bubbles

13 Books for 2020 – What A Year!

Joakim Book Books, Economics, History, Politics , , , ,

2020 is turning into quite the publishing year.

Perhaps every year is like this and I just haven’t been paying attention before. Now, as I actively scan publisher sites and newsletters for upcoming books, there seems to be an abundance of super-interesting new stuff: how is anybody – even someone like me who does this for a living – supposed to keep up?

#1: The year began at full (or stagnating…?) speed with University of Houston professor Dietrich Vollrath‘s Fully Grown: Why a Stagnant Economy is a Sign of Success, With praise by Tyler Cowen and reviews in The Economist and the Wall Street Journal – and actually a lot of good discussions on Twitter – I’m sad that I haven’t taken time to read it. Later, perhaps, on the off-chance that nothing else on this incredible lists comes in the way.

#2: Next up was Diane Coyle‘s Markets, State, and People. Coyle, the endlessly interesting public intellectual/economist and newly(-ish) appointed Professor of Public Policy at Cambridge, is someone we all should read: she manages to be controversial and still balanced, provocative but still interesting. This book, however, seems to be in line with all the other “Third Way” books of last year: Acemoglu and Robinson’s The Narrow Corridor; Raghuram Rajan’s The Third Pillar; Branko Milanovic’s Capitalism, Alone. Crowded field. As I haven’t even gotten around to her previous book on GDP yet, I imagine I’ll read that one first whenever I carve out some time for Coyle.

The curse of modernity is quickly adding up.

#3: Changing gears somewhat – at least in terms of topics – I have started reading Charles Murray‘s Human Diversity: The Biology of Gender, Race, and Class and it’s exactly as provocative as you might think. Delivered, however, with the seriousness of scientific investigation and a massive chip on his shoulder. Still, exactly the kind of antidote to madness that fuels a lot of my priors. I’ll write up a comment or two whenever I finish this 528-page tome.

#4: In a similar vein is the Dutch writer and historian Rutger Bregman‘s Humankind: a Hopeful History, scheduled to be released in June. As Bregman isn’t somebody that I usually agree with, I’m very excited to read this take of his, which is hopefully a mix of Paul Bloom’s End of Empathy, Ruth DeFries’ The Big Ratchet and Paul Seabright’s The Company of Strangers. Sort of like Yuval Harari’s Sapiens but better (and no, I’m not on Team Harari – despite this excellent long-read in The New Yorker).

#5: Going back a little bit to what I think is chronologically the next book to be released (on Tuesday March 10 in the U.S., but not until April in the U.K.) is Robert Bryce’s A Question of Power: Electricity and the Wealth of Nations. Having recently written a piece on electricity generation and being into the weeds about climate change and emissions, I’m very curious about this take on electricity as a critical source for our prosperity. I hope it reads a little like an improved version of Zubrin’s best chapters in Merchants of Despair.

#6: March is also the month for Angus Deaton and Anne Case‘s Deaths of Despair and the Future of Capitalism (Amazon says it’s already out in the U.K.) Their hugely successful and highly relevant pet project for the last few years, Deaton and Case’s case(!) for how rising morbidity rates indicate a collapse of the fabric of society is a pretty standard one by now: globalization, economic inequality, the hollowing-out of tight-knit communities and the various forces that may have fueled this.

The reviews are already popping up left and right (WSJ, Financial Times) and their session was the most exciting and most talked-about at the ASSA meeting in San Diego. As I understand it, the latest findings is that American life expectancy – that pesky ever-increasing number that fell in recent years, in no small part due to overdoses and opioids – has recovered and is now again on the up-tick. Maybe Deaton and Case’s book will be one for an odd historic event rather than foreshadowing “The Future of Capitalism” (also, what’s up with shoving ‘Future of Capitalism’ into your titles?!).

#7: In a similar topic, Robert Putnam – yes, the Harvard professor famous for Bowling Alone and the idea of social capital – is back with another sweeping analysis of what’s gone wrong with American society. The Upswing: How America Came Together a Century Ago and How We Can Do It Again, coming out in June, is bound to make a lot of waves and receive a lot of attention by social commentators.

#8: Officially published just yesterday is John Kay and former Bank of England Governor Mervyn King‘s Radical Uncertainty: Decision-Making for an Unknowable Future. Admittedly, this is the book I’m least excited about on this list. Reviewing King’s 2016 End of Alchemy – where King discussed his experiences of the financial crisis and the global banking system – for the Financial Times, John Kay discussed exactly that: the title? “The Enduring Certainty of Radical Uncertainty.” Somebody please press the snooze button. Paul Krugman’s 4000 word review of End of Alchemy ought to be enough; I’d be surprised if Kay and King brings something new to the table in thus poorly-titled release (though, of course the fringe already loves it).

