Icelandic fact of the day

This passage concerns the U.S. occupation during World War II:

At its peak, the occupation of Iceland would include the equivalent, statistically speaking, of 55 million foreign troops occupying the United States based on 1940 populations.  There were nearly fifty thousand men and dozens of female nurses, equaling about 40 percent of Icelanders.

By the way, from 1940 to 1946, “the purchasing power of unskilled workers (meaning just about everyone) grew by a whopping 86 percent…”  About two percent of Icelandic women left as brides to American soldiers.  And while Iceland lost about 300 lives during the war (mostly sailors), American servicemen helped to add another 400-500 to the native population.

One of the major political issues in the 1970s was whether the letter “Z” should be included in the Icelandic alphabet, and indeed it was abolished by law in 1973, with an exception being made for the word “pizza.”

That is all from Egill Bjarnason, How Iceland Changed the World: The Big History of a Small Island.  I’ll say it again: single country books are underrated.  Maybe there are no great revelations in this one, but if you have been to Iceland, or are planning a trip, it is probably the first book you would want to pick up to cover the country.

Why the lab leak theory matters

Here is Ross Douthat at the NYT:

…there’s a pretty big difference between a world where the Chinese regime can say, We weren’t responsible for Covid but we crushed the virus and the West did not, because we’re strong and they’re decadent, and a world where this was basically their Chernobyl except their incompetence and cover-up sickened not just one of their own cities but also the entire globe.

The latter scenario would also open a debate about how the United States should try to enforce international scientific research safeguards, or how we should operate in a world where they can’t be reasonably enforced.

I agree, and would add one point about why this matters so much.  “Our wet market was low quality and poorly governed” is a story consistent with the Chinese elites not being entirely at fault.  Wet markets, after all, are a kind of atavism, and China knows the country is going to evolve away from them over time.  They represent the old order.  You can think of the CCP as both building infrastructure and moving the country’s food markets into modernity (that’s infrastructure too, isn’t it?), albeit with lags.  “We waited too long to get rid of the wet markets” is bad, but if anything suggests the CCP should have done all the more to revolutionize and modernize China.  In contrast, the story of “our government-run research labs are low quality and poorly governed”…that seems to place the blame entirely on the shoulders of the CCP and also on its technocratic, modernizing tendencies.  Under that account, the CCP spread something that “the earlier China” did not, and that strikes strongly at the heart of CCP legitimacy.  Keep in mind how much the Chinese apply a historical perspective to everything.

A number of you have asked me what I think of the lab leak hypothesis.  A few months ago I placed the chance of it at 20-30%, as a number of private correspondents can attest.  Currently I am up to 50-60%.

The polity that is Canada

Canada wants to force YouTube, TikTok and other video- and audio-sharing sites to prominently feature more of the country’s artists, a move that digital-law experts and former government officials call one of the most aggressive internet regulations yet from a Western country.

The aim to promote domestic content on the sites is a step in the Canadian government’s multipronged effort to get the world’s biggest digital companies to contribute more financially to the country’s economy. Canada has vowed to levy a digital-services tax starting in 2022, regardless of whether there is a global deal among Organization for Economic Co-operation and Development members on such a tax this summer.

The Liberal government also intends to follow Australia in trying to get digital platforms to compensate media outlets for content, and to create a new regulator to police hate speech and other harmful online activity.

Here is more from the WSJ.  I recall being a participant in trade negotiation sessions, way back when, and saying to the Canadian rep.: “What are you going to do when everyone consumes culture through the internet?  Enforce quotas on that too?”

Even back then, of course, I understood that it was the pro-Canadian effort that was being valued in policies such as these, not the results per se.  Perhaps the equilibrium is that the regulators tell the tech companies they have to tweak the algorithm to favor more Canadian content, there isn’t really an enforceable standard, the tech companies do in fact tweak the algorithms somewhat, culture consumption changes only marginally, and everyone goes away “happy enough.”

