Robert Kagan has solved for the equilibrium

Consider what it will mean if we decide that what Trump and Giuliani have already acknowledged doing in Ukraine becomes an acceptable practice for all future presidents. Sending the signal that other governments can curry favor with a U.S. president by helping to dig up dirt on his or her political opponents would open our political system and foreign policy to intervention and manipulation on a global scale. Every government in the world wishing to influence U.S. foreign policy will have an incentive to come to a sitting president with information on his or her potential political opponents.

That information might be related to investments or other financial dealings in a particular country, as in Ukraine. Or it might have to do with the behavior of a particular individual while traveling abroad — who he or she sees and what he or she does. Other governments will therefore have an incentive to conduct surveillance of political figures traveling through their countries on the off chance of gleaning some bit of information that could be traded in Washington for some favor. Nor would other governments be limited to what they can see in their own countries. They would have an incentive to dig into the lives of potential opposition politicians in the United States, through monitoring their social media and other Internet presences, their bank accounts and other personal information — as already happened in 2016, and which Trump openly welcomed then, too.

Here is the full piece.  I mostly agree, but wonder if foreign governments haven’t already been doing this for some time, but hoarding the information rather than releasing it to select American politicians (no reason to encourage them further, of course).

Does regulation have a role in the repo rise?

Fed data show large banks are keeping a disproportionate amount in reserves, relative to their assets. The 25 largest US banks held an average of 8 per cent of their total assets in reserves at the end of the second quarter, versus 6 per cent for all other banks. Meanwhile, the four largest US banks — JPMorgan Chase, Bank of America, Citigroup and Wells Fargo — together held $377bn in cash reserves at the end of the second quarter this year, far more than the remaining 21 banks in the top 25.

Since the financial crisis, large banks have been obliged to meet a liquidity coverage ratio (LCR) — a portion of high-quality assets such as cash reserves and Treasuries that can be sold quickly to keep the lights on for a month in a crisis. But regulations also require them to track intraday liquidity — cash they can immediately access — which does not include Treasuries. This additional requirement can vary depending on their business models, which in turn inform supervisors’ and examiners’ bank-specific demands. Executives at several large banks say this puts a de facto premium on reserves that varies by bank..

Second-quarter data from the four largest reserve holders show Wells Fargo held 39 per cent of its high-quality liquid assets in reserves. JPMorgan held 22 per cent, Bank of America held 15 per cent and Citigroup 14 per cent.

“If you have a very large concentration in a few institutions and you lose one or two on any day, then you are losing a major portion of your funding,” said Jim Tabacchi, chief executive at South Street Securities, a broker dealer active in short-term debt markets. “Rates have to skyrocket. It’s simple math.”

Here is the full FT article.

The ocean of Encedalus, moon of Saturn

Last year, some of the same research team reported finding complex organic macromolecules within the water vapor that were likely floating on the surface of Enceladus’ ocean. This year, they followed up with a more sophisticated analysis of what sorts of molecules were dissolved into the ocean water. The compounds found within Enceladus’ water vapor plumes, which are responsible for most of the content of Saturn’s E ring, are believed to be present in the liquid subsurface ocean that exists underneath the south pole rather than being the result of contamination as the water escapes from its subsurface prison. That’s significant because many of the nitrogen and oxygen-based compounds the researchers detected are also essential to amino acids here on Earth…

“If the conditions are right, these molecules coming from the deep ocean of Enceladus could be on the same reaction pathway as we see here on Earth,” said Nozair Khawaja, who led the research team of the Free University of Berlin. “We don’t yet know if amino acids are needed for life beyond Earth, but finding the molecules that form amino acids is an important piece of the puzzle.” Khawaja’s findings were published Oct. 2 in the Monthly Notices of the Royal Astronomical Society.

Here is further information.

Against central bank digital currencies

That is the theme of my latest Bloomberg column, note that the idea would to some extent cut private banks out of the intermediation equation.  Here is one excerpt:

An alternative scenario is that the central bank decides to enter the commercial lending business, much as your current bank does. Will the central bank be a better lender than the private banks? Probably not. Central banks are conservative by nature, and have few “roots in the community” as the phrase is commonly understood. The end result would be more funds used to buy Treasury bonds and mortgage securities — highly institutionalized investments — and fewer loans to small and mid-sized local businesses.

And:

The problems run deeper yet. Financial regulation makes a relatively tight distinction between banks and non-banks. Banks have access to the payments system directly and enjoy other privileges, and in return their risk-taking is regulated more heavily (by not only the Fed but also other federal agencies and states). A fintech startup, in contrast, avoids most bank regulations, but it must work through banks to make payments. This division of responsibilities is imperfect, but it has allowed many parts of the U.S. economy to grow and innovate without facing all of the regulations imposed on banks.

