Monthly Archives: September 2017

Don’t let it bring you down

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To paraphrase Neil Young, here is a new essay that’s guaranteed to bring you right down. It’s by Russ Roberts.

The current state of the country and the current state of political and intellectual conversation depresses me in a way that it never has before.

I share his despondent mood. Here are what I see as the causes.

1. For a conservative-flavored libertarian, or libertarian-flavored conservative, the Overton Window is moving away from our views all over the place. Health care policy obviously, where Obamacare is most likely to be replaced by full-on single payer. Fiscal policy in general, where tax and spend (or maybe just spend and spend) is entrenched. Trade policy, where protectionism now has bastions in both parties.

Mainstream economics will soon be all about inequality, secular stagnation (i.e. the theory that government needs to spend because everyone else is saving too much), climate change, race/gender bias, market failure, and market power. In other words, reinforcing rather than counteracting what Bryan Caplan calls anti-market bias in the general population.

The Trump Presidency is not the solution to this Overton Window trend, and one can argue that it is part of the problem. The Republican Party won about as much as it possibly could last November, but in terms of American football, the Republicans have not moved the ball. When the Democrats get it back, they will have excellent field position.

2. The people who care most about politics want to have their outrage validated. The media cater to that desire. Does the sight of neo-Nazis marching validate your outrage as a progressive? The progressive media will make as big as story as possible out of it. Do the antics on campus validate your outrage as a conservative? The conservative media will make as big a story as possible out of it. This reinforces the destructive feedback loop to which Roberts refers.

3. The Internet encourages immediate reactions. As articles appear, your instinct is to share those with which you agree and denounce those with which you disagree You don’t take the time to think through an issue in a nuanced way. In fact, stories come and go so fast that by the time you think about something, it is no longer being discussed.

4. The U.S. lacks an external threat that is widely recognized and powerful. Sure, some people think that Muslim radicalism is an existential threat. Some people think that climate change is an existential threat. But for an external threat to lead us to pull together, there needs to be a consensus about the threat. Without the consensus, these sorts of fears instead exacerbate divisions. Russ and I worry that the outrage cycle is an existential threat. But that is an internal issue, not an external one.

In conclusion, it looks as though the country is in what some have called a cold Civil War. That is unsettling enough. Moreover, it seems highly probable that the left will come out on top, and that it will in victory show no signs of heeding Lincoln’s call for “malice toward none and charity to all.”

Hanson, Hurricanes, and Price Gouging

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Describing our primitive ancestors, Robin Hanson writes,

when the group was stressed and threatened by dominators, outsiders, or famine, the collective view mattered less, and people reverted to more general Machiavellian social strategies. Then it mattered more who had what physical resources and strength, and what personal allies. People leaned toward projecting toughness instead of empathy. And they demanded stronger signals of loyalty, such as conformity, and were more willing to suspect people of disloyalty. Subgroups and non-conformity became more suspect, including subgroups that consistently argued together for unpopular positions.

I suppose that people see charging a high price for something in the wake of a hurricane as disloyal. The situation calls for group solidarity, and instead here is this merchant looking out for himself.

Regulatory miscalculation

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Two examples.

1. Stephen Matteo Miller writes,

While these findings do not establish that the Recourse Rule caused the financial crisis, they are consistent with the view that the rule encouraged securitizing banks, especially the largest ones, to hold the assets that turned out to be at higher risk of distress. In other words, though the Recourse Rule may have been intended to lower risk-taking, it may have encouraged greater risk-taking on the part of these banks.

The Recourse Rule got its name because its primary provision was to force banks to keep capital against assets that had been sold with recourse, meaning that the assets could be put back to the bank if they lost value. But another provision of the rule allowed banks to reduce capital against mortgage securities with AA and AAA ratings. Freddie Mac and Fannie Mae warned about the distortions this would create at the time the rule was issued, in 2001. I have discussed its role in the financial crisis of 2008 in Not What They Had in Mind and in The Regulator’s Calculation Problem, the latter focusing on the book by Jeffrey Friedman and Wladimir Kraus that emphasizes the role that capital (mis-)regulation played in the lead-up to the crisis.

