Category: Current Affairs
Turkey fact of the day
Real interest rates, which subtract inflation from central bank policy rates, have been negative for a remarkable 13 of the 22 years that Erdoğan has been in power, according to FT research. This helped spur growth, boost incomes and sustain a construction boom. It also laid the foundation for an economic crisis.
By late 2022, real rates had fallen to minus 75 per cent. By mid-2023, fuelled by high government spending following a devastating earthquake and pre-election fiscal splurge, the economy was overheating. Inflation was running at 60 per cent, the lira was in freefall and Turkey had a current account deficit equivalent to almost 6 per cent of GDP but had negative net reserves of about minus $60bn.
Here is more from John Paul Rathbone at the FT. I would want to know more about what actual net borrowing rates have been, all factors considered. Still, this is quite something, even if it is only an interest rate on paper, so to speak.
Who in California opposes the abundance agenda?
Labor unions are one of the culprits, environmental groups are another:
Hours of explosive state budget hearings on Wednesday revealed deepening rifts within the Legislature’s Democratic supermajority over how to ease California’s prohibitively high cost of living. Labor advocates determined to sink one of Newsom’s proposals over wage standards for construction workers filled a hearing room at the state Capitol mocking, yelling, and storming out at points while lawmakers went over the details of Newsom’s plan to address the state’s affordability crisis and sew up a $12 billion budget deficit.
Lawmakers for months have been bracing for a fight with Newsom over his proposed cuts to safety net programs in the state budget. Instead, Democrats are throwing up heavy resistance to his last-minute stand on housing development — a proposal that has drawn outrage from labor and environmental groups in heavily-Democratic California.
Here is the full story, via Josh Barro. To be clear, I am for the abundance agenda.
Flying on Frying Oil
The ever-excellent Matt Levine points us to the amusing economic policies that connect the international jet-set to Malaysian street hawkers of fried noodles. The EU and the US have created strong economic incentives to create sustainable aviation fuel (SAF) and a good way to do this is to recycle used cooking oil (UCO). What could be better, right? Take a waste product and turn it into jet fuel! The EU and US policies, however, are so strong that all the EU and US used cooking oil cannot meet the demand. Here’s a great sentence, “Europe simply cannot collect enough used cooking oil to fly its planes.”
In the US, credits under the Inflation Reduction Act can account for up to $1.75 to $1.85 per gallon of SAF. Meanwhile cooking oil is subsidized in some 
parts of the world. The result?
It turns out that restaurants, street food stalls and home cooks in Malaysia — which is “among the world’s leading suppliers of both UCO and virgin palm oil” — will pay less for fresh cooking oil than the international market will pay for used cooking oil. Fresh cooking oil is more useful to cooks than used cooking oil (it tastes better), but it is less useful to refiners and airlines than used cooking oil (it doesn’t reduce their carbon impact). Also fresh cooking oil is subsidized by the government in Malaysia: “Subsidised cooking oil sells for RM2.50 per kg versus the UCO trading price of up to RM4.50 per kg.” So if you run a restaurant, you can buy fresh cooking oil for about $0.60 (USD), use it to fry food a few times, and then sell it to a refiner for $1, which is a nice little subsidy for the difficult, risky, low-margin business of running a restaurant.
The noodle hawkers in Kuala Lumpur are getting a nice little bump in profit but who is going stall to stall to check that the oil is in fact used? And what counts as used? One fry or two? Clever entrepreneurs have cut out the middleman. Virgin palm oil can be substituted for used cooking oil and voila! Sustainable aviation fuel is contributing to deforestation in Malaysia. Malaysia exports far more “used” cooking oil than oil that it uses. No surprise.
All of this illustrates a broader point: externalities suggest policy interventions may improve outcomes but markets are complex and politics is blunt. It’s easy to make things worse. If intervention is necessary, a uniform carbon tax beats a patchwork of production-specific subsidies. A price is a signal wrapped up in an incentive. Send everyone the same signal and the same incentive to ensure that the cheapest emissions are cut first and total costs are minimized.
Crucially, a carbon tax rewards any effective solution, even ones a planner would never think of–lighter planes and cleaner fuels sure but also operational tweaks like jet washes. In contrast, subsidies tether policy to specific technologies, like used cooking oil. That invites rent-seeking and inefficiency.
Tax carbon, not inputs. Avoid games with paperwork. One verification point at the fuel supply point is simpler than tracing global waste-oil chains. Don’t subsidize the fry oil and audit the street hawkers. Tax the emissions.