This leads to my primary objection to an official government e-currency: It would, in effect, make many more economic institutions more like banks. Over time, those institutions would probably be regulated more like banks, too. For instance, if the Fed is directly transmitting payments made by a private company, it might be wary of credit risk and impose capital and reserve requirements on that company, much as it does on banks. Banks also might complain that they are facing unfair competition, and ask that consistent regulations be imposed. In any case, more of the economy likely will be subject to financial regulation, not just the relatively narrow core of the banking system.

Not all innovation is good innovation.

The generator mafia in Lebanon

…blackouts are costing the Lebanese economy about $3.9 billion per year, or roughly 8.2 percent of the country’s GDP.

I asked why the Lebanese government can’t put the private generators out of business.  He replied that EdL [the state-owned electricity company] is losing some $1.3 billion per year, while the private generators are taking in as much as $2 billion per annum.  “It’s a huge business,” he said, “and it’s very dangerous to interfere with this business.”

…Nakhle, an official in the Energy Ministry, was admitting that the generator mafia bribes Lebanese politicians to make sure that EdL stays weak and blackouts persist…

Maya Ammar, a model and architect in Beirut…told me, “The one reason is in Lebanon that we do not have electricity is corruption, plain and simple.”…The electric grid, she continued, is “a microcosmic example of how this country runs.”

That is from the forthcoming and excellent book by Robert Bryce, A Question of Power: Electricity and the Wealth of Nations.

Not a single child born in the U.K. in 2016 was named Nigel

When he heard that no babies born in Britain in 2016 were named Nigel, Nigel Smith began to fret that the people with whom he shared a first name were a “dying breed.”

“I thought that’s a bit of a worry, really, because most of us are over a certain age,” Smith told As It Happens host Carol Off.

Instead of going into mourning, however, he decided to have some fun with it. He owns the Fleece Inn, near Worcestershire, so he organized “Nigel Night” at the pub.

“We’re going to die out soon, so it’s important to sort of celebrate our Nigel-ness before we all pop off the planet.”

Smith says 434 Nigels — including himself — joined in the festivities on Saturday to enjoy some music, food and celebrating their mutual “Nigel-ness.”

It’s believed to be the biggest gathering of Nigels in the world — though it’s unclear who’s keeping track of this unusual statistic…

All attending Nigels, ranging in age from seven months to 80 years old, were verified with an ID check, and handed a badge with their name on it. Other attendees were issued badges that read “Not Nigel” on them.

According to the U.K. Office for National Statistics, no boys born in 2016 were named Nigel. The name enjoyed a slight uptick with 11 new Nigels in 2017, and eight in 2018.

That number pales in comparison to the most popular name, Oliver, which saw 5,390 new additions in 2018. Other top boys’ names over the last decade included George, Harry, Noah and Jack.

And:

Smith didn’t rule out the possibility that Farage’s role in the 2016 Brexit referendum may have even played a part in the dearth of newborn Nigels that year.

“Despite the man, we are fighting back.”

Here is the link, via Michelle Dawson.

Are you a harbinger customer?

If so, stop reading MR!:

Previous research has shown that there exist “harbinger customers” who systematically purchase new products that fail (and are discontinued by retailers). This article extends this result in two ways. First, the findings document the existence of “harbinger zip codes.” If households in these zip codes adopt a new product, this is a signal that the new product will fail. Second, a series of comparisons reveal that households in harbinger zip codes make other decisions that differ from other households. The first comparison identifies harbinger zip codes using purchases from one retailer and then evaluates purchases at a different retailer. Households in harbinger zip codes purchase products from the second retailer that other households are less likely to purchase. The analysis next compares donations to congressional election candidates; households in harbinger zip codes donate to different candidates than households in neighboring zip codes, and they donate to candidates who are less likely to win. House prices in harbinger zip codes also increase at slower rates than in neighboring zip codes. Investigation of households that change zip codes indicates that the harbinger zip code effect is more due to where customers choose to live, rather than households influencing their neighbors’ tendencies.

Here is more from Duncan I. Simester, Catherine E. Tucker, and Claire Yang.  Via the excellent Kevin Lewis.

Wednesday assorted links

Donor Cycle Dynamics

It’s an ill-wind that blows no good and in Allocating Scarce Organs, Dickert-Conlin, Elder and Teltser find that repealing motorcycle helmet laws generate large increases in the supply of deceased organ transplants. The supply shock, however, is just the experiment that the authors use to measure demand responses. It’s well known that the shortage of transplant organs has led to a long waiting-list. The waiting-list, however, is only the tip of the iceberg. Many people who could benefit from a transplant never bother getting on the list since their prospects are already so low. In addition, some people have access to substitutes for a deceased organ transplant namely a living donor. Finally, there is a quality tradeoff: as more organs become available the quality of the match may increase as people may pass on the first available organ to get a better match. The authors use the supply shock to study all these issues:

We find that transplant candidates respond strongly to local supply shocks, along two dimensions. First, for each new organ that becomes available in a market, roughly five new candidates join the local wait list. With detailed zip code data, we demonstrate that candidates listed in multiple locations and candidates living out-side of the local market disproportionately drive demand responses. Second, kidney transplant recipients substitute away from living-donor transplants. We estimate the largest crowd out of potential transplants from living donors who are neither blood relatives nor spouses, suggesting that these are the marginal cases in which the relative costs of living-donor and deceased-donor transplants are most influential. Taken together, these findings show that increases in the supply of organs generate demand behavior that at least partially offsets a shock’s direct effects. Presumably as a result of this offset, the average waiting time for an organ does not measurably decrease in response to a positive supply shock. However, for livers, hearts, lungs, and pancreases, we find evidence that an increase in the supply of deceased organs increases the probability that a transplant is successful, defined as graft survival. Among kidney transplant recipients, we hypothesize that living donor crowd out mitigates any health outcome gains resulting from increases in deceased-donor transplants.

