Category: Current Affairs

U.S.A. fact of the day

But the 10 fastest growing counties last year accounted for nearly 80 percent of the national total, a testament not so much to the rapid pace of change in these places, but to the lack of significant growth in the rest of the nation.

Here is more from the New York Times, with useful maps as well.  And this:

What Operation Warp Speed Did, Didn’t and Can’t Do

Operation Warp Speed was a tremendous success and one that I was pleased to support from the beginning. Many people, however, are concluding from the success of OWS that big Federal funding can solve many other problems at the same speed and scale and that is incorrect.

First, it’s important to understand that OWS did not create any scientific innovations or discoveries. The innovative mRNA vaccines are rightly lauded but all of the key scientific ideas behind mRNA as a delivery mechanism long predate Operation Warp Speed. The scientific advances were the result of many decades of work, some of it supported by university and government funding and also a significant fraction by large private investments in firms such as Moderna and BioNTech. It was BioNTech recall that hired Katalin Karikó (and many other mRNA researchers) when she couldn’t get university or government funding. Since OWS created no new scientific breakthroughs there isn’t much to learn from OWS about the efficacy of large scale programs for that purpose.

Second, it’s important to understand that we got lucky. OWS made smart bets and the portfolio paid off but it could have failed. Indeed, some OWS bets did fail including the Sanofi and Glaxo-Smith-Klein vaccine and the at-best modest success of Novavax. Many other vaccines which we didn’t invest in but could have invested in also failed. To be clear, my work with Kremer et al. showed that these bets and more were worth taking but one should not underestimate the probability of failure even when lots of money is spent.

So what did Operation Warp Speed do? There were four key parts to the plan 1) an advance market commitment to buy lots of doses of approved vaccines–this was important because in past pandemics vaccines had entered development and then the disease had disappeared leaving the firms holding the bag with little to show for their investment 2) the lifting of FDA regulations to allow for accelerated clinical trials, for example, phase 3 trials could start before phase 2 trials were fully complete 3) government investment in large clinical trials–clinical trials are the most expensive part of the development process and by funding the trials generously, the trials could be made large which meant that they could be quick 4) government investment in capacity, building factories not just for the vaccines but also for the needles, vials and so forth, even before any of the vaccines were approved–thus capacity was ready to go. All of these steps shaved months, even years, off the deployment timeline.

The key factor about each of these parts of the plan was that we were mostly dealing with known quantities that the government scaled. It’s known how to run clinical trials, it’s known how to produce vials and needles. The mRNA factories were more difficult but scaling problems are more easily solved with investment than are invention problems. It’s also known how to lift government regulations and speed the bureaucracy. That is, no one doubts that lifting regulations and speeding bureaucracy is within our production possibilities frontier.

It also cannot be underestimated that OWS funded people who were already extremely motivated. The Pfizer and Moderna staff put in near super-human effort–many of them felt this was the key moment of their life and they stepped up to their moment. OWS threw gasoline on fire–don’t expect the same in a more normal situation.

Another factor that people forget is that with vaccines we had a very unusual situation where the entire economy was dependent on a single sector–a macroeconomic O-ring. As a result, the social returns to producing vaccines were easily a hundred times (or more) greater than any potential vaccine profits. Thus, by accelerating vaccine production, OWS could generate tremendous returns. Most of the time, markets internalize externalities imperfectly but reasonably well which means that even if you accelerate something good the total returns aren’t so astronomical that you can’t overspend or spend poorly. Governments can spend too much as well as too little so most of the time you have to factor in the waste of overspending even when the spending is valuable–that problem didn’t really apply to OWS.

So summarizing what do we need for another OWS? 1) Known science–scaling not discovering, 2) Lifting of regulations 3) Big externalities, 4) Pre-existing motivation. Putting aside an Armageddon like scenario in which we have to stop an asteroid, one possibility is insulating the electrical grid to protect North America from a Carrington event, a geomagnetic storm caused by solar eruptions. (Here is a good Kurzgesagt video.) Does protecting the grid meet our conditions? 1) Protecting the electrical grid is a known problem whose solution does not require new science 2) protecting the grid requires lifting and harmonizing regulations as the grid is national/inter-national but the regulations are often local, 3) The social returns to power far exceed the revenues from power so there are big externalities. Indeed, companies could have protected the grid already (and have done so to some extent) but they are under-incentivized. (The grid is aging so insulating the gird could also have many side benefits.) 4) Pre-existing motivation. Not much. Can’t have everything.