How constrained is the NYC mayor?
I thought to ask o3, here is the opening of its answer:
New York City has a “strong-mayor / council” system, but the City Charter, state law and an array of watchdog institutions deliberately fragment power. In practice the mayor can move fastest on implementation—issuing executive orders, running the uniformed services, writing the first draft of the budget, and appointing most agency heads—yet almost every strategic decision runs into at least one institutional trip-wire.
He does appoint all police commissioners and has direct control over the police. The mayor also has line item veto authority, although that can be overriden by the City Council. The entire response is of interest. More generally, who will and will not feel welcome in the city after this result?
Germany Italy fact of the day
Germany and Italy hold the world’s second- and third-largest national gold reserves after the US, with reserves of 3,352 tonnes and 2,452 tonnes, respectively, according to World Gold Council data. Both rely heavily on the New York Federal Reserve in Manhattan as a custodian, each storing more than a third of their bullion in the US. Between them, the gold stored in the US has a market value of more than $245bn, according to FT calculations…
“We need to address the question if storing the gold abroad has become more secure and stable over the past decade or not,” Gauweiler told the FT, adding that “the answer to this is self-evident” as geopolitical risk had made the world more insecure.
In case you wish to comment on very recent events
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Who needs robots?, China fact of the day
A hotel in southwestern China’s megacity of Chongqing has come under fire for using red pandas to deliver morning wake-up calls to guests, sparking controversy and raising fresh concerns about the welfare of endangered wildlife and customer safety.
Located near the Chongqing Wild Animal World, the hotel offers a so-called “red panda morning call” service, where staff lead red pandas into guests’ rooms to greet them in the morning. Guests can feed, stroke, and take photos with the animals — some of whom were filmed exploring the hotel rooms and wandering across beds.
In addition to red panda-themed rooms, the hotel features accommodation with up-close contact with ring-tailed lemurs, albeit this time outdoors.
Here is the full story, via Jonathan Cheng.
Of Course We Should Privatize Some Federal Land (but probably won’t)
The Federal government controls a ridiculous amount of land in the West including more than half of Oregon, Utah, Nevada, Idaho and Alaska and nearly half of California, Arizona, New Mexico and Wyoming. See the map (PDF). The vast majority of this land is NOT parks!!! It is time for a sale to raise some funds and improve the efficiency of land allocation.
The conservative Mike Lee has a bill that would allow some sales. Great! The only problem with the bill is that it is loaded down with restrictions and qualifications. For example, there is a cap of 0.75% on total sales–that’s right, the land sales are capped at less than 1% of the total Federal land and that is a high cap because most of the rules prohibit any sale. The sales that are allowed have to be nominated by state or local governments, must be adjacent to developed areas and close to infrastructure. Moreover, the land can only be use for housing. Lyman Stone has a thread going into even more detail. The very modest goal–as you can see at right–is to rationalize some checkerboard land patterns.
Even so, the bill is probably doomed. Just mentioning federal land sales triggers a moral panic, as if someone proposed auctioning off Yellowstone. Supposed conservatives like Lomez are fueling this hysteria (e.g. here, here and here). It’s nonsense. Here and here is the type of land we are actually talking about—notice the difference?
As Matt Darling pointed out, this is Everything Bagel Liberalism from Conservatives—a bloated mess of proceduralism that empowers special interests and kneecaps supply.
If we can’t even sell Federal scraps then we’ve abandoned any pretense of governing in the public interest. We should be building entirely new cities–freedom cities!–not whining about fishing and hunting on scraps of scrub. This is exactly the same as urban NIMBYs who lobby to save “historic” parking lots. Pathetic. The federal land monopoly is not sacred. Let it go. This is where the rubber hits the road: if MAGA means anything beyond vibes and grievance, it should mean cutting red tape and unlocking land for Americans to own and build upon.
The anti-abundance agenda?
It looks like a whole new shipping preference law is coming. The House overwhelmingly passed the American Cargo for American Ships Act that would require 100% of transportation project [DOT related] materials to go on US ships, driving up infrastructure costs.
Here is the Judge Glock tweet, here is the legislation itself. Appears to be worse than the Jones Act?