In other words, increased organ availability increases the quality of the matches for organs that cannot be given by a living donor (hearts, lungs, pancreases, partially liver) but for kidneys some of the benefit of increased organ availability accrues to potential living donors who do not have to donate and this means that match quality does not substantially increase.

The authors also critique the geographic isolation of kidney donation regions. As I wrote when Steve Jobs received a kidney transplant:

Although there is no reason to think that Apple CEO Steve Jobs “jumped the line” to get his recent liver transplant, Jobs did have an advantage: He was able to choose which line to stand in.

Contrary to popular belief, transplant organs are not allocated solely according to medical need. Organs are allocated through a complex system of 58 transplant territories. Patients within each territory typically get first dibs on organs from that territory. That’s great if a patient happens to live in a territory with a lot of organ donors and relatively few demanders, but not so good for a patient living in New York, San Francisco or Los Angeles, where waiting lines are longest.

As a result of these “accidents of geography,” relatively healthy patients in some parts of the country get transplants while sicker patients in other parts of the country die waiting.

New issue of Econ Journal Watch

Volume 16, Issue 2, September 2019

In this issue:

Let facts be submitted to a candid worldRon Michener explains the role of monetary affairs in the hardships that helped to justify the rebellion of the American colonies, and criticizes Farley Grubb’s Journal of Economic History article on the money of colonial New Jersey.

Fads and trends in OECD economic thinking: Using the frequency of terms in the OECD’s Economic SurveysThomas Barnebeck Andersen shows how policy ideas in economics changed over time, including ‘demand management,’ ‘incomes policy,’ ‘output gap,’ ‘potential GDP,’ ‘structural unemployment,’ ‘structural reform,’ ‘macroprudential,’ ‘incentives,’ ‘deregulation,’ ‘liberalisation,’ ‘privatisation,’ ‘human capital,’ ‘education,’ and ‘PISA.’

The economics of economics: Using 291 person-year observations from UCSD Econ, Yifei Lyu and Alexis Akira Toda model Econ faculty compensation on publications and citations and find, among other things, no evidence of a gender gap.

The Liberal Tradition in South Africa, 1910–2019Martin van Staden describes the unique history and current standing of classical liberalism in South Africa, including an extensive account of liberals in the nation’s politics. The article extends the Classical Liberalism in Econ, by Country series to 19 articles.

Lawrence Summers Deserves a Nobel Prize for Reviving the Theory of Secular StagnationJulius Probst makes the case, inaugurating the series on Who Should Get the Nobel Prize in Economics, and Why?

Convention defined: We reproduce by permission a large portion of David K. Lewis’s Convention: A Philosophical Study (1969), wherein he defined coordination equilibriumcoordination problemcommon knowledge, and convention.

Mizuta’s 1967 checklist of Adam Smith’s library: We reproduce by permission the 1967 checklist created by Hiroshi Mizuta of the titles that were owned by Adam Smith. This checklist (supplemented by a list of additional once-elusive titles) provides a handy means for determining whether a title was in Smith’s personal library.

EJW Audio:

Ron Michener on Why It’s Important to Get Colonial U.S. Monetary History Right

Patrick Mardini on the Political Economy of Lebanon

Ivo Welch on Critical Finance Review

Maybe corporations don’t have enough power

In a context of monopsony power, wages at the top of the spectrum would be held lower. Corporations wouldn’t then voluntarily distribute them to workers with lower wages. But if firms lacked monopoly power, they wouldn’t be able to retain the gains from that. The gains would be captured as consumer surplus by the firms’ customers. In order to be competitive in the market for their goods and services, firms would have to assert their monopsonist power just to remain competitive by transferring those gains to the consumer.

…it does match with a context where more skilled workers were captured by powerful firms and less skilled workers benefit indirectly as consumers.  Maybe labor incomes had less variance because firms back then were more powerful.

That is from Kevin Erdmann.

My forthcoming debate with Slavoj Žižek

We are excited to announce the program for the Dec. 7 Holberg Debate! Slavoj Žižek will give the keynote “Why I Am Still A Communist” and then be interviewed by @tylercowen

We invite everyone to watch the livestream and tweet Qs for Žižek. Use #qholberg.

https://www.facebook.com/events/2524051877814963/

Bergen, Norway — I’ll be there!