I think it’s also notable that big pandemics and solar storms seem to occur about once in every one hundred years–just often enough to be dangerous and yet not so often that we are well prepared.

Thus, while I think that enthusiasm for an “OWS for X” is overblown, there are cases–protecting the grid is only one possibility–where smart investments could pay big returns but they must be chosen carefully in light of all the required conditions for success.

Hong Kong and Shenzhen

I was asked by the NYTimes to comment on the lockdown of Shenzhen. This is what I said:

Shenzhen is China’s Silicon Valley so shutting it down will raise the cost of exporting electronics. Why would China shut down a vital export region? Next door is Hong Kong with currently the highest daily death rates from COVID ever reported. China’s population is highly vaccinated but with what may be less effective domestic vaccines and there are still millions of elderly people who are unvaccinated. China remains in a precarious position.

You can see why China is worried in these two pictures of daily deaths (left) and cumulative deaths (right) per million people in Hong Kong. Hong Kong is likely to exceed Canada’s death rate per capita before this is over, despite having had much lower rates for the previous two years. China is more vaccinated than Hong Kong. By some reports only 37% of the over-80s were vaccinated in Hong Kong while the rate is over 50% in China but still that leaves many very elderly unvaccinated. By the way, I have been somewhat skeptical about the three C’s story for Japan’s success but Japan has now gotten 95% of their over-80s vaccinated so Japan is in good shape regardless.

Those new service sector jobs (Japan)

Before moving out of Tokyo for her new job, Akari Shirai wanted to eat at the favorite restaurant she used to visit with her then husband. There was one issue: She didn’t want to be flooded with thoughts about her divorce by going alone. But she didn’t feel like inviting a friend and explaining the situation, either.

So she rented Japan’s “do-nothing guy.”

Their near-silent lunch lasted about 45 minutes. Shirai ordered her favorite dish and intermittently asked questions. She shared memories of her marriage and showed him a photo from the wedding. He nodded and gave curt answers, sometimes a dry laugh. He never initiated conversation.

It was exactly what Shirai wanted.

“I felt like I was with someone but at the same time felt like I wasn’t, since he existed in a way where I didn’t have to be attentive of his needs or think about him,” said Shirai, 27. “I felt no awkwardness or pressure to speak. It may have been the first time I’ve eaten in complete silence.”

And:

A handful of other “rental” people have similar shticks, like a guy who gets hired to be treated to meals and a self-professed “ugly” guy who claims to boost others’ self-esteem. But Morimoto has cornered his niche market of doing nothing for cash, and many people now hire him for the novelty.

Here is the full story.

Shut-ins

Millions of people continue to curtail work and social activities for fear of COVID and they apparently have no plans to change their behavior.

NYTimes: Throughout the pandemic, many people in the United States desperately hoped for an end to mask wearing, isolation from friends and co-workers, and six feet of social distance. Others not so much.

In fact, new research suggests, millions have no intention of ending some pandemic behaviors even if the threat from the coronavirus and its variants were to fully subside.

Roughly 13 percent of people in the study reported that they did not intend to change their protective behaviors, like avoiding elevators, mass transit and eating indoors at restaurants.

As Nick Bloom, one of the researchers, puts it this is long social distancing a psychological version of long COVID.

The original research from Jose Maria Barrero, Nicholas Bloom & Steven J. Davis is here.

The Ukrainian economist who is fighting the Russians with logistics

This Bloomberg piece by Scott Duke Kominers is an interview with the heroic Tymofiy Mylovanov.  He is an economist, also of the University of Pittsburgh, who is organizing many of the logistics in Ukraine and also running the Kyiv School of Economics.  I am honored to know Tymofiy, here is one bit of a much broader story:

Mylovanov: Within the first couple of days, you see how people respond differently. Some people get traumatized; some become dysfunctional; others become almost super-efficient, like me and my team. But you have to figure out how to function in war or you die. Your loved ones will die. And we had a plan — war-time protocols at the university. We even had a war committee, and everyone was responsible for specific tasks, and they have to start executing them. Otherwise we collapse.

