Tag Archives: politics

Corporate Greed is over, now comes corporate generosity

If you’ve been to the grocery store recently, you have probably seen an incredible sight. Eggs are now selling for less than they did in 2022. Walmart says they’ll sell me eggs for 1.19$ a dozen, and Target will sell them for 0.99$ with a special discount. Considering that at the beginning of 2023, eggs were selling for as much as 5$ a dozen, this comedown is remarkable.

It gets to the heart of a discussion about the origins of inflation though. The classical definition of inflation is too much money chasing too few goods. That means that when either the money supply is increased or their is a shortage of goods, we should expect to see inflation. This thesis does seem to have played out in 2021-2023. The money supply was increased enormously in 2020 and 2021, while COVID restrictions meant the supply of goods was constrained and could not rise quickly to meet it.

But that isn’t the definition that has been gaining traction. Recently folks have pointed to corporate greed as the primary driver of inflation. Under this thesis, inflation is not driven by the money supply or the goods supply, but by corporate greed in and of itself. If corporations weren’t greedy, they wouldn’t raise prices. But if prices go up because corporations are greedy, doesn’t that mean they go down because corporations are generous?

I’d like to see someone like Bernie Sanders explain the fall in egg prices. Why aren’t Walmart and Target just being greedy like all the other companies? If it’s so easy to raise egg prices by being greedy, then what mechanism could possibly make prices fall? What possible reason could their be for a fundamentally greedy company to willingly lower prices and receive less money?

For that matter, why is Exxon-Mobile being so damn generous? Over the past year, crude oil prices have gone from 100$ to just 70$. Exxon-Mobile was public enemy number 1 when gas prices were high, and was blamed for being too greedy. Have they now become generous instead? Have all the oil companies become generous? Why are the oil companies so much more generous than all the other companies?

It gets to the heart of the problem, inflation isn’t driven by corporate greed. Corporate greed is a constant, I’d go so far as to say human greed is a constant. Corporations (on average) demand the highest possible price for their goods that the market will bear. Laborers (again on average) also demand the highest possible price for their labor that the market will bear. No one ever willingly takes a pay cut without good reason, good reason usually being they have no other choice.

If corporations want to raise their prices above what the market will accept, then they’d be like me walking up to my boss and demanding a million dollar salary. They won’t get what they want no matter how hard they try. If Walmart raises the price of eggs, then Target can steal all of their business by keeping its egg prices low. People stop buying eggs at Walmart, they instead buy eggs from Target or from one of the hundreds of small and independent retailers that still dot America. Grocery stores are not a monopoly in our country, they do not have the power to set prices on their own. They are always in competition with each other and prices reflect that competition.

By the same token, if I demand a million dollar salary, my boss just won’t pay it. If I say I’ll quit if I don’t get it, he’ll show me the door. I am competing with hundreds of other workers in my field and so I cannot raise the price of my labor over and above what others are charging or else I’ll get replaced. It is a fact that many people ignore, but there is a market for labor just as their is a market for any other good. And the labor market has sellers (workers) and buyers (employers) just like any other. So when trying to answer questions about (say) the egg market, it’s useful to first think about how it works in the labor market. We are probably all more familiar the labor market with since if you’re reading this blog you’ve likely worked in your life.

So, in the labor market, can the sellers of labor (the workers) raise their prices just by being greedy? No, of course not. Without some decrease in supply or increase in demand, the price (salary) of laborers doesn’t go up, and workers who refuse to work for the market raise simply won’t receive job offers. It’s the same with corporations and it’s the same with goods inflation. Prices of goods aren’t driven by greed. They’re driven by supply shortages and a glut of money, both of which are in part exacerbated by government policies.

The current administration has continued Trump’s protectionist trade policies, which prevent American companies from being forced to compete with overseas companies. And both congressional spending and the Federal Reserve’s balance sheet have expanded considerably, bringing more and more money into the money supply. Too much money chasing too few goods, that is what causes inflation.

The AI pause letter seems really dumb

I’m late to the party again, but a few months ago a letter began circulating requesting that AI development “pause” for at least 6 months. Separately, AI developers like Sam Altman have called for regulation of their own industry. These things are supposedly happening because of fears that AI development could get out of control and harm us, or even kill us all in the words of professional insanocrat Eliezer Yudkowsky, who went so far as to suggest we should bomb data centers to prevent the creation of a rogue AI.