A young woman speaking about her date and dating philosophy

Her other nonnegotiable is quarantine behavior. She was happy when she found out [male name redacted] takes safety seriously, interacting with only a small pod of people and limiting travel. “That showed me we had similar values,” she said. “Being caring, empathetic — and also believing in science and CDC regulations and guidelines.”

No, I am not interested in giving you a link or in identifying anybody by name.  The point is this: this is one of the very best paragraphs ever written in helping you to understand the Blue State reaction to the pandemic.

Saturday assorted links

1. An escalator made of cardboard (short video).

2. Cats of brutalism.

3. Orson Welles, The Immortal Story, 58 minutes long, made for French TV 1968, one of his best.  Jeanne Moreau too, full of MIE themes, and as I view it a critique of the wealthy, more substantive than the usual.

4. Markets in everything: pay for the chance to heist mannequin parts from a mountain of mannequin parts.

5. Progress Studies 101, by Sagar Devkate.

6. A recruiter on why restaurants are having trouble hiring.  Of course this means that right now is a relatively bad time to be eating out a lot — higher variance of outcomes and even well-known restaurants have become harder to predict.

7. Lots of Democratic economists think Summers is right but they are afraid to say it.  Context from Jason Furman here.

Jonathan Hazell emails me about inflation indicators

You asked Mark Carney what the best indicators were for inflation. Let me take the liberty of giving you mine.

1) Median CPI inflation, i.e. the weighted median value of CPI inflation across products. This measure tracks the underlying signal in inflation because it filters out volatile shocks hitting certain industries (e.g. airlines or used cars now, healthcare during 2010-2015, food and energy perennially). Median CPI has a good time series correlation with unemployment, better than the other series (see Ball & Mazumder, JMCB 2019).

2) 5 year, 5 year forward expected inflation. This is what markets expect inflation will be, in 5 years’ time, for the next 5 years. This measure tracks long run inflation expectations and removes the effects of short run shocks. In US data, big changes in inflation have been caused by unanchored long run inflation expectations, not by short run shocks to demand (see e.g. Hazell, Herreno, Nakamura & Steinsson 2021). So, if inflation is going to rise by a lot, long run inflation expectations are a good leading indicator.

For now, neither measure is high by historical standards but of course that could change. I hope some of this is interesting, anyway.

Omid on central bank digital currencies (from my email)

Really enjoyed your conversation with Mark [Carney] (as usual). I give him a B+ on his views on CBDCs. He gets credit for understanding that if nothing is done, then digitization means a disappearance of public money in the economy except for the banks. This has a lot of consequences, most of which are bad. There is no access for the unbanked, higher fees, lower privacy and more credit risk throughout the system.

Where Mark goes astray is by mentioning this oft proposed two-tier model for CBDCs, which is just a fallacy. Fiat money is a liability, and each unit can either be a liability of a central bank or commercial bank, it can’t be both. So if the Fed issues a digital dollar to the banks, and the banks issue private claims to their customers, we haven’t achieved anything, other than maybe a marginally better RTGS system. A real CBDC means the public can hold direct claims against the central bank, as it does today with cash.

Now, this is the point at which the skeptics say “what about disintermediation of the banks?” To that I say: so what? If lending via depository institutions (as opposed to via the bond market, money markets, etc) is a good, then the market will adjust to provide it. One way to think about the existing two-tier model is that savers are forced to subsidize borrowers. E.g., I want to make payments, so I have to open a checking account, for which the bank pays me no interest. The same model will exist with CBDCs, it’s just that banks will have to pay higher interest to attract deposits, or offer other value-added services.

CBDCs also allow lending via DeFi, which is more price efficient for savers and borrowers, so that will offset any increase in borrowing costs.

Paul Krugman or…LaMelo Ball?

Charlotte Hornets guard LaMelo Ball will become the first athlete to enter the world of dynamic nonfungible tokens (NFTs) when he releases a set of 500 prior to the announcement of the NBA Rookie of the Year in June, ESPN has learned.

NFTs are unique blockchain-based tokens that give owners specific rights to the asset — photograph, video clip, artwork — they represent. Dynamic NFTs are a recent technological advancement and, unlike conventional NFTs, have the ability to change over time. If Ball is named Rookie of the Year, the 500 NFTs will automatically update to include the award, which is expected to increase the value of the collectible.

