Surveillance is growing
California residents who launched fireworks for the 4th of July have tickets coming in the mail, thanks to police drones that were taking note. One resident, for example, racked up $100,000 in fines last summer due to the illegal use of fireworks. “If you think you got away with it, you probably didn’t,” said Sacramento Fire Department Captain Justin Sylvia. “What may have been a $1,000 fine for one occurrence last year could now be $30,000 because you lit off so many.” Homeowners who weren’t even present at the property also have tickets coming in the mail due to the social host ordinance.
Here is the source. Elsewhere (NYT):
Hertz and other agencies are increasingly relying on scanners that use high-res imaging and A.I. to flag even tiny blemishes, and customers aren’t happy…
Developed by a company called UVeye, the scanning system works by capturing thousands of high-resolution images from all angles as a vehicle passes through a rental lot’s gates at pickup and return. A.I. then compares those images and flags any discrepancies.
The system automatically creates and sends damage reports, Ms. Spencer said. An employee reviews the report only if a customer flags an issue after receiving the bill. She added that fewer than 3 percent of vehicles scanned by the A.I. system show any billable damage.
I await the next installment in this series.
Friday assorted links
The Sputnik vs. DeepSeek Moment: Why the Difference?
In 1957, the Soviet Union launched Sputnik triggering a national reckoning in the United States. Americans questioned the strength of their education system, scientific capabilities, industrial base—even their national character. The country’s self-image as a global leader was shaken, creating the Sputnik moment.
The response was swift and ambitious. NSF funding tripled in a year and increased by a factor of more than ten by the end of the decade. The National Defense Education Act overhauled universities and created new student loan programs for foreign language students and engineers. High schools redesigned curricula around the “new math.” Homework doubled. NASA and ARPA (later DARPA) were created in 1958. NASA’s budget rocketed upwards to nearly 5% of all federal spending and R&D spending overall increased to well over 10% of federal spending. Immigration rules were liberalized (perhaps not in direct response to Sputnik but as part of the ethos of the time). Foreign talent was attracted. Tariff barriers continued to fall and the US engaged with international organizations and promoted globalization..
The U.S. answered Sputnik with bold competition not an aggrieved whine that America had been ripped off and abused.
America’s response to rising scientific competition from China—symbolized by DeepSeek’s R1 matching OpenAI’s o1—has been very different. The DeepSeek Moment has been met not with resolve and competition but with anxiety and retreat.
Trump has proposed slashing the NIH budget by nearly 40% and NSF by 56%. The universities have been attacked, creating chaos for scientific funding. International collaboration is being strangled by red tape. Foreign scientists are leaving or staying away. Tariffs have hit highs not seen since the Great Depression and the US has moved away from the international order.
Some of this is new and some of it is an acceleration of already existing trends. In Launching the Innovation Renaissance, for example, I said that by the Federal budget numbers, America is a warfare-welfare state not an innovation state. However, to be fair, there are some bright spots. Market‑driven research might partially offset public cuts. Big‑tech R&D now exceeds $200 billion annually—more than the entire federal government spending on R&D. Not everything we did post-Sputnik was wise nor is everything we are doing today foolish.
Nevertheless, the contrast is stark: Sputnik spurred investment and ambition. America doubled down. DeepSeek has sparked defensiveness and retreat. We appear to be folding.
Question of the hour. Why has America responded so differently to similar challenges? Can understanding that pivot help to reverse it? Show your work.
The revival of socialism is an example of negative emotional contagion
That is the theme of my latest Free Press column. Rather than present the argument again, let me move directly to the trolling part of the piece:
Even the Soviet Union had some positive and forward-looking elements to its socialist doctrine. The stated goal was to overtake the United States, not “degrowth.” You were supposed to have kids to support the glory of communism, not give up on the idea because the world was too dreadful. Socialist labor was supposed to be fun and rewarding, not something to whine about. Furthermore, there were top performers in every category, including in the schools. Moscow State University was a self-consciously elite institution that intended to remain as such. However skewed the standards may have been, there was an intense desire to measure the best and (sometimes) reward them with foreign travel, as in chess and pianism. In an often distorted and unfair way, some parts of the Soviet system respected the notion of progress. For all the horrors of Soviet communism, at least along a few dimensions it had better ideals than some of those from today, including the undesirability of having children, and a dislike of economic growth.
