2025-01-13 17:13:38
The other day, Northwestern University economics professor Ben Golub tweeted the following:
Mount Holyoke English professor Alex Moskowitz responded to the revelation that most economists don’t read Smith and Marx by calling economics “fake”, declaring that it “hasn't properly historicized it's own methods of knowledge production”:
Is Moskowitz right? Should economists all be required to read, “work through”, and understand Adam Smith and Karl Marx? Is the discipline “fake” because most haven’t done this?
First of all, it’s important to point out that studying history of thought isn’t always useful. Just as doctors usually don’t study the works of Galen, and physicists usually don’t read Isaac Newton, economists don’t really have to read the original works of Alfred Marshall to understand supply and demand, or read John Nash’s original papers to understand game theory. The most useful concepts in science stand alone, divorced from the thought process of their originators. This is why they’re so powerful — anyone can just pick up Newton’s Laws or Nash Equilibrium and just use them to solve real-world problems, without knowing where those tools came from.
Imagine you’re an economist working for Amazon, using game theory to design online markets. Now imagine some English professor at a liberal arts college shouts at you that your whole field is “fake” because you haven’t read Marx. I imagine that experience would be a bit surreal.
But for now let’s set aside the question of whether and when economists should study the history of economic thought, and point out that in fact, they do study it — just not in the way that Alex Moskowitz might prefer.
When I was an economics PhD student, I was assigned a whole bunch of old foundational papers that were influential in framing modern economic thinking. I’ll just list four examples to illustrate what the economics canon is actually like:
1. “An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money”, by Paul Samuelson (1958)
In economics, there’s an important kind of model called the “overlapping generations” or OLG model, which is basically a model of how old people, young people, and middle-aged people interact in the economy. You can think about a lot of economic phenomena in terms of those generational interactions.
For example, young people generally have to borrow to get started in life — student loans, starter homes, cars, and such. People work and save when they’re young and middle-aged, and then have to spend down their wealth during retirement. This creates some interesting interactions, because the old people can only consume by selling their accumulated assets — houses, stocks, etc. — to the young and middle-aged people.
Paul Samuelson wasn’t the first to think about this, but he was the first to formulate it in a really simple mathematical model that a lot of people could work with — and which is still commonly used today. In this paper, he showed that if you had rapid population growth, you could run into problems — you could have so many young people that they needed to borrow more than the small older generation could lend them. In this case, the best thing to do would be to transfer money from each young generation to each old generation in turn, so they’d have enough money to lend each other.
You may recognize this as the basic idea behind Social Security.
2. “The Pure Theory of Public Expenditure”, by Paul Samuelson (1954)
One of the most important concepts in public economics is the idea of a public good — something that the private sector won’t provide enough of on its own, and so which the government ought to provide (if it can). Paul Samuelson was not the first to think about this general concept either, but like with the OLG model in the previous example, he was the first to show a mathematical example of how this might work.
In this paper, he shows that if something is nonrival (if one person using something doesn’t stop someone else from using it) and nonexcludable (if you can’t prevent people from using it) — then the private sector won’t build enough of it. The classic example is a lighthouse — one ship using a lighthouse doesn’t necessarily prevent others from using it, since everyone can see the light, and you can’t really stop any particular ship from using it. So building a lighthouse is a dicey investment for any private company — you’re basically encouraging a whole bunch of free riders.
Whether the solution is to have government step in and build the lighthouse, or if there’s some private arrangement that could work just as well, is the subject of perennial debate within the economics profession. And whether you actually need both nonrivalry and nonexcludability in order to get some of the key features of public goods is another open question. But it was this original paper by Samuelson that pretty much created the whole literature on public goods, so its influence is hard to overstate.
3. “The market for lemons”, by George Akerlof (1970)
Anyone who has bought a new car knows that when you drive it off the lot, the resale price instantly drops far below the purchase price. Why? It’s the same car that it was an hour ago! The most likely answer is that if you try to turn around and sell a car right after buying it, people will assume something is wrong with it.
This insight was the basis for Akerlof’s paper. It’s about how markets can naturally break down due to asymmetric information — things that sellers know that buyers don’t. In the case of used cars, the process is called “adverse selection” — meaning that sellers want to sell low-quality stuff for more than it’s really worth, by concealing how crappy it is. Using some simple mathematical examples, Akerlof showed how adverse selection could cause trade to break down completely — buyers won’t pay full price for used cars because they might be getting sold a “lemon”, so used car dealers keep their high-quality cars off of the market entirely.
How do you solve the lemon problem? One way is to pay for mechanics to check whether a car is in good condition, but that costs money. Another way might be for the government to pass laws requiring used car dealers to tell prospective buyers important information about a car’s quality.
There’s an obvious application to health insurance, too. Adverse selection can also happen when a buyer conceals information from a seller; insurance customers will naturally try to hide how sick they are from an insurer, in order to get a lower premium. This means that healthy people have to pay premiums that are too high, which keeps them out of the market. Laws like the Affordable Care Act (Obamacare) that penalize people for not buying health insurance are aimed at preventing the exit of healthy people from the market, based on exactly the kind of principle Akerlof talks about in his paper.
4. “Uncertainty and the Welfare Economics of Medical Care”, by Kenneth Arrow (1963)
This one is interesting because although the author was famous for mathematical economics, this paper itself involves almost no math — it’s really just an essay making various logical arguments. Arrow is trying to explain why health care — including health insurance — isn’t like other markets. He basically just lists a bunch of reasons why health care is different. These reasons include:
Health insurance is subject to a lot of information asymmetry — the aforementioned adverse selection, plus “moral hazard” (ie., people with more insurance might be more reckless).
Health care involves extreme risks, including the risk of death. (Arrow implies, but doesn’t state, that both patients and providers may not be good at making rational decisions under that kind of extreme uncertainty.)
Humans have strong moral norms around health care — we tend to believe that basic medical care is a universal a human right, that doctors shouldn’t act like profit-seeking businesspeople, a moral disgust at the idea of forcing people to pay for health care before they receive it, and so on.
Things like communicable diseases cause externalities — if one person gets sick, it puts other people in danger.
Increasing returns to scale and restrictions on the entry of new health care suppliers create barriers to entry inhibit competition.
Medical providers regularly practice price discrimination, charging people different prices based on their ability to pay.
All of these factors make the market for health care an absolute mess compared to most markets, which is why the industry tends to be so heavily regulated, and is probably why so many rich countries just go ahead and nationalize their health insurance systems.
Anyway, there are four examples of the foundational economic thoughts that many (most?) PhD students in modern econ departments will be assigned. These papers produced both ideas and methods that are still central to economics research today — in Moskowitz’s terms, reading papers like these is how economists “historicize their methods of knowledge production”.
This is in contrast to the ideas of Karl Marx, which have mostly fallen by the wayside.
Is that because modern economists are neoliberal priests of the free market, who reject government intervention in favor of the power of markets? No, of course not. Every single one of the papers I just cited is about how markets fail, and about how government intervention is needed as a result of those failures. The papers don’t rely on Marxist concepts like the labor theory of value, alienation, exploitation, commodity fetishism, or the inevitable collapse of capitalism.1 But the world of economic ideas is not defined by a one-dimensional axis between Marxism and neoliberalism — there are plenty of problems with markets that Marx never even thought about.
I don’t know how much economics Alex Moskowitz has studied, but my bet is that he doesn’t actually know a great deal about the foundational economic thought of Paul Samuelson, Kenneth Arrow, or George Akerlof — or about modern econ research in general. So why does he feel qualified to declare that Marx should be viewed as part of the discipline’s foundational canon?
Part of the reason, of course, is that Moskowitz personally likes and values Marx’s ideas. He has done research relating Marx’s ideas to those of other leftist philosophers, and he teaches classes on Marx as well. It’s natural that Moskowitz would want economists to study a thinker he likes.
In a similar vein, I might urge English professors to view Ursula K. LeGuin as one of their foundational intellectuals, because I like Ursula K. LeGuin. In fact, my suggestion might be justified, and some English profs do teach LeGuin. But because I haven’t done an English PhD or existed inside of humanities academia, my suggestion would be that of an amateur outsider. (And I would probably make the suggestion with a little more playfulness and a little less aggression than Moskowitz uses in his comments about economics.)
Another reason Moskowitz might demand that economists include Marx in their canon is that Marx wrote in a literary, discursive, non-mathematical style that Moskowitz, being a humanities scholar, is able to understand (or at least, to more easily convince himself that he understands). Samuelson, Arrow, and Akerlof expressed many of their ideas in the language of mathematics, which Moskowitz, given his educational background, probably doesn’t understand very well. Prioritizing research you’re equipped to understand over that which is opaque to you is a natural human reaction, but it’s a form of the streetlight problem.
So I think the salient question here isn’t “Should Marx be part of the foundational economics canon?”, but rather, “Why should an English professor feel qualified to decide who should be part of the foundational economics canon?”.
And of course the answer here is probably going to be “politics”. I don’t want to put words in Moskowitz’s mouth, of course, but he does seem like a sort of a leftist fellow:
In my experience, many leftist academics in the humanities and social sciences see non-STEM academia as a single unified enterprise — not a collection of knowledge-seeking efforts in different domains, but a single activist political struggle against capitalism, settler colonialism, white supremacy, and so on. In this cosmology, economists are acceptable if and only if they revere the econ-adjacent thinkers whose ideas most closely dovetail with the leftist activist struggle — e.g., Karl Marx.
