I can’t quite bring myself to call it the Inflation Reduction Act. One thing I have learned from experience is how hard it is to judge such bills upfront. For instance, I just learned that the electric vehicle tax credits do not currently apply to any electric vehicle whatsoever, nor will they obviously apply to any electric vehicle to be produced in the near future. Now the United States might take a larger role in battery production, or perhaps the law/regulation will be modified — don’t assume these standards will collapse. Still, the provisions are going to evolve. Or maybe there is a modest chance that provision of the bill simply will never kick in.
I don’t know.
How about the corporate minimum tax provisions? It sounds so simple to address unfairness in this way, and how much opposition will there be to a provision that might cover only 150 or so companies? But a lot of the incentives for new investment will be taken away, including new investment by highly successful companies. (You can get your tax bill down by making new investments, for instance, and that is why Amazon has paid relatively low taxes in many years.) Most of the companies covered are expected to be manufacturing, and didn’t we hear from the Democratic Party (and indeed many others) some while ago that manufacturing jobs possess special economic virtues? Furthermore, some of the tax incentives for green energy investments will be taken away. Has anyone done and published a cost-benefit analysis here? That is a serious question (comments are open!), not a rhetorical one.
“The evidence from the studies of outcomes around the Tax Reform Act of 1986 suggest that companies responded to such a policy by altering how they report financial accounting income — companies deferred more income into future years,” Michelle Hanlon, an accounting professor at the Sloan School of Management at the Massachusetts Institute of Technology, told the Senate Finance Committee last year. “This behavioral response poses serious risks for financial accounting and the capital markets.”
Other opponents of the new tax have expressed concerns that it would give more control over the U.S. tax base to the Financial Accounting Standards Board, an independent organization that sets accounting rules.
“The potential politicization of the F.A.S.B. will likely lead to lower-quality financial accounting standards and lower-quality financial accounting earnings,” Ms. Hanlon and Jeffrey L. Hoopes, a University of North Carolina professor, wrote in a letter to members of Congress last year that was signed by more than 260 accounting academics.
How bad is that? I do not know. Do you? My intuition is that the book profits concept cannot handle so much stress. By the way, kudos to NYT and Alan Rappeport for doing that piece. It is balanced but does not hold back on the skeptical side.
And here’s one matter I haven’t seen anyone mention: the climate part of the bill, and indeed most of the accompanying science and chips bill, assume in a big way that private sector investment is deficient in solving various social problems and needs some serious subsidy and direction.
Now the direction of that investment is a separate matter, but when it comes to the subsidy do you recall Kenneth Arrow’s classic argument that the private sector does not invest enough in risk-taking? Private investors see their private risk as higher than the actual social risk of the investment. This argument implies subsidies for investments, as much of the rest of the bill and its companion bill provide, not additional taxes on investment. This same kind of argument lies behind Operation Warp Speed, which most people supported, right?
And yet I see everyone presenting the new taxes on investment in an entirely blithe manner, ignoring the fact that the rest of the bill(s) implies private investment needs to be subsidized or at least taxed less.
Overall the ratio of mood affiliation and also politics in this discussion, to actual content, makes me nervous. The bills went through a good deal of uncertainty, and so a significant portion of the intelligentsia has been talking them up. Biden after all needs some victories, right? And at some point the green energy movement needs some major legislative trophies, right? What I’d like to see instead is a more open and frank discussion of the actual analytics.
It is very good when a top economist such as Larry Summers has real policy influence, in this case on Joe Manchin. But part of that equilibrium is that other economists start watching their words, knowing some other Democratic Senator might fall off the bandwagon. There is Sinema, Bernie Sanders has been making noise and complaining, someone else might have tried to extract some additional rents, and so on.
The net result is that you are not getting a very honest and open discussion of what is likely to prove a major piece of legislation.
