1. Tyler linked to an interesting article on Portugal. This caught my eye:

Then, in 2023, the Immigration Control Agency was dissolved, ostensibly in response to an extremely uncharacteristic display of violence where, in March 2020, two officers beat a Ukrainian man to death in the airport of Lisbon.

No protests followed the unjust death of this man on Portuguese soil. This makes for an illustrative contrast to when, three months later, the June 2020 Black Lives Matter protests were, just in Lisbon, attended by over 5000 people, decrying the death of an African-American man 6000 kilometers away on New World soil.

2. Is there a double standard in the US attitude toward human rights? Is the Pope Catholic?

Consider this: In 2023, suspicion swirled that the Indian government was connected to the killing of a Canadian citizen on Canadian soil and a plot to kill a U.S. citizen on U.S. soil—a remarkable set of allegations. Yet even more remarkable than the allegations were the reactions. The U.S. government opted to douse the potentially incendiary fallout, saying little, merely allowing the case to wend its way through the courts. In other words, Indian hubris was accommodated, not chastised. It was a testament to India’s newfound political standing.

What if it had been China?

3. East Asian governments have a new interest in boosting stock markets. I wonder why? Here’s the FT:

Rekindled investor interest in China’s state-owned behemoths would also reflect their continued economic prominence and an ongoing campaign by Beijing to improve financial performance. As their biggest shareholder, the central government stands to benefit from higher valuations and larger dividends.

“SOEs used to have lower revenue growth, lower returns on equity and much higher balance sheet leverage than private companies. But after 2020, we’ve seen SOEs improving,” said Winnie Wu, a strategist at BofA Securities in Hong Kong.

There are parallels with government campaigns in Japan and South Korea to improve stock market valuations, she said, noting that buying into SOEs might suit fund managers with benchmarks that require exposure to China.

4. Disney bought a huge area in central Florida out of frustration that urban development in Anaheim had hemmed in their original Disneyland. But it turns out that even in Anaheim they had much more land than they thought, and plan a 50% expansion into their vast parking lots.

The development agreement the city is agreeing to maps out where new theme park construction could occur over the next 40 years, giving Disney flexibility to determine what exactly would be built – though all still within the footprint of its current properties. The goal, Disney officials say, is to use underutilized land around the resort to build immersive experiences in Anaheim as the company has done elsewhere around the world.

Because of high land prices, suburban parking lots in Orange County have become gold mines.

5. Perhaps our immigration policy should steer clear of whites, and focus on cultures that are more likely to be entrepreneurial, like Hispanics, Asians, and blacks. From the WSJ:

6. The new right faces a problem. If they ever succeed in taking over our institutions, they lack an elite capable of running these institutions. As a result, they might be better off moving away from their current infatuation with government power, and switch to classical liberalism. Here’s John McGinnis:

As a result of the New Right’s mismatch problem, an intensification of the classical liberal program may paradoxically be more likely to achieve indirectly the objectives of the New Right than its own misguided program for more state power. For instance, if the momentum of school choice programs continues, competition may naturally deliver a more patriotic and family-friendly education than government schools, because that is what most parents want. The policy matches sociology: school choice empowers a group more friendly to the New Right (parents) and disempowers a group (teachers—who are more hostile to it).

Similarly, a program of deregulation disempowers bureaucracy and groups within a corporation that are hostile to conservative views. The result is likely to be a less woke corporate world.

7. The WSJ headline says:

Could Fossil Fuels Re-Elect Biden?

But the story says exactly the opposite:

The U.S. economy last year expanded by 2.5%, and while the rest of the press missed it, fossil-fuel producing states led the way. These include North Dakota (5.9%), Texas (5.7%), Wyoming (5.4%), Oklahoma (5.3%), Alaska (5.3%), West Virginia (4.7%) and New Mexico (4.1%). Mining contributed about two to three percentage points to GDP growth in these states.