And in fact, I think this is the most important reason economists should read Marx. His vision of history as a grand revolutionary struggle is a cautionary tale of what can happen when pseudo-economic thought is applied too cavalierly to political and historical questions.
One economist who has read Marx, and who has thought deeply about what he wrote, is Brad DeLong. In a 2013 post, DeLong tried to explain what he thought Marx got right and what he got wrong in terms of his economic thought:
Marx the economist had six big things to say, some of which are very valuable even today across more than a century and a half, and some of which are not…
Marx…was among the very first to recognize that the fever-fits of financial crisis and depression that afflict modern market economies were not a passing phase or something that could be easily cured, but rather a deep disability of the system…
Karl Marx was among the very first to see that the industrial revolution…opens the possibility of a society in which we people can be lovers of wisdom without being supported by the labor of a mass of illiterate, brutalized, half-starved, and overworked slaves…
Marx the economist got a lot about the economic history of the development of modern capitalism in England right--not everything, but he is still very much worth grappling with as an economic historian of 1500-1850. Most important, I think, are his observations that the benefits of industrialization do take a long time--generations--to kick in…
[But] Marx believed that capital is not a complement to but a substitute for labor…Hence the market system simply could not deliver a good or half-good society but only a combination of obscene luxury and mass poverty. This is an empirical question. Marx's belief seems to me to be simply wrong…
Marx…thought [that] people should view their jobs as…ways to gain honor or professions that they were born or designed to do or as ways to serve their fellow- human…The demand for a world in which people do things for each other purely out of beneficence rather than out of interest and incentives leads you down a very dangerous road, for societies that try to abolish the cash nexus in favor of public- spirited benevolence do not wind up in their happy place.
Marx believed that the capitalist market economy was incapable of delivering an acceptable distribution of income for anything but the briefest of historical intervals. …But "incapable" is surely too strong…[S]ocial democracy, progressive income taxes, a very large and well-established safety net, public education to a high standard, channels for upward mobility, and all the panoply of the twentieth-century social- democratic mixed-economy democratic state can banish all Marx’s fears that capitalist prosperity must be accompanied by great inequality and great misery.
This summary, which seems eminently fair to me, establishes Marx as a peripheral, mildly interesting economic thinker — a political philosopher who dabbled in economic ideas, perceiving some big trends but getting others badly wrong, and ultimately leaving little mark on the field’s overall methodology or basic concepts. (Also see Brad’s slides, video, and other commentary.)
But it’s not actually for his economic ideas that we remember Marx — it’s for his political philosophy of class warfare and revolution. And here, I think DeLong has appropriately scathing things to say:
Large-scale prophecy of a glorious utopian future is bound to be false…The New Jerusalem does not descend from the clouds…But Marx clearly thought at some level that it would…
[Marx thought that] social democracy would inevitably collapse before an ideologically-based right-wing assault, income inequality would rise, and the system would collapse or be overthrown…But I think this, too, is wrong…
Add to these the fact that Marx's idea of the "dictatorship of the proletariat" was clearly not the brightest light on humanity's tree of ideas, and I see very little in Marx the political activist that is worthwhile today.
Everywhere any variant of Marx’s vision of proletarian revolution has been tried, it has been not just a failure, but an epic human tragedy. Here’s what I wrote for Bloomberg back in 2018:
[I]t’s hard to forget the tens of millions of people who starved to death under Mao Zedong, the tens of millions purged, starved or sent to gulags by Joseph Stalin, or the millions slaughtered in Cambodia’s killing fields. Even if Marx himself never advocated genocide, these stupendous atrocities and catastrophic economic blunders were all done in the name of Marxism…20th-century communism always seem to result in either crimes against humanity, grinding poverty or both. Meanwhile, Venezuela, the most dramatic socialist experiment of the 21st century…is in full economic collapse.
This dramatic record of failure should make us wonder whether there was something inherently and terribly wrong with the German thinker’s core ideas. Defenders of Marx will say that Stalin, Mao and Pol Pot exemplified only a perverted caricature of Marxism, and that the real thing hasn’t yet been tried. Others will cite Western interference or oil price fluctuations…Some will even cite China’s recent growth as a communist success story, conveniently ignoring the fact that the country only recovered from Mao after substantial economic reforms and a huge burst of private-sector activity.
All of these excuses ring hollow. There must be inherent flaws in the ideas that continue to lead countries like Venezuela over economic cliffs…The brutality and insanity of communist leaders might have been a historical fluke, but it also could have been rooted in [Marx’s] preference for revolution over evolution…[O]verthrowing the system has usually been a disaster. Successful revolutions tend to be those like the American Revolution, which [keep] local institutions largely intact. Violent social upheavals like the Russian Revolution or the Chinese Civil War have, more often than not, led both to ongoing social divisions and bitterness, and to the rise of opportunistic, megalomaniac leaders like Stalin and Mao.
As I note in that post, the successful examples of “socialism” that people cite — the Scandinavian societies of today — are actually social democracies. They achieved their mixed economies through a slow evolutionary process that was absolutely nothing like the revolutionary upheavals predicted and advocated by Marx.
Economists should read Marx, and they should read him with all of this history in mind. It’s a vivid reminder of how social science ideas, applied sweepingly and with maximal hubris to real-world politics and institutions, have the potential to do incredible harm. Marxism is perhaps the single greatest example of social-science malpractice that the human race has ever seen.
This should serve as a warning to economists — a reminder of why although narrow theories about auctions or randomized controlled trials of anti-poverty policies might seem like small potatoes, they’re not going to end with the skulls of thousands of children smashed against trees. Modern economics, with all of its mathematical formulae and statistical regressions, represents academia appropriately tamed — intelligence yoked to the quotidian search for truth, hemmed in by guardrails of methodological humility. The kind of academia that Alex Moskowitz represents, where the study of Great Books flowers almost instantly into sweeping historical theories and calls for revolution and war, embodies the true legacy of Marx — something still fanged and wild.
As it happens, I have read Marx’s Das Kapital. However, it was when I was an undergrad physics major, so I wasn’t really thinking about it in terms of its relation to modern economic theory. Also, like most German philosophy of the time, I found it both pointlessly dense and frustratingly vague.
2025-01-11 17:23:22
The general theme of this week’s roundup is red tape and regulation. These issues are moving to the forefront of the U.S. policy discussion — not just because of the election of Trump, but because people on both sides of the aisle seem to be realizing that the U.S. severely hobbled itself in the 1970s. Now we’re digging out of that hole, and it’s going to be a long, difficult, painful process. But the best time to get started is today.
First, podcasts. I have two episodes of Econ 102 this week. Both are sort of grab-bags of assorted topics:
Anyway, on to this week’s list of interesting things!
In my last post, I talked about how NEPA and similar state laws have held back the kind of forest management that might have prevented the horrific L.A. wildfires. That’s only one example of how environmental review laws — which allow NIMBYs to sue any government-related development project and force it to do years of onerous, often pointless paperwork — represent a millstone dragging down the entire country.
Thomas Hochman, writer of the blog Green Tape, has a great post assembling various facts and statistics showing just how bad NEPA really is:
Here are a few excerpts from his list of bullet points:
Average [environmental impact statement] preparation time is 4.2 years as of 2022
Average review time grew from 3.4 years in 2008 to 4+ years by 2015, increasing by an average of 37 days per year
Average delay from environmental review publication to resolution of legal challenge: 4.2 years
Even a "finding of no significant impact" can take extensive time and documentation (1,200+ pages in one case)
Up to $400 million spent just on regulatory/environmental review process for major projects
Solar projects: 64% litigation rate
72% of NEPA litigation initiated by NGOs
Hochman provides sources for all of these points (and for the many other points in his long list). I have cropped the sources out, but he lists them at the end of his post, and they’re all worth a read. One of the most important sources he cites is the economist Zachary Liscow, who has done heroic work on the problem of infrastructure construction. Here are excerpts from the abstracts of two very recent Liscow papers:
“Getting Infrastructure Built: The Law and Economics of Permitting”
Given the benefits to economic growth and the need to transition to green energy, getting infrastructure built is an urgent issue…[I]n the US, permitting is slow, infrastructure is expensive, and environmental outcomes are not particularly good. I propose a framework for reform with two dimensions: the power of the executive branch to decide and its capacity to plan. After considering reform possibilities, I propose that reforming both dimensions could lead to a possible “green bargain” that benefits efficiency, the environment, and democracy.
“State Capacity for Building Infrastructure”
The high cost of building major infrastructure in the US is a longstanding challenge, but it is not inevitable. This paper highlights three elements of state capacity that underlie the high costs and slow timelines the US faces. The first challenge is personnel: government pay has not kept up with private pay, and the public workforce has not kept up with the workload; public-sector work is instead increasingly privatized, raising costs. The second challenge is procedure: government workers operate under onerous procedures and in a litigation environment that makes construction slow and expensive. The third challenge is a lack of adequate tools, including data systems and long-term planning abilities…Regarding personnel, hiring more government planners and managers, paying them in line with the private sector, and insourcing more planning could help. Regarding procedure, reducing permitting and procurement burdens, promoting faster but more representative public participation, improving coordination, and centralizing certain decisions at the federal level could help. Regarding tools, improving internal data systems and data availability would create a better evidence base, and better long-term planning could improve decisionmaking quality.
Both papers are recommended reading.
