Frederik Pohl said that, “A good science fiction story should be able to predict not the automobile but the traffic jam”. In other words, predicting the iPhone isn’t exciting – Star Trek saw it coming forty years ago. Star Trek definitely never saw Snapchat coming. It’s why good science fiction is so darn interesting – the rare moments where someone sees the new ways that human’s traditional absurdity will keep on keeping on.
Ancient Hebrew tradition was marked by a regular “Debt Jubilee”, wherein all debts were forgiven every 7 years. The idea is to give every citizen the chance at a fresh start, The idea entered leftwing discourse recently as a result of David Graeber’s book Debt, and became a fixture in the rallies of Occupy Wall Street. One of their neater initiatives, which seems to have fallen apart in practice, was called the “Rolling Jubilee”. The idea was to raise donations and use them to purchase defaulted consumer debt at pennies on the dollar, and then forgive them. It’s an incredibly cost-effective way to completely transform the life of someone who has fallen on hard times. However, the general debt forgiveness idea is kind of interesting to ponder.
First and most obviously, it would raise the nominal cost of credit. Lenders know precisely when debts will be forgiven, and so can calculate exactly when the principal will be invalidated. Interest rates will skyrocket, especially for larger assets on long amortization schedules (e.g., houses). Interest rates would be much higher. If one believes in efficient markets, and that’s probably a good heuristic here, then there’s no net change in credit availability. Borrowers will never have to pay back lots of principal, but debt will get more expensive in terms of interest and will have principal repayments timed before the Jubilee. Even if credit availability is the same in aggregate, only rich people are liquid enough to afford it. Except for payday loans and other extremely short-term collateralized credit. More intriguingly, the cost of credit rises in a regular cyclical fashion.
It would introduce bizarre temporal effects. Immediately after a Jubilee, lenders can lend out at a 7-year maturity schedule, confident that it will be repaid without interference from the Jubliee. One year later, they can do so on a 6-year schedule, and so on. So loan interest rates will be lower at the start of the 7-year interregnum and rise afterwards. It would provide an exogenous stimulus for boom and bust cycles too; financing would flow freely immediately after Jubilees for construction projects and personal loans. There’d be a huge spurt of economic activity. At the end of the cycle people would shift out of debt assets in favor of assets that survive the Jubilee. There would be an entirely predictable boom-and-bust cycle – though one without recurrent financial crisis, since the underlying exogenous driver is universally understood!
Revolving credit would probably be severely impacted. Term-limited debt can survive through the magic of market-set interest rates – potentially at the same level of availability as before, if the market is truly efficient. But revolving credit would be severely impacted because strategic default looks like a much better option. Just keep rolling the debt over until the Jubilee, and voila, it vanishes. The only way lenders would still offer revolving credit is with much more encumbrance than today – harsh contractual payment minimums and collateral requirements. The net effect of the Jubilee is (possibly!) small on loans and a huge drop in revolving credit.
In terms of effects, the result of the Jubilee is to dramatically diminish the role of debt in society. It will primarily become a tool for those with pre-existing liquidity, while the illiquid scrape by with what they can earn. Homeownership declines dramatically. Consumer saving rises dramatically, as consumers can no longer count on debt financing to bridge significant one-time costs or a hit to earnings. Consumer spending drops dramatically for the same reason. Most likely there is a decline in structural growth potential and a drop in living standards for the non-wealthy. The Jubilee seems cool, and the idea of freeing workers from the chains of debt is an appealing one, but the substantive consequences seem on balance probably bad.
Hence the old saying, “What works in a premodern agrarian tribal society is often inappropriate for a modern postindustrial economy.” I think Ben Franklin coined that chestnut.
It doesn’t shock me that people don’t believe in global warming. First and most simply, it’s easier not to! The evidence for it is somewhat fragmentary and second-order, and it’s not as if one can point at a single event or datapoint to settle the issue. Even beyond that, there’s what is called the “backfire effect”, coined by Brendan Nyhan. That’s when a correction actually enhances prior beliefs. Perhaps, say, when a scientist or a snotty ex-vice president says that actually climate change is totally real.
