Category: Uncategorized
*Ages of American Capitalism*
The author is Jonathan Levy (U. Chicago) and the subtitle is A History of the United States, noting it is mostly an economic history from a left-mercantilist, nation-building point of view. So far on p.95 I quite like the book, here is one excerpt:
Ironically enough, in some respects Jefferson’s Empire of Liberty came to resemble the eighteenth-century British empire. Congress revoked all internal taxes. The military budget was cut in half. A provision of the 1789 Constitution, the Commerce Clause, granted Congress the authority to regulate commerce “among the several states,” forbidding interstate mercantilist discrimination. The result was to check state discrimination, opening up a unitary commercial space and increasing the extent of markets and thus the demand for goods. Empires, while forging common political jurisdiction, accommodate pluralism and difference in rule, often so that different elements in the empire might engage in commerce. In this respect, the Louisiana Purchase, in essence, handed the United States its own version of a West Indies in the lower Mississippi Valley. By 1810 already 16 percent of the U.S. slave population lived in the trans-Appalachian West. New slave-based triangular trades appeared on the North American continent, in a great counterclockwise national wheel of commerce.
741 pp. of text in this one, I am curious to see what comes next. And my colleague Steven Pearlstein wrote a very good review of the book.
What I’ve been reading
1. William Wordsworth, The Prelude, 1805 edition. Many people who read “the Great Books” never touch this one, because it is a poem, and a long one at that (about 200 pp. in my Oxford edition). Nonetheless a) it is one of the best poems, and b) the experience of reading it is more like reading “a great book” than like reading a poem. I am very happy to be rereading it. Highly recommended, and it is also important for understanding John Stuart Mill, the decline and transformation of classical economics, and how German romanticism shaped British intellectual history.
2. Julian Hoppit, The Dreadful Monster and its Poor Relations: Taxation, Spending and the United Kingdom, 1707-2021. A highly useful fiscal history, the book also has plenty on Ireland and those are often the most interesting sections. There had been a formal union in 1801, but during the Great Famine there was no fiscal risk-sharing with Ireland. At the time, the national government in London also much preferred spending in England to spending to Scotland. At 223 pp. of text it feels short, but is still a nice illustration of how fiscal policy really does show a government’s priorities and throughout history always has.
3. Seamus Deane, Small World: Ireland 1798-2018. Deane passed away only last month, might he have been Ireland’s greatest modern critic? Covering Burke, Swift, Joyce, Elizabeth Bowen, Heaney, Anna Burns and much more, these essays are especially good at tying together “old Ireland” with “current Ireland.”
4. Robert B. Brandom, A Spirit of Trust: A Reading of Hegel’s Phenomenology. I’ve only read the first forty or so pages in this one, and I will read them again. I am not sure it makes sense for me to study this book further, given my priorities. Yet it seems worth the $50 I spent on it. If you wish to imbibe a truly impressive, line-for-line smart and insightful take from a contemporary philosopher, this 2019 book is exhibit A, noting that it serves up 757 pp. of text. I’ll let you know how far I get.
Gene Slater’s Freedom to Discriminate: How Realtors Conspired to Segregate Housing and Divide America is a very good and useful book about the role of realtors and covenants in shaping residential discrimination.
Michael Albertus, Property Without Rights: Origins and Consequences of the Property Rights Gap. I have only pawed through this one, but it appears to be a highly useful extension of de Soto themes with better data and a more systematic approach.
Edward Slingerland, Drunk: How We Sipped, Danced, and Stumbled Our Way to Civilization is an argument that our capacity for getting drunk, and indeed the act of getting drunk, enhances creativity, trust building, and stress alleviation. I mostly agree, but…
Friday assorted links
1. Not sure I have been abused for any prediction more than this one, and yet it seems true: “Democratic primary voters have been turning away this year from the anti-elite furies that continue to roil Republican politics, repeatedly choosing more moderate candidates promising steady leadership over disrupters from the party’s left wing.” Here is yet further evidence of ongoing moderation.
2. More on Ivermectin. And very real progress on dengue — yes the biomedical revolution finally is here. More on that from The Atlantic.
