Some of us are relishing what by all accounts appears to be a successful recession-resistant soft landing that was enabled, at least in part, by the management of interest rates by the Federal Reserve bank. But some of us also might be a little bummed. Pandemic stimulus led to non-trivial inflation for the first time in 30 years that had real consequences for the economy. Those issues were confronted by policy makers at the Federal Reserve bank who did their part to raise interest rates that ease us out of this inflationary window without triggering a recession. Those consecutive events, stylized facts even, appear to have left “Modern Monetary Theory” in shambles. I only interject the “appear to” qualification because MMT is a theoretic vacuum that better serves as a quasi-economic Rorschach test than falsifiable model. What are we to do without our favorite economic punching bag? What could ever unite us all, Keynesians, New Keynesians, Neoliberals/New Liberals, Monetarists, Austrians, like defending the shared empirical reality that money is real, printing money isn’t a policy free lunch, and hyperinflation is an economic tragedy to be taken deadly serious?

Well, don’t fret. There’s one more gift not everyone has opened yet. The gift that is “degrowth”. Not unlike MMT, degrowth is a little tricky to pin down. The central tenet, if there is one, is that economic growth needs to be both reversed and re-defined. That we all need to learn to live with less. As best I can tell. I guess I could link to Jason Hinkel’s book…but I don’t want to. If wikipedia is to be trusted: “The main argument of degrowth theory is that an infinite expansion of the economy is fundamentally contradictory to the finiteness of material resources on Earth”. I’m not going to spend an entire blog post dismantling this school of thought that is somehow both amusingly silly and darkly bleak in what it speaks of it’s advocates. Though spare me this one shot at an obviously wrong idea: the entire point of economic growth is that the economy can, in fact, expand forever, because new ideas (i.e. technology) and exchange both add value to the world without requiring any additional material resources (i.e. they are “non-rival”). There will never be an end to new ideas and, given those new ideas, there will never be an end to the prospective gains from exchange. Are we done here?

Of course not, don’t be silly. There are careers to be had. Keynotes to be given. Books to sell. Conferences to host. I took a shot at this on twitter, but I’m actually far more sanguine on the subject than I come across in my grim little tweet.

The most frustrating thing about the social media age is that
a) people can get a lot of attention for exceptionally bad ideas
b) those people revel in the attention and the opportunity that it brings
c) even when their bad ideas are discredited, they will still personally gain https://t.co/IVWK2aRIQz

— Mike Makowsky is here to violently equivocate (@mikemakowsky) December 29, 2023

I’m emotionally unburdened by the attention paid to degrowth for the same reason I slept fine knowing MMT advocates were out their peddling their terrible policies. I take it as a sign of good health within the broader discipline of economics that for all of our squabbles, most of us are speaking the same language and engaging with an objective reality. Which is not to say that there aren’t knock-down, drag-out arguments about what we are observing empirically and what it means, but everyone knows what it is we are arguing about. There’s no Sokal hoax on the horizon for economics. The data is real. The policies are real. The consequences of bad decisions are very, very real.

What that means is that when a tribe forms around bad ideas and pushes them into the broader public, they have to defend those ideas. And their defense can’t elude criticism with nothing but rhetorical sleight of hand or pandering to fortified political identities for shelter from the scholarly storm. At least not for long. Whether they like it or not, their ideas will have to come into contact with reality, with formal rigor, with the data. There’s no postmodern escape hatch - to be exposed as unfasifiable is to fail at first contact. *

Yes, bad ideas can get you tenure somehwere. Or a letter published in Nature. Or a nice circuit of hosts willing to prop you up as the academic scribbler to provide the intellectual scaffolding their political movement is desperate for. But you’re not going to matter to the discipline. Your terrible, vacuous ideas will be confronted, considered, and then dismissed. No harm, no foul.