Conservative voters may not believe in global warming, but big business definitely does. The Miami Herald has a nice story on how real estate investors are starting to get a little antsy about Florida real estate. It’s pretty hard to amortize investments on a 40-year timeline if the asset’s underwater. And from my days in the consulting industry, I learned that large insurers are taking the threat of climate change extremely seriously.
It seems like the market might do the ultimate job of getting across the danger of climate change. As financing costs for coastal real estate climb, and customers are flatly told that they it will be hard to finance a house in an area subject to sea level rise, maybe the message will sink in. This is the market optimist take on global warming – that insurance is playing a key role here. If the people assuming financial risk are actually wise to it and are realistically evaluating it, that will handle a large part of the dislocation involved in adjustment.
Still doesn’t solve the question of what to do with Miami, though…or New York City, for that matter. The role for financiers is mainly on the margin, affecting the incentives around new development. The risk that the government will poorly handle the new reality should be much more concerning.
One interesting election result this week was the failure in Washington of a ballot measure to mandate the labeling of genetically modified organisms (GMOs) in food. I am pretty unfamiliar with the law in question, but did quite a bit of reading on the topic last year when California was proposing a similar law (Prop 37).
In short, it’s a poor idea. There is basically no evidence that GMOs are harmful, and Americans have been happily munching on them for twenty years. On the other hand, they do carry huge benefits – lower-priced food that is often grown with much less pesticide exposure than unmodified crops. Pesticide, we’re fairly sure, is bad. The law in California would have created a huge compliance headache, most likely would have seriously impacted the price of produce, and would generally act as a regressive tax on those least able to bear it. That’s not just consumers – it’s also small producers. Most egregiously, there were huge exemptions that belied any conceivable public health rationale – including meat, dairy, and almost all packaged goods and prepared food. In other words, the vast majority of GMOs people actually consume.
Aside from the narrow policy merits, I dislike the message it sends on the issue. There’s no real credible reason to believe that GMOs are bad for you, and if you personally believe that you can avoid them. Merely getting the issue on the ballot suggests that this is a legitimate argument for debate, and endorses reactionary skepticism of science. If it were to actually pass, the implicit message of these labels is that the government is telling you to avoid GMOs.
At the same time, this isn’t really a generalizable principle. There are plenty of times when the government doesn’t adequately protect citizens against genuinely dangerous substances. The fight against trans fats was often grass-roots led, and they just won yesterday with the FDA’s decision to ban them. Because they’re actually terrible for you and the food industry was dissembling about the effects. It would be nice if one could look at these awful initiative efforts and conclude that citizen activism on regulation is either a wonderful or terrible idea, but one can’t.
What it does suggest is that scientists should more actively engage with activist groups. The people fighting against GMOs surely have their hearts in the right place – unlike the conspiratorial anti-vaccination activists. But scientists with deep competence in the issues should be more aware of these movements and more engaged with them. Perhaps then citizen activism could be a bit better-targeted.
Apparently the Credit Card Accountability Responsibility and Disclosure Act, or the CARD Act, has basically worked. The CARD Act was a 2009 initiative to cut down on the nasty tricks that credit card companies play on their owners. Deceptive interest rates and billing practices, hidden charges, the whole shebang. Naysayers said that these were vital parts of the credit business and with government-enforced fair billing practices the supply of credit to low-income households would be cut off.
The result of a recent evaluation has shown fairly beneficial effects. Whole huge areas of fees were declared off-limits, including particularly sleazy ones like hidden fees for paying electronically.
The study shows just how the fees added up before the Card Act took effect. Those with the worst credit — the subprime borrowers — were paying an effective interest rate of 20.6 percent, plus an additional 23.3 percent in fees. Most of those fees are now gone.
But Ken Clayton, the chief counsel of the American Banking Association, told me there was another cost. “It’s also contributed to a reduction in the availability of credit cards, particularly for people with imperfect credit histories or no credit history at all,” he said, citing a study his association did. Even that, however, is not clear. Certainly banks have tightened credit standards, but the new paper concludes that tightening came in the aftermath of the financial crisis and was not related to the Card Act.
