Thursday assorted links
1. Funny and rude map of Brazil.
2. Did Silicon Valley drive the stagnation problem?
3. Kind > nice.
4. Noah reviews Power and Progress.
5. Caribbean reading list: “You can judge your progress by continually listening to Lee Perry‘s music. If you can comprehend why his music best represents English Caribbean culture, then you are on your way.”
Nixonian Politics and Student Debt Cancellations
In the political economy chapter of our textbook, Modern Principles of Economics, Tyler and I discuss how voters appear especially responsive to economic conditions in the year of an election. Politicians who want to be reelected, therefore, are wise to do whatever they can to increase personal disposable income and reduce inflation in the year of an election even if this means decreases in income and increases in inflation at other times.
One of the most brazen examples comes from President Richard Nixon. Just two weeks before the 1972 election, he sent a letter to more than 24 million recipients of Social Security benefits. President Nixon’s letter read:
Higher Social Security Payments
Your social security payment has been increased by 20 percent, starting with this month’s check, by a new statute enacted by Congress and signed into law by President Richard Nixon on July 1, 1972.
The President also signed into law a provision that will allow your social security benefits to increase automatically if the cost of living goes up. Automatic benefit increases will be added to your check in future years according to the conditions set out in the law.
In other news:
President Joe Biden on Wednesday will announce $1.2 billion of student debt relief for nearly 153,000 borrowers — and he’s sending emails to make sure they know whom to thank for it.
…“Congratulations—all or a portion of your federal student loans will be forgiven because you qualify for early loan forgiveness under my Administration’s SAVE Plan,” says the email message from Biden that the Education Department plans to send on Wednesday to the latest group of borrowers receiving loan forgiveness.
“I hope this relief gives you a little more breathing room,” Biden writes in the message.
Note also:
…The administration says that it has now approved loan discharges totaling nearly $138 billion for nearly 3.9 million borrowers through dozens of administrative actions since coming into office.
“Administrative actions,” in other words without Congress passing a law. You may recall that the Supreme Court ruled that the administration did not have the authority to cancel student debt under the HEROES Act (which it obviously didn’t). However:
Hours after the Court issued its decisions in Nebraska and Brown, the Biden Administration announced that it was beginning a regulatory process, called negotiated rulemaking, to consider providing loan cancellation under the HEA rather than the HEROES Act.
Addendum: Do also read my previous post where I noted “…the student loan program, as currently written, is looking to be one of the most costly, inefficient and unwise government programs of the 21st century.”
The commercial impact of Sora
That is the topic of my latest Bloomberg column, here is one excerpt:
The more clear and present danger to Hollywood is that would-be viewers might start making their own short videos rather than watching television. “Show my pet dog Fido flying to Mars and building a space colony there” is perhaps more fun than many a TV show.
Sora and comparable services will lead to a proliferation of short educational videos, internal corporate training videos, and just plain fooling around. Sora probably will be good for TikTok and other short video services. It is not hard to imagine services that splice your Sora-constructed videos into your TikTok productions. So if you’re doing BookTok, for example, maybe you put a battle reenactment in the background of your plug for your new book on the US Civil War.
Perhaps the most significant short-run use of these videos will be for advertising — especially internet advertising. Again, there is the question of how to integrate narrative, but the costs of creating new ads is likely to fall.
More advertising may sound like a mixed blessing. But ads will almost certainly be more fun and creative than they are now. Watching ads may become its own aesthetic avocation, as is already the case for Super Bowl ads. These ads also might be targeted, rather than serving a mass audience. If your internet history suggests you are interested in UAPs, for example, perhaps you will see ads with aliens telling you which soap to buy.
And to close:
At the most speculative level, the success of Sora may increase the chance that we are living in a simulation — a computer-based world created by some high-powered being, whether a deity or aliens. Is that bullish or bearish for asset prices? It depends on how you assess the responsibility and ethics of the creator. At the very least, our planet Earth simulator seems to be able to generate videos that last longer than a single minute. Beyond that, I cannot say.
There is much more at the link, interesting throughout.
Scott Sumner on Nato
He titles his post What Tyler and Trump get wrong about NATO, excerpt:
I believe that both Trump and Tyler misunderstand the role of Nato. The most important aspect of Nato is not the amount it spends on the military, rather its role is to provide a mutual defense pact so large that no nation would dare to attack even its tiniest members. In that regard, it’s a smashing success.
