Milei update

by  Tyler Cowen in

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.”

Claude read the Chevron pdf

by  Tyler Cowen in

“This is a very significant overturning of Chevron deference, which has been a cornerstone of administrative law for the past 40 years. Some key points about the implications:

  1. It fundamentally shifts power from executive agencies to courts in interpreting ambiguous statutes. Courts will now have primary authority to interpret statutory ambiguities rather than deferring to reasonable agency interpretations.
  2. It opens up many existing agency regulations and interpretations to potential new legal challenges. Regulations that were previously upheld under Chevron may now be more vulnerable.
  3. It will likely make it harder for agencies to issue new regulations or take new regulatory actions, as they will have less latitude in interpreting their statutory authority.
  4. It may lead to less stability and consistency in regulatory policy, as different courts may reach different interpretations of statutes.
  5. It could slow down the regulatory process, as more issues may end up being litigated in court rather than deferred to agency expertise.

Some areas that may see significant impacts:

  1. Environmental regulations (EPA, Dept of Interior, etc.)
  2. Healthcare regulations (HHS, CMS)
  3. Financial regulations (SEC, CFPB)
  4. Labor regulations (DOL, NLRB)
  5. Immigration policies
  6. Telecommunications regulations (FCC)

Regulations that rely heavily on agencies filling in statutory gaps or interpreting broad statutory language are most likely to be affected. Major Obama and Biden-era regulations on issues like climate change, healthcare, and financial reform may be particularly vulnerable to new challenges.

However, the majority opinion does state that prior judicial decisions upholding agency actions under Chevron should not necessarily be overturned based on this ruling alone. So there is some effort to limit the disruptive impact, though the dissent expresses skepticism about how effective that will be in practice.

Overall, this represents a major shift in the balance of power between the executive and judicial branches when it comes to administrative law and regulation. The full practical implications will likely take years to play out through new litigation and regulatory processes.”

What does RN stand for in the pending French election?

by  Tyler Cowen in

The RN intends to move ahead with a proposed law that states as its aim “to combat Islamist ideologies”. It includes measures to make it easier to close mosques and deport imams deemed to be radicalised, and a ban on clothing that “constitute in themselves an unequivocal and ostentatious affirmation” of Islamist ideology.  Bardella said this would include various types of veils and the so-called burkini, or head-to-toe swimwear. “The veil is not desirable in French society,” he said. “The battle is in part legislative, but is also a cultural battle that needs to be pursued.”

Some of the RN’s economic proposals remain unfunded and scant on detail, such as cutting income tax for those under 30 to combat brain drain and the repeal “in principle” of Macron’s retirement age increase from 62 to 64. Bardella wants to undertake an audit of public finances before deciding spending priorities in the autumn.

But he said his first move if the RN takes power would be to boost working-class people’s purchasing power by cutting value added tax on energy and petrol, which he says would cost €12bn a year. Funding is to come from taxing windfall profits of energy companies, closing tax loopholes on maritime shipping companies, and cutting France’s annual contribution to the EU budget by €2bn, he said.

Here is much more from Leila Abboud and Ben Hall the FT.

With immigration, perceptions matter more than reality

by  Tyler Cowen in

That is the topic of my latest Bloomberg column.  Rather than work through the argument, which requires you to read the whole column, I’ll just reproduce the most trollish part:

When I am in a foreign city and in search of interesting food, I have a trick: In which neighborhood, I ask the locals, am I most likely to get murdered? In Stockholm, Rinkeby was the answer, even though many of the people I asked had never been.

So I went to Rinkeby, which is mostly non-White and most notably Somalian. There were Yemeni, Ethiopian, Persian and other restaurants. (I had a good chicken mandi at one called Maida.) I felt safe the entire time, and saw plenty of solo women, including some blonde Swedes, walking leisurely along the main street, as well as many women with head coverings. I saw a Western Union office and a driving school, signs that people have some funds to send away or invest in a car.

I hope to write a longer post on immigration for you all soon.

The Turku food hall

by  Tyler Cowen in

This is perhaps my favorite food hall.  Dating from 1896, the basic building is notable, the displays are lovely and suitably Nordic, and for lunch you can try a wide variety of cuisines, including excellent Mexican food, a rarity in Europe.  (They told me they buy their tortillas from other Mexicans in Czechia.)  From separate stalls I bought some salami and also black bread, and both were as good as any I have tried, ever.