There is much more at the link.
What does one hundred percent reserves for stablecoins mean?
I asked o3 pro about the Genius Act, and it gave me this answer (there is more at the link), consistent with other responses I have heard:
The statute’s policy goal is to keep a payment‑stablecoin issuer from morphing into a fractional‑reserve bank or a trading house while still giving it enough freedom to:
-
hold the specified reserve assets and manage their maturities;
-
use overnight Treasuries repo markets for cash management (explicitly allowed);
-
provide custody of customers’ coins or private keys.
Everything else—consumer lending, merchant acquiring, market‑making, proprietary trading, staking, you name it—would require prior approval and would be subject to additional capital/liquidity rules.
Recall also that the stablecoins are by law prohibited from paying interest, though the backing assets, such as T-Bills, will pay interest to the stablecoin issuer. Thus when nominal interest rates are high, the issuer will earn a decent spread and have no problem covering costs. When nominal interest rates are low or zero, fees on stablecoin issuance might be required, otherwise there is no way to cover the basic costs of operation.
What will be the costs of intermediation? In the financial sector as a whole, they are arguably about two percent. For money market funds, however, they are closer to 0.2 percent. (Since these entities will be strictly regulated, we cannot estimate fees by looking at current major stablecoin issuers. Across some different inquiries, o3 pro gave me intermediation cost estimates ranging from 0.8 percent to 3 percent.) Whatever number will be the case here, the intermediaries may need to resort to fees if market interest rates are very low, in order to break even. That may in turn induce individuals to yank money out of the accounts — who wants to keep paying those fees?
Perhaps a more likely problem would stem from interest rates that are fairly high. In that case, why hold zero-yielding stablecoins? The sector will again contract, though in an orderly fashion.
Perhaps the sector and its intermediaries are most stable for some band of interest rates “in the middle”?
Inspections of the backing assets are supposed to take place every month, though the regulator can take a look any time. I am not sure what is the optimal frequency. But I worry there is sometimes no “efficiency wage profit margin” to induce responsible behavior. After all, the issuers have no other lines of business and no other sources of revenue. Non-pecuniary competition for deposits might reduce profits further (“come get your free toaster!”). Thus being kicked out of the sector is no major penalty (for those parameter values), which puts a significant burden on the possibility of legal and felony punishments. It can be hard to pull the trigger on those, however.
If interest rates are somewhat higher though, the desire to keep that profit will create an economic incentive for responsible behavior, above and beyond the fear of legal penalties.
As I understand the legislation, the level of interest rates seems important for sector stability and also for the size of the sector. That is because there are no interest payments on stablecoins that can adjust with the underlying rates on the T-Bills. Perhaps that feature of the legislation should be reconsidered? Or perhaps issuer competition across non-pecuniary yields on the accounts will serve a sufficiently comparable purpose?
Grok 4 on economics
My prompt:
What is the best analysis of the incidence of the corporate income tax? How much falls on capital, labor, and the consumer, respectively? In the U.S. What does it work out that way?
Here is the answer, plus my response and its follow-up. For one thing, it is the existence of the non-corporate sector, where capital may be allocated, that is key to getting off on the right foot on this question…
Thursday assorted links
1. Brazil and China sign agreement for Atlantic to Pacific railway (Spanish).
2. After age forty, feelings of career autonomy tend to decline. Not necessarily with justification.
3. The Abundance and Growth Fund at Open Philanthropy is hiring.
5. Youngkin’s deregulatory results.
7. Anthropic economic futures program, also involves research grants.
Economic literacy and public policy views
From a recent paper by Jared Barton and Cortney Rodet:
The authors measure economic literacy among a representative sample of U.S. residents, explore demographic correlates with the measure, and examine how respondents’ policy views correlate with it. They then analyze policy view differences among Republicans and Democrats and among economists and non-economists. They find significant differences in economic literacy by sex, race/ethnicity, and education, but little evidence that respondents’ policy views relate to their level of economic literacy. Examining heterogeneity by political party, they find that estimated fully economically literate policy views (i.e., predicted views as if respondents scored perfectly on the authors’ economic literacy assessment) for Democrats and Republicans are farther apart than respondents’ original views. Greater economic literacy among general survey respondents also does not result in thinking like an economist on policy.
