Archive for the Category Scandinavia


Scott Alexander on the Holocaust

[My good post today is at Econlog.]

Scott Alexander has an excellent post discussing Hannah Arendt’s book Eichmann in Jerusalem.  I’d like to discuss a couple points:

What eventually happened we all know too well. Other countries started closing their doors and refusing to accept Jewish refugees. Despite hearing this story a hundred times, the version in Eichmann in Jerusalem was new to me. I had always thought of countries as closing their gates to a few prescient people trying to flee Nazi Germany on their own, or to a few stragglers who managed to escape. The truth is on a much greater scale: the Nazis were willing to let every single Jew in Europe leave, they even had entire bureaucracies trying to make it happen – and the rest of the world wouldn’t cooperate. The blood on the hands of the people who wouldn’t let them in is not just that of a few escapees, but the entire six million.

Scott emphasizes that the primary blame lies with the Nazis.  They did the murdering.  Nonetheless, the decision not to admit Jewish refugees did have horrendous consequences.  At the time, the “America First” movement was quite popular, somewhat anti-Semitic, and very isolationist.  In fairness, I probably would have been isolationist back then, but I’d hope I would not have been anti-refugee. (Interestingly, Trump has revived the term “America First”.)

My commenters seem to believe that what’s right is determined by public opinion polls:

First of all, quinnicapac, Rasmussen, and Reuters all ran polls that showed the majority of Americans supporting the ban of immigrants from those 7 countries. In fact, those 7 countries were also on Obama’s list as countries that wouldn’t qualify under the visa program. So here is the question: is this a democracy where peoples voices get heard, or is this a place where only few get to decide policy?

With that in mind, it’s worth noting that there was far stronger support for rejecting Jewish refugees fleeing Hitler.

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I wonder what Steve Bannon and Steve Miller think about the decisions made in 1940?  And I wonder how they think future historians will judge their current actions?

Scott also notes that the Nazis in Denmark tended to “go native”.  That is, they adopted the local attitudes of the Danes, which tended to be somewhat sympathetic to the plight of the Jews (at least by contemporary standards.)  Scott makes many good points, including this one:

Third, at least during World War II conscience was a collective phenomenon. Why did some countries’ citizens cooperate almost universally with the Final Solution, while others resisted it at every turn? “Culture” is inadequate; there’s not much light between Danish and German culture, but the two countries acted in opposite ways. I’m tempted to credit single individuals; Hitler setting the tone for Germany vs. King Christian setting the tone for Denmark – but do people really respect their leaders that thoroughly? Or is this backwards causation; a country like Denmark would end up with a King like Christian, a country like Germany would elect a Fuhrer like Hitler? I don’t know. The alternative is to posit one of those chaotic networks where tiny differences in initial conditions can compound and lead to very different end states. Arendt herself offers little, beyond saying that Italy saved its Jews out of “the automatic general humanity of an old and civilized people”. Yeah, well, Japan was an old and civilized people too, and we know how that turned out. But what other possibilities are there? All I can think of is maybe looking into the pre-existing anti-Semitism level, but I don’t know if that just passes the explanatory buck.

I think he’s right to be agnostic on this question, but I can’t help pointing out that there actually are significant differences between Danish and German culture.  When I studied neoliberalism back in 2008, I found that Danish culture doesn’t just show significantly more civic virtue than German culture, but by some measures it is well ahead of any other country in the world.  Thus I do find it interesting that Danish culture seemed to make German officers at least somewhat more empathetic than did the cultures of other European countries.

One reason I like immigration is that I don’t share the alt-right view that it is a zero sum game.  I don’t think immigrants will make America worse, I think (in many cases) America will make immigrants better.  One good example is the huge flow of immigrants from southern Italy to America. Southern Italy has perhaps the least civic virtue of any developed economy.  And yet Italian Americans have done quite well.  When I was young there were still concerns that Italian Americans would not assimilate, and the Mafia was widely feared just as terrorists are feared today. Today the concerns about Italian assimilation have almost vanished.  I don’t even recall the last time I heard anyone speaking about the Mafia in anything other that a film history context.  I’m sure the Mafia is still out there, but it’s clearly not as important a part of Italian American culture as it used to be.