So the net result was no real contraction of credit, no rises in interest rates, and no cutting off credit to needy consumers. All in all, this sounds like a wholeheartedly excellent result for consumer protection. The effective cost of revolving credit to high-risk customers has been cut in half without negatively impacting issuer’s willingness to lend. For all the noise about how Obamacare shows that the liberal state cannot effectively intervene in the economy without screwing up everything, it’s worth noting counterexamples. By their very nature functional interventions tend to go unnoticed.
Tyler Cowen puts forth a great thought experiment (as they always are) about candidate selection in an “only Nixon can go to China” world. Read the whole post, but I specifically wanted to seize on this:
You might prefer to support very weak candidates, who have no strong base of support in the ideological wing of their party. They will find it hardest to betray the ideologues.
This seems like an excellent description of Mitt Romney in 2012. For that matter, it also seems like a fair description of John McCain in 2008. Neither had strong institutional bases of support nor established constituencies they could clearly betray. Both were fairly weak candidates that more or less had to constantly posture in highly visible ways to signal their obeisance.
However, this suggests that ideologically stronger parties will generally select weaker candidates. This doesn’t have to straightforwardly lead to weaker performance in elections; after all, Romney didn’t dramatically underperform. However, it does predict worse governance outcomes once in office! Why?
Weaker Presidents have much less political leverage. Obviously they can’t turn against type Nixon-style without inviting massive reprisal. Even aside from that, weaker officeholders need to throw more bones to their own party members. If we’ve entered a period of gridlock, that means that non-symbolic major legislative achievements are probably out. The main remaining alternative is cronyism – imagine Mitt Romney appointing Rick Santorum as Attorney General, for example. Without legislative levers, the weak White House will be constantly throwing out whatever favors the administration can dispense in order to keep its ideological base happy. These could span the spectrum from simple cronyism at the “harmless” end all the way up to wars of choice at the “terrible” end.
The world Cowen posits entails not only legislative gridlock, but a continual downward spiral of administrative incompetence.
The NYT has a piece up about Airbnb, which lets people sublet out their apartment for people to use as quasi-hotels. I have very mixed feelings about it (and have a lot of friends who use it). On the one hand, it is a neat solution with a lot of potential to massively improve the availability, flexibility, and cost of short-term housing. On the other hand, their business is built on large-scale lawbreaking. The subleasing most people are using Airbnb for is very often straightforwardly forbidden by their leases. It’d be wonderful and great for consumers if this weren’t the case, but unfortunately that just isn’t so.
However, you should basically dismiss anything the hotel industry says. They are in the enviable position of an oligopoly over short-term housing in New York City. It’s nice work if you can get it – extremely lucrative! The lucrativeness comes from higher prices, lower supplies, and lower consumer surplus. Regardless of the subleasing legal situation, the massive resources that the hotel industry is bringing to bear against Airbnb should be prima facie evidence that it’s good for consumers.
I want to echo what Jon Chait says here – the fight over the Keystone pipeline was a horrible one for environmentalists to embrace as their central battle. The Keystone pipeline is, to be clear, not a good idea. But the stakes of the pipeline are just so, so, so unimaginably low. As he says:
Estimates differ as to how much approval of the Keystone pipeline would increase carbon emissions, but a survey of studies by the Congressional Research Service found that the pipeline would add the equivalent of anywhere between 0.06 percent to 0.3 percent of U.S. greenhouse gas emissions per year.
For this, the environmentalist movement has dedicated itself for years. Not focusing on legislation about automotive efficiency, or pollution regulation or green energy – just this one pipeline. For reference, here is a map of currently existing pipelines in America.
I’m sure the Sand Hills of Nebraska are wonderful, but good god. The scale of environmental catastrophes that America is dealing with are simply staggering. There’s overfishing, ocean acidification, urban particulate pollution, environmental lead, and of course actual real global warming. Some of these are too large to hope to tackle all at one – but others are imaginable targets that deeply affect many millions of Americans every day. Choosing to ignore all of those problems in favor of the pipeline seems like just an unconscionable waste of time.
