What I’ve been reading

1. William Wordsworth, The Prelude, 1805 edition.  Many people who read “the Great Books” never touch this one, because it is a poem, and a long one at that (about 200 pp. in my Oxford edition).  Nonetheless a) it is one of the best poems, and b) the experience of reading it is more like reading “a great book” than like reading a poem.  I am very happy to be rereading it.  Highly recommended, and it is also important for understanding John Stuart Mill, the decline and transformation of classical economics, and how German romanticism shaped British intellectual history.

2. Julian Hoppit, The Dreadful Monster and its Poor Relations: Taxation, Spending and the United Kingdom, 1707-2021.  A highly useful fiscal history, the book also has plenty on Ireland and those are often the most interesting sections.  There had been a formal union in 1801, but during the Great Famine there was no fiscal risk-sharing with Ireland.  At the time, the national government in London also much preferred spending in England to spending to Scotland.  At 223 pp. of text it feels short, but is still a nice illustration of how fiscal policy really does show a government’s priorities and throughout history always has.

3. Seamus Deane, Small World: Ireland 1798-2018.  Deane passed away only last month, might he have been Ireland’s greatest modern critic?  Covering Burke, Swift, Joyce, Elizabeth Bowen, Heaney, Anna Burns and much more, these essays are especially good at tying together “old Ireland” with “current Ireland.”

4. Robert B. Brandom, A Spirit of Trust: A Reading of Hegel’s Phenomenology.  I’ve only read the first forty or so pages in this one, and I will read them again.  I am not sure it makes sense for me to study this book further, given my priorities.  Yet it seems worth the $50 I spent on it.  If you wish to imbibe a truly impressive, line-for-line smart and insightful take from a contemporary philosopher, this 2019 book is exhibit A, noting that it serves up 757 pp. of text.  I’ll let you know how far I get.

Gene Slater’s Freedom to Discriminate: How Realtors Conspired to Segregate Housing and Divide America is a very good and useful book about the role of realtors and covenants in shaping residential discrimination.

Michael Albertus, Property Without Rights: Origins and Consequences of the Property Rights Gap.  I have only pawed through this one, but it appears to be a highly useful extension of de Soto themes with better data and a more systematic approach.

Edward Slingerland, Drunk: How We Sipped, Danced, and Stumbled Our Way to Civilization is an argument that our capacity for getting drunk, and indeed the act of getting drunk, enhances creativity, trust building, and stress alleviation.  I mostly agree, but…

Friday assorted links

1. Not sure I have been abused for any prediction more than this one, and yet it seems true: “Democratic primary voters have been turning away this year from the anti-elite furies that continue to roil Republican politics, repeatedly choosing more moderate candidates promising steady leadership over disrupters from the party’s left wing.”  Here is yet further evidence of ongoing moderation.

2. More on Ivermectin.  And very real progress on dengue — yes the biomedical revolution finally is here.  More on that from The Atlantic.

3. Chess players ranked by fighting spirit?

4. Can Bollywood survive Modi? (Atlantic)

5. Ross Douthat on @pmarca and “Reality Privilege in action.”

Nach dem Gleichgewicht auflösen

Swiss-based multinationals such as commodities trader Glencore will receive subsidies and other incentives under plans Switzerland is drawing up to maintain its competitive tax rates, even as the country prepares to sign-up to the G7’s new plan for a global minimum tax on big businesses.

Bern is consulting its cantonal governments — which set their own corporate tax rates — to examine how measures such as research grants, social security deductions and tax credits could create a “toolkit” to offset any changes to headline tax rates, officials told the Financial Times.

Here is the full FT story by Sam Jones.

A Half Dose of Moderna is More Effective Than a Full Dose of AstraZeneca

Today we are releasing a new paper on dose-stretching, co-authored by Witold Wiecek, Amrita Ahuja, Michael Kremer, Alexandre Simoes Gomes, Christopher M. Snyder, Brandon Joel Tan and myself.

The paper makes three big points. First, Khoury et al (2021) just published a paper in Nature which shows that “Neutralizing antibody levels are highly predictive of immune protection from symptomatic SARS-CoV-2 infection.” What that means is that there is a strong relationship between immunogenicity data that we can easily measure with a blood test and the efficacy rate that it takes hundreds of millions of dollars and many months of time to measure in a clinical trial. Thus, future vaccines may not have to go through lengthy clinical trials (which may even be made impossible as infections rates decline) but can instead rely on these correlates of immunity.