To get my thoughts out there, this is nothing more than moat building and fear-mongering. Computers certainly opened up new avenues for crime and harm, but banning them or pausing development of semiconductors in the 80s would have been stupid and harmful. Lives were genuinely saved because computers made it possible for us to discover new drugs and cure diseases. The harm computers caused was overwhelmed by the good they brought, and I have yet to see any genuine argument made that AI will be different. Will it be easier to spread misinformation and steal identities? Maybe, but that was true of computers too. On the other hand the insane ramblings about how robots will kill us all seem to mostly amount to sci-fi nerds having watched a lot of Terminator and the Matrix and being unable to separate reality from fiction.

Instead, these pushes for regulation seem like moat-building of the highest order. The easiest way to maintain a monopoly or oligopoly is to build giant regulatory walls that ensure no one else can enter your market. I think it’s obvious Sam Altman doesn’t actually want any regulation that would threaten his own business, he threatened to leave the EU over new regulation. Instead he wants the kind of regulation that is expensive to comply with but doesn’t actually prevent his company from doing anything it wants to do. He wants to create huge barriers to entry where he can continue developing his company without competition from new startups.

The letter to “pause” development also seems nakedly self-serving, one of the signatories was Elon Musk, and immediately after Musk called for said pause he turned around and bought thousands of graphics cards to improve Twitter’s AI. It seems the pause in research should only apply to other people so that Elon Musk has the chance to catch up. And I think that’s likely the case with most of the famous signatories of the pause letter, people who realize they’ve been blindsided and are scrambling to catch up.

Finally we have the “bomb data centers” crazies who are worried the Terminator, the Paperclip Maximizer or Roko’s Basilisk will come to kill them. This viewpoint involves a lot of magical thinking as it is never explained just how an AI will find a way to recursively improve itself to the point it can escape the confinement of its server farm and kill us all. In fact at times these folks have explicitly rebuked any such speculation on how an AI can escape in favor of asserting that it just will escape and have claimed that speculation on how is meaningless. This is of course in contrast to more reasonable end-of-the-world scenarios like climate change or nuclear proliferation, where there is a very clear through-line as to how these things could cause the end of humanity.

Like I said it I take this viewpoint the least seriously, but I want to end with my own speculation about Yudkowsky himself. Other members of his caucus have indeed demanded that AI research be halted, but I think Yudkowsky skipped straight to the “bomb data centers” point of view both because he’s desperate for attention and because he wants to shift the Overton Window.

Yudkowsky has in fact spent much of his adult life railing about the dangers of AI and how they’ll kill us all, and in this one moment where the rest of the world is at least amenable to the fears of AI harm, they aren’t listening to him but are instead listening (quite reasonably) to the actual experts in the field like Sam Altman and other AI researchers. Yudkowsky wants to maintain the limelight and the best way to do so is often to make the most over-the-top dramatic pronouncements in the hopes of getting picked up and spread by both detractors, supporters and people who just think he’s crazy.

Secondarily he would probably agree with AI regulation, but he doesn’t want that to be his public platform because he thinks that’s too reasonable. If some people are pushing for regulating AI and some people are against it, then the compromise from politicians who are trying to seem “reasonable” would be for a bit of light regulation which for him wouldn’t go far enough. Yudkowsky instead wants to make his platform something insanely outside the bounds of reasonableness, so that in order to “compromise” with him, you’ll have to meet him in the middle at a point that would include much more onerous AI regulation. He’s just taking an extreme position so he has something to negotiate away and still claim victory.

Personally? I don’t want any AI regulation. I can go to the store right now and buy any computer I want. I can to go to a cafe and use the internet without giving away any of my real personal information. And I can download and install any program I want as long as I have the money and/or bandwidth. And that’s a good thing. Sure I could buy a computer and use it to commit crimes, but that’s no reason to regulate who can buy computers or what type they can get, which is exactly what the AI regulators want to happen with AI. Computers are a net positive to society, and the crimes you can commit on them like fraud and theft were already crimes people committed before computers existed. Computers allow some people to be better criminals, so we prosecute those people when they commit crimes. But computers allow other people to cure cancer, so we don’t restrict who can have one and how powerful it can be. The same is true of AI. It’s a tool like any other, so let’s treat it like one.

