I’ll be discussion leader at a colloquium the weekend after next whose topic is Canadian banking. The readings are so much fun because I’m learning so much history, mainly about banking but partly about politics, in the country I grew up in. Here’s a great passage from Charles W. Calomiris and Stephen H. Haber, Fragile by Design: The Political Origins of Banking Crises and Scarce Credit, Princeton University Press, 2014. The Bank of Montreal, however, did not always step in: it allowed smaller banks to fail. This was an important attribute of the system: unless depositors knew that they could suffer losses, they would have no incentive to monitor the behavior of the bankers. When a bank that was large enough to threaten the entire system failed, however, the Bank of Montreal stepped in to coordinate a response by other banks. This happened in 1906, when the Bank of Ontario failed, and again in 1908, when the Sovereign Bank of Canada failed. In these cases, the Bank of Montreal orchestrated takeovers of the insolvent banks. In the case of the Bank of Ontario, the process was so seamless that the failed banks’ depositors were not even aware that there was anything to be concerned about. Calomiris and Haber go on to quote from a book written in 1910: On the evening of October 12 [1906] the bankers in Toronto and Montreal heard with surprise that the Bank of Ontario had got beyond its depth and would not open its doors the next morning. Its capital was $1,500,000 and its deposits $1,200,000. The leading bankers in the dominion [DRH note: Canada was officially the Dominion of Canada in those days] dreaded the effect which the failure of such a bank might have. The Bank of Montreal agreed to take over the assets and pay all the liabilities, provided a number of other banks would agree to share with it any losses. Its offer was accepted and a representative of the Bank of Montreal took the night train for Toronto . . . . [T]he bank opened for business the next day with the following notice over its door: “This is the Bank of Montreal.” Calomiris and Haber then write: The contrast between this method of dealing with bank failures and that of the United States could not be more striking. In the United States, the ability of banks to coordinate their responses to crises was confined to collective action of particular cities’ clearinghouses, branching banks in the South, or other localized bank networks. When shocks associated with recessions raised significant liquidity problems for U.S. banks, nationwide banking panics resulted (in 1857, 1873, 1884, 1890, 1893, 1896, and 1907), even though (with the exception of the panic of 1857) these were not times of severe loss to banks or widespread bank failure. Four of those recessionary shocks (1857, 1873, 1893, and 1907) resulted in widespread suspensions of convertibility: that is, banks refused to redeem their own deposits. Because of restrictions on branch banking in the United States, the United States had a fairly primitive banking system until the 1980s.     (1 COMMENTS)

I recently watched Amazon’s 2018 series The Romanoffs.  While reviews were mixed, I thought this limited ensemble series was amazingly good overall.  Backstory: A century after the execution of the czar and his immediate family at the hands of the Bolsheviks, viewers experience eight distinct stories about descendants of Russian royalty.  None of the characters remain more than mildly Russian; they’re all highly assimilated to American or French society.  Given the Russian monarchy’s despotic reputation, you might think the modern-day Romanoffs would be depicted as nefarious or power-hungry, leaving readers to weigh nature versus nurture.  Yet there’s little sign of this.  While the starring Romanoffs are definitely more nefarious than the average human, they’re not especially nefarious for television characters. Since each episode is self-contained, you need not watch them in order.  My recommended viewing plan: Start with episode 2.  Edge of your seat, though by the end you’ll falsely assume that the whole show is about the iniquity of the Romanoff bloodline.  Next, watch episodes 1 and 7, bound together by the common theme of the continuation of the Romanoff dynasty.  The sole weak episode is the surreal and senseless third installment.  Well-done for what it is, but in the end it’s scarcely better than a dream sequence on The Sopranos. From the point of view of historiography, what’s striking is that almost every episode unequivocally condemns the 1918 execution of the whole royal family.  Most treatments I’ve read are more apologetic: “You have to understand that these Romanoffs tyrannized over Russia for centuries, and the revolutionaries wanted to ensure that they would never regain power.”  At the same time, the series never bothers to argue that for all its faults, the late Russian monarchy was vastly superior to the totalitarian Soviet hell-state that succeeded it.  The murder of five Romanoff children evokes far more horror than the murder of tens of millions of nameless Russians.  An elegant illustration of the Stalin’s alleged aphorism, “One death is a tragedy; a million deaths is a statistic.” P.S. The Caplan family will be in Nashville on April 16-19.  We’re staying next to Vanderbilt University.  If you want to meet up, email me. 🙂 (0 COMMENTS)