Many food halls are overrated.  They create an illusion of plenitude, while not offering many items you actually wish to buy and consume.  The Turku food hall, however, is a real winner.

Overall, Turku felt more Swedish and also more stylish than Helsinki.  The Swedish name for the city — Åbo — you see all over, and one of the universities still teaches in Swedish.  It is much more of a college town.  That said, at population 202,000 it is slower and there is much less to do there.  You can see some of Alvar Aalto’s early buildings.

I was told that 77 Mexicans live in Turku.

Thursday assorted links

by  Tyler Cowen

. How America became a great pizza country almost everywhere (NYT).

2. What are the prospects for nuclear fusion?

3. Waymo ditches the waitlist.

4. China is returning to a greater focus on coal (FT).  And Denmark will levy a one hundred dollar tax on its cows.

5. Carl Schmitt: the dark side.

6. David Brooks on late bloomers (Atlantic).

7. New and important bio news from Arc Institute.  Here is some further discussion.

Do good-looking people live longer?

by  Tyler Cowen in

  • We find that the least attractive 1/6th had a significantly Higher Hazard of mortality

  • The least attractive 1/6th of women lived almost 2 years less than others at 20.

  • The least attractive 1/6th of men lived almost 1 years less than others at 20.

That is a new paper by Connor M. Sheehan and Daniel S. Hamermesh.  Victims of lookism, or genetic correlations, or something else<?  Via the excellent Kevin Lewis.

My very good Conversation with Joseph Stiglitz

by  Tyler Cowen in

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

Nobel Prize-winning economist Joseph Stiglitz joined Tyler for a discussion that weaves through Joe’s career and key contributions, including what he learned from giving an 8-hour lecture in Japan, how being a debater influenced his intellectual development, why he tried to abolish fraternities at Amherst, how studying Kenyan sharecropping led to one of his most influential papers, what he thinks today of Georgism and the YIMBY movement, why he was too right-wing for Cambridge, why he left Gary, Indiana, his current views on high trading volumes and liquidity, the biggest difference between him and Paul Krugman, what working in Washington, DC taught him about hierarchies, what he’ll do next, and more.

Here is one excerpt:

COWEN: You were a debater, and when you were at Amherst, you were also head of student government, right?

STIGLITZ: That’s right.

COWEN: You voted to abolish fraternities. Isn’t there good evidence that fraternities raise wages?

STIGLITZ: [laughs] That was unions raise wages. Fraternities — I was opposed to fraternities because Amherst was a small college, a thousand boys, men, and they had the effect of dividing the community. The philosophy that I had was that we should be one community. The fraternities tended to interfere with that. Students from one fraternity would always sit at dinner at the same tables with the members of their fraternity. There were class aspects of fraternities.

They were just, I thought, very divisive in a small community, and it turned out that my perspective eventually prevailed. A number of years later, Amherst did abolish the fraternities. It’s an important lesson to me in my political life. Sometimes you begin a campaign knowing that in the next year, two years — while you’re actually there — you may not succeed, but sowing the seeds of discussion, debate, maybe in 5, sometimes 10, sometimes 15, 20 years, things turn out and you wind up winning the debate.

And this:

COWEN: Do you favor the deregulations of the current YIMBY movement — allow a lot more building?

STIGLITZ: No. That goes actually to one of the themes of my book. One of the themes in my book is, one person’s freedom is another person’s unfreedom. That means that what I can do . . . I talk about freedom as what somebody could do, his opportunity set, his choices that he could make. And when one person exerts an externality on another by exerting his freedom, he’s constraining the freedom of others.

If you have unfettered building — for instance, you don’t have any zoning — you can have a building as high as you want. The problem is that your high building deprives another building of light. There may be noise. You don’t want your children exposed to, say, a brothel that is created next door. In the book, I actually talk about one example. Houston is a city with relatively little zoning, and I have some quotes from people living there, describing some of the challenges that that results in.

And this;

COWEN: Your 1984 piece with Carl Shapiro on efficiency wage theory — looking back at that now, 40 years later, you think of that mainly as a contribution to understanding organizations, an explanation of unemployment, a claim about sticky wages? Or how do you frame that article? Because in the piece itself, the wage is actually flexible, at least the real wage is.