Here is where fractional dosing comes in. We supplement the key figure from Khoury et al.’s paper to show that fractional doses of the Moderna and Pfizer vaccines have neutralizing antibody levels (as measured in the early phase I and phase II trials) that look to be on par with those of many approved vaccines. Indeed, a one-half or one-quarter dose of the Moderna or Pfizer vaccine is predicted to be more effective than the standard dose of some of the other vaccines like the AstraZeneca, J&J or Sinopharm vaccines, assuming the same relationship as in Khoury et al. holds. The point is not that these other vaccines aren’t good–they are great! The point is that by using fractional dosing we could rapidly and safely expand the number of effective doses of the Moderna and Pfizer vaccines.

Second, we embed fractional doses and other policies such as first doses first in a SIER model and we show that even if efficacy rates for fractional doses are considerably lower, dose-stretching policies are still likely to reduce infections and deaths (assuming we can expand vaccinations fast enough to take advantage of the greater supply, which is well within the vaccination frontier). For example, a half-dose strategy reduces infections and deaths under a variety of different epidemic scenarios as long as the efficacy rate is 70% or greater.

Third, we show that under plausible scenarios it is better to start vaccination with a less efficacious vaccine than to wait for a more efficacious vaccine. Thus, Great Britain and Canada’s policies of starting First Doses first with the AstraZeneca vaccine and then moving to second doses, perhaps with the Moderna or Pfizer vaccines is a good strategy.

It is possible that new variants will reduce the efficacy rate of all vaccines indeed that is almost inevitable but that doesn’t mean that fractional dosing isn’t optimal nor that we shouldn’t adopt these policies now. What it means is that we should be testing and then adapting our strategy in light of new events like a battlefield commander. We might, for example, use fractional dosing in the young or for the second shot and reserve full doses for the elderly.

One more point worth mentioning. Dose stretching policies everywhere are especially beneficial for less-developed countries, many of which are at the back of the vaccine queue. If dose-stretching cuts the time to be vaccinated in half, for example, then that may mean cutting the time to be vaccinated from two months to one month in a developed country but cutting it from two years to one year in a country that is currently at the back of the queue.

Read the whole thing.

The Becker-Friedman center also has a video discussion featuring my co-authors, Nobel prize winner Michael Kremer and the very excellent Witold Wiecek.

Austin Vernon on El Salvadoran bitcoin acceptance, from my email

Sent this to [redacted, a man of substance] yesterday. LN = Lightning Network, Bitcoins layer 2 scaling solution based on channels:

As far as I understand it, everyone using LN in El Salvador has primarily been using Strike. Classic crypto conundrum in that they had to centralize to get it to work. There is a Twitter thread with the CEO where he shows they had to block their software using most non Strike LN nodes because there were so many failed payments.

https://mobile.twitter.com/JackMallers/status/1291403528116883456

https://strike.me/faq/howitworks

Also looks like you submit USD and they have some kind of centralized payment system to manage the transactions to the Bitcoin layer 1 chain.

I imagine this is a big improvement for people in El Salvador and I’ve heard Strike has already been popular, but I don’t see it as what is being touted as.

Additionally to the email above:

There was an out at the end of the law that says you don’t have to accept Bitcoin if you are too poor. But a basic smartphone with the app means you can accept it. There is a small town where a donor gave the town Bitcoin and forced them to use it as currency and even started doing a private UBI in Bitcoin. Some of the stores started taking it. Strike is only available in the US and El Salvador. So in a truth is stranger than fiction, the idea probably got jumpstarted by a surfer that loved both a beach town and bitcoin. Helps that El Salvador uses the dollar. The legislators would just have to drive to the town to see how it works rather than read about it.

https://www.bitcoinbeach.com

To me this is more like a new kind of bank than some decentralized currency takeover, because Strike is relatively centralized. Being like a bank probably implies some of the same advantages and vulnerabilities of a regular bank. The PR is nice! Not having to get cash at a Western Union that might be far (and where you can get robbed) could have more impact than cheaper fees. It will be a few years before the technology exists to do this in a more decentralized way. Interesting nonetheless.

Not that there’s anything wrong with that…

…democratic rule and high state capacity combined produce higher levels of income inequality over time. This relationship operates through the positive effect of high-capacity democratic context on foreign direct investment and financial development. By making use of a novel measure of state capacity based on cumulative census administration, we find empirical support for these claims using fixed-effects panel regressions with the data from 126 industrial and developing countries between 1970 and 2013.

Here is the paper by Mart Trasberg and Hector Bahamonde, via Kevin Lewis.

Thursday assorted links

1. Is this possible?: “Criminals may have stolen as much as half of the unemployment benefits the U.S. has been pumping out over the past year, some experts say.”

2. When should ngdp be unstable?

3. Is Nero underrated? (New Yorker)

4. Sixty times the speed of sound? (USS Princeton radar team and pilot source, also a good presentation of the multiple data sources which are neglected by West and PewdiePie.)  And here is the common briefing message given to the ex-presidents.