Do read the whole post. I agree that Nato is a relative success, but nonetheless think “pure alliance” is not enough as a model, rather it has to be backed by an actual not-solely-American-or Turkish-capability-to-defend. One increasingly plausible risk is simply that American forces and supplies (the latter being already undersupplied) may be stretched thin elsewhere.
Another risk is that America may elect a leader who is not strongly committed to Nato, and this may even be likely. To limit member defection ex ante, Nato membership still needs to offer some credible (non-American) protection ex post. Poland, for instance, could do a lot more to help protect Lithuania if it had some significant German military aid and assistance.
Finally, and perhaps most importantly, the degree of American protection is never guaranteed by a mutual protection treaty per se. Let’s say that Russian “volunteer forces” encroached on Eastern Estonia. How much do American voters care about this? Exactly how strong a response would the U.S. mount, and against what or whom? I suspect the U.S. would be far more enthusiastic about serious rather than nominal involvement if front-line Polish, German, Lithuanian and other troops are doing a reasonable share of the heavy lifting.
In sum, for the Nato alliance to be credible, including on matters of degree, the defense capabilities need to be more broadly distributed than they are at the moment. It is odd to me that “credibility of degree” is so important in Scott’s monetary policy thinking, but not on this issue.
Israel facts of the day
GDP declined by an annualised 19.4 per cent compared with the third quarter. On a pure quarter-by-quarter basis, the economy contracted 5.2 per cent compared with the previous three months.
The sharp drop was caused in part by the call-up of 300,000 reservists, who had to leave behind their workplaces and businesses to embark on months of army service, the Central Bureau of Statistics said.
Other factors to hit the economy included the government’s sponsorship of housing for more than 120,000 Israelis evacuated from the northern and southern border areas of the country.
Following the October 7 attack, Israel also imposed tough restrictions on the movement of Palestinian workers from the West Bank into the country. The move hit the construction sector, causing labour shortages that became an additional drag on economic growth, the bureau said.
Overall, Israel still closed the year with a growing economy, with GDP up 2 per cent in 2023 from 2022. But that compared with an increase of 6.5 per cent a year earlier.
The war has triggered a steep increase in government spending, which rose 88 per cent in the three months after the outbreak of war compared with the preceding quarter. Consumers, meanwhile, were spending 27 per cent less. Imports of goods and services fell 42 per cent, the report said, while exports dropped 18 per cent.
Wednesday assorted links
1. AI-generated advice doesn’t help lesser performers as much as you might think: data from chess.
2. Incels are slightly left of center on average.
3. How AI is changing the internet (WSJ). And here is Consensus, which summarizes scientific papers for you.
4. Why isn’t solar scaling in Africa?
5. Counties with the highest life expectancy in the United States.
6. Four individual Beatles movies are coming out, I predict Ringo’s will be best.
Random Admissions Above the Bar
Jon Klick, Professor of Law at the University of Pennsylvania Carey Law School (and a distinguished GMU econ grad), argues that Penn should “abandon the fiction that holistic evaluation is anything more than a way to hide discretion.”
Instead, Penn should set a standardized test score floor and then randomly choose its admittees from the pool of applicants meeting that requirement. That’s it; that’s the application process. Setting a floor helps make sure the matriculating class has the requisite cognitive ability to succeed but otherwise limits concerns about ideology being privileged over academic merit. Random selection (as opposed to just taking the highest test scores) recognizes that standardized tests may be too blunt to make fine distinctions among students and generates a campus population that approximates the population of smart young adults along many more dimensions than we currently consider.
Faculty have largely abandoned the job of admitting students to a professional class of admissions officers. A standardized test floor would simplify the process for universities and reduce the rent-seeking scramble of high-school students to add yet more extra-curricular eye-candy to their highly-crafted personal statements.
Equatorial Guinea facts of the day
After the discovery of oil in the mid-1990s, per capita income soared and catapulted the country into the club of high income countries (it peaked at over $35,000). Meanwhile, living standards stagnated at deplorable levels — from education attainment, to infant mortality rates, to poverty rates, and more. Primary school enrollment has declined since peaking in the early 2000s. Life expectancy is 15 years lower than in countries of comparable per capita income (presently at round $7500). Poverty rates exceed 70%.