If someone doesn’t show up to a meeting, that doesn’t matter. Decisions are made without them. No wavering, no trembling hand. You either do it or you don’t do it and you accept the consequences. So we managed to shut down our facilities and put security in our buildings and the people there had food and water, and they’ve been staying there for two weeks.

There is much more detail in the article, which is interesting throughout.  And:

Mylovanov: One specific thing: We need 307,000 medical kits. I have the specification. Let’s say Israel can only supply 30,000 and Canada probably can supply 20 or 30,000. But we have suppliers who can provide the medical kits. We give this specification to [Ukraine’s] Ministry of Health, and our charitable foundation will pay. So tag me or email me or ping me on Twitter — and then donate, please donate.

All the fundraising goes directly to logistics. I have a website at the university of the charitable foundation [Kyiv School of Economics Humanitarian Relief Fund], and there is a Twitter post at my account. If I get a hundred dollars on that charitable foundation, it goes towards medical kits and it’s likely going to save a life.

By the way, Tymofiy Mylovanov is widely published in economics journals, including Econometrica and JET.  Here is Tymofiy on Twitter.

Why isn’t crypto an effective hedge?

That is the topic of my latest Bloomberg column, here is one excerpt:

The last few months of chaos show what Bitcoin and other crypto assets are good for: They are advanced tools of globalization, luxury goods for complex, well-functioning markets — not protections against the depredations of hostile governments.

One common story, especially popular in libertarian circles, has been that when inflation runs rampant and governments confiscate private wealth, crypto will be a vital refuge. It increasingly appears that this story is wrong.

The world has been in turmoil, with a major war, wealth confiscations, and much higher inflation rates.  Yet mostly crypto prices have fallen.  More theoretically:

Think of some of the possible legitimate use cases for crypto. Perhaps entrepreneurs will build a significant online metaverse, spanning national boundaries and allowing for fruitful interactions, including commercial ones. For many transactions, especially micropayments, crypto transfers might make more sense than trying to process all the trades through current dollar networks. There is at least the promise that crypto will be faster, more reliable and more secure.

In this scenario, crypto is worth the most when global trading networks, and internet connections, are stable. Right now they are moving in the opposite direction, and as a result the price of crypto is falling. The reality is that the crypto world has been a globalized product from the very beginning.

Recommended.

US Pandemic Policy: Failures, Successes, and Lessons

My talk at Bowling Green State University on US Pandemic Policy: Failures, Successes, and Lessons

This was not a black swan event. This was an entirely predicted and predictable event. We knew it was going to happen….And yet, we weren’t ready.

I am told that my talk made many people angry (not at me, natch).

Kotkin on Russia and the West

A great interview with historian Stephen Kotkin. Kotkin has some some thoughts on the Kennan, Mearsheimer, Kissinger, Hill, Service et al. view that expanding NATO was a precipitating event in the Ukraine-Russia war which are well taken, albeit he fails to think on the margin. Much more important is his full throated defense of the West. Just a few months ago a defense like this would have been branded as right-wing agitprop and the author attacked for not being woke to the evils of capitalism. But Putin has reminded the West of its virtues.

How do you define “the West”?

The West is a series of institutions and values. The West is not a geographical place. Russia is European, but not Western. Japan is Western, but not European. “Western” means rule of law, democracy, private property, open markets, respect for the individual, diversity, pluralism of opinion, and all the other freedoms that we enjoy, which we sometimes take for granted. We sometimes forget where they came from. But that’s what the West is.

And yet, as corrupt as China is, they’ve lifted tens of millions of people out of extreme poverty. Education levels are rising. The Chinese leaders credit themselves with enormous achievements.

Who did that? Did the Chinese regime do that? Or Chinese society? Let’s be careful not to allow the Chinese Communists to expropriate, as it were, the hard labor, the entrepreneurialism, the dynamism of millions and millions of people in that society.

