J. Bradford DeLong's Blog, page 410

Chris Ellis: Bitcoin: Additional Suspicious Developments-...

Chris Ellis: Bitcoin: Additional Suspicious Developments-Winklevoss Bitcoin Trust ETF (Pending:COIN): "Summary: Tethers are being issued at a pace of 13 billion per year...

No one knows where the money is, but no one seems to care.

Bitfinex halted new accounts registrations.

Bitfinex employee's profile suggests that he or the company is being investigated.

Tether Limited runs the Bitfinex playbook by imposing redemption minimums, effectively freezing customer funds.

This idea was discussed in more depth with members of my private investing community, Core Value Portfolio.

In my previous articles, I talked about the surprising correlation between the supply of Tether and the price of Bitcoin.... There are good reasons to believe that Tether Limited is issuing Tethers that are not backed by USD as promised in order to purchase Bitcoin through Bitfinex.... I believe that Tether's correlation to Bitcoin is no simple coincidence. It continues to baffle me why this issue is not the most talked about topic in the Bitcoin community.... At the time of writing, there were over 1.2 billion Tethers outstanding. Meanwhile, no one actually knows or seems to care about where Tether Limited is holding the USD funds. If market participants truly care about the integrity of the cryptocurrency, this should be the most pressing issue at hand....

Many readers have urged me to forward my findings to relevant authorities, and it is interesting to note that a Bitfinex employee's warrant canaries have disappeared. Warrant canaries serve as a warning mechanism that indirectly indicates to the public that the related entities have not been investigated. Their disappearance implies that he or the firm are being investigated by law enforcement...."

Must-Read: Once upon a time in the past the size and loca...

Must-Read: Once upon a time in the past the size and location of cities was underpinned by fundamentals in the sense first of agricultural resources and transport, and then of agricultural plus manufacturing resources and transport, on top of which was built, agglomeration economy, increasing returns, and congestion layer of determination. In the future it looks as though it will be not production but consumption suitability: the fundamentals underpinning cities will be where people find it pleasant to live, on top of which there will be a congestion layer, plus a three-fold path dependence increasing returns layer of determination: the consumption culture, the production culture, and the infrastructure left from the past. Will we all live in one million population mile-long thousand foot-wide thousand-foot high arcologies in Greater San Diego? Not all. But a lot of us may: Paul Krugman: The Gambler���s Ruin of Small Cities: "Once... towns and small cities... served as central places serving a mainly rural population engaged in agriculture and other natural resource-based activities...

...Over time... agriculture has become ever less important.... Nonetheless, many small cities survived and grew by becoming industrial centers, generally specialized in some cluster of industries held together by the Marshallian trinity of information exchange, specialized suppliers, and a pool of labor with specialized skills. What determined which industries a small city developed?... Location... nearby resources... random chance... then a sequence in which one industry created conditions that favored another.... Rochester, New York... started as a flour milling center, benefitting from the Erie Canal, then as a center for nurseries and seeds.... Then, in 1853, John Jacob Bausch... optics... creating the preconditions for the rise of Eastman Kodak, and much later Xerox.... Typical.... Even if what a city was doing in, say, 1970 seemed very different from what it was doing in 1880, there was usually a sort of chain of external economies creating the conditions that allowed the city to take advantage of particular new technological and market opportunities when they arose... a chancy process.... When a city starts out fairly small and specialized, over a long period there will be a substantial chance that it will lose enough coin flips that it effectively loses any reason to exist.

I���m not saying that there weren���t patterns... miserable winters... college towns... destinations for immigrants. Still... a random process... in which small cities face a relatively high likelihood of experiencing gambler���s ruin. Again, it was not always thus: once upon a time dispersed agriculture ensured that small cities serving rural hinterlands would survive. But for generations we have lived in an economy in which smaller cities have nothing going for them except historical luck, which eventually tends to run out.... Are there policy implications from this diagnosis? Maybe. There are arguably social costs involved in letting small cities implode.... But it���s going to be an uphill struggle. In the modern economy... any particular small city exists only because of historical contingency that sooner or later loses its relevance...

Should-Read: Jelani Cobb: @jelani9 on Twitter: "I was fra...

