Category: Current Affairs
John Arnold on economic polarization
As divisive as the political rhetoric is, the policy divide between the two parties seems more narrow today than any time in recent memory. Bipartisan bills in immigration, energy permitting, and the child tax credit have been negotiated and waiting for political window to reopen. Foreign aid and military spending bills both passed in past year with strong bipartisan support. Same with infrastructure bill in 2021 and CHIPS Act in 2022. Both parties are anti-China, favorable to India, and increasingly supportive of industrial policy and tariffs. Both talk about lowering the cost of housing, more funding for the police, and are leery of big tech. Neither party is proposing big changes in health care, K-12 or social security. College loan forgiveness is in the courts. Abortion is now in the states. GOP opposition to the IRA climate provisions are around the edges, like EV subsidies. Dems aren’t proposing any new significant climate policies. Dems have enacted minor policies against oil and gas but production continues to reach record highs. Both say no new taxes for <$400k. Increasing number of Rs have joined Ds supporting increase in corp tax rates. Perhaps the biggest difference is how to pay for TCJA extension: Dems want higher taxes on the wealthy; Trump wants universal tariffs; the rest of GOP hasn’t been specific. There are other differences for sure. Dems want more subsidies for housing and child care. GOP wants more deportations (though logistically difficult). Dems would be more aggressive against consolidation, health care costs, and junk fees. GOP wants to restucture civil service rules. But there just aren’t many major fault lines on policy between the parties today. Maybe this is why so little of this election cycle is about policy.
Here is the full tweet. I would add that “ten percent tariffs” vs. “25% tax on unrealized capital gains” is a big difference, but at least one of those is never going to happen, even if the Republicans do not capture the Senate.
Why massive deregulation is very difficult
That is the topic of my latest Bloomberg column, just to clarify context for the newbies I think more than half of all current regulations are a net negative. Anywhere, here are some of the problems:
Consider the relatively straightforward idea, popular in some Republican circles, of firing large numbers of federal bureaucrats. There would be immediate objections, not only from the employees themselves but also from US businesses.
Businesses need to make plans, and they frequently consult with regulatory agencies as to what might be permissible. The Food and Drug Administration needs to approve new drug offerings. The Federal Aviation Administration needs to approve new airline routes. The Federal Communications Commission needs to approve new versions of mobile phones. The Federal Trade Commission and Department of Justice need to give green lights for significant mergers. The Federal Deposit Insurance Corp. needs to approve plans for winding down failed banks. And so on.
If those and other agencies were stripped of their staffs, a lot of US businesses would be paralyzed. You might argue that this fact is itself proof that there is too much regulation, but the fact remains. Shutting down a large chunk of the federal regulatory apparatus would make it harder, not easier, for the private sector. Furthermore, regulation would give way to litigation, and the judiciary is not obviously more efficient than the bureaucracy.
And this:
The basic paradox is this: Government regulations are embedded in a large, unwieldy and complex set of institutions. Dismantling it, or paring it back significantly, would require a lot of state capacity — that is, state competence. Yet deregulators are suspicious of greater state capacity, as it carries the potential for more state regulatory action. Think of it this way: If someone told a libertarian-leaning government efficiency expert that, in order to pare back the state, it first must be granted more power, he would probably run away screaming.
Recommended, the piece has numerous good points of interest.
Obama’s space legacy?
Bucking his central planning instincts, Obama embraced a surprisingly laissez-faire approach to space flight that angered political allies and opponents alike.
In doing so, however, he tapped a reservoir of ingenuity and innovation that has ushered in a new age of space flight and exploration…
In her forthcoming book Bureaucrats and Billionaires, former NASA deputy administrator Lori Garver and reporter Michael Sheetz trace the origins of NASA’s commercial crew program, a revolutionary human spaceflight program that joins private aerospace manufacturers such SpaceX and Boeing with NASA’s astronauts.
Garver writes that this hybrid allows space flight “at a fraction of the cost of previous government owned and operated systems.” A decade ago, however, the program faced opposition seemingly from every side.
The saga began early in 2010 when President Obama announced his intention to abort NASA’s Constellation program—NASA’s crew spaceflight program—correctly pointing out it was “over budget, behind schedule, and lacking in innovation.”
The decision angered almost everyone. As Garver and Sheetz write, the program was “extremely popular with Congress, and the contractors who were benefiting from the tax dollars coming their way.” An impressive array of stakeholders from aerospace companies, trade associations, and astronauts to lobbyists, Congressional delegations, and NASA pushed back.
The resistance was immense.