On a kind of natural resource curse:

…in Russia, wealth comes right up out of the ground! The problem for authoritarian regimes is not economic growth. The problem is how to pay the patronage for their élites, how to keep the élites loyal, especially the security services and the upper levels of the officer corps. If money just gushes out of the ground in the form of hydrocarbons or diamonds or other minerals, the oppressors can emancipate themselves from the oppressed. The oppressors can say, we don’t need you. We don’t need your taxes. We don’t need you to vote. We don’t rely on you for anything, because we have oil and gas, palladium and titanium.

On why the stupid get on top:

You have to remember that these regimes practice something called “negative selection.” [In a democracy, AT] You’re going to promote people to be editors, and you’re going to hire writers, because they’re talented; you’re not afraid if they’re geniuses. But, in an authoritarian regime, that’s not what they do. They hire people who are a little bit, as they say in Russian, tupoi, not very bright. They hire them precisely because they won’t be too competent, too clever, to organize a coup against them. Putin surrounds himself with people who are maybe not the sharpest tools in the drawer on purpose.

That does two things. It enables him to feel more secure, through all his paranoia, that they’re not clever enough to take him down. But it also diminishes the power of the Russian state because you have a construction foreman who’s the defense minister [Sergei Shoigu], and he was feeding Putin all sorts of nonsense about what they were going to do in Ukraine. Negative selection does protect the leader, but it also undermines his regime.

On the importance of error correction:

…Finally, you’ve given credit to the Biden Administration for reading out its intelligence about the coming invasion, for sanctions, and for a kind of mature response to what’s happening. What have they gotten wrong?

They’ve done much better than we anticipated based upon what we saw in Afghanistan and the botched run-up on the deal to sell nuclear submarines to the Australians. They’ve learned from their mistakes. That’s the thing about the United States. We have corrective mechanisms. We can learn from our mistakes. We have a political system that punishes mistakes. We have strong institutions. We have a powerful society, a powerful and free media. Administrations that perform badly can learn and get better, which is not the case in Russia or in China. It’s an advantage that we can’t forget.

And most importantly, we need to blaze a path to de-escalation.

The problem now is not that the Biden Administration made mistakes; it’s that it’s hard to figure out how to de-escalate, how to get out of the spiral of mutual maximalism. We keep raising the stakes with more and more sanctions and cancellations. There is pressure on our side to “do something” because the Ukrainians are dying every day while we are sitting on the sidelines, militarily, in some ways. (Although, as I said, we’re supplying them with arms, and we’re doing a lot in cyber.) The pressure is on to be maximalist on our side, but, the more you corner them, the more there’s nothing to lose for Putin, the more he can raise the stakes, unfortunately. He has many tools that he hasn’t used that can hurt us. We need a de-escalation from the maximalist spiral, and we need a little bit of luck and good fortune, perhaps in Moscow, perhaps in Helsinki or Jerusalem, perhaps in Beijing, but certainly in Kyiv.

A great interview. Read the whole thing.

Yes those new service sector jobs are getting weirder

On Thursday afternoon, 30 top TikTok stars gathered on a Zoom call to receive key information about the war unfolding in Ukraine. National Security Council staffers and White House press secretary Jen Psaki briefed the influencers about the United States’ strategic goals in the region and answered questions on distributing aid to Ukrainians, working with NATO and how the United States would react to a Russian use of nuclear weapons.

Here is the full story, via Bryant Seaman, and several other MR readers.

Japan fact of the day

More than a quarter of major Japanese start-ups, those worth more than a billion dollars, involve care for the elderly. The tech is impressive: at care homes, ‘workers now receive a signal when incontinent residents require attention, forewarning them of the need for urgent intervention. There are also devices that track vital signs and indicate irregular heartbeats or breathing, while robotic beds that turn into wheelchairs are also being manufactured.’

Here is more from Ed West, mostly about aging societies more generally.

