Category Archives: Notes

“Life Among the Econ”

White House on Digital Assets

An executive order dated March 9, 2022 outlines what is on the White House’s mind:

The United States has an interest in responsible financial innovation, expanding access to safe and affordable financial services, and reducing the cost of domestic and cross-border funds transfers and payments, including through the continued modernization of public payment systems.  We must take strong steps to reduce the risks that digital assets could pose to consumers, investors, and business protections; financial stability and financial system integrity; combating and preventing crime and illicit finance; national security; the ability to exercise human rights; financial inclusion and equity; and climate change and pollution. …

(d)  We must reinforce United States leadership in the global financial system and in technological and economic competitiveness, including through the responsible development of payment innovations and digital assets.  The United States has an interest in ensuring that it remains at the forefront of responsible development and design of digital assets and the technology that underpins new forms of payments and capital flows in the international financial system, particularly in setting standards that promote:  democratic values; the rule of law; privacy; the protection of consumers, investors, and businesses; and interoperability with digital platforms, legacy architecture, and international payment systems.  The United States derives significant economic and national security benefits from the central role that the United States dollar and United States financial institutions and markets play in the global financial system.  Continued United States leadership in the global financial system will sustain United States financial power and promote United States economic interests.

Passports for Sale

Henley & Partners lists what is costs.

A growing number of countries host residence and citizenship by investment programs (also known as golden visa programs) that offer a variety of attractive investment options designed to cater to each family’s unique requirements. In an unsettled, ever-changing world, wealthy individuals need a plan B for themselves and their families — one that offers them a safer place to live in times of crisis, while also providing them with greater access to global business and lifestyle opportunities.

Fabio Panetta on the Digital Euro

In a speech, the ECB’s Fabio Panetta argues that a digital Euro is necessary because

[i]n the digital age … banknotes could lose their role as a reference value in payments, undermining the integrity of the monetary system. Central banks must therefore consider how to ensure that their money can remain a payments anchor in a digital world.

He argues that

outsourcing the provision of central bank money [to stable coin providers] … would endanger monetary sovereignty [as would the absence of a national digital currency].

Panetta also argues that a digital Euro could

  • improve the confidentiality of digital payments and
  • increase choice and reduce costs

and should

  • avoid interfering with the functioning of the financial system and
  • be available within private payment solutions.

Panetta does not discuss

  • seignorage and
  • time consistency motivations.

Olga Tokarczuk’s “The Books of Jacob”

Goodreads rating 4.19.

A sweeping novel of 950 pages (!) which starts on page 960. The Nobel laureate describes hundreds of characters, with even more names; immerses in countless locations, languages, and creeds. Her protagonists always remain strangers.

There is something wonderful in being a stranger, in being foreign, something to be relished, something as alluring as candy. It is good not to be able to understand a language, not to know the customs, to glide like a spirit among others who are distant and unrecognizable. Then a particular kind of wisdom awakens—an ability to surmise, to grasp the things that aren’t obvious. Cleverness and acumen come about. A person who is a stranger gains a new point of view, becomes, whether he likes it or not, a particular type of sage. Who was it who convinced us that being comfortable and familiar was so great? Only foreigners can truly understand the way things work. (pp. 390)

From Smyrna and Athos to Ivanie, across fluid Poland, Brünn (exact location), Vienna (exact location) and Offenbach to Paris in times of the French Revolution and the Supreme Court. From pariah creditors to noble debtors. Jacob and his daughter Eva; Yente and Nahman; and the heroes in the background, Hayah, Asher, and Thomas. Life in the eighteenth century, torn between hunger, disease, murder and rape; lies that kill, curses that float; and debates about Aufklärung, when religious zeal morphs into political activism and the practice of law.

The Word rules.

… the world is made of words that, once uttered, lay claim to every order, so that all things seem to occur at their behest. All things belong to them. Every curse, even the slightest, has an effect. Every single word that’s said. (pp. 645)

Nahman’s creed:

… I patiently stumble forward, not inquiring into the price I will have to pay, and even less so about any reward. My friend and ally is that moment, that urgent hour, the dearest time to me, when suddenly out of nowhere the writing gets easy, and then everything appears to be wonderfully able to be expressed. What a blissful state it is! Then I feel sage, and the whole world becomes a cradle that the Shekhinah has laid me down in, and now the Shekhinah leans in over me like a mother over an infant.

The path to the left is only for those who have shown they deserve it, those who understand what Reb Mordke always said—that the world itself demands to be narrated, and only then does it truly exist, only then can it flourish fully. But also that by telling the story of the world, we are changing the world.

That is why God created the letters of the alphabet, that we might have the opportunity to narrate to him what he created. Reb Mordke always chuckled at this. “God is blind. Did you not know that?” he would say. “He created us that we would be his guides, his five senses.” And he would chuckle long and hard until he began to cough from the smoke.