Sad!
My excellent Conversation with David Robertson
David is one of my very favorite conductors of classical music, especially in contemporary works but not only. He also is super-articulate and has the right stage presence to make for a great podcast guest. Here is the audio, video, and transcript. Here is part of the episode summary:
Tyler and David explore Pierre Boulez’s centenary and the emotional depths beneath his reputation for severity, whether Boulez is better understood as a surrealist or a serialist composer, the influence of non-Western music like gamelan on Boulez’s compositions, the challenge of memorizing contemporary scores, whether Boulez’s music still sounds contemporary after decades, where skeptics should start with Boulez, how conductors connect with players during a performance, the management lessons of conducting, which orchestra sections posed Robertson the greatest challenges, how he and other conductors achieve clarity of sound, what conductors should read beyond music books, what Robertson enjoys in popular music, how national audiences differ from others, how Robertson first discovered classical music, why he insists on conducting the 1911 version of Stravinsky’s Petrushka rather than the 1947 revision, and more.
Here is one excerpt:
COWEN: I have some general questions about conducting. How is it you make your players feel better?
ROBERTSON: Oh, I think the music actually does that.
COWEN: But you smile at them, you occasionally wink or just encourage them, or what is it you do?
…ROBERTSON: There’s an unwritten rule in an orchestra that you don’t turn around and look at somebody, even if they’ve played something great. I think that part of our job is to show the rest of the players, gee, how great that was. Part of the flexibility comes from if, let’s say, the oboe player has the reed from God tonight, that if they want to stay on the high note a little bit longer, or the soprano at the Metropolitan Opera, that you just say, “Yes, let’s do this. This is one of these magical moments of humanity, and we are lucky to be a part of it.”
COWEN: When do the players look at you?
ROBERTSON: Oh, that’s a fabulous question. I’ll now have to go public with this. The funny thing is, every single individual in an orchestra looks up at a different time. It’s totally personal. There are some people who look up a whole bar before, and then they put their eyes down, and they don’t want any more eye contact. There are other people who look as though they’re not looking up, but you can see that they’re paying attention to you before they go back into their own world. And there are people who look up right before they’re going to play.
One of the challenges for a conductor is, as quickly as possible with a group you don’t know, to try and actually memorize when everybody looks up because I always say, this is like the paper boy or the paper girl. If you’re on your route, and you have your papers in your bicycle satchel, and you throw it at the window, and the window is closed, you’ll probably have to pay for the pane of glass.
Whereas if the window goes up, which is the equivalency of someone looking up to get information, that’s the moment where you can send the information through with your hands or your face or your gestures, that you’re saying, “Maybe try it this way.” They pick that information up and then use it.
But the thing that no one will tell you, and that the players themselves don’t often realize, is that instinctively, and I think subconsciously, almost every player looks up after they’ve finished playing something. I think it’s tojust check in to see, “Am I in the right place?”
Recommended.
Robert Aliber, RIP
The renowned international economist, here is an obituary. Here is his Wikipedia page.
What should I ask Anne Appelbaum?
Yes, I will be doing a Conversation with her. From Wikipedia:
Anne Elizabeth Applebaum…is an American journalist and historian. She has written about the history of Communism and the development of civil society in Central and Eastern Europe. She became a Polish citizen in 2013.
Applebaum has worked at The Economist and The Spectator magazines, and she was a member of the editorial board of The Washington Post (2002–2006). She won the Pulitzer Prize for General Nonfiction in 2004 for Gulag: A History. She is a staff writer for The Atlantic magazine, as well as a senior fellow of the Agora Institute and the School of Advanced International Studies at Johns Hopkins University .
But she has done more yet, including work on a Polish cuisine cookbook. So what should I ask her?