GDP growth in most other states was sluggish, especially those in the Northeast like New York (0.7%) and New Jersey (1.5%) and the Great Lakes region. Mr. Biden boasts about a Midwest manufacturing boom, but folks aren’t feeling it in Wisconsin (0.2%), Ohio (1.2%), Illinois (1.3%) Indiana (1.4%) and Michigan (1.5%).

Biden’s industrial policy looks like a dud, and the energy states are not the swing states that he needs to win.

8. According to a recent article in the FT, relatively affluent Hong Kong is less technologically advanced than Beijing, capital of a middle income country:

I moved to Beijing this month, one of a trickle of correspondents recently granted entry to mainland China after expulsions and the pandemic drained our numbers. On my first evening, I ordered some paracetamol on the popular delivery app Meituan. It arrived in 20 minutes, brought to my hotel room by an affable, metre-tall white robot. “Thank you, see you again soon,” it chirped before rolling away. 

This was a novelty for someone who had come from the technological backwater of Hong Kong, where newspaper stands, trams, diesel engines and cash keep you firmly rooted in the last century. Suddenly, I was thrown into the dazzling array of apps and automation that eases friction in this sprawling metropolis — from services such as ride hailing, housekeeping and food delivery to a hotel elevator equipped with facial recognition technology that automatically whisks me to the correct floor. 

Not sure what to make of this, but it’s interesting. (I’d still prefer to live in Hong Kong.)

9. America’s first high speed rail will go from Las Vegas to the bustling metropolis of Rancho Cucamonga. Your tax dollars at work:

Eventually, I’ll get to price indices. But first, a long boring digression on why I don’t want to be “rich” (but do want to have a billion dollars.)

I recently read a WSJ story about how a $200 million St. Louis skyscraper had sold for only $4 million. That got me wondering what house prices looked like in that area. Through the miracle of Zillow, all of our curiosity can be satisfied at the push of a button.

On the north side of town, houses sell for less than $50,000. The most expensive homes I could find were in the fashionable area near Forest Park, Washington University, and major hospitals. One Florentine palace has an interior that looks like the sort of place that Queen Elizabeth might have inhabited. The asking price is just under $2 million, and it contains 12,847 sq. feet (or roughly 1200 sq. meters for you foreigners.)

You can see this sort of house in old black and white films from the 1930s. The owner is a balding fat guy with a cigar and top hat. Probably a banker. When I was young, this was my vision of being really, really rich.

And then it hit me—I could afford this house.

[No, I don’t have the sort of income required to buy this house, nor did I before I retired. Rather I bought a normal house in Boston in 1991, saw it rise rapidly in value during the Boston boom, and then switched to a roughly equal Orange County house in 2016, which proceeded to rise in value far faster than houses back in Boston over the past 8 years. I’ve been very lucky.]

Thus I could live in a fabulous mansion similar to those I grew up watching in the movies. OK, I would not have servants, but they make me uncomfortable. I hate luxury hotels where they stop by once an hour and ask if you need anything. Just leave me alone!

But I have decided not to buy this mansion. Unlike when I was young, the thought of living there now seems kind of depressing. And I’d go even further. While I would not turn down Versailles if the French government offered to give me that monstrosity, I’d honestly rather live in a 3500 sq. foot mid-century modern house on a hill in Laguna Beach overlooking the Pacific—which unlike the St Louis mansion, is a home that I definitely cannot afford. I’d even prefer a 4000 sq. foot Tuscan style home with a half acre perched on a hill in Turtle Rock, Irvine, also unaffordable.

In other words, I have no interest in being rich, as the term “rich” was defined 100 years ago. But I do want lots of money. As Danny DeVito once said:

Everyone needs money, that’s why they call it money.

[An illustration of why David Mamet is our greatest screenwriter.]

I suspect that most people don’t want to be rich in the sense of what being rich meant back in 1910; rather they want to have lots of money so that they get to choose how to be rich today.

In that case, what are we actually trying to measure with price indices? Does revealed preference suggest that I’m richer than that fat cat banker from the 1920s? He would not think so. And think about archaic phrases like “fat cats” and “jet setters”. These are people rich enough to get fat and fly on airplanes. A group we now call “working class”.