The novel comes with a bibliography, so is the story real?

Literature is a particular type of knowledge, it is … the perfection of imprecise forms. (p. 14)

In any case,

… any person who toils over matters of Messiahs, even failed ones, even just to tell their stories, will be treated just the same as he who studies the eternal mysteries of light. (p. 10)

Goodreads summary:

The Nobel Prize-winner’s richest, most sweeping and ambitious novel yet follows the comet-like rise and fall of a mysterious, messianic religious leader as he blazes his way across eighteenth-century Europe.

In the mid-eighteenth century, as new ideas–and a new unrest–begin to sweep the Continent, a young Jew of mysterious origins arrives in a village in Poland. Before long, he has changed not only his name but his persona; visited by what seem to be ecstatic experiences, Jacob Frank casts a charismatic spell that attracts an increasingly fervent following. In the decade to come, Frank will traverse the Hapsburg and Ottoman empires with throngs of disciples in his thrall as he reinvents himself again and again, converts to Islam and then Catholicism, is pilloried as a heretic and revered as the Messiah, and wreaks havoc on the conventional order, Jewish and Christian alike, with scandalous rumors of his sect’s secret rituals and the spread of his increasingly iconoclastic beliefs. The story of Frank–a real historical figure around whom mystery and controversy swirl to this day–is the perfect canvas for the genius and unparalleled reach of Olga Tokarczuk. Narrated through the perspectives of his contemporaries–those who revere him, those who revile him, the friend who betrays him, the lone woman who sees him for what he is–The Books of Jacob captures a world on the cusp of precipitous change, searching for certainty and longing for transcendence.

Goodreads reader Marc’s summary:

For those who like wide-ranging historical novels, this is the real thing. Tokarczuk immersed herself in 18th-century Greater Poland, which then covered large parts of Eastern Europe. Seen from the West, it was a perifere area, but it stood in intense contact with the Eastern Ottoman Empire, which at that time still controlled almost the entire Balkans. Tokarczuk sketches dozens of characters who constantly go back and forth between those two regions. These are especially Jews, and the author examines that Jewish world in great detail.

Her central story focuses on a Jewish heretic movement which actually existed in the middle of the 18th century. The movement was led by Jacob Frank, an Ottoman Jew. He was a very unlikely guru, but had an enormous charisma and managed to get tens of thousands of Jews behind his ‘Trinity Faith’. He seduced them with an eclectic mix of Judaism, Christianity and Islam, which was particularly attractive because it offered the Jews, with their always precarious position in Catholic Poland, the prospect of civil rights through baptism.

Olga Tokarczuk is the most acclaimed Polish writer of the moment (twice the Niké prize, once the Man Booker International prize, and, of course, the Nobel Prize 2018), but with this book she has had a really difficult time in her own country. Her focus on the Catholic discrimination against Jews in Greater Poland was not appreciated by the right-wing, conservative government currently in power in Warsaw. Also the picture she paints of an extremely diversified Polish nation, with a jumble of ethnicities and religious movements that lived together, contradicts the homogenic Polish identity that has been cultivated since the 2nd world war.

But that is precisely what makes this book extremely interesting. The way Tokarczuk brings all these different movements, cultures and ethnicities to life is a feast for the reader’s eye. Her narrative style even has a certain Marquezian flair, with a dash of magical realism through the character of the old Yenta who remains in a state of coma for hundreds of pages, and – stepped out of herself – glides through space and time, guiding the story a step further.

But there is a downside to this verbal firework: the immersion in all those worlds, the dozens of characters, the constant changes in perspective and time, all this makes reading this very bulky book a real test. For instance, it takes a quarter of the book, almost 250 pages, before the real story about the heresy of Jacob Frank takes off; until then Tokarczuk builds up, with constantly new characters, and travels back and forth between Poland, the Balkans and Smyrna (present-day Izmir in Turkey). Also the sometimes very intense theological discussions among the Jewish rabbis, diving into kabbala, demand a lot from the reader.

Again: this historical novel is quite a tour de force , not only in terms of size and depth. For me, the charm of the reading was mainly in the Chagal-like character of the visual language of Tokarczuk: she regularly sketches dreamy scenes with the comatose Yenta that floats over time and space and oversees everything. But in the long run it’s all a bit too much: the story just lingers on, endlessly, and I missed a real existential story, with people of flesh and blood. Hence the slightly lesser rating. But I’m definitely going to dive into Tokarczuk’s other work!

The FT Favors a Digital Dollar

On the question whether the Fed should seriously consider retail CBDC, the FT sides with the pro camp.

While elsewhere such central bank digital currencies can appear “a solution in search of a problem”, America’s lacklustre retail banking system and the importance of the dollar in cross-border money flows make an obvious case for reform.