The strength of American civic virtue is one reason why I fear Trump much less that many others, even as my contempt for him is unsurpassed. I could see the next Russian leader being just as bad as Putin.  Ditto for the Philippines.  On the other hand, our next President will be far less of a demagogue than Trump.  There’s a reason why Putin is far more popular than Trump.  America will change Trump much more than Trump changes America.

Lorenzo sent me an article about Trump making a complete fool of himself in phone conversations with the leaders of Australia and Mexico.  Not only did he show himself to be a jerk by bragging about his recent victory, he came across as mentally deficient jerk by claiming that he won a very strong victory, when everyone knows he actually won the key states by razor thin margins. He also claimed that he attracted huge crowds for his inaugural address. Then he berated the Australian leader for a deal made with Obama, where the US would accept 1250 refugees out on some Pacific island.  As if this was the fault of the Australian leader, and not Obama.  (Of course I support Obama on this.)  And then this:

Mr Trump told President Peña Nieto in last Friday’s call, according to the Associated Press, which said it reviewed a transcript of part of the conversation: “You have a bunch of bad hombres down there. You aren’t doing enough to stop them. I think your military is scared. Our military isn’t, so I just might send them down to take care of it.”

What does that even mean?

Australia and Germany are two of our closest friends, and all Trump seems to do is antagonize them.  Meanwhile he keeps cozying up to Putin, while threatening to prevent China from occupying some small islands.  If there is a method to this madness I fail to see it.

I know that some intellectuals like to be contrarians, and claim that Trump has some sort of ingenious strategy.  For my part, as long as he behaves like he’s mentally deficient, I’m going to assume that he is in fact mentally deficient. Occam’s Razor, etc.

Another Market Monetarist Advisory

A few weeks ago I alerted readers to NGDP Advisers, which features Marcus Nunes, James Alexander, Benjamin Cole and Justin Irving.  Now we are about to see another MM advisory firm.  Lars Christensen will launch Markets and Money Advisory early next year.  Lars has a new post on the Riksbank, which provides an example of the sort of analysis he will be doing:

Believe it or not – there is a country in the world where I now believe that monetary policy is becoming (moderately) too easy. Yes, that is correct – I will not always say that monetary policy is too tight. The country I talk about is Sweden. More on that below.

Assessing monetary conditions

I strongly believe that the assessment of the monetary stance of a country should not be based on for example looking at the level of nominal interest rates, but rather on whether or not the country is on track to hitting the central bank’s nominal target in lets say 12-18 months.

A way of assessing that is of course to look at market inflation expectations (if the central bank targets inflation as in the case of Sweden’s Riksbank). If inflation expectations are below (above) the target (for example 2%) then monetary conditions are too tight (easy).

An alternative to this approach is to look at other monetary indicators – for example money supply growth, nominal GDP growth, interest rates and the exchange rate. And this is exactly what we are doing in our (Markets & Money Advisory’s) upcoming publication on Global Monetary Conditions.

Policy consistency  

Hence for all of the nearly 30 country we analyse in the publication we look at the four monetary indicators mentioned above and compare the development in these indicators with what we believe would be consistent with the given central bank’s inflation target.

I don’t know enough about Sweden to comment, but it certainly is an interesting case.  Here’s Bloomberg:

As the Brits worry about the ramifications of a weakening pound, Sweden’s central bank has happily driven down its currency to the lowest level in more than half a decade.

Defying fundamentals – strong economic growth, a big current account and trade surplus and rising employment – the Swedish krona was the second-worst performing currency in the world last month after the British pound.