That these ideas can enter the arena at all is a sign of excellent health within the discipline. You can posit some truly wild ideas and still get them in front of the global jury of economists. You don’t have to be a Harvard economist. You don’t even have to be an economist. No position of power, no union card. The doors are open. That doesn’t mean, however, that you’re going to get a show. There’s no minimum stage time owed. Your ideas are terrible, get off the stage, next. You expected to come home from the battle either with your shield or on it, a grand warrior exposing the soft underbelly of the dismal dragon, but turned out to be just another 5 seconds of empty calories. You didn’t get what you wanted from this belch of a conflict, but the economists sitting together in the jury box did get something: a reminder that we’re all doing the best we can. We’re hissing and fighting, but only because we care. We’re trying to do it right, which is hard, and but that’s what matters the most at the end of the day. The trying.

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*Sometimes what looked, to some or most, to be bad ideas turn out to, in fact, be good ideas. Great ideas, even, the kind that move the discipline forward. That’s actually the most beautiful part, that small minority of ideas that look too far afield to be taken seriously only to survive these trials by fire and become internalized in the broader mainstream of economics. Ironically, this often proves a harder test for many members of the revolutionary factions. From my own interactions, I would note that the internalization of “public choice” into the broader mainstream of economics as “political economy” proved hard for some scholars to adapt to.

Whether it’s a high holiday or just a nice day to get Chinese food with your family and watch old movies, I hope you all have the very best Christmas possible, no matter what that means for you. But do take the day off if at all possible and, if the opportunity arises, make it a little easier for those who can’t.

I’m on Bluesky. I’m on twitter/X. I’m not happy with either right now. I wasn’t particularly happy on twitter before, but that was before it became much worse, so now I wish it could back to the way it was, when I was also complaining, because it turns out the counterfactual universe where it was different is actually worse. So here we are.

The decline in my personal portfolio of social media largely comes down to critical mass. The decline in Twitter usage has reduced its value to me (and most of its users). Only a tiny fraction of this loss in Twitter value is offset by the value I receive from Bluesky for the simple reason it doesn’t have enough users. Even if 100% of Twitter exits had led to Bluesky entrants, it would still be a value loss because the marginal user currently offers more value at Twitter. Standard network goods, returns to scale, power law mechanics, yada yada yada.

Now, to be clear, Twitter is still well above the minimum critical mass threshold for significant value-add, but the good itself has also been damaged by Elon’s managerial buffoonery. Bluesky, depending on your point of view and consumer niche, hasn’t achieved a self-sustaining critical mass (e.g. econsky hasn’t quite cracked it, unfortunately). The result is a decent number of people half-committing to both, which only serves to undermine consumer value being generated in the entire “microblogging” social media space.

The problem, simply put, is that Twitter still has too much option value to leave entirely. If (when) Elon get’s the mother-of-all-margin-calls, he’ll likely have to sell Twitter or large amount of his Tesla holdings. If he’s smart and doesn’t cave in to the sunk cost fallacy (a non-trivial “if”), he’ll sell Twitter. If new ownership successfully returns Twitter to suitable fascimile of it’s previous form, people will come flooding back, Bluesky will turn-off or wholly adapt into a new consumer paradigm, and everyone will be thrilled to have squatted on their previous accounts.

If Twitter retains its current form, then it will probably die, though not at the direct hands of Bluesky. More likely it will be displaced by some new product most of us don’t yet see coming, as the next generation departs twitter the way millenials departed Facebook for Snapchat and, eventually, TikTok. Perhaps counterintuitively, this outcome is actually excellent for Bluesky, because the absence of twitter will send the 3% of “professional” twitter users (economists, journalists, thinktank wonks, policy makers, etc) to Bluesky, where they will achieve niche critical mass and live happily ever after (at least as happy as one can be whilst immersed in a sea of status-obsessed try-hards).

But for the moment, we’re all a little stuck trying to make do with finding fulfillment in the complex personal lives, loving families, transcendant art, and multidimensional experiences that remain confined to meatspace. We can only do our best and remain strong during such trying times.

Did you know you could make a Godzilla movie, maybe the best one at that, for $15 million dollars (or 3 minutes of Chris Pratt in “End Game”, if you’d prefer numeraire)? This film, in which Godzilla is basically the demon baby of Jason Voorhees and the shark from Jaws, deftly explores concepts of guilt, shame, redemption, forgiveness, and family. I cried at the end. I repeat, I cried at the end of a Godzilla movie.