NASA chief Charles Bolden, while choking back tears, compared the decision to “a death in the family.” Pulitzer Prize winning columnist Charles Krauthammer ominously noted the move would give the Russians “a monopoly on rides into space.” Congressman Pete Olson (R-Texas) called the decision “a crippling blow to America’s human spaceflight program.”
Few commentators seemed to even notice the $6 billion in spending over five years to support commercially built spacecraft to launch NASA’s astronauts into outer space…
By pulling the plug on Constellation, Obama had unleashed the power of markets and competition. While many associate competition with dog-eat-dog and survival of the fittest tropes, competition is a healthy and productive force.
Here is the full story, by John Miltimore at FEE (!). Via Matt Yglesias.
U.S: central city population as a % of metropolitan area
Via James Hohman.
What should I ask Musa al-Gharbi?
Yes, I will be doing a Conversation with him.
Musa al-Gharbi is a sociologist and assistant professor in the School of Communication and Journalism at Stony Brook University. He is a columnist for The Guardian and his writing has also appeared in the New York Times, the Washington Post, and The Atlantic, among other publications.
I am a big fan of his forthcoming book We Have Never Been Woke, which I have blurbed. Here is Musa’s home page, do read his bio. Here is Musa on Twitter.
So what should I ask?
My excellent Conversation with Nate Silver
Here is the audio, video, and transcript. Here is the episode summary:
In his second appearance, Nate Silver joins the show to cover the intersections of predictions, politics, and poker with Tyler. They tackle how coin flips solve status quo bias, gambling’s origins in divination, what kinds of betting Nate would ban, why he’s been limited on several of the New York sports betting sites, how game theory changed poker tournaments, whether poker players make for good employees, running and leaving FiveThirtyEight, why funky batting stances have disappeared, AI’s impact on sports analytics, the most underrated NBA statistic, Sam Bankman-Fried’s place in “the River,” the trait effective altruists need to develop, the stupidest risks Tyler and Nate would take, prediction markets, how many monumental political decisions have been done under the influence of drugs, and more.
Here is one excerpt:
COWEN: Why shouldn’t people gamble only in the positive sum game? Take the US stock market — that certainly seems to be one of them — and manufacture all the suspense you want. Learn about the companies, the CEO. Get your thrill that way and don’t do any other gambling. Why isn’t that just better for everyone?
SILVER: Look, I’m not necessarily a fan of gambling for gambling’s sake. Twice a year, I’ll be in casinos and in Las Vegas a lot. Twice a year, I’ll have a friend who is like, “Let’s just go play blackjack for an hour and have a couple of free drinks,” and things like that. But I like to make bets where I think, at least in principle, I have an edge, or at least can fool myself into thinking I have an edge.
Sometimes, with the sports stuff, you probably know deep down you’re roughly break-even or something like that. You’re doing some smart things, like looking at five different sites and finding a line that’s best, which wipes out some but not all of the house edge. But no, I’m not a huge fan of slot machines, certainly. I think they are very gnarly and addictive in various ways.
COWEN: They limit your sports betting, don’t they?
SILVER: Yes, I’ve been limited by six or seven of the nine New York retail sites.
COWEN: What’s the potential edge they think you might have?
SILVER: It’s just that. If you’re betting $2,000 on the Wizards-Hornets game the moment the line comes out on DraftKings, you’re clearly not a recreational bettor. Just the hallmarks of trying to be a winning player, meaning betting lines early because the line’s early and you don’t have price discovery yet. The early lines are often very beatable. Betting on obscure stuff like “Will this player get X number of rebounds?” or things like that. If you have a knack for — if DraftKings has a line at -3.5 and it’s -4 elsewhere, then it can be called steam chasing, where you bet before a line moves in other places. If you have injury information . . .
It’s a very weird game. One thing I hope people are more aware of is that a lot of the sites — and some are better than others — but they really don’t want winning players. Their advertising has actually changed. It used to be, they would say for Daily Fantasy Sports, which was the predecessor, “Hey, you’re a smart guy” — the ads are very cynical — “You’re a smart guy in a cubicle. Why don’t you go do all your spreadsheet stuff and actually draft this team and make a lot of money, and literally, you’ll be sleeping with supermodels in two months. You win the million-dollar prize from DraftKings.”
And:
COWEN: If we could enforce just an outright ban, what’s the cost-benefit analysis on banning all sports gambling?
SILVER: I’m more of a libertarian than a strict utilitarian, I think.
COWEN: Sure, but what’s the utilitarian price of being a libertarian?
Recommended, interesting and engaging throughout. And yes, we talk about Luka too. Here is my first 2016 CWT with Nate, full of predictions I might add, and here is Nate’s very good new book On the Edge: The Art of Risking Everything.
