7 Quick Takes of Undeniable Insight, Absent Evidence or Significant Explanation

  1. Over-fraternization within a line of work leads to all kinds of pathologies as social networks become too insular. If you’re a police officer and you spend your days constantly interacting with civilians having the worst day of their life, it’s really important you spend your free time with people who are having a perfectly normal and safe week. Same goes for politics, academia, entertainment, etc. This is not a “pop your bubble to improve the quality of your opinions” take. This is purely advice for your own personal mental health. Academics and entertainers need people in their life that they are rightfully embarrassed to complain in front of, to keep perspective on what the stakes of their decisions actually are. Cops and soldiers need reminders that the world is not constantly coming apart at the seams. Most of us will call the cops maybe once in our lives, and it probably won’t be because something good happened. Not a week goes by in a beat cop’s life where they don’t interact with someone who had to call the cops. They need to fill their set of observed experiences with stories uncorrelated with events where someone had to call the cops.
  2. The distribution of people’s opinions of Elon Musk needs to be compressed. Everyone with an above 75th percentile opinion needs to downgrade their estimation of him as a thoughtleader or agent of positive chaos/liberty. Everyone with a below 75th percentile opinion needs to upgrade their appreciation of him as an engineering genius committed to building tangible infrastructure innovations.
  3. The current political era we are living through isn’t defined by extremism, it’s defined by gambles on different sides of the “median voter vs institutional inertia” coin. The Democratic Party is struggling to hold together a coalition of progressives and moderates with nothing but bubble gum and reproductive rights because they believe the median voter remains an irresistible force. The Republican party, on the other hand, continues to bet the entire franchise on an activated base of extremists and gerrymandering. This bet is not ignorant, or in denial, of the median voter. It’s a bet that institutional inertia combined with potentially two decades of control of the Supreme Court will yield benefits greater than the costs of eventually losing control of all three branches across multiple elections.
  4. The best super hero movies are the ones where they take an auteur with at least 5 movies under their belt and say “make the most ‘you’ movie possible, but with our characters in our universe”. Why is “Doctor Strange and the Multiverse of Madness” so good? Because they hired Sam Raimi and gave him the greenlight to make “Evil Dead 4”.
  5. Even the people who *know* that crypto and blockchain technology will create enormous value – even those people aren’t sure if the coins that currently exist will have significant commodity value down the road.
  6. There are lots of right wing political positions that I view as wrong or costly, but most of them I view as “deviations from an uncertain optimal state of the world” which is to say I don’t worry about them in the slightest. The embrace of White replacement theory and increased framing of their opposition as enabling of sexual predation of children, on the other hand, scares me a lot because there is no action or option that is taken off the table for the people who believe them. Say what you will about corporate conspiracy theories and other intellectual pathologies of the current progressive left, they consistently keep terrorism and violence of the table. It can be hard to pin down the intellectual center of a political party or coalition, but the moral center is always composed of the voices that keep violence out of the choice set. I’m don’t know who those voices currently are in the Republican political and media coalition.
  7. The key to popular support for capitalism is the continued to expansion of mint-chocolate flavored options in our choice sets.

Inviting the whole class to a birthday

I am preparing to host my son’s first grade class at our house for a birthday party. Even leading up to today (Friday), it has been a lot of work. Now I’m in the home stretch and will not have time to write a real blog. I have no problem blogging while I’m “on vacation” (in quotes because I’m an academic and I never go a day without fielding emails), but this is another level.

  1. Mental load on women – it’s real!
  2. There is a sweet convention in elementary school here that the entire class gets invited to a birthday party. My son is not “the popular kid” in his class, but he still gets chances to enter into homes and social life through these occasional birthday parties. This is weird and speculative… but there are some adults who would benefit from somehow getting integrated into one of these birthday rings. (my previous post on loneliness)
  3. Scott posted this on stablecoins last month. He had said, “…The potentially problematic aspect of this type of stablecoins is the change in value of the collateral and the reliance on supplementary instruments. …” …which is relevant because a major algorithmic stablecoin, TerraCoin, collapsed this week, leading to its de-listing by major crypto exchanges.

The propaganda premium puzzle

Beliefs I currently hold:

  1. In the past we have been surprised by the capacity of blatantly false information to persuade large groups of people.
  2. In the future we will continue to be surprised by the ability of blatantly false information to persuade large groups of people.

From the point of view of classic economic theory, this is almost a two-way paradox. First, why aren’t people rationally updating their beliefs to be more skeptical of the information presented to them by state and private media with fairly transparent agendas? If we accept the premise of the first, though, it invites a second question: why is anyone surprised by the efficacy of propaganda and the credulity of large swaths of the public? Shouldn’t we, the meta-observers, also be updating our beliefs?

My preferred explanations, as they stand, are:

  1. Preference Falsification i.e. people are not fooled, they just happen to believe that at the moment it is safer and more rewarding to appear as though they believe the lies.
  2. Social coordination i.e. narrowly held false beliefs make more better coordination mechanisms for solving collective action problems than broadly held truths

The first is a classic theory that originated with Timur Kuran’s seminal work. Whenever the median voter, or median would-be voter in an autocracy or failed democracy, seems to be held in sway by particularly transparent propaganda, I usually start from the default assumption of preference falsification. These people know the media regime they live within is a menagerie of lies that exist solely to flatter leadership and disrupt any opposition, but they also know that their short run futures remain more secure if they not only publicly accept, but actively parrot the lies.

