Markets/Econ
Point—To Fight Inflation, Fed Tightening Should Go Faster and Further
The Federal Reserve has said repeatedly that it responds to data and doesn’t set interest rates on autopilot. The data have changed dramatically. The Fed should prove it means what it says by shifting from a 25-basis-point increase at its next meeting to a 50-point increase. It should also shift expectations toward a terminal rate of around 6%.
Counter-Point—Jason Furman Uses Bad Data to Advocate a Deliberate Fed Recession
That curiously imprecise “about 5 percent” number flaunts Mr. Furman’s faith‐based dedication to Phillips Curve theory and his cavalier indifference to facts. Average hourly earnings rose at an annual rate of 3.7 percent in January, after spiraling downward from 7.9 percent since last March. Last year, the Employment Cost Index had already spiraled down to 4.1 percent by the fourth quarter from 4.8 percent in the third and 6.5 percent in the second.
How the Biggest Fraud in German History Unraveled—A must read about Wirecard. Exhibit #10 million in the case against the Efficient Markets Hypothesis.
related—Dispatch from the UK: KPMG Settles Carillion; The Whiners Are Not Happy
One thing we do learn is that the expedient Mr. Holt has reduced by one the number of pending litigation threats against the Big Four that, at their worst, are large enough to be life-threatening. That population now includes, at least, Wirecard in Germany and NMC Health in the UK for EY, and for PwC, Evergrande in China and Lojas Americanas in Brazil.
A Tight Labor Market Could Keep Rent Inflation Elevated
Some policymakers have interpreted the decline in the Zillow measure as an indication that BLS rent inflation measures will soon peak as well. However, a return to pre-pandemic rates of rent inflation could remain elusive. With labor markets still tight, historical patterns predict that rent inflation is likely to remain elevated even after the dust settles on pandemic-driven swings in rents.
In analyzing the historical record, we find no instance in which a central bank-induced disinflation occurred without a recession. Looking in more detail, we see that the cost (per percentage point of disinflation) was lower the more credible the central bank, the higher the initial level of inflation, and the faster the disinflation. In the modeling analysis, we identify a version of the Phillips curve that is better able to account for the behavior of U.S. inflation since 2020. Critically, our results suggest that a hot labor market raises inflation, but a cold labor market does not reduce inflation.
Lessons from Sargent and Leeper—John Cochrane’s notes from a panel discussing his Fiscal Theory of the Price Level.
BoJ finally corners 10-year JGB market
M2: the smoking gun of inflation
Justin Wolfers Twitter thread with his slide deck for teaching macro students about our recent inflationary interlude.
Once the dollar begins to strengthen, the subsequent dynamics imply a decline in global manufacturing due to dollar invoicing and the credit-intensive global value chain. Manufacturing activity, where credit-intensive global value chains are more pervasive, will tend to suffer more. The contraction in global (ex-U.S.) manufacturing will spill back to the U.S. manufacturing due to production linkages and a reduction in demand. This will also lead to a decline in commodity prices and world trade. As the U.S. economy is less exposed to global developments, the dollar will benefit in relative terms from a worldwide economic decline, reinforcing the circle. In our staff report, we show how these different forces interact using our global macroeconomic model.
Some quick takeaways from Bain’s private equity report
US Housing Outlook: Housing recovery has started
Two books—one an investigative tour de force on McKinsey, the other a frontal lobotomy on the consulting industry in general—strip away the aura of respectability that has surrounded the profession for more than a century. When McKinsey Comes to Town and The Big Con highlight conflicts of interest, hypocrisy and fee-driven avarice. Most damaging is the charge that consulting firms create the impression of value rather than delivering tangible benefits to their clients.
Berkshire/Buffet Annual Letter—Warren Buffett’s 2022 Letter to Shareholders and Buffett on Buybacks.
I, for one, welcome our new AI overlords…
High-resolution image reconstruction with latent diffusion models from human brain activity—They showed the images in the top row to folks in an MRI machine and then used Stable Diffusion to read the MRI results and reproduce the image.
Google USM: Scaling Automatic Speech Recognition Beyond 100 Languages
We introduce the Universal Speech Model (USM), a single large model that performs automatic speech recognition (ASR) across 100+ languages.
Microsoft unveils AI model that understands image content, solves visual puzzles
On Monday, researchers from Microsoft introduced Kosmos-1, a multimodal model that can reportedly analyze images for content, solve visual puzzles, perform visual text recognition, pass visual IQ tests, and understand natural language instructions. The researchers believe multimodal AI—which integrates different modes of input such as text, audio, images, and video—is a key step to building artificial general intelligence (AGI) that can perform general tasks at the level of a human.
Worriers often invoke a Pascal’s wager sort of calculus, wherein any tiny risk of this nightmare scenario could justify large cuts in AI progress. But that seems to assume that it is relatively easy to assure the same total future progress, just spread out over a longer time period. I instead fear that overall economic growth and technical progress is more fragile that this. Consider how regulations inspired by nuclear power nightmare scenarios have for seventy years prevented most of its potential from being realized. I have also seen progress on many other promising techs mostly stopped, not merely slowed, via regulation inspired by vague fears. In fact, progress seems to me to be slowing down worldwide due to excess fear-induced regulation.
Foreign
There Is No Upside to Hungary From Prolonging this War — An Interview with N.S. Lyons
China could therefore be doing much more to help Russia, but is not. But nor is it pressuring Russia to make peace, either… at least that we know of.
This has honestly been a bit of a surprise to me – though probably much more of a surprise to Moscow. The outcome of this war is ultimately almost as consequential for China as it is for Russia. If the Trans-Atlantic alliance of the United States and Europe are fully triumphant in shattering Russian power, it will make their intended containment of China much easier. So China’s hesitancy indicates that leaders in Beijing are deeply conflicted about what to do given China’s difficult strategic circumstances…However, if Russia begins to lose very badly on the battlefield, perhaps this will change.
Jeffrey Sachs’s Great-Power Politics—Isaac Chotiner, the Cathedral’s inquisitor, exposing another apostate.
The Reckoning That Wasn’t: Why America Remains Trapped by False Dreams of Hegemony
These cascading failures and shortcomings and the inability of the postwar vision of U.S. power to contend with them seemed to herald a Suez moment. Instead, in the history of U.S. statecraft, the Biden presidency marks a turning point when things didn’t turn. Midway through Biden’s term, U.S. grand strategy is mired in a tangle of unacknowledged contradictions. Preeminent among them is Washington’s insistence that the United States must sustain the now hallowed model of militarized global leadership even as the relevance of that model diminishes, the resources available to pursue it dwindle, and the prospects of preserving the country’s privileged place in the international order decline. Yet the foreign policy establishment insists there is no conceivable alternative to militarized American leadership—pointing above all to the Russian invasion of Ukraine to make its case.
The world has learned a lot watching America’s Middle East freedom agenda wind its way through the Fertile Crescent, North Africa, and then up the Nile, first under George W. Bush and then under Barack Obama. The first of these lessons is that when U.S. policymakers selectively deploy the rhetoric of democracy and human rights against target governments, their words are typically accompanied by practical measures to destabilize those governments, including U.S. allies.
A similar operation is now underway in Israel, where the Biden administration has departed from diplomatic protocol by repeatedly advertising its meetings with the political faction seeking to undo Israel’s newly elected right-wing government. More significantly, Biden’s State Department is now directly funding local activists organizing the protests. By publicly putting its prestige and money behind the coalition that lost the latest Israeli election, Washington is openly advertising its desire to bring down Netanyahu.