Compare the contributions by Darrell Duffie and Chris Waller in the CEPR eBook.

 

Blockchains, dApps, and Smart Contracts—A Critical Review

Blog post by Dave Peck and the PSL team. Some issues they discuss:

Very few categories of data belong on-chain …

Today’s smart contract programming models are deeply flawed …

  • Smart contracts can’t reference the “real-world”. They can only reference the blockchain itself. This is known as the “oracle problem” and it makes blockchains a necessarily closed system. This may sound like a trivial problem, but it is actually profound. For instance, it forces smart contract developers to jump through hoops to build “price oracles” when they want their on-chain code to reference real-world asset prices. Companies like Chainlink act as oracles,
  • Smart contracts can’t be upgraded …
  • Smart contracts require complex distributed systems to run, effectively, forever.

Distributed consensus technology could change radically in the next decade.

Steven Koonin’s “Unsettled”

Goodreads rating: 4.39.

The book offers

  • a brief tour of the physics behind climate change and the role played by human activity;
  • a skeptical discussion of climate models;
  • some stronger, some weaker examples of distorted reports, by scientists and the media, regarding causal links between human activity, climate change, and extreme weather events, sea level change, or production (opponents claim that these examples are cherry-picked; Koonin retorts that scientific reports should be correct);
  • a plausible prediction of national adaption policies rather than international cooperation to strongly reduce emissions.

For some critical reviews (some not compelling) of the book, see Wikipedia.

Aggregation

David Baqaee in SED Newsletter, November 2021.

Hulten’s theorem:

… the elasticity of aggregate TFP to a microeconomic TFP shock is equal to the sales of the producer being shocked divided by GDP. … Furthermore, if labor supply is inelastic or if the definition of GDP is expanded to include the market value of leisure, then this irrelevance result also applies to real GDP (or under some additional assumptions to welfare).

This result, oftentimes known as Hulten’s Theorem (Hulten, 1978), is a consequence of the first welfare theorem, and therefore, is remarkably general. … As with other irrelevance results in economics, like the Modigliani-Miller Theorem or Ricardian Equivalence, much of the economics of aggregation can be understood in terms of deviations from Hulten’s theorem.

Nonlinearities:

… disaggregated details … that do not matter to a first-order, do matter for understanding the nonlinear effect of shocks.

The key conceptual breakthrough is to recognize that nonlinearities are captured by changes in sales shares. Intuitively, in response to a negative shock to oil or electricity, we expect the sales shares of oil or electricity to skyrocket. On the other hand, in response to a negative shock to Walmart, we expect the sales share of Walmart to decline (perhaps rapidly). The sign and magnitude of changes in sales shares tell us that output is very concave with respect to energy shocks and convex with respect to Walmart shocks. … we characterize in very general and abstract terms the equations that determine changes in sales shares

Changes in sales shares are determined by what we call forward and backward propagation equations. Forward propagation equations show how a shock to the marginal cost of a producer propagates through forward linkages, from suppliers to consumers, to change prices downstream. The backward equations show how a shock to the sales of a producer propagates through backward linkages, from consumers to their suppliers, to change sales upstream …

These equations not only help answer questions about the nonlinearities in output in efficient environments, but they can also be used to answer microeconomic questions including, for example, how shocks propagate from one firm to another in general equilibrium, or how the distribution of factor income shares responds to shocks … Furthermore, unlike Hulten’s theorem itself, the forward and backward propagation equations straightforwardly generalize to more complex environments where the first welfare theorem does not hold, and these generalizations will allow us to extend our analysis beyond efficient equilibria.

… nonlinearities magnify negative shocks and attenuate positive shocks, resulting in an aggregate output distribution that is asymmetric (negative skewness) and fat-tailed (excess kurtosis), with a negative mean, even when shocks are symmetric around zero and thin-tailed. Average output losses due to short-run sectoral shocks are an order of magnitude larger than the welfare cost of business cycles calculated by Lucas (1987)

Frictions:

Hulten’s theorem derives its deceptive simplicity from two facts: (i) marginal-cost pricing ensures that the expenditures by firms on every input measures the elasticity of output with respect to that input (Shephard’s lemma); (ii) marginal-cost pricing ensures production is efficient, meaning that reallocating resources from one user to another does not change real GDP to a first order. Since reallocation effects can safely be ignored to a first-order, (ii) implies that the elasticity of aggregate output to shocks can be computed by assuming that the allocation of resources stays constant and resources simply scale up or down proportionally according to initial shares. From (i) we know that this will change each firm’s output by that firm’s expenditure share on the input being scaled. This “mechanical” effect of scaling resources by initial shares when summed over all input users yields sales, which is the Hulten formula.

