Category: Current Affairs
What should I ask David Commins?
Yes, I will be doing a Conversation with him. David recently published Saudi Arabia: A Modern History, a very good and useful book. He has numerous other books on Wahhabism, the history of the Gulf region, and also Syria. Currently he teaches at Dickinson College.
So what should I ask him?
Data center facts of the day
JLL estimates $170bn of assets will require construction lending or permanent financing this year. Between now and 2029, however, global spending on data centres will hit almost $3tn, according to Morgan Stanley analysts. Of that, just $1.4tn is forecast to come from capital expenditure by Big Tech groups, leaving a mammoth $1.5tn of financing required from investors and developers.
About $60bn of loans are going into roughly $440bn of data centre development projects this year, twice as much debt as in 2024, according to a recent presentation by law firm Norton Rose Fulbright. More than $25bn of loans were underwritten in the first quarter of this year alone, according to a report by Newmark.
Here is more from a very good FT article.
My excellent Conversation with Nate Silver
Here is the audio, video, and transcript. Here is part of the episode summary:
Tyler and Nate dive into expected utility theory and random Nash equilibria in poker, whether Silver’s tell-reading abilities transfer to real-world situations like NBA games, why academic writing has disappointed him, his move from atheism to agnosticism, the meta-rationality of risk-taking, electoral systems and their flaws, 2028 presidential candidates, why he thinks superforecasters will continue to outperform AI for the next decade, why more athletes haven’t come out as gay, redesigning the NBA, what mentors he needs now, the cultural and psychological peculiarities of Bay area intellectual communities, why Canada can’t win a Stanley Cup, the politics of immigration in Europe and America, what he’ll work on next, and more.
Excerpt:
COWEN: If you think about the Manifold types in terms of the framework in your book, how they think about risk — is there a common feature that they’re more risk-averse, or that they worry more? Is there a common feature that they like the idea that they hold some kind of secret knowledge that other people do not have? How do you classify them? They’re just high in openness, or what is it?
SILVER: They’re high in openness to experience. I think they’re very high in conscientiousness.
COWEN: Are they? I don’t know.
SILVER: Some of them are. Some of them are, yes.
COWEN: I think of them as high variance in conscientiousness, rather than high in it.
[laughter]
SILVER: The EAs and the rationalists are more high variance, I think. There can be a certain type of gullibility is one problem. I think, obviously, EA took a lot of hits for Sam Bankman-Fried, but if anything, they probably should have taken more reputational damage. That was really bad, and there were a lot of signs of it, including his interviews with you and other people like that. It contrasts with poker players who have similar phenotypes but are much more suspicious and much more street smart.
Also, the Bay Area is weird. I feel like the West Coast is diverging more from the rest of the country.
COWEN: I agree.
SILVER: It’s like a long way away. Just the mannerisms are different. You go to a small thing. You go to a house party in the Bay Area. There may not be very much wine, for example. In New York, if the host isn’t drinking, then it’d be considered sacrilege not to have plenty of booze at a party. Little things like that, little cultural norms. You go to Seattle — it feels like Canada to me almost, and so these things are diverging more.
COWEN: Why is belief in doom correlated with practice of polyamory? And I think it is.
SILVER: If you ask Aella, I guess, she might say, if we’re all going to die or go to whatever singularity there is, we might as well have fun in the meantime. There’s some of that kind of hedonism. Although in general, it’s not a super hedonistic movement.
COWEN: It seems too economistic to me. Even I, the economist — I don’t feel people think that economistically. There’s more likely some psychological predisposition toward both views.
SILVER: I guess you could argue that society would be better organized in a more polyamorous relationship. People do it implicitly in a lot of ways anyway, including in the LGBTQ [laughs] community, which has different attitudes toward it potentially. and if there’s not as much childbearing, that can have an effect, potentially. I think it’s like they are not being constrained by their own society thing that is taken very seriously in that group. There’s enough disconnectedness and aloofness where they’re able to play it out in practice more.
That creeps a little bit into Silicon Valley too, which can be much more whimsical and fanciful than the Wall Street types I know, for example.
