The FTX Future Fund team has resigned
Read their letter here. Via Matt Y.
Is a Russian price cap a good idea?
That is the topic of my latest Bloomberg column. Here is the basic idea:
Say the price of oil is $100 per barrel, and extraction costs Russia $50 per barrel. The profit on that oil is $50 per barrel. Now assume a price cap of $70 per barrel. Russian profit falls to $20 per barrel — but still, the oil will be produced. A finely tuned price control would redistribute income toward buyers of Russian oil, without much interfering with oil supply.
Enforcement would have to be through maritime services, such as insurance for the carrying ships.
But I am not sold on its workability or efficacy:
One problem is how to set the cap at the right level. The plan is to set a fixed cap, rather than at some percentage discount to world oil prices. As world oil prices change, it would therefore be necessary to adjust the cap, preferably quickly. Given that it has taken months to agree to the idea of a cap, it remains to be seen if this would be possible. And things only get worse if the Western coalition against Russia splinters, or if the relevant bureaucracies are slow.
If the price cap ends up too low and Russian oil is taken off world markets altogether, that could significantly worsen what is already a serious global economic downturn.
A second problem is that Russia might simply sell the oil to nations not participating in this agreement to cap prices, most notably China and India. But selling more to those countries might require Russia to lower the price. And while China and India are unlikely to join the G-7 plan, the very existence of the price cap gives them bargaining leverage over Russia.
The bottom line, however, remains: Any decline in Russian government revenue might be considerably less than what a plan to cap the price of oil might indicate. And that’s not even considering whatever Russia might earn from selling oil on the black market. Nations outside the G-7 would have an incentive to buy tankers, self-insure them and use them to ship Russian oil without the price cap.
But the major issue is one of escalation…
In any case worth a ponder, there are further arguments in the piece.
Thursday assorted links
1. “Model this.” And “when it rains it pours.”
2. More on ticket splitting, or in other words polarization is overrated.
3. Geohot blog.
4. McEnroe is a good documentary (Amazon), a good talent study and also a good look at how the late 1970s and 1980s were so different from the current day.
My criticism of the Diamond-Dybvig model
I think I forgot to mention this when they won the Nobel Prize. In their model of bank runs, there are multiple equilibria and people can run on the bank simply if they expect other depositors will run on the bank too. The combination of liquid liabilities and illiquid assets then means the bank cannot meet all their claims. That is logically consistent, but I think not realistic. Virtually all the bank runs I know of stem from insolvency, not rumors, noise, and multiple equilibria. Didn’t Hugh Rockoff do some papers showing that the “free banking era” bank runs were pretty rational in the sense that the depositors targeted the right institutions? Or did someone other than Rockoff do this work? In any case, I’ve long thought that bank run models based on insolvency are more useful than bank run models based on rumors and multiple equilibria.
Social media and female mental health
Teenage mental health has been a source of growing concern over the past decade, with recent whistleblower testimony pointing to the mental health risks of spending time on social media platforms, especially for girls. This paper investigates the extent to which social media are harmful for teenagers, leveraging rich administrative data from the Canadian province of British Columbia and quasi-experimental variation related to the introduction of wireless internet there. I show neighbourhoods covered by highspeed wireless internet have significantly higher social media use, based on Google search volume data. In the main analysis, I link spatial data on broadband coverage to 20 years of student records that provide detailed information about individual student health. Using this novel data linkage, I estimate a triple-difference model comparing teen girls to teen boys in terms of school-reported mental health diagnoses, before and after visual social media emerged, and across neighbourhoods with and without access to high-speed wireless internet. Estimates indicate high-speed wireless internet significantly increased teen girls’ severe mental health conditions – by 90% – relative to teen boys’ over the period when visual social media became dominant in teenage internet use. I find similar effects across all subgroups. When applying the same strategy, I find null impacts for placebo health conditions – ones for which there is no clear channel for social media to operate. The evidence points to adverse effects of visual social media, in light of large gender gaps in visual social media use and documented risks. In turn, the analysis calls attention to policy interventions that could mitigate the harm to young people due to their online activities.
That is from a new paper by Elaine Guo, who is on the job market from University of Toronto.
Since I have written on related questions, normally I would comment here, but when it comes to the job market I feel the candidate and not the blogger should have the last word. Elaine Guo is an excellent and possibly undervalued job candidate, and I hope you employers out there give her absolutely full consideration. Hers is one of the most interesting and most important papers on this job market season.
More Matt Levine
Here.
Gal Costa, RIP
Aquarela do Brasil is my favorite song by her…
Wednesday assorted links
1. Andy Partridge update. What is it like to enter your “withdrawal years”? And what if you had to choose between Partridge and Roy Lichtenstein?
2. Benjamin Yeoh on Talent and the Unconference. And Benjamin does a podcast with Saloni.
3. How is the “Young Right” evolving in Britain?
4. Nurse accused of amputating man’s foot for her family’s taxidermy shop. “Mary K. Brown wanted a sign next to the foot — ‘wear your boots kids’ — other nurses told investigators.”
5. I am excited and hopeful about the new British organisation Civic Future. Next week in London I am doing a dialogue with John Gray for them.
