The resurgence of crypto
Crypto and bitcoin, among their other uses, are Rorschach tests for commentators. As these institutions evolve, are you capable of changing your mind and updating in response to new data? Sadly, many people are failing that test and instead staking out inflexible ideological ground.
Bitcoin prices are now in the range of $44,000, and the asset has more than doubled in value this year. Perhaps more surprisingly yet, NFT markets are making a comeback. Many of the older NFT purchases remain nearly worthless, but interest in the asset class as a whole has perked up.
These developments should induce us to reevaluate crypto in a positive direction. If in the past you have argued that crypto is a bubble, can it be the bubble is back yet again? Typically bubbles, once they burst, do not return in a few years’ time. You still will find Beanie Babies on eBay, but they are not surrounded by any degree of excitement. Similarly, the prices of Dutch tulip bulbs appear normal and well-behaved, as that bubble faded out long ago. Bitcoin, in contrast, has attracted investor interest anew time and again.
It is time to realize that crypto is more like a lottery ticket than a bubble or a fraud, and it is a lottery ticket with a good chance of paying off. It is a bet on whether it will prove possible to build out crypto infrastructure as a long-term project, integrated with mainstream finance. If that project can succeed, crypto will be worth a lot, probably considerably more than its current price. If not, crypto assets will remain as a means for escaping capital controls and moving money across borders, or perhaps to skirt the law with illegal purchases.
What might such an infrastructure look like? To make just a few guesses, your crypto wallet might be integrated with your Visa and other credit cards (perhaps using AI?). Fidelity, Vanguard, large banks and other mainstream financial institutions will allow you to hold and trade crypto, just as you might now have a money market fund. Crypto-based lending could help you invest in high-return, high-risk overseas opportunities with some subset of your portfolio. Stablecoins will circulate as a form of “programmable money,” and they will circulate on a regular and normal basis; such a plan was just initiated by the French bank SocGen. On a more exotic plane, AI-based agents, denied standard checking accounts, might use crypto to trade with each other.
I’m not arguing such scenarios are either good or bad, simply that the market sees some chance of them happening. And they are far more than “crypto is a fraud or a bubble.”
Whether that infrastructure will meet market and regulatory tests is difficult to forecast. It has never happened before, and thus no one can claim to be a true expert on the matter. Thus your opinion of crypto should be changing each and every day, as you observe fluctuations in market prices and other changes in the objective conditions.
In this perspective, there are some pretty clear reasons why the price of bitcoin is higher again. First, real interest rates have been falling, and fairly rapidly. Ten-year rates are now closer to four per cent than to five per cent. Since crypto financial infrastructure is a long-term project that won’t be completed in a year or two, lower real interest rates raise the value of that project considerably. The value of bitcoin rises as well, just as many other long-term assets rise in value with lower real interest rates. And if interest rates continue to fall, crypto prices could easily continue to rise.
The resurgence of crypto likely has other causes. The story of SBF is receding from the headlines with the end of his trial. That makes crypto look less scammy. On the regulatory side the United States did not try to shut down Binance, in spite of alleged scandals at the exchange. That is the regulators signaling they are not going to try to destroy crypto. Soon the SEC may approve spot bitcoin ETFs, which would make it easier and safer to invest in that asset. Nor have state laws popped up that might be trying to shut down crypto markets. Finally, the election of Donald Trump as President has not faded as a possibility, and in the past Trump has been supportive of crypto. Overall, the tea leaves are signaling that the U.S. government is making its peace with crypto, or at least with some parts of the market.
So with crypto the most important thing is to keep an open mind. As of late, events have been doing much to signal open and growing possibilities, rather than a world where crypto is shut down.
EconEats — AI restaurant recommendations
From Josh Knox:
The search tool I’ve always wanted – I trained a custom GPT to recommend restaurants based on the rules from [Tyler Cowen’s] An Economist Gets Lunch.
https://chat.openai.com/g/g-5uQtkCDiA-econeats
It’s sort of a retroactive EconGoat project:)
I wrote about the experience on my blog.
https://iamjoshknox.com/2023/12/06/econeats-an-ai-dining-guide/
Friday assorted links
1. The culture that is British crunchy hedgehog food markets in everything.
2. Alex & Books summarizes some of my takes on reading (though he gets the number of books wrong).
5. Which construction tasks have become cheaper?
7. “Before she was Harvard’s president, Claudine Gay was involved in the pushing out a dean after students protested his legal representation of Harvey Weinstein.” Link here.