AI art killed art like video killed the radio star

Everyone knows the song “Video Killed the Radio Star” by the Buggles, it was one of the earliest big hits on MTV (back when it was still called Music Television). The song is pretty good, but it also speaks to a genuine fear and wonder about our world, that changing technology upends our social fabric and destroys our livelihood. The radio star who just wasn’t pretty enough for video, or couldn’t compete with the big production values of music videos, or just didn’t like dancing and being seen at all. That radio star is the Dickensian protagonist of the modern age, as they are tossed aside and replaced when new technology comes along.

This Luddite fear has pervaded throughout history. The loom-smashing followers of Ned Ludd are only the most famous, but there were silent actors who never made it in talkies. There were photo-realistic painters who could never compete with a camera. John Henry died trying to beat a steam drill. In each case, an argument could be made that the new technology removed some important human element. The painters could claim that photography wasn’t “true art”. And the loom smashers too probably believed that their handcrafts were more “real” and more deserving of respect than the soulless cloth that replaced it.

So why is AI art any different? Why should we care about the modern Luddites who want to ban it or restrict it? I say we shouldn’t.

AI art steals from other artists to make its images

common argument

No more than any artist “steals” when they learn from the old masters. It is a grievous misunderstanding of how AI works to claim that it cuts and pastes from other images, and an AI training itself on a dataset of art is no different than an art student doing the same whether in university or on their own. The counter-argument I’ve heard is “why are you ascribing rights to an AI that should only belong to humans! Yes humans can learn from other art, but AI shouldn’t have the right to!” I’m not ascribing anything to AI, the person who coded the AI and the person who used the AI have the right to use any images they can find, just as an artist does. And just as the output of an artist learning from old masters is itself new art, so too is the output of coding or using an AI that has been trained on old works.

AI art is soulless

common argument

As soulless as loom-made fabric is compared to hand-made. Or as soulless as a photograph is compared to a hand-painted picture. Being made with a machine doesn’t detract from something for me, and I think only bias causes it to detract from others.

AI art takes money out of artists’ pockets, it should be banned to protect the workers’ paychecks

common argument

Why is the money of the workers more important than the money of the consumers? Loom-made fabric competes with hand-spun fabric, should we smash looms to keep the tailors’ wages up? Are we ok with having everything cost more because it would hurt someone’s business if they had to compete against a machine? The counter-argument I’ve seen to this is that the old jobs replaced by AI were all terrible drudgery and it’s good that they were replaced, whereas art is the highest of human expressions and should never be replaced. Again I think this is presentism and a misreading of history. I’m sure there were tailors and seamstresses who though sewing and making fabric was the absolute bomb, who loved their job and though that their clothes had so much heart and soul that they were works of art in and of themselves. And I know there are artists in the modern day for whom most of their work is dull drudgery.

Thinking that your job and only your job is the highest form of human expression and should never be replaced, well to me that just shows a clear lack of empathy towards everyone else on earth. No one’s job is safe from automation, but all of society reaps the benefits of automation. We can all now afford far more food, more clothing, more everything, since we started automating manual labor. Labor saving creates jobs, it doesn’t destroy them, it frees people to put their efforts towards other tasks. We need to make sure that the people who lose their jobs due to automation are still cared for by society, but we should not halt technological progress just to protect them. AI art allows creators and consumers to have more art available than they otherwise would. Game designers can whip up art far more quickly, role-players can get a character portrait without having to pay, this lets people have far more art available than they otherwise would. In the same way that the loom let us have far more clothing available than we otherwise would.

AI art is always terrible

common argument

I find it funny that this often comes paired in internet discourse with “I’m constantly paranoid and wondering if the picture I’m looking at was made by AI or not.” There’s a very Umberto Eco-esque argument going on in anti-AI spaces. AI is both terrible and easily spotted, but also insidious and you never quite know if what you’re seeing is AI, and also everyone is now using AI art instead of “real” art.

If real art is better than AI art, wouldn’t there be a market for it still? There’s still a market for good food even though McDonald’s exists, if AI art is terrible and soulless than it isn’t really a danger to anyone who can’t make good art themselves. And if AI art is always terrible, then why are so many people worried about whether the picture they’re seeing is AI-made or not? Shouldn’t it always be obvious?

This is very obviously an emotional argument. If you can convince someone that a picture was not made with AI, they’ll defend it. If you convince them it was made with AI, they’ll attack it.