3. Chess players ranked by fighting spirit?
4. Can Bollywood survive Modi? (Atlantic)
5. Ross Douthat on @pmarca and “Reality Privilege in action.”
Austin Vernon on El Salvadoran bitcoin acceptance, from my email
Sent this to [redacted, a man of substance] yesterday. LN = Lightning Network, Bitcoins layer 2 scaling solution based on channels:
As far as I understand it, everyone using LN in El Salvador has primarily been using Strike. Classic crypto conundrum in that they had to centralize to get it to work. There is a Twitter thread with the CEO where he shows they had to block their software using most non Strike LN nodes because there were so many failed payments.
https://mobile.twitter.com/JackMallers/status/1291403528116883456
https://strike.me/faq/howitworks
Also looks like you submit USD and they have some kind of centralized payment system to manage the transactions to the Bitcoin layer 1 chain.
I imagine this is a big improvement for people in El Salvador and I’ve heard Strike has already been popular, but I don’t see it as what is being touted as.
Additionally to the email above:
There was an out at the end of the law that says you don’t have to accept Bitcoin if you are too poor. But a basic smartphone with the app means you can accept it. There is a small town where a donor gave the town Bitcoin and forced them to use it as currency and even started doing a private UBI in Bitcoin. Some of the stores started taking it. Strike is only available in the US and El Salvador. So in a truth is stranger than fiction, the idea probably got jumpstarted by a surfer that loved both a beach town and bitcoin. Helps that El Salvador uses the dollar. The legislators would just have to drive to the town to see how it works rather than read about it.
To me this is more like a new kind of bank than some decentralized currency takeover, because Strike is relatively centralized. Being like a bank probably implies some of the same advantages and vulnerabilities of a regular bank. The PR is nice! Not having to get cash at a Western Union that might be far (and where you can get robbed) could have more impact than cheaper fees. It will be a few years before the technology exists to do this in a more decentralized way. Interesting nonetheless.
Thursday assorted links
1. Is this possible?: “Criminals may have stolen as much as half of the unemployment benefits the U.S. has been pumping out over the past year, some experts say.”
2. When should ngdp be unstable?
3. Is Nero underrated? (New Yorker)
4. Sixty times the speed of sound? (USS Princeton radar team and pilot source, also a good presentation of the multiple data sources which are neglected by West and PewdiePie.) And here is the common briefing message given to the ex-presidents.
5. Where are the Chinese elephants going and why?
6. Darrell Duffie argues for CBDC.
7. Kristof on the new Claudia Goldin book (NYT).
DeFi is the killer app for crypto
That is the topic of my latest Bloomberg column, let me just give you one segment from the end:
And if the question is whether crypto is good for anything, there is now at least one clear answer: Crypto enables DeFi. You don’t have to like every consequence of that reality, but a reality it is.
You could say that crypto is a Trojan horse of a new and quite different financial system. If you have ever dealt with U.S. banks, and suffered through their bureaucracy and mediocre software, you might conclude that they are ripe for disruption. Banks in other countries may be even more vulnerable.
Obviously, as DeFi grows, questions of government oversight and control will come to the fore. Still, it seems unlikely that DeFi institutions will be regulated out of existence. DeFi can be run on platforms outside of the U.S., and American and European regulators cannot shut it down any more than they can prevent me from placing an online bet on a Mexican soccer game.
Keep in mind that significant swaths of the developing world currently use micro-credit, where borrowing rates of interest are often 50% or 100% on an annualized basis. It is likely that some of those countries will experiment with DeFi as an alternative method of credit allocation, regardless of whether those new institutions satisfy U.S. regulators in every regard.
If you are baffled by a lot of DeFi, well … welcome to the club. The confusing and ever-changing nature of DeFi helps explains why the prices of crypto assets are so volatile. If DeFi lies in part behind the demand for crypto, and you don’t know exactly where DeFi is headed, the future for crypto is also highly uncertain. It is very unusual to have such a highly visible window on what is essentially the value of a bunch of startups.
Recommended, and here are some earlier posts by Alex on DeFi. And here is a new essay on DeFi.
Bitcoin as legal tender in El Salvador
Here is FT coverage, I still feel I don’t know the whole story, but bitcoin will be legal tender and furthermore:
The government will set up a trust at the Development Bank of El Salvador to enable automatic conversion of bitcoin to dollars. The law will take effect 90 days after its publication in the official gazette.
“The entry of bitcoins will be equivalent to an increase in the country’s monetary supply, which will temporarily boost El Salvador’s economic activity, but will also pressure inflation higher and with that, interest rates will rise,” Gabriela Siller, head of economic analysis at Banco Base in Mexico, said in a note to clients.
