Archive for May 2023


Fun with conditional probabilities

The political betting markets get wackier each day:

Where to start? Consider that the following statements are all true:

1. Trump is the likely GOP nominee.

2. Biden is the likely Democratic nominee.

3. Biden would probably beat Trump.

4. The GOP is likely to win the 2024 election.

Welcome to the counterintuitive world of conditional probabilities. The explanation is simple. There’s a non-trivial probability (almost 40%) that someone other than Trump will win the GOP nomination, and they would be highly likely to beat Biden. That’s why Biden is the odds on favorite to lose in 2024, despite that fact that he’ll probably face someone that he would beat. Isn’t conditional probability fun?

BTW, did you notice that Trump being found liable for sexual assault barely dented his popularity?

The “race” for president is like two octogenarians with walkers running in an Olympic 100 meter dash. A clown show.

The next thing I noticed is that among all 330 million Americans, Robert Kennedy is the 4th most likely person to be the next president. Here’s what Kennedy is famous for:

1. He’s a famous anti-vaxxer.

2. He’s been lavishly praised by people like Steve Bannon and Tucker Carlson.

And yet, he’s more likely than the current vice president to be the Democratic nominee in 2024.

BTW, Tucker Carlson is more likely than Mike Pence to be the next president.

And you guys ask me why I think we are becoming a banana republic.

PS. I suspect these markets are not exactly comparable, as some figures appear in the nomination markets but not the election market, and vice versa.

PPS. Richard Hanania makes some of the same points as I’ve been making regarding Trump’s personality cult, albeit much more cogently.

The conservative intellectual bubble

Most conservative intellectuals rejected Trump long ago. The few that remained are now jumping ship. Here’s Andrew McCarthy of the National Review:

I am as certain as I am writing this that Donald Trump will never again be elected president of these United States.

Understand that, while I could no longer in good conscience vote for Trump, I am not a Trump hater. For eight years, I defended him when I believed he had been wronged (from the 2016 “Russia collusion” nonsense through Alvin Bragg’s recent indictment farce). I’ve been a harsh critic the many times when he has deserved it, but I’ve applauded Trump-administration policies and, in particular, his judicial nominations. I voted for him twice. I wrote a “Trump: Yes” endorsement in National Review’s 2020 election issue (in contrast with Ramesh Ponnuru’s “No” and Charles C. W. Cooke’s “Maybe”), reluctantly concluding that Trump’s incorrigible flaws were worth abiding as the price of maintaining the solid governance of his Republican subordinates rather than enduring a Democratic presidency with Biden as a figurehead and tool of woke progressives.

I can’t do that anymore.

Bad news for Trump? Not really. The conservative intellectual establishment is now almost totally out of sync with rank and file conservatives, who remain highly loyal to Trump. Polls suggest that Trump has not been hurt at all by the antics of January 6th or by his longstanding support for Putin. He trails Biden slightly in the polls, but not by as much as immediately before the 2020 election that he came within a whisker of winning. And these polls are occurring during a period of 3.5% unemployment—what will they look like during the next recession?

It’s not unusual for elites and the rank and file to diverge, even within a given political party. But this degree of divergence is truly unprecedented. I’m not entirely sure why this is occurring, but I suspect it has something to do with the fact that intellectuals are less likely to become members of a personality cult.

I’m not a conservative, but something similar seems to be happening within the libertarian movement, where intellectual libertarians have rejected the hard right faction that recently took over the Libertarian Party. Unless things change, in 2024 I’ll be forced to vote for a Democratic presidential candidate for the first time in my life. Bad news for Biden, as I’ve never supported a winning presidential candidate.

Is immigration deflationary?

Long time readers already know what I’m going to say, but since Tyler Cowen asked the following:

Let’s say more migrants arrive in a country.  One view, held by Bryan Caplan, is that (ceteris paribus) the monetary base is fixed, so now the monetary base per capita has decline.  Thus immigration is deflationary.  There are more people and not more money, alternatively you could say that the demand to hold money has gone up.  (I am, by the way, blogging this with Bryan’s permission.)

Another view, mine, is that the new immigrants shift out both the aggregate demand and aggregate supply curves, and the net effect can be either inflationary or deflationary.  Even given a fixed monetary base, M2 likely will go up, as for instance banks will find they have more desirable loans to make, for instance to the new arrivals.  Optimal reserve requirements and money multiplier variables are likely to change, so the fixed monetary base need not choke off a demand increase.

Who is right and under which conditions?

My first response is that immigration probably won’t impact inflation, as the Fed targets inflation at 2%. Thus the monetary base (and IOR) will be adjusted as needed to keep long run inflation at 2%. But what if we assume a fixed monetary base? Who’s right in that case?

I’d say that Bryan is probably correct in the long run. (And long run effects are presumably what we care about with immigration.)

But Tyler’s reasoning is correct; immigration would likely provide a one-time boost to base velocity. Thus at cyclical frequencies you might well get higher inflation. Think of it this way:

1. Suppose an extra 3 million immigrants per year permanently boosts trend RGDP growth by 1%. As a result, US real interest rates rise by 75 basis points.

2. Suppose that a 75 basis point increase in interest rates permanently boosts base velocity from 10 to 11.

In that case, with a fixed monetary base you get a roughly 10% one-time boost in NGDP (and inflationary boom) followed by a permanent reduction in trend inflation of 1% (due to faster RGDP growth.)