Inefficient economies break Hulten’s theorem in two ways. First, sales shares no longer capture the “mechanical” effect of scaling up input usage because of wedges between output elasticities and expenditures shares. Second, reallocation effects, which are first-order irrelevant in efficient equilibria, now matter to a first-order and must be solved for.

… In other words, when a producer becomes more productive, the impact on aggregate TFP can be broken down into two components.

First, given the initial distribution of resources, the producer increases its output, and this, in turn, increases the output of its direct and indirect customers; this is the mechanical effect that would be equal to sales shares in the absence of wedges. Second, there are reallocation effects that can raise or lower aggregate output holding fixed the level of technology. We show that this reallocation effect can be measured by a specific weighted average of changes in wedges and changes in factor income shares (in an economy with a single factor, say labor, this is simply the labor income share). Intuitively, if a shock reallocates resources in such a way that boosts aggregate output, then this shock will “save” on factor usage. This reallocation makes factors less scarce and causes factor prices and, ceteris paribus, factor income shares to decline on average. The fact that factor income shares decline on average therefore captures changes in aggregate TFP due to reallocation effects.

… average markups have been increasing primarily due to a between-firm composition effect, whereby firms with high markups have been getting larger, and not to a within-firm increase in markups. From a social perspective, these high-markup firms were too small to begin with, and so the reallocation of resources towards them increases aggregate TFP over time.

… we find that in the U.S. in 2015, eliminating markups would raise aggregate TFP by about 20% (depending on the markup series). This increases the estimated cost of monopoly distortions by two orders of magnitude compared to the famous estimate of 0.1% of Harberger (1954).

… changes in aggregate demand, for example, monetary policy shocks, can naturally affect an economy’s TFP due to reallocation effects. In particular, we propose a supply-side channel for the transmission of aggregate demand shocks by showing that in an economy with heterogeneous firms and endogenous markups, demand shocks can have first-order effects on aggregate productivity.

Intuitively, if high-markup firms have lower pass-throughs than low-markup firms, as is consistent with the empirical evidence, then an aggregate demand shock, like a monetary easing, generates an endogenous positive “supply shock” that amplifies the positive “demand shock” on output. The result is akin to a flattening of the Phillips curve. We derive a tractable four-equation dynamic model, disciplined by four sufficient statistics from the distribution of firms, and use it to show that a monetary easing generates a procyclical hump-shaped response in aggregate TFP and countercyclical dispersion in firm-level TFPR.

Non-convexities:

Unlike first-best policies, which are independent of network structure and simply ensure efficiency market-by-market, the effects of second-best policies are network-dependent. In particular, for economies with increasing returns to scale, we rationalize and revise Hirschman’s influential argument that policy should encourage expansion in sectors with the most forward and backward linkages, and we give precise formal definitions for these concepts. We show that the optimal marginal intervention aims to boost the sales of sectors that have strong scale economies, but are also upstream of other sectors with strong scale economies.

Household heterogeneity:

… we provide a modified version of Hulten’s theorem that does answer welfare questions in general equilibrium economies with non-homothetic, non-aggregable, and unstable preferences. We show that calculating changes in welfare in response to a shock only requires knowledge of expenditure shares and elasticities of substitution and (given these elasticities) does not require income elasticities and taste shocks. We also characterize the gap between changes in welfare and changes in real consumption.

David Graeber’s “Debt”

Goodreads rating 4.19.

Graeber’s book contains many interesting historical observations but lacks a concise argument to convince a brainwashed neoclassical economist looking for coherent arguments on money and debt. After 60 pages, 340 more seemed too much.

Chapter one:

… the central question of this book: What, precisely, does it man to say that our sense of morality and justice is reduced to the language of a business deal? What does it mean when we reduce moral obligations to debts? … debt, unlike any other form of obligation, can be precisely quantified. … to become simple, cold, and impersonal … transferable.

… money’s capacity to turn morality into a matter of impersonal arithmetic—and by doing so, to justify things that would otherwise seem outrageous or obscene. … the violence and the quantification—are intimately linked. … the threat of violence, turns human relations into mathematics.

…The United States was one of the last countries in the world to adopt a law of bankruptcy: despite the fact that in 1787, the Constitution specifically charged the new government with creating one, all attempts were rejected, or quickly reversed, on “moral grounds” until 1898.

… historically, credit money comes first [before bullion, coins]

… ages of virtual credit money almost invariably involve the creation of institutions designed to prevent everything going haywire—to stop the lenders from teaming up with bureaucrats and politicians to squeeze everybody dry … by the creation of institutions designed to protect debtors. The new age of credit money we are in seems to have started precisely backwards. It began with the creation of global institutions like the IMF designed to protect not debtors, but creditors.