Should-Read: Jelani Cobb: @jelani9 on Twitter: "I was frankly embarrassed by @CornelWest���s threadbare commentary...

...It���s one thing to challenge and interrogate. Quite another to cloak petty rivalry as disinterested analysis. Neoliberal?... This points to a broader concern I might as well air. One of the more fascinating things I���ve observed as @tanehisicoates has become more prominent is the unifying contempt of a striking array of black intellectuals.... People as intellectually diverse as John McWhorter and Glenn Loury are mad at the same dude as @CornelWest and Adolph Reed. I can���t tell you how many times black academics have tried to turn me against my friend on the low. One who sniffed indignantly to me ���He hasn���t written anything that���s not on my syllabus.��� Then you should���ve sent your syllabus to @TheAtlantic. But underlying all this is another dynamic. Plain classical elitism.... Straight up: many people hate the fact that the person being hailed as possibly the sharpest black intellectual writing about race is an HBCU dropout. They prefer their self-made intellectuals to be of the deceased variety

Frankly I preferred not to say any of this. @tanehisicoates is a grown man. He can fight his own battles. But it���s a little tiresome to see and hear the hypocritical bullshit of academics who would prefer the community not be defended if doing so means accolades for someone else...

Some Fairly-Recent Must- and Should-Reads...

Ezra Klein: @ezraklein on Twitter: "I don���t know what the [New York] Times should���ve done with Thrush. But I watched the efforts to plant oppo and smear @lkmcgann in the aftermath of her reporting. Anyone who thinks coming forward with these experiences is easy, even now, is wrong. I am beyond proud to be her colleague..."

Noah Smith: A Road Map for Reviving the Midwest: "John Austin believes that there are 'two Rust Belts'...

Ezra Klein: ���Trump country��� stories help explain our politics, not the next election: "Michael Kruse���s Politico story revisiting diehard Trump supporters in Johnstown, Pennsylvania...

Dan Morain: California congressional Republicans seek gas tax repeal: "Now that most of California���s House Republicans have voted for a tax overhaul that will raise taxes for many of their constituents, you have to wonder what more good cheer they���ll bring.... I���m thinking roads and other infrastructure...

Michael Jordan: On Computational Thinking, Inferential Thinking and Data Science: "The rapid growth in the size and scope of datasets in science and technology has created a need for novel foundational perspectives on data analysis...

Nick Hanauer (2012): A Message From Us Rich Plutocrats To All You Little People: "You need to understand that as job creators, at the center of the economic universe, the better we do, the better it must be for you...

John Maynard Keynes (1924): Tract on Monetary Reform: "Inflation and Deflation... inflicted great injuries...

Jeffrey Friedman: Public Choice Theory and the Politics of Good and Evil: "So now we finally know. Libertarians aren���t the ditzy bumblers exemplified by 2016 presidential candidate Gary (���What is a leppo?���) Johnson...

Some Fairly-Recent Links:

Joe Thompson: Four Revolutions: A Concise History Of The Modern Watch World: "I drove home from work that day depressed. Watches? Really? What can you possibly write about watches once a month?..."
Christopher A Pissarides: The Unemployment Volatility Puzzle: Is Wage Stickiness the Answer?: "An equilibrium search model with endogenous job creation and destruction... explanations of the unemployment volatility puzzle have to preserve the cyclical volatility of wages..."
John Maynard Keynes (1924): A Tract on Monetary Reform
Alexandra Petri: Famous quotes, the way a woman would have to say them during a meeting: "'Give me liberty, or give me death'. Woman in a Meeting: 'Dave, if I could, I could just���I just really feel like if we had liberty it would be terrific, and the alternative would just be awful, you know? That���s just how it strikes me. I don���t know'..."
Max Boot: 2017 Was the Year I Learned About My White Privilege: "I have benefitted from my skin color and my gender���and those of a different gender or sexuality or skin color have suffered because of it. This sounds obvious, but it wasn���t clear to me until recently. I have had my consciousness raised. Seriously..."
Benjamin Clymer: A Week On The Wrist: The Apple Watch Series 3 Edition: "We look at how cellular makes a difference (hint: it does���a big one) and how the ultimate smartwatch has started to hit its stride (if you can call it a watch)..." https://www.hodinkee.com/articles/hodinkee-apple-watch-review
Jennifer Williams: Trump foreign policy 2017: 9 bizarre things you forgot Trump did: "President Trump has gotten the US locked in a military standoff with North Korea, thrown the future of the Iran nuclear deal into doubt, weakened NATO, emboldened Russia, and triggered a diplomatic crisis over Jerusalem.And he���s done that all in under 12 months.... It���s easy to lose sight of the other weird, inappropriate, or just plain bizarre things Trump did on the world stage in 2017..."
Noah Smith: Rent for the Poor Really Is Too High: "After paying for housing, those in the lowest income bracket have little left for life's essentials..."