For now at least. Preference falsification is an inherently fragile equilibria. As effective and impenetrable as propaganda can appear at a given moment, public support for those lies can collapse in the blink of an eye, a dynamic only intensified by modern communication technology.

The ability of false beliefs to solve coordination problems is more subtle, but no less salient to the propaganda premium puzzle, particularly when a regime is dependent on a small subset of a society to hold on to power (a “selectorate“) or the support of a political “base” who would otherwise have difficulty signaling their identity to one another. The reality is that obvious or widely shared truths have almost no value when trying to signal mutual affinity and trustworthiness to individuals trying to solve collective action problems. Patently ridiculous beliefs, on the other hand, work precisely because the only people who would publicly commit to holding such beliefs are those who are committed to the collectively produced club good.

So why does propaganda continue to work better than we think it should? Because we’re using the wrong metrics. Or, more precisely, because the right metrics aren’t available to us. We can ask people what they believe, but we can’t make them tell us the truth. And even if we could make them tell us the truth, we can’t measure the benefits motivating their reasoning, the value of the club goods they are gaining access to because they’ve performed the mental gymnastics necessary to hold those beliefs. Sure, it was cognitively costly to convince yourself the earth is likely flat, but those costs are trivial in the face falling out of the tightest network of friends you’ve ever been a part of.

All of this armchair theorizing is really just a long-winded way of suggesting that fighting propaganda is decidedly not about curing people of their false beliefs. If you want to unravel preference falsification, people don’t need the truth. They already know the truth. What they need are safe channels to express it to one another. If subgroups are forming around false beliefs, the answer is not to shame them for their beliefs. That will only strengthen their group and members’ committment to one another. Rather, the answer is to provide superior substitutes for the club goods they are currently receiving. When in doubt, if you want to break a social equilibrium, you’re better off giving people what they need rather than demeaning what they have.

Come to think of it, that’s probably pretty good life advice in general.

Covid-19 Didn’t Break the Supply Chains. You Did.

This is my last post in a series that uses the AS-AD model to describe US consumption during and after the Covid-19 recession. I wrote about US consumption’s broad categories, services, and non-durables. This last one addresses durable consumption.

During the week of thanksgiving in 2020, our thirteen-year-old microwave bit the dust. NBD, I thought. Microwaves are cheap, and I’m willing to spend a little more in order to get one that I think will be of better quality (GE, *cough*-*cough*). So, I filtered through the models on multiple websites and found the right size, brand, and wattage. No matter the retailer, at checkout I learned that regardless of price, I’d be waiting a good two months before my new, entirely standard, and unexceptional microwave oven would arrive. I’d have to wait until the end of January of 2021.

¡Que Ridiculo!

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Let’s Talk about the NBER

The National Bureau of Economic Research (NBER) sent out its membership invitations this week. My twitter timeline quickly filled with explicit congratulations and oblique commentary. My private messages filled with…less than oblique commentary. Academia has always been hierarchical and economics has never been an exception. Talk of “top” departments and people is ubiquitous, but those categorizations remain fuzzy – “There are 40 departments in the Top 25” is a common adage. Aside from the obvious humor, I think there is also some healthy truth to it. There are lots of good departments and no one has any final say on who they are. Departments compete for recognition of contributions and the rewards that come from status in the profession. Having 40 or 50 “top 25” departments just means more status for everyone, which strikes me as nothing but welfare enhancing.

The NBER, on the other hand, has hard boundaries of membership. Though I doubt it was founded with any such intention, it has become the club within the broader profession that comes with more prestige than any other. Exclusionary clubs are not unto themselves problematic, but it is hard to shake the feeling that the advantages exclusive to NBER members are greater than ever.

For those who are sick of preamble, let’s start building a hypothesis. Academic economics has acquired some pathologies of publication and promotion that are creating an increasingly grumpy and anxious profession, particularly amongst our junior colleagues. These pathologies are manifest as broad public goods (e.g. timely evaluation and dissemination of research to inform tenure and promotion decisions, professional network development, the transition into a discipline more dependent on significant outside funding, etc.) that the discipline is consistently failing to produce.

The NBER is producing exactly these public goods. They didn’t create any of these problems, but for their members they may have solved them.


Originally founded as a research institute in 1920, largely to produce and disseminate macroeconomic data, the NBER has evolved into a collection of 20 research programs and 14 working groups, all built around a bureaucratic hub that has 100 years of institutional experience running research groups, disseminating research, and organizing events. It has a storied history and deserves every ounce of the prestige it both enjoys and bestows.

