Category: Economics
Future unemployment will be (mostly) voluntary unemployment
A shortage of electricians means that those willing to endure long shifts and live on remote sites can potentially earn up to A$200,000 (US$124,000) a year — double the national average salary and not far off the average MP salary.
“It’s a cup half full/half empty life. You do 12-hour shifts, there’s the heat, the flies and you’re stuck in a donga [temporary housing] in a single bed. But you’re fed well and everything’s covered. You leave your credit card at home. You earn good money and you get plenty of time off,” said Dowsett of his life as a fly-in, fly-out electrician.
The high salaries reflect the fact that fewer Australians want to be electricians, creating a potentially devastating shortage as major renewable energy, mining and data centre projects come online. Australia needs 32,000 more electricians by 2030 to meet the demand for workers, according to a report from the Clean Energy Council, citing government statistics.
Here is more from the FT, via the excellent Samir Varma.
Facts about Rwanda
…Rwanda is still poorer than most African countries due to being less urbanized than most African nations (Rwanda is 82% rural compared to Sub Saharan Africa’s 57% average). Rwanda’s donor aid adds up to ~75% of Rwanda’s government spending, which is roughly $1B.
The average Rwandan makes $1K a year ($3300 at purchasing power parity). At purchasing power parity, Rwanda is far poorer than a Nigerian, Kenyan, or Senegalese (for now) but the average Rwandan is still richer than a Ugandan, Burkinabe, or an Ethiopian…
Rwanda is fast growing, but its growing from a very low base. To put in perspective, even though the oil-state, Angola, has on average declined nearly 3% every year from 2013 to 2023 due to the post 2014 oil price collapse, the average Angolan still makes more than 2x the average Rwandan.
And this:
Like most developing countries, Rwanda’s economy is 75% informal. Rwanda blends economic models: besides private companies, Rwanda has military-owned enterprises like Egypt, Pakistan, or Uganda, party-owned enterprises akin to pre-1990s Taiwan & Eritrea, and state-owned enterprises targeting FDI for joint ventures, similar to Vietnam or Singapore…
Kagame initially embraced neoliberal privatization but then walked it back in the early 2000s to create party-owned enterprises through the Rwanda Patriotic Front (RPF). These enterprises supplement limited tax revenue and are managed by RPF-appointed elites, controlling major sectors like real estate, agro-processing, and manufacturing.
Here is more from Yaw, informative throughout.
Make Sunsets: Geoengineering
When Mount Pinatubo erupted in 1991 it pushed some 20 million tons of SO₂ into the stratosphere reducing global temperatures by ~0.5°C for two years. Make Sunsets is a startup that replicates this effort at small scale to reduce global warming. To be precise, Make Sunsets launches balloons that release SO₂ into the stratosphere, creating reflective particles that cool the Earth. Make Sunsets is cheap compared to alternative measures of combating climate change such as carbon capture. They estimate that $1 per gram of SO₂ offsets the warming from 1 ton of CO₂ annually.
As with the eruption of Pinatubo, the effect is temporary but that is both bug and feature. The bug means we need to keep doing this so long as we need to lower the temperature but the feature is that we can study the effect without too much worry that we are going down the wrong path.
Solar geoengineering has tradeoffs, as does any action, but a recent risk study finds that the mortality benefits far exceed the harms:
the reduction in mortality from cooling—a benefit—is roughly ten times larger than the increase in mortality from air pollution and ozone loss—a harm.
I agree with Casey Handmer that we ought to think of this as a cheap insurance policy, as we develop other technologies:
We should obviously be doing solar geoengineering. We are on track to radically reduce emissions in the coming years but thermal damage will lag our course correction so most of our climate pain is still ahead of us. Why risk destabilizing the West Antarctic ice sheet or melting the arctic permafrost or wet bulbing a hundred million people to death? Solar geoengineering can incrementally and reversibly buy down the risk during this knife-edge transition to a better future. We owe future generations to take all practical steps to dodge avoidable catastrophic and lasting damage to our planet.