A Skeptical View of the NSF’s Role in Economic Research
Tyler and myself from 2016 but newly relevant on how to reform the National Science Foundation (NSF) especially as related to economics:
We can imagine a plausible case for government support of science based on traditional economic reasons of externalities and public goods. Yet when it comes to government support of grants from the National Science Foundation (NSF) for economic research, our sense is that many economists avoid critical questions, skimp on analysis, and move straight to advocacy. In this essay, we take a more skeptical attitude toward the efforts of the NSF to subsidize economic research. We offer two main sets of arguments. First, a key question is not whether NSF funding is justified relative to laissez-faire, but rather, what is the marginal value of NSF funding given already existing government and nongovernment support for economic research? Second, we consider whether NSF funding might more productively be shifted in various directions that remain within the legal and traditional purview of the NSF. Such alternative focuses might include data availability, prizes rather than grants, broader dissemination of economic insights, and more. Given these critiques, we suggest some possible ways in which the pattern of NSF funding, and the arguments for such funding, might be improved.
The tech right and the MAGA right
The contrasts there are the theme of my latest column for The Free Press. Excerpt:
The MAGA crowd, starting with Trump and including J.D. Vance, Stephen Miller, and Steve Bannon, has a different set of beliefs. Again, the actual views here are diverse. (After all, Trump himself can hold multiple views in the course of a single paragraph.) But if I had to summarize the doctrine, I would take the slogan “Make America Great Again” very literally—with an emphasis on again.
Their desire is to bring back an America that was more nationalistic, had a more cohesive elite, was less infatuated with globalization, was more masculine and less feminized, and had a stronger manufacturing base, among other things. That also means fewer immigrants—especially immigrants who don’t come from Europe, which the MAGA crowd views as the font of American civilization.
It is not my purpose to debate these views one by one, but I will note that these have not been the natural trends of our time. Due to birth control, the influence of feminization has risen, because women are taking on increasingly important roles in the workplace, politics, and education. Due to automation and foreign competition, manufacturing employment has declined. The rise of Asia has propelled globalization, and many of the most talented students at U.S. universities are no longer Americans. And because of proximity, mobility, and instability in many Latin American countries, immigration, both legal and illegal, has been rising.
The MAGA recipe thus requires ongoing and quite serious government intervention, in both the economic realm and in culture. Otherwise MAGA is doomed to fail, as its desired ends will be swept aside by the broader currents of history, which favor the tech right. Since the America of earlier times had a much smaller government than today, MAGA advocates, if they are to implement their desired ends, have to war against libertarian tendencies, and thus MAGA is unlikely to end up evolving in libertarian directions.
So whereas the tech right wants freedom to build, MAGA wants the government to manage the building in some very specific directions—like rekindling manufacturing as a core part of the economy, for instance—and to prevent some kinds of globalized building altogether.
Recommended.
My Conversation with the excellent Chris Arnade
Here is the audio, video, and transcript. Here is part of the episode summary:
Tyler and Chris discuss how Beijing and Shanghai reveal different forms of authoritarian control through urban design, why Seoul’s functional dysfunction makes it more appealing than Tokyo’s efficiency, favorite McDonald’s locations around the world, the dimensions for properly assessing a city’s walkability, what Chris packs for long urban jaunts, why he’s not interested in walking the countryside, what travel has taught him about people and culture, what makes the Faroe Islands and El Paso so special, where he has no desire to go, the good and bad of working on Wall Street, the role of pigeons and snapping turtles in his life, finding his 1,000 true fans on Substack, whether museums are interesting, what set him on this current journey, and more.
COWEN: That’s okay. What’s your nomination for the least walkable city?
ARNADE: Phoenix is pretty bad. In the rest of the world, what was the lowest ranked of mine?
COWEN: I think Dakar is your lowest ranked.
ARNADE: Dakar is low.
COWEN: I don’t find that so bad.
ARNADE: [laughs] It was partially the heat. Also, there was a safety issue, which is not actual violence. It’s just the risk of a miscommunication going very badly because when you’re in a neighborhood where they have a slum basically, where you’re one of few white people, it’s not that I feel threatened by being robbed. I feel threatened that there can be miscommunication, like, “Why are you here? What are you doing here?” That can spiral out of control if you don’t speak the language. Dakar was really tough. Kampala was really tough to walk.
COWEN: Why’s that? I’ve never been there.
ARNADE: Again, these are cities that are not meant to be walked. Locals don’t walk them. People would look at me like I’m crazy. Part of the reason, first of all, you can jump on a hack bus, so why would you walk? The boda-bodas, which are . . . you just jump on the back of a motorcycle, which I won’t do. I did it once, and I’m like, “I’m not doing this. This is a really dumb risk.”
COWEN: Yes, I wouldn’t do that.