Then, crucially, the government stepped in with covid-relief funds, which were somehow granted to prisoners. (Congress did not bar us from getting stimulus cheques, though the Internal Revenue Service tried to.) That windfall came as a total shock…
Stimulus payments meant people habituated to scarcity suddenly had $1,200 in their hands (then $2,000 more as the government approved two additional payouts). And rather than splurge on items we usually go without – honey buns ($1.10 each), king-size chocolate bars ($2.40) or high-end toothpaste ($5.28) – more than a few of us chose to invest.
The perverse incentive structure of prisoner accounts makes things worse. The prison does not touch account balances below $25, the threshold at which a prisoner is considered indigent. But for those with more than $25, the prison deducts onerous fees totalling 55% of incoming transfers. “Every week I have to max out my commissary order and zero out my account,” Steve said. Prisoners are being conditioned to live pay cheque to pay cheque.
The authors are themselves incarcerated in Washington state. Via Mike Rosenwald.
The most shocking revelations were that soldiers killed civilians and dressed them up as guerrillas to inflate their body counts. In return, they received benefits and promotions. Last year, a tribunal identified more than 6,400 of these so-called “false positive” killings dating from the 2002-2010 rule of hawkish rightwing president Álvaro Uribe, who is under investigation in an unrelated case and could come under further scrutiny with Velásquez as minister.
Here is more from the FT. This is also an object lesson in why we do not use direct incentives to achieve all tasks.
Democrats opted to seek a new 1 percent tax on corporate stock buybacks, a move that would make up at least some of the revenue that might have lost as a result of the [Sinema-driven] changes.
Here is further detail. Something has to be taxed, and I don’t pretend to have a comprehensive ranking of tax options from best to worst. I can’t tell you where this might rank on the list. I can however tell you these three things:
1. This is flat out a new tax on capital, akin to a tax on dividends.
2. Are you worried about corporations being too big and monopolistic? This makes it harder for them to shrink! Think of it also as a tax on the reallocation of capital to new and growing endeavors.
3. The real reason this is being proposed is because so many Democratic and left-leaning public intellectuals have written “flat out wrong, doesn’t matter what your partisan stance is” pieces on stock buybacks.
Here is the CFTC announcement. Permission to run this non-profit from New Zealand has been withdrawn. “DMO has determined that Victoria University has not operated its market in compliance with the terms of the letter and as a result has withdrawn it.” Perhaps today the case for crypto is marginally stronger?
The bill aims to tackle global warming by using billions of dollars in tax incentives to ramp up wind, solar, geothermal, battery and other clean energy industries over the next decade. Companies would receive financial incentives to keep open nuclear plants that might have closed, or to capture emissions from industrial facilities and bury them underground before they can warm the planet. Car buyers with incomes below a certain level would receive a $7,500 tax credit to purchase a new electric vehicle and $4,000 for a used one. Americans would receive rebates to install heat pumps and make their homes more energy-efficient.
I would like to know more details, most of all about how things actually happen (for instance can they succeed in keeping the nuclear plants open?). At the very least I will reiterate my oft-repeated claim that the age of policy gridlock has been dead for some while. (And Congress just passed the Chips and Science Act.) Here is the full NYT story. I do hope to cover the new bill more as details come out, but in terms of broad sweep most of the basic ideas already have been analyzed on MR.
As an inquisitive reader, books were a cherished commodity for Leopoldo López when he was a political prisoner in his home country of Venezuela. His prison guards eventually observed the strength and focus López gained from reading. In an attempt to stifle his spirit, the guards confiscated his books and locked them in a neighboring cell where he could see but not access them. But López didn’t let this stop him from writing or discourage his resolve to fight for freedom. A Venezuelan opposition leader and freedom activist, today López works to research and resist oppressive autocratic regimes globally.
López joined Tyler to discuss Venezuela’s recent political and economic history, the effectiveness of sanctions, his experiences in politics and activism, how happiness is about finding purpose, how he organized a protest from prison, the ideal daily routine of a political prisoner, how extreme sports prepared him for prison, his work to improve the lives of the Venezuelan people, and more.
