German fiscal policy vindicated
And since German politicians have insane views on fiscal policy, they will probably say that the current experience actually validates their prior two decades of excessively tight fiscal policy. In reality, the current situation mostly shows that Germany wasted an opportunity to take advantage of a prolonged period of negative interest rates to create a national high-speed rail network³ and to make massive investments in home insulation.
That is from a Matt Yglesias Substack, gated but worth paying for. I agree Germany should have spent more on home insulation, but there are several ways of doing that in terms of the macro fiscal picture.
The broader point is that the current situation does in fact validate Germany’s prior two decades of tight fiscal policy. I think most of us agree that you should run budget surpluses in relatively good times, and budget deficits in relatively bad times. It now turns out those were in fact the relatively good times. The Germans worried that might be the case, and now it turns out they were right.
Did Bernanke and all that QE cause the current inflation?
That is the topic of my latest Bloomberg column, here is one excerpt:
Sometimes it is alleged that this “Bernanke inflation” was channeled into asset prices, such as equities and crypto, rather than retail or consumer prices. That hypothesis doesn’t fit the data, either. During most of Bernanke’s tenure, stock prices were broadly within historical norms, considering such measures as price-earnings ratios. Some particular stocks were overpriced, as is always the case, but stocks as a whole were not crazy high. As for crypto, inflation rates are much higher today — and crypto prices have been collapsing, not soaring.
More generally, it doesn’t make sense to talk of inflation or new money as being “trapped” in one particular sector. Assume for the sake of argument that somehow inflation was concentrated in the crypto sector. You might think that sellers of crypto could just turn around, take their sales receipts, and buy more crypto. Why would you act that way? If you are bullish on crypto, why initially sell at all? Even if you did end up selling, your initial crypto sale and subsequent purchase will more or less offset each other in the crypto sector.
The reality is that, if the new inflationary monetary injection somehow flowed first into the crypto sector, it would soon find its way into the broader economy and push up prices across the board.
Another claim I hear is that the Fed simply did too much quantitative easing, which was eventually going to catch up to the economy. It’s like pumping too much air into a balloon; sooner or later it has to burst.
But monetary policy does not work that way. It does have lags, but a major inflationary episode leads to noticeable increases in inflation in a bit more than a year, as has been shown by the research of Milton Friedman and others. The effects of new monetary policy do not sit idle for a decade or more.
No, in other words.
Catching up with the news cycle
1. The British government has done a fiscal policy U-Turn, but yields are back up again. I am not suggesting those market prices are the final verdict, but I do take that as a sign that the issue all along has been a) the competence of the government and its decision-making procedures, and b) general difficulties facing the UK, and not the absolute size of the fiscal policy changes under consideration.
2. The U.S. semiconductor chip controls on China are quite significant. Like price controls on Russian gas, they will either raise or lower the probability of war, and thus I find them difficult to evaluate. That does not mean we should do nothing, but it does mean I don’t have a very strong judgment. It might accelerate Chinese self-sufficiency in chip development, or perhaps accelerate an attempt to seize TSMC in Taiwan. Or it might simply cripple a major geopolitical rival. How good are the models and the empirics that we use to evaluate such situations? Not very good.
3. I’ve long considered Sunflowers a much overrated van Gogh painting. There were even longstanding debates over whether one version of it (not the version that was just attacked by eco-terrorists) was a fake, a sign that it actually isn’t the artist’s most subtle work. It seems it was a fake, but it took people a long time to figure this out. His portraits or sketches of shoes are often much better.
Friday assorted links
Telemedicine is Dying
Bloomberg: Prior to the Covid era, telehealth accounted for less than 1% of outpatient care, according to the Kaiser Family Foundation. Telehealth services have since surged, at their peak accounting for 40% of outpatient visits for mental health and substance use.
Unfortunately, as I warned last year telemedicine is being wound back as regulations which were lifted for the pandemic emergency are put back into place.
Telemedicine exploded in popularity after COVID-19 hit, but limits are returning for care delivered across state lines.
…Over the past year, nearly 40 states and Washington, D.C., have ended emergency declarations that made it easier for doctors to use video visits to see patients in another state, according to the Alliance for Connected Care, which advocates for telemedicine use.
…To state medical boards, the patient’s location during a telemedicine visit is where the appointment takes place. One of MacDonald’s hospitals, Massachusetts General, requires doctors to be licensed in the patient’s state for virtual visits.
I know people who have had to travel over the Virginia/Maryland border just to find a wifi spot to have a telemedicine appointment with their MD physician. Ridiculous.