I like that Make Sunsets is a small startup bringing attention to this issue in a bold way. My son purchased some credits on my behalf as an Xmas present. Maybe you should buy some too!
Congestion pricing update
Data collected by INRIX, a transportation analytics firm, found that travel times across the city and region had actually slowed overall at peak rush hours — by 3 percent in the morning and 4 percent in the evening — during the first two weeks of congestion pricing compared to a similar period last year.
Travel times improved on highways and major roads in Manhattan during both the morning and evening rush hours. But they were slower in Brooklyn and on Staten Island in the morning and in Queens and the Bronx in the evening.
Times also increased in some New Jersey counties, including Essex and Bergen, but improved in Nassau County on Long Island.
Here is more from the NYT. This is very far from the final word, however.
The mistakes of Michael Pettis
Noah Smith, and a few readers, have asked for a summary post about the errors of Michael Pettis. Since Pettis is now an influential trade thinkers with many of the Trump people, I think it is worth repeating my previous points just a bit.
Here are the errors, perhaps there are more:
He talks about tariffs (FT) as if they are anti-consumption but pro production. But tariffs are anti-production on the whole, at least outside of some well-known cases of increasing returns, and even then the tariffs have to be applied properly. Pettis does not present this very important qualification about increasing returns, and he basically presents an argument that we would expect economics undergraduate majors to reject.
With this talk of trade balances and demand deficits, he repeatedly confuses the short-run with the medium-run and long run. At some point prices adjust and the demand shortfalls go away. I never see him acknowledge price adjustments as creating differences between short-run and long-run effects in this context. Of course this distinction between long-run and short-run effects is fundamental to macroeconomics. If Pettis wishes to disagree, fine, but he has to spell out his argument.
He has a bizarre notion and theory of demand, for instance claiming during America’s recent high inflation that demand was weak in the United States.
He sees the degree of wage suppression or “labor exploitation” in a country (his concept not mine) as a central determinant of export success. That does not accord with the evidence, and yes this question has been studied extensively.
All of these are basic and fundamental errors, and furthermore they matter for most of Pettis’s main conclusions, including his policy conclusions. So I will say it again — he has become a major media figure, but Michael Pettis does not understand basic international economics.
You could add to that some more complicated shortcomings, such as his analysis of tariffs is bad (see Noah’s piece), or that there is not (so far?) any coherent model that will get you to his conclusions. Admittedly those are more complex issues, what I list above are not.
A habit he has is to categorize and dismiss economists as a whole. For instance, as Noah cites, Pettis wrote, I think responding to me:
If you want to understand the effects of trade intervention, its ok to ask economic historians, but never ask economists. That’s because their answer will almost certainly reflect little more than their ideological position…It was direct and indirect tariffs that in 10 years transformed China’s EV production from being well behind that of the US and the EU to becoming the largest and most efficient in the world…Tariffs may not be an especially efficient way for industrial policy to force this rebalancing from consumption to production, but it has a long history of doing so, and it is either very ignorant or very dishonest of economists not to recognize the ways in which they work…To oppose all tariffs on principle shows just how ideologically hysterical the discussion of trade is among mainstream economists.
Obviously that is not responding on the points of substance at all. In general, you should be suspicious when you see broadside attacks on economists in a debate, even if some of the embedded criticisms might be true.
Note that Pettis’s fundamentally correct point, namely that China subsidizes investment too much, predates him and can be made without all the accompanying errors. The notion that party-run economic systems oversubsidize investment is decades old, and usually right.
Addendum: After I wrote this post, Paul Krugman came out with a new Substack, excerpt: “But I decided to talk about a new view of trade imbalances, associated especially with Michael Pettis, that has been gaining some traction lately. It’s also mostly wrong…”
Do Migrants Pay Their Way? A Net Fiscal Analysis for Germany
This study quantifies the direct average net fiscal impact (ANFI) of migration in Germany, taking into account both indirect taxes and in-kind benefits such as health and education spending. Using a status quo approach with data from the German Socio-Economic Panel (SOEP) for 2018 and microsimulation techniques to impute both indirect taxes and in-kind benefits, our results show that migrants, especially first-generation migrants, have a more favorable net fiscal impact on average compared to natives. However, we demonstrate that this result is mainly driven by the favourable age structure of migrants. When controlling for demographic differences between these groups, we show that second-generation migrants contribute very similarly to natives to the German welfare state. Nevertheless, both natives and second-generation migrants, respectively, contribute more than first-generation migrants. These differences persist even when we do not account for indirect taxes and benefits-in-kind.