And it’s important to remember that although NEPA is a procedural requirement — it lets you sue to block development regardless of whether the project you’re suing is in compliance with environmental laws — it’s rationale is ultimately based on environmental regulations like the Endangered Species Act. Although I think most of those regulations are good overall, many of them have been weaponized by bad-faith actors to block development on ideological grounds. For example, the New York Times had a recent story about how some researchers basically invented a new species in order to block the construction of a dam back in the 1970s:
[T]he snail darter has haunted Tennessee. It was the endangered species that swam its way to the Supreme Court in a vitriolic battle during the 1970s that temporarily blocked the construction of a dam…On Friday, a team of researchers argued that the fish was a phantom all along.
“There is, technically, no snail darter,” said Thomas Near, curator of ichthyology at the Yale Peabody Museum…Dr. Near, also a professor who leads a fish biology lab at Yale, and his colleagues report in the journal Current Biology that the snail darter, Percina tanasi, is neither a distinct species nor a subspecies. Rather, it is an eastern population of Percina uranidea, known also as the stargazing darter, which is not considered endangered.
Dr. Near contends that early researchers “squinted their eyes a bit” when describing the fish, because it represented a way to fight the Tennessee Valley Authority’s plan to build the Tellico Dam on the Little Tennessee River, about 20 miles southwest of Knoxville.
“I feel it was the first and probably the most famous example of what I would call the ‘conservation species concept,’ where people are going to decide a species should be distinct because it will have a downstream conservation implication,” Dr. Near said.
More state capacity, in the form of bureaucrats who are able to suss out this kind of opportunistic anti-development misinformation, is the obvious solution to this problem. Zachary Liscow is right — in order to cut through red tape, you need to empower the people with the scissors. Government is the main actor who gets blocked by NEPA and similar laws, so government needs the ability to slice through those legal barriers and get things done.
Jimmy Carter passed away recently. I was pleasantly surprised to see that one of the main reactions to his death — at least in the blogosphere and on social media — was to remember his legacy as a deregulator:
As I wrote back in 2021, Carter did much more deregulation than Ronald Reagan did:
Carter deregulated energy, trucking, airlines, retail banking, and other stuff like beer. Plenty of stuff that Americans take for granted — like the fact that air travel is much cheaper in the U.S. than in Canada — comes from Carter’s deregulatory efforts. In fact, Carter’s bank deregulation might have been instrumental in ending the inflation of the 1970s (along with Carter’s appointment of Paul Volcker to head the Federal Reserve, of course).
Why are people choosing to remember Carter’s deregulatory legacy right now? For a long time, his name was unfairly associated with big government, and when people said nice things about him they generally focused on his human rights work. But right now, deregulation is a hot topic in America — the effort to reindustrialize America and solve the housing shortage is running into big regulatory barriers, and bipartisan consensus will be needed to remove those barriers. People might be choosing to remember Carter as America’s Great Deregulator because they hope that today’s progressives will be able to follow a similar path.
Back in November, I wrote a post explaining why targeted tariffs on specific strategic products are generally effective at blocking imports of those products, but broad tariffs are not very effective at reducing trade deficits:
Basically, there are two reasons: 1) exchange rate adjustment, and 2) intermediate goods. When you do broad tariffs, your country’s currency appreciates against the currency of the country you put tariffs on, partially cancelling out the effect of the tariffs. And when you put tariffs on everything, you block your own manufacturers from being able to import the intermediate goods they need to stay competitive. Targeted tariffs avoid both of these problems — they can succeed because their goal is more modest.
Tyler Cowen picked up my post and endorsed it. Hopefully, people in the Trump administration read Tyler!
Well, whether or not they got the idea from me, there’s some sign that Trump’s people understand that targeted tariffs are more effective than broad ones:
President-elect Donald Trump’s aides are exploring tariff plans that would be applied to every country but only cover critical imports, three people familiar with the matter said — a key shift from his plans during the 2024 presidential campaign.
If implemented, the emerging plans would pare back the most sweeping elements of Trump’s campaign plans…[R]ather than apply tariffs to all imports, the current discussions center on imposing them only on certain sectors deemed critical to national or economic security…
Preliminary discussions have largely focused on several key sectors that the Trump team wants to bring back to the United States, the people said. Those include the defense industrial supply chain (through tariffs on steel, iron, aluminum and copper); critical medical supplies (syringes, needles, vials and pharmaceutical materials); and energy production (batteries, rare earth minerals and even solar panels)[.]
This is good. This is progress.
The next big thing Trump’s people need to understand is that tariffs on friendly countries make it much harder for American companies to compete with their Chinese rivals. I’ll write another post about that soon.
I’m using these roundups to track the long-term progress of YIMBYism — policy changes, research, and actual real-world results.
In the “actual real-world results” department, this week we have Spokane, Washington, which has become the latest city to deregulate its way to increased housing abundance:
For reference, here’s a story from late 2023 about Spokane’s deregulatory efforts, back when they were first passed into law. As for what effect this has on rent in the city, it’s too early to tell, and it’s notable that Spokane also enacted rent control around the same time. But at least this should tell us that deregulation can produce a housing construction boom pretty quickly.
On the research side of things, we have a new paper from Andreas Mense, called “The Impact of New Housing Supply on the Distribution of Rents”. Mense evaluates the impact of housing supply by looking at what happens in Germany when weather events delay housing construction. Mense finds that 1% more housing supply decreases rents in a city by 0.19% — not bad! The rent decreases are biggest for lower-quality units, suggesting that poor renters reap the biggest benefits from increased supply. And crucially, the impact of supply is equally large in high-demand markets, thus refuting the left-NIMBY claim that increased supply causes gentrification.
A very pro-YIMBY result. Unsurprising, perhaps, but important nonetheless.
Meanwhile, another very interesting new paper is “Housing and Fertility”, by Fazio et al. Looking at housing lotteries in Brazil, the authors find that homeownership makes people have a lot more kids:
We find that obtaining housing increases the average probability of having a child by 3.8% and the number of children by 3.2%. For 20-25-year-olds, the corresponding effects are 32% and 33%, with no increase in fertility for people above age 40. The lifetime fertility increase for a 20-year old is twice as large from obtaining housing immediately relative to obtaining it at age 30. The increase in fertility is stronger for households in areas with lower quality housing, greater rental expenses relative to income, and those with lower household income and lower female income share. These results suggest that alleviating housing credit and physical space constraints can significantly increase fertility.
It’s not clear whether this result will generalize from Brazil to richer countries with different cultures. But housing abundance is definitely something worth trying, given the global fertility crisis that no one knows how to solve!
The election of Trump pretty much killed any chance of enacting Elizabeth Warren’s progressive economic program. So people have pretty much forgotten about how Warren and a bunch of other progressives tried to blame inflation on opportunistic price gouging by powerful corporations in uncompetitive markets — a story that came to be known as “greedflation”.
There was never much evidence in favor of the greedflation hypothesis. Researchers found that industries with higher markups — indicating more market power — had lower rates of inflation in the post-pandemic period. Various other papers that looked for a link between market power and inflation found nothing.
Anyway, we now have yet another piece of evidence against the “greedflation” idea. In a new paper called “Has corporate greed driven inflation in the European Union? An analysis of the food and beverage industry”, Koppenberg et al. find that companies in the European food industry generally haven’t been passing on higher costs to consumers:
The EU has recently experienced high inflation rates, particularly in food prices. This observation led to claims in the news and by retailers that large food and beverage manufacturers take advantage of high inflation, and increase prices more than necessary (“greedflation”) to compensate for increases in their raw material prices. To test whether this claim is true, we estimate a production function to determine markups of output price over marginal costs for a sample of 88,717 European food and beverage manufactures covering the years 2013–2022. Our results do not support the greedflation hypothesis as markups have decreased over the considered period. In addition, there is a negative correlation between raw material prices and markups which is stronger for large firms, suggesting that these firms cannot be generally accused of taking advantage of high inflation. Our results imply that claimed “greedflation” does not justify additional pro-competitive policies in the food and beverage manufacturing sector.
Here’s a thread by Jack Salmon explaining the paper’s results.
Yes, this result depends on the choice of a production function — in other words, you need an assumption about how different input costs ought to determine the cost of a particular food product. But in general, these production functions are very flexible, and the correlation between markups and input costs across companies isn’t really going to depend on the choice of production function.
So no, there’s still no evidence that greedflation was ever real. The Warren economic program, which never really caught fire with voters, was also often at odds with economic reality. Another example of populism without popularity from the progressive movement, unfortunately.
Well folks, it’s time for another episode of “How not to be fooled by viral charts”. The chart this time is from the Financial Times, courtesy of Philip Heimberger:
What’s wrong with this chart? In my original post, I cautioned everyone to check where the y-axis starts:
Another thing you should look out for is where the y-axis starts. Contrary to what some people say, it’s fine to have charts where the y-axis doesn’t start at zero. For example, if you’re graphing a human being’s body temperature, there’s no need to start at zero, because someone would be dead if their body temperature went to 85. Fluctuations of just a degree or two make a big difference in human body temperature, so you want to be able to zoom in and see those fluctuations.
That said, you should pay attention to where the y-axis starts. Don’t just assume it starts at zero!
In the chart above, we can see that the y-axis only goes from about 45% to about 52% — a very small range! And we can see that the generations that are “losing faith in democracy” have only gotten a few percentage points less faithful over the last two decades. Is this a worrying trend? Sure. Does it merit the level of panic that the compressed y-axis creates? I don’t think so.
Another problem with this chart is the arrows on the end of the lines. In a follow-up to my original post, I warned about this misleading form of data presentation:
So when you make charts, think very carefully before putting arrows on the ends of time series. Econometricians and statisticians have a whole lot of ways of estimating the trend of a time series, and as far as I know, none of them involve taking the direction of change between the two most recent data points and assuming that that’s the current trend.