6. More on the problems with the current system of clinical trials.
7. Ed Prescott still underrated! But understood by many.
The election results
I have no interest in discussing them, other than to note the median voter theorem is alive and well. But if your mood affiliation needs yet another outlet, the comments section is open.
Switzerland markets in everything
Switzerland, one of the world’s richest nations, has an ambitious climate goal: It promises to cut its greenhouse gas emissions in half by 2030.
But the Swiss don’t intend to reduce emissions by that much within their own borders. Instead, the European country is dipping into its sizable coffers to pay poorer nations, like Ghana or Dominica, to reduce emissions there — and give Switzerland credit for it.
Here is an example of how it would work: Switzerland is paying to install efficient lighting and cleaner stoves in up to five million households in Ghana; these installations would help households move away from burning wood for cooking and rein in greenhouse gas emissions.
Then Switzerland, not Ghana, will get to count those emissions reductions as progress toward its climate goals.
Here is more from Hiroko Tabuchi at the NYT. Note that most of Swiss energy already is renewable, through hydroelectric and nuclear, yet of course there are many people complaining about this scheme.
Austrian business cycle theory today
That is the topic of my latest Bloomberg column, excerpt:
One reason the current economic situation is so fraught is that the world is facing three kinds of business-cycle mechanisms at the same time. The first two are well-known, but the third — known as the Austrian theory of the business cycle — is not.
And in more detail:
When the combination of high inflation and pending disinflation came along, real interest rates spiked upwards. It is difficult to estimate the current level of expected future real interest rates, because market participants disagree about the likely future course of inflation. Nonetheless, market prices are indicating that traders expect higher interest rates to continue through the decade, if not longer. Anecdotal evidence from secondary capital markets, such as venture capital, is strongly consistent with the notion of capital being harder and more costly to obtain.
The more significant issue concerns a decline in long-term building and long-term projects.
The decline in asset prices came first to crypto in late 2021. Crypto was originally marketed as a hedge against inflation, but the data have refuted that idea. Instead, crypto has become a project to build out a new and different kind of financial system. That project has been years in the making, and even true believers admit that the revolution is years away, if it comes at all.
In fact, at higher real interest rates — in essence, higher rates of discount — the project looks less appealing. It is striking that crypto prices, which are about the least “establishment-determined” of all major classes of asset prices, were to first to register this change in market expectations.
Major tech companies have also seen their valuations fall significantly due to higher interest rates. Whatever else they may be, Meta, Alphabet and Amazon are also some of America’s more promising corporate research labs, and now they don’t have the resources they did less than two years ago. Their successors will have a hard time as well, due to rising capital costs, again at the expense of innovation and America’s collective future.
I am always struck by both a) how many economists will badmouth the Austrian theory, and b) how many of the same will resort to some partial version of it to explain current events.
Matt Levine on the events of the day
Do black NBA players play better without the fans?
In the NBA, predominantly Black players play in front of predominantly non-Black fans. Using the ‘NBA bubble’, a natural experiment induced by COVID-19, we show that the performance of Black players improved significantly with the absence of fans vis-\`a-vis White players. This is consistent with Black athletes being negatively affected by racial pressure from mostly non-Black audiences. We control for player, team, and game fixed-effects, and dispel alternative mechanisms. Beyond hurting individual players, racial pressure causes significant economic damage to NBA teams by lowering the performance of top athletes and the quality of the game.
That kind of causal mechanism is difficult to demonstrate, but perhaps there is something to this. Alternatively, how about the “fewer distractions in the bubble effect”? Entourage effect? etc. How could they miss this possibility? Here is the full paper by Mauro Caselli, Paolo Falco, and Babak Somekh. Via the excellent Kevin Lewis.
Tuesday assorted links
1. James Broughel on classical liberalism and anti-intellectualism (and me).
2. History of private turnpikes in 19th century Britain.
3. Native Americans and adoption law — the whole mess doesn’t make much sense. Does that mean it is more likely or less likely to persist?
4. Japanese government seeks the power to turn down private home air conditioners remotely.
5. The Disciple is quite a good movie, and a good introduction to Indian classical music, at least on the vocal side.
Three Billion Dollars Found in a Popcorn Tin
In September of 2012 James Zhong used a hack to steal approximately 50,000 bitcoin from the dark web’s Silk Road. Yesterday the US Attorney announced that just last year they had arrested Zhong and recovered almost all of the stolen bitcoin. Here’s the amazing bit:
On November 9, 2021, pursuant to a judicially authorized premises search warrant (the “Search”), IRS-CI agents recovered approximately 50,491.06251844 Bitcoin of the Crime Proceeds from ZHONG’s Gainesville, Georgia, house. Specifically, law enforcement located 50,491.06251844 Bitcoin of the approximately 53,500 Bitcoin Crime Proceeds (a) in an underground floor safe; and (b) on a single-board computer that was submerged under blankets in a popcorn tin stored in a bathroom closet.
At the time the Bitcoin was worth $3 billion dollars. Lots to think about here. Are they going to give the money back to Silk Road users? Will they burn it? If not isn’t this just seignorage going to the US government? How can you walk by $3 billion in your closet every day and not spend it? What willpower! Why didn’t Zhong move to say Morocco?