That is from a recent paper by Hend Sallam and Michael Christl. One interesting point in the paper is that native Germans have a net negative fiscal impact — is that really consistent with blaming the immigrants for the major problems?
Via the excellent Samir Varma.
AI Improves Student Learning and Engagement
In our paper on online education, Tyler and I wrote:
One model of a future course is a super-textbook: lectures, exercises, quizzes, and grading all available on a tablet with artificial intelligence routines guiding students to lectures and exercises designed to address that student’s deficits and with human intelligence—tutors—on call on an as-needed basis, possibly for extra marginal fees.
We were wrong only in thinking that human tutors would be wanted and needed. Toda,y it is clear that AI tutors will be available 24-7 for all students. Online education was already at least as good on average as in-class education for large classes like Physics and Economics 101 and much cheaper. Combined with AI tutors who can offer individualized instruction and encouragement (!) the online-AI model looks better.
A study at Harvard compared physics students who worked with an AI tutor against a human-led, active learning classroom. Note that the AI was paired not against boring lectures but against an active learning classroom with an experienced and motivated teacher.
Not only did the AI tutor seem to help students learn more material, the students also self-reported significantly more engagement and motivation to learn when working with AI.
“It was shocking, and super exciting,” Miller said, considering that PS2 is already “very, very well taught.”
“They’ve been doing this for a long time, and there have been many iterations of this specific research-based pedagogy. It’s a very tight operation,” Miller added.
Why northern England is poor
In at least six Conversations with Tyler, Tyler Cowen asks his interviewee why they think North England is poor. I don’t think he gets good enough answers, which is why I guess he keeps asking.
So here is a better explanation of why North England is poor with a bonus explanation of why so many Britons think much less of Margaret Thatcher’s Premiership than he and his guests do. It is a heavily simplified and selective story, but I think it tells the key parts of how North England fell from being the birthplace of the industrial revolution and among the richest places in the world two centuries ago to being an economy substantially lagging everywhere else in Northern Europe today.
The North’s economic decline is made even clearer when it is compared to two near neighbours and far more prosperous counterfactuals. Scotland and Ireland, who have achieved greater independence within and from the United Kingdom, and whose success is awkwardly ignored and denied by the people responsible for the North’s decline, are today far stronger economies than North England.
I will publish my expansion of these points in detail as soon as I can, but for now I offer this summary,
1. The Norman conquest.
Since at least 1066, England has been ruled from the South East for the benefit of those who rule it and the places where they live and work.
2. Ban on Northern universities.
In the 1600’s, and for two centuries after, England and then Britain’s overwhelmingly and disproportionately Southern Parliament in Westminster rejected North English requests to establish universities in the North. The outsized influence of members representing Oxford and Cambridge and graduates of their universities played a big role in this. The Parliamentarian victory in the English civil war was working on the problem but the Monarchy was restored before Northern universities were established.
3. The industrial revolution.
The lack of universities in North England meant that the industrial revolution was heavily powered by Scottish science and largely occurred at a distance, both geographically and culturally, from London and Westminster. It was this distance that allowed North England to prosper through industry, despite constant effort by British national institutions in South East England to constrain their success. And it was the competition of ideas across that distance that led to great Northern social ideas such as Manchester Liberalism, an end to the Corn Laws and more free trade, professional sports, and a fairer democracy eventually triumphing nationally.
4. Universities were allowed too late.
North English universities, although quickly successful once they existed, were permitted too late (1880 for Manchester). They could not quickly enough achieve a critical mass of high-skill and elite institutions in North England that would help the economy to retain a technological advantage or transition to higher productivity service activities when Britain’s industrial advantage started to decline.