And one excerpt:
COWEN: In 1970, you were richer than Spain, Greece, or Israel, which I find remarkable. But do you, today, ever look, say, at Qatar or United Arab Emirates, Dubai, and think the problem actually was democracy, and that here are oil-rich places that have stayed stable, in fact, but through autocratic rule, and that it’s the intermediate situation that doesn’t work?
LÓPEZ: Well, I think that I, personally, will always be in favor of a democratic regime, a democratic system that promotes a rule of law, the respect for human rights, the respect of freedoms. I think that’s a priority. For me it is, and I believe it’s a priority also for the large, large majority of the Venezuelan people that want to live in a democracy.
However, there has been great mismanagement due to misconceptions of the economy, to a state-led economy that did not open possibilities for a private sector to flourish independently of the state, but also with the level of corruption that we have seen, particularly over the past 22 years — it’s what has led Venezuela to the situation in which we are.
In Venezuela, you could argue that we did much, much better economically, and in terms of all of the social and economic standards, than what happened during these last 20 years of autocracy. This autocracy had the largest windfall and the largest humanitarian crisis.
During the democratic period of 40 years, Venezuela became one of the most literate countries in Latin America, with the largest amount of professionals being graduated every year, with the best in social, health, and education standards, vaccination rates, housing programs that were in Latin America. So, we did perform much better under the democratic period than has been the performance by any means in the autocratic regimes of the last 22 years.
So if you issue a crypto token, but don’t have to register it as a security and go through the process of satisfying securities laws, you are engaging in regulatory arbitrage.
It is worth thinking through why some of the regulations ought to change in this new context. In the pre-crypto world, issuing a security involved a host of institutional preparations and investments and legal planning, even apart from whatever regulatory constraints needed to be met. Issuing crypto tokens is usually easier and quicker, and quite immature institutions have done so. Software and blockchains do much of the work that once required offices, personnel and a lot of hands-on management…
Standard US regulatory practice typically focuses on regulating host firms and intermediaries, rather than software. Yet once a blockchain is verifying, storing and communicating information, it is hard for regulators to step in and make a meaningful difference. Thus the old regulatory model no longer applies to a significant part of the crypto experience.
And the lower costs of token issuance mean that the issuing intermediaries can be quite thinly capitalized. Often they are either not able or not incentivized to meet a lot of regulations. In addition, an institution can participate fully in the crypto space without being based in the US or being tied to any specific nation-state.
You can inveigh against those features of the market. Regardless, they are going to mean a radically different set of regulatory constraints. They also mean that some kinds of securities (if it is appropriate to call them that) can be issued far more cheaply than before.
Given this reality, shouldn’t regulations be changed — and substantially? This may include some areas where regulation is even tighter, though overall regulations will likely become looser. The regulators will have to learn to live with a more decentralized market structure that has lower costs and is harder to control. It is common sense that when software can substitute for major capital investments, regulations ought to change, even if observers disagree over how.
Unfortunately, the regulatory process is static and typically slow to change. Regulatory agencies often stick with the status quo until it is no longer tenable. One of the benefits of regulatory arbitrage is that it forces their hand and brings about a new equilibrium.
Recommended, this topic remains underdiscussed. “Regulatory arbitrage” is in fact one of the more significant potential benefits of crypto, noting that not everyone in the crypto space wants to come out and say that.
America needs more than 5 million new houses to meet demand, according to a study last year by Realtor.com. With sales of existing homes slowing, the need for more new houses is only growing. Florida, my home state, might have found part of the solution: Reform the permitting process so that building houses is easier.
Last year, Gov. Ron DeSantis (R) signed a bill that fundamentally changes the state’s permitting process for home building. It requires local jurisdictions to post online not only their permitting processes but also the status of permit applications. The transparency takes a good amount of mystery out of what can be an inscrutable branch of bureaucracy.