From the point of view of any scholar looking to get a research agenda off the ground, an affiliation with the NBER offers 4 key advantages or “club goods”:

  1. The prestige of listing an NBER affiliation at the top of your CV and on every paper you write and submit.
  2. Invitation to NBER conferences, most importantly the Summer Institute collection of meetings every July in Cambridge, MA.
  3. The option to channel your grants through the NBER instead of your home institution’s bureaucracy.
  4. Permission to disseminate your new papers through the NBER working paper series.

I would like to contend that all 4 of these privileges confer enormous advantages for any scholar, doubly so for young faculty. I am not contending that these advantages are unearned or even necessarily unfair, but I do think that they are often underappreciated in their magnitudes, and that this under-appreciation offers some insight into the frustration expressed by those on the outside. So let’s talk about them.

Signal value #1 may be the most or least important, depending on your point of view, but it’s definitely the least interesting. Every CV is filled with myriad signals, the NBER is just another one. In fact, the only aspect worth discussing is its seeming correlation with another key signal: PhD-granting institution. It seems, with nothing more than a glancing ocular regression, that being invited to join as a faculty research fellow (i.e. a pre-tenure affiliation) correlates heavily with having a Cambridge, MA PhD or having an PhD advisor at an elite institution who is themselves an NBER Research Associate (i.e. post-tenure member). There’s nothing inherently bad here, but this compounding of highly correlated signals is a little ominous for the outsider trying to get their own career off the ground. If exclusion from the club is unto itself what bothers you the most about the NBER, you’re missing the point and you should probably just get over it. And yourself, for that matter.

Conferences. #2 is more interesting because the NBER conferences, including the Summer Institute, are widely appreciated for the important networking events that they are. What I don’t think is as appreciated are how they relate to the journal reviewing process. First, if you hang out there long enough people will learn your name and face. While academic economics is famously rigorous and occasionally brutal in its seminar and reviewing culture, the fact remains that humans are more forgiving, more generous of the benefit of the doubt, once we put a face to a name. It’s just harder to be mean or assume the worst in someone once you’ve had a real conversation with them and confirmed their genuine humanity. Second, and this is probably more important, to present a paper at an NBER conference is to present to the pool your eventual reviewers will be drawn from and receive pre-submission referee reports. Being able to learn the perceived weaknesses of your paper before submitting to the magical top-5 and elite field journals is a prodigious advantage, particularly for scholars who don’t yet have a decade of experience trying to publish in their field.

Grant Management. Being able to funnel grants (#3) is probably both the most boring and most underappreciated of member advantages, particularly for scholars building research agendas at smaller schools that place more teaching and service demands on faculty. Being awarded a significant grant can be something of a curse to the pre-tenure scholar if their institution doesn’t have the internal human resources and institutional experience to manage a grant properly. Losing 15 hours a weeks to bureaucratic transaction costs is crippling. If I were trying to start a career running field experiments, I’d probably spend my first semester camped out on the NBER’s front porch like I was petitioning for admission to a Buddhist monastery.

Working Papers. Access to the working paper series (#4) is probably what would strike non-professors, or even just non-economics professors, as trivial, but is actually the most important. I know it’s what I want access too. Lets explain why:

Academic economics has a publishing problem. This is nothing new. What I think is underappreciated is that the NBER solved it for its members.

When the authors of a paper feel that its contribution has been established, that it can exist independent of any supplemental explication with tolerable risk of significant changes between now and its final form, they put it out into the world as a working paper. As the submission and review process has lengthened over the past few decades, the working paper stage of a project’s life cycle has grown in importance. It’s not crazy to suggest that most economics papers reach their total citations “half-life” while they are still working papers.

Whether that sounds crazy to your or not, however, doesn’t actually matter. What matters is that the timeline from first submission to acceptance at a journal continues to expand while the tenure clock remains fixed at 6 years. I’ve written before about how we might mitigate some of the problems in the journal publication process, but that’s a far less pressing concern if you are an NBER member because your papers enter the field as contributions through their NBER-branded working paper series years before acceptance at a journal. The prominence of NBER working papers is sufficient to the point that publication for members exists solely to provide additive signals of quality for long-term career tracks. The contribution itself, how it is internalized in the field and propogated forward within the authors’ research agendas, is adjudicated by the jury of the authors’ peers years before an editor acquiesces and agrees to sacrifice invaluable journal real estate as tribute unto the paper’s now long established contribution. Published papers are old news.

It is no less important that research also enters the seminar, media, and policy cycle as soon as it is disseminated as an NBER working paper. I’ve been in discussions where whom to invite to a workshop reduced for many to nothing more than scrolling through the previous 3 months of NBER working papers. Journalists subscribe to the series for ideas on columns and features. Thinktanks similarly fill their calendars of lunch talks and policy events. The authors will know if their project is a success, or if they are on the wrong track, months before their first rejection and years before their final acceptance. The world learns of them, their research, and their specific expertise through a channel entirely separate of formal peer review or historic outlet prestige.

The NBER solved the economics journal problem by disintermediating scientific debut and evalutation from the publication process. But again, only for their members.

Have I said enough about the working paper series? Let me summarize with a only a touch of hyperbole: if I ran a regression to find the determinants of expected citations, I would expect nothing on the right hand side of the equation, not university affiliation, not PhD-granting institution, not even journal ranking, would have a bigger coefficient than a binary indicator for was it an NBER working paper.