To compound matters, the country’s oil output is in decline. Current oil production (around 52k barrels per day) is a mere 13% of peak production in the mid 2000s. As a result of decades-long neglect of the non-oil sector, overall economic output is declining in tandem with declining oil production.
Here is more from Ken Opalo, the piece is instructive throughout.
Well-functioning democracy for neither me nor for thee?
I have been following only snippets of the debate over whether Biden should step down as the Democratic nominee, for instance here Josh Marshall responds to Ezra Klein (NYT). Most of all, I am struck by how little faith some of the commentators have in democratic processes. Let’s consider a few possible arguments why Biden should not step down:
1. The Democratic Party process would not produce an electable candidate against a Republican with dozens of criminal charges against him. Not even in an election that is supposed to have such enormous stakes.
2. The Democratic Party process would not produce a better candidate than a guy who, whatever the reality may be, is regarded by most of the American public as too old. Not even in an election that is supposed to have such enormous stakes.
3. An open Democratic Party convention would badly embarrass itself, if it were on the television (and internet) every evening. Remember Chicago 1968?
4. An open Democratic Party convention would be chaos, and perhaps commandeered by party extremists.
5. “Dealing” with Kamala Harris, whether that means accepting her as the nominee, or easing her out, somehow involves unacceptable consequences.
6. There are other arguments floating around too.
I am not saying these arguments are true (mostly I don’t know), I am merely reporting that I am reading and hearing them, and yes I mean from Democrats.
Most of all, I am struck by how skeptical and cynical these arguments are about democracy. It’s not even democracy in the “can we beat the Trumpers?” sense, but democratic processes internal to the Democratic Party.
Skepticism about democracy — yet never ever explicitly voiced — is a growing problem among Democratic Party thinkers (though not Ezra). On one hand, they wish to turn around and call people on the Right, or libertarians, “undemocratic,” or “anti-democratic,” or whatever. On the other hand, when it comes to actual decisions of great consequence, they are the ones terrified of the democratic processes they themselves have created. They know that, but can’t quite bring themselves to voice their doubts in those terms.
I am pleased to see that I am more positive on democracy than so many of the Democratic Party thinkers. I don’t have any particular predictions about the 2024 cycle, but I can report that I am not short the market. What I observe, however, is just how many people are shorting democratic processes and ideals. Must, sooner or later, a greater consistency between theory and practice reign? Or are professed views simply the handmaiden of political convenience, and they will, one way or another, disperse and end up blowing in the wind?
Sentences to ponder
We find that standard population growth projections imply larger reductions in [per capita] income than even the most extreme widely-adopted climate change scenario.
Note these results are referring to population growth, not shrinkage. Of course those of you who remember Paul Ehrlich and his “population bomb” campaign may be skeptical. Still, if you think there are countries or regions that are just not going to grow much in absolute terms, exactly why is this wrong? Ehrlich was clearly wrong about countries that were set to grow — is that everyone?
Should per capita or total income be the standard here?
That sentence is from a macroeconomics paper, here is more, via Robin Hanson.
Tuesday assorted links
1. Museum Selfie-Takers Are Causing Damage by Backing Into Artworks.
2. New Zealand is now falling behind much of Eastern Europe.
4. More coverage of Bukele. Good piece.
5. How religious is Iran these days?
6. Paul Bloom on how to be a good podcast guest.
7. Peter Thiel talk at Harvard. Best part on Christianity and the Woke starts at about 28:00.
Give Innovation a Chance
Elizabeth Currid-Halkett writing in the NYTimes discusses her son’s muscular dystrophy and his treatment with the controversial gene-therapy Elevidys. Currid-Halkett, like many parents whose children have been treated with Elevidys, reports much better results than appear in the statistics.
On Aug. 29, [my son] finally received the one-time infusion. Three weeks later, he was marching upstairs and able to jump over and over. After four weeks, he could hop on one foot. Six weeks after treatment, Eliot’s neurologist decided to re-administer the North Star Ambulatory Assessment, used to test boys with D.M.D. on skills like balance, jumping and getting up off the floor unassisted. In June, Eliot’s score was a 22 out of 34. In the second week of October, it was a perfect 34 — that of a typically developing, healthy 4-year-old boy. Head in my hands, I wept with joy. This was science at its very best, close to a miracle.
