Category: Current Affairs

The polity that is Hawaii

From an MR reader:

The most Democratic legislature in the country passed two market-friendly bills this session.

1) HB2404 CD 1 represents the largest income tax cut in the State’s history (description and analysis here).

2) SB 3202 forces the counties to allow more construction of Accessory Dwelling Units on residential properties (news article here).

As somebody who works on HI state policy, looking at the supply-side constraints is a new way of thinking here. People are starting to recognize that the same old demand-side approaches are not working. I expect more laws like this in the coming years.

Hawaii has always been a small-c conservative state, in part due to the large Asian population. The Leg once again struck down a Cannabis legalization bill this year despite a big push from Progressives.

It will be interesting to see what happens next.

My excellent Conversation with Brian Winter

Here is the video, audio, and transcript.  Here is the episode summary:

It’s not just the churrasco that made him fall in love with Brazil. Brian Winter has been studying and writing about Latin America for over 20 years. He’s been tracking the struggles and triumphs of the region as it’s dealt with decades of coups, violence, and shifting economics. His work offers a nuanced perspective on Latin America’s persistent challenges and remarkable resilience.

Together Brian and Tyler discuss the politics and economics of nearly every country from the equator down. They cover the future of migration into Brazil, what it’s doing right in agriculture, the cultural shift in race politics, crime in Rio and São Paulo, the effectiveness and future consequences of Bukele’s police state in El Salvador, the economic growth of Colombia despite continued violence, the prevalence of startups and psychoanalysis in Argentina, Uruguay’s reduction in poverty levels, the beautiful ugliness of Sao Paulo, where Brian will explore next, and more.

And here is one excerpt;

COWEN: What’s the economic geography of Brazil going to look like? All the wealth near Mato Grosso and the north just very, very poor? Or the north empties out? How’s that going to work? There used to be some modest degree of balance.

WINTER: That’s true. Most of the population in Brazil and the economic center, for sure, was in the southeast. That means, really, São Paulo state, which is about a quarter of Brazil’s population but roughly a third of its GDP. Rio as well, and the state of Minas Gerais, which has a name that tells its history. That means “general mines” in Portuguese. That’s the area where a lot of the gold came out of in the 18th and 19th centuries. That’s gone now, so it’s not as much of an economic pull.

You’re right, Tyler, though, that a lot of the real boom right now, the action, is in places like Mato Grosso, which is in the region of Brazil called the Central West. That’s soy country. I’m from Texas, and Mato Grosso is virtually indistinguishable from Texas these days. It’s hot. It’s flat. The crop, like I said, is soy. There’s cattle ranching as well.

Even the music — Brazil, as others have noted, has gone from being the country of bossa nova and the samba in the 1970s to being the country of sertanejo today. Sertanejo is a Brazilian cousin of country music with accordions, but it’s sung by people — men mostly — in jeans, big belt buckles, and cowboy hats. They’re importing that — not only that economic model but that lifestyle as well.

COWEN: What is the great Brazilian music of today? MPB is dead, right? So, what should someone listen to?

Recommended, interesting throughout.

Sierra Leone update

An addiction crisis is gripping Sierra Leone, one of the world’s poorest nations, driven by a surge in use of “kush”, a toxic blend of psychoactive substances. As the West African nation struggles to boost its economy, thousands of unemployed young adults have turned to the potent alternative to marijuana to fill their days.

The kush crisis is part of a growing trend of substance abuse across Africa, particularly among the continent’s youth.

“People are addicted to escape,” said Abass Wurie, a biomedical scientist in Freetown who is studying the effects of the drug on the heart and kidney.

Here is more from Aanu Adeoye at the FT.  Is this a new trend for very poor countries, as the prices of escapist, addictive drugs fall all the more?