Wednesday assorted links
GAVI’s Ill-Advised Venture Into African Industrial Policy
GAVI, the Vaccine Alliance has saved millions of lives by delivering vaccines to the world’s poorest children at remarkably low cost. It’s frankly grotesque that RFK Jr. cites “safety” as a reason to cut funding—when the result of such cuts will be more children dying from preventable diseases. Own it.
You can find plenty of RFK Jr. criticism elsewhere, however, and GAVI is not above criticism. Thus, precisely because GAVI’s mission is important, I want to focus on a GAVI project that I think is ill-motivated and ill-advised, GAVI’s African Vaccine Manufacturing Accelerator (AVMA).
The motivation behind the AVMA is to “accelerate the expansion of commercially viable vaccine manufacturing in Africa” to overcome “vaccine inequity” as illustrated during the COVID crisis. The problem with this motivation is that most of Africa’s delay in receiving COVID vaccines was driven by funding issues and demand rather than supply. Working with Michael Kremer and others, I spent a lot of time encouraging countries to order vaccines and order early not just to save lives but to save GDP. We were advisors to the World Bank and encouraged them to offer loans but even after the World Bank offered billions in loans there was reluctance to spend big sums. There were supply shortages in 2021 in Africa, as there were elsewhere, but these quickly gave way to demand issues. Doshi et al. (2024) offer an accurate summary:
Several reasons likely account for low coverage with COVID-19 vaccines, including limited political commitment, logistical challenges, low perceived risk of COVID-19 illness, and variation in vaccine confidence and demand (3). Country immunization program capacity varies widely across the African Region. Challenges include weak public health infrastructure, limited number of trained personnel, and lack of sustainable funding to implement vaccination programs, exacerbated by competing priorities, including other disease outbreaks and endemic diseases as well as economic and political instability.
Thus, lack of domestic vaccine production wasn’t the real problem—remember, most developed countries had little or no domestic production either but they did get vaccines relatively quickly. The second flaw in the rationale for the AVMA is its pan-African framing. Africa is a continent, not a country. Why would manufacturing capacity in Senegal serve Kenya better than production in India or Belgium? There’s a peculiar assumption of pan-African solidarity, as if African countries operate with shared interests that go beyond those observed in other countries that share a continent.
Both problems with the rationale for AVMA are illustrated by South Africa’s Aspen pharmaceuticals. Aspen made a deal to manufacture the J&J vaccine in South Africa but then exported doses to Europe. After outrage ensued it was agreed that 90% of the doses would be kept in Africa but Aspen didn’t receive a single order from an African government. Not one.
Now to the more difficult issue of capacity. Africa produces less than .1% of the world’s vaccines today. The African Union has what it acknowledges is an “ambitious goal” to produce over 60 percent of the vaccines needed for Africa’s population locally by 2040. To evaluate the plausibility of this goal do note that this would require multiple Serum‑of‑India‑sized plants.
More generally, vaccines are complex products requiring big up-front investments and long lead times:
Vaccine manufacturing is one of the most demanding in industry. First, it requires setting up production facilities, and acquiring equipment, raw materials, and intellectual property rights. Then, the manufacturer will implement robust manufacturing processes and manage products portfolio during the life cycle. Therefore, manufacturers should dispose of an experienced workforce. Manufacturing a vaccine is costly and takes seven years on average. For instance, it took about 5–10 years to India, China, and Brazil to establish a fully integrated vaccine facility. A longer establishment time can be expected for African countries lacking dedicated expertise and finance. Manufacturing a vaccine can costs several dozens to hundreds of million USD in capital invested depending on the vaccine type and disease indication.
All countries in Africa rank low on the economic complexity index, a measure of whether a country can produce sophisticated and complex products (based on the diversity and complexity of their export basket). But let us suppose that domestic production is stood up. We must still ask, at what price? If domestic manufacturing ends up being more expensive than buying abroad (as GAVI acknowledges is a possibility even with GAVI’s subsidies), will African countries buy “locally” and pay more or will solidarity go out the window?