So what should we do?


First of all, I’m not a member, so there is no we about it. Second, I’m not sure we should do anything. It’s not my club, it’s been wildly successful, and just because some of us don’t get to enjoy it’s benefits doesn’t mean it should be changed. So, rather than complaining about the NBER or telling them what to do, I would like to suggest that the discipline has some public goods problems. and that the NBER might be able to contribute to mitigiating them.

One more thing to keep in mind – the club goods provided by the NBER are broadly characterized by decreasing returns to scale. Personal time and attention simply do not scale, which means the answers to most concerns will rarely lie in increasing broad membership or access (though I agree fully that the solution is without question inclusive of letting you in, as you are very smart and grossly underappreciated).

That all said, let’s now revisit the four NBER club goods currently exclusive to members.

#1. The prestigate of membership. I hope you didn’t read this far hoping I’d try to “solve status” in academia. That said, when an exclusive club acquires this much value, you have to expect that the process of admission is going receive all the more scrutiny. As a grossly uninformed outsider, the shadows I see on the wall of a cave from a considerable distance through a crack in the wall is an irregular nomination process that probably bottlenecks in some places while spreading idiosyncratically across networks in others. My guess is that a lot of people who are asked to provide 100 hours of attention in an already 70 hour work-week are effectively being tasked with filling in the next round of nominations. This leaves them with little choice but to take the path of least cost, and that path is making nominations of the former students they came across in their own hallways and those of their closest peers. Occasionally this also grants opportunties for gratuitous favortism and subsequent resentment. More importantly, though, in increases the tightness and redundancy of academic networks, furthering the gap between insiders and outsiders.

How do we fix this? We probably don’t, but here’s one thought: delay the nomination process. If this is the most prestigious club in economics, why are we nominating new PhD recipients before they’ve produced a research agenda? One way to make an institution’s admission process seem more transparent is to have criteria that are at least partially realized, rather than just subjective potential. It probably wouldn’t hurt to make nominators into publicly observable sponsors of record. Never underestimate shame as a tool for mitigating the various ills than can characterize an institution. (NB: these could actually be internally transparent. Remember: just because I am writing this doesn’t mean I am particuarly well informed)

#2. Conferences. An insider has sugggested to me that the Summer Institute used to be far easier to crash, but relented in the face of skyrocketing costs, flooded sessions, and problematic favoritism of local schools. Reiumbursing travel costs extended the radius of access, but also dramatically increased the cost per attendee to the NBER.

One suggestion: the NBER should only pay for the expenses of graduate students and junior faculty. Everyone else, including members, should pay their own way (or at least expense the trip to their home deparments). The hope is that this will make it easier for the NBER to subsidize access to non-members outside of the immediate ring of members. It may also be beneficial to prioritize non-members who have never previously attended. I’ll give you one more, and this works even better if membership nominations are delayed until later in careers: reserve presentation slots in the winter meetings exclusively for junior scholars and non-members.

#3 Grant organization I got nothing except maybe allow non-members to apply for grant-organization access. I mean, if there’s a scholar from a smaller school who’s already established a track record of outside funding in desperate need of institutional support for their research, this sure seems like a hell of a public good that the NBER could provide. Would a lot of people take advantage of it? I have no idea. But it certainly sounds promising and my guess is that it would actually net add to the NBER coffers.

#4 The working paper series. I’ve thought about it a lot, and this is what I’ve got: allow non-members to apply for “working paper series (NBER WPS) membership.” There’s simply no way around the fact the NBER itself cannot possibly scale to include every scholar who “deserves to be a member”. That said, I can’t help but think decreasing returns to scale are going ramp up a lot later for the working peper series.

The changes I imagine are relatively straight-forward. Scholars are allowed to apply for NBER WPS membership, submitting a CV and a recent working paper. If they are denied they cannot apply again for 3 years. If they are admitted they may submit papers to the WPS, on the understanding that the NBER reserves the right to apply a more rigorous review process than with full members and to deny any paper at their discretion. This isn’t a trivial cost proposition, mind you, and it would be entirely borne by the NBER, but they have access to sufficient human resources (cough graduate students) to provide cursory reviews of papers to make sure they are up to basic snuff, pushing potential questions up the chain when a paper might not be of a high enough standard. This would be an enormous service to the profession that they are in a unique position to provide.

In a final closing sentiment, let me state a few things that are probably obvious, but hell, you read this far. I have the luxury of being a tenured professor, so the consequences of these institutions are pretty minimal to me. But I’ve also been a bit of an outsider in the profession since the beginning. I was 9 years and two “top-5″s into my career before I got my first seminar invite, 10 years before I attended my first NBER summer institute. Which is to say I am sensitive to the frustrations of younger scholars who feel like there are walls between them and what they need to get their careers off the ground. We shouldn’t dismiss their genuine (and not unreasonable) anxiety as prestige envy or a grotesquely privleged version of populism. The discipline of academic economics has real problems, and if the NBER has figured out internal solutions to some of those problems, then I’d like to think they might be interested in spreading access just a little farther.