Highlighted | Teaching | Reading, Videos, etc.

Should-Reads:

Eric Posner (Written with Glen Weyl): Response to Matt Klein���s post on Alphaville on Harberger taxation: "Matt Klein���s post on Alphaville about a recent paper of ours made a number of errors... http://ericposner.com/response-to-matt-kleins-post-on-alphaville-on-harberger-taxation/
Ezra Klein: ���Trump country��� stories help explain our politics, not the next election: "Michael Kruse���s Politico story revisiting diehard Trump supporters in Johnstown, Pennsylvania...
Nick Hanauer (2012): A Message From Us Rich Plutocrats To All You Little People: "You need to understand that as job creators, at the center of the economic universe, the better we do, the better it must be for you...
Michael Jordan: On Computational Thinking, Inferential Thinking and Data Science: "The rapid growth in the size and scope of datasets in science and technology has created a need for novel foundational perspectives on data analysis...
Dan Morain: California congressional Republicans seek gas tax repeal: "Now that most of California���s House Republicans have voted for a tax overhaul that will raise taxes for many of their constituents, you have to wonder what more good cheer they���ll bring.... I���m thinking roads and other infrastructure...

Should-Read: And now it is official: the official non-Tru...

Should-Read: And now it is official: the official non-Trumpist Republican line is now that all of that stuff about the tax "reform" bill delivering materially faster economic growth in exchange for widening inequality was just boob bait for the bubbas. Robert Barro, Michael J. Boskin, John Cogan, Douglas Holtz-Eakin, Glenn Hubbard, Lawrence B. Lindsey, Harvey S. Rosen, George P. Shultz, John. B. Taylor, James C. Miller III, Barry W. Poulson, Charles W. Calomiris, Jagdish Bhagwati, Martin Feldstein, Greg Mankiw, and company take note: Allegra Kirkland: Rubio: GOP Tax Bill ���Probably Went Too Far��� On Helping Corporations: "Sen. Marco Rubio (R-FL) said Friday that he believes the recently passed GOP tax bill did too much to help the bottom line of America���s largest corporations...

...I thought we probably went too far on [helping] corporations. By and large, you���re going to see a lot of these multinationals buy back shares to drive up the price. Some of them will be forced, because they���re sitting on historic levels of cash, to pay out dividends to shareholders. That isn���t going to create dramatic economic growth...

Should-Read: WTF?! To cite ��2.7 of your paper to claim t...

Should-Read: WTF?! To cite ��2.7 of your paper to claim that a critic is wrong when there is no ��2.7 in the version of the paper that the critic read is just bizarre. You don't claim that critics are wrong and then cite to a rewritten version of your paper!: Eric Posner (Written with Glen Weyl): Response to Matt Klein���s post on Alphaville on Harberger taxation: "Matt Klein���s post on Alphaville about a recent paper of ours made a number of errors... http://ericposner.com/response-to-matt-kleins-post-on-alphaville-on-harberger-taxation/

...Klein���s central claim is that our proposal would benefit the rich at the expense of ordinary Americans.... Klein���s claim seems to be based on two misunderstandings of our paper. First, he appears to think that the Harberger tax is based on the nominal value of assets rather than on net worth (equity) (see section 2.7)...

But there was no ��2.7 in the version of the paper that Matt Klein was discussing http://www.law.nyu.edu/sites/default/files/upload_documents/Property%20Monopoly.pdf!