Recommended. Here is my 2024 episode with Nate, here is my 2016 episode with him.
Why Tariffs On More Countries Can Be Better
Today, I am going to explain why tariffs on more countries can be better! Not to worry, I still think free trade is the best policy (modulo some special cases discussed in Modern Principles) but I am going to show that a uniform tariff can be better than a selective tariff. My example comes from a nice tweet from Malaysia expert Apurva Sanghi, modified for the US context.
Suppose the U.S. can import Hyundai Sonatas from Korea and Toyota Camrys from Japan, and consumers view the two cars as perfect substitutes. We compare three scenarios:
A) Free trade
B) 10% tariff on both countries (uniform tariff)
C) 10% tariff on Korea only (selective tariff)
The surprising result: B can be better than C, even though C is, in one sense, closer to free trade (the “best” policy) than B as it tariffs fewer countries. To focus on the key points I will assume 50 car buyers and no change in the number of buyers when tariffs change (so I will ignore the standard deadweight loss from reduced quantities).
Assumptions
Korea (Hyundai Sonata): $40k pre-tariff
Japan (Toyota Camry): $43k pre-tariff
50 buyers; perfect substitutes
A) Baseline (free trade)
Everyone buys Sonatas from Korea at $40k.
U.S. tariff revenue: $0.
B) Uniform 10% tariff on all countries
Sonata: $40k → $44k
Camry: $43k → $47.3k
Consumers buy Sonatas from Korea (lowest-cost source preserved).
Per car: consumers pay +$4k; government gets +$4k.
Totals (50 cars):
Consumer loss: $200k
Tariff revenue: $200k
Total losses (national): ≈ $0 (consumers transfer $ to government; ignoring DWL from Q changes).
C) Selective 10% tariff (on Korea only)
Sonata (Korea): $40k → $44k
Camry (Japan): $43k (untaxed)
Buyers switch to Camry’s from Japan (trade diversion).
Totals (50 cars):
Consumer loss: 150k (consumers now pay $43k vs $40k in the no tariff baseline → $3k more per car)
Tariff revenue: $0 (imports shifted to untaxed Japan).
Net (national): –$150k.
Global efficiency: production cost rises from $40k → $43k per car → $150k real resource loss.
Total losses: 150k (consumer loss = real resource loss)
The total losses under scenario C in which just some countries are tariffed are larger than in scenario B in which all countries are tariffed! What’s going on? Under a uniform tariff, the lowest-cost supplier still wins. Tariffs create distortions, but a uniform tariff at least preserves efficient sourcing and generates government revenue. Under a selective tariff, sourcing can shift to a higher-cost supplier purely because of the tariff. That’s trade diversion —bad for efficiency which means some combination of consumers and government must lose.
Here’s an analogy. Forget tariffs for a moment and imagine taxing GM but not Ford. That could make Ford win sales even if GM can produce the same car more cheaply — an obvious waste. The same logic applies in international trade.
In general, as Brian Albrecht argues, tariffs are a costly way to raise revenue. Selective tariffs are especially inefficient and wasteful. Sad to say, the U.S. tariff system today is highly selective — wildly different rates on different countries and times. Trade diversion isn’t a necessary consequence of selective tariffs but our current high and chaotic tariff structure makes it all but inevitable. Thus selective tariffs mean standard deadweight losses will compound with large-scale trade diversion and inefficiency, raising losses above headline numbers. Finally, the selective structure invites rent seeking, as firms and industries lobby for favorable treatment — adding yet another layer of economic waste.
Addendum: Thanks to KarterB in the comments for correcting a calculation.
Markets in everything, Indian fake wedding edition
What comes to mind when you think of a big fat Indian wedding?
Dazzling lights, glittering outfits, Bollywood hits, a lavish spread of food and an atmosphere soaked in celebration. Everything feels extravagant, emotional and larger than life.
Now imagine all of that without the bride and groom. No pheras (a Hindu marriage ritual where the couple takes seven rounds around a sacred fire), no relatives, no tearful farewells. Just the party.