Attention as Rational Addiction

I’ve never gotten this much attention before. Which is to say, my writing receives a small sliver of attention on occasion, but that small sliver is nonetheless far more than I’ve received previously in my life. To put it in better context, I’ve had a couple posts and tweets go mini-viral, which by the standards of major pundits or celebrities amount to little more than a throwaway post, but by the standards of my life up until now they elicited tidal waves of attention.

It felt pretty good.

Those good feelings, though, morphed into something else within a couple days. First, there came the fear of saying something wrong while more people were paying attention. That fear of negative approbation is nothing new or special, but it was certainly heightened. What was more disconcerting, however, was how the anticipation of attention, or more importantly possible lack thereof, crept into the back of my mind as I sat down to write future posts and tweets.

Here’s a an interesting phenomona: once you have enough followers on twitter, the lack of likes/retweets on anything you write becomes recognizable as implicit disapproval. You know what you wrote was put in front of a couple thousand people and yet nearly none of them felt it warranted a tenth of a second click. It stings.

That sting from the absence of approbation changes the incentives in front of you, maybe for some even more than the initial serotonin-dump from previous bursts of positive attention. You feel the pull to write about the things that got attention before, to write in the same manner or mood. To give the customers what they want.

And the customer that matters most is the part of your brain that wants to re-live the thrill of thousands of strangers telling you that you are good and smart and pretty and are totally worth keeping around. This is an addiction. Now there is, of course, no shortage of people calling social media an addiction. What I would like to argue is that it is a particularly dangerous addiction because it is a perfectly rational addiction.

A Rational Addiction Model of Attention

I’ll skip any real math, but indulge me a moment of framing:

A simple model of rational addiction to attention starts with three inputs: positive approbation (P), negative approbation (N), and total attention (T), where T = P + N.

Now lets assume that your utility is increasing with P and decreasing with N, while also increasing with T. That’s all pretty uncontroversial for humans. Let’s also assume that negative attention is easier to reliably generate than positive attention (i.e. trolling is harder to ignore). To put a little structure on it, we’ll assume that they are all substitutes, but with different weights .

U = T^w1 + P^w2 – N^w3

What that means is that people have an incentive to pursue attention, but how they allocate their efforts across plays for positive and negative attention will depend on how much they weight the cost of negative attention relative to what they gain from total attention.

Here comes the twist, though.

What if T is not the absolute total attention you are receiving today, but instead T is the total attention you are receiving today relative to the average attention you have received in the past, the level of attention you have become accustomed to?

U = (T- T_mean)^w1 + P^w2 – N^w3

Well now you’re on a hedonic treadmill, but for attention instead of wealth or luxury. Your brain has grown used to a rush of serotonin from the attention of millions of strangers. You’re like an adrenaline junkie, but instead of jumping out airplanes you’re trolling public figures and latching on to “Twitter’s main character” everyday.

What’s interesting about this model of rational addiction, however, is how quickly you can find yourself pursuing negatiive attention. ostensibly producing negative utility (i.e. actively making yourself unhappy) by pursuing negative attention because the total cost of that negative attention to you is less than the even costlier option of no one paying attention at all. Would you log on to twitter everyday if if cost you a hundred dollars? You would if not logging on cost you ten thousand. Same thing for those who are rationally addicted. What started out as a positive reaction to a small number of well-received insights has created a utility monster trolling the world in a desperate plea for negative attention in the hopes that it will grant the slightest reprieve from the icy desperate loneliness inside that haunts my every moment.

I’m fine. Really. I’m making a point.

When we talk about the problems of social media for mental health, we tend to focus on bullying, dysmorphic self-images, and the creation of false standards of value. I think all of those problems are extremely real, but they also seem like things that can be addressed with policies, oversight, or cultural adaptation. What I want us to consider is that attention at this scale is something that is so baked into the construct of social media that problems emerge from perfectly rational engagement by otherwise well-intending people. I’ve previously tried to model the loneliness that can come with being extermely online, but this in some ways is actually deeper.

What if, for most of us, the only way to win at social media is not to play?

We can’t leave internal affairs to the police anymore

There are three open questions regarding police abuse and corruption:

1) How much is there?

2) What are the mechanisms underlying it?

3) What are the policy options for mitigating it?

This is a subject I have much interest in and have been researching for over a decade. I am still interested in the first two questions, but it’s increasingly difficult to invest in any conversation that doesn’t immediately contribute to how we are going to mitigate the problem.

This story of Hamilton County, Tennessee is a pure, unadulterated nightmare. We don’t want to make policy off a single nightmarish department or event, but there is nothing isolated or unique about this story. Bad officers migrate to other departments or are simply re-hired by their old one. Bad departments are rarely shut down. Bad sheriffs get re-elected. For large departments, “internal affairs” serve as the de facto monitors, but they are both part of larger social network of law enforcement and also shunned by the an insular sub-network of street officers. Both municipal police and sheriffs’ unions work tirelessly to solve the collective action problem for their members, but in doing so also provide the institutional capital that ensures that members are insulated from any form of accountability. Police take care of their own.