Matthew Klein: Would debt deductibility and a generous basic income justify ���Harberger taxation���?: "Earlier this month, Alphaville covered a proposal to replace private property with 'shared ownership'... https://ftalphaville.ft.com/2017/06/29/2190670/would-debt-deductibility-and-a-generous-basic-income-justify-harberger-taxation/

...Weyl let us know that a newer version of their paper had made two important changes.... These two innovations explain Posner���s and Weyl���s response to our post, which was published while your correspondent was away. Unlike the 2016 version, the 2017 version notes that debts and other liabilities should be deducted from asset values when calculating the tax burden. Why this crucial feature was left out of the earlier paper is unclear...

I must say that I think that Matt is too kind here: ��2.7 (new version) does not say that debt and other liabilities should be deducted or will be deducted or must be deducted, but rather that they could be deducted. The use of the word could, especially when coupled with how they use "opportunity", is a particular flag. It indicates that the section is not part of their core proposal. It indicates that the section, instead, outlines one possible but not necessarily adopted way to deal with complexities and technical details.

Here is the (new version) ��2.7 in its entirety . None of the words "should", "must", or "will" appear:

2.7 Liabilities: Many assets are partially financed or encumbered by liabilities or other interests and these liabilities are, in turn, typically owned by individuals different from the possessor of the direct asset. The example that comes most easily to mind is that real estate is frequently encumbered with mortgages, leases, easements, covenants and the like. Yet many other, less common or more sophisticated arrangements exist regarding other assets, especially in the business setting. Corporate bonds are liabilities on corporate balance sheets, owned by bondholders; equity, while not technically a liability, controls and earns cash flows from businesses; options written on the stock of the company encumber the stock of the individual who wrote the options, etc.

Such liabilities, and the secondary assets they create, not only imply some additional complexities but also opportunities for a system of Harberger taxation. The opportunity is that liabilities could themselves be subject to the tax, but because they have negative value this would imply a subsidy rather than a tax. Indebted individuals could quote a price for these liabilities that they would be willing to pay for anyone who would be willing to relieve them of this liability. They would have to stand ready to raise this amount if anyone offered to do so, but would receive an annual subsidy (or in practice usually a deduction from the Harberger tax they owe on other assets) corresponding to this liability. This would alleviate a reverse monopoly problem (effectively a monopsony problem) associated with individuals refinancing or otherwise passing on liabilities that they are no longer the efficient bearers of but might hold out on the refinancing of because of their market power (Keys et al. 2016).30 More generally, individuals could declare any obligation of theirs that they have the right to transfer to be a ���liability��� that they receive a deduction for as long as they stand ready to pay another individual to discharge that liability at the self-assessed price.

Furthermore, using this approach to avoid the double or triple taxation of assets on which multiple layers of liabilities and resultant secondary assets are written allows for Harberger taxation to apply and thus aid the efficient allocation not only to the primary underlying asset, but also the secondary assets written on top of it. We highlight the benefits of such a system in the example of corporate equity securities in Subsection 4.3 further.

However, there would also be some subtle design elements in applying Harberger taxation in this manner. Many liabilities are so tightly tied to an asset or to an individual that it would not be appropriate for the liability to be taken on by a new individual who does not possess the asset unless either the owner of the secondary asset controlling that liability consents or the asset the liability encumbers is simultaneously acquired. Yet, this issue does not pose fundamentally different problems than those in Subsection 2.3 above regarding complementarities across assets. When issuing a loan, a lender could (as at present) specify in the terms of the loan the extent and nature of the bundling or unbundling allowed between the loan and the individual or tied asset. If the loan is fully tied to the asset, then any asset purchaser would have to buy the associated liability (or simultaneously purchase the loan itself from the lender to remove it). If the loan is tied to the individual but not to the asset, then the asset could be sold but the lender would have to grant permission for the liability to be transferred. Other more elaborate terms could be included, and the lender could choose as she wished in her self-assessment of her secondary asset in the loan bundle together these terms or separately assess a value on each one, allowing for the purchase of each by an individual interested in removing a covenant on the loan.

Thus, while Harberger taxation would change the nature of ownership and taxation of sophisticated financial arrangements and would thus allow for greater efficiency, it would not undermine the possibility of sophisticated forms of financing. However, it might to some extent reduce the need for such financing because it would dramatically reduce the liquidity and cash requirements for purchasing assets as it would reduce their capitalized value. We return to this point in Subsection 3.2 further...

