligent person had this much stuff memorized, they would notice — Oh, this thing causes this symptom. This other thing also causes this symptom. There’s a medical cure right here.
Shouldn’t we be expecting that kind of stuff?
It’s a very good question. In 2023, I quipped, “I think they have, we just haven’t asked them.” Maybe, but less clear today. Dwarkesh reports that there have been no good answers.
USPS as a failed sovereign wealth fund
The U.S. government has a direct stake in natural resource wealth, collecting royalties from the extraction of minerals on federal land. In a good year, these royalties (which are dispersed to states) total around $20 billion, although the historic annual average is closer to $10 billion.
These figures pale in comparison to what is arguably America’s largest commercial endeavor: the U.S. Postal Service (USPS). The USPS relies on its vast network of land, buildings, trucks, and processing machines to generate about $80 billion in revenue per year. The obvious problem is that, unlike with Norway and Saudi Arabia’s black gold, the USPS can’t turn a profit on its large asset holdings. The agency lost $9.5 billion on net in FY 2024, and has burned through $100 billion over the past fifteen years…
To sum up: the U.S. isn’t Norway nor Saudi Arabia. Our largest asset-rich enterprise is really bad at making money and channeling investments to productive uses. And, it is for lack of trying; the USPS can do a far better job generating a return on assets such as property.
Here is the full Substack by Ross Marchand.