Welcome to the world of fake weddings – a rising trend in Indian cities where people gather to enjoy the wedding party, minus the actual marriage.
These ticketed events, organised by hotels, clubs and companies, are designed purely for fun and promise to offer the full experience of a wedding party without any stress, rituals or responsibilities. Simply put, it’s a wedding-themed party night…
Ticket prices typically start at around 1,500 rupees ($17; £13) and can go up to 15,000 rupees or more, depending on the venue and facilities. Shivangi and her friends paid 10,000 rupees per couple to attend.
Here is more from the BBC, and thanks to Rich Dewey for the pointer.
My entertaining Conversation with Annie Jacobsen
Here is the audio, video, and transcript. Here is part of the episode summary:
Tyler and Annie explore whether we should be more afraid of nuclear weapons or if fear itself raises the risks, who should advise presidents during the six-minute decision window, whether moving toward disarmament makes us safer or more vulnerable, what Thomas Schelling really meant about nuclear war and rational actors, the probability that America would retaliate after a nuclear attack, the chances of intercepting a single incoming ICBM, why missile defense systems can’t replicate Israel’s Iron Dome success, how Pakistan-India nuclear tensions could escalate, why she’s surprised domestic drone attacks haven’t happened yet, her reporting on JFK assassination mysteries and deathbed phone calls, her views on UFOs and the dark human experiments at Area 51, what motivates intelligence community operators, her encounters with Uri Geller and CIA psychic research, what she’s working on next, and more.
Excerpt:
JACOBSEN: I quote him in the notes of my book, and this is perhaps the only regret I have in the entire book, that I put this quote from Schelling in the notes rather than in the text. Maybe it’s more interesting for your listeners if we drill down on this than the big platitudes of, “Do more nuclear weapons make us more safe?” It goes like this. This was Schelling in an interview with WGBH Radio in 1986 in Boston.
He says, “The problem with applying game theory to nuclear war is that nuclear war, by its very nature, does not involve rational men. It can’t. What sane person would be willing to kill hundreds of millions of people, ruin the earth, and end modern civilization in order to make somebody called the enemy doesn’t win first?”
COWEN: But Schelling did favor nuclear weapons. That was his dark sense of humor, I would say.
JACOBSEN: You think what I just read was his sense of humor?
COWEN: Absolutely.
JACOBSEN: I believe it was a man in his elder years coming to the conclusion that nuclear war is insane, which is the fundamental premise that I make in the book.
COWEN: You can hold both views. It is insane, but it might be the better insanity of the ones available to us.
JACOBSEN: Yes. From my take, he, like so many others that I have interviewed, because, for some reason — call it fate and circumstance — I have spent my career interviewing men in their 80s and 90s, who are defense officials who spent their entire life making war or preventing war. I watch them share with me their reflections in that third act of their life, which are decidedly different — in their own words — than those that they would have made as a younger man.
I find that fascinating, and that’s my takeaway from the Schelling quote, that he came to terms with the fact that intellectualizing game theory — like von Neumann, who never got to his old age — is madness.
COWEN: Let’s say that Russia or China, by mistake, did a full-scale launch toward the United States, and they couldn’t call the things back, and we’re in that six-minute window, or whatever it would be with hypersonics. What do you think is the probability that we would do a full-scale launch back?
…COWEN: The word madness doesn’t have much force with me. My life is a lot of different kinds of madness. I’ve heard people say marriage is madness. A lot of social conventions seem to me to be madness.
The question is getting the least harmful form of madness out there. Then, I’m not convinced that those who wish to disarm have really made their case. Certainly, saying nuclear war is madness doesn’t persuade me. If anything, if enough people think it’s madness, we won’t get it, and it’s fine to have the nuclear weapons.
A different and quite stimulating episode.
The Sri Lankan economic recovery (from my email)
Hi,
I’m a macroconsultant/analyst based in Sri Lanka. Was suddenly reminded of your 2023 MR piece on Sri Lanka – soon after the depth of the crisis locally.
Since then, Sri Lanka has seen what I think to many is a remarkable turnaround on both the macro fundamentals and the social indicators (admittedly data is very divergent on social).
