No need to even comment on this:

A resolution to encourage breast-feeding was expected to be approved quickly and easily by the hundreds of government delegates who gathered this spring in Geneva for the United Nations-affiliated World Health Assembly.

Based on decades of research, the resolution says that mother’s milk is healthiest for children and countries should strive to limit the inaccurate or misleading marketing of breast milk substitutes. . . .

American officials sought to water down the resolution by removing language that called on governments to “protect, promote and support breast-feeding” and another passage that called on policymakers to restrict the promotion of food products that many experts say can have deleterious effects on young children.

When that failed, they turned to threats, according to diplomats and government officials who took part in the discussions. Ecuador, which had planned to introduce the measure, was the first to find itself in the cross hairs.

The Americans were blunt: If Ecuador refused to drop the resolution, Washington would unleash punishing trade measures and withdraw crucial military aid. The Ecuadorean government quickly acquiesced. . . .

“What happened was tantamount to blackmail, with the U.S. holding the world hostage and trying to overturn nearly 40 years of consensus on the best way to protect infant and young child health,” she said.

In the end, the Americans’ efforts were mostly unsuccessful. It was the Russians who ultimately stepped in to introduce the measure — and the Americans did not threaten them. . . .

In talks to renegotiate the North American Free Trade Agreement, the Americans have been pushing for language that would limit the ability of Canada, Mexico and the United States to put warning labels on junk food and sugary beverages, according to a draft of the proposal reviewed by The New York Times.

I wonder why we didn’t threaten the Russians?

Read the whole thing.

This is a follow up to my recent post on the tech bubble.

In my view, 3-month T-bills are the best asset for estimating nominal risk-free returns that can be earned at various moments in time.  During some periods of US history, it’s possible to earn very large nominal risk-free returns (real plus inflation).  During other periods, nominal risk-free returns are depressed by a variety of factors.  During these challenging periods, other investments may or may not struggle to earn high nominal returns.  Usually they will struggle.  (Consider 1929-45).  Nonetheless, it seems reasonable to compare the performance of other investments to this risk-free benchmark.  If you don’t see why, read my previous post, especially the example of why the 30-year Treasury bonds yielding 15% in 1981 was misleading. (A commenter pointed out that those interest payments could not be reinvested at 15%, but it was still a pretty impressive nominal investment, ex post.)

Unfortunately I don’t know how to find the figures I am looking for, but I’ll present my estimates, and then let commenters who work in finance correct my numbers:

1.  A series of investments in 3-month T-bills from the end of 1999:  Roughly a 35% to 38% total nominal return. (Based on a quick look)

2.  Investing in NASDAQ at the end of 1999 (at 4069), then reinvesting dividends:  Roughly a 121% total return.

3.  Investing in NASDAQ at the absolute peak in March 2000 (at 5048), then reinvesting dividends:  Roughly a 78% total nominal return.

My point is not that those Nasdaq returns are all that impressive (especially if you were unlucky enough to buy at the absolute peak), but rather that these returns were earned in a very challenging investment climate, where risk-free returns were quite low.

It’s not obvious to me that the difference between 121% and 37% isn’t enough to compensate investors for the extra risk from Nasdaq stocks  compared to long term investments into a series of T-bills.  As I mentioned earlier, the excess returns earned by stocks from 1926 to 2000 were probably excessive, in retrospect, even accounting for risk.

Here’s how I’d put it.  In 2002, the consensus view was that 2000 had obviously been a bubble, and that Nasdaq stocks were obviously grossly overpriced at that time.  Given what we know today, a fair-minded observer would say that Nasdaq stocks may have been overpriced in 1999-2000, but it’s no longer a slam dunk that an extreme bubble ever existed.

PS.  I tried to find total returns on Nasdaq, but could only find them for the past 10 years.  During that period, 10,000 invested in Nasdaq, with dividends reinvested, rose to 36646.  But the index itself (ignoring dividends) rose by a smaller amount.  Thus 10,000 invested 10 years ago would now be 32750, if you ignore dividends.  The total return figure of 36,646 is about 11.9% higher than the simple increase in the index, over the past 10 years.  So it seems reasonable that over 18 years the total return figure (including dividends) is about 20% higher.  Thus you’d want to calculate total returns as if Nasdaq were about 9000 today (not 7500) relative to investments back at the end of 1999.  Does that make sense?  That’s how I got my estimate of total returns.

