decentralization

Albania: People and Ruins

Andrei Znamenski Culture, Current Events, Economics, History, Liberty, Politics , , , ,

During my long traveling over Europe this summer, among other areas, I ventured to Albania, a country where houses frequently do not have numbers and where I located the building where a friend of my youth now lives by a drawing on a gate. This is a country where the so-called oriental bazaar is buzzing everywhere, where towns literally hang on cliffs, and where one easily runs across the ruins of the Roman, Byzantine, and Ottoman legacy of the country and the “archaeology” of the recent communist past (small concrete family bunkers, tunnels for the former communist nomenklatura, monumental sculptures and mosaics in the socialist realism style).

It was interesting to see how this country, which lived much of the 20th century under the most vicious communist dictatorship (1944-1990), is now trying to live a normal life.  To some extent, Albania is very similar to present-day Russia: decades of the negative natural selection under communism killed much of self-reliance, individual initiative, and produced the populace that looks up to the government for the solutions of their problems. For the past thirty years, a new generation emerged, and things did dramatically change. Yet, very much like in Russia, much of the populace feels nostalgia for the “good” old days, which is natural.

According to opinion polls, 46% of the people are nostalgic for the developed communism of dictator Enver Hoxha (1944-1985), an Albanian Stalin, and 43% are against communism; the later number should be higher, given the fact that many enterprising Albanians (1/4 of the population) live and work abroad.  During the last decades of its existence, Albanian communism slipped into a wild isolationism of the North Korean style. Except for Northern Korea and Romania, all countries, from the United States, Germany, UK (capitalist hyenas) to the USSR, China, and Yugoslavia (traitors to socialism), were considered enemies.  Incidentally, Albanian communism was much darker and tougher than the Brezhnev-era USSR. Nevertheless, as it naturally happened in Russia and some other countries, in thirty years, the memory of a part of the population laundered and cleansed the communist past, and this memory now paints this past as a paradise, where everyone was happy and looked confidently into the future, where secret police and labor concentration camps existed for a good reason, and where the vengeful dictator appears as a caring father.

In the hectic transition to market economy and with the lack of established judicial system, there naturally emerged a widespread corruption, nepotism. But, at the same time, small business somehow flourishes. The masses and elites of the country aspire to be united with neighboring Kosovo since both countries are populated by Albanian majorities. On top of this, Kosovo is the birthplace of Albanian nationalism.  However, unlike current Russia, which is spoiled with abundant oil and gas resources (the notorious resource curse factor), corrupt Albanian bureaucrats that rule over a small country exercise caution. Although that small country is too blessed with oil, natural gas, chromium, copper, and iron-nickel, they do not waste their resources on sponsoring geopolitical ventures and harassing their neighbors. For themselves, the Albanians resolved the Kosovo issue as follows: we will be administratively two different states, but de facto economically and socially we will be tied to each other, and all this makes life easier for people, preventing any conflicts. Not a small factor is that, unlike, for example, Russia or Turkey, Albanian nationalism is devoid of any imperial syndromes, and therefore there is no nostalgia for any glorious lost empire. The fact that Albania is a member of NATO also plays a significant role, which forces the Albanian elites behave. Acting smartly, instead of geopolitical games, they decided to fully invest in the development of the tourism business, believing that, in addition to mining their resources, this is the best development option.

Nightcap

Brandon Christensen Links , , ,
  1. Should everything be decentralized? Arnold Kling, Pairagraph
  2. Is Russia’s future non-Slavic? Eugene Chausovsky, Newlines
  3. Is America’s future non-European? Samuel Gregg, Law & Liberty
  4. The myth of Westernization Jon Davidann, Aeon

Nightcap

Brandon Christensen Links , , ,
  1. More on Japan’s most infamous author Nigel Jones, Critic
  2. Covid and the globalization of labor Branko Milanovic, Social Europe
  3. Can totalitarianism be decentralized? Arnold Kling, Law & Liberty
  4. Fallacies about constraints Tyler Cowen, MR

“Political decentralization and policy experimentation”

Brandon Christensen Politics , , , , , ,

Since 1932, when Justice Louis Brandeis remarked that in a federal system states can serve as “laboratories” of democracy, political decentralization has been thought to stimulate policy experimentation. We reexamine the political economy behind this belief, using a simple model of voting in centralized and decentralized democracies. We find the electoral logic suggests the opposite conclusion: centralization usually leads to “too much” policy experimentation, compared to the social optimum, while decentralization leads to “too little”. Three effects of centralization—an “informational externality”, a “risk-seeking” effect, and a “riskconserving” effect—account for the different outcomes.