More important, the reforms also created a system that strongly incentivizes cities and counties to approve new home permits in a timely way. When a builder or property owner submits an application to build a new home, cities and counties have 30 business days to process it or request corrections.
If the government offices fail to respond in that time frame, the locality must refund 10 percent of the application fee for every additional business day of silence. Application fees can vary widely by locality, but the average cost in Florida is nearly $1,000, according to HomeAdvisor.com. If officials request corrections to the application, they have 10 business days to approve or disapprove of the resubmitted application. Blowing past that deadline leads to an automatic 20 percent refund, with a further 10 percent added for each additional missed day, up to a five-day cap.
And this:
A study of housing sales in southwest Florida between 2007 and 2017 by the James Madison Institute found that permitting delays added as much as $6,900 to the cost of a typical house. That’s a de facto tax on Florida families; now the Sunshine State is making cities and towns pay for their own delays.
The rollout of the Monkeypox vaccine hasn’t been without problems but we are making fewer mistakes. I feel pretty good that my work on first doses first for COVID (as well as that of Tyler, Michael Mina, Robert Wachter and others) pushed the Overton window. This is good to see.
…the lawmakers pressed NIH leadership for answers about the mysterious disappearance of the Scientific Management Review Board, a committee that Congress empaneled in 2006 to ensure the agency was operating efficiently…
“There wasn’t any notification that we weren’t going to meet again — it was just that the meetings stopped getting called,” Nancy Andrews, a onetime board member and the former dean of the Duke University School of Medicine, told STAT in May.
She added: “I had the sense that we were asking questions in areas that they didn’t really want to get into, and I suppose Francis [Collins] in particular didn’t really want us working on.”
Drone airspace resembles spectrum in the 1980s, an appreciating asset that could be bought, subleased, traded, and borrowed against – if it were only permitted.
Much like legacy spectrum policy, there is immense technocratic inertia towards rationing airspace use to a few lucky drone companies. The Federal Aviation Administration (FAA) has begun drafting long-distance drone rules for services like home delivery, business-to-business delivery, and surveying. In the next decade, drone services companies will deploy mass-market parcel delivery and medical deliveries in urban and suburban areas to make deliveries and logistics faster, cheaper, and greener.
…Federal officials recognize that the current centralized system of air traffic management won’t work for drones: at peak times today, US air traffic controllers actively manage only about 5,400 en route aircraft.
Red flags abound, however. FAA’s current plans for drone traffic management, while vague and preliminary, are clear about what happens once local congestion occurs: the agency will step in to ration airspace and routes how it sees fit. Further, the agency says it will closely oversee the development of airspace management technologies. This is a recipe for technology lock-in and intractable regulatory battles.
US aviation history offers the alarming precedent of expert planning for a new industry. In 1930 President Hoover’s Postmaster General, who regulated airmail routes, and a handpicked group of business executives teamed up to “rationalize” the nascent airline marketplace. In private meetings, they eliminated the established practice of competitive bidding for air routes, divided routes amongst themselves, and reduced the number of startup airlines from around forty to three.
“Universal” and “interoperable” air traffic management are popular concepts in the drone industry, but these principles have destroyed innovation and efficiency in traditional airspace management. The costly US air traffic management system still relies on voice communications and manual writing and passing of paper slips. Large, legacy users and vendors dominate upgrade efforts, and “update by consensus” means the injection of innumerable veto points. Drone traffic management will be “clean sheet,” but interoperable systems are incredibly difficult to build and, once built, to upgrade with new technology and processes. More than 16,000 FAA employees worked on the over-budget, pared-down, years-delayed air traffic management upgrades for traditional aviation.
…To avoid anticompetitive “route-squatting” and sclerotic bureaucratic control of a new industry, aviation regulators should announce a national policy of “airspace markets” – government sales of high-demand drone routes, resembling present-day government spectrum auctions.