The French left is now winning

This is a big surprise to many people, as in the first round the right was doing much better in terms of votes and seats.  We’ll learn more soon, but in the meantime I am reminded of one of the paradoxes in the theory of expressive voting.  You might want to send a protest vote, but you don’t want too many other people sending the same protest vote.  For instance, some people voting for Ralph Nader didn’t really want him to win.  And the same may be true for the French right.  So the very show of force from the right, in the first round, may have limited their subsequent numbers.  More generally, you could say that an equilibrium, when there is a lot of expressive voting, is super-sensitive to expectations about the voting behavior of others.  Especially when the receives of the expressive votes come close to holding real power.

Do you know the apocryphal story of the economics department that wanted to decide, unanimously, to vote 18-3 on the tenure case of a junior professor?  That was not allowed, and so everyone voted in favor.

I wonder what this all means for a possible Democratic mini-primary!?

What should I ask Christopher Kirchhoff?

I will be doing a Conversation with him.  In case you do not know, Christopher self-describes as:

Christopher Kirchhoff is an expert in emerging technology who founded the Pentagon’s Silicon Valley office and has led teams for the President, Chairman of the Joint Chiefs of Staff, and CEO of Google. He recently worked special projects at Anthropic. Previously, Dr. Kirchhoff helped design and scale $1 billion in philanthropic programs at Schmidt Futures. He also founded and led the Pentagon’s Silicon Valley Office, Defense Innovation Unit X, which piloted flying cars and microsatellites in military missions and created a new acquisition pathway for start-ups now responsible for $70 billion dollars of technology acquisition. During the Obama Administration, he was Director for Strategic Planning at the National Security Council and the senior civilian advisor to the Chairman of the Joint Chiefs of Staff.

I very much enjoyed his new book Unit X: How the Pentagon and Silicon Valley are Transforming the Future of War, co-authored with Raj M. Shah.  Here is his home page.  The book just received a very strong review from the FT.

So what should I ask Christopher?

PR for the UK?

I say no, we have enough European governments with proportional representation already.  Should not someone allow for the possibility of more decisive action?

Estimates are suggesting that Labour won two-thirds of the seats with one-third of the vote, more or less.  So that induces the usual cries of misrepresentation of the electorate (it also reminds us that virtually all electoral systems are not “democratic” in the naive sense of that term).  But Britain has many serious problems, and I would rather see one party given a decisive mandate to handle them.  And I write that as someone who is not in general rooting for the Labour Party — virtually all of my favorite British politicians are Tories, even if I do not like what that party has become as a whole.

Contrast the British with the recent French election.  The distribution of votes was not altogether dissimilar, but the Britsh have “a landslide,” while the French have a possibly ungovernable situation.

I do love checks and balances, but the UK needs to defeat NIMBY and fix the NHS.  Now it is Labour’s turn to try.  Here is a broad outline of Labour’s 100-day plan.  Not exactly what I would choose (see Wooldridge at Bloomberg), but if they get two or three big things right the regime still could be a success.

Note that the margins for the Labour victorious seats are extremely low, which means there is an ongoing constraint on the exercise of government power.  I am not so worried about an “elected dictatorship.”  If anything, it may not be decisive enough.

Another consideration is that PR for the UK could end up meaning the rise of an Islamic party of some kind, of course with minority status.  I suspect that would worsen rather than improve democratic discourse in Britain, and perhaps hinder immigrant assimilation as well.  I don’t want that to happen, and so it is another reason why the UK should not switch to a PR system.

The polity that is the UK

There is no doubt that the past 14 years has seen miserable progress on living standards. Real household disposable income per person has flatlined in the UK since the 2019 election, compared with roughly 2 per cent annual growth in most parliaments since the second world war. More interesting is the distribution of income changes over the past five years and the whole period the Conservatives have led government since 2010.

Despite a huge rise in food bank use and cuts to social security for working-age households, the surprise is that it is the poorest households that have done better than the rest of the UK.

Better is a relative measure, however. Taking detailed income data up to 2022-23 and updating this with known trends thereafter, the Resolution Foundation finds that only the bottom 20 per cent of the income distribution saw any real income gains in the latest parliament.

