The new Austrian business cycle theory
Of course that is not what they call it:
We study the relationship between credit expansions, macroeconomic fluctuations, and financial crises using a novel database on the sectoral distribution of private credit for 117 countries since 1940. We document that, during credit booms, credit flows disproportionately to the non-tradable sector. Credit expansions to the non-tradable sector, in turn, systematically predict subsequent growth slowdowns and financial crises. In contrast, credit expansions to the tradable sector are associated with sustained output and productivity growth without a higher risk of a financial crisis. To understand these patterns, we show that firms in the non-tradable sector tend to be smaller, more reliant on loans secured by real estate, and more likely to default during crises. Our findings are consistent with models in which credit booms to the non-tradable sector are driven by easy financing conditions and amplified by collateral feedbacks, contributing to increased financial fragility and a boom-bust cycle.
That is from a new NBER working paper by Karsten Müller and Emil Verner.
Nigeria reform of the day (again)
President Bola Ahmed Tinubu signed the Electricity Bill 2023 into an Act (Electricity Act 2023) on June 10, 2023, to much frenzy and a bit of confusion – erstwhile president, Muhammadu Buhari, signed into law an amendment enabling states in the country to license, generate, transmit, and distribute electricity earlier in March 2023.
To begin, let’s distinguish between the recent assents by President Buhari and President Tinubu in relation to electricity. President Buhari’s amendment to the constitution marked a necessary initial step toward decentralizing the electricity sector, granting states greater control over generation, regulation, and distribution. However, it did not establish specific laws or regulations for the sector itself.
President Tinubu’s recently signed Electricity Act, on the other hand, constitutes the second phase of decentralization. This Act sets the stage for the electricity market by introducing rules governing generation, transmission, and distribution. Moreover, it empowers states to develop their own laws and regulations tailored to their unique circumstances.
In summary, President Buhari’s constitutional amendment laid the foundation for increased state autonomy, while President Tinubu’s Electricity Act provides the framework for implementing this autonomy.
Here is the full discussion from Basil Abia, who tells me his Substack will be covering Nigeriam reforms in more detail.
Tuesday assorted links
1. “This past week the IMF released the 1Q2023 COFER data. US dollar share of world reserves actually INCREASED to from 58.6% to 59.0%. Arguably further evidence against short-run “de-dollarization” which is overhyped.” Link here.
3. Titan’s surface.
4. The most rapidly shrinking cities in the United States.
5. NYT on William Byrd. And the great Peter Brötzmann has passed away (NYT).
Happy July 4th!
From a recent James Pethokoukis interview with me:
Every generation launches a new competitor to America and the people who don’t like capitalism and America’s individualist, free market economy trumpet that now the American way is being left in the dust. In the progressive era it was the Germans (how did that work out?), then it was the Russians (remember Sputnik?), then it was the Japanese (buying up Rockefeller center! the horror!), then it was the Chinese (look at those high speed rail lines!). My message to Americans is to double down on America. Double down on immigration, entrepreneurship, innovation, building for tomorrow, free markets, free speech and individualism and America will take all new competitors as it has taken all comers in the past. The world should be more like America not the other way around.
Nigeria reform of the day
Nigeria will save more than 21 trillion naira ($28 billion) in two years after scrapping gasoline subsidies and allowing its currency to weaken, according to the World Bank.
The savings will help President Bola Tinubu’s government cut its record fiscal deficit and a debt-service burden that surpassed revenue in 2022, the Washington-based lender said in a report. The budget shortfall will narrow to 3.9% of gross domestic product by 2025 from 5.1% this year, according to the report.
Scrapping the fuel cap will enable Nigeria’s state oil company to export crude instead of setting it aside to pay for the subsidies. Easing foreign-exchange controls will help the government convert overseas earnings at market prices rather than at “overvalued” rates, the bank said.
It forecast Africa’s biggest economy will expand 4% from 2024 should it implement urgently required reforms.
Here is more from Anthony Osae-Brown at Bloomberg. And yes, Nigeria reform of the day is in fact on the verge of becoming a thing…
Praying for Rain
We study the climate as a determinant of religious belief. People believe in the divine when religious authorities (the “church”) can credibly intervene in nature on their behalf. We present a model in which nature sets the pattern of rainfall over time and the church chooses when optimally to pray in order to persuade people that it has caused the rain. We present evidence from prayers for rain in Murcia, Spain that the church follows such an optimal policy and that its prayers therefore predict rainfall. In our model, praying for rain can only persuade people to believe if the hazard of rainfall during a dry spell is increasing over time, so that the probability of rainfall is highest when people most want rain. We test this prediction in an original data set of whether ethnic groups around the world traditionally prayed for rain. We find that prayer for rain is more likely among ethnic groups dependent on intensive agriculture for subsistence and that ethnic groups facing an increasing rainfall hazard are 53% more likely to pray for rain, consistent with our model. We interpret these findings as evidence for the instrumentality of religious belief.
That is from a new NBER working paper by José-Antonio Espín-Sánchez, Salvador Gil-Guirado, and Nicholas Ryan.
What could be more self-recommending than this?
Fuchsia Dunlop, Invitation to a Banquet: The Story of Chinese Food.
Due out in November. Here is my first CWT with Fuchsia, here is my second, there will be a third.
Questions that are rarely asked
Utilitarians: what's stopping you from spinning up a 1M H100 cluster and putting these fruit flies in an infinite state of orgasmic bliss? https://t.co/FWWcGMdd4t
— Amjad Masad (@amasad) July 2, 2023
Now I am not so sure that will prove possible, but if you are super-optimistic/pessimistic about progress in AI…might we not end up with infinite utility in any case, if only as an AGI experiment?