By Hongbin Cai & Daniel Treisman. Here’s the whole thing (pdf). This is probably more right than wrong, but you gotta wonder: what’s “the social optimum”?

Slate Star Codex and the rationalists

Brandon Christensen Culture, Current Events, Liberty , , , , , , , , ,

Rick first alerted me to the end of the popular rationalist blog Slate State Codex. Then it was all over my internet. I have never been a huge fan of the rationalist community, mostly because they don’t do history very well, but this is a big deal.

It has also produced some great conversation on both sides of the American cultural divide. Gideon Lewis-Kraus wrote an excellent meta-piece on the whole affair. Lewis-Kraus uses “Silicon Valley” as shorthand for the intellectual right. This is more correct than wrong, even though the region votes Democrat, because Silicon Valley is more of a mindset than a geographic place.

Lewis-Kraus’s Silicon Valley is a new, decentralized informational ecology. He contrasts Silicon Valley with the old media: big corporations trying to maintain a stranglehold on “the narrative.” (Lewis-Kraus readily admits he’s part of the old media.) For Lewis-Kraus, Silicon Valley is trying to build an alternative mediascape. Big corporations such as the NY Times are fighting back.

It’s an interesting cultural war to follow, if you’re in to that kind of stuff. I can’t seem to shake my uneasiness about the rationalist community, though. As I mentioned, they don’t do history, or they don’t do it well. They are also into communes, which I distrust immensely. Utopian and communitarian experiments are bad for all of your healths (physical, emotional, etc.). I don’t know how the rationalists ended up on the side of Silicon Valley. My guess is that the big corporations didn’t like what the rationalists had to say, or how they lived, so the rationalists found solace in the decentralized ecology of Silicon Valley.

I think the verdict is still out on who the victor of this cultural war will be. The big corporations have government backing, and they own the narrative bought by most of the American public, but the old media has shown its true colors in how it covers Donald Trump. I didn’t vote for the guy but it’s obvious his administration is not being reported on by the old media; it’s being slandered and attacked, with lies or with small untruths, rather than objectively reported on. The rationalists and their decentralized allies in the Silicon Valley informational ecology at least have truth on their side. Not the truth, but a commitment to the truth by way of discussion, the sharing of information, and fighting to protect the freedom of everybody’s conscience, rather than just their own team’s conscience.

We live in interesting times, and this makes blogging – a decentralized activity if there ever was one – all the more important.

Nightcap

Brandon Christensen Links , , ,
  1. Why are the police in charge of road safety? Alex Tabarrok, MR
  2. Is decentralization overrated? Jason Sorens, Pileus
  3. Can corruption be good for growth? Brank Milanovic, globalinequality
  4. What is the relationship between urban change and the ship of Theseus? Nick Nielsen, Grand Strategy Annex

PS: I’m back from vacation. Hope y’all enjoyed yourselves while I was gone.

The Three T’s in a post-coronavirus world

Tridivesh Singh Maini Current Events , , , , , , , , , , ,

As countries look to recover from the economic setback caused by the coronavirus pandemic, the three t’s – trade, travel, and technology – are likely to play an important role in getting the global economy back on the rails.

Trade

Even in the midst of the pandemic, countries have been in talks regarding Free Trade Agreements (FTA’s). The UK is seeking to sign an FTA with not just the US but also Japan, so as to buttress the bilateral economic relationship and get entry into the 11-member Comprehensive Partnership for Trans Pacific Partnership (CPTPP). Vietnam’s national assembly also ratified an FTA with the European Union known as EUVFTA (European Union Vietnam Free Trade Agreement) on June 8, 2020. According to the FTA, the EU will lift 85% of its tariffs on Vietnamese exports, while the remaining tariffs will be removed over a period of 7 years. Vietnam on the other hand will lift nearly half (49%) of its import duties on EU goods, while the rest of the tariffs will be removed over a period of 10 years.