Those “fundamentals” may be interesting, but they are not the sort of fundamentals that a central bank should focus on.  Instead, inflation and NGDP growth are what matter.  Just because you have a big current account surplus does not mean that money is too easy.  Indeed Japan experienced both deflation and a CA surplus at the same time.  Sweden’s surplus merely reflects its high saving rate; it tells us nothing about whether the exchange rate is at the wrong level.  For that, you need to look at NGDP growth.  Thus the Japanese yen is too strong because NGDP growth is too slow.  Lars suggests that Sweden’s NGDP growth is excessive, and that’s why he thinks they are too easy right now.

Sweden has other important lessons.  Compared to Denmark (4.2%) and Norway (5.0%), Sweden has a rather high unemployment rate–currently 6.6%.  But that probably reflects a higher natural rate of unemployment, which cannot be fixed with monetary policy.  Again, monetary policy cannot be used to “solve problems”—instead it should aim at steady NGDP growth rates to avoid creating problems.  But don’t go to the other extreme and “oppose monetary policy”.  There is no such things as not using monetary policy, and any attempt to refrain from using it will merely create bad (highly unstable) monetary policy.  I say this because I’m seeing this mistake more and more often.  This headline made me cringe:

Buiter: Forget Monetary Policy, It’s Had Its Day

Yes, and eating food won’t solve your problems, so STOP EATING FOOD YOU IDIOT!

Or perhaps I should say. “You may not care about monetary policy, but monetary policy cares about you.”

PS.  The Bloomberg article on Sweden suggests that current policy is turning the krona into “play money”.  That might be a bit strong, given that Sweden’s inflation rate is currently 1%.  That’s a tad below Zimbabwe 2008 levels.

Utility: It’s (increasingly) all in your mind

We are long past the days of “fat cats”, when rich people could afford to eat more food than poor people.  And I’d argue that this is increasingly true almost everywhere you look.  When I was young, a Cadillac Eldorado was a vastly different car from a VW Beetle or Datsun.  Especially if cruising down the highway at 80 mph.  Today Datsun is called Nissan (one of the stupidest name changes in US history).  And while an Infiniti is a bit more luxurious than a Nissan, and the BMW handles somewhat better, I no longer think the experience of driving the Nissan is much different from a typical luxury car.  Even the size is similar.  Here’s the interior of their economy model (Sentra):


I went to Zillow, and randomly pulled off an ad for a 2800 sq foot condo in Chelsea—this one priced at $11 million.  And here’s a random 2600 sq. foot condo in Oklahoma City, priced at $260,000.  The NYC unit is more tastefully designed by NYC standards, but the OKC unit is more luxurious by OKC standards. In the Chelsea unit, you might want to have a $4000 midcentury-modern Poäng chair designed by Alvar Aalto:


In the OKC home you could install the Ikea version of the chair (shown above) for $79, down from a (inflation-adjusted price of) $350 in 1990.  How much utility does one get from the $4000 chair?  How much from the $79 chair?  It’s depends how you think about it–it’s the same chair.

Over at Econlog, I recently did a post about our post-stuff economy.  I grew up in the “stuff economy”, and I don’t think I’ll ever adapt to this new one.  But I suppose the millennials are right, it’s stupid to accumulate lots of stuff, for all the reasons that philosophers have emphasized down through the ages.  The upshot of all this is that the concept of “economic inequality” will become increasingly amorphous.  It won’t disappear by any means, indeed it might get “worse” in some sense.  But it will be harder to measure.  As an analogy, both cancer patients and hypochondriacs feel lots of pain. In both cases, the pain is “all in their heads”. That’s where you feel pain.  And that’s also where you register utility. What’s new is that it’s increasingly difficult to connect utility with physical objects (tumors in my medical analogy). (By the standards of peasant life in the Middle Ages, we are all a bunch of hypochondriacs—every one of us.) This has implications for everything from measuring the “Great Stagnation” to adjusting Social Security for “cost of living” (what does that even mean?) increases.

