Stephen King on inflation targets
Inflation targets are not supposed to be mere fair weather friends. They serve at all times to reduce arbitrary and undemocratic redistributions of income and wealth and stealthy forms of “hidden” taxation, all of which monarchs, despots, autocrats and, yes, democratically elected governments have, via the printing press, exploited. While there’s nothing wrong with debating the correct target “number”, choosing to raise targets when inflation has persistently surprised on the upside smacks of no more than short-run political opportunism — precisely what central bank independence was supposed to avoid.
There is more, here is the full FT link.
Louisiana federal judge says “hands off”
One day after a Louisiana federal judge set limits on the Biden administration’s communications with tech firms, the State Department canceled its regular meeting Wednesday with Facebook officials to discuss 2024 election preparations and hacking threats, according to a person at the company. The move came hours before Biden’s Department of Justice filed a notice that it will appeal the ruling.
Here is the longer story. It seems unlikely the Louisiana decision will stand, but I would apply some game theory and look at this from a different angle. Let’s assume the Louisiana judge could prevent the federal government from communicating with the major social media companies. The social media companies still would have to work very hard to please the federal government, given the seriousness of the regulatory stakes. In fact, lack of communication could make the social media companies try all that much harder, since they would not know if they were meeting the standards of the federal government.
The actual solution here is not to alter the degree of communication, but rather to have the federal government surrender so many of its arbitrary regulatory powers over American business, most of all with the major tech companies.
*Regime Change*
That is the new Patrick J. Deneen book, with the subtitle Toward a Postliberal Future. I would say that reading and trying to review this book most of all raises the question of what a review is for. As you might expect from Deneen, the book is well-written and comes across as highly intelligent. The question is what one should make of the actual claims and content.
The opening chapter tells us what a failure America is, but not much in the way of concrete evidence is cited (what again would an American passport auction for?). Deneen writes “A growing chorus of voices reflects on the likelihood and even desirability of civil war…”, but that I think means he simply faced some publication lags with the book. America still seems to be gaining on most of the world.
By the end of the next chapter, we are told “Unfortunately, the current ruling class is uniquely ill equipped for reform, having become one of the worst of its kind produced in history…”
C’mon, people…C’mon, Patrick! I don’t even have to invoke Godwin’s Law to refute that one. I can think of a few historical elites who were slightly worse than those who go to Harvard and Yale.
The quick segment on Mill on slavery (p.82) is both wrong and deeply unfair.
Burke is closer to Mill than Deneen might wish to think, especially if one studies Burke on Ireland.
The chapter “The Wisdom of the People” is rather under-argued in a post-Bryan Caplan, post-Garett Jones intellectual era. You don’t have to agree with Caplan or Jones to recognize they offer orders of magnitude more evidence than Deneen does. One of the bigger lessons here is that you can no longer write such a book without seriously engaging with social science.
All this talk about creating a “mixed constitution,” but what exactly does he want to see happen? Is “Machiavellian means to achieve Aristotelian ends” really what we need? (Might some rather mundane changes in policy get us further?) What exactly are we supposed to do to increase the status, influence, and reputation of the populace, as Deneen repeatedly suggests? Where is the evidence any of that is going to work, whatever “work” might mean in this context? This book will not tell you.
National service, tariffs, and immigration restrictions are all endorsed, but with no consideration of the rather extensive empirical literatures on these topics, mostly not supporting Deneen’s hastily presented conclusions.
Is liberalism really (p.229) “premised on the complete liberation of the individual from any limiting claims of an objective good…”? Mill certainly didn’t think so, nor did most other classical liberals.
I would start by distinguishing the social consequences of birth control — which isn’t going to be reversed and shouldn’t be — with the social consequences of classical liberal ideas. Is Deneen in fact willing to endorse birth control? Inquiring minds wish to know.
If Western liberalism is “exhausted,” is he short the market?
Overall, I leave this book with the impression that it is no accident classical liberal ideals have endured as much as they have.
Threads, from Meta
So what do you all think? My Instagram account is tylercowenfairfax, with a photo of Spinoza the dog as my icon. Is that the information you need to follow me on Threads?
Addendum: Don’t forget the fediverse!
The order of spousal names on tax returns
Married couples filing a joint return put the male name first 88.1% of the time in tax year 2020, down from 97.3% in 1996. The man’s name is more likely to go first the larger is the fraction of the couple’s allocable income that goes to him, and the older is the couple. Based on state averages, putting the man’s name first is strongly associated with conservative political attitudes, religiosity, and a survey-based measure of sexist attitudes. Risk-taking and tax noncompliance are both associated with the man’s name going first.
Here is the full NBER working paper by Emily Y. Lin, Joel Slemrod, Evelyn A. Smith, and Alexander Yuskavage.
Wednesday assorted links
1. “…in contrast to funding agencies—scientists systematically prefer to fund projects with more reviewer dissensus. Rather than purely focusing on the first moment of the distribution of reviewer scores, they also value the second moment. Further, scientists with the greatest domain expertise on a proposal are more enthusiastic about dissensus, and while appetite for dissensus shrinks as budgets become tighter, it does not disappear completely.” Link here.
2. Will AI change our memories?
3. Second-order effects of higher interest rates.
4. Wesley Clair Mitchell predicting the future of economic research.
5. Is it true that those who accuse other the most of “mercantilism” are in fact the most mercantilist themselves? (not a link)
6. More Scott Sumner movie reviews.
7. “They promised us 140 characters, and what we got was flying cars.”
Los Alamos From Below
A hilarious Richard Feynman talk about his time at Los Alamos, like a physicist-genius Larry David. Good prep for Oppenheimer.
*Germany in the World*
The author is David Blackbourn, and the subtitle is A Global History 1500-2000. The focus is on Germany’s global influence abroad and no I don’t mean the Battle of Stalingrad, though that era is covered. Here is one excerpt:
There was global demand for German scientists of every kind. The Southern Hemisphere offers two striking examples. One is Latin america, thanks partly to Humboldt’s legacy. There were hundreds of Germans scientists in Argentina alone by the early twentieth century, and many others in Chile, Peru, and elsewhere. German scientists also played an equally outsized role in Australia. We have already seen the impact made by the botanist Richard Schomburgk and his circle of ’49ers in South Australia. Among the many German scientists who arrived after midcentury and shaped Australia’s scientific landscape were several who were well connected internationally. The geophysicist Georg von Neumayer is a perfect specimen of the type. Neumayer enjoyed support in British scientific circles and was a disciple of the American astronomer and oceanographer Matthew Maury, who had himself been inspired by Humboldt. In Australia Neumayer established an observatory in Melbourne, before returning to Germany, where he chaired the International Polar Commission in 1879.
Neumayer is a reminder that German remained, as they had been in the era of Forster and Pallas, inveterate scientific travelers.
Recommended, this is quite a good book.
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.