Category: Uncategorized
Libra responds to my queries
Excellent to see such dialogue, very good responses, here is the relevant set of replies on Twitter. Here were my original queries.
The Libra reserve, discussion of background documents
Here is a 4-pp. appendix of sorts to the core Libra white paper, and it has some of the details that will be of most interest to monetary economists. I have learned:
1. The Libra will be backed by a bundle of pretty safe, pretty mainstream assets (I don’t know which ones). It is presented as one hundred percent reserve, though no system with fluctuating prices and also float really will be pure one hundred percent. And the reserve is in “low-risk” assets, attention all critics of the Basel capital standards.
1b. The paper has a chance to say that the custodians will be separately capitalized, with no cross-collateralization, for purposes of Libra protection, but it does not do so. I would recommend that change.
2. The assets in the reserve fund will come from users of Libra (how will they be charged?) and from “investors in the separate Investment Token.” Furthermore “The funds for the coins that will be distributed as incentives will come from a private placement to investors.”
3. What about the public choice issues? Won’t banks insist — correctly or not — that this represents competition and part of the payments system, and thus it should be brought under deposit insurance control and taxation, Fed regulation, various bank holding company acts, Monetary Control Act of 1980, and so on? Have banks ever lost a political battle of this kind?
4. We are told “The association does not set monetary policy. It mints and burns coins only in response to demand from authorized resellers.” Maybe, of course there are hundreds of years of debate on that one, google “real bills doctrine,” noting that here we have a semi-dominant private issuer rather than a perfectly competitive banking system. The association policy on interest rate spreads, floats, and credit, of course, can end up being a monetary policy de facto. I don’t want to prejudge this one against Libra, since to me the validity of the real bills doctrine is a genuinely open question, but it is worth noting that most economists would not agree with the doctrine in most settings.
4b. Won’t some margins arise where there are fractional reserves, even if Facebook/association/Libra are not the ones doing it? Imagine that a new class of intermediaries arises, offering some intermediate services between the core system and retail use, but not adhering to the 100% reserve provisions. The logic behind this tendency seems pretty strong, for better or worse, and it can reintroduce risk into the system. Someone wants to be holding higher yielding assets and then be making claims on them be liquid through the Libra system. But Facebook/Libra would not seem to have the power to regulate the surrounding system of intermediaries, or is that somehow to be done through covenant (“you can’t use Libra unless you promise not to pile your intermediaries on top of it”)?
5. The crypto angle does seem like a sideshow, for me that is not a problem.
6. Imagine a private payment company issuing SDRs, or some other similar basket, based on 100% backing. They would offer you new transactions technologies for greater convenience (WhatsApp?), in return receiving access to your transactions data and sharing some of the float and spread all around, to merchants and customers too. Perhaps that is one way of thinking about how the plan works and where the gains from trade come from?
7. Is there a provision in the system for zero or low-interest loans? Can I send small amounts of “libras,” say to pay my water bill, without first having them in my account? Might sellers sign up to participate in such a system, sharing part of the credit risk with Libra? And is there a way to do it, with crypto and layered assets and float and implicit positions, so that all this is not subject to the usual consumer credit regulations? Is that part of how the system will make money and attract interest? This is just speculation, my question marks here are literally question marks, not tricks to make you think that is how it will be.
8. “Who holds intraday credit risk?” is always a question worth asking.
9. Does any of this try to arbitrage away the fees earned by credit card companies for their intermediation?
10. What if the market for the underlying currencies and assets is (for a while?) more liquid than the market for Libras? Say the basket values adjust before Libra values do. What kind of arbitrage opportunities does that create? If we know Libras are due to depreciate, is there a higher nominal rate of interest on them, as with traditional currencies in an international multi-currency setting? What are the equivalents of covered and uncovered interest parity in this setting? Does a kind of “program trading” arise to perform the arbitrage? Can perfect redemption be offered credibly while the prices are still out of whack?
I still don’t feel I have a great handle on the plan, but those are my immediate reactions. You should take them with a grain of salt, as they may be based on misunderstandings or perhaps even plan incompleteness. I look forward to learning more.
Addendum: If anyone connected to Libra would wish to send more information or address these questions, I would gladly run that material on MR.
Tuesday assorted links
Monday assorted links
2. Deplatforming Northern Irish murals?
4. Are economic referees gender neutral?
5. Claims about Facebook, overstated but nonetheless relevant.
Whale carrying costs > whale liquidity premium
Or so it seems to me, here is the headline: Washington state waterfront owners asked to take dead whales
Here is part of the story:
At least one Washington state waterfront landowner has said yes to a request to allow dead gray whales to decompose on their property.