Here is more from Chris Giles at the FT.  Samir Varma sends me this link about problems with British driving school and the resulting fees and queues.  By the way, the SNP is likely to lose three-quarters of its seats in Scotland (FT).  And how small a group of party voters will be necessary to mount a challenge to Reform Party leadership?  Will there be a core?

Words from Ross Douthat

As a holiday meditation, consider that many of the things that fill people with understandable fear for our national future – polarization, extremism, radicalization, mutual incomprehension across cultural and moral and theological chasms – are also in their own way signs of national vitality. It’s good that so many people from so many different backgrounds still find the American future worth fighting over. It’s potentially good that freaks, weirdos and eccentrics have an increasing share in our politics alongside levelheaded moderates. It’s potentially good that far right and further left are both seeking reimaginings of the national narrative, incompatible as those imaginings may seem. We face a difficult situation in the world and a bad, late-imperial-seeming choice in November — but many of our derangements are also indicators of a heathy discontent with the comfortable decadence of developed societies. From multiple perspectives the American experiment appears at risk — but better to be at risk than to be settled, torpid, stagnant.

Maybe these are just the things you tell yourself when you’ve just had a fifth child. But I think there’s a good chance, a very good chance, that my children will inherit an America quite different from any of our past golden or silver ages, but still the best place to be born and live and flourish in this age of the world.

Here is the link.

An overly simple model of positive and negative contagion

When people feel bad and act badly, if only in rhetoric, they make others around them worse as well.  That is a simple account of negative contagion of mood.

There is positive contagion too, but it is harder to pull off.  If nine people tell you nice things, and one person serves up a somewhat credible insult, it is the insult that sticks with you.

Most social times are a relatively stable mix of positive and negative feelings, but sometimes the dynamics of negative contagion take over, and negativism leads to yet more negativism.  Arguably this happened in Europe before WWI, and arguably it is happening in many countries today, including the United States.  Very bad events, such as financial crises, also can trigger cycles of negative contagion.

This negative contagion is self-validating.  If all the negative feelings, expressed collectively, in fact make outcomes worse, it will seem those negative feelings are justified.  In this equilibrium the negative feelings about “opposing others” will be true, but still it would be better to avoid that equilibrium altogether.

A country can get out of a negative cycle either by winning a major war, or when a political entrepreneur comes along with enough oomph and reforms to shift the equilibrium, as Ronald Reagan did in America.  Still, negative cycles are hard to break once you get into them.  That said, over time things do start to become worse, so options for the positivity entrepreneurs do arise, at least if they can overcome coordination problems and get enough people to feel better.

Many thinkers and writers contribute to this equilibrium of negative feelings, most of all by writing about each other.  Even if their substantive points are correct, their social marginal product usually is negative, though you can learn from them because they are competing to offer the most incisive critique.

If you can avoid being overwhelmed by the peer pressure of this negative dynamic, the private and social returns are high.  You can just keep on going and build things.  Yet few are able to resist the logic of Durkheim, no matter how ostensibly contrarian they may be.  In fact the contrarians are often at greatest risk of being caught up in this, because they are so skilled in rejecting and also criticizing the claims of the opposing forces.

Happy Fourth of July!

New Zealand also is shifting toward the Right

The Ardern era is well and truly over. The National-led coalition that took office in November has set about undoing many of her government’s initiatives. It is following a playbook not unlike “Project 25,” the second-term “battle plan” promoted by pro-Trump think tanks designed to concentrate power in the executive branch and unravel efforts to slow global warming.

It is reversing a ban on oil and gas drilling, and is proposing a “fast-track” for big projects, including mines, that bypasses environmental checks. It has cut climate programs and jobs, scrapped electric vehicle subsidies, abandoned plans for one of the world’s largest marine sanctuaries and set aside a world-leading cow “burp” tax as it questions the science on methane, a potent greenhouse gas...

During coalition talks, [ACT leader] Seymour won concessions for American-style charter schools; a “three strikes” law extending prison terms for repeat offenders; and a deal to rewrite the country’s Arms Act, revisiting a ban on military-style rifles after a 2019 mass shooting. He is pushing for a referendum on New Zealand’s founding document with Indigenous Maori that opponents warn will be divisive.