Part 2: An Elegy for the Midwest

I found my Zillow exploration of St Louis to be a bit depressing. Back in 1900, this was America’s 4th largest city. Now it’s number 75:

St Louis had a spectacular World’s Fair back in 1904, in Forest Park. It’s also depressing that world’s fairs are no longer interesting. “Stuff” no longer matters, only “information”. When was the last time you were excited to see the new models at an auto show?

The WSJ article suggests that the downtown is nearly dead, but there are some gentrifying neighborhoods just west of downtown. Zillow shows that they’ve converted a number of grand old office buildings from the golden age of commercial architecture (1890-1940) to loft style residential units that sell at prices far below what you’d pay in New York, or even in Chicago. That’s good.

But look more closely and you’ll see that the interior design is a bit amateurish. This is a depressing reminder that the Midwest is losing a lot of its talent to the two coasts (and Texas.) When I was born in 1955, the upper midwest was America’s richest region. More importantly, talent was distributed fairly evenly from the northeast through the midwest to the west coast. (Perhaps the South was a bit behind.) Now the industrial Midwest is slowly emptying out.

The people who design modern condos in New York or the Bay Area would look down their noses at the design quality of the loft condos in these up and coming St Louis neighborhoods. Unlike in 1955, it now almost feels like these regions are part of two different countries. But 100 years ago, America’s best architecture was being produced by the “Chicago School”.

PS. My fondest memory of St Louis is seeing Sullivan’s magnificent Wainwright building. Not the first skyscraper, but probably the first beautiful skyscraper:

Americans remind me of the old song “Yes, we have no bananas”. They really, really like to agree with the assertions in poll questions. Should pot be legalized? Yes!! Should people selling pot be executed? Yes? Should Roe v. Wade be reversed? Yes? Should abortion be banned? Yes! Should the corporate tax rate be raised? Yes! Should the corporate tax rate be cut? Yes!

I’d like to see what happens if the public is asked whether the US government should condemn the violent overthrow of Zemblan president Charles Xavier Vseslav. I bet they’d say “Yes!”

PS. For those who don’t know, I have consistently argued that there is no such thing as “public opinion”.

The future course of the economy always involves a bit of guesswork. But it seems to me that the following two claims are pretty likely to be true:

1. Over the past three years, monetary policy has been far too expansionary.

2. It is likely that monetary policy is still a bit too expansionary, although I have less confidence in that claim.

Here are some recent data points, starting with the Financial Times:

A “blowout” March retail sales report sparked a sell-off in US government debt and shook global currency markets on Monday, in the latest sign that the world’s largest economy may be running too hot to justify cutting interest rates.

US retail sales were much stronger than expected in March, as consumers kept spending despite uncertainty about the future path of interest rates. [Note the term “despite”]

Data from the US Census Bureau published on Monday showed that retail sales, which include spending on food and petrol, rose 0.7 per cent last month. Economists surveyed by Reuters had expected an increase of 0.3 per cent.

The figure for February was revised up from a rise of 0.6 per cent to one of 0.9 per cent, indicating resilient consumer spending earlier this year and providing further evidence of a reacceleration of economic growth.

That should read: Reacceleration of nominal economic growth.

Five-year TIPS spreads are back over 2.5%, and rising.

The Atlanta Fed nowcast for real GDP growth is up to 2.8%, implying continued strong nominal growth in Q1. You cannot control inflation without controlling nominal GDP.

Some people argue that the slowdown in “spot rents” will soon show up in CPI rents. Maybe so, maybe not. It depends on the future course of spot rents, as CPI rents still have a long way to go to catch up with previous increases in spot rents:

If spot rents now begin re-accelerating, then we’ll never get that promised slowdown in CPI rents. Multifamily housing construction is slumping, a bad sign.