This was a vague disconnected rant, but I’ve become sort of jaded to the AI arguments I’ve seen going on. I had thought that modern society had somewhat grown out of Ludditism. And to be frank, many of the people I see making anti-AI arguments are supposedly pro-science and pro-rationalism. But it seems that ideology only works so long as their “tribe” doesn’t ever get threatened.

It’s official, we’re now being taxed to pay back Peter Thiel

I posted a while ago about how the Biden administration was bailing out SVB without calling it a bailout. Basically Silicon Valley billionaire and hedge fund managers (like Peter Thiel) put all their money in a bank well in excess of the 250,000$ FDIC insurance limit. That limit is a known risk. If the bank you use goes bankrupt, and if you exceed that limit, the FDIC is only obligated to give you back 250,000$. Doesn’t matter if you had 250,001$ or 999,999,999,999$, FDIC is only obligated to give you 250,000$.

But that would be unfair to the billionaires. After all, why should they ever suffer the consequences of their actions? So instead the administration promised that every single depositor would be made fully whole. This was spun as them protecting the little guy, but the little guy was already covered by the 250,000$ insurance. I don’t have more than that in the bank, neither does anyone else I know. If my bank goes bankrupt, I will be fully paid back because my deposit is far less than 250,000$. If you have more than that amount, then you are solidly rich and do not need a government bailout.

But the bailout came anyway. The FDIC handed out money to cover the billionaires and hedge funds. Now that money has to come from somewhere. Biden promised it wouldn’t come from the taxpayers of course, but it still is coming from the little guy. It’s coming from our bank accounts.

Every person who owns a bank account is paying a small amount of tax into the FDIC insurance program. It won’t show up as a line item in your bank statement, but it’s there all the same. But for every bank account held by a bank, they have to pay a little bit into the FDIC. That cost naturally gets passed on to the holder of the bank account, just like every other tax. When the tax on cigarettes rises, the price of cigarettes rises. So too is it with bank accounts. You won’t see the tax as money rushing out of your account, but you will see it as less money going in. The bank will pay you less interest on your deposits because they have to take some off the top to pay for the FDIC insurance. And if there was no FDIC insurance, you’d get more interest.

You can see this exact same scenario if you look at big bank accounts. There are some banks with accounts which hold millions, even billions of dollars. The FDIC is only obligated to pay back 250,000$ in the case of bankruptcy, but a responsible billionaire who does not need a government bailout will pay for deposit insurance which covers more than the 250,000$ FDIC limit. That deposit insurance will decrease the amount of interest paid on the deposit, or even remove the interest entirely to pay the insurance. If you have to pay for insurance, you get less interest.

Everyone with a bank account has to pay for FDIC insurance, we don’t even get a choice. And now we need to pay for even more insurance to refill the FDIC’s account since they emptied it to bail out Peter Thiel

The FDIC plans to hit big banks with a tax to refill its account. This is being spun as a progressive redistribution from the rich to the poor. It’s the opposite. If a tax is levied on Walmart, Walmart just raises its prices, and the Walmart customers pay that tax themselves. The vast majority of Americans have their money in a big bank like Bank of America. So the big banks are going to pass this new tax onto their depositors, just as they pass the FDIC insurance tax onto us. You and I will be receiving less interest on our deposits now, because the FDIC spent all their money on Peter Thiel and co. Take from the poor to give to the rich, socialize loses and privatize profits. It’s 2008 all over again.

I know the amount is small. It’s probably going to be no more than a few dollars in lost interest in my account. But a few dollars times the 100 million or so Americans who bank with big banks makes the few billion dollars needed to bail out Peter Thiel and co. And it shouldn’t be this way, we should not be paying for their mistake.

And I know I keep harping on Peter Thiel, but it’s because a bunch of so-called “progressives” are refusing to even contemplate that this is a bailout taking money from the poor. By ignoring the context you can see SVB and its depositors as “the little guys” and Bank of America as “the rich” so taking money from Bank of America to give to SVB depositors is re-distributive. But it isn’t so. SVB was the bank of billionaires and hedge funds, Bank of America is the overwhelming bank of America’s poor and middle class. Taking from Bank of America to pay back SVB’s depositors is taking from the poor and middle class to pay back the billionaires. And reminding those “progressives” of exactly who is being paid back is just something I feel I should do.