Here is much more from Rachel Pannett.

An event study of sorts

Big, sudden changes in election probabilities are unusual in American politics, though it seems we just had one.  Here are some results, as reported in the FT:

US closed higher in the first session of the second half of the year, even as Treasury yields hit multi-week highs.

Strong gains in the technology sector helped the benchmark S&P 500 add 0.3 per cent despite almost three quarters of the index’s constituents declining on the day. The Nasdaq Composite rose 0.8 per cent, with every Magnificent Seven tech group finishing higher.

Treasuries sold off as traders weighed higher odds of Donald Trump being elected as US president later this year. The yield on the 10-year bond jumped 0.14 percentage points to 4.48 per cent, its highest level in a month.

“There are several investment implications of Trump back in the White House,” said Jack Ablin, chief investment officer at Cresset Capital. “[Most notable would be] a higher-for-longer Fed, as monetary policymakers increase the likelihood that the corporate tax cuts will be extended next year.”

The immediate S&P 500 reaction was modestly positive too, about half a percentage point up.

How we should update our views on immigration

I am writing this post on a somewhat bumpy plane ride, so I will try doing it without links.  Most of the relevant sources you can find through perplexity.Ai, or even on MR itself.  Google too.

Overall, I am distressed by the contagion effects when it comes to immigration views.  A large number of people are much more anti-immigration than they used to be, in part because yet others are more anti-immigration.  All sorts of anecdotes circulate.  But let’s look more systematically at what we have learned about immigration in the last ten years or so.  Not all of it should count as pro-immigration, but a lot of it should, with one huge caveat.

When it comes to the wage effects of immigration, there is very modest additional evidence in the positive direction.  I wouldn’t put much weight on that, but it certainly is not pointing in the other direction.

The United States is showing it can have a higher stock of immigrants and also falling crime rates.  I am not suggesting a causal model there, but again that should be more reassuring than not.

There is additional evidence for the positive fiscal benefits of immigrants, including less skilled immigrants.  Some of this is from the CBO, some of it I outlined in a Bloomberg column maybe a month or so ago.  I don’t view those results as major revisions, but again they are not pointing in the wrong direction.

There is reasonable though not decisive macroeconomic evidence that immigrant labor supply was a significant contributor to America’s strong post-pandemic recovery.

If you are a right-winger who was worried that incoming Latinos would vote Democratic in some huge percentage, you can set your mind at ease on that one.  You also can take this as evidence of a particular kind of assimilation.

Fertility rates are falling much more than we had expected, including in the United States.  This makes the case for immigration much stronger.

It is increasingly evident that immigrant-rich Florida and Texas are doing just great.  The picture is decidedly less positive for many parts of California, but I suppose I see evidence that the white Progressive Left is mainly at fault there, not the immigrants. Still, I do think you can make a reasonable argument that immigrants and the Progressive Left interact in a dysfunctional manner.  It is no surprise to me that so many of the leading anti-immigrant voices come from California.

Overall, I am struck by the fact that immigration critics do not send me cost-benefit studies, nor do they seem to commission them.  If the case against immigration is so strong, why aren’t these studies created and then sent to me?  You could have a good one for a few hundred thousand dollars, right?  Instead, in my emails and the like I receive a blizzard of negative emotion, and all sorts of anecdotal claims about how terrible various things are, but never a decent CBA.  I take that to be endogenous.  I think it is widely accepted that America having taken in the people who are now Italian-Americans would pass a cost-benefit test, even though the Mafia ruled New Jersey and Rhode Island for decades.  Somehow people are less keen to apply this same kind of reasoning looking forward, though they are happy to regale you with tales of crimes by current immigrants.

I do see good evidence that trust in American government is falling, but I attribute that mainly to the Martin Gurri effect.  I mean look at the current gaslighters in the White House and in the media — they are not primarily immigrants, quite the contrary.  Or all the Covid mistakes, were they due to “the immigrants”?  I don’t see it.