Comment of the Day: E. Messily: Awfully Specific Advice: ...

Comment of the Day: E. Messily: Awfully Specific Advice: "The dinner table conversation with my family got a little out of hand this year, but in a way very specific to my family...

...A question about etymology led to my father standing up (he was leaving to get more wine) and announcing "Did you know that there is a word for when you are trying to think of a word you can't remember?" We all played along "what's the word, Dad?" "I don't remember" but then he told us the word: lethologica. And I said "oh, like the river," and only one person knew what I was talking about, and amidst incredulous responses to how any river could possible be involved, several fierce side arguments ensued about Greek mythology and/or etymology.

Then it was time for dessert so everyone became friends again.

Live from the Orange-Haired Baboon Cage: Joy Ann Reid @Jo...

Live from the Orange-Haired Baboon Cage: Joy Ann Reid @JoyAnnReid on Twitter: "He���s laughing at you, MAGAs...

...His ���populism��� was always an act. THIS is what he and his party got in the government game to do, and they���ll soon send you the bill. Merry Christmas!:

Katie Watson: [@kathrynw5 on Twitter: "'You all just got a lot richer', President Trump told friends dining at Mar-a-Lago Friday night, hours after signing tax overhaul into law..."

Should-Read: This seems to be a counterproductive line to...

Should-Read: This seems to be a counterproductive line to pursue: the people who would be triggered to go to the polls to vote to repeal the state gasoline tax hike are also people who would like more of their SALT deduction back. They would seem eager to punish McCarthy and company for taking that away. Does the California Republican House delegation have any polling indicating otherwise? Dan Morain: California congressional Republicans seek gas tax repeal: "Now that most of California���s House Republicans have voted for a tax overhaul that will raise taxes for many of their constituents, you have to wonder what more good cheer they���ll bring.... I���m thinking roads and other infrastructure...

...November 2018 ballot... repeal the 12-cent per gallon gasoline tax increase... to pay for road repairs, bridge maintenance and some public transit.... Potholes don���t fill themselves. That���s not stopping House Majority Leader Kevin McCarthy, R-Bakersfield, and most of California���s Republican congressional delegation from backing that repeal���with a notable exception, Rep. Jeff Denham, R-Turlock. McCarthy, a guy who knows politics, dumped $100,000 into the initiative to repeal the gas tax. Rep. Mimi Walters, an Orange County Republican, and Rep. Ken Calvert, R-Corona, chipped in $50,000 each, recent campaign finance reports show. ���This is politics at its worst,��� California Transportation Secretary Brian Kelly told me. ���They���re trying to make sure Republicans get to the polls in California. It���s not much other than that, in a year that looks pretty shaky for them.���

California Republicans will be facing a bleak reality in 2018.... 66 percent of us disapprove of the Republican Party���s leader, President Donald Trump, and 57 percent strongly disapprove.... Any Republican politician who thinks he or she has a future in the Golden State ought to be especially alarmed by... 77 percent of people between ages 18 and 39 disapprove of Trump. An entire generation in the nation���s largest state has turned against the GOP���s standard bearer, roughly the reverse of numbers recorded at the end of Barack Obama���s first year in office. ���I���ve never seen the depth of disapproval so strongly held,��� said pollster Mark DiCa...

And:

Dan Morain: California congressional Republicans seek gas tax repeal: "Building trade unions, major road builders, engineering firms and Los Angeles, Orange County and Bay Area business groups���many of them Republican donors ��� sent letters urging California���s congressional Republicans to stand down and not push to repeal the gas tax hike...

...We appreciate that your primary goal is to protect all incumbent Republicans and increase the number of Republicans in the House as well as other elected bodies. However, a strategy to use an initiative to repeal SB 1 to reach your goal may be counterproductive to your objectives. Fundamentally, any attack on SB 1 amounts to an attack on improving our badly deficient transportation system, endangering our economic growth and competitiveness, and increasing unemployment...