I am well aware we should never make any comparison between today’s well-meaning statists and Adolf Hitler. But the latter’s “table talks,” his table monologues to inner-circle guests, recorded by shorthand writers, are sometimes instructive. On October 15, 1941, for example, he explained his monetary theory (Hitler’s Table Talk, 1941-1944, Enigma Books, 1953, pp. 65-66). By happenstance, they show some resemblance with so-called Modern Monetary Theory, perhaps even more in what would likely be MMT’s political consequences. He starts with an oxymoron: inflation is not caused by money creation but by an increase in prices. His reported statement is: Inflation is not caused by increasing the fiduciary circulation. It begins on the day when the purchaser is obliged to pay, for the same goods, a higher sum than that asked the day before. The conclusion immediately follows that “one”—that is, the wise rulers—must do something: At that point, one must intervene. As common in economic history, scapegoats are found in the speculators (and profiteers and price-gougers): The currency remains stable when the speculators are put under lock and key. … excess profits must be removed from economic circulation. Economists just complicate things: All these things are simple and natural. … People go into ecstasies of confidence before the science of the great economists. Anyone who doesn’t understand is taxed with ignorance! At bottom, the only object of all these notions is to throw everything into confusion. But ordinary people, guided by the ruler, can understand in their flesh: The very simple ideas that happen to be mine have nowadays penetrated into the flesh and blood of millions. Hitler is not so far from the Keynesian idea (although not necessarily the claim of Keynes himself) that creating money will generate the production without which there would be inflation. At least, this is the logical way to interpret the statement: To give people money is solely a problem of making paper. The whole question is to know whether the workers are producing goods to match the paper that’s made. To be (very) charitable, we could read this as meaning that if there is a higher demand for money (or equivalently, a lower velocity of money), it can be produced without inflation. Caveat: The Table Talk comes from the combination of several original manuscripts in German and there has been some controversy about the accuracy of the English translation. The tone of the monologues, however, is not inconsistent with what we know of Hitler or his Mein Kampf. Moreover, to the extent that the statements partly represent the interpretation of Hitler’s inner circle, they would still say something. Albert Speer, who was Hitler’s Minister of Armaments and War Production, later described Hitler’s table talk as “rambling nonsense” (according to a Wikipedia’s citation): [Hitler] was that classic German type known as Besserwisser, the know-it-all. His mind was cluttered with minor information and misinformation, about everything. I believe that one of the reasons he gathered so many flunkies around him was that his instinct told him that first-rate people couldn’t possibly stomach the outpourings. Doesn’t this evoke some more recent politicians? (0 COMMENTS)

Late last week I got the results of my mid-term exam in Jeff Hummel’s Masters class in Monetary Theory and Policy. I got an A. (Yay!) When I told my wife, she said she would’ve been surprised if I hadn’t, given that I was the only economics professor, other than the lecturer, in the class. But if I hadn’t read any of the articles or seen and taken notes on any of the lectures, I probably wouldn’t have got more than 60%, which in a Masters class is essentially a failing grade. Anyway, I’m learning at least a few new interesting things each class. The main textbook is Lawrence H. White’s The Theory of Monetary Institutions. I like the content and I like Larry’s dry humor. Here’s a relevant section in his chapter on commodity money: In addition to the average rate of inflation, investors worry about the unpredictability of the price level or the inflation rate. Clear and meaningful measurements of unpredictability, allowing a reliable historical comparison of commodity with fiat regimes, are hard to make, basically because expectations cannot be directly observed. One important piece of evidence strongly suggests, however, that investors had greater confidence of their ability to predict the price level, at least at long horizons, under the historical gold standard: the long-maturity end of the bond market has sharply contracted with the switch to fiat standards. Risk-averse investors naturally shy away from (unindexed) securities that promise payoffs of nominal dollars 25 years in the future, if they cannot confidently forecast the purchasing power of the dollar 25 years ahead. Under the gold standard in the nineteenth century, some railroad companies found ready buyers for 50- and 100-year bonds. Today corporate bonds of 25 or more years in maturity are uncommon. As calculated by Benjamin Klein (1975, p. 480), the weighted average maturity of new corporate debt issued by US firms during the 1900-1915 period was 29.2 years; during the 1956-1972 period, it was 20.9 years. One would expect that the figure has shrunk even more since 1972. I took Ben Klein’s Ph.D. Monetary Theory course at UCLA in about 1973 when he was putting these data together. He talked about those data in class. Now to the dry humor part. Larry then writes: The main utilitarian arguments for adhering to a gold standard rest on the proposition that it more reliably preserves the purchasing power of money (gold is said to be more “trustworthy” and “honest”) than a fiat standard.7 Footnote 7: Commentators sometimes speak of the gold standard’s “mystique”. Presumably, this means that the commentator is not persuaded by history (or by such figures as those in the text) that a gold standard is more reliable than a fiat standard, and does not understand why others are.     (0 COMMENTS)