Of course real returns would be lower, but they’d be equally lower for any alternative investments (such as T-bills), so it would be a waste of time to work with real variables, even if the inflation numbers were not unreliable.

PS.  Why don’t our history books call July 2002 to April 2003 a “negative bubble” for Nasdaq?  It ranged from 1100 to 1500.  More importantly, why isn’t there even a word for negative bubbles?

PPS.  Even more importantly, why isn’t there even a word for big plunges in NGDP growth?

Happy 4th of July to my American readers.

Quillette has an interesting piece on the 2016 election.  The article includes a lot of discussion of Hillary Clinton’s rather disappointing performance among women voters, especially white women.  Then there’s this:

If the election were a referendum on Obama, as a politician or a symbol, one would expect his popularity to have declined over the course of the race — especially given how it ultimately turned out. Instead, Obama grew more popular throughout 2016, even as favorability for Trump and Hillary tanked. Two years into the Trump administration, Barack’s ratings continue to climb, with 66% of Americans offering a favorable opinion of him.

The “whitelash” theory also suggests a surge [in] white voting. Instead, participation among non-Hispanic whites was stagnant relative to 2012, and down from 2008. In fact, whites made up a smaller share of the electorate in 2016, while Hispanics and Asians made up a larger percentage of overall voters.

More damning: Trump actually won a smaller share of the white vote than Mitt Romney. He was nonetheless able to win because he won more Hispanics and Asians than his predecessors, and more black votes than any Republican since 2004.

Trump did win a number of less well-educated whites who had previously voted for Obama, but he also lost some better educated whites who had previously voted for Romney.  Overall, He did not do especially well among whites, and could not have won without holding his own among the various minorities, despite all his bigoted statements.  He was also helped by a lower turnout among black voters.

PS.  Let’s have a vote.  Which statement is more nuts:

LaVar Ball Claims Lonzo Ball Is Lakers Leader Even With LeBron James

or:

Trump says the US would be at war with North Korea by now if it weren’t for him

Decisions, decisions . . .

After my previous post, several commenters argued that I did not present persuasive evidence against the view that Nasdaq was in a bubble at the end of the 20th century.  They often made the following argument:

While the current level of Nasdaq is well above the 2000 peak value (of roughly 5040), the rate of return on Nasdaq has been far below the rate of return on alternative investments that are much less risky, such as T-bonds.

This is certainly a reasonable argument, but I find it unpersuasive for several reasons.  I’ll list them in order.

1.  I don’t think it’s reasonable to compare current prices to the absolute peak of the tech boom, which only lasted for a few days.  Whenever you look back on an asset price time series, the absolute peak level will usually look overpriced, in retrospect.  Importantly, that would be true even if there were no such things as bubbles. As an analogy, bubble predictions of Bitcoin have proved spectacularly wrong.  There were many people claiming that Bitcoin was a bubble at $30, then $300.  Last time I looked it was near $6000.  On the other hand, the absolute peak of Bitcoin was more like $19,000.  And yet I don’t think you could argue that Bitcoin was a bubble just because it briefly hit $19,000.  It’s pretty apparent that there is huge uncertainty as to what Bitcoin is worth.  Perhaps if it falls far below $30 then those who called Bitcoin a bubble at $30 can claim vindication.  But not at $6000.

2.  So here’s what I’d say.  There were widespread claims that Nasdaq was a bubble throughout the entire mid-1999 to mid-2000 period.  Most of the time, the market was trading in the 3000 to 4000 range.  Thus the current level of Nasdaq is roughly twice the level of the so-called bubble period.

3.  Even this, however is not enough to rebut my critics.  After all, T-bonds were yielding over 6% during the peak of the tech bubble, and they are a safer investment than tech stocks.  Here I’d point to the fact that long term bonds benefited hugely from an unexpected plunge in interest rates.  During most of the past 18 years, T-bills have yielded close to 1% (a bit above or below.)  And T-bills are an even safer investment than T-bonds.  For instance, I recall reading that long-term Treasury bonds lost 50% of their value during the Jimmy Carter years, even before inflation!  Then in 1982 their total return was over 40%, in a year of about 4% to 6% inflation (depending whether measured calendar year or year over year.).  That’s a pretty volatile asset.  Suppose you’d  bought a 30-year Treasury in 1981, yielding 15%.  Then suppose a friend had bought a stock that (ex post) yielded 11%/year over 30 years.  Would this suggest that the stock was overpriced in 1981?  No, it simply shows that the T-bond did far better than expected, in a relative sense.  After 1981, NGDP growth and inflation slowed sharply, which made T-bonds a great investment, ex post.  That inflation slowdown obviously reduced the nominal return on many alternative assets, such as stocks.