The CPTPP is also likely to expand in the near future. Japan is seeking to get Thailand, Taiwan, Indonesia, and the Philippines on board. Tokyo’s aim is to reduce dependence on China by creating an alternative set of supply chains through multilateral networks.

Technology

In recent weeks, there has also been a growing debate with regard to creating new technologies, so that the dependency upon Chinese technologies is reduced. One important step in this direction is the UK’s suggestion for creating an organisation, called D10, which consists of the original G7 countries plus India, South Korea, and Australia. The aim of the D10 is to provide alternative technologies so that dependence upon Chinese technologies is reduced.

At London Tech Week, a report titled “Future Tech Trade Strategy” was given by British Trade Secretary Elizabeth Russ. Russ spoke about a new £8 million initiative which would enable British companies to expand tech ties with Asia-Pacific countries, especially Japan and Singapore. British companies will also be assisted by tech experts stationed in its high commissions and embassies in these countries.

Travel

In recent days, the resumption of international air travel has also also been an important matter of discussion. Three members within the 11-member CPTPP – Japan, New Zealand, and Australia – have already been in talks for resuming air connectivity. Japan is also likely to ease its entry ban from countries like Vietnam and Thailand where Covid-19 cases have reduced.

Singapore, another member of the CPTPP, is also in talks with South Korea, Malaysia, and New Zealand for resumption of air connectivity. (Singapore Airlines and Silk Air have been flying passengers from select destinations in Australia and New Zealand to Singapore’s Changi Airport throughout the pandemic.)

China, too, has been seeking to revive air travel. While China has recently set up a travel corridor with South Korea, it has also signed an agreement with Singapore for reciprocal travel for essential purposes – business and official. Initially, this arrangement will be for 6 provinces – Shanghai, Tianjin, Chongqing, Guangdong, Jiangsu, and Zhejiang (travellers will need to apply for a visa in advance, and get tested for the corona virus both before departing for China and after arriving there).

Vietnam, which removed its lockdown at the end of April and resumed domestic flights, is also reviving international travel with a few select countries, such as South Korea (South Korean students can enter the ASEAN country through a special permit).

The EU is seeking to resume air connectivity with non-EU countries by the 1st week of July (the EU has already opened travel within EU member states), and it is likely that air connectivity with countries considered low risk will also resume shortly.

The resumption of travel will of course be undertaken on a step-by-step basis. Japan, for instance, has indicated that it will open its air connectivity with other countries in stages; first for businessmen, then students, and finally tourists. What is fascinating to observe is that the narrative with regard to the three t’s is not being set by the West, it is being set by Asian countries. Even within Asia, it is not just a China-driven narrative. Japan is playing an important role and, from within ASEAN, it is not just Singapore but Vietnam as well which has emerged as an important stakeholder.

Conclusion

In a post-corona world there are likely to be a number of changes, with geopolitical and economic dynamics in Asia likely to witness a significant shift.

What is also interesting to note is that travel and technology – two of the three t’s – were broadly thought of as key ‘soft power’ tools prior to the Covid-19 pandemic. Post the pandemic, there will be a strong ‘hard Power’ component to these two t’s. While in the context of travel, each country will be cautious with regard to opening up air travel, and stick to linkages with countries that have managed to control the corona virus; as far as technology is concerned, due to the rising tensions with China, the creation of alternative technologies is likely to be viewed as a security requirement (trade, the third t, had already acquired a strong strategic component even before the outbreak of the pandemic).

Nightcap

Brandon Christensen Links , , ,
  1. How ‘Russian samurai’ fought for Japan in World War II Boris Egorov, Russia Beyond
  2. How the great truth dawned (Soviet gulags) Gary Saul Morson, New Criterion
  3. How to save global capitalism from itself Raghuram Rajan, Foreign Policy
  4. Cultural differences and institutional integration Guiso, Herrera, & Morelli, NBER

Nightcap

Brandon Christensen Links , , ,
  1. Is it time to carve up Libya? (2020) Ted Galen Carpenter, TAC
  2. Notes from Libya (2012) Brandon Christensen, NOL
  3. Gouge is good Bryan Caplan, EconLog
  4. Internationalism without federation (pay your tithes) Maria Ferrell, Equality

Financial History to the Rescue: The Harder Money Wins Out

Joakim Book Economics, History, Liberty , , , , , ,

This article is part of a series on bitcoin (and bitcoiners’) arguments about money and particularly financial history. See also:

(1) ‘On Bitcoiners’ Many Troubles’, Joakim Book, NotesOnLiberty (2019-08-13)
(2): ‘Rothbard’s First Impressions on Free Banking in Scotland Were Correct’, Joakim Book, AIER (2019-08-18)

(4): ‘Bitcoin’s Fixed Money Supply Is a Weakness’, Joakim Book, AIER (2019-08-28)

The great monetary economist and early Nobel Laureate John Hicks used to say that monetary theory “belongs to monetary history, in a way that economic theory does not always belong to economic history.”