A few specific points on the macro –
– 2 years of twin surpluses (after 70+ years of twin deficits)
– Looks in line to do a 3rd year of twin surpluses alongside 5% growth
– Income tax collections growing 20%+ YoY without any text increases
– 4% of GDP in net government LCY balances vs historic deficits
– Gross capital formation rising dramatically without government capex spending
– Credit recovery without government spending to support private income
– Remittances (possibly cyclical), oil imports (massive distributed solar), and net port services (ME diversion+new capacity) overperforming IMF numbers by 1-2% of GDP
– Net foreign assets of banking system at ~2% of GDP
– Currency appreciated and stable from crisis peaks
– Inflation averaging 0% 3 years after crisis (+ energy driven deflation spots)
TC again: thanks to Chayu Damsinghe from Frontier Research. A true reversal of fortune, at least for the time being…
Solve for the equilibrium
The title of the paper is “Terrorism and Voting: The Rise of Right-Wing Populism in Germany.” Here is the abstract:
We document that right-wing terrorism leads to significant increases in vote share for the right-wing, populist AfD (Alternative fur Deutschland) party in Germany. To identify causal effects, we exploit quasi-random variation between successful and failed attacks across municipalities. Using the SOEP, a longitudinal panel of individuals, we find successful terror leads individuals to prefer the AfD and worry about migration. Political parties—the AfD in particular—adjust their messaging in election manifestos in response to terror. Overall, and in contrast to previous work, we find terrorism is consequential to the rise of right-wing populism in a Western, multiparty democratic system.
Note that is “right-wing terrorism,” not Islamic terrorism. The piece is by Navid Sabet, Marius Liebald, and Guido Friebel.
Why the tariffs are bad
I am delighted to see this excellent analysis in the NYT:
Mr. Tedeschi said that future leaders in Washington, whether Republican or Democrat, may be hesitant to roll back the tariffs if that would mean a further addition to the federal debt load, which is already raising alarms on Wall Street. And replacing the tariff revenue with another type of tax increase would require Congress to act, while the tariffs would be a legacy decision made by a previous president.
“Congress may not be excited about taking such a politically risky vote when they didn’t have to vote on tariffs in the first place,” Mr. Tedeschi said.
Some in Washington are already starting to think about how they could spend the tariff revenue. Mr. Trump recently floated the possibility of sending Americans a cash rebate for the tariffs, and Senator Josh Hawley, Republican of Missouri, recently introduced legislation to send $600 to many Americans. “We have so much money coming in, we’re thinking about a little rebate, but the big thing we want to do is pay down debt,” Mr. Trump said last month of the tariffs.
Democrats, once they return to power, may face a similar temptation to use the tariff revenue to fund a new social program, especially if raising taxes in Congress proves as challenging as it has in the past. As it is, Democrats have been divided over tariffs. Maintaining the status quo may be an easier political option than changing trade policy.
“That’s a hefty chunk of change,” Tyson Brody, a Democratic strategist, said of the tariffs. “The way that Democrats are starting to think about it is not that ‘these will be impossible to withdraw.’ It’s: ‘Oh look, there’s now going to be a large pot of money to use and reprogram.’”
That is from Andrew Duehren, bravo.
The Prime Minister of Sweden asks AI for advice in his job “quite often”
Here is the Reddit discussion.
In which ways is the BLS biased?
No, they do not sit around changing the numbers to serve the interests of Democratic presidents, or to harm Republican ones. The system has too many different steps, too many checks and balances, and too many people who do not want to do the wrong thing. In a sense, you could say that the BLS is too bureaucratic to do that. They are better thought of as an agency which maximizes process, and the successful execution of process, success being defined in heavily process-intensive terms.
Their ideology, if that is even the right word, is to maximize adherence to the process. And “defensibility of the estimate” is important there.
You might argue they are not very good at seeing “the big picture,” but that same emphasis makes it difficult for them to deviate much from established procedures.