In the last month I’ve watched a Godzilla movie that is specifically constructed to recreate the feeling of a 1950s monster movie, a flawed but admirable attempt to make a modern Charlie Chaplin movie (Fool’s Paradise), and a watchable if uneven and wholly debauched variation on “Singin’ in the Rain” (Babylon). I don’t think this is a coincidence. I think this is a response to VFX and super hero (not comic book) movie fatigue. One way to do that is to go backwards, not in subject matter or setting necessarily, but in story composition and construct. The performances in all three films felt more stage than screen. Texture was emphasized over shock and awe. Emotional crescendos felt more earned than manipulated. I’m not saying these three films are perfect or even necessarily good. What I’m saying is that they felt like a return to older form of film as a medium.

For the last 15 years we’ve had a lot of “remakes” that attempted to modernize old films. Don’t be surprised if we see the inverse going forward: new, original stories filmed in a manner that feels older. “The Thing” but it’s a sea alien on an oil platform, everything wet and on fire. “All the Presidents Men” but it’s a coverup in local Iowa government, with scratchy sunken sofas and life-changing smoke breaks. “Working Girl” but it’s Zendaya and Scarlett Johannsen in a fully modern context, where a misread text subverts an expected plot turn on a broken iPhone screen. Not for a love of classic cinema mind you, or even art, but because making 10 to 1 on winners and losing next to nothing on flops is a business proposition more than a few studios are likely to find enticing.

Go see “Godzilla Minus One”.

The key to successful public forecasting is to choose a subject that is too costly for your critics to formally measure. In keeping with such a spirit of low risk public posturing, I am hereby calling it: peak pessimism is now behind us. Which is not to say that people think things are fine, but rather that the gap between how things actually are (pretty good!) and how people think they are (kinda bad) is much smaller than the gap was six months ago (historically bad, even though they were pretty good then too!). The gloom of sunny days benighted by the goth-tinted glasses of an anxiety-serving media amplified by the terminally online is finally breaking.

For me, the real bellweather was the general non-response to a NYT article and Siena poll that said Biden was likely to lose to Trump head-to-head next November. Six months ago this would have received breathless coverage, with non-stop amplification on social media. What I observed instead was a lot of hand-waving and dismissal of an attempt for political panic clickbait.

So what’s my reasoning? In a nutshell, rational pessimism.

I’m a big believer in ecological rationality i.e. a lot of our seemingly irrational biases are actually relatively optimal behaviors when viewed in the long term for individual survival or cultural/group selection. Pessimism is an expressed preference for fewer negative surprises. From a households perspective, being surprised by a negative shock is far more dangerous to economic survival than being surprised by or even missing out on positive shocks. Choosing to rent intstead of buying a house in 2000 was, in hindsight, problematic, but not nearly so dangerous to your economic survival as buying a house in December of 2007. Not to get too Lamarckian on you, but it’s not crazy to say that the pandemic was such a (Knightian/Black Swan) shock to a lot of people that they updated their entire model of the economy to include the possibility of an entirely new kind of negative economic shock and, as a result, their new strategy is far more pessimistic. They very badly don’t want to be surprised again.

But that doesn’t mean they are done updating. At some point the good news is just too good to ignore. Employment is too good, wages are too good. New vaccines are too good. Climate data is…well that’s still pretty bad, but hey look, solar is happening! Good news, however, is an erosive force running against a freshly built wall of pessimism designed for the express purpose of protecting a household from the next negative shock. We shouldn’t be surprised if it takes a lot of good news a long time to break it down.

But it will break down. I’m not saying when it will break down, but the cracks are finally starting to show. Pessimism may be ecologically rational, but optimism always has an irresistible allure for those who don’t want to miss out. We’re starting to get the good news because people are starting to want it, even if only just a little bit. And media customers always get what they want.*

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* Which is not to say that Fox News and similar outlets won’t remain consistently negative. Political and age-demographic demands for “everything is going to hell” aren’t going to change any time soon. They will also keep getting what they want.