The Really Good Stuff

While the above eight titles are surely worth at least some of your time, the next five are worth all of it.

#9: I’ll begin with my two biggest hypes: Matt Ridley‘s How Innovation Works: And Why It Flourishes in Freedom, coming out May 14th in the U.K. and May 19th in the U.S. The author of The Rational Optimist and The Evolution of Everything is back with another 400-page rundown of a deep-seated and hyper-relevant topic: how do societies innovate and progress? What conditions assist it, and which obstacles prevent it? 

I expect a lot of spontaneous order-type arguments, debunked Great Man fallacies, and some Mariana Mazzucato take-downs.

#10: The second hype, William Quinn and John Turner‘s Book and Bust: A Global History of Financial Bubbles. Since John first told me about this book over a year-and-a-half ago, I’ve been super excited – I’m a big fan of his work – and I’m looking forward to receiving my review copy in the next couple of weeks. Publication date: August.

#11: For somebody who writes about bubbles and financial markets more than most people think healthy, I’m gonna get a warm-up in MIT professor Thomas Levenson‘s Money for Nothing: The South Sea Bubble & The Invention of Modern Capitalism. What’s with all these books on historical financial bubbles? Yes, you’re right: 2020 marks the three-hundred year anniversary of the South Sea Bubble, that iconic period of John Law in France and the similar government funding scheme in England will surely receive a lot of attention this year.

#12: Some environmental stuff at last: Bjørn Lomborg, the outspoken author and voice of reason in the climate change space announced that his False Alarm: How Climate CHange Panic Costs Us Trillions, Hurts The Poor, and Fails To Fix the Planet will be published in June this year! While possibly the least boring book on this list, the title receives lowest possible marks. What overworked publisher decided that this page-long subtitle was a good idea?!

#13: Also, Alex Epstein of the Centre for Industrial Progress and host of Power Hour (one of my all-time favorite podcasts) has been working on an update to his hugely popular The Moral Case for Fossil Fuels. As far as I understand, we’re to receive an updated and revised version in August – the Moral Case for Fossil Fuels 2.0!

So. The next six months have at least thirteen pretty interesting books coming up. I imagine there are a bunch more for the rest of the year – and a few I have completely overlooked.

Also, after this burst of links, Amazon should probably offer Notes On Liberty an affiliate program.

In sum: you can see my fields of interests overlapping here: (1) financial history and financial markets; (2) environment, climate change, and its solutions; (3) Big Picture society stories, preferably by interesting or quantitatively savvy authors. Not enough on the fourth big interest of mine: (4) money and monetary economics – particularly in historical contexts. Perhaps not, as David Birch’s Before Babylon, Beyond Bitcoin is on my desk, and I’m currently re-reading William Goetzmann’s Money Changes Everything – both first released in 2017.

Also: the absence or underrepresentation of women (or ethnic minorities or any other trait you care a lot about) might disturb you: 2 out of 17 authors women (4 out of 27 authors mentioned) – Needless to say, it must be because I’m sexist.

Post-script: Ha! As I just heard about Stephanie Kelton‘s upcoming book The Deficit Myth: Modern Monetary Theory and the Birth of the People’s Economy, I’m gonna quickly add it to the list and satisfy both of my qualms above: not enough women (now: 3/18 authors!), and not enough monetary economics. Splendid!

Happy reading, everyone!

Where the World’s Unsold Cars Go To Die [Zerohedge]

Adam Magoon Current Events, Economics , , , , , , ,

I don’t have time to comment a ton on this (Life has just been absurd lately) but wanted to make sure more people saw this.

The guys over at Zerohedge noticed a surprising sight on google maps in the city of Sheerness, United Kingdom. West coast, below the River Thames and next to River Medway. Left of A249, Brielle Way. A car lot full of unsold, brand new cars. Zerohedge claims these are all new cars that cannot fit on overcapacity dealer lots. If true this would be a prime example of malinvestment spurred on by government bailout and subsidies. Quite literally a textbook case of the Austrian Business Cycle.

Further research is needed since I do not know whether these lots are standard practice or a new feature of our post-2008 crash world. It is possible that these are merely staging grounds for cars before they ship to dealers but at first glance I tend to agree with Zerohedge’s conclusion that “There is proof that the worlds recession is still biting and wont let go. All around the world there are huge stockpiles of unsold cars and they are being added to every day. They have run out of space to park all of these brand new unsold cars and are having to buy acres and acres of land to store them.”  