5. Where are the Chinese elephants going and why?

6. Darrell Duffie argues for CBDC.

7. Kristof on the new Claudia Goldin book (NYT).

The coming regulation of bank crypto

A $100 exposure in bitcoin would result in a minimum capital requirement of $100, Basel said. The standards would apply to assets created for decentralised finance (DeFi) and non-fungible tokens (NFTs), but potential central bank digital currencies were outside the scope of the consultation, it added.

Here is more from the FT.  While that is an entirely understandable move, the net result will be to hinder the incorporation of crypto into the traditional banking system, and speed the growth of non-bank crypto institutions.  How they will try to regulate those is of course the more important question.

DeFi is the killer app for crypto

That is the topic of my latest Bloomberg column, let me just give you one segment from the end:

And if the question is whether crypto is good for anything, there is now at least one clear answer: Crypto enables DeFi. You don’t have to like every consequence of that reality, but a reality it is.

You could say that crypto is a Trojan horse of a new and quite different financial system. If you have ever dealt with U.S. banks, and suffered through their bureaucracy and mediocre software, you might conclude that they are ripe for  disruption. Banks in other countries may be even more vulnerable.

Obviously, as DeFi grows, questions of government oversight and control will come to the fore. Still, it seems unlikely that DeFi institutions will be regulated out of existence. DeFi can be run on platforms outside of the U.S., and American and European regulators cannot shut it down any more than they can prevent me from placing an online bet on a Mexican soccer game.

Keep in mind that significant swaths of the developing world currently use micro-credit, where borrowing rates of interest are often 50% or 100% on an annualized basis. It is likely that some of those countries will experiment with DeFi as an alternative method of credit allocation, regardless of whether those new institutions satisfy U.S. regulators in every regard.

If you are baffled by a lot of DeFi, well … welcome to the club. The confusing and ever-changing nature of DeFi helps explains why the prices of crypto assets are so volatile. If DeFi lies in part behind the demand for crypto, and you don’t know exactly where DeFi is headed, the future for crypto is also highly uncertain. It is very unusual to have such a highly visible window on what is essentially the value of a bunch of startups.

Recommended, and here are some earlier posts by Alex on DeFi.  And here is a new essay on DeFi.

Bitcoin as legal tender in El Salvador

Here is FT coverage, I still feel I don’t know the whole story, but bitcoin will be legal tender and furthermore:

The government will set up a trust at the Development Bank of El Salvador to enable automatic conversion of bitcoin to dollars. The law will take effect 90 days after its publication in the official gazette.

“The entry of bitcoins will be equivalent to an increase in the country’s monetary supply, which will temporarily boost El Salvador’s economic activity, but will also pressure inflation higher and with that, interest rates will rise,” Gabriela Siller, head of economic analysis at Banco Base in Mexico, said in a note to clients.

Here are a few observations:

1. El Salvador already uses the U.S. dollar, so there is not much loss of monetary sovereignty here.

2. Maybe the easing into bitcoin is intended to lower the cost of sending remittances from the U.S., which are fundamental to the El Salvadoran economy?  According to the FT, remittances are about one-fifth of gdp, and transfer charges can be steep.

3. Is this all just?: “You don’t have to move to Puerto Rico to avoid capital gains tax, you can just invest in El Salvador!  We’re going to precommit to accepting your bitcoin so you will plan around that.”

3b. Isn’t it suspicious that their legislature approved the legal tender law by such an overwhelming margin?  Is it that they all have read and digested so many Medium crypto essays?  Or do they just see this as “a deal”?

4. I don’t see why this should increase price inflation in El Salvador.  Prices are denominated in dollars, and El Salvadorans, or for that matter visiting tourists, already had the option of converting their crypto into dollars before buying more pupusas.

5. Even in the United States the retail demand for bitcoin transactional use has been quite low.  Making merchants in El Salvador take bitcoin seems like a PR move to me.  What does it mean to make a low-tech merchant in the countryside “take bitcoin”?  How is he supposed to take it?  Do the abuelas in the market have to set up Coinbase accounts?

6. Could this be a transitional or bridge move to ease El Salvador away from the U.S. dollar and to replace it with a native currency?

7. Is the increasingly authoritarian government of El Salvador looking to PR moves to boost its international legitimacy?

8. Given all the surrounding publicity, it does seem that “they really mean it,” and the government will try to “get something” out of the initiative.

I will keep you posted as I learn more.  But as a general rule, if Central America is the laboratory for your ideas, beware before leaping to conclusions too quickly!  At the very least do go visit the country you are wondering about, and, in trying to understand the equilibrium, have the country more prominent in your mind than the innovation.