PS.  OK, maybe it’s not all in your head. I can’t really deny that this guy is better off than I am.  I’m jealous:screen-shot-2016-10-21-at-3-30-07-pm

PPS.  Did Donald leave a window open?  Look at Melania’s dress.

PPPS.  Seriously, this is more my style.

PPPPS.  Off topic.  The rich plan to vote Democratic this time.

The less lofty your goals, the harder you have to work

Central banking is not like other fields; the less ambitious your goals, the harder you have to work to achieve them.  Stephen Kirchner sent me an article suggesting that the Riksbank has not yet learned the lesson that the Swiss National Bank is now learning so painfully:

There’s growing speculation Sweden’s central bank will reintroduce an interval for its inflation target as well as change its price index, paving the way for it to start rolling back the record stimulus unleashed over the past two years as it battled deflation.

“Stefan Ingves began talking about this in spring,” said Torbjoern Isaksson, chief analyst at Nordea Bank. “That a central bank governor again and again talks about a reintroduced tolerance band is a clear signal that it could happen.”

Central bankers think low interest rates are easy money.  In fact, over any extended period of time, low rates are a sign that money has been tight. The same is true of big balance sheets.  Central bankers think a higher ratio of base money to GDP is easy money, whereas over any extended period of time it is usually a sign that money has been tight (although it might also reflect interest on reserves.)

The Riksbank is getting tired of buying all those assets, in an attempt to push inflation up to its 2% target.  But if they widen the band, it will be seen as a drop in the inflation target.  This will lower nominal interest rates in the long run, and increase the ratio of base money to GDP in Sweden.  It will have exactly the opposite effect that the Riksbank hopes for.

If they want a smaller balance sheet they’d be better off emulating the Reserve Bank of Australia, which has a 2% to 3% inflation band, higher than the Riksbank’s 2%.  Australia has a base/GDP ratio of only 4%, one of the lowest in the developed world.  As I keep saying, in the modern world it’s a choice between inflation and socialism.  Conservatives don’t want either and in trying to avoid both they end up as accidental socialists, with the central bank owning a massive quantity of assets. In Japan they are even buying stocks.  Where will it all end?

PS.  After months of moronic posts on Trump, I finally got some positive feedback on my previous post on the international fight for rents.  I need to stop talking about Trump.

So I’ll use pictures instead:

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Random notes

Here are a few articles that caught my eye:

1.  Incentives matter

But on the central question—whether Uncle Sam will pay ransoms—Mr Obama was firm. American officials cannot brook the idea of funding the groups they want to destroy, and they claim that kidnappers specifically avoid taking American (and British) hostages because they do not expect a return on the investment.

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There is some empirical support for that theory. In a forthcoming study of over 1,000 kidnappings by terrorists in 2001-13, Patrick Brandt, Justin George and Todd Sandler of the University of Texas at Dallas found that the number of Americans and Britons abducted each year stayed constant, whereas the totals for countries known to meet captors’ demands rose steeply. They estimate that if a non-paying government were to start offering ransoms, the number of its citizens taken hostage would jump by at least 30%.

I’d love to see the demographic breakdown of that 25%.

2.  Culture matters

According to a study from the Institute of Economic Affairs, Swedish-Americans are considerably richer than the average American—as are other Scandinavian-Americans. The poverty rate of Americans with Swedish ancestry is only 6.7%, half the national average. Swedish-Americans are better off even than their cousins at home: their average income is 50% higher than theirs, a number used by opponents of the Swedish model as an argument against the shackles of big government.

Their success in America seems solidly grounded in old national virtues. They have more trust in each other and in government; they tend to obey rules (leading to many jokes about “squareheads” and “dumb blondes”). The Protestant work ethic is strong: in Minneapolis in particular, the number of Lutheran churches is striking. Scandinavian-Americans also display a keen civic sense, whether in shovelling snow or helping elderly neighbours, from which everyone benefits.