Today I’m going to illustrate exactly that with respect to the Bitcoiner’s (mistaken) progressivism in another episode of Financial History to the Rescue.

In the game of monetary competition, the Bitcoin maximalists posit, the “harder” money always wins out. I’ve been uneasy with the statement as it (1) isn’t clear to me what “harder” money (or money’s “hardness”) really means, and (2) probably isn’t historically true. So we end up with something that’s false, or vague – or both! Clearly unsatisfactory. As I pointed out in my overview post to this series, financial and monetary history is almost always more nuanced than what such simple generalizations allow.

Luckily enough, Saifedean Ammous at the Soho Forum debate last week, did inadvertently provide me with a useable definition – and I intend to use it to debunk the idea that money’s history is one of increased hardness. Repeatedly Saif claimed that monetary history, before the advent of central banking, showed us that the harder money always won out: whenever two monetary networks clashed (shells and silver; wampum and gold) the “harder” money won. The obvious implication is that Bitcoin, being the “hardest” money, will similarly win out. Right off the bat, there’s some serious problems here.

First, it’s not altogether clear that such “This time is not different” arguments apply. Yes, economic history teaches us not to discount what seems to be long-standing or universally applicable phenomena – but also to take notice of the institutional setting in which they happen. Outcomes specific to, say, the Classical Gold Standard, rarely generalize into our hyper-modern financial markets with inflation targeting central banks.

Second, over the twentieth century we literally went from the hardest money (gold) to the “softest” money (central bank-created fiat paper money). Sure, you can argue that this was unfair or imposed upon us from above by wars and welfare states, but discounting it as irrelevant strikes me as overly cherry-picking. If the hardest money “lost” before, what makes you think that your new fancy money will win out this time around?

Then Saif returned to the topic of hardness and defined it as a money whose supply is “the hardest to increase.” The hardness of Cowrie shells or Wampum or gold or Whale’s teeth or Rai stones or the other early money that Jevons listed and discussed in 1875, all rely on a difficult, costly and inconvenient process of extraction and/or production. Getting Rai stones from far-away islands, stringing beads together into extended strips of Wampum, or digging up gold from inaccessible patches of the earth were all cumbersome and expensive processes. In Saif’s mind, this contributed to their hardness. Their money stock were simply difficult to expand – in jargon: their money supplies were inelastic.

The early 1600s Dutch Republic struggled with another problem. As the main financial centre of the time, countless hard money (coins) from all over the world were used in Amsterdam. Estimates say over a thousand legally recognized kinds of coins – and presumably even more unrecognized coins. A prime setting for monetary competition: they were all pretty hard (Saif’s definition: difficult and costly to expand) commodity moneys, of various quality, origin, and recognition in trade.

Another feature of 17th century Amsterdam was the international environment of Bills of Exchange (circulating private credit notes). Briefly summarized, merchants across the world traded debts on Amsterdam bankers or traders, and rather than holding and transporting bullion across the world, they transported the debt of the most trustworthy and reliable Dutch financiers. As all such bills required a settlement medium in Amsterdam, trade on thin margins was very sensitive to fluctuations in prices between the commodity moneys in which their bills were denominated – and very sensitive to debasements and re-defined values by various European proto-governments.