ARNADE: I almost got killed the first time I did it, but they do it. Consequently, there’s no walking infrastructure and when you do walk, you’re at risk of being hit by a boda-boda. People will walk out of necessity but there’s just no infrastructure. Absolutely none. Then you can get hit by a car. You can get hit by a car or a motorcycle.
COWEN: Rio, for me, would be the least walkable. It’s very dangerous but on top of that, there are so many places where walks end. There’re mountains, there’re tunnels.
And this:
COWEN: What is it you think you learn least well traveling the way you do?
ARNADE: It’s interesting. I used to be a macro-type trader. I used to be very top-down. I think I, in some sense, have thrown too much of that away. I’ve gone in too blind. I could do a little bit more background reading in terms of the political situation.
One of the things I’ve learned from my project is, most people don’t talk about politics. It’s because I only talk about what other people want to talk about. No one talks about politics. Being in Beijing and Shanghai — maybe it’s not the best example because people would say there’s a reason they don’t want to talk about it. I don’t think that’s it.
COWEN: No, I agree. Most of the world. Even Idaho.
ARNADE: Yes, 98 percent of the people aren’t political and they don’t talk about politics. I got beat up on social media when people were talking about, “Oh my God, Trump’s going to be elected. The world hates us.” No, they don’t. [laughs] When that person said that, I was actually in a bar in Kampala with a woman telling me how much she loved Trump. That was a rare political conversation. Most people don’t talk about politics.
In that sense, I could probably do more reading outside of the conversations about politics because I go to a lot of these countries, I don’t know what’s going on politically because people don’t talk about it.
COWEN: What other macro views of the world have you revised due to your walking, visiting, traveling? Obviously, particular views about any individual place, but on the whole, humanity.
And I am very happy to recommend Chris’s Substack, which covers his fascinating travels around the world.
An addendum to the German fiscal austerity debates
“There is a significant risk that France will be passed by neighbouring countries like Germany and Poland, who are working hard to increase military spending quickly,” said Tenenbaum.
That is from the FT. I am far from convinced that Germany will use its fiscal freedom wisely to protect its national and also European security. Still, I am glad they have this option, and in a pinch probably they would do what is necessary.
We can all agree that fiscal policy should be relatively tight in good times, all expected values taken into account, and looser in bad times. The underdiscussed issue is exactly which times are “the good ones,” and perhaps the next ten years is when the fiscal space truly will be needed. Such an on line, pile it on, dogmatic critical slaughter of Germany and Merkel was attempted when the eurocrisis hit, and so I fear many people will be reluctant to recognize the possible truth of this point. But war is so, so much worse than the other bad world-states, and that is the one you really need to be prepared for. Of course the ideal thing would have been for Merkel to boost defense spending back then, but only rarely was that the demand.
Annie Lowrey on ranked choice voting as a form of democracy
Seeing a no-name upstart attempt to upset a brand-name heavyweight is thrilling. But the system has warped the political calculus of the mayoral campaign. Candidates who might have dropped out are staying in. Candidates who might be attacking one another on their platforms or records are instead considering cross-endorsing. Voters used to choosing one contender are plotting out how to rank their choices. Moreover, they are doing so in a closed primary held in the June of an odd year, meaning most city residents will not show up at the polls anyway. If this is democracy, it’s a funny form of it…
Whether Cuomo or Mamdani wins this month, New Yorkers might have another chance to decide between them. After this annoyingly chaotic primary, we could have an annoyingly chaotic election: If Mamdani loses, he might run in the general on the Working Families Party ticket. If Cuomo loses, he might run in the general as an independent, as will the disgraced incumbent, Eric Adams. At least, in that election, voters won’t be asked to rank their favorite, just to pick one.
Here is the full piece. I do not myself see a big advantage from this system.
Rebuild the Elites
Nature’s list of the top research universities in the world.
The U.S. seems intent on tearing down its own elites. Yes, they’ve been smug shits at times and deserve a rap on the knuckles—but our elites compete on the world stage. Gutting top universities rewards with a momentary dopamine hit, but unless we rebuild stronger institutions, we’re weakening ourselves globally. While we fight culture wars, China builds capacity. The goal shouldn’t be to destroy American elites, but to bring them back into the populist fold—to make Harvard and MIT feel like engines of American greatness again, not alien fortresses.
See yesterday’s post on the American Model for a case in point.
FYI, other sources do not rank Chinese universities quite so highly but they all acknowledge rising quality.
Hat tip: Matthew Yglesias.