… the book begins by attempting to puncture a series of myths—not only the Myth of Barter … but also rival myths about primordial debts to the gods, or to the state … Historical reality reveals [that the state and the market] have always been intertwined. … all these misconceptions … tend to reduce all human relations to exchange … [but] the very principle of exchange emerged largely as an effect of violence … the real origins of money are to be found in crime and recompense, war and slavery, honor, debt, and redemption. … an actual history of the last five thousand years of debt and credit, with its great alternations between ages of virtual and physical money …

… many of Adam Smith’s most famous arguments appear to have been cribbed from the works of free market theorists from medieval Persia …

Chapter two (“The Myth of Barter”) contains questionable claims about economics as well as interesting historical facts (or claims?):

When economists speak of the origins of money … debt is always something of an afterthought. First comes barter, then money; credit only develops later. …

Barter … was carried out between people who might otherwise be enemies …

… “truck and barter”’ [in many languages] literally meant ”to trick, bamboozle, or rip off.”

What we now call virtual money came first. Coins came much later, … never completely replacing credit systems. Barter, in turn, … has mainly been what people who are used to cash transactions do when for one reason or another they have no access to currency.

Chapter three (“Primordial Debts”) argues the the myth of barter is central to the discourse of economics, which according to Graeber downplays the state as opposed to markets, exchange, and individual choice. He tries to confront this view with Alfred Mitchell-Innes’ credit theory of money, Georg Friedrich Knapp’s state theory of money, the Wizard of Oz (i.e. “ounce”), and John Maynard Keynes (original?) claim that banks create money.

In all Indo-European languages, words for “debt” are synonymous with those for “sin” or “guilt,” illustrating the links between religion, payment and the mediation of the sacred and profane realms by “money.” [money-Geld, sacrifice-Geild, tax-Gild, guilt]

Wikipedia article on the book:

A major argument of the book is that the imprecise, informal, community-building indebtedness of “human economies” is only replaced by mathematically precise, firmly enforced debts through the introduction of violence, usually state-sponsored violence in some form of military or police.

A second major argument of the book is that, contrary to standard accounts of the history of money, debt is probably the oldest means of trade, with cash and barter transactions being later developments.

Debt, the book argues, has typically retained its primacy, with cash and barter usually limited to situations of low trust involving strangers or those not considered credit-worthy. Graeber proposes that the second argument follows from the first; that, in his words, “markets are founded and usually maintained by systematic state violence”, though he goes on to show how “in the absence of such violence, they… can even come to be seen as the very basis of freedom and autonomy”.

Reception of the book was mixed, with praise for Graeber’s sweeping scope from earliest recorded history to the present; but others raised doubts about the accuracy of some statements in Debt, as outlined below in the section on “critical reception”.

 

Max Horkheimer and Theodor Adorno’s “Dialektik der Aufklärung”

Goodreads rating 4.09.

Enlightenment:

Schon der Mythos ist Aufklärung, und: Aufklärung schlägt in Mythologie zurück. …

Seit je hat Aufklärung im umfassendsten Sinn fortschreitenden Denkens das Ziel verfolgt, von den Menschen die Furcht zu nehmen und sie als Herren einzusetzen. Aber die vollends aufgeklärte Erde strahlt im Zeichen triumphalen Unheils. …

Als Sein und Geschehen wird von der Aufklärung nur anerkannt, was durch Einheit sich erfassen lässt; ihr Ideal ist das System, aus dem alles und jedes folgt. … Als Gebieter über Natur gleichen sich der schaffende Gott und der ordnende Geist. … Mythen wie magische Riten meinen die sich wiederholende Natur.

Odysseus, myth, enlightenment:

Der listige Einzelgänger ist schon der homo oeconomicus, dem einmal alle Vernünftigen gleichen: daher ist die Odyssee schon eine Robinsonade. Die beiden prototypischen Schiffbrüchigen machen aus ihrer Schwäche — der des Individuums selber, das von der Kollektivität sich scheidet — ihre gesellschaftliche Stärke. Dem Zufall des Wellengangs ausgeliefert, hilflos isoliert, diktiert ihnen ihre Isoliertheit die rücksichtslose Verfolgung des atomistischen Interesses.

Juliette, enlightenment, morals:

Der Bürger, der dem kantischen kategorischen Imperativ aus der Kritik der praktischen Vernunft beistimmt … folgt keiner wissenschaftlichen Vernunft, sondern einer Narretei, wenn er sich deswegen einen materiellen Gewinn entgehen lässt. …

Bei de Sade wie bei Nietzsche wird das „szientifische Prinzip ins Vernichtende“ gesteigert. … Alles bleibt sinnfrei der Willkür des verbrecherischen Lustprinzips verhaftet. … So demontiert Sades Juliette alle Konventionen und Werte – Familie, Religion, Gesetz, Moral –, nichts vermag übrig zu bleiben, was die Gesellschaft ehemals zusammenhielt, alles fällt dem Wirtschaftsbetrieb und der enthemmten Ökonomie der aufgeklärten Verbrechergangs zum Opfer.