None of this is a new problem – “Who will watch the watchmen” has been a political puzzle since the advent of political thought. What is increasingly clear, though, is that the institutions we have in place for monitoring local law enforcement are largely impotent, either because they’ve always have been or because they’ve become obsolete. Internal and mutual monitoring i.e. “the watchmen watch themselves” only works when the individuals in question are unable to solve their collective action problem, in this case collectively preventing the reporting of misconduct by fellow officers. I regret to inform you that the police have solved their collective action problem.


There is arguably (and I would argue it) no one in our society less likely to be punished for committing an act of violence against another human being than a police officer. I don’t view that as an inflammatory or even particularly normative claim. That’s a reality, and it may in fact even be a welfare enhancing one i.e. maybe someone has be endowed with additional coercive force relative to most citizens. But I think the specific power of police is something well beyond simple “coercion”.

I am hard pressed to think of any occupation with more unwitnessed discretionary power than police officers. Judges may have more power, but they sit on benches in public courtrooms in front of an audience when they exercise their power. All regulatory power occurs via documentation. Political power eventually has to pass through the prism of public governance. Economic power comes via reward and deprivation, but is always constrained by the opportunity of individuals to exit the relationship. You can always move out on a bad landlord or quit a terrible job, but there’s no swapping out for the better officer when one’s got you pinched.

Police officers often exercise their power one-on-one, away from prying eyes, in settings where they themselves serve as the primary witness of record. They have the discretion to not just bear witness to a crime, but to establish its very event, and in doing so start a chain of events that will change how every institution in society treats a person for the rest of their life. They have the power to constrain a person physically, the power to kill, all in a context absent any external monitoring.

You might be imagining a story in an alley or in the back of a squad car, but a holding cell or interrogation room can be a far lonelier place when the only other potential witnesses are other officers. What little doubt a single officer’s testimony may carry is completely washed away by the matching depositions of multiple officers. If the story comes down to you versus them, you’re going to lose.

So I’ll say it again: police officers are endowed with more unobserved discretionary power than any other occupation in our society.


It’s time for significant resources to be invested in monitoring local law enforcement, and it needs to be made permanent. This can’t a be priority that lives at the whim of the Presidential election cycle. This can’t just be an ad hoc prioritization that manifests case-by-case and is largely driven by news coverage. Monitoring of local law enforcement needs to become a permanent feature of our federal bureaucracy. Whether that means creating an independent agency, a subset of the FBI, or a reappropriation of the labor in capital currently being wasted in the Drug Enforcement Agency, I don’t know.

Trust in local police is so low that “Defund the police”, an idea whose foolishness is only matched by its political naivete, actually got off the ground as an idea. That’s where we are at as a society: we have so little trust in the providers of law and order, a core good so central to the very idea of government it shows up in frontier towns before just about anything else, that people were open to appeals to simply live without law enforcement. That’s…that’s not good.

There is all kinds of really good research into what can be done to restore trust in the police. Training reforms, procedural justice, body-worn cameras, (ahem) public finance reforms, just to name a tiny few. These are all good ideas, but maybe we should also consider recommitting to our core belief that policing works, that monitoring and punishing people who break the law deters others from doing so. If we really believe it works for private citizens, then it might just work for the police.

In fact, I think already nailed it two paragraphs ago. Let’s rename the DEA the Department of External Affairs. We’re legalizing narcotics one drug at a time and these people will need jobs, right (I’m only 41% kidding)? We can have a Watchman “Czar” (they watch the watchmen, get it?). They can have tip lines. There can be informants in bad police departments, court ordered wire taps. They can seize resources from corrupt departments. They can keep doing all the things they’ve been doing, but instead of drug smugglers they can track abusive officers skipping across state lines from job to job, bust corrupt sheriffs, and occasionally seize the odd speed boat. If you’re going to be endowed with a badge and a gun, with the ability to pull a person out of their life and threaten to render moot every plan they ever had, then it seems only fair that you know someone might be watching you.

To add a bit a self-important context to this suggestion, please know that advocating for the establishment of federal agencies is far from my default solution. I know that the US government is littered with departments and agencies that do little but drag down the efficient expenditure of resources, inch by inch eroding the credibility of the public enterprise. Part of the promise of federalism is not just pushing local goods down the government hierarchy, but pushing national goods up. Not since the Civil Rights Movement has it been more clear that local law enforcement is in crisis. The Hamilton County Sheriff’s office, the Ferguson police department, these are no longer local problems. Each story of tragedy and abuse chips away at the broader reputation of law enforcement across the country and we are all less safe for it. Nor are they dependent on tacit local knowledge or relationships– quite the contrary, local relationships are likely to inhibit proper monitoring through either personal loyalty, collective intimidation, or being outright complicit.

The law enforcement crisis has been become a national problem. A federal problem. It’s time to treat it like one.

It’s Still Hard to Find Good Help These Days

Consumption is the largest component of GDP. In 2019, it composed 67.5% of all spending in the US. During the Covid-19 recession, real consumption fell about 18% and took just over a year to recover. But consumption of services, composing 69% of consumption spending, hadn’t recovered almost two years after the 2020 pre-recession peak.  For those keeping up with the math, service consumption composed 46.5% of the economic spending in 2019.