It’s not a bailout unless it comes from the bailout region of DC

America is bailing out the banks again, but like Josh Barro writes, we don’t want to say we are. When the government hands billions of dollars to Silicon Valley hedge funds by guaranteeing their deposits, it makes us wonder why they can’t hand billions of dollars to those of us struggling with inflation. Maybe they can guarantee our rents? But this totally isn’t a bailout, just ask Biden.

For those who don’t know what I’m talking about, Silicon Valley Bank (SVB) was a bank holding deposits from hedge-fund backed startups and using them to make very risky plays. Those risks cased them to crash and burned due to rising interest rates. So the government had to bail them out, but it doesn’t want to call it a bailout.

So why isn’t this bailout really a bailout? Well, only the depositors will be getting all their money back, the bond and equity holders of SVB will be getting little to nothing. This has led some to even applaud this bailout as being re-distributive: money is going from the wealthy to the poor.

Let’s get one thing straight, this is a bailout of the rich. Depositors are ALREADY guaranteed to get their money back p to $250,000. The FDIC already made sure anyone with less than $250,000 in the bank got their money back. But what about the poor hedge funds and VCs with millions, even billions of dollars locked in the bank? Well normally they would get back $250,000, but it’s not fair that rich people lose money so that’s what this bailout is supposed to cover.

The wealthy depositors will be made whole at the expense of bond and equity holders of course. But that’s just moving money from the rich, politically connected people to the rich, not-so-connected, it’s classic graft of making sure your boys get the best from the government.

More to the point, the money may not come from the government per se but it is coming from the people, or at least the people with bank accounts. FDIC is the insurance that is paid by every bank account, and it in turn pays to cover all bank accounts up to 250,000 dollars should their be a bank run. The fact that the FDIC will now be covering more, potentially up to billions in dollars, means that money has to come from somewhere. It will come from all the other people with FDIC ensured bank accounts, all the people with a few hundred or thousand dollars in the bank.

The FDIC isn’t a line item you’ll see in your bank statement, it’s an invisible insurance policy to most people. But make no mistake it is paid by the account holders. If FDIC insurance did not exist, the bank would give you a higher interest rate on your savings account because they wouldn’t need to pay insurance on your bank account. Instead, interest on deposits is likely to be lower than expected as the FDIC will have to drawn on the insurance premiums from every small account in order to cover the billions of dollars they’ve pledged to rich hedge fund managers. Poor people with small bank accounts will be made tangibly more poor in order to ensure hedge funds get all their money back.

Not only that, there is a definite moral hazard with bailout out the rich in this manner. When a bank goes under, there is supposed to be a protocol of who gets what. Depositors up to 250,000 dollars will be covered by FDIC no matter what, everything else including bond holders, equity holders, and large depositors is fair game depending on the results of the bankruptcy.

Instead, it is know going to be assumed that depositors will always be bailed out at the expense of bond holders. People who want to make low interest money have a few options: they can give it to the bank and get interest, or they can buy a bond and get the coupon. They know that if their money is large, both of these carry risks. The deposit and interest are only covered up the 250,000 while bonds can be defaulted on or banks can go bankrupt. However now, the calculus changes. Deposits will always be bailed out by the FDIC at the expense of bonds, meaning that they are now much safer and bonds are much riskier. This could even make it worse for some banks as they will find they cannot raise money through bonds as easy as they used to. Who will buy your bond if a high-yield savings account gives roughly the same interest rate and is guaranteed zero risk by the FDIC no matter how much money you put in?

So this is a bailout that isn’t a bailout, it gives money to the rich at the expense of the poor.

Follow up: what did Joel Kurtzman think of the 90s and 2000s?

I wrote a post last week about Joel Kurtzman’s “The Decline and Crash of the American Economy,” a book from the 80s that posited that America’s best days were behind it. Kurtzman’s central thesis appears to be:

  • Manufacturing is moving overseas, causing America to run a trade deficit
  • To buy foreign goods, America and Americans are becoming indebted to the rest of the world
  • Foreign investment is flooding into American stocks and American debt, causing us to lose control of our own economy
  • The much touted “service jobs” and “information age economy” are a mirage
  • As a result of the above four facts, the American economy is entering a period of decline and crash which can only be solved by strong protectionism and government control of the economy

This was all written in the 80s, and to an old-school leftists I guess it all seemed very sensible. I could imagine Jeremy Corbyn or Bernie Sanders making these exact arguments in 1980, while adding a few more worker-centric chapters of their own. The problem is that this thinking has largely been supplanted by modern economics.