I don’t see much discussion in the media of an issue that will soon take front and center stage. In America, over 700 people die of Covid each day. Almost all of the deaths are among people who have not been vaccinated. Within a few weeks, almost all of the deaths will be among people who chose not to be vaccinated. Of course each of those deaths is just as tragic as anyone else.  But what will be the implication of that fact for public policy? For private policy? This will be an issue worth watching, and I expect a lot of disagreement between various factions (as usual). Again, this issue will blow up within weeks. BTW, most old people have already been vaccinated: I’ve been a frequent critic of almost all aspects of our approach to vaccinations.  One of my complaints has been that the system is overly complex, and that as a result the vaccines would end up going disproportionately to people who were most able to hack the system.  Now there is evidence that this group is disproportionately highly educated: That fits in with what I’ve observed in my daily life.  “Here’s what you need to tell them.”  “No one checks.”  We should have rationed by money, or perhaps by age. I’ve also been a fan of the British approach to vaccine delivery, which focused on getting as many first doses out as quickly as possible, before worrying about the second dose.  The FT reports that this approach has been a success: Some 93 per cent of recipients of the Pfizer inoculation and 87 per cent of those who had the AstraZeneca shot showed spike protein-specific antibodies, likely to have been induced by the vaccine. Responses were stronger for people who had recovered from Covid-19. “There’s increasing evidence that as a health care measure this decision to delay the vaccine has worked in the UK. We’ve got very good clinical protection from the one dose scheduling,” Moss said. I would add that if the US had adopted this approach a few months back, thousands of lives would have been saved.  When I recommend this approach for the US, people said we don’t have enough data yet.  Well, what’s the excuse today? I’ve been a long time critic of the FDA (and our broader regulatory apparatus), and it seems like hardly a day goes by without further examples of why we need to abolish this bureaucracy.  As an aside, I should apologize to Europe.  When they delayed their vaccine rollout due to a trivial blood clot issue, I remember thinking to myself, “What’s wrong with those people”.  Well, now “those people” include my fellow Americans. Here’s what I don’t get about progressives.  If a private corporation were killing even 1% as many people as the FDA is killing, there’d be cries of outrage.  So why isn’t there more outrage about the FDA?  Where are the “Defund the FDA” signs? PS.  A year ago I suggested that began by underreacting to Covid and would end up overreacting.  Check this out. (1 COMMENTS)

Whenever I want a clear-cut example of latter-day racial discrimination, I point to elite universities’ treatment of Asians.  As far as I’m concerned, the evidence is overwhelming.  The denials are not only motivated reasoning, but desperate motivated reasoning. Still, this leaves me with a puzzle.  Do I really think that elite admissions officers wake up in the morning and think, “God, I hate Asians”? I’m not a mind-reader, but I seriously doubt that they do.  Indeed, I bet that the vast majority of elite admissions officers never even consciously think, “I not overly fond of Asians.” What then is the psychological mechanism of discrimination?  It’s more like, “We’re treating Asian applicants well enough.”  Along with, “If we just admitted students on merit, this school would be majority Asian.  That’s excessive.” What admissions officers feel for Asians is not hate, nor even antipathy.  It’s exasperation.  Exasperation at what?  At Asians’ excessive success.  “These Asians keep forcing me to choose between being inequitable and being unjust.  Aargh!” I suspect that elite university discrimination against Jews often fit the same mold.  While there must have been some committed anti-Semites at the Ivies in the 20s, 30s, 40s, and 50s, they were probably outnumbered by admissions officers who were simply exasperated by Jewish students’ stellar performance.  “These Jews keep forcing me to choose between being inequitable and being unjust.  Aargh!” Does this mean that admissions officers have no hate in their hearts at all?  To repeat, I’m not a mind-reader.  Still, I can easily believe that admissions officers all over the country often wake up in the morning and think, “God, I hate people who think I’m racist against Asians.” The people who make you choose between being inequitable and being unjust are exasperating.  The people who tell you you’re unjust are the devil incarnate. (1 COMMENTS)