Recommended, interesting throughout.

Wednesday assorted links

by  Tyler Cowen

1. How can people be like this?  Men who do absolutely nothing on long-haul flights.

2. Bet on me here, flying to France today btw.

3. Work for Astera on rebuilding the machinery of science.

4. Is delaying menopause going to help longevity? (NYT)

5. How politically biased is Wikipedia?  Twitter version, Substack version, full study.  By David Rozado.

6. AI meme generator.  And using Claude for econometrics.

7. Book authors get a start-up to help them deal with AI companies.

Is the declining gender pay gap mainly about cohorts?

by  Tyler Cowen

That is the theme of a new NBER working paper by Jaime Arellano-Bover, Nicola Bianchi, Salvatore Lattanzio, and Matteo Paradise.  Here is the abstract:

This paper studies the interaction between the decrease in the gender pay gap and the stagnation in the careers of younger workers, analyzing data from the United States, Italy, Canada, and the United Kingdom. We propose a model of the labor market in which a larger supply of older workers can crowd out younger workers from top-paying positions. These negative career spillovers disproportionately affect the career trajectories of younger men because they are more likely than younger women to hold higher-paying jobs at baseline. The data strongly support this cohort-driven interpretation of the shrinking gender pay gap. The whole decline in the gap originates from (i) newer worker cohorts who enter the labor market with smaller-than-average gender pay gaps and (ii) older worker cohorts who exit with higher-than-average gender pay gaps. As predicted by the model, the gender pay convergence at labor-market entry stems from younger men’s larger positional losses in the wage distribution. Younger men experience the largest positional losses within higher-paying firms, in which they become less represented over time at a faster rate than younger women. Finally, we document that labor-market exit is the sole contributor to the decline in the gender pay gap after the mid-1990s, which implies no full gender pay convergence for the foreseeable future. Consistent with our framework, we find evidence that most of the remaining gender pay gap at entry depends on predetermined educational choices.

This is one of the best and most interesting papers I have seen in some while, and it is a good example of how academic economics still produces useful results.  The topic is important, the hypothesis is plausible, there is evidence in its favor, the idea is clever (in the good sense of clever), it relates to “the problems of young men,” it relates to gender gap issues, and it makes a prediction for the future, namely no full gender pay convergence anytime soon.

Arellano-Bover has a useful tweet storm on the piece.  And here is commentary from Alice Evans.

What is the gravest outright mistake out there?

by  Tyler Cowen

I am not referring to disagreements, I mean outright mistakes held by smart, intelligent people.  Let me turn over the microphone to Ariel Pakes, who may someday win a Nobel Prize:

Our calculations indicate that currently proposed U.S. policies to reduce pharmaceutical prices, though particularly beneficial for low-income and elderly populations, could dramatically reduce firms’ investment in highly welfare-improving R&D. The U.S. subsidizes the worldwide pharmaceutical market. One reason is U.S. prices are higher than elsewhere.

That is from his new NBER working paper.  That is supply-side progressivism at work, but shorn of the anti-corporate mood affiliation.

I do not believe we should cancel those who want to regulate down prices on pharmaceuticals, even though likely they will kill millions over time, at least to the extent they succeed.  (Supply is elastic!)  But if we can like them, tolerate them, indeed welcome them into the intellectual community, we should be nice to others as well.  Because the faults of the others probably are less bad than those who wish to regulate down the prices of U.S. pharmaceuticals.

Please note you can favor larger government subsidies for drug R&D, and still not want to see those prices lowered.

“What We Got Wrong About Depression and its Treatment”

by  Tyler Cowen in

I am not endorsing these hypotheses, but they are interesting to ponder:

  • Depression is neither disease nor disorder rather an adaptation that evolved to serve a purpose

  • Depression is so much more prevalent than currently recognized that it is “species typical”

  • Antidepressants drive neurotransmitter levels so high that homeostatic regulation kicks in

  • Antidepressants may suppress symptoms in a manner that increases risk for subsequent relapse

  • Cognitive therapy works by making rumination more efficient and “unsticking” self-blame

  • Adding antidepressants may interfere with any enduring effect that cognitive therapy may have

Those are from a new paper by Steven D. Hollon.