It reminds me of what I once wrote about Mitt Romney and his continuous refrain of “entrepreneurialism” as the solution to all of life’s ills. Romney and Bill McKibben have the same problem – they don’t see that their platform is irrelevant to most people, and they don’t seem to care. They talk past everyone and don’t understand why no one and listening.
In exchange, they pay some of what they earn over the next five or ten years—what percentage you have to pay is determined by how much you want to raise and by the Upstart algorithm’s assessment of your earnings potential. For thirty thousand dollars today, you might end up paying out, say, two per cent of your income for the next five years.
However, Elliot Hannon (subbing in for Matt Yglesias) poses a question about the anomalies:
Where it seems Upstart will make its money, however, will be on the statistical anomalies—the Facebooks, Twitters, you name it. These innovations came about at light speed, from off the charts. It doesn’t seem fair for a future Mark Zuckerberg to have to pay 5% of his annual salary to Upstart, just because it loaned him some money to go to college. That feels creepier than just taking out a loan. Companies like Upstart could well fund the masses, but make its big money hitching on to some sort of genius or innovation that it had very little impact on—it was just that the smartest guy in the room was broke at the time.
This is absolutely 100% wrong and I really hope it’s not Upstart’s plan. If you’re a tremendously successful startup founder, Upstart is going to get precisely diddly-squat from you.
The key is that Upstart gets its cut from your income, not your wealth. If you found a startup, you’re the one making choices about your compensation and there are tons of ways you can screw with it. Foremost on founders’ minds will be figuring out ways to creatively delay their compensation so the greedy moneyman from Upstart can’t get their hands on it. For example, taking almost all your salary in options. Upstart’s levy is like a time-bounded income-tax, which should suggest all the ways to avoid it. Upstart’s money won’t come on the outliers, it’ll come about precisely through the non-outlying normal predictable earners.
Unless they become tremendously successful laborers (e.g., artists, athletes, bankers). Even then there are good and exciting ways to keep that gross income from becoming net. It’s only the run-of-the-mill successful people who won’t have the ability to manipulate their income so precisely.
Silicon Valley has correctly heaped scorn on the implementation of Healthcare.gov. Part of it is the general anti-government bias of Valley types, but it is basically correct in this case! Kevin Roose hits the mean streets of the Peninsula and rounds up some choice quotes, and Eric Ries reads my mind:
“You could take any engineer on the street here and ask them, ‘I have a friend who works for a private company — don’t mention the government — who’s thinking about a five-year, $100 million Oracle installation, and they’ve hired an outsourced contractor to build it for them. It’s going to be proprietary, hosted in their own data center, Oracle-based, with waterfall management. What are the odds that it’s working on Day One?’ And everyone here will tell you: zero percent.”
He’s absolutely devastatingly correct, and this isn’t even the sum of what’s wrong with the implementation. On top of the factors Ries mentions, it’s got some other wonderful aspects. It’s not an outsourced contractor, it’s many. There’s no one at our hypothetical company with the required project management experience, but they don’t have the budget to hire a lead systems integrator. Oh, and because of the states declining to run their own exchanges, they’ve had a massive scope change without any more time or budget. And and top of all of this you have several actively hostile stakeholders working to undermine the project.
In any software implementation, when you have a big scope or requirements change, that is very bad. You have three choices – you can bring on more people, you can take more time, and it will break. There was no budget to bring on more people, and besides that there are diminishing returns to bringing on more people late in the game – with the code base basically already built, it will take a long time to get new people up to speed. They couldn’t take more time, because they were pledged to launch on October 1st. So they went with the third option, which was launching a broken piece of software.
I wrote about this a few days ago and return to it because it’s just so incredibly frustrating. The government wouldn’t be having these problems if it could actually pay a decent wage to get people with technical talent working there. They don’t even have to compete with Facebook or Google – there are plenty of older programmers with family who would love the stability of government work if it paid enough for them to live in the insanely expensive DC area. The reflexive hatred of many in government – Democrats and Republicans both – to paying employees a fair wage is hollowing out the government’s ability to fulfill basic tasks.
This is nuts. People in both parties love to talk about running the government like a business, but this would be no way to run a business and it’s no way to run a country.