In my view, we should not assume that the monetary base would actually be fixed, and the baseline assumption should be no effect on inflation due to monetary offset. But if the economy is currently out of equilibrium (as it is today), then more immigration might affect inflation in the short run. Surprisingly, I suspect it might actually reduce inflation by boosting the economy’s supply side so much that the Fed can bring inflation down more easily without creating a recession. By that’s highly speculative, and you could also argue that it would trigger a Fed expansionary policy mistake by boosting the natural interest rate by more than the Fed estimates. If the Fed doesn’t raise rates, inflation would rise.

When thinking about the merits of more immigration, I’d put inflation near the bottom of the list of factors we should consider.

PS. FWIW, high immigration Australia has generally had relative high base velocity, which fits the model.

Good news

1. The Economist reports that British Columbia is decriminalizing possession of small amounts of all hard drugs:

On January 31st British Columbia became the first province in Canada to decriminalise certain illegal drugs. Anyone aged 18 and older can now legally possess a combined 2.5 grams of illicit substances, including cocaine, opioids such as heroin, methamphetamine and ecstasy (or mdma). Owners will no longer be arrested, charged or have their drugs seized. Police will hand out leaflets with treatment suggestions instead.

2. Also from Canada:

It helps that few Canadians are opposed to migrants. Some 85% of those surveyed believe immigration is good for the economy and 69% support current or increased immigration levels. Fully 76% would like to see the country accept more refugees. By contrast, 30 years ago, when half as many immigrants came each year, 70% felt there was too much immigration.

Some of this generosity is pragmatic. Around 1m posts are unfilled across the country, about 6% of the total. With an ageing population, things are likely only to get worse. Fifty years ago there were seven workers for every pensioner; by 2035 the ratio is forecast to be 2:1. Already more than 40% of Canadians are 55 or older.

Pro-migration sentiment also stems from the fact that a quarter of Canadians today are themselves immigrants. 

3. And still more good news from Canada. A year ago, Canada had a land border with only one country (the US). Today, Canada has a land border with two countries, the US and Denmark:

The resolution also had the side effect of giving Canada and Denmark a land border with each other, which means that both countries no longer border only one other country (the United States and Germany, respectively).

4. Attitudes in the UK are also turning more pro-immigration:

If it is a race, one of the unexpected winners so far is the UK. Plenty of Brits who voted against Brexit — myself included — thought that outside the EU, the country would become more insular. But net migration reached a record high of about half a million people last year. The UK shot into the top 10 of the OECD’s rankings of countries that are most attractive to highly skilled workers. Most strikingly, the public seems fine with it. In 2022, for the first time in polling history, more people favoured maintaining, or even increasing, levels of migration than favoured cuts.

5. China’s going electric:

Chinese sales of petrol and diesel cars fell 20pc in absolute volume terms in February from a year earlier. Sales of plug-in electric vehicles kept rising explosively and reached a record 32pc of the market for standard passenger cars.

At the current pace, EV sales in China will hit eight million this year, helped by the proliferation of battery-swapping stations. Rather than charging your own car, you do an instant swap. No need to wait. No need for charge-points everywhere.

And bad news for Saudi Arabia—this is happening faster than expected:

The consensus forecast until recently was that EV penetration would reach 40pc of Chinese sales by 2030. That threshold could be crossed as soon as this year if manufacturers can produce fast enough to meet the demand. “We think EVs will reach 80pc of sales in China by 2030,” said Kingsmill Bond from energy strategists RMI.

6. Faux News network has to pay $787 million in a libel suit. (Unfortunately, the out of court settlement means that people like Tucker Carlson won’t be put under oath, having to explain the way they deceive their viewers.) And more lawsuits are coming.

7. And this:

Fox News and Tucker Carlson have parted ways. The rest of the network seems thrilled.

“Pure joy,” one Fox reporter told Rolling Stone of their reaction to the split. “No one is untouchable. It’s a great day for America, and for the real journalists who work hard every day to deliver the news at Fox.”

“Good riddance,” said a network correspondent. “For a while there it seemed like he was running the network. This clearly is a message that he’s not. In the interim, it’s a morale boost, that’s for sure.”

8. This may not be a big deal. But with so much bad news out of Xi Jinping’s China, this counts as at least a sliver of hope:

Update: Here’s the link to the resolution.

Poop-phobic conservatives

When did conservatives become such snowflakes? I frequently see conservatives complain that San Francisco has become a hellhole due to feces and needles on the sidewalk. While I didn’t notice that problem when I visited last year, no doubt there’s at least some truth to it. But so what?

When I grew up in Madison (in the 1960s), there was dog poop everywhere. No one picked up after their dogs. Maybe that was just Madison, but I doubt it. I suspect other American cities were the same. If you had told a Madisonian that their city was a hell hole due to dog poop on the sidewalks, they would have looked at you like you were a mentally ill germaphobe. What’s wrong with this guy? Is he one of those obsessive compulsives who wash their hands each day? (Just kidding, I mean 20 times a day.)

Seriously, dog poop on the sidewalk was not a major problem; we didn’t go through our lives obsessing about the issue. (Ditto for the ubiquitous cigarette smoke—no one cared.)

Needles? I don’t know about you, but I generally don’t make a practice of walking through the Tenderloin district barefoot. Get a grip!

San Francisco is actually a wonderful city, with two big problems. One is housing. They need to get rid of residential zoning in order to lower prices. And yet conservatives are turning against free markets in housing!

The other is petty crime. In this case the conservatives are correct. They need to arrest and imprison shoplifters and those crazy people on the sidewalk who repeatedly harass respectable people. Is it still political correct to say that? If not, feel free to cancel me.

PS. Not only was Madison not a hellhole, according to Life magazine it was the best place to live in America (in 1948). And America was the best country. And I lived in the best area of Madison (the westside). Ah, the good life.

But there’s a snake in the grass. See that dog in the picture? That mom is letting her little girls play near dog poop: