Turkey fact of the day
Real interest rates, which subtract inflation from central bank policy rates, have been negative for a remarkable 13 of the 22 years that Erdoğan has been in power, according to FT research. This helped spur growth, boost incomes and sustain a construction boom. It also laid the foundation for an economic crisis.
By late 2022, real rates had fallen to minus 75 per cent. By mid-2023, fuelled by high government spending following a devastating earthquake and pre-election fiscal splurge, the economy was overheating. Inflation was running at 60 per cent, the lira was in freefall and Turkey had a current account deficit equivalent to almost 6 per cent of GDP but had negative net reserves of about minus $60bn.
Here is more from John Paul Rathbone at the FT. I would want to know more about what actual net borrowing rates have been, all factors considered. Still, this is quite something, even if it is only an interest rate on paper, so to speak.
The objectivity of Community Notes?
We use crowd-sourced assessments from X’s Community Notes program to examine whether there are partisan differences in the sharing of misleading information. Unlike previous studies, misleadingness here is determined by agreement across a diverse community of platform users, rather than by fact-checkers. We find that 2.3 times more posts by Republicans are flagged as misleading compared to posts by Democrats. These results are not base rate artifacts, as we find no meaningful overrepresentation of Republicans among X users. Our findings provide strong evidence of a partisan asymmetry in misinformation sharing which cannot be attributed to political bias on the part of raters, and indicate that Republicans will be sanctioned more than Democrats even if platforms transition from professional fact-checking to Community Notes.
Here is the full paper. I guess it agrees with Richard Hanania…
Who in California opposes the abundance agenda?
Labor unions are one of the culprits, environmental groups are another:
Hours of explosive state budget hearings on Wednesday revealed deepening rifts within the Legislature’s Democratic supermajority over how to ease California’s prohibitively high cost of living. Labor advocates determined to sink one of Newsom’s proposals over wage standards for construction workers filled a hearing room at the state Capitol mocking, yelling, and storming out at points while lawmakers went over the details of Newsom’s plan to address the state’s affordability crisis and sew up a $12 billion budget deficit.
Lawmakers for months have been bracing for a fight with Newsom over his proposed cuts to safety net programs in the state budget. Instead, Democrats are throwing up heavy resistance to his last-minute stand on housing development — a proposal that has drawn outrage from labor and environmental groups in heavily-Democratic California.
Here is the full story, via Josh Barro. To be clear, I am for the abundance agenda.
Thursday assorted links
1. Data centres for New Zealand?
2. “In 2009, ten players in the league had fathers who’d played for N.B.A. teams; this past season, there were thirty-five.” (New Yorker) Is it the cost of youth sports?
3. US incarceration rate is due to fall radically.
4. After a respite, are health care expenditures back to growing rapidly?
5. Why cutting the capital requirement for banks in fact makes sense.
6. Libertarian literary and media criticism.
7. Douthat interviews Thiel (NYT).
Flying on Frying Oil
The ever-excellent Matt Levine points us to the amusing economic policies that connect the international jet-set to Malaysian street hawkers of fried noodles. The EU and the US have created strong economic incentives to create sustainable aviation fuel (SAF) and a good way to do this is to recycle used cooking oil (UCO). What could be better, right? Take a waste product and turn it into jet fuel! The EU and US policies, however, are so strong that all the EU and US used cooking oil cannot meet the demand. Here’s a great sentence, “Europe simply cannot collect enough used cooking oil to fly its planes.”
In the US, credits under the Inflation Reduction Act can account for up to $1.75 to $1.85 per gallon of SAF. Meanwhile cooking oil is subsidized in some 
parts of the world. The result?
It turns out that restaurants, street food stalls and home cooks in Malaysia — which is “among the world’s leading suppliers of both UCO and virgin palm oil” — will pay less for fresh cooking oil than the international market will pay for used cooking oil. Fresh cooking oil is more useful to cooks than used cooking oil (it tastes better), but it is less useful to refiners and airlines than used cooking oil (it doesn’t reduce their carbon impact). Also fresh cooking oil is subsidized by the government in Malaysia: “Subsidised cooking oil sells for RM2.50 per kg versus the UCO trading price of up to RM4.50 per kg.” So if you run a restaurant, you can buy fresh cooking oil for about $0.60 (USD), use it to fry food a few times, and then sell it to a refiner for $1, which is a nice little subsidy for the difficult, risky, low-margin business of running a restaurant.
The noodle hawkers in Kuala Lumpur are getting a nice little bump in profit but who is going stall to stall to check that the oil is in fact used? And what counts as used? One fry or two? Clever entrepreneurs have cut out the middleman. Virgin palm oil can be substituted for used cooking oil and voila! Sustainable aviation fuel is contributing to deforestation in Malaysia. Malaysia exports far more “used” cooking oil than oil that it uses. No surprise.
All of this illustrates a broader point: externalities suggest policy interventions may improve outcomes but markets are complex and politics is blunt. It’s easy to make things worse. If intervention is necessary, a uniform carbon tax beats a patchwork of production-specific subsidies. A price is a signal wrapped up in an incentive. Send everyone the same signal and the same incentive to ensure that the cheapest emissions are cut first and total costs are minimized.
Crucially, a carbon tax rewards any effective solution, even ones a planner would never think of–lighter planes and cleaner fuels sure but also operational tweaks like jet washes. In contrast, subsidies tether policy to specific technologies, like used cooking oil. That invites rent-seeking and inefficiency.
Tax carbon, not inputs. Avoid games with paperwork. One verification point at the fuel supply point is simpler than tracing global waste-oil chains. Don’t subsidize the fry oil and audit the street hawkers. Tax the emissions.
Canine supply was elastic, too, South Korea edition
South Korea has now banned the dog meat trade:
Chan-woo has 18 months to get rid of 600 dogs.
After that, the 33-year-old meat farmer – who we agreed to anonymise for fear of backlash – faces a penalty of up to two years in prison.
“Realistically, even just on my farm, I can’t process the number of dogs I have in that time,” he says. “At this point I’ve invested all of my assets [into the farm] – and yet they are not even taking the dogs.”
By “they”, Chan-woo doesn’t just mean the traders and butchers who, prior to the ban, would buy an average of half a dozen dogs per week.
He’s also referring to the animal rights activists and authorities who in his view, having fought so hard to outlaw the dog meat trade, have no clear plan for what to do with the leftover animals – of which there are close to 500,000, according to government estimates.
“They [the authorities] passed the law without any real plan, and now they’re saying they can’t even take the dogs.”
…A spokesperson from the Ministry of Agriculture, Food and Rural Affairs (Mafra) told the BBC that if farm owners gave up their dogs, local governments would assume ownership and manage them in shelters.
Here is the full BBC story, via Rich Dewey.
My excellent Conversation with Austan Goolsbee
Here is the audio, video, and transcript. Here is part of the episode summary:
A longtime professor at the University of Chicago’s Booth School and former chair of the Council of Economic Advisers under President Obama, Goolsbee now brings that intellectual discipline—and a healthy dose of humor—to his role as president of the Federal Reserve Bank of Chicago.
Tyler and Austan explore what theoretical frameworks Goolsbee uses for understanding inflation, why he’s skeptical of monetary policy rules, whether post-pandemic inflation was mostly from the demand or supply side, the proliferation of stablecoins and shadow banking, housing prices and construction productivity, how microeconomic principles apply to managing a regional Fed bank, whether the structure of the Federal Reserve system should change, AI’s role in banking supervision and economic forecasting, stablecoins and CBDCs, AI’s productivity potential over the coming decades, his secret to beating Ted Cruz in college debates, and more.
Excerpt:
COWEN: Okay, if the instability comes from the velocity side, that means that we should favor a monetary-growth rule to target the growth path of a nominal GDP, M times V, right?
GOOLSBEE: [laughs] Yes, and now you’re going to get me in trouble, Tyler. Here’s the thing I’ve known —
COWEN: You can just say yes. You’re not in trouble with me.
GOOLSBEE: I’m not going to say yes because, remember, I don’t like making policy off accounting identities. There’s no economic content in accounting identity. If you are trying to design a rule, that rule may work if the shocks are the same as what they always were in previous business cycles. I called it the golden path.
When we came into 2023, you’ll recall the Bloomberg economists said there was a 100 percent chance of recession in 2023. They announced it at the end of 2022. That’s when I came into the Fed system, the beginning of ’23.
That argument was rooted in the past. There had never been a drop of inflation of a significant degree without a very serious recession. Yet in 2023, there was. Inflation fell almost as much as it ever fell in one year without a recession. If you over-index too much on a rule that implicitly is premised on that everything is driven by demand shocks, I just think you want to be careful over-committing.
COWEN: I’m a little confused at the theoretical level. On one hand, you’re saying M times V is an identity, but on the other hand, it drives inflation dynamics.
GOOLSBEE: It’s why I started back from the . . . I bring a micro sentiment to the thinking about causality and supply and demand. I sense that you want to bring us to a, let’s agree on a monetary policy rule, and I’m inherently a little uncomfortable. I want to see what the rules say, but I fundamentally don’t want us to pre-commit to any given rule in a way that’s not robust to shocks.