Here are a few observations:
1. El Salvador already uses the U.S. dollar, so there is not much loss of monetary sovereignty here.
2. Maybe the easing into bitcoin is intended to lower the cost of sending remittances from the U.S., which are fundamental to the El Salvadoran economy? According to the FT, remittances are about one-fifth of gdp, and transfer charges can be steep.
3. Is this all just?: “You don’t have to move to Puerto Rico to avoid capital gains tax, you can just invest in El Salvador! We’re going to precommit to accepting your bitcoin so you will plan around that.”
3b. Isn’t it suspicious that their legislature approved the legal tender law by such an overwhelming margin? Is it that they all have read and digested so many Medium crypto essays? Or do they just see this as “a deal”?
4. I don’t see why this should increase price inflation in El Salvador. Prices are denominated in dollars, and El Salvadorans, or for that matter visiting tourists, already had the option of converting their crypto into dollars before buying more pupusas.
5. Even in the United States the retail demand for bitcoin transactional use has been quite low. Making merchants in El Salvador take bitcoin seems like a PR move to me. What does it mean to make a low-tech merchant in the countryside “take bitcoin”? How is he supposed to take it? Do the abuelas in the market have to set up Coinbase accounts?
6. Could this be a transitional or bridge move to ease El Salvador away from the U.S. dollar and to replace it with a native currency?
7. Is the increasingly authoritarian government of El Salvador looking to PR moves to boost its international legitimacy?
8. Given all the surrounding publicity, it does seem that “they really mean it,” and the government will try to “get something” out of the initiative.
I will keep you posted as I learn more. But as a general rule, if Central America is the laboratory for your ideas, beware before leaping to conclusions too quickly! At the very least do go visit the country you are wondering about, and, in trying to understand the equilibrium, have the country more prominent in your mind than the innovation.
The IRS tax data leak
Sometimes I wonder if I should blog on topics where I feel most of you already know what I think. I’ll just say this. The information was stolen illegally, yet on Twitter so many intellectuals were crowing about the disclosure. (Did some of those same people condemn the theft from Biden Jr.’s laptop? How many of them, in other contexts, will defend strong rights of privacy? I guess that right is for everyone except rich people who create a lot of jobs and output.)
ProPublica acted unethically, and in fact nothing fundamentally new or interesting or surprising was learned from their act as accessory.
The real story is how the numbers were obtained, and here I fear the worst. A single rogue agent can’t just pull up the files of rich people on demand, as I understand the system (if so, Trump’s return would have leaked a long time ago). So this was probably a coordinated effort of some sort, is it crazy to suspect the Russians having some role in it? Who else has the will and ability? (China has the ability, but the “coddled rich people” meme is not one they are looking to push.) What other breach of national security has occurred in the process of unearthing this information? How was it done? Are conspiracy theories becoming more true these days?
It is stunning to me how little consideration these issues are being given and how poorly so much of our MSM has performed.
Wednesday assorted links
1. The case for zoonotic origins.
2. What don’t we know about Long Covid?
3. Ohio sues to have Google declared a public utility.
5. Hester Peirce on crypto (FT).
6. “Progressive taxation underperforming Biden by 12 percentage points in Illinois not paint a particularly rosy outlook with respect to the political feasibility of approaching Western European levels of taxation.” Link here.
Structural unemployment for me but not for thee (a continuing series!)
Paul Krugman cries “Uncle!”, apparently seconded by Peter Diamond, and the continuing deserved elevation of Marianna Kudlyak. She is a truly great and important economist.
Tuesday assorted links
1. National Geographic. And amazing how unfunny is Woke TikTok (NYT). How many Woke comedians could fill a mid-sized arena?
2. Cicadas swarming around Washington are showing up on weather radar.
3. Bitcoin en El Salvador? (in Spanish) What is their real strategy here?
4. An argument that high inflation is indeed coming.
5. Ross is right (NYT). And aphantasia and hyperphantasia (NYT). Here is a rebuttal to Ross if you would like to read it, I think it is weak.
John Stuart Mill on the Californian Constitution
From 1850:
The Californians have not been solely occupied with “the diggings.” They have found time also to construct a set of institutions…It is worthy of remark how instantaneously any body of American emigrants, as soon as they have formed a settlement, proceed to make a constitution; though European authorities of no small account in their own estimation, are never tired of assuring us that constitutions cannot be made. But while these sages are stoutly denying the possibility of motion, the Americans, one after another, like Diogenes, rise up and walk; and not one stumble has occurred to mar the completeness of the practical confutation. Whatever other faults have been found with the Anglo-American constitutions, no one has yet said that they will not work; a fate so often denounced against all constitutions except those which, like the British, “are not made but grow,” or, it should rather be said, come together by the fortuitous concourse of clashing forces.