We can decompose service consumption even further. The table below illustrates the breakdown of service consumption expenditures in 2019.

I argued in my previous post that the Covid-19 pandemic was primarily a demand shock insofar as consumption was concerned, though potential output for services may have fallen somewhat. When something is 67.5% of the economy, ‘somewhat’ can be a big deal. So, below I breakdown services into its components to identify which experienced supply or demand shocks. Macroeconomists often get accused of over-reliance on aggregates and I’ll be a monkey’s uncle if I succumb to the trope (I might, in fact be a monkey’s uncle).

Before I start again with the graphs, what should we expect? Let’s consider that the recession was a pandemic recession. We should expect that services which could be provided remotely to experience an initial negative demand shock and to have recovered quickly. We should expect close-proximity services to experience a negative demand and supply shock due to the symmetrical risk of contagion. Finally, we should expect that services with elastic demand to experience the largest demand shocks (If you want additional details for what the above service categories describe, then you can find out more here, pg. 18).

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The Different Classes of Crypto Stablecoins and Why It Matters

Last month the Biden administration issued an executive order outlining some priorities and aspirational goals regarding government initiatives and future regulations regarding cryptocurrencies.
These goals may be summarized as:

1.         Protect Investors in the Crypto Space

2.         Mitigate Systemic Risks from Innovations

3.         Provide Equitable Access to Affordable Financial Services

4.         Ensure Responsible Development of Digital Assets

5.         Limit Illicit Use of Digital Assets

6.         Research Design Options of a U.S. Central Bank Digital Currency (CBDC)

7.         Promote U.S. Leadership in Technology


These positions seem generally reasonable and moderate, and were welcomed by the cryptocurrency community, which had feared a more restrictive stance. (China, for instance, has banned cryptocurrency use altogether).

Why Fear Stablecoins?

Here I’d like to focus on #2, “Mitigate Systemic Risks from Innovations”. Although so-called stablecoins are not explicitly mentioned in the executive order, it is understood that they represent a key area of concern for regulators.

A stablecoin typically has its value pegged 1:1 to a leading national or international currency such as the U.S. dollar or the euro, or to some commodity like gold, or even to other cryptocurrencies. In practice, most of them have generally held pretty well to their pegs. So what’s not to like about them? Why would they be perceived as more of a threat that, say, bitcoin, whose dollar value is all over the map?

I think the reason is that market participants count on them maintaining their (say) dollar peg. These coins are used as dollar substitutes in billions of dollars’ worth of transactions and are depended on to hold their value.The total value of stablecoins in use is nearly $200 billion and is growing fast.  If a major stablecoin crashed somehow, it could lead to significant instability, which regulators don’t like.

Four Major Types of Stablecoins

Stablecoins may be classified according to how their “tether” is maintained:

( 1 ) Pegged to fiat currency, maintained by a central stablecoin issuer

The biggest U.S.-based stablecoin is USD Coin (USDC), which is backed by significant financial institutions. There is every reason to believe that there is in fact a dollar backing each USDC. Gemini Dollar (GUSD) is smaller, but also takes great pains to garner trust. Its issuer, Gemini, operates under the regulatory oversight of the New York State Department of Financial Services (NYDFS). It boasts, “The Gemini Dollar is fully backed at a one-to-one ratio with the U.S. dollar. The number of Gemini dollar tokens in circulation is equal to the number of U.S. dollars held at a bank in the United States, and the system is insured with pass-through FDIC deposit insurance as a preventative measure against money laundering, theft, and other illicit activities.”

So far, so good. The huge stinking elephant in the room here is a stablecoin called Tether. Tether is the largest stablecoin by market capitalization (at $79 billion), and is heavily used as a dollar substitute, mainly in Asia. It has been widely criticized as a shady, unaudited operation, operating from shifting off-shore locations to avoid regulation (and prosecution). There are justified doubts as to whether the claimed 1:1 dollar backing for Tether is really there. Tether sort-of disclosed its backing reserves in the form of a sparse pie-chart. Very little was in the form of cash or even “fiduciary deposits”. Some was in the form of “loans” to who-knows-what counterparties. The majority of their holdings were “commercial paper”; but nobody can find any trace of Tether-related commercial paper in the whole rest of the financial universe (it has become a sort of game for financial journalists to try to the be first one to actually locate any legitimate Tether assets).

So, Tether by itself may justify concern on the part of regulators. Also, without diving too deeply into it, a plethora of financial institutions and tech companies are starting to issue their own stablecoins, which again are purported to be as good as cash, and so are vulnerable to abuse.

( 2 )  Stablecoins backed by commodities

Tether Gold (XAUT) and Paxos Gold (PAXG) are two of the most liquid gold-backed stablecoins. Other coins are tied to things like oil or real estate. The holder of these coins is depending the  coins issuer to actually have the claimed backing.