If there were important reasons why we should be creating new, useful, but highly speculative estimates (how about “the number of jobs that were not created because of AI”?), the BLS would not be good at doing that. They would not do it at all. Such estimates would open them up to too much criticism, and the speculative nature of the enterprise would clash with their desire to be managing controllable and defensible processes.
Over the last twenty years, a lot of their innovations have come in the form of disaggregated, sector-specific or region-specific data, which is fine. Or more emphasis on “work from home” issues. Which is fine.
So they estimate “that which they can,” rather than producing unreliable estimates that might be highly interesting.
That is the sense in which the BLS — and many other parts of the government in fact — is biased. It can matter, but it is a mistake to be looking for partisan bias that skews the numbers.
UK (Google) fact of the day
Google now spends more on physical capital like datacentres ($85 billion / year) than the entire UK defence budget ($79 billion / year).
Here is the source.
The Australian Josh Szeps interviews me
Here is the video.
It was too hot to Spinoza to make an appearance, alas.
Red Flags for Waymo in Boston
The British Locomotives Act of 1865 contained a red flag provision for cars:
…while any Locomotive is in Motion, [one of the three required attendants] shall precede such Locomotive on Foot by not less than Sixty Yards, and shall carry a Red Flag constantly displayed, and shall warn the Riders and Drivers of Horses of the Approach of such Locomotives, and shall signal the Driver thereof when it shall be necessary to stop, and shall assist Horses, and Carriages drawn by Horses, passing the same.
Not to be outdone the Boston City Council is debating a law on self-driving cars that includes:
Section 6. Human Safety Operator
Any permit process must include the following requirements: (a) an Autonomous Vehicle operating in the City of Boston shall not transport passengers or goods unless a human safety operator is physically present in the vehicle and has the ability to monitor the performance of the vehicle and intervene if necessary, including but not limited to taking over immediate manual control of the vehicle or shutting off the vehicle; and (b) that Autonomous Vehicles and human safety operators must meet all applicable local, state and federal requirements.
The EU-USA trade deal
Sorry people, but you can fill in the links with Perplexity and Grok, both great for this purpose.
Olivier Blanchard is upset that Europe got such a raw deal, various people in the FT agree. I would say that is itself data about broader European economic and security policies, and needs to be taken very seriously. The Europeans are not stupid negotiators by any means, rather they are in a weak negotiating position for reasons that are largely their own fault and reflect underlying weaknesses of their basic economic and political model.
You can hate what Trump did, but for a “stupid” administration they, by their own standards at least, did a remarkably good job of it.
Justin Wolfers seems upset that Trump is raising taxes on Americans. (I am too!) But that feels kind of weird to me. And it is nice to see that Europeans get somewhat lower taxes, though many European leaders are upset about that. They should in fact buy more from the United States, and their non-tariff barriers are significant.
Conor Sen notes that the USA has come up with a multi-trillion revenue source that does not seem to diminish corporate profitability, https://x.com/conorsen/status/1949785522567549283?s=61, and he is wondering how exactly people will react to that.
We can all agree that negative externalities are what should be taxed!
But those policies typically are unpopular, so in some instances you will understand public affairs more clearly by switching to the “what will be done?” perspective, rather than the “what should be done?” stance.
My best guess is that these tariffs will stick for the most part, and that you are seeing some early major steps for how the U.S. will resolve its fiscal position. Higher inflation will come too, and fiscally we will muddle through, albeit with notably lower real wages.
(To be clear, for a long time I have stated that I prefer to cut back on government-subsidized health care, rather than to lower real wages through these other means. You can always use the extra money and try to buy back some health! But I also never have thought I was going to get my way. When Matt Yglesias tells you that “health care polls well,” you should take that seriously and Matt also should realize a bit that puts him in more of the pro-Trump, pro-tariff camp than he might like to think.)
I think a Democratic administration, whenever we get one next, would rather spend the revenue from the tariffs than repeal them. By then the tariffs also will be what I call “emotionally internalized.” And the Democrats have not loved free trade for a long time anyway, despite their current rhetorical moves toward criticizing the Trumpers.
So most of all we need to revise our estimates of what the political equilibrium looks like here. We are receiving major pieces of information, and we must update our vision of the world to come.