Strategic CEO Activism in Polarized Markets
CEOs are increasingly making public statements on contentious social issues. In this paper, we examine what motivates CEOs to engage in social activism. We show that CEO social activism is a strategic choice and not necessarily an expression of the CEO’s own political views. Republican-donor CEOs are three-times more likely to make social statements with a liberal-slant. They are also more likely to make social statements when their firm’s operating environment is politically polarized, and when their employees are Democrat-leaning. Such statements are associated with a 3% increase in consumer visits to a firm’s stores in Democrat counties without significantly reducing them in Republican counties. CEO activism is also associated with a 0.12% gain in firm value, increased quarterly sales turnover, and a reduced likelihood of shareholder activism on social issues. Our results suggest that corporate actions that appear to be stakeholder-driven can be motivated by economic concerns.
That is on SSRN by Shubhashis Gangopadhyay and Swarnodeep HomRoy, here is the final published version for JFQA. Via the excellent Kevin Lewis.
Weird anecdotes about philosophers connected to Oxford
Here is one:
McTaggart wore his eccentricities with pride. He rode a tricycle. He walked “with a curious shuffle, back to the wall, as if expecting a sudden kick from behind,” a fact that may or may not be explained by his having been bullied at boarding school. He saluted every cat he met. His dissertation for a fellowship at Trinity, later published as Studies in the Hegelian Dialectic; had elicited from that older Apostle, Henry Sidgwick, the remark; “I can see that this is nonsense, but what I want to know is whether it is the right kind of nonsense.” Apparently, it was.
That is from Nikhil Krishnan, A Terribly Serious Adventure: Philosophy and War at Oxford 1900-1960. Another recent book dealing with both philosophy and war at Oxford is M.W. Rowe’s very thorough J.L. Austin: Philosopher & D-Day Intelligence Officer. Here is that book’s best weird philosopher anecdote:
Robert Paul Wolff noted Quine’s frequent lack of small talk, and his tactics for brushing off unwanted questioners, but his deeper doubts were crystallized by an incident some years later:
“Quine obviously had a sensual side to his nature to complement his intellect, as his attractive second wife and his love of food and jazz attested. But I always thought there was some element of humanity missing from his makeup that gave him a rather cold aura. Quine had just returned from a trip to Germany — this was not fifteen years after the war remember — and he was describing a tour he had taken of SS torture chambers. He exhibited an eerie fascination with the technical efficiency of the facility that struck me as devoid of any real human appreciation of its demonic purpose.”
But at Oxford, Quine was perfectly charming, and his erudition and accomplishments — besides logic and jazz, he was an expert on maps, widely travelled, and said to speak eight languages — ensured considerable social success…
As for the broader book, I had not known the extent to which Austin was a significant and highly successful intelligence officer. It is a very good book if you are interested in hundreds of pages on this topic.
The Effect of Public Science on Corporate R&D
We study the relationships between corporate R&D and three components of public science: knowledge, human capital, and invention. We identify the relationships through firm-specific exposure to changes in federal agency R\&D budgets that are driven by the political composition of congressional appropriations subcommittees. Our results indicate that R&D by established firms, which account for more than three-quarters of business R&D, is affected by scientific knowledge produced by universities only when the latter is embodied in inventions or PhD scientists. Human capital trained by universities fosters innovation in firms. However, inventions from universities and public research institutes substitute for corporate inventions and reduce the demand for internal research by corporations, perhaps reflecting downstream competition from startups that commercialize university inventions. Moreover, abstract knowledge advances per se elicit little or no response. Our findings question the belief that public science represents a non-rival public good that feeds into corporate R&D through knowledge spillovers.