Germany analysis of the day
In no other OECD country do workers spend less time on the job. With labour input shrinking by some 1 per cent a year, labour productivity would need to rise by an equal amount for the economy to stand still. Unfortunately, productivity increases per hour worked have stood well below 1 per cent in recent years. The country’s fundamental speed limit for growth may lie below zero.
That is from Moritz Kraemer in the FT.
Moms Against Price Gouging
An excellent essay by John Cochrane:
Uber surge pricing was an important lesson to me. I loved it. I could always get a car if I really needed one, and I could see how much extra I was paying and decide if I didn’t need it. I was grateful that Uber let me pay other people to postpone their trip for a while, and send a loud signal that more drivers are needed. But drivers reported that everyone else hated it and felt cheated.
This cultural and moral disapproval came home to me strongly about 25 years ago. We were driving from Chicago to Boston in our minivan, with 4 young children, dog, and my mother. We got to upstate NY, and needed to stop for the night. This was before cell phones and the internet, so the common thing to do was just pull of at a big freeway intersection, marked food, phone, gas, lodging, and see what’s available. Nothing. We tried hotel after hotel. We asked them to call around. Nothing. It turns out this was the weekend of Woodstock II. As the evening wore on, the children were turning in to pumpkins. Finally we found a seedy Super-8 motel that had 2 rooms left, for $400. This was back when Super-8 motel rooms were about $50 at most. I said immediately “Thank you, we’ll take them!” My mom was furious. “How dare he charge so much!” I tried hard to explain. “If he charged $50, or $100, those rooms would have been gone long ago and we’d be sleeping in the car tonight. Thank him and be grateful! He’s a struggling immigrant, running a business. We don’t need presents from people who run Super-8s in upstate New York.” But, though an amazing, smart, wise, and well-traveled woman, she wasn’t having it. Nothing I could do would persuade her that the hotel owner wasn’t being terrible in “taking advantage of us.”
It is surely morally worthy to give what you have to your neighbors in time of need, especially the less fortunate. But we should not demand gifts. And appropriation of property by threat of force, turning off the best mechanism we know for alleviating scarcity, does not follow. Moral feelings are a terrible guide for laws.
If we can’t get the moms on board we are going to have a tough time. Still, I feel confident that the Cochranes are ensuring that the generational trauma stops with them.
Sweden fact of the day
…the country’s migration minister is celebrating the fact Sweden has “negative net immigration”, with more people thought to be leaving the country than entering for the first time in more than half a century.
“The number of asylum applications is heading towards a historically low level, asylum-related residence permits continue to decrease and for the first time in 50 years Sweden has net emigration,” Maria Malmer Stenergard announced earlier this month.
Sweden’s Moderate-led government, which is supported by the far-right Sweden Democrats, has pursued increasingly restrictive asylum policies, including plans for a “snitch law” that would legally require public sector workers to report undocumented people.
…the UN high commissioner for refugees confirmed the trend. It was surprising, the UNHCR said, that while global displacement was at an all-time high, the number of people seeking asylum in Sweden was at an all-time low.
“The statistics show Sweden having a net outflow of immigrants for the first time in decades,” Annika Sandlund, the UNHCR representative to the Nordic and Baltic countries, told the Guardian.
Here is the full Guardian piece. I think this is all going to work out reasonably well.
Why Top CEOs Earn Big Paychecks
CEO compensation at large firms is high, especially in comparison to average worker wages, sparking debates over income inequality. Critics argue that such pay packages are unfair and disproportionate to actual company performance. Proponents contend that high pay reflects productivity and is necessary to attract scarce top talent to large firms. Let’s go to the ticker tape.
On August 12 shares of Starbucks were selling for about $77, a level they had been stable at for some time. On August 13, shares were selling for $94. What changed? On August 13, Starbucks announced that they were hiring a new CEO, Brian Niccol, who had held the top position at Chipotle.
There are some 1,132,800,000 Starbucks share outstanding so hiring Niccol instantly increased the value of Starbucks by just over $19 billion. In comparison, Niccol will be paid $1.6 million in salary, a bonus payment of $10 million and potential equity incentives that could be worth on the order 
of $100 million or more if the stock continues to do well.
No question, Niccol is paid handsomely but it’s only a small percentage of the billions the market estimates he will create for other people, both consumers and investors.
Niccol has had a phenomenal streak as CEO of Chipotle raising the stock price from about $6 to $56. Thus, it wasn’t surprising that on the announcement of his move, Chipotle stock plunged from $56 to $46 (later recovering to around $52).