So many gray whale carcasses have washed up this year that the National Oceanic and Atmospheric Administration Fisheries says it has run out of places to take them.
In response, the agency has asked landowners to volunteer property as a disposal site for the carcasses. By doing so, landowners can support the natural process of the marine environment, and skeletons left behind can be used for educational purposes, officials said.
But the carcasses can be up to 40 feet (12 meters) long. That’s a lot to decay, and it could take months. Landowner Mario Rivera of Port Hadlock, Washington, told KING5-TV that the smell is intermittent and “isn’t that bad.”
“It is really a unique opportunity to have this here on the beach and monitor it and see how fast it goes,” said his wife, Stefanie Worwag.
Via Anecdotal.
Sunday assorted links
1. The idea of prosecuting prostitutes’ clients is spreading, including possibly to the Netherlands (The Economist).
2. “Online, sobriety has become “the new black,” asserts a recovery site called, yes, Hip Sobriety.” (NYT. link here)
3. Critique of social psychology, not just the usual stuff.
4. Isn’t this abuse of Haitian orphans a way bigger scandal than most of what comes out of universities these days?
5. Data on what universities mean when they talk about diversity.
Saturday assorted links
1. An unusual look at Hindu nationalism.
2. “The agents told Schum that they suspected Sunset Mesa had sold Johnson’s entire body, potentially one of hundreds to meet a similar end.” Sunset Mesa — what a great American name.
3. Adaptation from the new Neil Irwin book (NYT).
4. Sean Patrick Hughes reviews *Big Business: A Love Letter to an American Anti-Hero*.
5. How Amazon cloned a neighborhood to test its delivery robots (Wired).
Why Chinese is so difficult
Worse than you think, I enjoyed the discussion of dictionaries most of all:
One of the most unreasonably difficult things about learning Chinese is that merely learning how to look up a word in the dictionary is about the equivalent of an entire semester of secretarial school. When I was in Taiwan, I heard that they sometimes held dictionary look-up contests in the junior high schools. Imagine a language where simply looking a word up in the dictionary is considered a skill like debate or volleyball! Chinese is not exactly what you would call a user-friendly language, but a Chinese dictionary is positively user-hostile.
Figuring out all the radicals and their variants, plus dealing with the ambiguous characters with no obvious radical at all is a stupid, time-consuming chore that slows the learning process down by a factor of ten as compared to other languages with a sensible alphabet or the equivalent. I’d say it took me a good year before I could reliably find in the dictionary any character I might encounter. And to this day, I will very occasionally stumble onto a character that I simply can’t find at all, even after ten minutes of searching. At such times I raise my hands to the sky, Job-like, and consider going into telemarketing.
Chinese must also be one of the most dictionary-intensive languages on earth. I currently have more than twenty Chinese dictionaries of various kinds on my desk, and they all have a specific and distinct use. There are dictionaries with simplified characters used on the mainland, dictionaries with the traditional characters used in Taiwan and Hong Kong, and dictionaries with both. There are dictionaries that use the Wade-Giles romanization, dictionaries that use pinyin, and dictionaries that use other more surrealistic romanization methods. There are dictionaries of classical Chinese particles, dictionaries of Beijing dialect, dictionaries of chéngyǔ (four-character idioms), dictionaries of xiēhòuyǔ(special allegorical two-part sayings), dictionaries of yànyǔ (proverbs), dictionaries of Chinese communist terms, dictionaries of Buddhist terms, reverse dictionaries… on and on. An exhaustive hunt for some elusive or problematic lexical item can leave one’s desk “strewn with dictionaries as numerous as dead soldiers on a battlefield.”
There is however much more, by David Moser, via someone on Twitter, sorry I forgot.
Laying of cable for the transatlantic telegraph is an underrated achievement
To provide storage space for the huge coils of wire, three great tanks were carved into the heart of the ship. The drums, sheaves, and dynamometers of the laying mechanism, occupied a large part of the stem decking, and one funnel with its associated boilers had been removed to give additional storage space. When the ship sailed from the Medway on June 24, 1865, she carried seven thousand tons of cable, eight thousand tons of coal, and provisions for five hundred men. Since this was before the days of refrigeration, she also became a seagoing farm. Her passenger list included one cow, a dozen oxen, twenty pigs, one hundred twenty sheep. and a whole poultry-yard of fowl.