4.  Several commenters pointed to the fact that even (real) TIPS yields were pretty high in 2000, and Nasdaq has done poorly in real terms, relative to TIPS.  But the preceding argument also applies here.  Real interest rates also plunged sharply and unexpectedly during the 21st century.  Indeed they’ve often been negative.

5.  If you are having trouble with this argument questioning the relevance of bond yields, I can flip it around to make tech stocks look better.  Think about why interest rates plunged unexpectedly.  Much (not all) of the plunge was due to an equally unexpected plunge in trend NGDP growth, which has been far slower than expected during the 21st century.  If NGDP growth had been as fast as expected, fast enough to justify those 6% T-bond yields back in 2000, then Nasdaq would have also grown far faster.  In that case, Nasdaq would almost certainly be far higher today, say roughly 10,000.  Also, don’t forget that back in 2000, capital gains taxes were far lower than taxes on bond interest.  That made tech stocks especially attractive.

So here’s my argument.  Let’s go back to when Nasdaq was 3500 during the tech boom, a level certainly considered bubble by people like Robert Shiller (recall his initial bubble call was in 1996, when Nasdaq was barely over 1000).  I claim that this 3500 Nasdaq value was rational, if you assume NGDP would grow at the rate that bond market participants probably expected it to grow (say 5.5%/year).  If that growth had occurred, then Nasdaq would now be closer to 10000, and the market would have roughly tripled (plus dividends.)  Admittedly, even that sort of return would have been a bit lower than the historical average since 1926, but I believe markets have done well since the 1980s partly because of a growing realization that stocks were undervalued during most of the 20th century.  Thus a part of the 1982 to 2000 stock price boom was a sort of “catch up” as investors realized Shiller’s model was wrong, and historical valuations were too low. (Or historical rates of return were too high, given the risk involved, if you prefer to think that way.)  As an aside, I believe that’s why Shiller has done such a poor job of giving investment advice in the 21st century—not telling people to buy in 2009, and then saying stocks were overvalued a few years later, when in fact everyone should have been buying.  He has the wrong model, which undervalues stocks.

6.  Now let’s think about the justification for the bubble claims.  In 2000, people argued that all of these companies couldn’t be successful.  That’s true but not relevant; only some companies needed to hit the jackpot.  People also argued that these valuations only made sense if internet oriented companies eventually grew to utterly dominate the US economy.  Well, today the so-called FAANG stocks do dominate the stock market, with market valuations that dwarf the traditional corporate giants like GM, GE, etc.  I recall people mocking companies like Amazon, which made no profits year after year and were focused on growth.  So who’s the richest guy in the world right now?

Almost every single argument used against my EMH position when I started blogging in 2009, now looks far weaker.  Both Nasdaq and US housing have at least mostly recovered, even relative to trend.  The above market returns of the Ivy League school endowments are mostly gone.  Ditto for the above market returns for the hedge funds.  Bitcoin didn’t crash when it hit $30.  The people who told me the Canadian and Australian housing bubbles would crash “any day now” are still waiting, 9 years later.  And what about the overbuilt Beijing and Shanghai property markets?  Anyone willing to sell me property at 2009 prices in those two cities, widely regarded as a “bubble” even a decade ago?

I can’t prove the tech bubble was not a bubble, just as I can’t prove that people like Warren Buffett and Cliff Asness did not become rich by finding market inefficiencies.  I’d be shocked if there wasn’t an occasional case of someone spotting a market inefficiency. Almost all social science theories are technically false, in the sense that they are not completely true.  But the EMH is far less false than most of the very useful theories we teach in economics.  It’s much easier for me to find industries that violate the laws of supply and demand (say due to market power) than it is for me to beat the stock market.  I believe that 99.9% of investors should assume the EMH is true, and thus buy and hold index funds.  I believe regulators should assume the EMH is true, and thus not try to spot and pop asset price bubbles.  I believe that academic economists should assume the EMH is true, and thus replace 20th century macro with a new macro centered around real time market forecasts of expected NGDP growth, not VAR predictions of inflation and real growth.