“As I learn more about blockchain, I realize this is the most powerful and unique way to engage my fans in a way that’s special to them individually,” Ball tells ESPN. “I see this as the future for fans and athletes connecting together.”

Here is more from ESPN.  In the meantime, “UC Berkeley Will Auction NFTs for 2 Nobel Prize Patents.

Friday assorted links

1. The Danish film Another Round is perhaps the best film ever made about alcohol.  It is also a movie about Denmark.  Reviews are quite positive, but it is poorly understood by the critics.

2. “Quebec needs its own emoji ‘as soon as possible,’ say legislators in unanimous vote.

3. Goethe in China.  Supposedly Xi as a teenager read Faust multiple times and knows it by heart.

4. Fabio Ghironi thread on research killers.  And Ross D. has some further picks for influential intellectuals.

5. China proposed markets in everything; as I like to say, the best argument for “Woke” is to read the MR comments section.  And since it constitutes a strong argument for a proposition (whether you agree with the view or not), that makes it a very very good comments section.

6. Weird stuff that might be possible, even if I don’t quite trust this piece.

7. Biden climate policy and the median voter (NYT).

Individualism Promotes Benevolence

NYTimes: On average, people in more individualist countries donate more money, more blood, more bone marrow and more organs. They more often help others in need and treat nonhuman animals more humanely. If individualism were equivalent to selfishness, none of this would make sense.

…individualism promotes a more universalist outlook. In focusing on individual rights and welfare, it reduces the emphasis on groups — and the differences between “us” and “them” that notoriously erode generosity toward those outside one’s own circle.

See also my posts Globalization and the Expanding Moral Circle and Testing Doux Commerce in the Lab.

Should you make it easier for people to apply?

We study how search frictions in the labor market affect firms’ ability to recruit talented workers. In a field experiment in Ethiopia, we show that an employer can attract more talented applicants by offering a small monetary incentive for making a job application. Estimates from a structural model suggest that the intervention is effective because the cost of making a job application is large, and positively correlated with jobseeker ability. We provide evidence that this positive correlation is driven by dynamic selection. In a second experiment, we show that local recruiters underestimate the positive impacts of application incentives.

That is from a new AER piece by Girum Abebe, A. Stefano Caria, and Esteban Ortiz-Ospina.  I find this claim very interesting, though not completely general.  You will note these results are for clerical positions in Ethiopia, and note further “The impact of ability of application incentives is driven by women, and by those jobseekers who are currently unemployed and less-experienced.”  It is possible that the ease of application improves the applicant pool for those with a confidence gap, yet who are talented nonetheless.  I might add that the easy nature of the Emergent Ventures application (it really doesn’t take long and requires no reference letters or vita) reflects a similar logic.

In the context of this study, it is not just that some of the higher quality candidates apply for the money, rather the money is also a signal that the application process truly is open.  Otherwise why pay for applicants?

That said, for jobs or awards that are more creative than just clerical labor, you want to give each application close scrutiny and that may militate against encouraging more and more applicants.  You might even want “knowing to apply in the first place” to be the biggest test standing before the final prize.  What better way to test for networks?

So the mix of “hard to know about at all, easy to apply once you do” will in fact fit some situations fairly well.

Austin Vernon on digital dollars (from my email)

I was curious about if banks had many use cases for stablecoins, so I talked to [redacted] who works at a nationwide bank that focuses on small business lending. The use case he mentioned was that sometimes they need cash very quickly to stay within their requirements but wires are slow and cumbersome. If you could use a crypto network, the settlement time in minutes would be a big advantage.

The mechanics don’t quite work out because they would also want to use a product that does not change valuations compared to dollars. Stabecoins should fit the bill, but to transfer stablecoins from one bank account to another you would have to wire or ACH someone like Coinbase, do the transaction on chain, then withdraw the money from coinbase. So it would not be fast.