I am 1/8th Swedish and 1/8th Norwegian.

3.  Good forecasters are just lucky

At times, Lord [Mervyn] King can be refreshingly frank. He is no fan of austerity policies, saying that they have imposed “enormous costs on citizens throughout Europe”. He also reserves plenty of criticism for the economics profession. Since forecasting is so hit and miss, he thinks, the practice of giving prizes to the best forecasters “makes as much sense as it would to award the Fields Medal in mathematics to the winner of the National Lottery”.

4.  Never trust an America official

DEVIN NUNES raised eyebrows in 2013 when, as chairman of a congressional working group on tax, he urged reforms that would make America “the largest tax haven in human history”. Though he was thinking of America’s competitiveness rather than turning his country into a haven for dirty money, the words were surprising: America is better known for walloping tax-dodgers than welcoming them. Its assault on Swiss banks that aided tax evasion, launched in 2007, sparked a global revolution in financial transparency. Next year dozens of governments will start to exchange information on their banks’ clients automatically, rather than only when asked to. The tax-shy are being chased to the world’s farthest corners.

And yet something odd is happening: Mr Nunes’s wish may be coming true. America seems not to feel bound by the global rules being crafted as a result of its own war on tax-dodging. It is also failing to tackle the anonymous shell companies often used to hide money. The Tax Justice Network, a lobby group, calls the United States one of the world’s top three “secrecy jurisdictions”, behind Switzerland and Hong Kong. All this adds up to “another example of how the US has elevated exceptionalism to a constitutional principle,” says Richard Hay of Stikeman Elliott, a law firm. “Europe has been outfoxed.”

I can’t believe the Europeans actually trusted us.  Reminds me of those naive conservatives like Ann Coulter who thought him Trump was sincere, and then were outraged when he picked a VP who doesn’t agree with his stated views on the key issues.

5.  Piketty is just as left wing as I claimed

The heart of the complaint is that a Socialist government, meant to be the guardian of workers’ rights, is pandering to corporate bosses by dismantling them. Worse, goes the charge, it is making the disingenuous claim that this will help employers create jobs. “Who could possibly believe that making redundancies easier will create jobs?” reads a union flyer handed out at the rally. “Thomas Piketty agrees,” says one student triumphantly, referring to an article in Le Monde, a newspaper, in which the best-selling French economist argued that reducing redundancy costs will not curb unemployment.

Yet Mr Piketty was not the only rock-star French economist to opine on the labour reforms. In his own piece in Le Monde, Jean Tirole, a Nobel prize-winner, argued the opposite: that the insecurity of the young is precisely the fault of over-protected “insider” jobs. Because businesses fear being burdened with such employees, 90% of new hires are now for temporary jobs, and young people can be stuck with short-term contracts for years. The new labour law, argued Mr Tirole, should lead to more permanent hires and curb youth insecurity.

When I reviewed Piketty’s book on inequality, I pointed out that his views were surprisingly left-wing.  He’s far to the left of France’s Socialist Party, and France is one of the most socialist countries in Western Europe.  Even very modest and sensible market reforms are too much for Piketty.

And as far as the young people in France, don’t they realize that the current system discriminates against them?

6.  (Human imperfection)X(US legal system) = $∞

FOR an inkling of how good intentions can go awry, consider Title III of the Americans with Disabilities Act (ADA). Passed by Congress in 1990 with the laudable aim of giving the disabled equal access to places of business, it has been supplemented with new Department of Justice standards (in 2010, for example, the DOJ said that miniature horses can qualify as service animals). . . .

What’s next? Omar Weaver Rosales, a Texas lawyer, has sued about 450 businesses in the past two years; more than 70% paid up to avoid a trial. But even more lucrative pastures are coming into view. In March a California judge ordered Colorado retailer Bag’n Baggage to pay $4,000 in damages and legal fees thought to exceed $100,000 because its website didn’t accommodate screen-reading software used by a blind plaintiff. Mr Rosales says extending ADA rules to websites will allow him to begin suing companies that use colour combinations problematic for the colour-blind and layouts that are confusing for people with a limited field of vision.