….telemedicine innovations pioneered during the pandemic should remain as options. No one doubts that some medical services are better performed in-person nor that requiring in-person visits limits some types of fraud and abuse. Nevertheless, the goal should be to ensure quality by regulating the provider of medical services not regulating how they perform their services. Communications technology is improving at a record pace. We have moved from telephones to Facetime and soon will have even more sophisticated virtual presence technology that can be integrated with next generation Apple watches and Fitbits that gather medical information. We want medical care to build on the progress in other industries and not be bound to 19th and 20th century technology.
Plod has a bunch of questions
From my request for requests, here goes:
– What does the NYT do well? And conversely what are they bad at?
– What is your theory on the rising lack of male ambition?
– Why do modern fantasy authors (Martin, Rothfuss, others) not finish their works?
– If you were chief economist czar of the US, what is the policy would you implement first? In the UK?
– Will non-12-tone equal temperament music ever become popular?
– What do you think will become of charter cities like Prospera?
I will do the answers by number:
1. The New York Times can publish superb culture pieces, most of all when they are not pandering on PC issues. Their music and movie reviews are not the very best, but certainly worth the time. International coverage is high variance, but they have plenty of articles with information you won’t find elsewhere. Some of the finest obituaries. The best parts of the Op-Ed section are indispensable, and the worst parts are important to read for other reasons. Perhaps most importantly, the NYT has all sorts of random articles that are just great, even if I don’t always like the framing. Try this one on non-profit hospitals.
On the other side of the ledger, the metro and sports sections I do not very much read (probably they are OK?). The business section has long been skimpy, and is not currently at its peak. Historical coverage with racial angles can be atrocious. The worst Op-Eds are beyond the pale in their deficient reasoning, and there are quite a few of them. On “Big Tech” the paper is abysmal, and refuses to look the conflict of interest issues in the eye. They just blew it on a new Covid study. The book review section used to be much better, I think mainly because it has become a low cost way to appease the Wokies.
2. Male ambition in the United States is increasing in variance, not waning altogether. But on the left hand side of that distribution I would blame (in no particular order): deindustrialization, women who don’t need male financial support anymore, marijuana, on-line pornography, improved measurement of worker quality, the ongoing rise of the service sector, too much homework in schools, better entertainment options, and the general increasing competitiveness of the world, causing many to retreat in pre-emptive defeat.
3. Male fantasy writers do not finish their works because those works have no natural ending. There is always another kingdom, a lost family member, a new magic power to be discovered, and so on. And the successful fantasy authors keep getting paid to produce more content, and their opportunity cost is otherwise low. Why exactly should they tie everything up in a neat bow, as Tolkien did with the three main volumes of LOTR?
4. For the United States, I would have more freedom to build, massive deregulations of most things other than carbon and finance, and much more high-skilled immigration, followed by some accompanying low-skilled immigration. For the UK I would do broadly the same, but also would focus more on human capital problems in northern England as a means of boosting economic growth.
5. Non-12-tone equal temperament music is for instance very popular in the Arabic world, and has been for a long time.
6. I have been meaning to visit Prospera, but have not yet had the chance to go. I expect to. My general worries with charter cities usually involve scale, and also whether they will just get squashed by the host governments, which almost by definition are dysfunctional to begin with. Most successful charter cities in history have had the support of a major outside hegemon, such as Hong Kong relying on Britain.
Subsidizing lower gas consumption
1) Why is all of the policy discussion in Europe focused on subsidizing consumption of gas rather than on subsidizing the reduction in consumption of gas. The latter approach is consistent with the German/European policy of moving to greater reliance on renewable energy. Subsidizing reduction in consumption also reduces the risk of shortages if the Northern winter is severe. The policy is straightforward to implement for households but is a little more difficult for to implement for businesses as some may profitably choose to reduce employment and or output which would be politically difficult. However, this problem can be remedied with he combination of, for example, an employment subsidy together with the subsidy paid for reduced use of gas.
That is from my email, from economist Don Harding.
Thursday assorted links
1. “Across 10 studies using mixed methods and different measures of deviant behavior, we provide evidence that masks are a moral symbol in China that reduces wearers’ deviant behavior by heightening their moral awareness.” Link here, speculative.
2. Jeff Sachs interview with the Teheran Times, suggesting that maybe that Covid came out of a U.S. lab, posted on the Jeff Sachs web site. Hard for me to imagine giving such an interview to the Teheran Times.
4. New issue of Works in Progress.
5. In the U.S. chess championship, which has new and stronger anti-cheating protocols, Hans Niemann is 13th in a field of 14.
6. It seems women do not pay more for goods. But perhaps tariffs fall disproportionately on women (because of apparel).
Lifecycle Investing
and
Investors often think of diversification as a free lunch—it allows them to maintain returns while reducing risk. But most people only get part of diversification right, and that can hurt them later in life.