I’ve thought it over and decided not to write a post this week. It’s not that I have writer’s block. I am writing plenty in the dimensions of my profession that dominate my time (and actually pay me). And I have a back catalog of “bigger” pieces I might write later. But there is nothing I am compelled to write today. Which is what I want to write about.

We all share editorials and thinkpieces with each other, whizzing around social media and email, getting discussed over meals and beverages. This content is produced in mass and at breakneck speed. Some people are very good at it. Others less so. Some people, over time, rise to a level of recognition that they are offered plum spots at major outlets, lavished with salaries greater than I will certainly ever enjoy. Their names acquire significant fame, their opinions serving as the substrate for millions of conversations.

And then we savage them.

Sometimes we savage their works because they are signaling the wrong politics and identities. That’s just life. Sometimes we savage their writing because they’re rich and famous, which is annoying, but that’s just the tax a person pays for being eminent (see Swift, Jonathan). But often, more often than they would likely want to admit, we savage their writing as poor and ill-conceived because it is poor and ill-conceived.

Let’s be clear: these people are largely critical thinkers and phenomenonal writers. But they are also on a deadline. Opinions, unlike news, do not appear in our minds fully formed and their subsequent development does not always adhere to a regular schedule. My writings here are essentially an unpaid hobby. I haven’t missed many weeks this last 3 years, but I’ve missed a few. Some weeks I totally mail it in and just write a few paragraphs about a research paper I read that I thought was cool. The New York Times editorial page does not indulge such academic capriciousness.

Would I invest a lot more time in these posts if the NYT was paying me a hefty salary? Of course. I would have stockpiles of evergreen columns, folders of half-written ideas, a corkboard littered with post-its cataloging my every idea that might support a column. But even then I can’t help but suspect that I might occasionally find myself staring down a deadline with nothing I want to say, or with a drafted piece that I know isn’t very good.

And that’s why I think we get the so many big-name editorials that social media descends on like gleeful hyenas, merrily yanking and ripping until the every vacuous subject and failed predicate has yielded it’s final LOL. Why do columnists collectively produce so much dreck? Because they write too much. Scratch that. Because they publish too much.

Which is why I’m not writing a post this week.

(To be clear out of an abundance of caution, this observation does not pertain to those glorious blogs and substacks that mostly produce data-driven analysis and subject-matter deep dives, rather than bloated opinions designed to foment clicks. You are god’s perfect children, never change.)

Sometimes we think things have been incontrovertibly been proven, but we really only know them. Other times we think we know them but we really only think them. It’s always interesting when we something we think becomes something we know. We share those beliefs a little more often with a little more confidence. We start trying to tilt the balance of common knowledge one conversation at a time. I’d argue, however, that we would often be better served to wait until something is proven, as much as something can be proven. Or, at the very least, that our conversational was weight shifted far more when truly compelling evidence hits the scene.

I already believed that New York City’s infamous “Stop and Frisk” program was bad. That the bad outweighed the good. I was always careful to soften my language, to hedge my claims, however, because I always suspected there had to be some margins on which the program yielded some benefit to someone, somewhere, in some context. Criminal deterrence is real, after all.

I no longer feel any need to soften my language or claims one iota. There are research papers that change your priors. There are also ones that harden them into granite. Jonathan Tebes and Jeffrey Fagan have a new working paper they are presenting at conferences and quietly circulating that provides the single most compelling research effort into the effects of Stop and Frisk I have come across to date, one which makes the case that Stop and Frisk had now measurable effect at the margin to deter crime while, at the same came, causing significant harm to the young Black men walking the streets of New York City.

Please go through the slides, but let me summarize. Using a credible and clever event study design around the end of Stop and Frisk, Tebes and Fagan are able to identify the effect of stops on crime, finding an impressively precise null effect. They then look the effect of these stops of neighborhood schooling outcomes, specifically interruptions to instruction, persistent absences, suspensions, and graduation. The result, again, is very clear: Stop and Frisk was a disaster for high school age Black Men.

I’m just going to leave it there. Read the slides, read the paper when they release it, update your priors. And when someone tries to tell you at Thanksgiving dinner this year that New York City is going straight to hell because they ended Stop and Frisk, have the confidence to vigorously attempt to update their priors. Will it work? I’ve never met your family…but probably not.

