Author Archives: Arnold Kling

The recent evolution of central banking in the U.S.

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Timothy Taylor writes,

when I was teaching big classes in the late 1980s and into the 1990s, the textbooks all discussed three tools for conducting monetary policy: open market operations, changing the reserve requirement, or changing the discount rate.

Somewhat disconcertingly, when my son took AP economics in high school last year, he was still learning this lesson–even though it does not describe what the Fed has actually been doing for more than a decade since the Great Recession. Perhaps even more disconcertingly, when Ihrig and Wolla looked the latest revision of some prominent intro econ textbooks with publication dates 2021, like the widely used texts by Mankiw and by McConnell, Brue and Flynn, and found that they are still emphasizing open market operations as the main tool of Fed monetary policy.

I recommend the whole post. I think this is an important issue.

The way I see it, central bank practices moved away from the textbook story at least 40 years ago. There were three important steps.

1. Intervention via the market for repurchase agreements, commonly called the repo market.

2. The use of risk-based capital requirements (RBC) to steer the banking sector.

3. The expansion of bank reserves and the payment of interest on reserves (IOR).

I will discuss these in turn. Continue reading →

FITs update

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As of this writing, we have 9 people signed up to play Fantasy Intellectual Teams. For details on how to play, see this post. Most of the people who signed up say that they are willing to be joint owners (being an individual owner would be a fair amount of work).

So there is room for at least 5 more owners. Email me at arnoldsk at us dot net if you want to play.

Rauch v. NOP, rd. 2

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Both have recommendations for how politics should pivot after Trump. Scott Alexander writes,

He didn’t use the word “class”. But he captured the idea. He implicitly understood that there was some kind of difference between the average working-class voter and the sorts of people who set trends in the media, academia, government, et cetera. His message – which he never put into words, but which came across clearly anyway – was “you working-class people should hate and fear the upper class, and I’m on your side”.

Whenever an upper-class institution tried to make him admit that they were the experts and he should bow to them, he spat in their faces instead. This was terrible; he spat in the faces of epidemiologists trying to tell him about an epidemic! But it sent his message loud and clear – just as South African populist Thabo Mbeki denied HIV/AIDS partly as a way of spitting in the face of the rich white countries who wanted him not to.

Consciously embracing the project of fighting classism would let future Republican politicians replicate Trump’s appeal without having to stoop to his tactics.

Jonathan Rauch writes,

professionals often define integrity in large measure by the conduct they disallow — in themselves and in others. A professional intelligence analyst does not spin his findings politically. A professional journalist does not invent sources. A professional scientist does not monkey with data. A professional accountant does not allow a CEO to cook the books. A professional police officer does not allow a partner to plant evidence. A professional lawyer does not permit a client to break the law.

…Professionals are thus the first, and often the only, line of defense against predatory elites who seek to abuse or circumvent institutional safeguards. That is why demagogic populism is, among other things, fundamentally a war on professionalism. It is why opportunists and rogue operators are so keen to push professionals aside. It is why devaluing and corrupting professionalism is a profound danger to a democracy.

I read Number One Pick as saying that the Republican Party should re-brand itself as the party of everyone who is not in the white-collar professional class. Meanwhile, Rauch is suggesting that we need to praise white-collar professionals, not bury them.

NOP and Rauch may not be as far apart as this makes them seem. They are both never-Trumpers. I imagine they both respect true expertise. I gather that both are wary of progressive ideological know-it-alls.

Rauch wants professional politicians and bureaucrats to earn enough respect so that amateurs defer to them. He treats both progressive ideologues and populist demagogues as meddling amateurs.

I think that NOP is posting too much. Maybe he thinks that the money he is getting from subscriptions means that he should work harder on his blog. I would rather he stick to posts where he is thinking in bets. The sociological analysis in this post is nothing you cannot find in Coming Apart or, for that matter, Bobos in Paradise.

Nonetheless, I am inclined to give the W to NOP. While NOP’s proposals for the Republicans are romantic and highly improbable, they are not beyond all realm of possibility. On the other hand, what Rauch’s proposals boil down to saying that if we can click our heels three times and repeat “There’s no place like home,” we can go back to 1985. He desperately needs to read Martin Gurri in order to understand 21st-century reality.