Roy Gulick wants to give his monkeypox patients the best possible care. But he and his doctors simplydon’t have enough hours in the day to complete dozens of pages of paperwork every time they need to pry medicine out of the Strategic National Stockpile.
And that’s just what has been required for a single patient. His team has treated more than a dozen.
“It’s been a very daunting task,” said Gulick, chief of the Division of Infectious Diseases at New York Presbyterian/Weill Cornell Medicine. “There’s a ton of paperwork, there’s a ton of assessments that are required, there’s a tremendous amount that one has to do to be able to administer this drug to someone.”
Physicians’ struggles to prescribe Tpoxx, an antiviral approved to treat smallpox, which is from the same family of viruses as monkeypox, are among a slew of obstacles related to testing, treatment and vaccination that experts say is contributing to a plodding national response that they fear is not keeping up with the virus’s spread. Some worry that the window is closing to prevent the virus from becoming permanently entrenched in this country, with more than 1,400 confirmed infections across 42 states — and hundreds or thousands of additional infections suspected, predominantly in the gay and bisexual community.
Ball joined Tyler to discuss the eventual widespan transition of the population to the metaverse, the exciting implications of this interconnected network of 3D worlds for education, how the metaverse will improve dating and its impacts on sex, the happiness and career satisfaction of professional gamers, his predictions for Tyler’s most frequent uses of the metaverse, his favorite type of entrepreneur, why he has thousands of tabs open on his computer at any given moment, and more.
Here is one excerpt:
COWEN: As I read your book, The Metaverse, which again, I’ll recommend highly, I have the impression you’re pretty optimistic about interoperability within the metaverse and an ultimate lack of market power. Now, if I look around the internet — I mean, most obviously, the Apple Store but also a lot of gaming platforms — you see 30 percent fees, or something in that neighborhood, all over the place. Will the metaverse have the equivalent of a 30 percent fee? Or is it a truly competitive market where everything gets competed down to marginal cost?
BALL: I think neither/nor. I wouldn’t say that market power diffuses. There’s currently this ethos, especially in the Web3 community, that decentralization needs to win and that decentralization can win.
It’s a question of where on the spectrum are we? The early internet was obviously held back by heavy decentralization. This is one of the reasons why AOL was, for so many people, the primary onboarding experience. It was easy, cohesive, visual, vertically integrated down to the software, the browser experience, and so forth. But we believe that the last 15 years has been too centralized.
At the end of the day, no matter how decentralized the underlying protocols of the metaverse are, no matter how popular blockchains are, there are multiple forms of centralization. Habit is powerful. Brand is powerful — the associated trust, intellectual property, the fundamental feedback loops of revenue and scale that drive better product investment for more engineers.
So I struggle to imagine the future isn’t some form of today, a handful of varyingly horizontal-vertical software and hardware-based platforms that have disproportionate share and even more influence. But that doesn’t mean that they’re going to be as powerful as today.
The 30 percent fee is definitely going to come by the wayside. We see this in the EU, whose legislation dropped yesterday. I have absolute certainty that that is going to go away. The question is the timeline. A lawyer joked yesterday, Apple is going to fight the EU until the heat death of the universe, and that’s probably likely. But Apple will find other ways to control and extract, as is their profit motive.
COWEN: Where is the most likely place for that partial market power or centralization to show up? Is it in the IP rights, in the payment system, the hardware provider, a cross-platform engine, somewhere else? What’s the most likely choke point?
BALL: There seem to be two different answers to that. Number one is software distribution. This is your classic discovery and distribution of virtual experiences. Steam does that. Roblox does that. Google does that, frankly, the search engine. That gateway to virtual experiences typically affords you the opportunity to be the dominant identity system, the dominant payment system, and so on and so forth.
The other option is hardware. We can think of the metaverse as a persistent network of experiences, but as with the internet, it may exist literally and in abstraction, but you can only access it through a device. Those device operators have an ever-growing network of APIs, experiences, technologies, technical requirements, and controls through which they can shape it.