5. Grouping, nationalisation, and privatisation destroyed the North’s institutions.
North England’s strongest local institutions were born of the industrial revolution and included the railways and the municipal corporations. Alongside wealthy local industrialists municipal corporations built and municipalised gas, electricity, and water networks, healthcare, education, and social housing systems and much more. These service and assets were taken out of local control and run overwhelmingly from Westminster as they were grouped, nationalised, and privatised by UK governments of both left and right from the 1920s onward.
6. Thatcher and the end of competition of power.
The process of transferring assets and power from local government to central government or to the private sector (regulated by central government) was substantially completed under Thatcher. Major changes included the abolition of metropolitan county councils in the North’s great cities, the removal of most remaining local taxation powers, the removal from local control of the Mechanics’ Institutes and Polytechnics (the North’s locally-created alternative to the Universities they were denied during the early industrial revolution), the privatisation and deregulation of local bus services, and the introduction of right-to-buy forcing local governments to sell their largest asset base and source of income at well below market rates and give a portion of the proceeds to the central government.
Absent any of the protections against it that exist in the US constitution, Thatcher moved the British state past the French state into being the most centralised in the developed world. “You can just do things” is an emerging meme in the pro-growth community, but since Thatcher that has been largely untrue in North Engalnd. Most of the time, someone from central government will block you, if you succeed they will try and stop you, and if you continue succeeding they will subsidise your competitors.
7. Ultra-centralisation of the state.
Since Thatcher there has been no effective local counterbalance within England to the UK government’s power held in Westminster, no right for cities or regions within England to raise taxes to fund investment in growth, and no limit on the power of the UK central government to constrain growth in the North. The UK central government, backed by Britain’s national institutions, has intensified its preference for South East England. Britain’s government and institutions have moved Britain’s science and innovation from the rest of the country to the South East, focused on London, Oxford and Cambridge.
The central government, holding the monopoly power on such investment, has invested heavily in transport infrastructure in, around, and to London and almost nowhere else in England. The development of a competitive agglomeration to London in North England has been deliberately constrained almost continually. These patterns have deepened even while central governments claim to be focusing on regional investment. In the last fifteen years, while the UK government has claimed to be moving power out of Westminster it has centralised its civil service, centralised its investments in R&D and transport infrastructure, and moved an extra million employees from local government control to central government control.
8. A new generation of policy thinkers.
A new generation of British national policy thinkers, policy advisors, politicians, and custodians of Britain’s national institutions now live almost none of their lives outside of South East England. They rarely have a memory of, or interest in, an England that is not ruled overwhelmingly from the centre.
While arguing for growth today these people and their organisations repeat the mistakes that Thatcher cemented in British political economy thinking that a well-managed central monopoly on power is better than a competitive dispersal of power. They celebrate new scientific institutions in London such as ARIA that repeat — against strong evidence that it will not deliver greater returns in doing so — the centralisation in the South East of England of our national research capacity.
We are repeating today previous disasters for the North’s economy such as the relocation of Britain’s synchrotron to Oxford, the relocation of AstraZeneca to Cambridge and London, and the centralisation of biomedical research in South East England with the construction of The Crick Institute. Our institutions celebrate the creation of new organisations such as The Open Data Institute, Nesta, GDS, Tech City, and the AI Safety Institute that employ large numbers of well-paid people in the capital. At best these organisations allocate their money with preference to South East England and represent local interests as national objectives. At worst they actively oppose and shut down success elsewhere in the country.
This all happens largely without malice, though prejudice against people from “the regions”, while greatly reduced, remains rife within British high society. It is the result of England having forgotten, and — embarrassed by the comparative success of Ireland and Scotland having rejected this centralisation — not having taken the opportunity to remind themselves of the power of competition and markets in government.
There you go. Agree? No mention of behavioral factors? How would social indicators compare to the much poorer Kerala or Sri Lanka? And is Scotland, especially without subsidies, such an economic success?