But you gotta try, right? It’s your duty. And then make yourself a drink or take an extra slice of pie knowing that you earned it.

First, read this story from the NYT about the biggest producer of content on OnlyFans. TLDR; a couple have a compound in Florida and a full stable of employees (writers, editors, accountants, cooks, etc.) all being coordinated around the gigabytes of data generated by the supply and demand of their sexy content. If they were selling in a less stigmatized market, whis would be taught as a case study at business schools.

What I found interesting is how it simultaneously validated and assuaged all my fears about the opportunity to emotionally manipulate large numbers of people by using highly granular data. Don’t get me wrong, that’s arguably the story of every information-deficient marketing campaign ever, but I’m not talking about coarse, subliminal manipulation (“Look at this fully self-actualized person drive a car that signals their worth to strangers and their father”). I mean direct, interpersonal maninipulation through the fabrication of intimate parasocial bonds. The ability to allow customers to create their own, bespoke, false narrative in which they have a relationship with a beautiful stranger. At scale.

It’s that list bit that matters. What this couple have deconstructed is a formula for producing intimate parasocial relationships worth thousands of dollars to customer at scale.

The exploitation of fabricated relationships for income is the story behind the worlds oldest profession, not to mention most scams, for a very long time. The ability to produce them at any real scale, however, has been far more elusive. When someone pulls it off they’ve usually created a cult, whether it’s a new religion or a political cult of personality, and it’s worth taking note of. So have these Onlyfans creators laid out the blue print for future politicians, social entrepreneurs, and general power seekers? Are we at the beginning of an industrial revolution for social movements?

Actually, I kind of think they do have a blue print, but it’s going to be a minute before it crosses the chasm to other sectors because most fields that rely on parasocial relationships to grow don’t have the luxury of immediate profitability that sex work does. You might start your social movement with the ambition of analyzing every bit of data so your stable of employees in your Smithian pin factory of communications and content can rapidly grow your follower base, but you’re not going to have any money to pay them. What people tend to forget about sex work industries is that they generate revenue from minute one (that’s exactly what lures people into making what have historically been less than optimal long term personal decisions). By comparison, religious and political aspirants are a bunch of broke boys.

Religion and politics look like they have a lot of money until you consider size of the customer base (most people) and the sectors they influence (nearly all of them).  $14 billion was spent on federal election campaigns in the United States in 2020, the most ever. That sounds like a lot until you realize that a) it’s 2 and 4 year cycles and b) the federal government spends $6 trillion per year. By comparison, $5.5 billion poured through just OnlyFans, just last year. (Do I even need to convince you that new religious and social movements are notoriously short on cash?)

The story of each stage of the internet is the same thing over and over: a group of people couldn’t benefit from scale before but now they can. Social minorities looking to date couldn’t find each other before, now they can. People buying and selling pez dispensors can’t find each other, now they can. People with extreme beliefs were socially ostracized now they can find and reaffirm each other. People selling content to niche audiences used to have to find their customers through large media companies now they can do it directly. Bernie Sanders and Donald Trump both had disproportionate impact on American politics in part because they leverage the internet to disintermediate their ostenisble political parties. That’s the internet bringing scale to parts of the American electorate previously too distant from the median voter.

Power and ambition be damned, however, aspirant leaders are still not going to be able to build what two people selling naughty pictures in Florida were able to do because most people don’t want to pay for politics. Just ask every newspaper in the country struggling to stay afloat. We’re entering a new age of scale in the fake relationships being sold to us, but it will only be for the kinds of relationships we actually want. That doesn’t mean those will be emotionally nutritious relationships, but choice will remain intact. Portfolios of relationships for a lot of people are going to change, but I suspect its going to look less like Evita Peron and Jim Jones, and a lot more like Taylor Swift and Frito Lay.