Emphasis added by me. That is a new NBER working paper by
Thursday assorted links
1. Where is San Francisco housing policy headed?
2. Whole genome sequencing for embryos advances.
3. The Indian siblings taking the chess world by storm.
4. Catherine Project classics courses for next year.
5. Why is religious attendance linked to more anxiety in U.S. South Asians?
6. “We introduce a new approach to decode and interpret statutes and administrative documents employing Large Language Models (LLMs) for data collection and analysis that we call generative regulatory measurement. We use this tool to construct a detailed assessment of U.S. zoning regulations. We estimate the correlation of these housing regulations with housing costs and construction. Our work highlights the efficacy and reliability of LLMs in measuring and interpreting complex regulatory datasets.” Link here.
What will you ask the whales?
Sperm whales have equivalents to human vowels.
We uncovered spectral properties in whales’ clicks that are recurrent across whales, independent of traditional types, and compositional.
We got clues to look into spectral properties from our AI interpretability technique CDEV. pic.twitter.com/8sEAzPkMfo
— Gašper Beguš (@begusgasper) December 5, 2023
MR commentator “Sure” on YIMBY
People talk about YIMBY as though it will mean more high rise apartments. And maybe it would in New York or San Francisco, though I have my doubts.
But what people want from their housing is overwhelmingly a short commute and low density.
Currently, the neighborhoods that offer the best tradeoff for these are the priciest in most metropolitan areas. Georgetown, Arlington, Falls Church, Chevy Chase, Great Falls, McLean … all of them offer shorter commutes into DC (or other key job locations like the Pentagon).
And what have YIMBY’s won? Well in Arlington and Alexandria they can now build multifamily housing in places that were once reserved for SFH.
Suppose they do, who is going to move in? The guys who are buying in Chantilly because they want space? Or the guys crowded into a apartment building in NE DC who work in Foggy Bottom?
I submit it will be the latter.
End of the day, Americans want to live in the burbs and the country. If we liberalize zoning everywhere (i.e. the YIMBY dream) then we should expect a net movement from the areas where people say they don’t want to live to the areas where they say they want to live.
And on net that means out of the urban core and into something less dense. Most likely that means leaving the high rises and moving into low rises or multiplexes. End of the day, it will be moving from high density to lower density.
And this will create tensions between maintaining SFH in burbs as opposed to multiplexing them or building low rises.
I have no idea if the price will be the thing that gives – it may rise because the land has suddenly gotten more valuable for a teardown to low rise conversion. This would bring down “housing” prices, but quite possibly increase the cost of detached single family homes as the supply of that specific housing class diminishes. Possibly, the low rises will reduce demand for SFH more than teardowns and foregone SFH developments.
But if that does happen, it means that a lot of suburban areas are going to have a bunch of new residents and voters who are not keen to live the SFH lifestyle. And that is all but certainly going to mean disamenity for the SFH lifers. That may be new local politics, investment in public transportation at the expense of road maintenance, or declining school quality.
But end of the day, if YIMBYism allows people to live as they want because the market can better match demand, then the net flow has to be out of the oversubscribed cities. And the big reason people say they live urban when they would prefer otherwise is to be close to the jobs. This strongly suggests that YIMBY will end up resulting less in skyscrapering the cities and more in multiplexing the burbs.
Outside of a handful of cities with extremely harsh geographic constraints (e.g. NYC, SF), upzoning the burbs will likely eat into the city cores more than new folks will move to the city cores.
Of course there is always the immigration question. With enough immigration, even the cities will fill (i.e. both NYC and SF are already more than a third foreign born), but if we confine ourselves to current residents they want out and they want a short commute.
Here is the link, via Naveen K.
Wednesday assorted links
1. The South Korean woman who adopted her best friend and thus created a family.
2. Who is the literary critic GOAT?
3. Are wealthier people returning to NYC or at least increasing in number?
4. Claims about the declining donor price of Ivy League admission.
5. What predicts risk-taking in research?
6. How many Koreans shoot basketball free throws, and NYT explanation.
The University presidents
Here is three and a half minutes of their testimony before Congress. Worth a watch, if you haven’t already. I have viewed some other segments as well, none of them impressive. I can’t bring myself to sit through the whole thing.
I don’t doubt that I would find their actual views on world affairs highly objectionable, but that is not why I am here today. Here are a few other points:
1. Their entire testimony is ruled by their lawyers, by their fear that their universities might be sued, and their need to placate internal interest groups. That is a major problem, in addition to their unwillingness to condemn various forms of rhetoric for violating their codes of conduct. As Katherine Boyle stated: “This is Rule by HR Department and it gets dark very fast.”