It is possible to imagine where every bank has their own stablecoin backed by US dollars they hold 1:1. It’d be like the days of banks issuing their own gold back notes. If Alice Bank needed more USD, they could borrow from Bob Bank. The actual mechanism might be that Bob Bank uses cash reserves to instantly create USDB and sends the USDB to Alice Bank’s wallet. Alice Bank then goes to Uniswap and trades USDB for their own USDA stablecoin. Alice Bank then retires those stablecoins and releases cash from their stablecoin cash reserves into their general fund. Any customer of Alice Bank or Bob Bank could do this same transaction with other bank customers to have cash faster than an ACH.

Can this happen today? Uniswap 3.0 is a leap forward for adding liquidity for automated market making and is especially beneficial for stablecoin transactions. There are practical limits on small transaction sizes and very large transaction sizes. The biggest practical transaction is limited by liquidity in the trading pools. Uniswap 3.0 should make this much larger than previous automated market makers, the actual amount depends on how much liquidity the market makers provide. The smallest size is limited by fees. Uniswap is launching Layer 2 scaling very soon, but the scaling is optimistic roll ups that utilize fraud proofs. If the banks were only transacting in Layer 2 this would not be a problem, but with fraud proofs it can take one week to take funds out of Layer 2 into the main Layer 1 chain. ZK-SNARK based roll ups would fix this, allowing instant settlement, and are progressing rapidly, but aren’t available yet. Blockchain technologies are still somewhat immature for this use case, but that capability is rapidly approaching.

Banks are so regulated they may not want to get involved without regulators giving them a nod. If the government favors a digital dollar, they may not want to give that nod. I think China has made its preference clear. They want a digital yuan and independent crypto networks will be subordinated. Very soon governments and central banks might have a choice between writing 100 pages of regulation that clarify standards for registered banks creating stablecoins and de facto creating a digital dollar system or embarking on a very large project to create their own digital dollar that requires much more work and owning implementation risk.

Will be fun to watch!

Thursday assorted links

1. Ross Palmer YouTube review of Average is Over.

2. Why do scientists lie?

3. “We find that differences in taxation alone explain 44.7% of US-EU differences in health expenditure-GDP ratio and more than 70% of their differences in time allocation.

4. Jason Furman speaks truth on “overheating labor markets,” though in my view it goes much further than that.  The evidence on this one really is not there, and that has been well-known for decades.  Wages are at best moderately pro-cyclical (and that’s not even getting into causality), and for decades Keynesians were trying to argue they are not pro-cyclical at all.  Except now.

5. Do the “Big Five” personality traits predict SES?  And how much should that matter?

Matt Yglesias on the dynamics of Twitter

Social media is truly social in the sense that it features incredible pressures to form in-groups and out-groups and then to conform to your in-group. Unless you like and admire Cotton and Pompeo and want to be known to the world as a follower of Cotton-Pompeo Thought, it is not very compelling to speak up in favor of a minority viewpoint among scientists. Why spend your day in nasty fights on Twitter when you could be doing science? Then if you secure your impression of what “the scientists” think about something from scanning Twitter, you will perceive a consensus that is not really there. If something is a 70-30 issue but the 30 are keeping their heads down, it can look like a 98-2 issue.

I do not know a lot about science, so I will not opine how generally true this may or may not be.

But in economics, which I do know well, I think it’s a big issue. If someone tweets something you agree with, it is easy to bless it with an RT or a little heart. To take issue with it is to start a fight. And conversely, it’s much more pleasant to do a tweet that is greeted with lots of RTs and little hearts rather than one that starts fights. So I know from talking to econ PhD-havers that almost everyone is disproportionately avoiding statements they believe to be locally unpopular in their community. There is just more disagreement and dissension than you would know unless you took the time to reach out to people and speak to them in a more relaxed way.

My strong suspicion is that this is true across domains of expertise, and is creating a lot of bubbles of fake consensus that can become very misleading. And I don’t have a solution.

Here is his full Substack post, I am very happy to be a paid subscriber.  The broader question of course is what we can do to limit these problems.  More pseudonymous tweeters and writers?  More grumpy old people who don’t care so much about their reputations?  More who write for Substack?  Other?