Wikipedia on the book:

… die These, dass sich bereits zu Beginn der Menschheitsgeschichte mit der Selbstbehauptung des Subjekts gegenüber einer bedrohlichen Natur eine instrumentelle Vernunft durchgesetzt habe, die sich als Herrschaft über die äußere und innere Natur und schließlich in der institutionalisierten Herrschaft von Menschen über Menschen verfestigte. Ausgehend von diesem „Herrschaftscharakter“ der Vernunft beobachteten Horkheimer und Adorno einen Aufschwung der Mythologie, die „Rückkehr der aufgeklärten Zivilisation zur Barbarei in der Wirklichkeit“ …

… habe nicht einen Befreiungs-, sondern einen universellen Selbstzerstörungsprozess der Aufklärung in Gang gesetzt. …

Nach Horkheimer und Adorno ist die Abstraktion das Werkzeug, mit dem die Logik von der Masse der Dinge geschieden wird. Das Mannigfaltige wird quantitativ unter eine abstrakte Größe gestellt und vereinheitlicht, um es handhabbar zu machen. … Alles, was sich dem instrumentellen Denken entzieht, wird des Aberglaubens verdächtigt. Der moderne Positivismus verbannt es in die Sphäre des Unobjektiven, des Scheins.

Aber diese Logik ist eine Logik des Subjekts, die unter dem Zeichen der Herrschaft, der Naturbeherrschung, auf die Dinge wirkt. Diese Herrschaft tritt dem Einzelnen nunmehr als Vernunft gegenüber, die die objektive Weltsicht organisiert.

… Die wissenschaftliche Weltherrschaft wendet sich gegen die denkenden Subjekte und verdinglicht in der Industrie, der Planung, der Arbeitsteilung, der Ökonomie die Menschen zu Objekten. … an die Stelle der befreienden Aufklärung aus der Unmündigkeit tritt das wirtschaftliche und politische Interesse, das Bewusstsein der Menschen zu manipulieren. Aufklärung wird zum Massenbetrug. …

Nach Auffassung Horkheimers und Adornos raubt industriell hergestellte Kultur dem Menschen die Phantasie … Die „Kulturindustrie“ liefert die „Ware“ so, dass dem Menschen nur noch die Aufgabe des Konsumenten zukommt. … erwünscht ist es, die reale Welt so gut wie möglich nachzuahmen. Triebe werden so weit geschürt, dass eine Sublimierung nicht mehr möglich ist. …

Das Ziel der Kulturindustrie ist – wie in jedem Industriezweig – ökonomischer Art. Alles Bemühen ist auf wirtschaftliche Erfolge ausgerichtet.

Die authentische Kultur hingegen ist nicht zielgerichtet, sie ist Selbstzweck. … fördert die Phantasie des Menschen, indem sie Anregungen gibt, aber anders als die Kulturindustrie, den Freiraum für eigenständiges menschliches Denken lässt. Authentische Kultur will nicht die Wirklichkeit nachstellen, sondern weit über sie hinausgehen.

English Wikipedia article.

Jed McKenna’s “Spiritual Enlightenment: The Damnedest Thing”

Goodreads rating 4.36.

Spiritual enlightenment is not about mysticism or happiness, although the latter might follow from the former. It is not about the “true self” but about the non-self; about radical questioning and truth seeking that ditches all putative certainties; about watching the unfolding of life with joy and interest; about accepting contradictions.

Richard Bandler and John Grinder’s “The Structure of Magic”

Goodreads rating 4.06.

Human beings have their personal models of the world. These models are wrong and sometimes very wrong, leaving people with the impression that they have no choice, are being excluded, etc. The authors argue that successful psychotherapies and -therapists all use similar methods to help clients change and correct their models, opening new perspectives for them. In the book the authors systematize this argument.

They emphasize errors that humans make when mistaking models for reality—errors due to inadequate generalization, deletion, or distortion—and they use the language and tools from linguistics (transformational grammar)—distinguishing between the deep structure and the surface structure of sentences—to provide a toolkit for psychotherapists to help identify and correct these errors. Essentially, the therapist and the client are meant to identify the errors in the client’s model by insisting on well-formed sentences.

This quote is from the end of ch. 3:

This set, the set of sentences which are well formed in therapy and acceptable to us as therapists, are sentences which:
(1) Are well formed in English, and
(2) Contain no transformational deletions or unexplored deletions in the portion of the model in which the client experiences no choice.
(3) Contain no nominalization (process -> event).
(4) Contain no words or phrases lacking referential indices.
(5) Contain no verbs incompletely specified.
(6) Contain no unexplored presuppositions in the portion of the model in which the client experiences no choice.
(7) Contain no sentences which violate the semantic conditions of well-formedness.

Edwin Abbott’s “Flatland”

Goodreads rating 3.81.