To illustrate this, let’s take the chart from above and draw some rough best-fit trendlines for the three generations:
For Millennials and Gen X, the trendlines roughly match the arrows that the FT drew on the ends of the lines. For the Boomers, they’re utterly different — the arrow shows satisfaction headed straight down, while the trendline over the last few decades is pretty much completely flat. The arrows on the ends of the lines thus give a roughly accurate picture of the trend for the two younger generations, but for the Boomers, the arrow is utterly deceptive, creating the false impression of a collapse when there probably isn’t one.
In other words, this viral chart doesn’t shows a worrying trend, but it doesn’t show that support for democracy is collapsing. The compressed y-axis and the arrows on the ends of the time series create excessive alarmism.
Daron Acemoglu is the world’s top economist, and I always feel a lot of trepidation when I criticize things he says. But these days he says an awful lot of things that I feel are worth criticizing. His book about the history of technology was full of holes, and when he wrote about AI and productivity he had to arbitrarily ignore parts of his own theoretical model in order to achieve the result he wanted.
Now Acemoglu has jumped into the conversation on H-1bs with a very odd theory about why they’re bad:
One argument I haven’t seen is that sufficiently large flows of skilled immigrants may affect the direction of technology. A general theorem of directed technology is that when the supply of skilled labor increases, technology becomes endogenously more biased towards skilled workers (see, for example, https://academic.oup.com/restud/article/69/4/781/1551628or… https://aeaweb.org/articles?id=10.1257/pandp.20231000…).
So one question is whether H1B program has contributed to US technology becoming more and more focused on high-education workers and leaving lower-education workers behind. Possibly not, since there has been a lot of unskilled immigration as well, and other factors may have been more important in the direction of technology (and the evidence does not show a total crowd out overall of innovation by natives, see https://journals.uchicago.edu/doi/full/10.1086/651934…).
Nevertheless, the impact of high-skill immigration on the direction of technology is worth exploring in the future. What this argument suggests more generally is that if the US is going to rely on H1B workers, policymakers should pay consider other adjustments so that US technology and corporate strategies do not leave low-education workers completely behind.
Basically, Acemoglu is arguing that because America is getting a lot of skilled workers through the H-1b program, we’re focusing on inventing the kind of technologies that high-skilled people can use — for example, software that’s easy for smart people to use but hard for normal folks to master.
That’s a very odd argument, for several reasons. First of all, there’s no real evidence for it — Acemoglu simply cites two theory papers that he wrote, in which he assumes that this kind of thing could happen.
On top of that, the numbers here are just totally implausible. There are only about 600,000 H-1b workers in the U.S., compared to more than 34 million Americans who work in STEM occupations. Annual H-1b visas are capped at 85,000, while the U.S. produces over 750,000 STEM degrees domestically per year. Even if Acemoglu’s assumptions bear any resemblance to the way technological innovation is actually determined, it seems highly unlikely that the H-1b program is a major factor relative to America’s own education system.
In fact, if Acemoglu is right that producing more STEM workers increases inequality, the obvious policy implication is that America should stop educating so many STEM workers. That’s obviously a bad idea. But it also contradicts Acemoglu’s own very next point, in which he argues that H-1bs are bad because they reduce U.S. STEM education!
Second point – political economy of education: The following argument at first appears watertight: the US has a need for skilled STEM workers, for example in the tech industry, and is not currently able to produce this supply itself. Hence, it seems innocuous and generally beneficial to make up this shortage via the H1B program.
What this argument ignores is the following, however: if it weren’t for the H1B program, the pressure on US institutions to improve the quality of secondary education and the supply of STEM workers would have been much stronger. Put differently, the current system may have made the economic (and political and intellectual) elites care less about the failure of the US education system. (The argument that the elites would like the education system to produce workers that their businesses need goes back to Sam Bowles and Herb Gintis’s classic Schooling in Capitalist America: https://amazon.com/Schooling-Capitalist-America-Educational-Contradictions/dp/0465097189…).
So Acemoglu wants fewer H-1bs so we have more political pressure for domestic STEM education. But he also thinks having more STEM workers increases inequality, by causing inventors to focus on technologies that help STEM workers instead of normal folks! These two arguments clearly contradict each other.
In other words, it seems like Acemoglu is grasping for reasons to support a desired policy conclusion, without noticing that those arguments are inconsistent. I suppose “finding reasons to support a desired policy conclusion” is kind of par for the course in the world of macroeconomic theory, but it’s not a great way to steer national policy.
2025-01-10 15:06:27
Public social media — X, Reddit, Bluesky, and so on — has changed how we think about disasters. On one hand, because it floods us with information, it gives us the ability to draw reasonable, well-informed conclusions about terrible events much more quickly and arguably more easily than we could in earlier times. On the other hand, the inevitable flood of misinformation and opportunistic politicking that inevitably accompanies any disaster raises our chances of being rapidly misinformed, and makes any calamity more socially divisive than it would have been before.
Compare the reactions to the 1989 Loma Prieta earthquake — the first major natural disaster I can remember hearing about — with the reaction to the horrific wildfires burning through Los Angeles today. Back in 1989, the news responded to the earthquake for the first few days by simply showing photos and videos of the damage, telling stories about the victims, and generally just saying “Oh what a terrible disaster.” We didn’t have to be inundated with political opportunists rushing to blame the collapse of the Bay Bridge on affirmative action, or Reagan’s defense buildup, or whatever. On the other hand, I suppose most Americans didn’t end up spending a lot of time or effort thinking about earthquake preparedness.
In contrast, the social media reaction to the 2025 L.A. wildfires — which have already claimed five lives, left thousands homeless, and cost tens of billions of dollars — has featured all the finger-pointing and false rumors that we’ve come to expect from every big negative news event in America. Some rightists were quick to blame Ukraine aid for defunding the L.A. fire department; leftists blamed aid to Israel. Rightists also blamed DEI for supposedly making the L.A. fire department incompetent (without evidence, of course). I think the single wackiest take I saw was that Israel is responsible for the wildfires because the carbon emissions it released during the war in Gaza had exacerbated climate change:
Meanwhile, a lot of misinformation went flying around, especially regarding Los Angeles’ preparedness. A bunch of people claimed that fire hydrants ran out of water to fight the fires because it L.A. county had refused to fill its reservoirs. This turned out to be false; the water reservoirs and tanks were full (and this is true throughout California), they just ran out quickly due to enormous demand. An even more popular rumor, embraced by figures on both the left and the right, was that the city of L.A. had cut its fire department budget recently. That rumor was also false, as Politico reported:
[The] assertion [that L.A. defunded its fire department] is wrong. The city was in the process of negotiating a new contract with the fire department at the time the budget was being crafted, so additional funding for the department was set aside in a separate fund until that deal was finalized in November. In fact, the city’s fire budget increased more than $50 million year-over-year compared to the last budget cycle, according to Blumenfield’s office, although overall concerns about the department’s staffing level have persisted for a number of years.
Others mistook a one-time capital expense in 2024 for a 2025 budget cut.
In general, the misinformation, finger-pointing, and political opportunism flew fast and furious. But if you remained calm, resisted the urge to dunk on your political enemies, and watched the situation unfold, I think there were a few important signals you could extract from the storm of information. Basically, the lessons I take away from the horrific L.A. fires are:
The insurance industry as we know it is in big trouble.
Climate change is making wildfires worse, but there’s not much we can do about that right now.
Forest management needs to get a lot more proactive, but is being blocked by regulation.
Wildfire preparedness is just a lot more important than it used to be.
If you crack open an introductory economics textbook, here’s how it says insurance is supposed to work. Suppose you have 100 people, each with 1% probability every year of losing their home in a fire. A home costs $100k. So each person pays an insurance company a premium of $1k a year. The insurer takes in $100k in premiums, and on average it pays out one claim of $100k per year. The company makes zero profit, and homeowners have zero risk of losing money from a fire.
In reality, it doesn’t quite work like that. People’s risks are correlated — if one person in California loses their home in a fire, it’s probably because it was an especially bad fire season, which means a whole lot of other people in California are more likely to lose their homes in a fire that same year. This is fine in principle — insurance companies can incorporate those correlations into their models, and adjust the premiums accordingly. But if too many people’s houses burn down in a single year, and they all use the same insurance company, then that insurance company won’t have enough money to pay out all the claims. The company will go bankrupt, and the homeowners won’t get their claims. This is called counterparty risk.
This weakness in the insurance system is getting more important over time, since big wildfires are becoming more common, especially in California:
Insurers can deal with this in two ways. First, they can raise premiums, based on models that take the worsening fire environment into account. Second, they can use reinsurance — they can buy their own insurance from truly giant insurance companies, so they don’t go bankrupt in a bad year.
Except in California they can’t actually do either of these things! In 1988, California voters passed a ballot proposition called Proposition 103, which says that if insurers want to raise their premiums, they have to get the raise approved by the government first. This means that if premiums go up, California voters will blame the insurance commissioner, who is democratically elected. So naturally, the commissioner tries to keep voters happy by forbidding insurance companies from charging higher premiums. In recent years, insurance companies have been begging California Insurance Commissioner Ricardo Lara to let them charge higher premiums in order to account for the increased risk of large fires, and for the reinsurance premiums they now have to pay. But Lara forbid them from doing so.