Mill in particular praised that the California Constitution gave women the right to own their own property. From the Toronto edition of the Collected Works, vol.XXV.
Solve for the football culture equilibrium that is Mexican
Many fans shrug off accusations of homophobia and insist the chant is just a joke. “We do not scream at the goalkeeper because of his sexual preference, we don’t even care about it,” a YouTube commenter on a 2016 public-service video denouncing the chant wrote. “We shout to create chaos, because it is part of the atmosphere of a stadium in Mexico.”
For some, the chant merely illustrates wider homophobia in society.
Here is the proposal of an American academic:
“Convince fans that it brings bad luck to their own team,” Doyle said, “and this nonsense will stop.”
Now that’s a plan. The actual (new) rule is to stop play if the chants become too extreme:
Nearly two years ago, FIFA approved a disciplinary code that allows referees to end matches if fans use chants or display behavior deemed to be homophobic or racist. However, because of COVID-19, Mexico’s national team has played few games in front of fans since the rules were adopted.
But when the team returns to the field May 29 to face Iceland in Arlington, Texas, Yon de Luisa, the Mexican federation’s president, said the new code will be strictly enforced.
If you are feeling just a bit generous in interpretation:
There is vigorous debate over whether the chant is offensive since the offending word is said to have many meanings in Spanish, one of which is a derogatory slur used to demean gay men.
Some countries should be just a bit more woke!
Monday assorted links
1. How inevitable is the concept of numbers?
2. Learning about disadvantage leads to perceptions of incompetence.
3. The decline and indeed collapse of the ACLU (NYT).
5. A journey to puffin island: “Puffins beat their wings up to 400 times per minute, and are vocal when on land but are silent when flying over water.”
6. The import of home field advantage in soccer.
Some points about corporate tax
Written from the British context:
Should the system be changed to one where companies are taxed on all the profits they make from their sales in the country?
There are a few downsides to this.
First of all it would be very hard for one country to switch to such a system without getting the rest of the world to do it too. If we did it unilaterally it would open up more differences between national tax regimes and so create, rather than reduce tax avoidance loopholes.
It is also far from clear the UK would gain from such a change. We might gain from some of the big US-based multinationals paying more tax here, but we have plenty of multinationals of our own and they would generally end up paying less here. The biggest losers could well be poorer developing countries, especially those reliant on extractive industries such as mining. If they could only tax companies based on their sales to their residents in that country that would bring in a lot less than taxing them on the share of the economic value of the products generated in that country. The UK itself still generates between 8 and 9 percent of Government revenues from corporation tax, which is pretty respectable internationally, despite being a very open economy exposed to competition.
There is also an economic question as to who ultimately bears the burden of taxes on a company – is it the shareholders, the customers, or the workers, and if the workers, is it the highly-paid top management or the people at the bottom? The answer is not certain, but it does seem likely that a shift to sales-based tax would be at the expense of the customers. In other words, by taxing internet-based suppliers more, we could be more heavily taxing ourselves.
But the strongest argument against is fairness. If a product is invented / developed / mined / refined / built and potentially even marketed and sold all round the world entirely from country X, making use of staff educated in country X, who use country X’s health care system and transport network, often with tax breaks from country X to encourage its growth, and maybe even wage subsidies from country X for its employees, who deserves to be able to tax the company’s profits? Is it country X, or every country that has someone in it who buys a product from the company? Of course if a country wants to tax sales it can, and sales taxes such as VAT are a perfectly reasonable and sensible part of a country’s tax mix; though in the EU, this is governed to a considerable extent by EU rules.
There are many further detailed points at the link. And do note this:
There is a perceived issue with the internet making it easier than ever for companies to ‘sell into’ a country with little or no presence in that country, and therefore offering little or no taxable base for the government of that country to tax the profits of. Sales taxes can be part of the answer to this.
But of course a sales tax does not appear to consumers to be a free lunch, and so it is not as politically popular as a sales-based hike in corporate rates. And so we arrive at the current mess of a situation: “We want tax equity, but you can’t possibly expect us to do that in a way that is transparent!”