With traditional diversification, people spread money around different kinds of investments to mitigate risk. That approach misses a key opportunity: “diversifying” how you invest over time.
Most people start investing with a small amount of money, because that is all they can afford, and ramp it up as their earnings grow. But investing so much later in life unnecessarily puts people at greater risk when they are close to retirement. They end up with far greater exposure to stock-market risk in their 50s and 60s than in their 20s and 30s, even if they are buying diversified mutual funds.
We propose a different method: People ought to borrow money to make their initial investments larger, so that they can invest closer to the same amount every year over their lifetime. Think of investing $2 a decade steadily for three decades, instead of $1 for the first, $2 for the next and $3 for the third.
…Sound risky? Consider that young people do the same thing with housing when they borrow money to buy a house they live in for decades—and there the leverage often involves borrowing $9 for every $1 of equity. We propose borrowing only $1 for each $1 invested. Limiting ourselves to 2:1 leverage means we don’t hit a perfectly even market exposure over time, but gets us closer to that ideal.
Most people won’t do this because unlike a home-mortgage it’s a non-standard idea. It could be standardized, however, with retirement planning products. Regardless, I agree with Ayres and Nalebuff that young people should be 100% in equities. Of course, the equity-basket should be diversified, national and internationally, and young people should follow a buy and hold strategy while being very aggressive on the equity-debt mix. Also, if, as you get older, you expect to make a bequest you should continue to be aggressive on the portion of your portfolio you expect be passed on to your beneficaries.
Emergent Ventures, 22nd cohort
Emily Karlzen, Arizona, Founder and CEO of Arch Rift, to develop an astronaut helmet for commercial space flight.
Mehran Jalali, for building energy storage systems, NYC, grew up in Iran.
Kyle Redlinghuys, a further award, recently launched an API to make the data from the James Webb Space Telescope available.
Pranav Myana, 18, University of Texas, Austin, working on incorporating renewable power into the grid.
Brian Chau, Waterloo (Canada), general career support for writing and podcasting. Here is his Substack.
Cathal J. Nolan, historian, Boston University, to write a book on the relationship between war and progress. Just learned he was born in Dublin.
Cynthia Haven, Stanford University, to write a book on John Milton and the 17th century. Twitter here.
Harsehaj Dhami, 17, lives in Ontario, to visit a Longevity conference in Copenhagen. LinkedIn here.
Jackson Oswalt, Knoxville, builds things, AR/XR stuff, for general career support. In the Guinness Book of World Records for achieving a nuclear fusion reaction at age 12.
Miguel Ignacio Solano and Maria Elena Solano, Bogota/Cambridge, MA, co-founders of VMind, an artificial intelligence project.
Brian Kelleher, 18, Dublin, to improve software for doctors.
Devon Zuegel, to develop a new village and community, Twitter here.
Rodolfo Herrera, Pensamiento Libre, market-oriented Facebook and YouTube videos for Mexico.
Alia Abbas, 19, Maryland, to study biochemistry and materials and for general career development.
There are two other projects not yet ready for public announcement.
Ukraine tranche: There is now a new Emergent Ventures Ukraine.
Julia Brodsky, Maryland, former instructor of astronauts. To support educational efforts to teach on-line STEM and other subjects to Ukrainian children in refugee camps.
Uliana Ronska, 17, Prague and Netherlands currently. She is doing research on problems of triangulating fast-moving stars. It was also under her leadership that her team won ExPhO, CETO, and 2 all-Ukrainian Motion physics olympiads. For general career development.
Demian Zhelyabovskyy, currently at Bromsgrove School in the UK, from Kyiv. Last year he won first place in the All-Ukrainian Physics Marathon; also he and his teammates won the Experimental Physics Olympiad (ExPhO) and Computer Experiment Team Olympiad (CETO). For general career support, and for the physics paper he is currently co-authoring.
Tymofiy Mylovanov, representing the Kyiv School of Economics, to nurture talent development for Ukraine. Tymofiy as an individual was also the very first Emergent Ventures winner.
Congratulations to all, I am honored to be working with you!
Price caps on Russian oil and gas
A number of you have written in to ask what I think of the recent economists’ letter to Janet Yellen, proposing such price caps. I don’t disagree with any of their economics, but I am less convinced this is a good idea. This strikes me as a paramount example of what I call “foreign policy first.” There is some chance that Russia initiates a nuclear attack, or takes some other set of drastic steps. Does this price cap raise or lower that chance? I genuinely do not know. And thus for that reason I am agnostic about the policy. The nuclear expected value calculations would seem to outweigh the other aspects of the proposal, and those calculations are beyond my ability to assess with much accuracy.
Often, when I have nothing to say, it is because I do not know exactly what to say.