2025-01-09 15:33:50
I’ve done New Years in Taiwan twice in a row now, and I definitely intend to go next year again. If you haven’t been, I heavily recommend it — it’s quite a party. This year, my friends and I gathered together a group of about 60 people to go to Taiwan from the U.S., and next year I expect the pilgrimage to be even larger. I think I’ll also do a meetup with Substack readers while I’m there!
Anyway, my New Year’s essay this year was about the possibility of a Chinese invasion of Taiwan:
But I don’t think people should only — or even mainly — think of Taiwan in terms of its role in a possible war. There’s plenty to appreciate about this unique little island nation. In fact, I’ve written three posts about Taiwan in the past — one in 2021 before I even went, based on things my Taiwanese friends told me, and two others when I went there for the first time in 2022. Most of what I wrote then is still relevant today, so I thought I’d re-up those three posts for all my new readers to check out.
In my experience, Americans tend to have more awareness of some countries than others. Consider the rich countries of East Asia. The American mental image of Japan, though inaccurate in many ways, is pretty well-formed. Americans generally know that anime and video games and manga — things an increasing number of Americans enjoy — come from Japan, and they often have a mental image of dense, neon-lit Japanese cities and fast, efficient Japanese trains. Decades of exposure to Japanese popular culture, combined with a tourism boom in that country, have made Americans generally cognizant of Japan’s existence. Now, the boom in Korean pop culture is similarly making Korea a place that Americans think about.
But I don’t think Taiwan is on that list yet. You don’t really hear about Taiwanese pop music, TV, or other pop culture. Taiwanese food exists, but except possibly for bubble tea, most Americans probably wouldn’t recognize it.
This seems like something that ought to change. Most importantly, because Taiwan seems really cool. But also because it’s geopolitically important, because it’s probably the most likely flashpoint for great-power war.
Taiwanese people generally don’t think of themselves as “Chinese” anymore (Update: Here is a brief blog post of history explaining some of the reasons for this):
But China’s government disagrees pretty vehemently. In recent years, China has increased its bellicose and threatening rhetoric toward Taiwan. Its military has stepped up incursions into Taiwan’s airspace, and has modernized its amphibious forces for a possible invasion. In response, the U.S. has moved to establish closer ties with Taiwan, ramped up our own rhetoric against Chinese aggression. The U.S. is not sworn to defend Taiwan (as we are sworn to defend Japan), but as Biden’s nominee for Secretary of State, Antony Blinken, has stated forcefully that the U.S. will help Taiwan defend itself, and has warned China against an attack.
This means that there is a nonzero chance that the U.S. might find itself embroiled in a superpower conflict on Taiwan’s behalf sometime in the next decade. Which is a good reason for Americans to learn more about Taiwan.
But an even better reason is just that Taiwan is a very interesting and unique place. People can argue all day about whether it’s really a country (it is), but what’s more important is that Taiwan is a civilization.
Anyway, I myself am a complete newbie to Taiwan; I’ve never even been there. So here are just a few quick things I have learned about Taiwan since I started paying more attention to it over the last year. Obviously this is no real guide to Taiwan, just the very tip of the iceberg. But something to get Americans thinking.
Besides tensions with China, there was another big news item that made me more aware of Taiwan this year: Public health. Taiwan handled the COVID-19 pandemic better than just about any other nation, probably rivaled only by New Zealand. While Americans huddled inside their homes for fear of the deadly virus still rampaging through the population, Taiwanese people were eating in restaurants and partying in clubs by the fall. The U.S. has suffered more deaths from COVID-19 than it did in all of World War 2. Taiwan has suffered a total of 7.1
How did Taiwan do it? If it was just a matter of being a small island, Ireland wouldn’t have been hit hard. The painful experience of the SARS scare in 2002-3, combined with a highly competent bureaucracy, allowed Taiwan to respond quickly and effectively.
First, Taiwan’s leaders and people both understood that short-term pain would help prevent greater pain in the long run. The legislature passed a law giving the government sweeping new powers to fight the pandemic. Strict social distancing measures were implemented, along with comprehensive travel restrictions — two things America notably failed to do. It used digital tools to monitor people under home quarantine and implement a program of thorough and extensive contact tracing. Of course it tested people proactively, not waiting until they had symptoms. And the government’s high state capacity allowed it to enforce home quarantine effectively.
Of course, Taiwan’s people helped too. Instead of squabbling for months over whether masks worked, Taiwanese people simply went ahead and wore them as a precaution. You don’t see screaming anti-maskers getting violently thrown out of stores in Taiwan. You also didn’t see Taiwanese people rebelling against social distancing. They understood that a bit of pain today meant far less pain down the road. Americans refused to delay gratification; Taiwanese people sacrificed for a short time and reaped enormous benefits over the long term.
I firmly believe that America, despite doing some things well, has much to learn from other civilizations. And Taiwan’s public health system is a great example. It also has one of the world’s best health care systems overall, if not the best.
But note that despite Taiwan’s amazing public health care system and COVID-19 success, the World Health Organization won’t allow it in, due to Chinese political pressure.
As you can see in the fun video above (made by the Taiwan Street Dance Art Association, and filmed in one take!), Taiwan’s capital Taipei is a very dense city, but also a beautiful one with lots of greenery and a fair number of traditional-style buildings as well. Though I’ve never been there, you can get a good idea for what the city feels like from scrolling through the @TaipeiUrbanism Twitter account or watching YouTube videos. Actually, this music video gives a great sense of the landscape, including some shots of apartment interiors. It’s immediately noticeable that the city resembles Japanese cities, but with more trees and grass.
A great quick primer on Taipei’s history and planning is this thread by urbanist Alfred Twu. Unlike San Francisco, but more like Paris, Taipei has a lot of 5 to 7 story residential buildings. They generally don’t look as shiny and new as those of Tokyo (which scraps and rebuilds most buildings every 30-40 years), but Taiwanese interior design is pretty legendary. The abundance of greenery combined with the slightly dilapidated dense architecture gives much of the city a very solarpunk look.
In order to promote efficient land use, Taipei uses policies best described as Georgist, discouraging empty lots and having the government lease buildings to the private sector. In fact, Georgism is part of Taiwan’s history, with agricultural land reform policies famously documented in the book How Asia Works.
Taipei is a very walkable city, with great public transit, including one of the world’s best subway systems. As Twu notes, there are lots of businesses on side streets. The Ximending shopping district reminds me a bit of Shibuya in Tokyo — a dense neon maze of multi-floor retail (but again, with more trees than Japan).
As a result of dense urban planning and high-quality transit, middle-class and working-class people are able to live in the city center. As Twu shows, the income variation along Taipei’s metro lines is much less than in Hong Kong or the San Francisco Bay Area. Unfortunately, housing costs are a problem, as in most big cities nowadays; unlike Tokyo, Taipei hasn’t been able to build itself out of trouble. But homeownership rates are very high — 84%, compared to 33% in New York City.
Taipei is not large — just 2.6 million people in the city proper, and 7 million total in the metropolitan area. But it seems like it deserves to be higher on people’s list of tourist destinations, and deserves to be included in conversations about how to build a functional, inclusive, beautiful city.
For much more, just check out @TaipeiUrbanism.
Taiwan has one of the most progressive societies, if not the most progressive, in Asia. It was the first Asian country to legalize gay marriage, and sports a vibrant gay culture. Taiwan ranks as one of the most gender-equal societies in the world, equivalent to Norway and higher than France on the commonly used GII scale. The President, Tsai Ing-Wen, is a woman, and women make up 42% of the legislature. The country has actively pushed for gender equality in business, and the gender pay gap, at 14% in 2018, is smaller than in the U.S.
Taiwan has also made vigorous attempts to recognize, celebrate, and preserve the culture of its indigenous people, who make up 2% of the population (and have a political party that holds 7% of the seats in the legislature). The island is also starting to open up to immigration.
As a result of all this and more, Taiwan is gaining a reputation as a tolerant, progressive society — a rarity in mostly conservative East Asia.
It’s difficult to say why this is true, but according to my Taiwanese friends, part of it might stem from the island’s history. Though independent for most of its history, it was colonized multiple times — by the Netherlands in the 1600s, China in 1683, and Japan in 1895. This forced it to deal with social frictions between the various waves of colonizers, immigrants, and settlers, and also gave it a yearning for self-determination and freedom from outside powers.
Though Taiwan was a dictatorship for decades after being invaded and settled by the defeated Nationalists of China in 1949, it began democratic reforms in the 1980s. In 1990, student movements protested for full democracy and direct elections, and they won. Today it’s one of the world’s most democratic places, with a Polity score of 10 (compared to the U.S.’ 8) and a Freedom House score of 93 (compared to the U.S.’ 86).
Democracy isn’t just a system in Taiwan; it’s an ideology. Instead of cracking down on protesters, the government has made strenuous attempts to listen to their concerns. In a world struggling with the challenge of social media-driven unrest, Taiwan is experimenting with new forms of radical digital democracy. Some legislation in Taiwan is now effectively crowdsourced via an online platform called vTaiwan and a discussion platform called Polis that is explicitly designed to foment understanding and (eventually) consensus instead of dunks and meme wars.
At the forefront of the movement for digital democracy is Audrey Tang, one of the country’s most heroic figures.
A legendary hacker (who also happens to be transgender and identifies as “post-gender”), Tang was once a protester, but was later invited into the government as a minister without portfolio, where she has worked to implement digital democracy and also helped with the COVID-19 response. It was in part thanks to the efforts of Tang and the far-sighted liberalism of the Taiwanese government that Taiwan was able to impose strict distancing measures in a way that still made the populace feel included and heard. (You really should read or listen to this podcast, where Tang offers thoughts on many aspects of Taiwan that I discuss in this post, and more besides!)