Who Loses from Immigration Restrictions?
A good summary from the excellent Jeffrey Miron on the effects of the Indian Chinese Exclusion Act (repeated here, no indent):
A long-standing concern about immigration is that it might reduce job opportunities for native workers:
In 1882, the US government passed the Chinese Exclusion Act, which banned laborers born in China from entering the United States and prevented individuals born in China already residing in the United States from obtaining citizenship or reentering the country. … Proponents argued that Chinese workers—who constituted 12 percent of the male working-age population and 21 percent of all immigrants in the Western United States—reduced economic opportunities for white workers.
Yet in 1882, similarly to now,
… many business owners opposed the Act. They worried that highly productive Chinese labor could not be easily replaced and that a sweeping ban would lead to significant economic losses.
So what were the Act’s effects? According to recent research,
… the Act reduced the Chinese labor supply by 64 percent. A reduction occurred for both skilled and unskilled workers. …
This is presumably what the Act’s supporters intended. In addition, however,
the Act reduced the white male labor supply by 28 percent and lowered this group’s lifetime earnings. …
Further, and relevant to current debates,
the Act reduced total manufacturing output by 62 percent and the number of manufacturing establishments by 54–69 percent.
What is the explanation? Reduced immigration means higher labor costs. This implies reduced output, and thus reduced demand for native labor, even if businesses partially substitute native for immigrant labor. Reduced immigration can therefore be “lose-lose,” hurting native workers and businesses, in addition to harming immigrants.
The slide toward growing protectionism?
That is the topic of my latest Bloomberg column, here is one part of the argument:
Start with the distinction between trade in goods and trade in services. When a US manufacturer sells tractors overseas, that’s goods. When a US software firm creates an AI medical diagnostic tool and sells access via the internet to foreigners, that’s services.
It is much easier to keep trade “free” for the first category than for the second. The tractor crosses a border at a specific place and time. It may face additional regulation once inside the foreign country, but the transaction is relatively clean.
An online medical service, by contrast, could “cross the border” — that is, be used by someone outside the US — hundreds or thousands of times per day. It may also face licensing requirements, foreign liability law, extensive testing and, if the country has multiple jurisdictions, layers of regulation. In the European Union, the website itself would be subject to extensive regulation through laws regarding data, privacy and AI. Even within the EU, a supposed free-trade area, there are restrictions on trade in legal, medical and notary services, to name a few examples.
The wisdom or foolishness of these regulations is not the point. They exist, and most are not going away anytime soon. In fact, they will become only more important as the provision of services expands as a share of the global economy.
In the US, much of this growth occurs in education, health care and, especially, technology. Nvidia, for instance, depending on fluctuations in share prices that day, is often worth more than the entire German and Italian stock markets combined. Efforts to “harmonize” (i.e., increase) corporate taxation thus are more harmful to US interests than would have been the case a decade ago.
Any world trading order that broadly stays put is thus weighted against the exporting interests of the US. That is essential background for understanding the debate over trade prompted by President Donald Trump’s various proposals.
Recommended.
Milei Implements Peer Approval for Food
Reason: In a sweeping move to overhaul Argentina’s food trade policies, Javier Milei’s administration officially deregulated food imports and exports on Monday. The reform, outlined in Decree 35/2025, seeks to boost foreign trade, cut bureaucratic red tape, and lower consumer prices.
Federico Sturzenegger, head of the Ministry of Deregulation and State Transformation, explained in a post on X that the measure “seeks cheaper food for Argentines and more Argentine food for the world.”
Under the new policy, food products and packaging certified by countries with “high sanitary surveillance” can now enter Argentina without any additional registration or approval processes. These items will be automatically recognized under the Argentine Food Code, cutting down on administrative delays and costs for importers.
The legislation identifies countries such as Australia, New Zealand, Canada, the United States, Israel, Japan, Switzerland, and the United Kingdom, as well as the European Union, as having similar or higher sanitary standards than Argentina.
As Sturzenegger explains in his post, this measure “eliminates requirements to register and authorize: samples, products, establishments, warehouses, utensils, and containers (32 pages of paperwork).”