How do you think that affects the quality of their other decisions? The perceptions and incentives of their subordinates?
2. They are all in a defensive crouch. None of them are good on TV. None of them are good in front of Congress. They have ended up disgracing their universities, in front of massive audiences (the largest they ever will have?), simply for the end goal of maintaining a kind of (illusory?) maximum defensibility for their positions within their universities. At that they are too skilled.
How do you think that affects the quality of their other decisions? The perceptions and incentives of their subordinates?
What do you think about the mechanisms that led these particular individuals to be selected for top leadership positions?
3. Not one came close to admitting how hypocritical private university policies are on free speech. You can call for Intifada but cannot express say various opinions about trans individuals. Not de facto. Whether you think they should or not, none of these universities comes close to enforcing “First Amendment standards” for speech, even off-campus speech for their faculty, students, and affiliates.
What do you think that says about the quality and forthrightness of their other decisions? Of the subsequent perceptions and incentives of their subordinates?
What do you think about the mechanisms that led this particular equilibrium to evolve?
Overall this was a dark day for American higher education. I want you to keep in mind that the incentives you saw on display rule so many other parts of the system, albeit usually invisibly. Don’t forget that. These university presidents have solved for what they think is the equilibrium, and it ain’t pretty.
Gun Buybacks and the Elasticity of Supply
Can gun buybacks work? Some simple economics suggests, no! The first of our videos on the elasticity of supply, Why Housing is Unaffordable, illustrated inelastic supply. Today’s video on gun buybacks illustrates elastic supply. Our gun buyback video hits the sweet spot for MRU videos—solid economics leading to surprising conclusions illustrated in an entertaining and accurate way.
Of course, both of these videos draw upon and pair great with our textbook, Modern Principles of Economics.
Differential fertility makes society more conservative on family values
“Family values” conservatives in the United States have more children and more siblings than their compatriots. These patterns reflect the tendency of the more religious and less educated to have larger families and more conservative views on the family. Among Protestants, denominational differences play a role, with fundamentalist groups exhibiting larger families, less education, and greater conservatism. The causal pathways are unclear, but the patterns reshape society: Traditional-family conservatism is more prevalent than it would have been if each person had the same population share as his or her parents. This demographic phenomenon raises opposition to same-sex marriage and abortion by 3 to 4 percentage points. It accounts for 7.9 million of the nation’s 54.8 million opponents to same-sex marriage.
That is a new paper by Tom S. Vogl and Jeremy Freese, from brandonrox.
European inflation was more painful for the elderly
That is the topic of my latest Bloomberg column, here is one bit:
As recent research indicates, the recent inflation has been very costly. The 2021-2022 inflation cost more than 3% of national income in France, Germany and Spain, and about 8% of national income in Italy, higher costs than what a typical recession would bring.
It is striking how much those costs fall on the elderly, which is one reason that lowering inflation rates has been such a priority. The elderly usually have the most accumulated savings, and less time to make up for inflationary losses by subsequent compounding. Older people are also more likely to own homes, so face higher home heating bills when energy prices rise. Overall, in the last several years, a low-income retired household in Italy might have taken income cuts of up to 20%, while a middle-aged household in the euro area might have seen a typical income cut of 5%.
…Not everyone lost from the inflation. Young households in Spain, for instance, gained more than 5% in income. The simplest way a household might gain from inflation is that its debt liabilities decline in real, inflation-adjusted value. On average, the young are more likely to be in debt than the elderly, and own fewer assets. Inflation also tends to lower the value of tenured jobs, such as in academia, and younger people are less likely to hold such posts. The young also tend to have more time in their lives to adjust to negative economic shocks, by for instance geographic or career migration.
Overall, an estimated 30% of the households in the euro area gained from the inflationary shock. Almost half of 25- to 44-year-olds benefited.
On net, the inflation remains a clear negative. But how many other eurozone policies manage to favor the young?
Here is the underlying research by Filippo Pallotti, Gonzalo Paz-Pardo, Jiri Slacalek, Oreste Tristani, and Giovanni L. Violante.