That is 1865 we are talking about here, remarkably early (in my view) for laying a cable across the bottom of the entire Atlantic.
The passage is from Arthur C. Clarke’s excellent How the World Was One: Beyond the Global Village.
Friday assorted links
1. “The first rule of promoting cohesion is: Don’t talk about cohesion.”
2. Consumer protection law vs. antitrust for tech companies.
3. The English word that hasn’t changed in sound or meaning in 8000 years.
4. Glen Weyl, Lucas Geiger, & Kaliya Young on identity verification.
5. The Poet says professional athletes should have their own doctors.
6. Paul Krugman on rent control (NYT, 2000).
Rent control returns to New York
The bills announced on Tuesday night by the Democratic leaders of the State Senate and the Assembly would abolish rules that let building owners deregulate apartments and close loopholes that permit them to raise rents.
The legislation would directly impact almost one million rent-regulated apartments in New York City, which account for more than 40 percent of the city’s rental stock, and allow other municipalities statewide beyond New York City and its suburbs to adopt their own regulations…
The rent regulation package, which is expected to be approved before the end of the week, is perhaps the most resonant symbol of the change in power in Albany since Democrats took complete control in November.
Republicans had dominated the State Senate for most of the last century and formed a close alliance with the New York City real estate industry, which donated heavily to Republican senators.
The elections in November not only brought Democrats to power in the State Senate, but also saw the rise of progressive lawmakers who fiercely opposed real estate interests.
Here is the full NYT story. Perhaps someday I will write a book or essay called The Great Forgetting…
Thursday assorted links
Should we let graduate students in private universities form unions?
That is the topic of my latest Bloomberg column and my answer is no, here is one excerpt:
One core reason to have unions is to boost the real wages of needy workers. But graduate students are not employees in the traditional sense. They are receiving training, often on very favorable terms. Typically a university is investing large sums of money to make those students employable and successful, usually on the academic market; the University of Chicago says it invests more than $500,000 per doctoral student. If those students demanded and received higher wages for their teaching, the university would not necessarily increase its investment in them at all; it could simply reallocate existing funds. Thus it is misleading to think there is a real bargaining situation here.
Think of a university as an investor in these students, and toward that end it must choose between boosting their academic quality through better training, or paying them higher stipends and teaching wages to ease their immediate financial concerns. The incentive for the university, which cares about its broader and longer-term reputation, is to invest in the quality of those students but pay them smaller amounts (though enough to live on). In contrast, the incentive for a graduate student union would be to push for higher wages, given that the other university investments are less visible and hard to monitor.
At the margin, society is better off if the focus is on the training, which enhances productivity in the long term, rather than on higher wages and stipends for students in the short term.
And:
In general, when considering this issue, ask yourself a question: When it comes to bringing about change, do today’s universities have too many veto points or too few?
Some researchers have pointed out that graduate student unions don’t seem to have harmed the public universities that allow them (such unions, which are permissible in many states, would not be affected by the federal government’s decision). The evidence may be compelling in the short run, but the real costs are likely to come later — by slowing down or even preventing beneficial changes to the U.S. system of higher education. Furthermore, state labor laws dramatically limit what public employees can negotiate for. Unionized graduate students at private universities unions would not face similar restrictions.
Recommended, do read the whole thing.
Wednesday assorted links
1. China fact of the day: “Prefectures that experienced a more severe export slowdown witnessed a significant increase in incidents of labor strikes.”
2. Raising children with voice assistants. And Canada bans the keeping of whales and dolphins in captivity.
3. Why this professor does not retire at age eighty. A good piece, not to be taken entirely uncritically, of relevance to more people than just professors.
4. Dose of Gwern.
5. Airfares are getting cheaper.
6. Rachel Glennerster podcast on how to invest in the developing world. Has a transcript too.
RIP, Martin Feldstein
In addition to being a great economist, Marty was an institution builder. He was the early driving force behind the rise of the NBER, he led the development of empirical public finance as a respected field, and also very early on he pushed health care economics, both through his leadership at the NBER and through his own work and mentorship. He always was reaching out to help others, and Larry Summers, Jim Poterba, David Cutler, Raj Chetty, and Jason Furman were some of those he mentored. The economics of art museums was yet another topic he had a real interest in, and stimulated research in.
Marty also was one of my oral examiners at Harvard, and he asked only excellent questions. I thank him for judging my answers to be good enough.