Manufacturing is not the only thing an economy does. The knowledge economy, which Kurtzman scoffed at as the “information age economy,” has rapidly eclipsed all the manufacturing that came before it and continues to propel American forward. Likewise foreign investment flooding into America is by no means bad, as it allowed American companies and the Government to finance themselves with debt or equity. If foreign investment was fleeing America, that would be cause for concern. Being in debt is not a biblical sin for an economy. We all take on debt all the time because the value of having a car or a house now is greater than the value of the money we will use to pay off that debt over 5 to 20 years. The same is true for companies expanding, and foreign investment flooding into America means companies can issue debt much more cheaply than they could otherwise.

Furthermore Kurtzman’s prescription was largely abandoned in the 90s. Both Republicans and Democrats largely made peace with free trade (although the 2 most recent presidents have bucked this trend). There is a strong argument to be made that tariffs on foreign goods hurt the American economy as much as they do the foreign economy for a number of reasons. Tariffs create a walled garden for certain goods, allowing noncompetitive industries to remain in business for longer than they should. In turn these noncompetitive industries suck up investment and compete for resources, making it harder for actually competitive companies to expand as they should be able to. There is only so much supply of money, parts, and workers, if Ford was heavily subsidized by tariffs, would Tesla have been able to take off? Finally tariffs alter the incentive calculus for a company because once tariffs are part of the political equation, companies can increase their profits more by demanding higher and higher tariffs from the government than they can by actually improving production. This caused some Latin American countries to enter a tariff spiral where goods became more and more expensive because rather than compete with the rest of the world, companies put their effort into demanding higher and higher tariffs.

In the 90s and the 2000s America largely abandoned Kurtzman’s thesis and his prescriptions. Angst and newsrooms aside, the trade deficit kept expanding, NAFTA remained in place, the service and information sector were seen as avenues of growth, and debt kept piling up. If Kurtzman then thought the Financial Crisis was proof of his theory, he would have been rather sad that America came out of the crisis much better than most of the nations he said it was indebted to, such as Japan, Latin America, and Europe.

Reading Kurtzman’s book is like reading politics from a bygone age. I once read a book about “the Crime of ’73,” a much maligned bill which removed the right of silver-bullion-holders to have their silver minted into dollars. Pro-silver advocates despised this bill so utterly that it eventually launched William Jennings Bryan as a presidential candidate, a candidacy he might not have gained had the silver movement not been so motivated and powerful. Yet reading it today, it’s hard to understand why this economic debate was filled with such hatred and vitriol. It’s hard to understand the motivations behind the players, and how for them this was the defining issue of their age. Because honestly, America has moved past that debate long ago: silver isn’t money and neither is gold, dollars are. I almost feel the same way with Kurtzman’s book. The last 2 presidents notwithstanding, most of my adult life has been shaped by a bipartisan agreement on free trade and the importance of the information economy over traditional manufacturing. I just wonder what Kurtzman would think now.

Send troops to the Fed?

Pardon me for wading into Twitter Drama, but Rohan Grey is a remarkably unserious “intellectual” and I couldn’t help myself.

Before I start, let me share a tiny story from “Zen and the Art of Motorcycle Maintenance.” This book was a thoroughly unenjoyable read for teenaged me, but it has one anecdote that still sticks with me. If memory serves, there is a university that is being threatened with losing its accreditation due to repeated failures and the students are naturally protesting as this would make their degrees worthless. One student talks to the narrator and claims that the University in fact can’t lose its accreditation, because if someone tried to take it “the Governor would send the national guard to protect us!”

I shouldn’t have to spell out the ridiculousness, but I want to hit word count so I will. Accreditation isn’t held in a vault, it isn’t something you can protect with guns and soldiers. Accreditation is the trust that other institutions have in you, and while some of it is legally codified most of its power is in the uncodified trust that a society is built on. You can’t protect accreditation with and soldiers any more than you can protect trust or friendship.

And so it was with bewilderment that I read an Assistant Law Professor on Twitter making the same mistakes as the nameless student from a book. Rohan Grey wants to do an end-run around the debt ceiling by having the Treasury mint a one trillion dollar platinum coin and deposit it in the Federal Reserve. This coin would then pay for the USA’s financial obligations without the need to borrow money. A big (and usually ignored) problem is that the Fed would have to accept the coin, and as Josh Barro writes, the Fed has expressed the opinion that this chicanery is illegal and undermines Fed independence. (Read Barro’s article, it goes into great detail as to why this idea probably wouldn’t work). Undeterred, Grey thinks the Fed’s opinion doesn’t matter, and that if they refuse to accept the coin then Biden should send troops to the Federal Reserve and force them to accept it.