In 1609, the City of Amsterdam created the Wisselbank (initially a 100% reserve exchange bank) specifically tasked with standardizing the coinage and to insulate the bill market from currency fluctuations (through providing a ‘neutral’ unit of account for bills settlement). The Bank accepted deposit of whatever coin at the legally recognized rate (unrecognized at metal content) and delivered ”high-quality Dutch trade coins” upon withdrawal. To fund itself, it added a withdrawal fee of 1.5%, but no internal transfer fee, which made holding currency at the Bank very expensive in the short-term, but very cheap in the long-term. Merchants also avoided much of the withdrawal fee by simply trading balances with one another rather than depositing and withdrawing trade coins. In return for this cost-saving, sellers of bank balances would share a portion of the funds saved with the buyer in what’s known as the “Agio”: the price of Bank money in terms of current money outside the Bank’s accounts. This price would fluctuate like any other price on the market and would indicate the stance of liquidity demands.

In a classic example of Alchian’s monetary competition by transaction costs, Dutch merchants and financiers “outsourced” the screening and assaying of unfamiliar coins. They preferred settling their transactions through the (cheaper) medium that was deposits in the Bank.

And it gets worse for the bitcoiner’s story. In 1683, the Bank coupled its deposits with specific receipts for withdrawal; to gain access to coins, one was required both to hold balances and to purchase a receipt issued by the Bank (they also changed the pricing). Roughly speaking, the Bank became a fractional reserved bank (with capped withdrawals) overnight – and contrary to what the hardness argument would imply, the agio on Bank money rose to above par!

Two monetary historians, Stephen Quinn and William Roberds, summarize one of their many writings on the Wisselbank as follows:

“imaginary money on the Bank’s ledgers succeeded because it was more reliable than the real stuff. […] The most liquid asset in the economy was no longer coin, but a sort of ‘virtual banknote’ residing in Bank of Amsterdam accounts.”

Further,

“the evolution of the agio shows that the market valued irredeemable balances as if they were closely tied to backing trade coins” (my emphasis)

The story of the Amsterdam Wisselbank’s monetary experiments and innovations show us that monetary adaption relies on many more dimensions than “hardness.” Sometimes “hard” money is defeated by “soft” money, since the softer money brought other benefits to its users – in this case a cheap and reliable settling medium.

The lesson for bitcoin-vs-fiat-vs-FinTech is pretty clear: hard money doesn’t always “win”; and sometimes “soft” money can better serve the needs of consumers in a free market.

Financial History to the Rescue: On Bitcoiners’ Many Troubles

Joakim Book Economics, History , , , , , , , ,

This article is part of a series on bitcoin (and bitcoiners’) arguments about money and particularly financial history. See also:

(2): ‘Rothbard’s First Impressions on Free Banking in Scotland Were Correct’, Joakim Book, AIER (2019-08-18)
(3): ‘The Harder Money Wins Out’, Joakim Book, NotesOnLiberty (2019-08-19)
(4): ‘Bitcoin’s Fixed Money Supply Is a Weakness’, Joakim Book, AIER (2019-08-28)

It is unfair to expect technologically savvy bitcoiners to also be apt and well-read monetary economists. By no means do the skills and experiences of either have to overlap. Through the rise of Bitcoin with its explicit central banking challenge and attempt to become a worldwide currency, the subject matter of the two groups has unexpectedly clashed. All arguments that support or attack bitcoin is a head-first dive into monetary economics – sometimes exhuming centuries-long disputes among monetary economists and often blatantly distorts and overlooks money and banking arrangements of the past.

We can’t have that, can we.

One of the most delightful events in the libertarian world is the monthly Soho Forum debate run by Gene Epstein. Yesterday’s splendid showdown between Profs. George Selgin and Saifedean Ammous on the suitability of Bitcoin as a Medium of Exchange is bound to get some serious traction once the recording is on available only – look out for that!

A great debate for anyone interesting in monetary system and monetary economics more generally, this was probably the best and most entertaining of many Soho Forum debates I’ve watched. It’s a good format that forces speakers to engage and respond to one another’s arguments, which makes a two-hour conversation on something as technical and intricate as Bitcoin’s monetary role an absolute delight; even those of us deep into this nerdy rabbit hole can learn a lot and walk away with a trove of inspiration.

Channeling that inspiration into long-form, multi-part reviews of the relevant financial and monetary history is exactly what I’m going to do!

One question I often get regarding my research interests (banks, money and financial markets in the past) is the mildly offensive but absolutely correct question to ask: who the f— cares?! Bitcoin and the question of monetary regimes are perfect examples that make financial history relevant: the rise of crypto questions the fundamentals of monetary systems, systems that very rarely change. Naturally, the financial historian has an edge here, having a lot more nuanced knowledge about past monetary and financial arrangements and their operations. History becomes our (only) laboratory, to which the financial historian typically has a lot to contribute.