Something to keep an eye on regardless.

Could there be a college bubble?

Rick Weber Current Events, Economics , , , ,

The essence of a bubble is that you can flip an asset one more time before the bubble bursts. Most people know it will burst, but as long as prices are still rising, we might be able to fleece one more sucker. But we have to get the timing right or we might be that sucker.

But what about college? I can’t sell my degree (and there are other things that Jon Lajoie can’t do with it, but that’s neither here nor there), so I can’t flip it. But I can get rents on it. I give up $100,000 to get a degree with a present value of $300,000, and I feel peachy-keen. That’s a recipe for increased demand leading to higher tuition, sure, but could there be a bubble?

Let’s start with equilibrium so we have a counterfactual. Basic supply and demand here: higher incomes for college grads increase demand, and increased demand increases prices. In equilibrium the marginal student’s value of the degree will be equal to or greater than the opportunity cost of getting the degree.The student’s value is the benefit of cool college parties, mind/horizon expansion, reduced expected unemployment in the future, and higher expected income. Their opportunity cost is tuition, loan interest, stress from doing homework, and time not spent working. The question of going to school is different for different students; some will enjoy college more, will get more out of it, will have an easier time of it, etc. And the financial return isn’t the only relevant variable. At this point I’m thinking that maybe the current market is actually pretty sensible… we can ask questions about the sustainability of subsidies, but given everything, it’s likely that the students going to school are making the right choice, as are the ones who don’t go. Mistakes will be made, but it isn’t necessarily the case that there are systemic, wide-spread mistakes.

Now let’s think about what it might mean for the bubble to burst. First off, there would have to be a bubble: too many people paying too much to be in school; too little incentive for any individual to change their behavior. Then all at once, there is a flood away from the market, and recent grads are left holding the bag. During the bubble, I can get financing for my degree and I can reasonably expect (even if I see that there’s a bubble) that I will come out ahead, as long as I jump ship soon enough. Let’s say that during the bubble, I pay $10k to get a degree and I earn an extra $1k per year (and lets also assume, for simplicity’s sake, that we don’t have to worry about discounted values… a bird in the hand is worth one in the bush). My behavior is rational as long as I expect to keep getting that extra grand for the next 10+ years. So our bubble has a weirder time dimension than, for example, a beanie baby bubble where I can buy and sell rapidly.

Also, our bubble requires that my income is inflated compared to it’s post-bubble level. That would certainly be the case for me as an academic; if that bubble bursts, my income will drop. Will that be true of someone getting a business degree? American employers are keen to hire people with degrees, and so there’s a de facto licensure system. The assumption is that if you don’t have a degree there must be something wrong with you. As long as everyone holds this assumption then all would/could-be students will have to get a degree. But if no degree means ‘idiot’, that doesn’t mean that degree means ‘genius.’ Employers could well figure out a better vetting procedure, and students could get sick of undergoing the opportunity cost of attending school. But if this is a gradual change, then ‘bubble’ doesn’t seem like the right word. Even if the change in hiring practices is instant, the change in the labor market won’t be. If every 30 year old has a degree and suddenly degrees become unimportant, companies won’t rush out to replace them with 20 year-olds. The supply of lightly-experienced, qualified workers won’t change in the short run unless there’s a reserve army of qualified but un-credentialed labor currently in limbo as baristas.

So is there a bubble? It certainly seems like enrollments don’t reflect underlying realities. It also seems like there are profit opportunities for entrepreneurs able to improve hiring procedures; placement services could vouch for a candidate’s abilities, employers could accept non-college interns and hire from that pool, would-be students could become self-employed. I think the market is far away from equilibrium. But I’m doubtful that re-equilibration will happen rapidly. There isn’t room to “burst” a bubble, so much as there is room to avoid wasting a lot of 18-24 year-olds’ time.

Another Housing Bubble?

Warren Gibson Current Events, Economics, Liberty , , , , ,

Last year I wandered down the street to an open house for sale. Even though I announced myself as a looky-loo, the agent welcomed me. We sat around talking and eating cookies for an hour; no prospects showed up.

It was a nice day today and I decided to walk to another open house thinking I’d again look around and chat with the agent. Hardly – the place was mobbed! It looks great in this picture but the reality is it’s stuck way up on a hill with a steep driveway and no garage. It’s 80 years old and although it’s been fixed up cosmetically it’s nothing to write home about; not in my book anyway. Nevertheless, I’m betting they’ll have multiple offers before this first day on the market is over.