  Out of the 120 million people vaccinated in the U.S., roughly 6.9 million have received J&J’s vaccine, Fauci said, noting that there haven’t been any “red flag signals” from the Pfizer or Moderna Covid-19 vaccines that rely on MRNA technology in their shots. Out of the 6.9 million people who got the J&J jab, six developed blood clots, he said. “We are totally aware that this is a rare event. We want to get this worked out as quickly as we possibly can and that’s why you see the world pause, in other words, you want to hold off for a bit,” Fauci said. “We want to leave that up to the FDA and the CDC to investigate this carefully. I don’t think it was pulling the trigger too quickly.” This is from Berkeley Lovelace, Jr., “Dr. Anthony Fauci explains what the U.S. pause on J&J’s Covid vaccine means,” CNBC, April 13, 2021. I’ll give you the short answer for what it means: it means more people will die of COVID-19 unnecessarily. Life is about tradeoffs. The data suggest that if 1 million people get the J&J vaccine, one will get a blood clot and will not necessarily die. We have ways of dealing with blood clots. Dr. Fauci may be familiar with them, although I’m starting to wonder. So pause the vaccine for 1 million people and you might save a fraction of one life, which you could probably have saved with medications. But say the people going without the vaccine are even in the medium-risk group, where their probability of dying if they get Covid is about 1 in 1000. Let’s say that even 100,000 of them would have gotten Covid-19. Then this pause would kill 10 people. Pause the vaccine for 10 million people and the saved lives are probably between 1 and 2, whereas the lost lives are about 100. Is Fauci that ignorant? You might say that he’s a paternalist. But even parents typically want their kids to live, not die.   (0 COMMENTS)

If you’re like me, it seems surreal that we entered the pandemic over one year ago.  One year ago, we were scared and uncertain. Today, many of us are starting to re-emerge. What did we learn from this experience? Are there any silver linings? What of the vagary of predictions put forth early in the pandemic? How many have been accurate? In this episode, EconTalk host Russ Roberts welcomes back Tyler Cowen, and the two revisit the topic of the pandemic almost exactly one year since their first COVID conversation. The two assess their predictions and revisit their concerns from that earlier episode, with some surprising results. And now we want to hear what you think and what you’ve learned from your pandemic experience. Use the prompts below to answer in the comments, or start your own conversation offline. As always, thanks for listening; we love to hear from you.     1- Cowen says the most important lesson of last year: the “speed premium.” What does he mean by this? Where has the “speed premium” been more effective, and where less so?   2- Cowen spend a fair amount of time discussing the Great Barrington Declaration. What are the points on which they disagree, and why? To what extent do you agree with Cowen’s statement, “when you look at the overall entire framing of Great Barrington, it’s been extremely harmful. It has led libertarian and conservative movements in the wrong direction”? (P.S. You may wish to revisit this episode with one of the original signatories, Jay Bhattacharya.)   3- How does Cowen compare the fiscal responses of the Trump and Biden administrations? How would you answer Roberts’s question regarding the story Keynesians have to tell in retrospect? (Hint: consider what happened to aggregate demand during lockdown.)   4- What lessons can we learn about European political economy post-COVID? What does Cowen mean when he says the most dangerous thing about lockdowns is that they encourage radicalism? To what extent do you agree?   5- Roberts asks Cowen about the unseen costs of the pandemic. How does Cowen answer? What do you think are the greatest unseen costs? (0 COMMENTS)