Finally, even if complex vaccines are produced at a competitive price, we still haven’t solved the demand problem. GAVI again has a rather strange acknowledgment of this issue:
Secondly, adequate country demand is another critical enabler. For AVMA to be successful, African countries will need to buy the vaccines once they appear on the Gavi menu. The Secretariat is committed to ongoing work with the AU and Member States on demand solidarity under Pillar 3 of Gavi’s Manufacturing Strategy.
So to address vaccine inequity, GAVI is investing in local production….but the need to manufacture “demand solidarity” among African governments reveals both the flaw in the premise and the weakness of the plan.
Keep in mind that the WHO only recognizes South Africa and Egypt as capable of regulating the domestic production of vaccines (and Nigeria as capable of regulating vaccine imports). In other words, most African governments do not have regulatory systems capable of evaluating vaccine imports let alone domestic production.
GAVI wants to sell the AVMA as if were an AMC (Advance Market Commitment) but it isn’t. It’s industrial policy. An AMC would offer volume‑and‑price guarantees open to any manufacturer in the world. An AMC with local production constraints is a weighted down AMC, less likely to succeed.
None of this is to imply that GAVI has no role to play. In addition to a true AMC, GAVI could arrange contracts to pay existing global suppliers to maintain idle capacity that can pivot to African‑priority antigens within 100 days. GAVI could possibly also help with regulatory convergence. There is an African Medicines Agency which aims to operate like the EMA but it has only just begun. If the AMA can be geared up, it might speed up vaccine approval through mutual recognition pacts.
The bottom line is that the $1.2 billion committed to AVMA would likely better more lives if it was directed toward GAVI’s traditional strengths in pooled procurement and distribution, mechanisms that have proven successful over the past two decades. Instead, AVMA drags GAVI into African industrial policy. A poor gamble.
Markets, Culture, and Cooperation in 1850-1920 U.S.
From a very recent working paper draft by Max Posch and Itzchak Tzachi Raz:
We study how rising market integration shaped cooperative culture and behavior in the 1850–1920 United States. Leveraging plausibly exogenous changes in county-level market access driven by rail-road expansion and population growth, we show that increased market access fostered universalism, tolerance, and generalized trust—traits supporting cooperation with strangers—and shifted coopera-tion away from kin-based ties toward more generalized forms. Individual-level analyses of migrantsreveal rapid cultural adaptation after moving to more market-integrated places, especially among those exposed to commerce. These effects are unlikely to be explained by changes in population diversity,economic development, access to information, or legal institutions.
Here is the link.
Canada facts of the day
Given Canada’s vast size and low population density, I was surprised to discover that the country feels more urban than the US, with far more skyscrapers per capita. In 2024, Vancouver had 128 high rises under construction, #3 in North America. (Toronto was #1 and NYC was #2.) Even smaller Canadian cities have more tall buildings under construction than similar size US cities.
Here is more from Scott Sumner, a general essay on his trip to Canada. And analytically:
In terms of living standards, I’d guess that the bottom half of the Canadian population does as well as the bottom half of the US population (and perhaps even better if you include social indicators like drugs and crime and life expectancy.) The impression I got is that the top half of the US population is considerably richer than the top half of the Canadian population. Even so, I’d estimate that the US is perhaps 10% or at most 20% richer than Canada, not the 35.6% richer suggested by the IMF data.
Why is Canada poorer? I’m not sure. The US does have the advantage of economies of scale. But in Western Europe, smaller countries don’t seem poorer than bigger countries. Perhaps Canada is poorer because its economy is structurally similar to the European economic model. On the other hand, some of America’s richest regions (such as California and New York) have a fairly high level of taxes and regulation. So I’m puzzled.
Even the Maritimes (based on limited travel) do not seem that poor to me. Maybe it is that the American “upper upper middle class” is much richer in great numbers?
Two other points. First, higher levels of immigration into Canada can lower the per capita average, even if you think those immigrants will end up doing well.
Second, very often (too often?) we judge income flows by looking at the housing stock. And indeed the Canadian housing stock is fine (in quality, I agree they have too much NIMBY). But if we are going to judge flows by stocks, let us also look at the stock of Canadian corporations and global brands. And that is decidedly weaker. If we consider all stocks, and not just the housing stock, perhaps our picture of Canada slides closer to equilibrium once again.