Taiwan’s dedication to democracy and inclusion has effectively become an ideological battle with China — and an extension of the conflict embodied in the Hong Kong protests. In a recent interview, Tang declared: “The crackdown of Hong Kong is hinged on the premise that, if you have too much democracy, it will hurt, I guess, stability, harmony, economy…We have a responsibility to show that democracy works, and not just lockdown or top-down or takedown.”
There are even some signs that Taiwan may end up exporting its ideology of participatory democracy to other parts of the region. Already, Tang is getting a lot of attention in Japan, where the Hong Kong protesters have already attracted a sympathetic following among the youth. If there is an East Asian ideology of radical democracy emerging as a counter to China’s vision on authoritarian stability, Taiwan will likely be at the center of it.
This is all very serious stuff, but Taiwan is also famous for fun. And the two most famous fun things to do in Taiwan are food and clubbing.
Taiwanese food is a blend of Chinese and Japanese cuisine. Noodles and hot pot feature prominently. Street food is also popular, especially in Taiwan’s famous night markets, where you can just wander from stall to stall eating delicious stuff.
Here’s Anthony Bourdain’s episode in Taipei.
The other legendary piece of Taiwanese nightlife is the clubbing scene. I haven’t experienced this myself, obviously, but I had a number of friends who moved to Taiwan during the pandemic who sent back copious photos and reports. Anyway, here is a video where a slightly goofy European man takes you on a quick and spectacular tour through the Taipei nightclub scene. The big “mega clubs” seem to be especially popular.
So Taiwan is a pretty impressive civilization. Why aren’t more Americans aware of it? The island’s small population — just 24 million people, less than half the size of South Korea — and its disputed independence are probably part of the reason. Another is that despite having very cool urbanism, food, nightlife, and a liberal society, Taiwan doesn’t have a world-beating entertainment industry like Korea or Japan. If I were in the Taiwanese government, I would be thinking hard about how to get Taiwanese entertainment products onto teenagers’ cell phones around the world.
Another thing the government could do is to increase tourism from regions outside East Asia.
The food, nightlife, beautiful scenery, hiking, and rich history and culture should be enough of a draw (I certainly plan to go as soon as I can), but the government needs to advertise.
In any case, I’m optimistic about Taiwan’s mindshare in America. The pandemic, and Taiwan’s stellar performance, hopefully marked a turning point. It’s my hope that in the years to come, more and more Americans are going to start paying attention to this small but plucky island civilization, because it’s really pretty cool.
When I first set foot in Taipei, I had a disorienting sense of being back in Japan — so much so that I kept expecting people to drive on the left side of the street. So much of the infrastructure in Taiwan looks and feels Japanese — the pavement, the building materials, the signs at the airport. People cite this as a residue of the colonial period, but given that the colonial period ended 77 years ago, it’s probably more due to Taiwanese architects, urban planners, and engineers continuing to look to Japan for inspiration.
After a few minutes, however, the sense of Japan-ness faded, crowded out by two key features of the Taipei landscape: lush greenery and shabby building facades.
Taipei is much greener than any Japanese city I’ve seen — towering trees line thoroughfares, dense bushes sprout next to storefronts, vines and houseplants explode from balconies, there are patches of grass over which Japanese developers would have long ago poured concrete. This gives Taipei a very natural feel, unlike Japanese cities, which can feel like being inside a giant spaceship.
Conversely, where nearly every exterior surface in Japan looks immaculate and new, Taipei is filled with buildings that look like they haven’t been refurbished since the 1960s — bare concrete streaked with stains and pockmarked with crumbling patches, ancient window-shaker AC units sprouting from dingy balconies. There are plenty of new buildings too, but not enough to overcome the sense of lush decay that one gets whenever one looks up at the building facades. The overall aesthetic is that of a ruin in a rainforest.
This is all during the day, of course; at night you can’t see the towering concrete, and the electric signs light up, and the city acquires more of the standard “Asian megacity” feel of Hong Kong or Seoul.
At ground level, Taipei offers a unique shopping experience. The streets are lined with nice little shops and restaurants — and when I say “little”, I mean tiny even by Japanese standards. These are almost all on the first floor, as in most cities. Unlike the concrete facades of many buildings, these shops are fresh and cheery and clean and new-looking. There are far fewer boutique clothing stores than in Japan, but restaurants seem to largely make up the difference. The food is every bit as good as you’ve heard — eating is one of Taiwan’s favorite pastimes. Craft stores are also common, and the quality seems very high. I noticed quite a few jewelry stores, which seems odd in a country where everyone seems to dress down.
One innovation of Taipei street design is that there are covered sidewalks everywhere, presumably to protect from the sort of constant light drizzle that has suffused the city every day I’ve been here so far. Walking along shop-lined streets thus feels a bit like being in a covered shopping arcade.
Getting around Taipei is very easy. The central city is very dense and compact, comparable to San Francisco (though the municipality includes some outlying areas); many places can be reached on foot. The subway is convenient, though for some reason Google Maps keeps telling me to take the bus instead.
But the main way that people seem to get around in Taipei is on the roads. The city is a grid plan of huge thoroughfares with smaller, less regular streets filling in the gaps between:
This is a much different experience than walking through NYC or Tokyo. NYC is a dense grid of small-to-medium streets, while Tokyo is pretty much a mess of winding paths with only a few giant roads. Here’s a map of Ikebukuro, one of Tokyo’s downtown districts, on the same scale as the map above. You can really see the difference.
These different road layouts are probably one reason why Taipei feels a little more car-friendly and a little less pedestrian-friendly than Tokyo; in Taipei you’re never very far from a giant river of fast-moving cars.
The real kings of the Taipei streets, however, are the scooters. It seems like everyone in Taiwan has a scooter, and they move down the roads in giant floods:
Scooters also zoom down the side streets, which makes walking down these streets less comfortable than in Tokyo. In Japan, cars share the narrow side streets with pedestrians, but drivers move very slowly and defer to people on foot. In Taipei, scooters zoom down the side streets at pretty high speed, attempting to circumvent pedestrians without slowing down too much. This makes walking down Taipei side streets a little less comfortable than in Japan — you’ve got to stay a little more alert.
Scooters overall are not the safest mode of transport; Taiwan’s rate of traffic injuries exceeds that of the (unusually dangerous) U.S., and its death rate is about the same. You might think Taipei should switch to bicycles, but the high density of gigantic roads makes this difficult. Scooters also contribute to air pollution (though industry and electricity are bigger sources). The Taiwanese government should make a concerted effort to switch to electric scooters and cars, which would make Taipei’s air a bit nicer and reduce the sound from the big roads (though they’ll probably have to add some sound back in for scooters to make sure pedestrians can hear them coming). In the long term, though, I think Taiwan should try to shift from scooters to bicycles (including e-bikes), by providing protected bike lanes along big roads. They should also build out more trains, taking a cue from Tokyo.
Although I haven’t had a chance to gather a large sample yet, another difference between Taipei and Tokyo seems to be the size of the interiors; Taiwanese apartments are more spacious. Good data is hard to find, but most sources seem to confirm this. Overall, Taiwan seems to have done a decent job of ensuring affordable, abundant housing near the city center.
In any case, if you’re interested in Taipei’s urban layout and policies, I recommend this Twitter thread by the ever-excellent Alfred Twu:
The first thing I noticed about Taiwan was how laid-back everybody seemed. Megacities like New York, Tokyo, and Shanghai are suffused with a frenetic energy; in Taipei everyone just kind of seems to saunter along. People are not in a hurry, they are not obsessed with details and busy-work. In eleven days in the country, I didn’t once hear raised voices, or witness a disagreement of any kind, or see two people get in each other’s way. In Japan people dress up to go to the convenience store; in Taiwan people in trendy neighborhoods look like they shop at Target. When I asked Audrey Tang, the Minister of Digital Affairs, why Taipei doesn’t renovate more of its dilapidated old buildings, she replied “There’s no social pressure for that.”
Oh and by the way…I met Audrey Tang! Thanks to her ideal of radical transparency, a public transcript of our discussion will be published in a few days. The way we met was extremely in keeping with my impression of a laid-back Taiwan — I randomly met a friend of hers at a networking event, and he just shot her a quick email. Tang is a bit of a personal hero of mine, and the conversation lived up to or exceeded my high expectations in every way. (If you really want to see her expound at length, check out her interview with Tyler Cowen.)
That’s just the way Taipei is — the feel of a small town with the amenities of a big city. It’s interesting that I came to Taipei directly from Amsterdam, because the two cultures remind me a bit of each other — the quiet laid-back attitude, the social tolerance, the (often annoying) scooters. The gender equality and gay rights as well, and the extremely low crime. Branding Taiwan the “Netherlands of Asia” might be a bridge too far, but it’s probably a future many in Taiwan would aspire to.
The Netherlands was a small country that for a long time resisted domination by bigger, more aggressive neighbors, though it eventually established its own empire — which, interestingly, included Taiwan for a while. Taiwan has spent most of the last 500 years as someone’s colony — first the Dutch, then a gang of Ming Dynasty loyalists and pirates, then the Qing Dynasty, then the Japanese. The final episode of colonization was when China’s defeated Nationalist government fled to the island with 2 million of their supporters, brutally dominating and suppressing the 6 million locals. Though Taiwan is a liberal democracy today, and the distinctions between the descendants of the Nationalists and the descendants of earlier settlers have faded quite a bit, this historical episode does lurk a bit beneath the surface of Taiwan’s modern-day political divides.