Moreso than other topics, fundamental questions of monetary regimes are explicitly pitted against other possible regimes – by their nature comparative and always informed by historical experience. It takes about two-and-a-half sentences before debates over money invoke some reference to financial and monetary history – as they should, since they illustrate how some (aspect of) a different monetary regime worked. Frustratingly enough, there’s a good chance that the speaker has mindboggingly little idea of what s/he’s talking about!

That’s where I like to come in. To a roomful of aspiring monetary economists at Cato’s Alternative Money University in July this year, Randall Wright‘s response to why he does monetary economics at all (“to debunk all this B-S!”) generalizes pretty well.

I’m gonna use this post to review some of the mistakes Saifedean made yesterday – and use it going forward as an updated collection of future posts on the topic, especially as I go through Saif’s promising book, The Bitcoin Standard: The Decentralized Alternative to Central Banking. The aim here is to respectfully clarify the parts of the Bitcoin arguments where I’d like to think that I have a comparative advantage – financial and monetary history – and to better develop my understanding of the monetary theory involved.

Here are some points that came up yesterday:

  • The Monetary Progression of ‘Harder Money’: the brilliance of the past is that almost any account, no matter how persuasive and compelling, is bound to run into inconvenient historical facts. The world is more nuanced than can be reasonably captured by pithy generalization (yes, I realize the irony here). In a piece attacking this bitcoiner’s creation myth earlier this year, I wrote:

This progressively upward story is pretty compelling: better money overtake worse money until one major player unfairly took over gold – the then-best money – replacing it with something inferior that the Davids of the crypto world now intents to reverse. […] Too bad that it’s not true. Virtually every step of this monetary account is mistaken.

  • The Lender-of-Last-Resort role privately provided: Many Austrians and opponents to fractional reserve banking routinely believe that banks holding less-than-100% reserve against their deposits must have a government backing them, providing emergency liquidity when such banks are inevitably run upon. This is completely false. I can point to many different historical instances that privately accounted for such risks, from private clearinghouses to insurance, to the option-clause debate in Scottish Free Banking and contingent/unlimited liability institutions.
  • …which leads us to Scottish Free Banking. There’s a famous quip by Rothbard (“Rothbard’s Law“) that describes the tendency for economists to specialize in the fields they’re worst at: Henry George specialized in land, where his writing is appalling; Milton Friedman on Money, where he’s awful etc. I usually say that the same thing applies for Rothbard whenever he writes on Financial History. Very bad. And yes, I will go through his article ‘Myth of Free Banking in Scotland’…
  • Saif made a distinction yesterday between the “Medium of Exchange” and the “Payment Mechanism” involved that struck me as misleading, and I didn’t get a chance to finish my reasoning with him in person – so I’ll flush it out in a piece later on. Happily for all you Free Banking fans, it involves note-issuing Scottish banks and the bigger questions of redeemability and outside/inside money.

Some additional housekeeping from yesterday:

  • Saif: “There was no real estate bubble on the Gold Standard”.
    • Yes, Selgin said, the Florida 1920s housing bubble leading up to the Great Depression. No, Saif correctly objected, that wasn’t a real gold standard, but a central bank-planned Gold Exchange Standard.
      Ok, fine – I’d agree with Saif here. How about the 1893 Australian banking crisis? Classical Gold Standard, no central bank, but a property boom and bubble-like collapse nonetheless.
    • A response might be “but fractional reserve banking!” but a) that’s a topic I’ll delve into much more, and b) this is started to sound like a No True Scotsman fallacy…
  • Saif: “Central banks hold gold – they don’t trust each other enough to hold currency”
    • Saif probably misspoke here, since he couldn’t possibly believe this; looking at any central bank’s balance sheet would instantly dispell such beliefs. Central banks generally hold no more than 5-8% of their assets in gold, and often a lot more than that in foreign currency-denominated asset. The ECB holds about equal parts (7-8% of assets) in gold and foreign currency. I routinely follow the weekly changes in the Riksbank’s balance sheet and even after a more extreme QE programe than the Fed’s (as % of GDP), it holds more FX than it does SEK-denominated assets (and no more than 5% in gold). The Bank of England technically doesn’t actually have any gold at all on its balance sheet, but holds gold in storage at its vaults (on behalf of other countries and the UK Treasury).