My Conversation with the excellent Sam Bankman-Fried

Here is the audio, video, and transcript.  Here is part of the summary:

He joined Tyler to discuss the Sam Bankman-Fried production function, the secret to his trading success, how games like Magic: The Gathering have shaped his approach to business, why a legal mind is crucial when thinking about cryptocurrencies, the most important thing he’s learned about managing, what Bill Belichick can teach us about being a good leader, the real constraints in the effective altruism space, why he’s not very compelled by life extension research, challenges to his Benthamite utilitarianism, whether it’s possible to coherently regulate stablecoins, the implicit leverage in DeFi, Elon Musk’s greatest product, why he thinks Ethereum is overrated, where in the world has the best French fries, why he’s bullish on the Bahamas, and more.

And an excerpt:

COWEN: Now, for mathematical finance, as you know, we at least pretend we can rationally price equities and bonds. People started with CAPM. It’s much more complicated than that now. But based on similar kinds of ideas — ultimately arbitrage, right? — if you think of crypto assets, do we even have a pretense that we have a rational theory of how they’re priced?

BANKMAN-FRIED: With a few of them, not with most. In particular, let’s talk about Dogecoin for a second, which I think is the purest of a type of coin, of the meme coin. I think the whole thing with Dogecoin is that it does away with that pretense. There is no sense in which any reasonable person could look at Dogecoin and be like, “Yes, discounted cash flow.” I think that there’s something bizarre and wacky and dangerous, but also powerful about that, about getting rid of the pretense.

I think that’s one example of a place where there is no pretense anymore that there is any real sense of how do you price this thing other than supply and demand, like memes versus — I don’t know — anti-memes? I think that more generally, though, that’s happened to a lot of assets. It’s just less explicit in a lot of them.

What is Elon Musk’s greatest product ever, or what’s his most successful product ever? I don’t think it’s an electric car. I don’t think it’s a rocket ship. I think one product of his has outperformed all of his other products in demand, and that’s TSLA, the ticker. That is his masterpiece. How is that priced? I don’t know, it’s worth Tesla. It’s a product people want, Tesla stock.

COWEN: But the prevalence of memes, Dogecoin, your point about Musk — which I would all accept — does that then make you go back and revisit how everything else is priced? The stuff that was supposed to be more rational in the first place — is that actually now quite general, and you’ve seen it through crypto? Or not?

BANKMAN-FRIED: Absolutely. It absolutely forces you to go back and say, “Well, okay, that’s how cryptocurrencies are priced. Is it really just crypto that’s priced that way?” Or maybe, are there other asset classes that may claim to have some pricing, or purport to, or people may often assume it does, but which in practice is not exactly that? I think the answer to that is a pretty straightforward yes.

It’s a pretty straightforward answer that you look at Tesla, you look at a lot of stocks right now, you think about what determines their market cap — the discounted cash flow? Yeah, sort of, that plays a role in it. That’s 30 percent of the answer. It’s when we look at the meme stocks and the meme coins that we feel like we can see the answer for ourselves for the first time, but it was always there in the other stocks as well, and social media has been amplifying this all over the place.

COWEN: Is this a new account of how your background as a gamer with memes has made you the appropriate person for pricing and arbitrage in crypto?

BANKMAN-FRIED: Yeah, there’s probably some truth to that. [laughs]

Interesting throughout, and not just for crypto fans.

Bank runs and CBDC

Our analysis holds important lessons for the introduction of central bank digital currencies (CBDCs). With a CBDC as the main means of payment, people can convert their bank deposits into CBDC quickly. There is no longer a need to stand in line at an ATM as currently in Russia. With CBDC, ordering goods and dumping this electronic cash is easier, too: a simple on-line transaction suffices. While the Russian central bank may suspend electronic means of payments, this is a bad option in a CBDC system, as such transactions lie at its heart. Suspending CBDC payment possibilities risks breaking trust in the currency altogether. With a CBDC, a central bank run may no longer proceed in slow motion, as currently in Russia; it can be fast and dramatic.

The situation in Russia is unusual. The central bank run as described may not come to pass, and lines at ATMs may recede. But trust in government money should not be taken for granted. We have seen plenty of panic in the U.S. in the last two years already. Options on how to deal with the evaporation of trust need thinking through ahead of time, particularly once a CBDC is introduced.

That is part of a short piece by Linda Schilling, Jesús Fernández-Villaverde, and Harald Uhlig.