2. Saad Alnahedh and Sanjai Bhagat write,

Regulations were announced by the U.S. Securities and Exchange Commission (SEC) in July 2014 to increase MMF [money market funds] disclosures, lower incentives to take risks, and reduce the probability of future investor runs on the funds. The new
regulations allowed MMFs to impose liquidity gates and fees, and required institutional prime MMFs to adopt a floating (mark-to-market) net asset value (NAV), starting October 2016. . .we find that institutional prime funds responded to this regulation by
significantly increasing risk of their portfolios, while simultaneously increasing holdings of opaque securities.

Kevin Erdmann on housing in 2006-2008

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He responds to my post.

So, in the highest priced cities, middle class buyers were an insignificant part of the market, but when prices in those cities shot up and then collapsed, our main policy response was to prevent middle and lower-middle class households from being homeowners in places like Texas, where they never posed a problem.

Read the whole thing. The main take-away is that if you thought in terms of just one housing market, as policy makers in Washington did, you could not possibly make good decisions.

Today’s communication architecture

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Mark Jamison writes,

Netflix and other large edge providers are bypassing the internet. More specifically, they are building or leasing their own networks designed to their specific needs and leaving the public internet — the system of networks that only promise best efforts to deliver content — to their lesser rivals.

…Mobile internet is leaving wireline internet in its dust in numbers of users and traffic. Mobile internet increasingly bypasses the World Wide Web because about 90% of customers’ mobile time is spent in apps, not the web

Back in the 1990s, the term “walled garden” emerged as an expression of contempt for AOL and other companies that tried to combine control over infrastructure with content. We thought that the Internet would drive out the walled gardens. I am getting the sense that we were wrong about that.

I assume that the walled garden approach is emerging because it is more efficient economically than the 1990s Internet. One downside is that the walled gardens are conducive to censorship and regulation.

The housing bubble and speculators, once again

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Commenter Handle is skeptical of the revisionist view that investor loans rather than subprime lending fueled the housing bubble and bust.

how does debt to high risk borrowers stay constant while everyone knows that underwriting standards dropped a lot? Why wouldn’t a drop in standards have scooped up a lot of marginal borrowers and expanded the debt in that category?

Many possibilities.

1. The loosening in underwriting standards may not have been as deep and widespread as people have come to believe.

2. Perhaps looser standards did not draw in many borrowers, because people self-rationed. Most people fear taking on a lot of debt, even if lenders are offering it to them.

3. Perhaps the authors of the revisionist papers are deceiving themselves by the way that they look at trends in debt among homeowners. If debt was going up for some borrowers and down for others, then on average you might not see a debt increase. But the debt might have increased among borrowers less able to carry it. Note that the ability to carry debt depends on many factors, including factors that are not observable to economists researching the issue.

4. An increase in house purchases by affluent speculators and an increase in house purchases by sub-prime borrowers are not mutually exclusive explanations of the boom and bust. It could be that both phenomena together were important. The cycle would have been much less extreme if either of those phenomena had not taken place.

5. Perhaps the biggest shock was not the loosening of standards prior to 2008 but the tightening of standards subsequently. As the “subprime crisis” unfolded, politicians hit lenders with new rules and, more important, harsh rhetoric about “predatory lending” that discouraged lenders from offering a mortgage loan to anyone who actually needed one (lending to people with plenty of assets was still ok). Perhaps if underwriting standards had merely reverted to those of 2002, home prices would have stabilized at a higher level.

I lean toward (3) and (4). Maybe someone (Kevin Erdmann?) can talk me into (5).

Green on Green

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Colin Browne writes,

The end result of this project includes a big win for biking in the region: a paved, grade separated trail from Bethesda to Silver Spring. But the construction phase will include unavoidable disruptions—the entire Georgetown Branch Trail from Bethesda to Stewart Avenue will be completely closed starting September 5. It will remain closed for the duration of construction.

There are a number of workable on-street routes, many low-stress and relatively direct, but things get a bit complicated here because the town of Chevy Chase has so far refused to allow the county to sign a trail detour on its roads.

At present, the official signed detour is on Jones Bridge Road, which is a busy thoroughfare with narrow sidewalks and no bike infrastructure. If you’re a confident bicyclist, it may be fine. If you’re not, it will be a stressful experience.

Note that “duration of construction” is estimated to be five years. This one affects me. A lot. I bike regularly, and about 60 percent of my rides use this route. It would be less than that, but another multi-year construction project, which closes Beach Drive/Rock Creek Parkway, had been forcing me down the now-closed trail.