For someone living in two dimensions and becoming aware of three, it might be easier to think of four than for someone living in three dimensions.

The cherished feeling of oneness might be misleading …

That Point is a Being like ourselves, but confined to the non-dimensional Gulf. He is himself his own World, his own Universe; of any other than himself he can form no conception; he knows not Length, nor Breadth, nor Height, for he has had no experience of them; he has no cognizance even of the number Two; nor has he a thought of Plurality; for he is himself his One and All, being really Nothing. Yet mark his perfect self-contentment, and hence learn this lesson, that to be self-contended is to be vile and ignorant, and that to aspire is better than to be blindly and impotently happy. (ch. 20)

Me Poor? Then We Need Less Redistribution

In the AEJ: Economic Policy, Christopher Hoy and Franziska Mager report that people are less supportive of redistribution when they learn that they are poorer than they thought.

We test a key assumption underlying seminal theories about preferences for redistribution, which is that relatively poor people should be the most in favor of redistribution. … people who are told they are relatively poorer than they thought are less concerned about inequality and are not more supportive of redistribution. This finding is consistent with people using their own living standard as a “benchmark” for what they consider acceptable for others.

CBDC and Cross-Border Payments

The Economist reports on “The race to redefine cross-border finance:”

  • SWIFT recently launched SWIFT Go for retail payments.
  • FinTech firms often partly bypass SWIFT by aggregating payments first.
  • Ripple evades SWIFT, using a cryptocurrency for international transactions.
  • Credit card companies build infrastructure independent of SWIFT for retail (push) payments initiated by the sender.
  • JPMorgan Chase and a Singaporean bank and Temasek launched Partior for wholesale payments. This network records transfers on a permissioned blockchain.
  • CBDCs could enable banks to make overseas payments on a shared ledger.
  • SWIFT tries to collaborate with central banks.
  • Partior aims to expand, recruiting core settlement banks for both central-bank and commercial-bank digital payments in euro, renminbi and yen.

On VoxEU, Massimo Ferrari, Arnaud Mehl, Fabio Panetta, and Ine Van Robays discuss “The international dimension of central bank digital currencies: Open research questions.” They argue that research has identified three main implications of retail CBDC (with broad access):

  • ‘Dollarization’ in other countries.
  • Stronger cross-border transmission of shocks, increased exchange rate volatility and altered capital flow dynamics. “Research finds that introducing a CBDC available to non-residents ‘super charges’ uncovered interest rate parity … leads to a stronger rebalancing of global portfolios in response to shocks, and to higher exchange rate volatility.”
  • Impact on the international role of currencies.

The authors write that most models to date are unclear about what makes CBDC really different in this context. And they argue that another open question is how intensively central banks should and would cooperate. They write, somewhat optimistically, that “according to the (unwritten) code of central banking, the introduction of a CDBC in one jurisdiction must do no harm. In particular, it must not put the financial system of other jurisdictions at risk.” Let’s see.

Moving On

After 12 years of service Dirk Niepelt resigns as the director of the Study Center to take up a post as Full Professor of Macroeconomics at the University of Bern. The Governing Board and Foundation Council

thank him for the outstanding achievements of the centre under his leadership. He has played a major role in building up the Study Center Gerzensee as a place of learning and a venue for academic research and dialogue, in preparing it to meet future challenges, and in bolstering its international presence.

Dirk Niepelt will be succeeded by Martin Brown who is currently Full Professor of Banking at the University of St. Gallen.

With his academic record, management experience and extensive network in economics, Martin Brown is ideally suited to lead the Study Center in accordance with the wishes of its founder, to ensure the high quality of its activities, and to put it on the best possible footing to address the requirements of the future. The Governing Board and the Foundation Council congratulate Professor Brown on his appointment.

SNB press releases EN, DE.

World Bank Staff Boosted China and Saudi Arabia Rankings

The FT (and many other outlets) summarize a report by law firm WilmerHale which was commissioned by the World Bank:

… in the 2018 edition of Doing Business, China’s overall ranking had been artificially held at 78 — the same as in the previous year — as a result of late changes that elevated its position from 85. The report alleges that Georgieva led efforts to improve China’s ranking at a time when she was “engrossed” in a campaign to secure a capital increase for the World Bank.

… during the preparation of Doing Business 2018, high-ranking Chinese government officials “repeatedly expressed their concerns” to then World Bank president Jim Yong Kim and other senior bank managers

… attempts were made in the days before publication of Doing Business 2018 to raise China’s ranking from 85, such as incorporating data for Hong Kong into its scores. When these efforts failed … the report alleged, Georgieva “became directly involved”. … three indicators of business conditions — starting a business, legal rights-getting credit and paying taxes — were modified …

In a statement issued by the IMF, Georgieva disagrees “fundamentally with the findings and interpretations of Investigation of Data Irregularities as it relates to my role in the World Bank’s Doing Business report of 2018.”