The IRS tax data leak

Sometimes I wonder if I should blog on topics where I feel most of you already know what I think.  I’ll just say this.  The information was stolen illegally, yet on Twitter so many intellectuals were crowing about the disclosure.  (Did some of those same people condemn the theft from Biden Jr.’s laptop?  How many of them, in other contexts, will defend strong rights of privacy?  I guess that right is for everyone except rich people who create a lot of jobs and output.)

ProPublica acted unethically, and in fact nothing fundamentally new or interesting or surprising was learned from their act as accessory.

The real story is how the numbers were obtained, and here I fear the worst.  A single rogue agent can’t just pull up the files of rich people on demand, as I understand the system (if so, Trump’s return would have leaked a long time ago).  So this was probably a coordinated effort of some sort, is it crazy to suspect the Russians having some role in it?  Who else has the will and ability?  (China has the ability, but the “coddled rich people” meme is not one they are looking to push.)  What other breach of national security has occurred in the process of unearthing this information?  How was it done?  Are conspiracy theories becoming more true these days?

It is stunning to me how little consideration these issues are being given and how poorly so much of our MSM has performed.

Wednesday assorted links

1. The case for zoonotic origins.

2. What don’t we know about Long Covid?

3. Ohio sues to have Google declared a public utility.

4. The cost of cloud.

5. Hester Peirce on crypto (FT).

6. “Progressive taxation underperforming Biden by 12 percentage points in Illinois not paint a particularly rosy outlook with respect to the political feasibility of approaching Western European levels of taxation.”  Link here.

Houellebecq on the fall of France?

Here is the UnHerd essay, here is one excerpt:

No, we are not really dealing with a “French suicide” — to evoke the title of Eric Zemmour’s book — but a Western suicide or rather a suicide of modernity, since Asian countries are not spared. What is specifically, authentically French is the awareness of this suicide. But if we consent to set aside for a moment the particular case of France (and really it would be wise to do so), the conclusion becomes crystal clear: the inevitable consequence of what we call progress (at all levels, economic, political, scientific, technological) is self-destruction.

And:

The 45% of French people who believe, on the other hand, in impending civil war help to show (and it is almost sweet) that France remains a nation of braggarts.

It takes two to wage war. Are the French going to take up arms to defend their religion? They haven’t had any religion for quite some time; and in any case, their former religion is the sort where you offer your throat to the butcher’s blade…

Europe seems to me to be at a crossroads. Reading Pascal helps me a lot: but, like him, I see “nothing but cause for doubt and anxiety”.

Interesting throughout.

High discounts and high unemployment

Unemployment is high when financial discounts are high. In recessions, the stock market falls and all types of investment fall, including employers’ investment in job creation. The discount rate implicit in the stock market rises, and discounts for other claims on business income also rise. A higher discount implies a lower present value of the benefit of a new hire to an employer. According to the leading view of unemployment—the Diamond-Mortensen-Pissarides model—when the incentive for job creation falls, the labor market slackens and unemployment rises. Thus high discount rates imply high unemployment.

That is from Robert E. Hall, published 2017.

Should gambling be functionally separate from professional sports leagues?

In my latest Bloomberg column I consider the NBA:

A conservative estimate is that sports betting in the U.S., both legal and illegal, amounts to about $150 billion a year. How much of that is on basketball is an open question, but the NBA generates about $8 billion of revenue a year. It is quite possible that betting on the NBA already generates more revenue than the NBA itself, so integrating betting money into the sport could have a major influence.

The appeal of all this betting money brings me to my second worry: that the NBA, for commercial reasons, will create more bettable events, such as a mid-season tournament. Tennis is well-suited for betting (and corruption) because there are so many discrete wins and losses distributed across games, sets, matches and tournaments. Very frequently something decisive is on the line.

I prefer the longer story arc of a basketball season. Unlike the French Open, which takes place over the course of two weeks, the NBA season is nine months long, and the ongoing stories often are the relatively small events, understood primarily by the harder-core fans. That requires more patience, but it makes for a richer long-term narrative.

To be clear I think sports betting should be legal, but simply done apart from the leagues, such as in Las Vegas or through non-league-affiliated apps.  And this:

The backdrop is that in 2018 the Supreme Court struck down federal restrictions on sports betting, clearing the way for states to allow the practice. State laws vary, and even when sports betting is legal, it may be restricted to casinos or to mobile devices. But the trend is to allow more betting, not less.

Finally:

Again, the question is not whether sports betting should be prohibited. It’s how much official sanction it should receive. What would you think of a university that allowed betting on which students passed their exams? Like schools, sports leagues play roles as rule-setters and impartial referees. Maintaining that role is more important than pursuing the gamification of everything.