Neo on academic corruption

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Meditating on how the value of free speech eroded on college campuses, She writes,

For the most part, professors are people who have done well in school and never left it, staying to take on more power and prestige within that setting. Therefore I don’t think they are selected for courage, or for even necessarily for thinking for themselves (with exceptions, of course). For the most part, they have been very good at taking in information and then giving it back again, perhaps with a small advancement on current knowledge in a very circumscribed field. So there may be more people in academia who are selected for conformity, and they are less likely to buck the prevailing winds.

If you read my series on academic corruption, I cited three factors: government money; emasculated culture; and affirmative action.

Government money provided support for mediocrity and conformity.

Emasculated culture worked this way. Once upon a time, elite colleges were mostly male, with a culture of open competition. But open competition by definition should not have excluded women, so that colleges became more open to women, particularly in the late 1960s and early 1970s. But women are not naturally inclined to favor open competition, and as they became a larger and larger force on campus, open competition is no longer supported.

Affirmative action was supposed to improve outcomes for blacks while maintaining standards. It did neither.

I should add the element that Shelby Steele calls “white guilt.” No college administrator wants to be the one who presides over a revolt by a “marginalized” group. If you have to cave in on values that are fundamental to an institution of higher learning, then so be it.

Virus update

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1. In a podcast with Russ Roberts, John Cochrane says,

We can talk about medicines and vaccines–those maybe could go wrong–but a test cannot hurt you unless you take this extraordinarily paternalistic view that you might do something bad with the information that you get with the test, which is in fact the kind of view that they take.

He is questioning the way that the FDA is conservative about approving tests.

To this day, I cannot understand the failure to do regular random-sample testing. I really want to send our public health officials walking across a live minefield wearing blindfolds, so that they can get a sense of how they are providing us with information that would be helpful.

2. A well-known COVID tracker is shutting down. They say that the CDC is now a better data source. The 7-day moving average daily death rate is the number I watch. I really would like to see it take another dive like it did the week after Valentine’s Day.

3. Israeli health officials are effusively praising the vaccine. But the overall numbers for cases and deaths in Israel are not plunging. Maybe in another couple of weeks?

Cultural Brain Hypothesis

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Michael Muthukrishna wrote,

One key insight from cultural evolution is that our behaviour is rarely a function of causal understanding. Cultural evolution explains how our species creates and thrives in a world too complicated for any of us to understand. For at least the last 50,000 years and probably longer, we have lived in a world of accumulated technology, know-how, and ways of thinking that surpass the abilities of even the smartest among us—cumulative culture. Our lack of causal understanding is masked by an illusion of explanatory depth; we assume we understand and have reasonable causal models for our beliefs, behaviours, and technology. That illusion is shattered only when we’re asked to explain specifics. For example, you may have some sense that you understand: (a) how a flushing toilet works, until you’re asked how the water flushes everything away and returns to the same level. . .All of this is to quickly illustrate that the world is not only complicated, but even more complicated than our psychology allows us to believe. Instead, our beliefs and behaviours are shaped by our incentives and by those around us. We prefer to believe things that align with our self-interest and we internalise the beliefs and copy the behaviours of those who are successful or those who others copy. As this process filters beliefs and behaviours over generations, most people acquire the accumulated package of past successes, and so conforming to the majority also becomes a successful strategy. [links omitted]

. . .In the cacophony of opinions on the COVID-19 crisis, how do people deploy their many social learning strategies to decide whom to listen to? How do we identify who has relevant expertise if we’re listening to experts at all? Are the learning strategies themselves learned? What is the role of trust, costly and sincerity displays? And how does a psychology evolved for vicarious information acquisition with little direct access to the truth, nor sufficient causal models, interact with a world in which evidence is easily manufactured and electronically disseminated? How do we decide which fact checkers to trust and how do we know what is and isn’t so?[again, links omitted]

I put it this way: We engage in behaviors and hold beliefs without understanding why we behave the way we behave or why we believe what we believe. This is not a failure of rationality. It is the human condition.