COWEN: Now, you mentioned the post-pandemic inflation and the role of the supply side. When I look at that inflation, I see prices really haven’t come back down. They’ve stayed up, and I see service prices are also quite high and went up a lot, so I tend to think it was mostly demand side. Now, why is that wrong?
GOOLSBEE: There’re two parts to that. I won’t say why it’s wrong, but here are my questions. If you’re firmly a ‘this-all-came-from-demand’ guy, (A) you’ve got to answer, why did inflation begin soaring in the US when the unemployment rate is over 6 percent? Or we could turn it into potential output terms if you want, but output is below our estimate of potential. Unemployment is way higher than what we think of as the natural rate, and inflation is soaring. That already should make you a little questioning.
COWEN: I can cite M2. You may not like it. M2 went up 40 percent over a few-year period, right?
GOOLSBEE: Two, the fact that the inflation is taking place simultaneously in a bunch of countries of similar magnitudes that did not have the kind of aggregate demand, fiscal or monetary stimulus that we had in the US is also a little bit of a puzzle.
Then the third is, if you don’t think it was supply, then you need to have an explanation for why, when the stimulus rolls off, everything about the stimulus is delta from last year. We pass a big fiscal stimulus, we have substantial monetary stimulus that rolls off, the inflation doesn’t come down. Then in ’23, when the supply chain begins to heal, you see inflation come down. Those three things suggest there’s a little bit of a puzzle if you think it was all demand.
COWEN: No, I don’t think it was all demand, but you mentioned other countries. Switzerland and Japan — they import a lot. They were more restrained on the demand side. They had much lower rates of price inflation. That seems to me strong evidence for being more demand than supply.
GOOLSBEE: Wait a minute.
COWEN: I’m waiting.
GOOLSBEE: You’re going to bring in Japan?
COWEN: Yes.
GOOLSBEE: And you’re going to try to claim that Japan’s low inflation is the result of something in COVID? Japan had lower inflation all along, for decades before. They were going through deflation.
COWEN: But if it was mostly supply, a supply shock would’ve gotten them out of the earlier deflation, right? A demand shock would not have.
Recommended.
One possible reason why the skill premium is declining
This is especially true for those jobs that require the rudimentary use of technology. Until relatively recently, many people could get to grips with a computer only by attending a university. Now everyone has a smartphone, meaning non-graduates are adept with tech, too. The consequences are clear. In almost every sector of the economy, educational requirements are becoming less strenuous, according to Indeed, a jobs website. America’s professional-and-business services industry employs more people without a university education than it did 15 years ago, even though there are fewer such people around.
Here is more from The Economist, quite a good piece. Of course this is also a reason why smart phones are underrated.
How constrained is the NYC mayor?
I thought to ask o3, here is the opening of its answer:
New York City has a “strong-mayor / council” system, but the City Charter, state law and an array of watchdog institutions deliberately fragment power. In practice the mayor can move fastest on implementation—issuing executive orders, running the uniformed services, writing the first draft of the budget, and appointing most agency heads—yet almost every strategic decision runs into at least one institutional trip-wire.
He does appoint all police commissioners and has direct control over the police. The mayor also has line item veto authority, although that can be overriden by the City Council. The entire response is of interest. More generally, who will and will not feel welcome in the city after this result?
Wednesday assorted links
Are cultural products getting longer?
Ted Gioia argues that cultural products are getting longer:
Some video creators have already figured this out. That’s why the number of videos longer than 20 minutes uploaded on YouTube grew from 1.3 million to 8.5 million in just two years…
Songs are also getting longer. The top ten hits on Billboard actually increased twenty seconds in duration last year. Five top ten hits ran for more than five minutes…
I’ve charted the duration of [Taylor] Swift’s studio albums over the last two decades, and it tells the same story. She has gradually learned that her audience prefers longer musical experiences…
I calculated the average length of the current fiction bestsellers, and they are longer than in any of the previous measurement periods.
Movies are getting longer too. Of course this is the exact opposite of what the “smart phones are ruining our brains” theorists have been telling us. I think I would sooner say that the variance of our attention spans is going up? In any case, here is part of Ted’s theory:
- The dopamine boosts from endlessly scrolling short videos eventually produce anhedonia—the complete absence of enjoyment in an experience supposedly pursued for pleasure. (I write about that here.) So even addicts grow dissatisfied with their addiction.