This is the San Francisco Peninsula which is by no means representative of the whole country but I hear that Las Vegas has turned around too, as have tony places in New York. Why? Although I can’t prove it, I believe a good part the gusher of money that the Fed has been printing is now making its way into housing. The stock market has stalled, the bond market is in retreat, gold has plummeted, and that pretty much leaves housing.

So although the basic premise of monetary stimulus is plausible, it just doesn’t work. The new money seems to go careening around the economy in search of the Next Big Thing. Bubbles form and collapse, malinvestments are revealed and the cycle starts anew. What’s different this time is that it’s been such a short time since the collapse of the previous housing bubble to what looks like the start of another.

If these wasteful cycles of boom and bust are to end, the Fed must cease its stimulus programs. But it can’t. When the Fed dropped just a hint last week that it might start “tapering” off its bond-buying (money-printing) program, the bond market panicked. Why should we care about the bond market? For one thing, the average maturity of the federal debt is just a couple of years. Maturing debt must be rolled over into new debt, and if the new debt carries higher interest rate, the total annual interest payment could quickly swell from a “mere” $345 billion for the current fiscal year toward a trillion dollars per year, swamping any efforts to contain spending, like the $80 billion sequester that just took effect. We could end up needing a bailout from China.

The Fed will very likely continue or even accelerate its bond buying, depending on who occupies Bernanke’s seat come January. We should expect continuing cycles of bubbles and busts and the real possibility of some very nasty fiscal consequences.

Boombustology: A Review

Warren Gibson Books, Economics , , , , , , , , , , ,

These days commentators near and far are announcing booms and bubbles in Treasury securities, gold, China – perhaps even a bubbles. Vikram Mansharamani is in the China camp, but his arguments stand out from the others. If you can get past the title of his book – Boombustology – you will be rewarded with a thorough, well-documented, yet mercifully brief and readable exposition of a theory of booms and busts applied to past events and China’s future.

Most macroeconomists see the boom-bust cycle as an unsolved problem. Like physicists in search of a Grand Unified Theory, they long for a model that accounts for all the major aspects of the business cycle. Perhaps they are hampered by looking through the wrong end of a telescope. Mansharamani uses not just one but five “lenses” to examine the subject. In addition to micro- and macroeconomics, they include psychology, politics, and biology. He is not the first economist to invade these fields. Rather his accomplishment lies in assembling ideas from each of those areas, applying them to past boom-bust cycles, and putting his ideas on the line by issuing a brave prediction of a forthcoming Chinese economic train wreck.

Austrian Business Cycle Theory

The author’s macro lens includes Austrian business cycle theory. That theory says inflation of the money supply causes a drop in interest rates, which is misinterpreted as an increased aggregate preference for saving over consumption, leading to investments in more roundabout means of production. When it becomes clear that there has been no such preference shift, these undertakings are seen to be at least partial mistakes, requiring write-offs and retrenchment – a bust. The boom is the problem, not the bust, which is the market’s attempt to realign itself to the realities of time preference. Austrian business cycle theory has great merit but leaves some things unexplained.

Mansharamani’s micro lens includes the concept of reflexivity. Market participants don’t just observe prices but also influence them. Reflexive dynamics occasionally give rise to instabilities in which rising prices lead to increased demand.  A simpler term would be a “bandwagon effect.” I recall an office party in 1980 where one of the secretaries asked about buying gold – precisely at the peak, as it turned out. All she knew about gold was that it was way up and therefore must be going higher. I should have realized that when you see financially unsophisticated people like her climbing on a bandwagon, you can be pretty sure there’s no one left to sell to and nowhere for prices to go but down, which is where gold and silver prices went in 1980, and in a big hurry.

From psychology Dr. M. borrows ideas and data about cognitive biases. For example, subjects asked to guess some bland statistic, like the number of African countries that belong to the UN, are influenced by the spin of a wheel of fortune: When the wheel lands on a high number, they guess higher. He translates this and a dozen other cognitive biases into irrational market behavior that can foster booms and busts.

He introduces his biology lens with an analogy to the spread of an infectious disease. When the prevalence of a disease reaches a high level, the infection rate necessarily slows and the disease begins to wane, just like the 1980 gold market.  But it is devilishly difficult to “inoculate” oneself against infectious ideas. Individual investors who can do so have a decent chance to beat the market averages over time, I believe. (Those who would pursue these ideas in greater depth would do well to find James Dines’s quirky and expensive but worthwhile book, Mass Psychology.) Continue reading →