One of the big mysteries is why the housing market crashed after 2006.  The later part of the crash (2008-12) was obviously partly due to the Great Recession.  But what about 2006-08?  I’ve occasionally argued that a decline in expected immigration may have played a role.  Here are some census estimates of the US population in 2050, first made in 2008, and then in 2012:

That’s a striking decline in just 4 years.  More recently, the Census Bureau has further reduced their 2050 estimate, to 388 million.  (Current population is 328 million.)  And while part of the explanation is falling birth rates, immigration seems to be the main story:

A comparison of the bureau’s 2008 and 2012 projections for the year 2050 indicates that most of the 39.2 million gap in the total population forecast is due to scaled-back assumptions about the level of new immigration to the U.S. But another notable factor in the lowered population projection was that the bureau also lowered its forecasts for birth levels.

Ignoring the amnesty bulge in 1990-92, US immigration levels peaked in 2006, at over 1.26 million per year (close to the earlier 1907 peak).  At this time, there was also a high level of illegal immigration, including Mexican workers drawn in by the housing boom.  Total immigration might well have been close to 2 million per year.  It looked like immigration was about to push America’s population much higher.

All that changed after 2006.  Bush’s push for immigration reform (which would have boosted immigration levels) failed in Congress.  Border security was tightened and the net level of illegal immigration from Mexico slowed to almost zero. Not just due to tighter border security, but also a weaker economy in the US and relatively better prospects in Mexico. (Also lower Mexican birth rates.)  Now net immigration is probably closer to 1 million/year, although it’s hard to be certain.

The massive wave of expected immigrants was disproportionately pouring into the “sand states”, such as southern California, Nevada, Arizona, Texas, and Florida.  With the exception of Texas (which never had a house price “bubble”) those areas were the epicenter of the housing crash.  I am not saying that the immigration slowdown was the only factor. I’ve already mentioned the recession, and tighter lending standards also played a role.  Maybe there really was a bubble. But I don’t see how such a massive drop in expected population growth could not have played a significant role, especially in the states that were expected to receive those immigrants.

Over at Econlog I have a related post.  It punctures two myths:

1.   The myth that immigration is making America more diverse. (We’re going to stay about 75% “white”).

2.  The myth that immigration is reducing the share of Americans who vote Republican.

Check it out.

PS.  I’m not sure why I didn’t know this, but it’s really quite interesting:

The Immigration Act of 1924, or Johnson–Reed Act, including the National Origins Act, and Asian Exclusion Act (Pub.L. 68–139, 43 Stat.153, enacted May 26, 1924), was a United States federal law that set quotas on the number of immigrants from certain countries while providing funding and an enforcement mechanism to carry out the longstanding (but hitherto unenforced) ban on other non-white immigrants. The law was primarily aimed at further decreasing immigration of Southern Europeans, countries with Roman Catholic majorities, Eastern Europeans, Arabs, and Jews.^[1][2][3][4] The law affirmed the longstanding ban on the immigration of other non-white persons, with the exception of black African immigrants (who had long been exempt from the ban). Thus, virtually all Asians were forbidden from immigrating to America under the Act (subsequent court rulings would determine that Indians were not white and could not immigrate).^{[citation needed]}

Contrary to popular belief, Latin Americans were not prohibited or limited from immigrating under the law. In most states and under federal law, persons of mixed white and Native American ancestry were considered white; this principle was interpreted under the Act to allow Latin Americans to immigrate as “white persons.” Moreover, unlike Eastern and Southern Europe, no nationality-based quotas were placed on Latin American immigrants. Thus, the law allowed unlimited Latin American immigration, just as it allowed unlimited northwestern European immigration. Ironically, the 1965 immigration law that replaced the 1924 Act, though abolishing racial preferences and national quotas, would effectively place greater restriction on Latin American immigration.

So the racist immigration bill of 1924 (I’m not being sarcastic, it was racist, as people defined “race” at the time) favored blacks and Hispanics over Eastern and Southern Europeans?  Can someone confirm the accuracy of this Wikipedia post?  This means the 1965 bill did not have the effect that everyone seems to think it had, as the immigration surge after 1965 was mostly from Latin America (until recently). And what about when Eisenhower expelled illegal Mexican workers?

PPS.  Below I have a graph of immigration up to 2006, when it seemed to be exploding (mentally block out the 1991 spike to see the trend), and then another showing immigration up to 2016. (2017 data, not shown, showed a slight slowdown from 2016):