Now that there is no mistaking who is driving the coup against him, Bibi at least has a clearer picture of the game board before him. He can’t do much about the “ally” that has legitimized BDS on a grander scale than its academic proponents in the U.S. could ever hope for by filling Israeli streets with opponents threatening to take capital out of the country and shirk military service. The only way out of this mess is to reassert his freedom of action by zeroing in on the Obama-Biden faction’s favored foreign constituents, the regime in Tehran. If America wants to set fires in his backyard, Bibi can set fires, too.
David P. Goldman on the New, New Middle East: China, Iran, and Turkey
In order to sustain its economy while continuing its war against Ukraine, Russia, along with its "sometime friends and sometime allies," persists in efforts to evade U.S. sanctions and "reorganize trade flows." One of the key countries participating in this effort is Turkey
Erdoğan's emergence as a "prosperous leader of a burgeoning third world economy" is the result of a shrewd policy of "building up blackmail capability against everyone he deals with."
US/Culture
Good old times, innovation edition
Douglas Adams once developed a set of rules that he thought describe our reaction to technology:
Anything that is in the world when you are born is normal and ordinary and is just a natural part of the way the world works.
Anything that is invented between when you are fifteen and thirty-five is new and exciting and revolutionary and you can probably get a career in it.
Anything invented after you are thirty-five is against the natural order of things.
Phosphorus Saved Our Way Of Life—And now Threatens To End It
Egan doesn’t think that the world will run out of phosphorus anytime soon, but he does argue that the U.S. is “particularly vulnerable.” America is rapidly churning through its domestic reserves, which aren’t all that large to begin with. (Much of the country’s phosphorus is found in central Florida, a region where mining has to compete with condo development.) When these reserves are gone, potentially within the next thirty years, the U.S. will become dependent on other countries—notably, Morocco—to feed itself.
The fall of the Jewish gangster
No doubt some reflexive antisemites will refer to Bankman-Fried’s ancestry to explain his behaviour, but this misses the changes he represents. Bankman-Fried, if he is to be considered in his Jewish context, reflects something far less distinctly ethnic than Meyer Lansky or even Bernard Madoff. He is not a product of the ghetto or of the struggling middle class. He may fit the profile of malicious cleverness, but in ways more reminiscent of the new tech oligarchy than of the old tribal traditions. Like everything else, crime gradually is losing its distinct ethnic flavour. Years of acceptance and upward mobility have merged our people with our surrounding communities, and will make our failings less reflective of our heritage and more part of the general decadence of the age.
The Kournikoving of College Sports and Its Discontents
As observed in dating site statistics and also in common sense noticing, a large cohort of men show more interest in a slender straight-presenting blonde than in some other sorts of women. These men also show more interest in women who appear available to the intentions of guys. These average revealed preferences are uncomfortable for some to deal with, and here comes the NIL revolution, making it all so salient, putting a number to what’s been suspected.
Now those market forces are here, and they’re placing the NCAA in a highly uncomfortable position. In theory, liberalizing rules was good because it made people free to make their own choices. That’s what the Cavinder twins appear to believe.
In practice, though, these long-subsidized sports appear powerless to prevent being overrun by the fantasies of young men and the dollars attached to such wanting. Does the NCAA want to be a middleman in the selling of sex?
Unfortunately, in recent years, it’s become clear that most or all — probably all — of the scientific studies on the benefits of alcohol are fake, the scientists unwitting or witting victims of selection effects. As Michael Crichton says, “wet streets cause rain”, or rather wet streets don’t cause rain. It turns out that sick people often don’t drink, or subjects just lie to researchers about their consumption outright. There go the studies.
A woman, an elephant, and an uncommon love story spanning nearly half a century.
OK, Buckley thought, let’s give this skating thing a try. In Southern California, she decided, roller skates would be a better fit.
Buckley visited a local welder, who estimated that it would cost $2,500 to construct metal skates big and strong enough for an elephant. Buckley had $3,000 in her bank account. She called her mother. “You know Tarra better than anyone,” her mother told her. “If you think she would like it, then do it.” Buckley emptied her bank account and commissioned the skillet-size skates.