Marketing will become more granular, more personal, more intrusive, and more effective. If this fills you with anxiety, I hope you can take some solace knowing its mostly going to happen for the stuff you are willing to pay for, like love, family, and your sense of self-worth. Data-enabled relationship fabrication will grow in market share as artificial intelligence crowds out the classically information driven side of marketing. The uncanny of valley of cringe is a customer relations disaster, a trap whose lines are invisible and always moving. For AI to learn where the boundaries lie is to move them. Which means this decidedly human labor market will grow all the faster. And a blue print for selling naughty content from a Florida couple will find its way to selling you damn near everything else.

Housing remains the most expensive monthly outlay for most Americans. There are signs of things getting better, but the fact remains that for those living within the first or second ring of suburbs surrounding a given city, space is at a premium. For this holiday season, give the gift of not taking up any more of that precious, precious space.

Don’t give them instant pots or juicers for their already full kitchen counter. Don’t give them clothes to go in their overflowing closets. Don’t give them knick knacks, tschotckes, or decorative thingamajigs that will rapidly migrate from shelves to bins to (shudder) storage units. Don’t get them stuff.

I’m not going to say get them “an experience” because we’ve all become a little weary of that cliche. What I suggest is getting them a luxury that might fall at the margins of their budget. Get them a massage. A facial. A stretching session (that’s a real thing). If they line wine or whiskey, get them a bottle they’ve never tried. The stuff they already like is easy, but my expectation is that is probably already in their budget. Gift them the risk of trying something they might not like.

Books are acceptable because there is an entire ecosystem that exists that take books from one home to the next once it has been read. Get them a subscription to Amazon Music or a download code for a new game on their PlayStation. Get them tickets to a concert or play. Get them a two hour cleaning service.

Babysit their kids for a Saturday. Tell them their hair looks nice and really sell it that you mean it. Leave them alone for a couple days so they can recooperate from a long week. Just no more stuff please.

I had the opportunity to present a new paper about theft to the faculty and students at two law schools last week. The questions and comments were interesting throughout, but I noticed a pattern in several of the questions from students: were we attributing too much rationality and sophistication to criminals?

Citing Becker (1968) as a useful exercise in applying economic parsimony to understanding how punishment and enforcement deter crime is one thing, but I think it’s simplicity sometimes undercuts a really important intuition that I hold to strongly: crime is boring. More specifically, a lot of crime (not all, of course) is a product of a banal calculus that arrives at the conclusion that my expected life (probabilistically) is better if I take this illegal action. These crimes seem irrational is because of two behavioral errors, not on the part of criminal, but on the part of the observer.

The first mistake is failing to realize you are observing the conclusion ex post, after the outcome has been revealed, and your ability to observe it is almost exclusively because the action failed i.e. they got caught. You know they got arrested for shoplifting an item that won’t significantly change the quality of their life. This feels like a mistake, but what you can’t observe is how many times they or someone else has taken the same action without negative consequences. If 1 in 10,000 thefts worth $500 are caught, then that’s probably an optimal choice for a lot of people.

The second mistake is implicitly assuming the same level of constraints that apply to your life apply to the criminal actor. We all know the question asking whether it is a sin to steal bread to feed a starving family, but that same logic applies in broader and less severe circumstances when considering the ex ante rationality of a choice. The cost-benefit analysis facing a potential thief is far different if they already carry the stigma of a criminal record. If their labor market opportunities are limited. If rent they have insufficient funds to cover is due is three days.

I find it interesting that people who disavow the salience of IQ and the people that place IQ at the center of their core model of humanity both seem to consistently underappreciate the sophistication of most human problem solvers. I’m not saying we all get the math right. Quite to the contrary, not only do we make constant errors in judgement, but the duress of operating under difficult constraints likely makes optimal decision-making all the more difficult. But those errors are relatively modest relative to the humans who are, at a baseline, tremendously sophisticated. They want and need resources and they can conceive of myriad manners in which to acquire them. Applying a lesser sophistication to people who steal from a CVS and sell to a middle-man who turns it over at a street corner or on Amazon puts any policy design at a disadvantage from the start.

If you want to divert people out of illegal markets and into legal labor, you’re better served treating them as people who made the optimal decision. Your ambition should not be to change their decision-making, but to change what the optimal decision is.