- More and more people are now rebelling against these manipulative digital interfaces. A sizable portion of the population simply refuses to become addicts. This has always been true with booze and drugs, and it’s now true with digital entertainment.
- Short form clickbait gets digested easily, and spreads quickly. But this doesn’t generate longterm loyalty. Short form is like a meme—spreading easily and then disappearing. Whereas long immersive experiences reach deeper into the hearts and souls of the audience. This creates a much stronger bond than any 15-second video or melody will ever match.
An important piece and useful corrective.
Does AI make us stupider?
That is the topic of my latest Free Press column, responding to a recent study out of MIT. Here is one excerpt:
To see how lopsided their approach is, consider a simple parable. It took me a lot of “cognitive load”—a key measure used in their paper—to memorize all those state capitals in grade school, but I am not convinced it made me smarter or even significantly better informed. I would rather have spent the time reading an intelligent book or solving a math puzzle. Yet those memorizations, according to the standards of this new MIT paper, would qualify as an effective form of cognitive engagement. After all, they probably would have set those electroencephalograms (EEGs)—a test that measures electrical activity in the brain, and a major standard for effective cognition used in the paper—a-buzzin’.
The important concept here is one of comparative advantage, namely, doing what one does best or enjoys the most. Most forms of information technology, including LLMs, allow us to reallocate our mental energies as we prefer. If you use an LLM to diagnose the health of your dog (as my wife and I have done), that frees up time to ponder work and other family matters more productively. It saved us a trip to the vet. Similarly, I look forward to an LLM that does my taxes for me, as it would allow me to do more podcasting.
If you look only at the mental energy saved through LLM use, in the context of an artificially generated and controlled experiment, it will seem we are thinking less and becoming mentally lazy. And that is what the MIT experiment did, because if you are getting some things done more easily your cognitive load is likely to go down.
But you also have to consider, in a real-world context, what we do with all that liberated time and mental energy. This experiment did not even try to measure the mental energy the subjects could redeploy elsewhere; for instance, the time savings they would reap in real-life situations by using LLMs. No wonder they ended up looking like such slackers.
Here is the original study. Here is another good critique of the study.
The Effects of Ranked Choice Voting on Substantive Representation
Ranked choice voting (RCV) is an increasingly popular electoral institution that has been posited by reformers and media outlets to produce transformative effects on electoral outcomes and representation. However, there is little social scientific evidence available that evaluates these claims. I test the effects of RCV on municipal fiscal outcomes and the ideological composition of city councils. I also estimate RCV’s effects on these outcomes relative to public opinion — in other words, whether RCV narrows the gap between outcomes and mass policy preferences. This article finds no empirical support for the proposition that RCV changed fiscal outcomes or the ideological composition of city councils — both on absolute terms and relative to mass opinion. Furthermore, the roll-call based ideal points of legislators serving before and after RCV did not change, and the relationship between city district opinion and city legislator ideology is unchanged post-adoption. Taken as a whole, this article does not find evidence that RCV has produced the types of transformative political effects that reformers have postulated.
Here is the full paper by Arjun Vishwanath. Source.
Tuesday assorted links
1. Arc Institute releases the first draft of a virtual cell model.
2. The continuing resurgence of Fischer Black in current macro.
3. Robert Nelsen on why the diabetes breakthrough is important.
4. Law Review Puts Out Full Issue Of Articles Written With AI.
5. ChatGPT got this guy out of the woods.
6. The most successful undergraduate theses, a partial list.
How do declining fertility and climate change interact?
There are lots of assumptions behind these results, but still it is good to see someone working through some scenarios:
A smaller human population would emit less carbon, other things equal, but how large is the effect? Here we test the widely-shared view that an important benefit of the ongoing, global decline in fertility will be reductions in long-run temperatures. We contrast a baseline of global depopulation (the most likely future) with a counterfactual in which the world population continues to grow for two more centuries. Although the two population paths differ by billions of people in 2200, we find that the implied temperatures would differ by less than one tenth of a degree C—far too small to impact climate goals. Timing drives the result. Depopulation is coming within the 21st century, but not for decades. Fertility shifts take generations to meaningfully change population size, by which time per capita emissions are projected to have significantly declined, even under pessimistic policy assumptions. Meanwhile, a smaller population slows the non-rival innovation that powers improvements in long-run productivity and living standards, an effect we estimate to be quantitatively important. Once the possibility of large-scale net-negative emissions is accounted for, even the sign of the population-temperature link becomes ambiguous. Humans cause greenhouse gas emissions, but human depopulation, starting in a few decades, will not meet today’s climate challenges.
That is from a new NBER working paper by