( 3 )  Cryptocurrency Collateral (On-Chain)

It is hard to explain in a few words how this type of coin works.  A key point here is that your stablecoins are backed by other, leading cryptocurrecies (such as Ethereum), with the process all happening on the decentralized blockchainvia smart contracts. A leading coin here is DAI, an algorithmic stablecoin issued by MakerDAO, that seeks to maintain a ratio of one-to-one with the U.S. dollar. It is primarily used as a means of lending and borrowing crypto assets without the need for an intermediary — creating a permissionless system with transparency and minimal restrictions.

Unlike with the two types of stablecoins discussed above, you are not dependent on the honesty of some central issuer of the stablecoin. On the other hand, Wikipedia notes:

The technical implementation of this type of stablecoins is more complex and varied than that of the fiat-collateralized kind which introduces a greater risks of exploits due to bugs in the smart contract code. With the tethering done on-chain, it is not subject to third-party regulation creating a decentralized solution. The potentially problematic aspect of this type of stablecoins is the change in value of the collateral and the reliance on supplementary instruments. The complexity and non-direct backing of the stablecoin may deter usage, as it may be difficult to comprehend how the price is actually ensured. Due to the nature of the highly volatile and convergent cryptocurrency market, a very large collateral must also be maintained to ensure the stability.

( 4 ) Non-Collateralized Algorithmic Stablecoins

The price stability of such a coin results from the use of specialized algorithms and smart contracts that manage the supply of tokens in circulation,  similar to a central bank’s approach to printing and destroying currency. These are a less popular form of stablecoin. The algorithmic coin FEI proved unstable upon launch, although it has since achieved an approximate parity with the dollar.

Some takeaways:

Stablecoins are a big and fast-growing piece of practical finance.

These coins bring a different kind of risk, because (unlike Bitcoin or Ethereum), users depend on them holding a certain value.

For the coins backed by major fiat currencies or commodities,  risk is introduced by the need to depend on the honesty and competence of the centralized coin issuers.

For the non-centralized stablecoins like DAI and FEI, there are risks associated with proper automatic functioning of their protocols.

 

One can understand, therefore, the urge of the federal government to impose regulations in this area. That said, it does not seem to me that the existing system is broken such that the feds need to come in to fix it in a major way. The main shady actor in all this is Tether, which everyone knows to be shady, so caveat emptor (and the vast majority of Tether transactions occur outside the West, in the East Asian shadowlands).

Happiness is Zeno’s hedonic treadmill

I don’t take Maslow’s Hiearchy of Needs very seriously. I don’t much worry about hedonic treadmills. I don’t worry about a cursed existence where I am forever advancing half-way closer to whatever goal will bring happiness and emotional fulfillment.

I don’t worry about it, but I understand.

I’m struggling to find much inspiration sketching my little ad hoc economic models of daily life with the backdrop of Ukrainians struggling to survive in the face of an invading army. Perspective is a hell of a drug. This struggle has brought to the front of my mind Maslow’s Hierarchy of needs, which lays a psychological layering onto the economic prioritization of needs (food and shelter first, social needs second, “self-actualization” last). It’s the kind of model that gets used and abused because it adds a veneer of psychological depth to absurd reductionist theorizing. Don’t take my petty academic denigration too seriously, though. Just because I think it’s not particularly useful doesn’t mean it’s wrong.

Similarly, I find consternation over hedonic treadmills unnecessary because whenever your result is that utility is declining as resource constraints are loosening, the likely explanation is that you aren’t observing utility correctly. Specifically, there are dimensions to utility you aren’t observing, be it temporal (i.e. the distribution of future possibe utilities), network (i.e. sympathetic utilities of children, spouses, friends, etc), or most likely that you are in fact not observing utility but rather one of many inputs into total utility i.e. there’s more to utility than just “happiness”.

But maybe you’re not interested in how to optimally model the pursuit of happiness under the dual constraints of finite resources and the human condition. Maybe you’re just worried about managing your life under the limitations of your own flawed humanity. Maybe you’re worried about getting stuck on a hedonic treadmill, the carrot of self-actualization dangling forever just out of reach. Now I’m not a licensed therapist or trained psychologist, but I am an economist who has to constantly struggle against my own technical limitations. What that means is that I have a lot of experience solving problems beyond my own mathematical limitations, not through technical elegance but by simply hacking the problem until the problem solves itself.

You know. Cheating.

If you’re on a hedonic treadmill, all that really means is that you’ve defined your units wrong. It’s only a treadmill measured in feet. If you define happiness not as feet advanced but as having a positive first derivative in microns per microsecond, you can establish the model such that you’ll be long dead before you reach the dipping edge on the horizon. Happiness isn’t a destination or a journey. It’s a positive first derivative or, barring that, a sufficiently positive second deriviative. If that’s out of reach, f*** it, there’s a third one you can push into the positive.

Framed this way, Zeno’s paradox is no longer a curse, it’s a blessing. To always be advancing half-way to your goal for all eternity is to live in eternal bliss. To self-actualize. Whether you get there is outside the model. It’s irrelevant.

Which is a really long way of saying that one way you might hack the puzzle of self-actualization is to help support the physiological and safety needs of Ukrainians be transferring some of your resources to them as means of supporting the first-derivative of sympathetic inputs into your utility function.