Grey’s mistake is thinking that guns can be used to enforce trust. The Federal Reserve has the trust of the markets, and its power to move markets is based on that trust as much as anything else. The Federal Reserve trades bonds and sets rates, but those bonds and rates have value because people trust the Fed to keep its word, Jerome Powell’s speeches about the Fed’s plans have as much or more power as any action taken by the Fed. Now imagine a scenario where troops are instructed to besiege and occupy the Federal Reserve, where Powell is held at gunpoint and forced to accept a one trillion dollar deposit from the Treasury which he and the Fed have gone on record as saying is illegal. Trust in the Fed would be shattered, nothing Powell says or does matters anymore because the troops (and by extension the President) are running the show. Investors would flee from US government bonds, causing yields (and thus America’s cost of borrowing) to skyrocket, because America’s currency will have been debased against the will of its central banks, and will now be at the whims of the President.

And you may say “that’s fine, I like Biden as President” but do you like DeSantis? Do you trust that DeSantis wouldn’t be willing to send his own troops to force his will on the Fed? Would you buy a 10-year government bond if there’s a chance that DeSantis or Trump will be controlling it 2 years? And furthermore, Powell’s remarks on inflation will become worthless. Maybe Biden doesn’t like the rate rising that Powell needs to do, or maybe when the election comes he wants to juice the economy. So what’s to stop him from leaning over and reminding Powell who’s boss? What’s to stop Trump or DeSantis from doing the same? People like Grey once griped that Trump’s complaining caused the Fed to pause rate rises in 2019 (ignoring of course that inflation went under the Fed’s 2% target, which should cause them to pause rate hikes all on its own). Now Grey wants to make the Fed wholly subsumed by the President, so Trump would be able to do whatever he wanted.

Once you’ve sent troops to the Fed, you can’t unring that bell. Investors invest in American Dollars and American bonds in large part because they trust the Federal Reserve to do its duty with regards to the currency. Shattering that trust with soldiers would shatter investor confidence in the American economy as a whole. You’d have a trillion shiny dollars, but they wouldn’t be worth a pence.

Maker vs Taker states

Last year, Elon Musk paid over 11 billion dollars in income tax, more than the amount paid by every single person I know COMBINED. Yet for all that I have no desire to see him get special privileges, or to have his complaints be heard over other people’s. I know we live in the real world where money buys access, but we should all strive to live in a better world where all are presumed equal regardless of wealth. So if Elon Musk shouldn’t get special favors, why should California or New Jersey?

California and New Jersey have been described as “maker” states, in comparison to “taker” states like Mississippi and New Mexico. California and New Jersey residents pay much more to the federal government than their state collectively receives, and vice versa for Mississippi and Mexico. This has led some lawmakers, like Josh Gottheimer (D-NJ) to call out the “moocher” states, and say that laws should be written to benefit the people of his “maker” state, by lowering their tax burden or enacting their preferred policies.

I’ve seen this exact line of reasoning before all across social media. When Republicans complain about the priorities of the government, Democrats come out of the woodwork to say that since blue states pay more tax, red states need to shut up and put up. Yet this is an absurd, Romney-esque line of reasoning that would have been utter heresy in 2012, the idea that wealthier groups of people should be heard over the voices of poorer groups. The next time Gottheimer complains about Musk, will he remember to shut up and put up since Musk pays more taxes than almost his entire state populations combined?

I think this belies the maddening hypocrisy of the maker/taker argument, it was true when Romney said it and it’s true when Gottheimer and lefties online say it. There is ALWAYS someone richer than you, and if you wouldn’t bend the knee to them then no one should bend the knee to you. Furthermore we live in a democracy, one man one vote. The votes of the poor carry just as much weight as the votes of the rich, and there is no special provision that says otherwise. That goes for poor people just as much as poor states. If Democrats want to be the party of the people, I’d better never hear another one of them insinuate that rich voters matter more than poor voters.

The End of Growth Part 4: At what point is China no longer a bubble?