Monday assorted links
1. Is there an AI data perpetual motion machine?
2. Orkney Islands to look into becoming an independent territory of Norway. Probably just a bargaining ploy with Scotland, but good to see these islands not being taken for granted.
3. Benjamin Yeoh podcast with David Edmonds about his Derek Parfit biography.
4. No progress on whole brain emulation for a worm.
5. It’s happening?: San Francisco may soon get 24/7 driverless taxis…ah, but now a setback!
6. The UK Amazon link for the Cynthia Haven Girard collection, it is not out yet in the U.S.
7. So say some!
8. Celebrities who actually stepped into the ring for a fight.
Who first declared that God is dead?
According to Michael Sonenscher it was German romantic Jean Paul Richter:
I had gone through the midst of the worlds. I mounted unto the suns, and flew with the milky way across the wilderness of heaven; but there is no God. I plunged down as far as Being flings its shadow and pried into the abyss and cried, ‘Father, where art thou?’ But I heard only the everlasting tempest, which no-one sways. And the glittering rainbow of beings was hanging, without a sun that had formed it, over the abyss, and trickling down into it. And, when I looked up towards the limitless world for the eye of God, the world stared back at me with an empty bottomless eye socket; and Eternity was lying upon chaos, and gnawing it to pieces, and chewing the cud of what it had devoured. Scream on, ye discords! Scatter these shades with your screaming. For He is not!
That Richter is excerpt is from Sonenscher’s new and interesting book After Kant: The Romans, the Germans, and the Moderns in the History of Political Thought. One unique feature of Richter’s account is that Christ is the one bearing the news that God is dead. There are so many complainers about the Enlightenment these days, but how many go to the now-grossly underrated source of Richter?
Income inequality in the Aztec empire
Today, Latin American countries are characterized by relatively high levels of economic inequality. This circumstance has often been considered a long-run consequence of the Spanish conquest and of the highly extractive institutions imposed by the colonizers. Here we show that, in the case of the Aztec Empire, high inequality predates the Spanish conquest, also known as the Spanish–Aztec War. We reach this conclusion by estimating levels of income inequality and of imperial extraction across the empire. We find that the richest 1% earned 41.8% of the total income, while the income share of the poorest 50% was just 23.3%. We also argue that those provinces that had resisted the Aztec expansion suffered from relatively harsh conditions, including higher taxes, in the context of the imperial system—and were the first to rebel, allying themselves with the Spaniards. Existing literature suggests that after the Spanish conquest, the colonial elites inherited pre-existing extractive institutions and added additional layers of social and economic inequality.
Here is the full article by Guido Alfani and Alfonso Carballo, via the excellent Kevin Lewis.
The rise of niche consumption
Over the last 15 years, individual households have concentrated their spending on a few preferred products. However, this is not driven by “superstar” products capturing larger market shares. Instead, households increasingly purchase different products from each other. As a result, aggregate spending concentration has decreased. We develop a model of heterogeneous household demand and use it to conclude that increasing product variety drives these divergent trends. When more products are available, households select products better matched to their tastes. This delivers welfare gains from selection equal to about half a percent per year in the categories covered by our data.
By Brent Neiman and Joseph Vavra, that is from a new issue of American Economic Journal: Macroeconomics. Some of you may recall a related discussion of “matching” in The Complacent Class.
Sunday assorted links
1. Most of the claims in this Evgeny Morozov NYT Op-Ed are wrong (for a start, he doesn’t realize that current public libraries are largely empty), but it makes the interesting point that AI represents the fulfillment of a neoliberal vision, as on that turf government simply cannot keep up. Also from NYT here is Rabbi Wolpe, much better and saner than BAP and a lot of the other stuff people are looking to.
2. The weirdest political video I ever have seen? See #7 for background!
3. They are solving for the new no affirmative action equilibrium.
4. Massive phosphate rock deposit discovered in Norway. Julian Simon ascendant.
5. Why Would Anyone Collect 150 John Deere Lawn Tractors? Why not I say!?
6. Folsom Prison Blues (instrumental).
7. Niall Ferguson on the 17th century (Bloomberg). Close to my own views.
Cultural values and productivity (rooftops)
This paper estimates differences in human capital as country-of-origin specific labor productivity terms, in firm production functions, making it immune to wage discrimination concerns. After accounting for wage and experience, estimated human capital varies by a factor of around 3 between the 90th and 10th percentile. When I investigate which country-of-origin characteristics correlate most closely with human capital, cultural values are the only robust predictor. This relationship persists among children of migrants. Consistent with a plausible cultural mechanism, individuals whose origin place a high value on autonomy hold a comparative advantage in positions characterized by a low degree of routinization.
That is by Andreas Ek from Lund University, recently accepted to the Journal of Political Economy. I do not currently see ungated versions of the paper.
Markets in everything Alaska regulatory arbitrage edition, tribal qualifier added
The shrinking village of Karluk, on the western shore of Kodiak Island, is trying to keep its school viable. So it’s willing to pay a couple of families with three or four children apiece to move there of a year, so that it can draw down state education funds.
Public schools in Alaska need to maintain an enrollment of 10 students to get state funding. Karluk, which had a population of 37 during the 2010 U.S. Census, is now down to about 21 people. The demographics are Native American: 82.14%; two or more races: 17.86%; White: 0%; Black or African American: 0%.
Karluk Tribal Council’s ad says that it will pay a couple of families with enough kids — three or four — to move to the village, all expenses paid, for a year, and will even provide jobs. That money, without question, is passed through from the U.S. and State taxpayer, to pay families so that the village can draw down more government money and open its school.
If this were any other kind of enterprise other than a tribe, these definitions for acceptable applicants would be considered a federal equal opportunity violation. But this is a tribe.
Here is the full story, including means for contacting the village. Via Martin Kennedy.