Culturally, Taiwan is very much not China, and this becomes apparent as soon as you leave the airport. The food — and food is Taiwan’s national pastime — is obviously Chinese-derived, but is really its own thing. It blends all the regional cuisines of China into a mishmash, because the Nationalists came from everywhere, and it adds touches from Japan, but it also has plenty of the purely original flourishes that emerge from any rich consumerist society. Milk tea is everywhere, as you might expect, though tastes have moved beyond the classic boba formula. The urban layout of Taipei, the signage and architecture and design, are definitely not Chinese, nor are they Japanese; they’re something new and recently made. Almost two years ago I wrote that “Taiwan is a civilization”, and I stand by that formulation.
What can you say about a whole civilization after just eleven days? I’ve lived more than three decades in America, and my own society constantly finds new ways to astonish and confuse me. Maybe nobody ever really knows what any place is like. All you really get are hints and feelings.
Taiwan feels like a highly individualistic place. Twice I found myself in a bar where there was just one person dressed in full punk rock regalia. Sometimes it seemed like everyone has their own small business. The locks on my Airbnb door were ad-hoc, hacked-together electronic gizmos. Lots of people make up Anglophone names for themselves, and some change it on a whim; I’ve met Taiwanese people who went by “Annester” (a portmanteau of “Anne” and “Chester”) and “Uniko” (from “unique”). There are little touches of cuteness everywhere — not the Japan kind of cute, or the French kind, but something unique to Taiwan.
Individualism seems to infuse the country’s politics as well, at least among the younger generations. The 2014 Sunflower Movement — which opposed a deepening of entanglement with China — featured various experiments in radical democracy and digital activism, in which Audrey Tang herself played a role. It gave rise to various follow-on waves of activism, provided inspiration for Hong Kong’s Umbrella Movement, and spawned a generation of idealistic and often highly original politicians. Some of the Taiwanese people I talked to brought up this movement in casual conversation, speaking of it with great pride.
My sense is that this individualism goes hand-in-hand with Taiwan’s general laid-back-ness, and its tolerance — when nobody is snapping at you to fall in line, you learn to pretty much do what you like. At times, Taiwanese self-expression can border on the goofy. Coming from me, that’s a compliment.
Why shouldn’t people be able to live this way? Why should a society be consumed with dreams of empire? Unlike the Netherlands, Taiwan is never going to conquer anybody — they’re just going to keep living their lives, strolling to the tea shop in loose-fit jeans, running their businesses in the day and raising a glass in the bars at night.
Unless, of course, someone else’s dreams of empire intrude. Taiwan exists under a sword of Damocles — an ever-present threat of invasion, conquest, and destruction by the People’s Republic of China. In the 2000s those threats eased up, but they have intensified alarmingly since the pandemic. I asked a number of Taiwanese people about the threat of war, and they were surprisingly nonchalant. The threat of Chinese invasion has always been present, they tell me; this is nothing new. It’s “the same as earthquakes,” Audrey Tang told me with a shrug. Sometimes disasters happen. If their country is invaded, Taiwanese people say they’ll fight, just as the Ukrainians fought. But until then, why worry?
That insouciance belies the urgency of the need for preparation. Taiwan’s military strategy and culture need deep reforms (which, thanks to the Ukraine war, they may finally be getting). On top of that, the country could probably stand to build a network of bomb shelters linked by deep tunnels, in case of saturation strikes by Chinese missiles. No matter what preparations Taiwan makes, of course, it won’t be able to indefinitely resist a country 60 times its size without external help. I predict that it would get that help, since China probably wouldn’t risk an invasion without first attacking U.S. bases in the area, touching off a wider war. But I digress.
Why should a peaceful, prosperous, gentle country like Taiwan be forced to prepare for the threat of invasion and bloodshed? There is no principle of human morality or justice that says they should have to. Instead, it’s purely the law of the jungle; there are predators in this world, and they will conquer what they can until they are stopped. China’s leaders want to conquer Taiwan not just because they want to rival the old Qing dynasty in territorial extent, but because Taiwan represents something to them that they can’t abide — an alternative blueprint for Asia. Perhaps even more than Japan or South Korea, Taiwan shows people in China and its satellite states what they’re missing — a way of life where people can just be themselves, instead of living in service to a grand empire.
In some ways, Taiwan shows Americans what we’re missing, too. I found Taipei to be something of a haven for Asian American expats, partly because of linguistic and family ties, but partly because it offers America-like consumerism and opportunity with Netherlands-like safety and tolerance. Taiwan hasn’t yet caught on as a travel destination among the broader American populace, partly because it hasn’t yet managed to replicate the pop-cultural appeal of Korea and Japan. But if you’re thinking of taking an overseas trip to see a cool new place, Taiwan would be at the top of my recommendation list. I liked it a lot. It was cool. Long may it stand.
Note: This was written in early 2021.
2025-01-08 16:02:28
Canadian Prime Minister Justin Trudeau just resigned. The immediate cause of his resignation is obvious — his party is doing terribly in the polls, and there’s an election coming up this year:
Canada’s Liberals are probably going to suffer the same fate as incumbent parties all over the developed world, but their best chance to avoid it was probably to dump Trudeau. So they forced him out.
The deeper causes of Trudeau’s unpopularity are less clear. There’s the inflation factor, of course, which has produced rumblings of dissent all over the globe. Though it’s notable that Canada’s inflation peaked at a lower value than America’s, and came down just as quickly:
Trudeau also suffered from a number of personal scandals. He suffered a major corruption scandal in 2019, and was found to have appeared in blackface a number of times in his youth.
Then there are sociocultural issues. In recent years, Canadians have grown less supportive of the country’s high immigration rate:
A September poll by Environics Institute, which has tracked Canadians' attitudes towards immigration since 1977, revealed that for the first time in a quarter century, a majority now say there is too much immigration…The institute said these shifting attitudes are primarily driven by concerns over limited housing. But the economy, over-population, and how the immigration system is being managed were also cited as big factors…In an October newsletter, Abacus Data pollster David Coletto said that the idea that "consensus around immigration is cracking is an understatement".
Trudeau and the Liberals have presided over a shift in the type of immigrants coming to Canada. Traditionally, the country focused on high-skilled immigration; nine years ago, when Trudeau had just come to power, I called it the world’s best immigration system. But by the time I wrote that, the country’s leaders had already opened the country up to far more lower-skilled temporary workers, especially under the International Mobility Program. Trudeau continued this trend, and by the time the pandemic rolled around, most foreigners coming into Canada were of the temporary variety:
Trudeau also vastly increased the number of foreign students, many of whom started claiming asylum after entering the country on student visas. Even the traditionally tolerant, welcoming Canadians may have seen the opening up of true mass migration as a bridge too far. Trudeau’s deemphasis on assimilation, and his declaration that Canada has “no core identity”, probably exacerbated fears of cultural change. The flood of temporary workers has contributed to rising rents, despite a modest boom in homebuilding.
Nor is immigration Canada’s only cultural sore point. There’s the country’s vastly expanded use of euthanasia, with all of the attendant moral hazard. There’s a big fight over trans issues. In general, Canada is suffering a similar backlash against “wokeness” to what is occurring in the U.S. and the UK, with perhaps a slightly greater lag.
But on top of all of that, there’s Canada’s economic stagnation. As you can see from the chart at the top of this post, Canada’s income levels grew in tandem with America’s from 1991 to 2014. But then starting in 2015 — the year Trudeau was elected — the two diverged. Let’s post that chart again, with a marker for Trudeau’s term:
This stagnation is unlikely to have begun with Trudeau, since the timing is off. Trudeau only took power at the end of 2015, and his policies are unlikely to have had a major effect on Canada’s economy until years later. Instead, the primary culprit behind Canada’s initial stagnation in the mid-2010s is pretty easy to see: it’s oil prices.
Canada isn’t quite a petrostate, but ever since the development of the tar sands, it has been moving in that direction. Oil and related products are Canada’s biggest export category:
Overall, the industry is responsible for over 6% of Canada’s GDP. But that understates oil’s importance, because exports generate local multipliers — the money that comes in from exports gets spread around domestically, generating yet more economic activity. So oil is quite important for Canada.
And in 2015, oil prices took a big tumble, from which they never recovered:
When the price for your top export gets suddenly cut in half, you will suffer economically. Perhaps Canada didn’t have to suffer quite as much as it did, but this was never going to be a fun or easy process. The oil price collapse is one major reason that Canadian business investment plunged in 2015:
But it’s Canada’s weak performance in the years since the pandemic that really sets it apart. On the surface, things might look like they’ve gone OK — Canada’s total GDP rose by a healthy amount in 2021-2023, lagging only a little behind America:
But this is an illusion, created by Canada’s huge admission of temporary migrants during those years. In per capita terms, the country’s living standards underperformed the entire rest of the G7, even as America’s soared:
In fact, Canadian opposition leader (and likely next prime minister) Pierre Poilievre posted this chart — with the source and watermark removed — as evidence of Trudeau’s failure.1
Oil prices aren’t a good explanation for this post-pandemic stagnation, since they’ve risen significantly since 2019. Nor did oil production collapse under Trudeau — despite the investment drought, Canadian crude production hit an all-time high in 2022 and again in 2023, as did crude oil exports. But Canadian business investment has stayed low, and living standards have flatlined and begun to fall, nonetheless.