An excellent “peer approval” policy and one that I have long supported when it comes to the FDA and drug approvals. In fact, since 2010 the US FDA has begun to recognize other countries as having comparable food safety systems. To date, Canada, Australia and New Zealand have been recognized with a Systems Recognition partnership.
Systems Recognition (SR) is a partnership between the U.S. Food and Drug Administration (FDA) and a foreign regulatory counterpart, in which the agencies have concluded that they operate comparable regulatory programs that yield similar food safety outcomes.
Argentina’s policy is unilateral and assumes equivalence if a country uses recognized standards (e.g., Codex Alimentarius) or has high sanitary vigilance while the FDA’s SR policy is bilateral and involves more regulatory harmonization and investigation. I prefer the Argentinian approach. Nevertheless, both programs have the goals of simplifying trade, avoiding duplicate inspections, and helping to prioritize scarce inspection resources.
I encourage the FDA to build on SR for food and extend it to drugs. This could be done in a minor and major way, both of which would useful. The minor reform would be peer approval for already-approved US drugs. In this way, importation could ease drug shortages. The FDA has done this in the past on an ad-hoc basis but it should be made permanent. The second, more major reform, would to extend peer-approval to any drug or device approved by a stringent authority.
*Abundance*, by Ezra Klein and Derek Thompson
The NIH’s own research indicates that Pioneer Award recipients seem to produce influential, highly cited research. But despite efforts to help younger scientists, the share of basic NIH funding going to scientists under thirty-five continues to decline. In the 2004 fiscal year, the High-Risk, High-Reward Research program allocated about $200 million to scientists, a moderate decline since 2019. The amount was an almost negligible fraction — less than half of 1 percent — of the NIH’s annual budget for that year.
Self-recommending, you can pre-order here.
Democracy, Capitalism and Monarchy (Yarvin)
The Yarvin interview in the NYTimes magazine illustrates the change in vibes, but frankly, I was bored. It’s amusing when Yarvin tweaks liberals by pointing out that FDR was an authoritarian, but Liberal Fascism did it better.
More generally, much of Yarvin’s thinking is superficial. He thinks, for example, that capitalism works because firms are monarchies.
Yes. I think that having an effective government and an efficient government is better for people’s lives. When I ask people to answer that question, I ask them to look around the room and point out everything in the room that was made by a monarchy, because these things that we call companies are actually little monarchies. You’re looking around, and you see, for example, a laptop, and that laptop was made by Apple, which is a monarchy.
There are many errors here. First, Apple is one firm among countless others most of which do not produce hugely successful products. The big question is not how Apple produces but how Apple is produced. Firms operate as planned entities but they are embedded in and constrained by a broader sea of market competition. It’s the competitive environment that drives innovation, efficiency, and consumer satisfaction.
Second, Mises was closer to the truth when he wrote in Planned Chaos that it’s the consumers not the producers who are monarchs:
In the market economy the consumers are supreme. Their buying and their abstention from buying ultimately determine what the entrepreneurs produce and in what quantity and quality. It determines directly the prices of consumer goods and indirectly the prices of all producer goods, viz., labor and material factors of production. It determines the emergence of profits and losses and the formation of the rate of interest. It determines every individual’s income…The market adjusts the efforts of all those engaged in supplying the needs of the consumers to the wishes of those for whom they produce, the consumers. It subjects production to consumption.
Capitalist firms are disciplined by the necessity of persuading consumers to purchase their products and by competition. Successful firms must continuously meet our desires and needs to survive. When Apple fails to do so, it will face the same fate as countless firms before it—obsolescence and failure.
Markets do hold lessons about governance, but Yarvin draws the wrong conclusions. Democracy, not monarchy, is the political system most analogous to capitalism. As Mises observed, “The market is a democracy in which every penny gives a right to vote.” The analogy works both ways: voting in a democracy mirrors spending in a market. Both systems empower individuals—consumers or voters—to shape outcomes, whether by determining market success or selecting leaders.