Bear with me over the next few months, as I make my way through Saif’s book and engage with these thrilling debates. Feel free to interrupt/comment on Twitter at any point if you think I’ve made a factual/empirical error, error in reasoning or in relevance to Bitcoin.

And yes, keep in mind that this is a respectful inquiry into fascinating topics with people who agree on like 92% of everything. Feel free to call me out for unnecessarily snarky and offensive thing as we go along – and welcome to the party!

A decentralized look at the U.S.-China trade war

Tridivesh Singh Maini Current Events, Politics , , , , , , , ,

For the time being, it is highly unlikely that the Trade war between Beijing and Washington will be resolved. In May 2019, Trump increased tariffs on Chinese commodities (worth $200 billion) from 10% to a whopping 25%. So far, the US has imposed tariffs worth about $250 billion on China, while China has retaliated with tariffs on US goods estimated at well over $100 billion.

It would be pertinent to point out that trade disputes have not been restricted only to Washington and Beijing. Imposition of tariffs has been a bone of contention with numerous US allies, including Japan.

Of late, trade issues have resulted in major differences between New Delhi and Washington. Even though there are convergences between both countries on numerous strategic issues, resolving the differences between both sides on trade-related matters is likely to be an onerous responsibility.

In response to tariffs imposed by Washington, New Delhi retaliated, and has imposed tariffs, estimated at $200 million, on 29 commodities (including apples, almonds, and chickpeas). India’s decision was a response to Washington’s decision to impose tariffs, of 10% and 25% on aluminium and steel, in May 2018. Last year, New Delhi refrained from imposing tariffs, but did raise import taxes on a number of US goods to 120% after Washington declined to exempt New Delhi from higher steel and aluminium tariffs. The key propelling factor for India’s recent imposition of tariffs was the US decision to scrap the Generalized System of Preferences (GSP) for India from June 5, 2019. India benefited immensely from this scheme, as it allowed duty-free exports of up to $5.6 billion from the country.

Pressure on Trump

Even though no solution is in sight, there are a number of lobbies in the US, especially trade groups and US businesses, which have been repeatedly urging the Trump Administration to find a solution to the current impasse with China.

Only recently for instance, 600 companies, including Walmart, in a letter to the U.S. President, urged him to resolve trade disputes with China, stating that tariffs were detrimental to the interests of American businesses and consumers. The letter was sent as part of the ‘Tariffs Hurt the Heartland’ campaign.

To underscore the detrimental impact of trade wars on the American economy some important estimates were provided. The letter stated that tariffs of up to 25% on $300 billion worth of goods could lead to the loss of two million jobs. Costs for an average American family of 4 would also increase an estimated $2000 if such tariffs were to be imposed.

Reports indicating the challenges to the US economy and FDI from Chinese companies in US

A number of surveys and reports illustrate the profound challenges which the US economy is facing, as well as a drop in FDI from China.

The University of Michigan’s consumer sentiment index also revealed a drop in consumer sentiment from 100 in May to 97.9 in June. This was attributed to trade wars between China and the US.

According to a survey released by the China General Chamber of Commerce USA, investment by Chinese companies in the United States has witnessed a significant decline since 2016 (including a sharp drop in 2018 and early 2019).

A number of important events have been held recently, where efforts were made to draw more Chinese investments to the US. One such event was the Select USA Summit. Speaking at the Summit, US Commerce Secretary Wilbur Ross stated:

We welcome investment from any place as long as it’s investment that poses no challenges for national security.

US states and FDI

What was clearly visible at the Select USA Summit was the fact that a number of US states pitched for expanding economic ties with China, and drawing greater Foreign Direct Investment.

The state of North Carolina sought to attract investments in areas like IT, aviation, and biotech. The US headquarters of Lenovo are in the state of North Carolina. Trump’s trade wars have hit the state in a big way, and one of the sufferers has been soy bean farmers. As a result of a 25 percent imposition of tariffs, the price of a bushel of soy beans has dropped to $8, from $10 in 2018.