Suppose you could either save one 10-year-old, or X 80-year-olds.  What value of X is morally indifferent? That is, if you wanted to make the world as morally valuable as possible, when should you switch from saving one youth to X elders? I suspect that people’s modal answer will be 1.  Not the median, and certainly not the mean.  But probably the mode. Why would X=1 be such a popular answer?  Charitably, people set X=1 because they sincerely believe that all lives have equal value. In all honesty, though, I’ve yet to meet a person who merits this charity.  No one responds to the deaths of 10-year-olds and 80-year-olds with remotely equal concern.  Setting X=1 is one of the clearest-cut examples of Social Desirability Bias I’ve encountered.  The lives of the young are plainly much more valuable than the lives of the old, for three reasons. 1. When the young die, they lose far more years of life. 2. When the young die, they are far more likely to lose healthy years of life. 3. When the young die, the people who survive them miss them much more – and miss them for a much longer time.   All things considered, I’d say that a reasonable value of X is at least 100.  Probably more like 1,000. I suspect that many readers will strongly object to this, but on what basis? Point 1 is clearly a big deal.  A 10-year-old can be expected to live another 69 years, an 80-year-old just 9 more years. Point 2 is also clearly important.  Self-reported health dramatically declines with age.  And people clearly grade their health on an age-based curve.  An 80-year-olds’ version of “good health” is probably what an 18-year-old calls “poor health.” What about Point 3?  Despite angry denials, this disparity is enormous – just as Darwin would predict.  The loss of a child is devastating.  Many parents who lose a child never emotionally recover.  In contrast, most people get over the loss of an elderly parent in weeks – or days.  Indeed, to be brutally honest, a notable minority of people actually feel better when an elderly parent dies.  Never mind ungrateful children slobbering for their inheritances.  A model child can still be relieved by the death of a parent living in pain, no longer able to enjoy life.  Or a parent whose dementia has robbed them of their sense of self. Why are people so reluctant to admit these truisms?  In part, because they fear the bodyguards of Social Desirability Bias.  Once you admit the obvious fact that the lives of the elderly are worth much less than the lives of the young, they’ll absurdly claim you favor murdering the elderly.  Once you admit the obvious fact that people miss the elderly less than the young, they’ll absurdly claim that you don’t care if anyone over 50 drops dead.  Whatever.  A strict consequentialist will draw no fundamental distinction between killing and letting die.  The rest of us, however, know that it is wrong to murder the miserable – but praiseworthy to get the most bang for your buck when you’re selecting charities.  Or spending taxpayer money. Another reason people are so reluctant to admit that the lives of the young are worth far more than the lives of the old, though, is pride.  I just turned 50.  Does this mean my life is worth much less than it did when I was 20?  Hemming and hawing aside, the honest answer is yes.  I’ve burned up at least 75% of the value of my life already.  While I plan to savor my last 25%, do me a favor: If you ever have to choose between saving me and saving one of my children, save them. Indeed, if you ever have to choose between saving me for sure, and saving one of my children with 10% probability, save them.   (2 COMMENTS)

Back in the 1970s, the federal government began requiring environmental impact statements for certain types of projects. In retrospect, this was probably a mistake. The Tejon Ranch development provides a good example of what can go wrong. Here’s an article from 2008: “How heartening it is, the sound of environmentalists and developers harmoniously agreeing on new construction. That’s what first came to mind when the Tejon Ranch Co. and such environmental heavyweights as the Sierra Club and the Natural Resources Defense Council jointly announced plans to both build on and preserve swaths of the 270,000-acre ranch that straddles Los Angeles and Kern counties. If all goes as intended, more than 200,000 acres would be preserved, with some as a state park and most under private conservancy.” Sounds great.  Developers and environmentalists agree on a massive new development that will provide much needed homes for California residents.  But it took another 10 years for the local government to actually approve the project. This is from 2018: The Los Angeles County Regional Planning Commission recommended approval of the proposed Centennial development, which would build 19,000 homes on Tejon Ranch at the northern edge of the county. “The Regional Planning Commission voted 4 to 1 to recommend that the county Board of Supervisors certify the project’s environmental impact report and approve associated land-use plans and permits, subject to some additional conditions,” reports Nina Agrawal. The project still has to go before the county Board of Supervisors for approval. You might think that all’s well that ends well.  Finally, we have agreement from developers, environmentalists and government officials.  Unfortunately, no project is safe from lawyers. This is from a few days ago: Los Angeles County Superior Court Judge Mitchell Beckloff rejected the environmental impact report (EIR) for the massive Centennial project planned for northern Los Angeles County, one of the most controversial and closely watched master planning developments in Southern California in recent memory. Louis Sahagun reports on the latest twist in the long saga of the Centennial project, a proposal approved by the county of Los Angeles to allow Tejon Ranch Co. to build 19,300 homes on 6,700 acres on the border with Kern County to the north. Meanwhile, California has by far the nation’s largest homeless population, more than twice its share of the US population. In an ideal world, the government would repeal the laws that allow the courts to interfere in the construction of new developments. There’s a lot of recent talk about spending trillions of dollars on new “infrastructure”.  Much of this money is likely to be wasted, however, as regulatory hurdles make it almost impossible to build useful infrastructure in a cost effective manner.  If the Biden administration is serious about infrastructure, they will enact policy reforms to dramatically reduce the cost of building new projects.  Today, many infrastructure projects in America cost many times more than what they would cost in a truly deregulated environment.  One place to begin is by removing the need for environmental impact statements.   (0 COMMENTS)