Cultures are preserved because humans are copiers. Cultures differ because we do not all copy the same people. Cultures evolve because copying is imperfect, people innovate, and changes in the competitive environment cause some cultural practices to become extinct and others to survive.

I recommend gorging yourself on Muthukrishna. My first taste was on The Podcast Browser, who also recommends Muthukrishna talking with The Dissenter.

Of the many links in the essay above, I followed one on the topic of innovation, by Muthukrishna and Joseph Henrich.

Our societies and social networks act as collective brains. Individuals connected in collective brains, selectively transmitting and learning information, often well outside their conscious awareness, can produce complex designs without the need for a designer—just as natural selection does in genetic evolution. The processes of cumulative cultural evolution result in technologies and techniques that no single individual could recreate in their lifetime, and do not require its beneficiaries to understand how and why they work ([12]; electronic supplementary material, for further discussion). Such cultural adaptations appear functionally well designed to meet local problems, yet they lack a designer.

. . .By our account, IQ is a measure of access to a population’s stock of know-how, techniques, tools, tricks and so on, that improve abilities, skills and ways of thinking important to success in a WEIRD world. IQ tests are useful as a measure of cultural competence, which may require cultural learning (and there may be differences in this), but not as a universal test of ‘intelligence’ as a generalized abstract problem-solving ability. The Flynn effect (for recent meta-analyses, see [141,142]) describes the steady increase in mean IQ since IQ tests were developed, approximately three points per decade. If taken at face value, then the Flynn effect renders large proportions of previous generations barely functional, but by this account, the Flynn effect becomes a measure of increased mean cultural complexity.

It’s a difficult paper to excerpt. Read the whole thing.

Martin Gurri watch

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Megan McArdle writes (WaPo, paywalled),

The media’s pronouncements about fighting “misinformation” often sound perilously close to declaring that the common presumptions of a handful of major media outlets should define the bounds of accepted truth for everyone. That’s both arrogant and impossible, and I don’t blame anyone for recoiling. But I do question those who have reacted by casually (and publicly!) suggesting that they’ll use their entrepreneurial mojo to destroy journalism and replace it with something better.

She refers to discussions on Clubhouse. I have observed the same thing. In fact, her description of Clubhouse as like a big conference with lots of panel discussions going on fits with my experience.

In rooms discussing media where tech people are on the panel, the tech people complain about journalists of having abandoned objectivity. In rooms with mainstream media on the panel, the journalists complain about consumer having abandoned tradition news outlets for social media and fake news. I see both sides as trying to click their heels together three times, hoping to be transported back to the 20th century. I want to shake everyone by the collar and make them read Martin Gurri’s Revolt of the Public, or at least his essay about the NYT.

As an aside, Bret Weinstein seems to have observed more dramatically the militant black-power element that first struck me (Dick Gregory’s Clubhouse).

Also, listen to Heather Heying’s take in the podcast with Bret. I personally place her above Bret in my FITs rankings. Bret reminds me of the story I read about the KC quarterback in the Super Bowl racking up 497 yards behind the line of scrimmage, running back and forth to try to evade defenders. She instead runs straight at you. I would draft her to pick up some W’s.

As another aside, room population size on Clubhouse is a great illustration of an autocatalytic process. The more people who are drawn to a room, the more additional people will be drawn. If you have only a handful of people in the room, you are going to be stuck at a low level. If you have close to 1000, you room will keep growing. That is because of the way the “feed” algorithm works. You get alerted when people you follow are in a room. So if 1000 people are in a room, it is much more likely that one of them is someone I follow than if the room has only 5 people. In addition, other things equal it seems that the algorithm shows rooms in population-size order. So if I am just scrolling through the rooms, the first one I see will be the one with the most people.

I can easily imagine a dynamic where if someone with thousands of followers leaves room A and goes to room B, then room A pretty much empties out and room B fills up. This could be regardless of what the panel discussion is like in room A vs. room B.