[Representative] McCarthy pointedly pushed back:

If Democrats in Sacramento are rewarded with a gas tax bailout now, what is to stop them from looking at the industries represented in your coalition to pay for the next fiscal crisis? These are principles we should stand shoulder-to-shoulder to defend...

McCarthy and 10 other House Republicans from California signed the letter. Denham was among the absentees. His office offered no explanation for his failure to stand ���shoulder-to-shoulder��� with fellow Republicans. But... the Central Valley Republican would be in line to become chairman of the committee that oversees transportation and infrastructure. Denham would be dealing with construction companies, engineering firms and unions that represent the building trades, the very same ones who will be spending millions to defeat the initiative that McCarthy is funding. Politics aside, they understand the hard reality that decent roads come at a cost. And, evidently, so does Denham...

And Josh Marshall comments:

Josh Marshall: Saving the California GOP House Delegation: "California is one of the states hardest hit by the end of most deductions for SALT taxes...

...Altogether it could crush what remains of the still sizable Republican House delegation from California (39-D, 14-R). How to survive? Led by House Majority Leader Kevin McCarthy, they plan to hitch their fates to a proposition to repeal a new gas tax dedicated to roads and infrastructure spending. The aim seems less to change minds as simply to make certain Republicans turnout. They need every angle they can get. Not surprisingly, the new tax is not terribly popular, certainly not among Republicans. But it actually has a fair degree of support among business groups who are major GOP donors but yet realize that a decrepit infrastructure is bad for business...

Should-Read: Tyler Cowen's line in early 2016���that 30% ...

Should-Read: Tyler Cowen's line in early 2016���that 30% of America has always been crazy, but that the crazy used to be split between the two parties, and so was contained, but is now concentrated in one���has stuck with me. He meant it to be reassuring. But the crazy concentrated in the Republican Party turned out to be large enough to take it over. And then there were the 19% who were willing to go along with the crazy in November 2016. And now there are the officeholders who believe that they are tied to Trumpism. (1) Find different officeholders. (2) Break the 19%'s tolerance for Trumpism. (3) Split the 30% so it can no longer win a Republican primary. Those are the three principal tasks to recreate a constructive American politics. And easily grifted morons in and around Johnstown, PA are not key to understanding how to accomplish those tasks: Ezra Klein: ���Trump country��� stories help explain our politics, not the next election: "Michael Kruse���s Politico story revisiting diehard Trump supporters in Johnstown, Pennsylvania...

...Trump���s [core] supporters don���t care about his broken promises, don���t believe the swirling scandals, and haven���t heard many of the dominant criticisms. Their filter bubble leads to bizarre moments.... Where his story goes awry is in its effort to draw a macro-political conclusion....

Johnstown voters do not intend to hold the president accountable... have eliminated the goalposts altogether. This reality ought to get the attention of anyone who thinks they will win in 2018 or 2020 by running against Trump���s record. His supporters here, it turns out, are energized by his bombast and his animus more than any actual accomplishments....

Here���s the thing: No one will win in 2018 or 2020 by trying to convert the most hardcore of Trump supporters. That isn���t how elections are won. It never has been: Herbert Hoover, in the depths of the Great Depression, held about 80 percent of his vote from the previous election. You can imagine stories going deep into Hoover country quoting diehard Hooverites explaining away their president���s failures. But Hoover still lost his reelection bid in a landslide....

Trump didn���t win in 2016 by a healthy margin. Even with James Comey���s assist, he lost the popular vote, and the election turned on a mere 74,000 ballots in three states.... Trump... has to expand his coalition, or at least stop it from shrinking. At that, he���s failing. There are plenty of Trump voters out there who aren���t deep inside Trump���s bubble, who don���t like the fights he���s constantly picking, who are open to arguments about his record.... We shouldn���t mistake Trump���s hardcore support for the votes that won him the White House, and that he���s at most risk of losing...

As I have said before, this reminds me of American politics in the 1850s. Back then it was the Democratic Party that held the national majority, and the South had the majority within the Democratic Party, and the Slavepower had the majority within the South, and the fire-eaters had the majority within the Slavepower, and with bleeding Kansas and Dred Scott the fire-eaters pushed too far, and the Slavepower, the South, and the Democratic Party fell in line, and the political system broke���and 700,000 peple died and 5 million people became free (or freer).