Using the latter number, the value of Chipotle fell by about $5.5 billion on the day of the Niccol announcement. That’s a remarkable fall given that the number two at Chipotle is probably no slouch. But heh, Kevin Durant doesn’t make quite as much as Steph Curry. (See yesterday’s post on the benefits of inequality!) Last year, Chipotle paid Niccol a total compensation package worth about $22.5 million. Again, a nice pay package but is there any question that Chipotle investors are sorry to see Niccol go?
Note also that the market expects Niccol to raise the value of Starbucks going forward more than he would have raised the value of Chipotle going forward so this move was a net gain for society. It’s important to remember that CEO pay is not just about incentives it’s about allocation.
Bottom line is that in the estimation of people who put their money where there mouth is, Niccol is worth the pay.
Addendum: Don’t forget my previous post in this series from 2013, The Value of a CEO looking at what happened when Ballmer exited Microsoft. Same basic lesson but in reverse! N.B. look at what has happened to Microsoft stock since!
All of this should also be put in the context of the Extreme Shortage of High-IQ Workers which one can also understand as the shortage of talent.
Hungary fact of the day
Total family subsidy spending exceeds 5 per cent of GDP, or more than double what Hungary spends on defence…
From a record low of 1.23 children per woman in 2011, the country’s fertility rate rose to 1.59 in 2020, but in recent years it has levelled off to about 1.5. In the first half of this year the fertility rate stood at 1.36 babies per woman, the lowest in a decade, said state statistical service KSH. In June, births fell to a record monthly low of barely 6,000 children in the country of 10mn, or about half the level of live births seen in Hungary a generation ago, KSH data shows.
Here is more from Marton Dunai and Valentina Romei at the FT.
I would love to see this natural experiment, Isaac Asimov edition
Before the sparse audience, he vowed to run the city of Cheyenne exclusively with an AI bot he calls “VIC” for “Virtual Integrated Citizen.”
…Standing behind a lectern with a sign that read “AI FOR MAYOR,” he gave a brief PowerPoint presentation on the history of AI. Then he stepped aside to give the floor to his Mac mini and iPad — which were propped on a table and connected to a hanging speaker at the front of the room — and told attendees to direct questions toward the screen.
“Is the computer system in city hall sufficient to handle AI?” one attendee, holding a wireless microphone at his seat, asked VIC.
“If elected, would you take a pay cut?” another wanted to know…
Midway through an interview with The Post, Miller offered to let the bot respond. VIC, in its robotic tone, correctly answered questions about trash day in Cheyenne, registering to vote and the current president of the United States.
VIC said it would argue against banning books — which some Cheyenne schools have done — citing their “educational value.” “But,” the bot added, “let’s create a process ensuring a balanced approach.”
Here is the full story. Via the excellent Kevin Lewis.
New Zealand fact of the day
In the year to June, 80,200 New Zealand citizens moved abroad, almost double the numbers prior to the Covid-19 pandemic. Meanwhile, just 24,900 returned, according to Stats NZ — the country’s official data agency. The net loss of 55,300 citizens (which follows a net loss of 56,500 in the year to April) smashed the previous record of 44,400 in February 2012.
About half are going to Australia. And this:
Economic factors figure highly in explanations for why so many New Zealanders are moving overseas.
While Australia has so far avoided recession and enjoyed a booming jobs market since the pandemic — in large part due to its dominant mining industry — New Zealand’s central bank warned on Wednesday that its economy is on the brink of its third recession since the beginning of 2022.
Here is more from the Times of London.
Darien gap fact of the day
In 2014 fewer than 10,000 migrants crossed the gap. Last year more than 500,000 did. Another surge is expected as a result of Venezuela’s presidential election on July 28th, which was stolen by the ruling autocrat, Nicolás Maduro.
Here is more from The Economist. One lesson here is that supply is elastic, even under very difficult, very risky circumstances. Just about everyone agrees with that — except the supervillains!
Rampell On Harris’s Economic Policy
Here is the Washington Post’s Catherine Rampell on Harris’s price control policy:
It’s hard to exaggerate how bad this policy is. It is, in all but name, a sweeping set of government-enforced price controls across every industry, not only food. Supply and demand would no longer determine prices or profit levels. Some far-off Washington bureaucrats would. The FTC would be able to tell, say, a Kroger in Ohio the acceptable price it can charge for milk.
…If your opponent claims you’re a “communist,” maybe don’t start with an economic agenda that can (accurately) be labeled as federal price controls.
And here is a primer on Nixon’s price controls announced 53 years ago yesterday. Read Modern Principles for more.