The WilmerHale report also alleges irregularities in the Doing Business 2020 report as far as Saudi Arabia is concerned.

Doves and Hawks at the ECB

In the FAZ, Christian Siedenbiedel discusses a ZEW study on the positions of ECB board members and how they relate to national debt levels.

Es gibt klare Fraktionen von „Falken“ und „Tauben“ im Rat, und es gibt eine gewisse Korrelation zur Höhe der Staatsschulden im jeweiligen Heimatland des Ratsmitglieds. Als „Tauben“ wurden nach der Daten-Auswertung die Ratsmitglieder Ignazio Visco (Italien), Pablo Hernández de Cos (Spanien), François Villeroy de Galhau (Frankreich), Giannis Stournaras (Griechenland und Mario Centeno (Portugal) eingestuft. Auf der anderen Seite bestehe die klare „Falken“-Fraktion aus Jens Weidmann (Deutschland), Robert Holzmann (Österreich), Klaas Knot (Niederlande), Pierre Wunsch (Belgien) und Martins Kazaks (Lettland).

Die Klassifizierung der EZB-Direktoriumsmitglieder, die ebenfalls dem Rat angehören, zeige ein gemischteres Muster, heißt es in der Studie. So vertrat beispielsweise Isabel Schnabel (Deutschland) eine gemäßigtere Position als ihr deutscher Kollege im Gremium, Bundesbankpräsident Jens Weidmann. Das umgekehrte Muster gelte für Spanien, wo der Vizepräsident Luis de Guindos gemäßigter sei als sein eher „taubenhaft“ eingestellter Kollege, der Notenbankchef Hernandez de Cos. EZB-Präsidentin Christine Lagarde wird in der Studie als „Taube“ eingestuft, da sie sich auf die Fortführung des PEPP konzentriere und alle Arten von Debatten über einen vorzeitigen Ausstieg, die von der Falkenfraktion kämen, strikt ablehne. „Obwohl für sechs Ratsmitglieder nur unzureichende Daten zur Verfügung standen, deutet unsere Kategorisierung darauf hin, dass es im EZB-Rat eine Mehrheit von Tauben gibt“, heißt es in der Studie. …

Die Taubenfraktion im Rat kommt auf eine durchschnittliche Schuldenquote in ihren Heimatländern von 133 Prozent, fast dem Doppelten der Falkenfraktion mit 71 Prozent. Den Zusammenhang haben die Wissenschaftler dann noch statistisch abgesichert. „Unser Ergebnis zeigt eine klare Korrelation zwischen heimischer Staatsverschuldung und Positionierung“, sagt Studienautor Friedrich Heinemann.

Income Tax Burdens in Switzerland

In the NZZ, Hansueli Schöchli summarizes recent evidence.

Wer in der Schweiz im Jahr 2017 wie viel Einkommenssteuer bezahlte

Anteil Steuerpflichtige (in Prozent) Anzahl Steuerpflichtige Minimales Reineinkommen in Fr. Durchschnittliche Steuerbelastung (in %) Anteil der Einkommenssteuer Bund/Kanton/Gemeinde (in %)
0,01 515 4 548 020 43,8 4,82
0,1 5 150 1 109 760 37,3 9,89
1 51 498 331 731 34,4 24,04
5 257 489 152 799 28,1 42,55
10 514 978 111 403 24,6 53,03
25 1 287 444 73 769 20,7 74,13
50 2 574 888 49 989 18 90,24

… Hinzu kommen noch die Abgaben auf hohen Löhnen für AHV/IV/EO sowie für die Arbeitslosenversicherung. In der AHV sind Abgaben auf Löhnen über rund 86 000 Fr. nicht mehr rentenbildend und deshalb faktisch Steuern. Bei der Arbeitslosenversicherung gilt dies für Abgaben auf Löhnen über 148 200 Fr. Für hohe Löhne bedeutet all dies noch eine steuerliche Zusatzbelastung von total 11 bis 12%.

Climate Change and Cheap Clean Energy

John Cochrane on the role of cheap clean energy which by itself will not reduce CO2 in the long run:

The standard vision in policy discussions assumes infinite substitutability. As soon as the cost of clean energy is lower than the cost of carbon-emitting energy, everyone substitutes completely to the latter and the oil and coal stay in the ground. … But as long as the elasticity of substitution is finite … then the carbon comes out of the ground. As you use less and less, the remaining uses become more and more valuable, so it’s worth it, privately and to society, to keep using it although at lower scale.

So I learn from this that a key focus for R&D is not so much on lowering the cost of alternatives, but increasing their substitutability for fossil fuels. Just because the cost of solar cells is plummeting does us little good. We need to increase their substitutability.