Other US states brought to the fore the impact of tariffs on their respective economies. According to a senior official from the state of Louisiana for instance, it has suffered immensely as a consequence of the imposition of tariffs. Agricultural commodities from Middle America to China are imported through export terminals in Louisiana. Don Pierson, the senior official from Louisiana, said that the agricultural economy of the state, as well as the logistics economy of the state, have taken a hard hit as a consequence of the trade wars. Pierson also spoke about the possibility of exporting LNG from Louisiana to China. Chinese companies in the state of Louisiana, which include Yuhuang Chemical Group (Shandong’s), have made major investments. Shangdong’s decided to invest $1.85 billion in a methanol production complex (this was one of the largest Chinese direct investments in US). Wanhua Chemical Group invested over $1 billion (1.2) in a chemical manufacturing complex in southeastern Louisiana.

A number of Chinese companies have also begun to realise that there is need to adopt a nuanced approach, and are still tapping certain US states for investment.

Another important event was the Select LA Summit. The Los Angeles Mayor Eric Garcetti, and Lenny Mendonca, chief economic adviser to the California governor, assured overseas investors of all possible support from the town of LA, as well as the state of California.

Impact of trade disputes and Washington’s stance vis-à-vis Huawei

US states and Chinese provinces have been at the forefront of improving economic ties between both countries. Both are likely to suffer as a consequence of not just the trade war between both countries, but also the US ban on Huawei. The tech company, according to a report published in 2016, contributes 7% of the GDP of the town of Shenzhen (Guangdong province). Affiliates of Huawei provide employment to an estimated 80,000 people, while a research facility in a nearby city of Dongguan, provides employment to well over 3,000.

Conclusion

In conclusion, it is important for all stakeholders, not just businesses from both countries, to play their role in resolving economic and technological disputes between China and the US. It is also important for Chinese provinces as well as US states to play a pro-active role in reducing tensions. Both governments, while realising the importance of federating units, have set up official dialogues and set up other mechanisms for sub-national exchanges. It is important that these platforms now contribute towards reducing the divergences between both countries. While all eyes are on the political leadership of both countries, it is important to realise that the stakeholders in the US-China relationship are not restricted to Beijing and Washington DC.

Nightcap

Brandon Christensen Links , , ,
  1. Lake Wobegon’s Ghost Churches Rod Dreher, The American Conservative
  2. The Russian affinity for American stuff continues unabated Guy Archer, Moscow Times
  3. Avoiding World War III in Asia Parag Khanna, National Interest
  4. Did government decentralization cause China’s economic miracle? Hongbin Cai, World Politics

An update on the federalist debate in India

Tridivesh Singh Maini Current Events, Politics , , , ,

In recent days, numerous leaders in India’s South have spoken in one voice against the 15th Finance Commission — arguing that it is unfair to South Indian states. The bone of contention is a directive in the terms of reference given to the Finance Commission, which states that the distribution of revenues amongst states should be based on the 2011 census, as opposed to the 1971 census. During this period, South Indian states have fared well in controlling their population, while Bihar, Uttar Pradesh, Madhya Pradesh, Rajasthan, and Uttar Pradesh – all northern states – have been unsuccessful. South Indian states have put forth the argument that they have been penalized for controlling their population, while states which have not fared particularly well have been rewarded.

Some leaders have also objected to the commission dubbing important welfare schemes as ‘populist’ without understanding the economic and social dynamics of different states.

Non-Economic Issues Continue reading →

On why complexity from simple rules is counterintuitive

Quote Rick Weber Economics, Liberty, Philosophy , , , , ,

“… normally we start from whatever behavior we want to get, then try to design a system that will produce it. Yet to do this reliable, we have to restrict ourselves to systems whose behavior we can readily understand and predict–for unless we can foresee how a system will behave, we cannot be sure that the system will do what we want.

“But unlike engineering, nature operates under no such constraint. So there is nothing to stop systmes like those at the end of the previous section from showing up. And in fact one of the important conclusions of this book is that such systems are actually very common in nature.

“But because the only situations in which we are routinely aware both of the underlying rules and overall behavior are ones in which we are building things or doing engineering, we never normally get any intuition about systems like the ones at the end of the previous section.”

Stephen Wolfram

The deeper you dig into math and computer science, the more Hayekian things look. The impossibility of economic calculation under socialism has important counterparts in Godel and Turing/Church.