Democracy and capitalism are both examples of open-access orders, systems characterized by dispersed power, low barriers to entry, and transparent, universally applicable rules. Such features foster adaptability, accountability, and broad participation—qualities essential to both economic and political success.
The West does face a modest “crisis” of democracy, but the root of this crisis lies in expecting democracy to do too much. We have collectivized decisions which are best left in the hands of individuals and markets but democracy is not a good way of making collective decisions.
Democracy is best understood as a constraint on government power, akin to a Bill of Rights, federalism, and the separation of powers. Democracy’s virtue is in providing a mechanism to remove bad rulers without resorting to bloodshed and its primary value lies in preventing catastrophic outcomes like mass famines and democide—a significant and undeniable merit. Autocracies and monarchies perform much less well on the big issues and, contrary to what many people think, autocracies do not grow faster, win more wars, or perform better on any meaningful comparison that has been investigated.
It is also essential to recognize that “democracy” encompasses a wide range of structures—parliamentary, presidential, constitutional, and more—and there is plenty of room for improved choice within the broader category. We can improve our democracy.
The real lesson from markets is not to create monarchs but to design systems that create choice and competition and allow citizens to remove leaders when they fail.
Hat tip for discussion: Connor.
The 1920s immigration restrictions
The 1920s immigration restrictions in the US did not affect manufacturing wages.
The US immigration restrictions of the 1920s lowered the occupational standings of whites and incumbent immigrants.
US counties with more immigrants excluded by the quotas of the 1920s saw increased in-migration.
During the Great Black Migration of the US, black southerners moved to northern counties, filling roles left by excluded immigrants.
During the Great Black Migration, blacks who migrated to counties with more excluded immigrants experienced greater economic gains.
That is from a new piece by Bin Xie in the Journal of Comparative Economics. Via the excellent Kevin Lewis.
Keep an Eye on Crypto Regulation
Crypto regulation is likely to change very rapidly. I expect that SAB 121 will be overturned, perhaps even today. Overturning SAB 121 wouldn’t even be controversial because, as I wrote earlier, Democrats and Republicans in the House and Senate both voted to overturn SAB 121 which was saved only by Biden’s veto.
Essentially, SAB 121 made it prohibitive for banks to offer custody services for crypto because that service would then impact all kinds of risk and asset regulations on the bank. Aside from singling out crypto, the SEC is not a regulator of banks so this seemed like a regulatory overreach.
I also hope that the tax rules on staking are simplified. Staking rewards paid in tokens should not be taxed until sold. Just as apples aren’t taxed when they grow on the tree but only when sold.
There are also a number of interesting cases working the way through the courts. Lewellen v. Garland seeks to clarify that crypto projects that don’t custody funds are not money transmitters (they can’t be since they never control funds and have no way of knowing the customer information that money transmitters must provide to the government). The case is particularly interesting to me because Lewellen, the plaintiff, is suing to set up a crypto based assurance contract based, in part, on my work (see also here with Cason and Zubrickas):
Pharos fills an important gap in the existing cryptocurrency financial system. Lewellen has seen that there are “public goods” that many people would be happy to contribute to financially, but only if supporters can be assured that the full amount to fund the public good will be raised. In other words, they will contribute if they can be assured that the public good will be deployed. Partial fundraising for these projects would not be acceptable. Examples include building infrastructure such as a bridge or hospital, building a war monument, funding an event like a festival or conference, funding a medical trial or scientific study, filing an advocacy lawsuit, or funding a movie production or other cultural good. Nobody wants to pay for these endeavours without knowing that others will pay enough to complete the project.
To address this dilemma, Pharos would deploy the concept of “assurance contracts.” An assurance contract is a system in which contributors commit money that is released to the planned recipient only if the fundraising goal is met by a certain date. Otherwise the money is returned to the would-be contributors. By promising a refund if the required amount is not raised, assurance contracts encourage more public goods to be funded through voluntary contributions. See Tabarrok, The Private Provision of Public Goods via Dominant Assurance Contracts, 96 Pub. Choice 345, 345-48 (1998).