A request about philosophy and two people
ymtmjl requested that I cover these topics:
Wednesday assorted links
How much will AI succeed in the arts?
That is the topic of my latest Bloomberg column, and let us start with what is likely to work well:
It almost goes without saying that the AI revolution currently underway is impressive. It is likely to have a huge impact in some parts of art world, such as the commercial sphere — consumers are generally not interested in who made any given ad or logo. It either works or it does not, and those conditions favor the machine. AI will also give the world quality (automated) personal assistants and autonomous vehicles, among many other advances.
But here is the problem:
Consider music. If Taylor Swift’s or Beyonce’s songs had been made by a software program, with no star at the microphone, would they be nearly as popular? It is no accident that Taylor Swift has more than 227 million Instagram followers — her fans want more than just the music, and that extra something (at least so far) has to be supplied by a living, breathing human being.
In the world of the visual arts, too, collectors are often buying the story as much as the artist. Even the experts have trouble distinguishing a real Kasimir Malevich painting from a fake (he painted abstract black squares on a white background, with a minimum of detail). The same image and physical item, when connected to the actual hand of the artist, is worth millions — but if shown to be a fake, it counts for zero.
Here is a qualification:
There will undoubtedly be many collaborations between AI and human creators, with the humans put forward as the public face of the joint effort. Periodic scandals about authorship will surface (“did he write any of that song?”), just as allegations of cheating with AI have risen to prominence in chess. AI-generated art will attract the most interest when the aesthetic of the creation and the personality of the human accompanist appear to be in sync.
And this:
Imagine that you took some souped-up future version of GPT-3 and fed it all the world’s texts through the year 1500. Would you expect it to be able to come up with something equally important and original as Shakespeare’s plays, or Newton’s Three Laws? How about Strawberry Fields Forever? Skepticism on this point has hardly been refuted by recent advances, however impressive they may be.
We watch Magnus Carlsen, not Stockfish vs. Alpha Zero, even though the latter match is of higher quality and likely more exciting too, at least in terms of moves over the board.
Famous economists write a letter to Janet Yellen
Here is the letter, they argue for a price cap on Russian oil and gas:
As envisaged by the G7, the price cap would set a maximum price that Russian oil could be traded in conjunction with G7 services. This price, set in dollars, would be substantially below the world price, yet above the marginal cost of production in Russia. To use US, UK, EU, and allied financial services (such as insurance, credit, and payments), market participants will need to attest that all qualifying purchases are at or below this threshold.
Given the importance of participating countries for global finance and for shipping, compliance with this cap will create pressure for a lower price on Russian oil moved by tanker. While we do not expect all trades will be performed under the price cap, its existence should materially increase the bargaining power of private and public sector entities that buy Russian oil.
The price cap maintains economic incentives for Russia to produce current volumes. In April 2020, when the price of the Brent benchmark was close to $20, Russia continued to supply oil to world markets, because that price was above the cost of production in many or most existing Russian oil fields. Russian has little or no available onshore storage, and since shutting down and restarting oil fields is expensive and risky, it was more profitable for Russia to continue producing in the presence of low prices. The price of Brent now is around $96 per barrel, but Russia receives significantly less due to the “Urals discount”. This discount is caused by the perceived stigma of buying Russian products for some customers; they decline to bid for Russian oil, which reduces effective demand and lowers the price that the remaining customers need to pay.
The oil price cap proposal would effectively institutionalize the Urals discount and consequently further lower the dollar value of the Russian government’s primary revenue stream.
Do read the whole thing, the list of signers is on the bottom.
In order:
1. Jeffrey Sachs is a brilliant and much underrated economist, here is my early CWT with him. His work on economic geography and development remains neglected, his “shock therapy” reforms in Poland worked, they didn’t listen to him in Russia, and the Millennium Villages project, while it did not obviously succeed, was a noble and impressive attempt. He deserves a Nobel Prize for that work. His marginal input in Bolivia was positive. That said, I find some of his recent comments on China/Lab Leak and Russia/Nordstream deeply objectionable and one can only theorize about what is going on there. In part he imbibed too much “New Left” foreign policy reasoning from the 1960s crew, but I don’t think that is the entirety of it by any means.
2. Is there any point in my mentioning the obvious famous figures such as Kripke, Bernard Williams, Latour, and so on? As for other favorites, see CWT! (Unlike Paul McCartney, most philosophers will in fact say yes to these dialogues.) I also would stress that a lot of the best philosophy is done by “drive-by commentators” on the internet, and what is philosophical is the dialogical internet mechanism as a whole, as a kind of epistemic computer above and beyond any individual’s contributions.
3. Most major philosophers are underrated, with the exception of Althusser, who strangled and murdered his wife.
4. Some individuals have been invited who still have not yet said yes. Not just Paul McCartney.