The DOJ is supporting a National Association of the Deaf lawsuit against Harvard for not subtitling or transcribing videos and audio files posted online. As such cases multiply, content may be taken offline. Paying an accessibility consultant to spot the bits of website coding and metadata that might trip up a blind user’s screen-reading software can cost $50,000 for a website with 100 pages. Reflecting on the implications of this, Bill Norkunas, a Florida disability-access consultant who was struck with polio as a child (and who helped Senator Ted Kennedy draft the ADA), says that removing videos that lack subtitles would deprive wheelchair users and the blind, who could at least listen to them. Mr Norkunas hopes that won’t happen, but reckons it very well might.

I’m proud to say that I’m one of the few who opposed the ADA back in 1990.

7.  Who should you fear?

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Here’s an interesting factoid about contemporary policing: In 2014, for the first time ever, law enforcement officers took more property from American citizens than burglars did. Martin Armstrong pointed this out at his blog, Armstrong Economics, last week.

Officers can take cash and property from people without convicting or even charging them with a crime — yes, really! — through the highly controversial practice known as civil asset forfeiture. Last year, according to the Institute for Justice, the Treasury and Justice departments deposited more than $5 billion into their respective asset forfeiture funds. That same year, the FBI reports that burglary losses topped out at $3.5 billion.

8.  Is modern science an offshoot of economics?

In the dialectically structured thought-world of the late-thirteenth- and early-fourteenth-century universities (Latinscholae or schools, hence the adjective “scholastic”), the understanding of nature and the practice of natural science underwent profound change. A universe governed by hierarchically fixed and absolute values, Kaye argued, gave way to one characterized by change and motion. Observation and measurement displaced abstract speculation as the ways to understand nature, and that shift from deduction to quantification laid the foundations for a modern understanding of science.

That much was conventional enough. Kaye’s originality lay in his claim that the cause of this radical shift in thinking about nature was to be found in thought-patterns derived from the rapidly changing world of economics and transferred to scientific inquiry. Late medieval economic thinking was dominated by Aristotle’s discussion of value in the fifth book of his Nichomachean Ethics, where money features as the medium that makes possible comparison, measurement, and exchange between apparently unrelated things: How many shoes are equal to a house? What is the right proportion between goods and the labor that produces them?

Aristotle’s intellectual preeminence, newly restored to Europe from Arab sources, was of course foundational for the scholastic intellectual enterprise. But the rediscovery of Aristotle was not the only impetus to new thinking. In the booming mercantile economies of the thirteenth-century cities, and with the spread of the use of money, concepts rooted in the realities of the market were rapidly evolving.

Money itself was increasingly conceived as a dynamic medium connecting the constantly shifting values of commodities, labor, demand, and economic risk. The university thinkers responsible for the great shift in the understanding of the natural world, Kaye maintained, were themselves deeply immersed in this innovatory world of economics, as agents and administrators for their colleges and religious orders, and as members of the vibrant urban communities in which their universities were located. They were not only natural philosophers and theologians, but often also economic theorists and moralists, concerned with practical matters such as economic justice and especially the religious and ethical limits on usury in moneylending. And so the dynamic and shifting values of supply and demand in the marketplace, and the “monetization” of the cities, came to provide paradigms for a new and more dynamic understanding of the world as itself a dynamic realm best understood in terms of proportion, relativity, and mathematical measurement.

. . .

Kaye believes that there emerged after 1275 a novel and transformative conception of balance that revolutionized the thought of an age. A single if complex development, the emergence of “a new model of equilibrium” transformed thinking across many disciplines—economics, political theory, natural sciences, and mathematics among others—bringing to them an entirely new level of sophistication, flexibility, and explanatory power.

Food for thought.