Now let us look at knowledge updates on the other side of the ledger, namely new knowledge that should make us more skeptical about immigration.

We now see that external hostility to Israel and Taiwan is stronger than we had thought.  So the case for a looser immigration policy in Israel is much weaker than it used to be.  As for Taiwan, they should be more careful about letting in mainland Chinese.  Estonia needs to be more wary about letting in Russians, and indeed they are.  And there might be other countries where this kind of logic applies.  Do I really know so much about the situation between Burundi and Rwanda?  In general, as the level of conflict in the world rises, there will be more of these cases.  It is also a major consideration for anywhere near Ukraine.  Small countries need to worry about this most of all.

I should note this problem does not seem to apply to North America, though you might require tougher security clearances for some jobs currently held by Chinese migrants.

The second issue, and it is a biggie, is that voters dislike immigration much, much more than they used to.  The size of this effect has been surprising, and also the extent of its spread.  I am writing this post on Election Day in France, and preliminary results suggest a very real risk that France ends up ungovernable.  Immigrants are clearly a major factor in this outcome, even under super-benign views that do not “blame” the immigrants themselves at all.

Versions of this are happening in many countries, not just a few, and often these are countries that previously were fairly well governed.

I think it is better for countries in such positions to be much tougher on immigration, rather than to suffer these kinds of political consequences.

But let’s look honestly at the overall revision to our views.  Politics is stupider and less ethical than before, including when it comes immigration (but not only!  Fellow citizens also have become more negative about other fellow citizens of differing views, and I view negativism as the root of the problem all around).  We need to take that into account, and so all sorts of pro-migration dreams need to be set aside for the time being, at least in many countries.  Nonetheless the actual practical consequences of immigration, political backlash excluded, are somewhat more positive than we had thought.  For some smaller countries, however, that may not hold, Israel being the easiest example to grasp but not the only.  In the longer run, we also would like to prepare for the day when higher levels of immigration might resume, even if that currently seems far off.  So we shouldn’t talk down immigration per se.  Instead we should try to combat excess negativism in many spheres of life.

Somehow that view is too complicated for people to process, and so instead they instinctively jump on the anti-immigration bandwagon.  Too much negativism.  But in fact my view is better than theirs, and so they ought to hold it.

Milei update

Complicating the recovery is the overvalued peso, which is making the country unjustifiably expensive in dollar terms. The official exchange rate is currently set by the government, which also imposes capital controls. Almost all of the devaluation in December has been eroded (see chart 2). It involved initially devaluing the peso by over 50% and then by 2% each month. But monthly inflation has been greater than the crawling peg. The result is that the real effective exchange rate is rising.

The effects are obvious from atop the Andes. On a single long weekend in April some 40,000 Argentines crossed the mountains into Chile to buy everything from trainers to car tyres because, surreally, Chile has become cheaper than Argentina. Mr Milei slams those who say the peso is overvalued as “intellectually dishonest”. Yet when an Argentine president says there won’t be a devaluation, taxi drivers know there is a good chance there will be one, quips Nicolás Gadano of Empiria Consulting in Buenos Aires.

A pricey peso scares off tourists, makes exports expensive and deters investors. An overvalued currency often eventually crashes. “If you see Argentina appreciating, this is always a sign of worse things to come,” says Eduardo Levy Yeyati of Torcuato Di Tella University in Buenos Aires. Falling exports make it harder for the central bank to accumulate dollars, which it needs to pay off foreign debts and to build up its safety buffers.

The government could allow the peso to float or accelerate the 2% crawling peg. But either would probably push up inflation, thus endangering Mr Milei’s popularity and undermining some of the benefits of the devaluation. For now, Mr Milei is able to keep a tight grip on the exchange rate because of capital controls.

What happens next? Mr Milei has promised to ultimately remove capital controls as part of his plan to restore investor confidence. He insists that inflation will soon be 2% a month, the same as the rate of devaluation. This, he says, would allow him to slowly ease the restrictions and float the peso without its value plunging.

Here is more from The Economist.  File under “difficult balancing act, nor is this market prices working their magic.”