I’m not suggesting that inflation cannot slow in the months ahead, as it is impossible to foresee turning points in the economy. Perhaps we’ll be in recession in late 2024. But I do believe the weight of evidence points toward an increased risk of inflation. Given that policy over the previous three years has obviously been way too expansionary, the Fed needs to err on the side of hawkishness (even at the risk of recession.) If you wonder “what’s so bad about 3% inflation”, then you haven’t understood a single thing I’ve said here over the past 15 years.

This is the point where economists discuss “what the Fed should do”, by which they mean where should they set the fed funds target. In my view, interest rates are not the right way to think about monetary policy, so I won’t recommend a particular rate setting. Instead, I’ll recommend making the policy regime more effective.

1. Stop being so clumsy. Right now, the Fed has a psychological aversion to unexpected changes in interest rates. Thus they’d rather not raise rates. But that psychological aversion is irrational, and it makes policy less effective. (I.e., it makes both a recession and an inflation overshoot more likely.) The Fed should adjust their fed funds target daily, to the closest basis point (say using the median vote of FOMC members.) The Fed funds target should look like other market prices, like a random walk. New information should not make people expect a different level of NGDP in 2025, rather new information should show up as the adjustment in the fed funds rate required to keep expected 2025 NGDP on target.

2. Switch to level targeting. The failures of the past three years have many causes, but one factor is of overriding importance. The Fed thinks in terms of growth rates, not levels. That radically increases uncertainty about the future path of NGDP, and largely explains the wild swings in the financial markets in response to seemingly trivial adjustments in Fed policy.

The Fed is not reacting to unexpected swings in aggregate demand, the Fed is creating unexpected swings in aggregate demand, through its clumsy interest rate targeting system and lack of level targeting.

The Financial Times has a story that points to some disturbing features of South African politics:

It is the kind of fervent devotion that has driven a wave of support for the former president [Jacob Zuma] ahead of a critical general election on May 29. Yet as recently as January, the 82-year-old African National Congress veteran appeared to have been cast into the political wilderness after he was suspended from the party he once helmed for launching “vitriolic attacks” against the leadership and backing a rival one.

So Zuma was a highly corrupt and semi-authoritarian president, who retired in disgrace. And now he’s launching a comeback at an age when most people are retired? And he’s launching “vitriolic attacks” against the establishment?

Zuma’s candidacy is being challenged over a criminal conviction and South Africa’s highest court has been asked to hear the matter. But that has simply fuelled his supporters, who have previously rioted on Zuma’s behalf and say the current charges are politically motivated. Some analysts fear Zuma may seek to discredit the electoral process if he is unable to contest.

Wait, he’s launching a comeback despite a political conviction? And his supporters rioted on his behalf? And people fear Zuma may try to discredit the election process? What’s wrong with Africa?

Zakhele Ndlovu, a politics lecturer at the University of KwaZulu-Natal, said Zuma’s appeal was primarily based on his image as a defender of the Zulu nation. This also played on a stereotype that many top ANC leaders have been Xhosas, South Africa’s second-biggest ethnic group.

You mean he appeals to his own ethnic group, and demonizes minorities? That’s horrible.

Jabulani Mkhize, who was one of those out canvassing for Zuma’s party in Durban’s informal settlement of Cato Crest on a hot afternoon this month, said “lives were better” when the former president ran South Africa.

“Zuma was a better president in terms of economic transformation . . . I’m talking about simple things, like even the bread was cheaper,” he said

Sure, things were mostly better. But are South African voters so stupid that they don’t understand that in the last few years of his administration Zuma put in place “populist” policies that pushed South Africa down to the road to ruin? Do they actually believe that his policies had nothing to do with the current inflation?

Zuma is no stranger to using court battles as political platforms, given his many years of fighting corruption allegations. . . . “He plays the victim card in the same way that so many populists play the victim card around the world,” said Richard Calland, a public law professor at the University of Cape Town.

The victim card? That’s unworthy of a great nation like South Africa. Africa’s most developed economy. That’s the sort of thing you’d expect in a banana republic. Perhaps Africans cannot handle democracy?