Liberals facing left-wing extremism

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Matt Yglesias writes (WaPo, paywalled),

By all means, let’s dispense with the frustrating and at times hypocritical meta-debate about “free speech” (in the context of racism) and “cancel culture.” But the newly fashionable anti-racist thinking contains a mix of good ideas and bad ones — including some that are dangerously counterproductive for the people they are intended to help. Bland agreement that “racism is bad” does not suffice when racism is reconceptualized as an abstract attribute of policies and systems, as opposed to bigoted individual behaviors. Understanding complicated social phenomena is difficult. Solving social problems, almost all of which involve race, is contentious. Liberals can’t respond by ceding huge swaths of the political landscape to the hardcore right — or to whichever activist happens to have most loudly proclaimed their own anti-racism.

My thoughts.

1. He doesn’t come out against Critical Race Theory and such with both guns blazing. He is trying to coax his fellow liberals toward a more skeptical point of view. But that means he spends most of the piece gesturing toward liberals, and comparatively little time exposing CRT dogma and emotional blackmail. I cannot help but see this as a sign of weakness.

2. As an analogy with how CRT affects liberals, consider the position in which Mr. Trump puts conservatives. I encourage fellow conservatives to be critical of Mr. Trump’s management capabilities and to reject his “stolen election” stance. On the latter point, I am all for a bipartisan commission to suggest best practices for the conduct of elections, but the 2020 election was over when the states declared it was over.

Still, I did not come out with both guns blazing against Mr. Trump’s abusive behavior toward various people and institutions. And most professional Republican politicians are afraid to go even as far as I have.

I watched on YouTube part of Mr. Trump’s speech at CPAC the other day, in which he displayed his extreme narcissism (every other sentence was “the greatest ever”), bullying (“little Ben Sasse”), and truth-bending. I found the crowd’s response, shouting “We love you!” and the like, to be much more frightening than the Capitol Hill Riot. Sycophants in suits are scarier than crashers in costumes.

All this is something that we should bear in mind when judging Yglesias.

3. Still, I think there is something different about the inability of liberals to deal with CRT. In the case of Republicans and Trump, politicians see a need to avoid appearing to criticize Mr. Trump’s supporters. Not being a politician, I can speak more freely. While I mostly respect Mr. Trump’s supporters, I am not going to pretend to like everything that they do.

I don’t think that is going on with liberals and CRT. It isn’t that liberals are catering to radicals merely in order to hang on to a constituency. I think liberals have a genuine emotional need to affiliate with the radicals. In that regard, Shelby Steele’s White Guilt gets closer to explaining the dynamic. Liberals want to support any cause that marches under the banner of Civil Rights. Like allowing men who identify as female to compete with women in athletic events.

4. Another factor is that conservatives stand with existing institutions. Liberals believe that if rational analysis shows that existing institutions are not perfect, then at the very least they must be reformed and at most they should be torn down altogether and replaced. Hence, conservatism by its nature is against radicalism, while liberalism by its nature treats radicalism with some sympathy. The net result is that conservatives recoiled from the January 6 riot, while liberals did not recoil against the BLM riots. Even though one could make a case that the latter did more lasting and significant damage.

5. I think that liberals’ fear of Mr. Trump and his supporters becomes exaggerated. Building up this fear became the business model of the liberal press. I thought that this fear was hysterical from the very beginning.

6. I do not think that my concerns with the social justice movement are a comparable over-reaction. I think that those concerns are justified. If my perspective is correct, then the Yglesias piece falls short of spelling out to liberals the seriousness of the fire they are playing with.

Bret Stephens (NYT, paywall) writes,

All of this has left many of the traditional gatekeepers of liberal institutions uncertain, timid and, in many cases, quietly outraged. This is not the deal they thought they struck. But it’s the deal they’re going to get until they recover the courage of their liberal convictions.

That comes closer to what I would have liked to see from Yglesias.

CRISPR and intellectual property

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In the context of a book review of Kevin Davies’ Editing Humanity, I write,

As I see it, the proper treatment of intellectual property should have three characteristics. First, it should encourage knowledge to be shared as soon as possible. Second, it should reward those who take risks and exert effort. Third, it should reward actual profitable uses of ideas, not just sketches of possibilities. These goals are in tension with one another.