As for the official detour, Mr. Browne greatly under-states its problems. As you know, I think that the term “city bike lane” is an oxymoron. But the road we are being asked to use not only has no bike lane. It has zero shoulder. No white stripey thing at all. Just the curb. Plus it has curves that are difficult for drivers to see around. And lots of cars, regularly exceeding the 35 MPH speed limit. If you want to engineer a road as a no-go zone for bikes, this is what you would design. Mr. Browne, I may not meet your definition of a confident cyclist, but I am confident of one thing: as a cyclist, I want no part of that road.

So I tried the sidewalk. Not as dilapidated as some of the sidewalks I use, but pretty uneven and quite narrow. With the usual crowd of joggers, strollers, dog-walkers, and so on, it would tempt many cyclists (not me) to try the road.

But to add insult to injury, you end up nowhere near where the bike trail picks up again! Instead, you are left with about a mile of urban traffic to navigate through to get back to the path. Yes, there is a bike lane, but I already told you what I think of those.

Anyway, I called this post “green on green” because it reminded me of what a commenter wrote recently.

I occasionally notice what I think of as “bobo wedge issues,” disputes that divide bo from bo. For example, I live near a regional airport with ambitions to expand. This has set the bourgeois faction’s desire for travel convenience against the bohemian faction’s desire for natural quiet. Which bo you are depends on whether you live in the flight path.

The bike trail is being closed because the Washington DC Metro (our subway system) is building a new line. Of course, Metro, which loses money in spite of generous subsidies and exorbitant fares, is the poster child for “green means unsustainable.” And then, to top it off, Chevy Chase is packed with smug, green progressives, so of course they would NIMBY-veto any signage that would help cyclists deal with the trail closure.

Grumpy support for universal basic income

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In the WSJ, John Cochrane advocates getting rid of the personal income tax, the corporate income tax, and the estate tax. Instead, he favors a VAT. En passant, he advocates a universal basic income, without calling it that. On his blog, he explains

The oped explains briefly how to make a VAT progressive, if that’s what you want. The idea is explained more at length in an earlier post. Briefly, you get a rebate for VAT on your first $10,000 of expenditures, half on the next $10,000 and so on. The rebate can happen instantly, like a giant rewards program for debit cards.

Incidentally, when we canceled the WaPo and subscribed to the WSJ, it was a very big improvement. The weekend review section of the WSJ contains interesting pieces by interesting writers. Paul Theroux on road trips. Michael Shermer on human reason. The equivalent weekend review section in the WaPo had essays that were predictable at best and cringeworthy at worst, with a tendency toward an increase in the latter.

David Byrne on dehumanizing technology

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He writes,

I have a theory that much recent tech development and innovation over the last decade or so has an unspoken overarching agenda. It has been about creating the possibility of a world with less human interaction.

He goes on to list examples, such as shopping on line with no salesperson. He points out that with Uber you do not even have to talk to the driver to say where you are going. Online courses reduce interactions with teachers.

You can quibble with some of the examples, but I think he is on to something.

Jean Twenge watch

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She writes,

The result is a generation whose members are often afraid to talk to one another, especially about anything that might be upsetting or offensive. If everyone must be emotionally safe at all times, a free discussion of ideas is inherently dangerous. Opposing viewpoints can’t just be argued against; they have to be shut down, because merely hearing them can cause harm.

She adds,

Members of iGen are also taking longer to grow up. As I found in analyzing seven large national surveys of teens, today’s adolescents are less likely to drive, drink, work, date, go out and have sex than were teens just 10 years ago. Today’s 18-year-olds look like 15-year-olds used to. They don’t reach adulthood too early, but they also lack experience with independence and decision-making.

Her book is out, but I have yet to read it. The reviews have been mixed. Tyler calls it new and excellent.

Jonathan Haidt does not mention Twenge in this interview, but his observations parallel hers.

Haidt believes there is a mental-health crisis on campus: ‘I have never seen such rapid increase in indicators of anxiety and depression as we have seen in the past few years’, he says.

The interesting brief interview with Haidt includes this:

‘Kids need conflict, insult, exclusion – they need to experience these things thousands of times when they’re young in order to develop into psychologically mature adults. Every adult has to learn to handle these things and not get upset, especially by minor instances. But in the name of protecting our children we have deprived them of the unsupervised time they need to learn how to navigate conflict among themselves. That is one of the main reasons why kids and even college students today find words, ideas and social situations more intolerable than those same words, ideas and situations would have been for previous generations of students.’