…a narrow focus on numbers ignores the real quality-of-life benefits doctors, patients and their families see from these treatments. During the advisory committee meeting for Elevidys in May 2023, I listened to F.D.A. analysts express skepticism about the drug after they watched videos of boys treated with Elevidys swimming and riding bikes. These experts — given the highest responsibility to evaluate treatments on behalf of others’ lives — seemed unable to see the forest for the trees as they focused on statistics versus real-life examples.
Frankly, I side with the statistics. We don’t hear from the parents in the placebo group whose children also spontaneously made improvements.
Even though I side the statistics, I side with approval. Innovation is a dynamic process. It’s not surprising that the first gene therapy for DMD offers only modest benefits; you don’t hit a home run the first time at bat. But if the therapy isn’t approved, the scientists don’t go back to the drawing board and keep going. If the therapy isn’t approved, it dies and you lose the money, experience and learning by doing that are needed to develop, refine and improve.
Approval is not the end of innovation but a stepping stone on the path of progress. Here’s an example I gave earlier of the same principle. When we banned supersonic aircraft, we lost the money, experience and learning by doing needed to develop quieter supersonic aircraft. A ban makes technological developments in the industry much slower and dependent upon exogeneous progress in other industries.
You must build to build better.
Addendum: Peter Marks is the best and perhaps the most important director CBER has ever had. CBER, the Center for Biologics Evaluation and Research, is responsible for biological products, including vaccines and gene therapies. Marks has repeatedly pushed and sometimes overruled his staff in approving products like Elevidys. Marks named and was the driving force at the FDA behind Operation Warp Speed, a tremendous FDA success and break with tradition. Marks has been challenging the FDA’s conservative culture. I hope his changes survive his tenure.
Map of the day model this mother distance what else besides population density
This is one of the most fascinating charts I’ve ever seen.
Been staring at it all morning trying to draw assumptions from it pic.twitter.com/vG01VRNExu
— Ben Little (@TRUmav) February 19, 2024
U.S. equity market dominance
That is the topic of my latest Bloomberg column:
The worldwide dominance of US equities is increasingly obvious. Of the top 10 components of the MSCI global stocks index — which itself now consists of about 70% US stocks — eight are US technology companies. The S&P 500 has breached the 5,000 level. On most days, Apple or Microsoft alone is more valuable than the entire stock markets of major European countries. By one estimate, last year publicly traded US firms accounted for 44.9% of global market capitalization.
All these gaudy numbers raise a question: Is the world on the cusp of a new American century, at least in the corporate realm? The answer is a qualified “yes.”
And this:
The major US tech companies sell to the entire world. Therefore part of the relative rise of US equities is about the liquidity and prestige of US markets, not just US economic success. US listings will dominate, and all the more over time, even when US customers are not the main source of revenue. Say you found a successful French AI company. Wouldn’t you prefer to be listed on the Nasdaq rather than on Paris Stock Exchange? A Nasdaq listing may make it easier to raise money, and the rest of the world will have a better understanding of the rules under which your securities are governed.
And:
And, just to fill out this rosy picture of America’s economic future, the US is doing well in other kinds of financial markets as well, including venture capital, private equity and private credit. The financialization of an economy does carry risks, but a lot of the recent developments are about deleveraging and greater maturity-matching — which should contribute to stability rather than damage it.
There is much more at the link.
ChatGPT as a predictor of corporate investment
We create a firm-level ChatGPT investment score, based on conference calls, that measures managers’ anticipated changes in capital expenditures. We validate the score with interpretable textual content and its strong correlation with CFO survey responses. The investment score predicts future capital expenditure for up to nine quarters, controlling for Tobin’s q and other determinants, implying the investment score provides incremental information about firms’ future investment opportunities. The investment score also separately forecasts future total, intangible, and R&D investments. High-investment-score firms experience significant negative future abnormal returns. We demonstrate ChatGPT’s applicability to measure other policies, such as dividends and employment.
That is from a new NBER working paper by Manish Jia, Jialin Qian, Michael Weber, and Baozhong Yang.