What’s going on? Some of the negative trends in Canada’s economy are long-term things. For example, Canada’s productivity growth has been strangely slow for decades:
(Actually the slowdown began in the 1980s, but this nice-looking cross-country comparison chart only begins in 1990.)
This long-term productivity stagnation has been masked by the steady rise of oil. In fact, despite the price crash and the accompanying investment drought, Canada has become much more of a petrostate since Trudeau took office — crude oil was only 12.5% of Canada’s goods exports in 2015, compared to 20.9% in 2022.
It’s Canada’s non-oil business sector that has failed to raise productivity since the 1980s, and which has done even more poorly under Trudeau.
RBC, the biggest Canadian bank, has a good report on some of the long-term regulatory and tax issues that hold back Canadian productivity and business investment. Here are a few excerpts:
Some of the causes of Canada’s long-term slowdown in economic growth are well-known and clear. Let‘s start with an inefficient regulatory and administrative approval system at all levels of government, which has unintentionally increased internal barriers to trade and growth. Infrastructure chokepoints and red tape further make international trade more difficult than it should be. Those have contributed to lower Canadian business investment, and with that, an overweight of capital going to buildings and construction, which, while valuable to the economy, don’t do as much for growth as machinery and intellectual property do…
A patchwork of regulatory and administrative rules across different municipalities and provinces is complicated and unintentionally restricts trade within Canada…The International Monetary Fund has estimated that internal trade barriers (for example, regulatory differences across regions, paperwork requirements for businesses in multiple jurisdictions, and certification differences that limit labour mobility) cost the equivalent of a 20% average tariff between provinces…
In 2020, Canada ranked 188th out of 208 economies tracked by the World Bank on the number of days businesses spent dealing with construction permits for new projects. That is three times longer than time spent in the U.S…
Red tape also makes it more expensive for companies to trade across international borders. Actual tariff rates on international trade in Canada are low, but Canada ranks poorly (51st globally) in the ease of trading across borders in large part due to high administrative costs associated with importing and exporting.
The report also provides a sobering reminder that human capital isn’t the only thing you need for growth. Not only has Canada taken in tons of skilled immigrants over the years, it has spent a huge and increasing amount on educating its own populace, and has sent more and more of its people to college, only to see productivity stagnate.
But what has Trudeau himself done to make things worse? A 2023 report by the Fraser Institute is frustratingly vague, citing anti-business attitudes and a reliance on government debt and fiscal stimulus. But the the latter should actually boost growth in the short term — after all, the U.S. did far more deficit spending than Canada during and after the pandemic, and it has enjoyed much faster growth.
And the effects of anti-business attitudes are hard to quantify. Tax policies are something you can measure, but these were ambiguous — Canadian corporate taxes actually fell under Trudeau, but capital gains taxes went up2 and Trudeau created a new carbon tax. As for regulatory burdens, these are undoubtedly important, but no one really knows how to estimate them. Is it possible that Trudeau’s general leftishness created a climate of uncertainty for Canadian businesses that held them back from investing? Sure. But it’s hard to tell whether that was really a factor behind their decisions, or just something some of them said to reporters.
The fact is, no one seems to really know what’s behind Canada’s low productivity growth. Observers agree that low rates of corporate investment, including investment in R&D, are the problem, but no one seems to have a good explanation for why companies aren’t investing. And no one seems to know whether Canada’s especially bad performance since the pandemic is just an exacerbation of the existing negative trends, or whether some new problem has cropped up in addition. The most careful analyses, like the one by RBC and a 2023 paper by Rosell et al. of Finance Canada, point their fingers at a variety of long-term factors. Whether Trudeau’s administration exacerbated any of those factors in a meaningful way remains a mystery.
What seems pretty clear, though, is that Trudeau didn’t try very hard to fix any of Canada’s long-term problems. Even as the problems of low investment, low innovation, and low productivity went from bad to worse, and even as lower oil prices meant that petroleum exports could no longer be a band-aid on Canada’s deeper issues, Trudeau’s administration failed to mount a serious effort to get companies to invest and innovate more, or even to investigate the root causes of the country’s stagnation. It’s not clear whether Trudeau could have fixed what ails Canada, but he didn’t even seem to realize something was amiss.
Instead, he seemed to believe the commentators who declared that total GDP growth was all that matters, bulking up his economy on the cheap carbs of mass low-skilled immigration without producing any underlying strength. Trudeau may not have actively sabotaged the Canadian economy, but he certainly didn’t do much to turn the ship around. Let’s hope Poilievre can be a bit more proactive.
Failing to credit Joey Politano for the chart was an act of rudeness rare for a Canadian. Speaking on behalf of Americans, we vow to retaliate by habitually mispronouncing Poilievre’s name as either “Polliver”, “Poiliver”, or possibly even “Pollivee”.
Capital gains taxes technically don’t go up until 2025, but businesses tend to see higher taxes coming well in advance, and make decisions accordingly.
2025-01-06 15:08:11
I spent much of the last four years cheerleading for President Biden’s industrial policies. I still don’t think that was a mistake. The CHIPS Act, the Inflation Reduction Act, and other Biden initiatives engineered the first boom in U.S. factory construction in my entire lifetime. And almost all of that investment was private investment — all it took was a few relatively small subsidies and some government guidance to prod companies to pour tens of billions of dollars into building chip factories, battery factories, etc.
TSMC Arizona, which was sort of the flagship test project for Biden’s policies, is now churning out advanced chips and achieving excellent yields. American battery manufacturing is soaring. Solar, too — under Biden, the U.S. has become third in the world in solar panel manufacturing, up from 14th place in 2017. These are all real, impressive accomplishments. We should not forget them — instead, we should continue, expand, and constantly improve the policies that made these things possible.
Biden began the Great Rebuilding of America, and he deserves to be remembered and praised for that.
But at the same time, Biden’s approach to industrial policy suffered from some deep, fundamental flaws that the administration stubbornly refused to acknowledge or correct. Roughly, Biden’s two big industrial failures were:
Prioritizing the power of special-interest groups over the good of the public
Refusing to address regulatory barriers that inhibit government action
These failures weren’t simple omissions or flubs — they were fundamental to the progressive economic ideology of groups and individuals that were highly influential within the Biden administration. These allies, which included the Roosevelt Institute, Elizabeth Warren, and a variety of other groups, served as key sources of ideas and personnel. They fundamentally failed to grasp several key facts about America’s current political and economic reality:
They failed to realize that building power within the Democratic party is not the same as building enduring power in America.
They failed to understand the degree to which the U.S. regulatory environment hobbles the government.
They failed to understand the economic implications of the transition from a deflationary environment to an inflationary one.
It will be up to the Trump administration, and to Republicans in general, to correct these flaws while preserving the successful parts. If they do this, it will be great, but it means that the fate of America’s reindustrialization is now in the hands of people who were largely skeptical of industrial policy in the first place. If you’re a Democrat or a progressive, that’s not the best outcome.
No decision embodies the shortcomings of the Biden administration more clearly than the President’s blockage of Nippon Steel’s bid to acquire U.S. Steel. Before the election, this could be seen as a strategic move — an attempt to avoid a small but strategically placed working-class constituency in Pennsylvania. But doing this after the election has absolutely no political purpose — it’s a purely ideological move.
Diplomatically and geopolitically, blocking the acquisition was a huge mistake — a blatant, aggressive poke in the eye to America’s closest and most important ally in the most important region of the world. Biden’s executive order cites “credible evidence” that Nippon Steel “might take action that threatens to impair the national security of the United States”, without citing that evidence or specifying what those actions might be.
This is ridiculous. At a time when Chinese manufacturing is ascendant and the U.S. and Japan need to be cooperating closely on their joint reindustrialization, Biden’s decision treats an ally like a foreign enemy. This led most of Biden’s senior advisors to oppose his blockage of the deal:
Over the last several months, more than a half-dozen senior administration officials — including Sullivan deputy Jonathan Finer, Secretary of State Antony Blinken, his deputy Kurt Campbell, U.S. Ambassador to Japan Rahm Emanuel, Treasury Secretary Janet L. Yellen, Chair of the White House Council of Economic Advisers Jared Bernstein and top Commerce officials — argued against or expressed reservations about the position Biden ultimately took, said officials familiar with the deliberations.
Several aides stressed that Japan is the United States’ most crucial ally in East Asia and one of its most dependable, as the two nations have significantly strengthened a military alliance in the last few years. Sinking the deal could strain that relationship, they said. Japan, they noted, also tops the list of foreign country investment in the United States.
But in pure economic terms, the move is just as foolish. U.S. Steel is a dying corporation that has failed to invest in new capacity or modernize its technology for many decades now. Nippon Steel, a much healthier giant, promised to invest more, preserve union contracts, offer workers $5000 bonuses, issue various investment and employment guarantees, modernize American steel plants, and so on.
Because of this, many union steelworkers supported the deal. Here’s a story from Clairton, PA:
Hundreds of steelworkers stand in the 26-degree chill outside the local U.S. Steel plant at a pep rally of sorts, broadcasting their defiance and their desperation to the leaders that they believe have abandoned them…On this mid-December afternoon, the crowd claps and cheers as more than a dozen speakers demand that the government approve Nippon Steel’s proposed $14.9 billion purchase of U.S. Steel…The targets of their appeal include the White House, Congress — and their own union leadership…
“This incredible deal will solidify our jobs for decades to come,” Jason Zugai, a local United Steelworkers union leader, tells the crowd…[S]teelworkers from U.S. Steel facilities in Alabama, Indiana and Minnesota joined the Clairton rally by video link.