I’m still reading The End of Growth by Richard Heinberg. As a reminder, Heinberg claimed (in 2011) that the world’s economic growth was essentially over, and that in the future any “growth” would be an illusion created by nations fighting over an ever shrinking economic pie. A nation may have a quarter or two of growth, or some prolonged growth as they stole more of the pie from their neighbors, but taken as a whole there was no more economic growth left for the world, largely because Heinberg also thought there was no more oil left for the world. The problem or course is how do you explain China?

It’s a lot easier to brush away claims of “growth” in the Western world, growth has been anemic (although still positive) for the last decade and a half since the Financial Crisis. And although US GDP has growth by 20% or more in that time, most Americans don’t “feel” any different, and so it’s easier for Heinberg to claim (as he does earlier in the book) that this growth is all just an illusion funded by debt. But China is different. Growing their GDP at near double digits for 3 decades straight cannot be easily ignored, and the Chinese middle classes have definitely seen massive changes in their lifestyles as almost anyone today in China can afford more and better stuff than their parents could. Houses are larger, food is more varied, technology is cheaper and easier to get to, China continues to experience massive economic growth, and that’s a difficulty for Heinberg who claims that’s impossible.

The first thing he does is punts, like anyone who doesn’t like the outcomes of China growing economically, Heinberg claims China’s growth is really just a bubble ready to collapse. I’m not about to say that China’s economy is perfect or that it doesn’t contain massive real estate speculation, but I’ve been hearing “China’s economy is a bubble that’s about to collapse” for over a decade now and I’m wondering when people will stop claiming this. A bubble is no longer a bubble is it never pops. China’s economy does experience downturns like everyone else’s, but I haven’t seen any evidence that the whole thing has or will soon collapse, as the world “bubble” would imply.

Heinberg goes on to say that China’s growth is also unsustainable because of falling exports to the West, depleting resources like coal, too many old people with too few young people, and all the other stuff that people have been claiming will implode China any day now. My question for today is: when does this end? If China continues growing at a steady clip, at what point do people update their theories to fit the facts? At what point can we conclude that China’s economy is not a bubble and has the momentum to withstand all the same shocks and stresses as a Western economy? China’s economy has more than doubled since Heinberg wrote his book, and I’m curious to know if he would accept this as disproving his theory or if he’s pushed “the end of growth” date back like so many pushed back “the end of oil.”

Now again, I’m not saying China or its economy is perfect. The Chinese Communist party is a totalitarian nightmare committing genocide in its own boarders and threatening war outside of them, the Chinese economy has vast structural problems that the government papers over, Chinese demographics are not ideal for a growing economy and there is no easy solution to any of these. But I don’t think China is going to collapse any time soon, I don’t think it’s economy is just a bubble, and I think people have been claiming the Chinese Sky is Falling for far too long without ever admitting that they are divorced from the actual facts.

People are always fighting the last war

We live in a time of high inflation and rock bottom unemployment, but I remember less than a decade ago reading the prognosticators of economics talk about how low inflation and high unemployment (or underemployment) were the inevitable future of our economy. It was said with as much certainty as could be mustered that the Financial Crisis had fundamentally changed the nature of our economic reality, no more could we expect governments to bail us out (they all had too much debt), instead we were going to keep suffering for a long while for the profligate lending of the banks. Of course that wasn’t true, and neither is it true that inflation and low employment are a certainty for the rest of time.

What’s crazy to me is that both predictions were made with the same data. Our population is aging, globalization inevitably moves certain jobs overseas and forces American workers and companies to compete with those in foreign nations. Our government has high debt, real wage growth is anemic or negative, and the job of fixing all this has landed solely on the head of the Federal Reserve since the rest of the government can’t or won’t do so. This describes 2012 as much as 2022, and yet this evidence is used just as confidently by the takemongers of 2012 who predicted an eternal low-growth as the takemongers of 2022 predicting eternal inflation. It reminds me of all the sci-fi books and movies from the 70s and 80s predicting a far future of the 21st or 22nd century in which the Soviet Union still existed, people routinely project their current reality onto the future without any further thought. If pressed they’ll then use any evidence at all to defend their predictions, even if the same evidence could be used for an entirely different conclusion.

The 2010s were a period of low growth, low inflation, and high unemployment/underemployment. The 2020s have so far been a period of higher growth, high inflation, and very low unemployment. Both decades have challenges, and many of the challenges are the same. But I see no reason to believe that the trends of today will last forever.