There’s a certain type of person that doesn’t trust democracy. On the left, there’s a perception that difficult issues must be left to the experts. On the right, a fear that “the mob” will try to extract wealth from the rich. These people have trouble explaining Switzerland, by far the most democratic country on Earth.

So here’a a question for all you right wing democracy skeptics. Chicago recently voted on a referendum to create a “mansion tax” on sales of real estate valued at $1,000,000 or more. How would you expect the vote to have gone? Here are a few helpful facts:

1. The median home price in Chicago is $359,900
2. Chicago has a very large population of renters, often living in low income black and Hispanic neighborhoods. Many live in public housing.
3. The recently elected mayor supported the proposal.
4. If it fails, alternative taxes or benefit cuts will be required.

Given those facts, how would voters have responded to this referendum question? Is this what you expected?

Chicago voters rejected Mayor Brandon Johnson’s plan to increase taxes on real estate transactions of $1 million or more, dealing a blow to the first-term Democrat’s progressive agenda.

About 53% of voters opposed the referendum, according to the Chicago Board of Elections. The measure would have allowed the city council to increase transfer levies on upmarket residential and commercial property sales.

I suspect that low income Chicagoans understand that if all the rich move to Florida it will make Chicago look like Detroit, and that won’t be to their benefit.

PS. You might wonder how I knew immediately after the 2020 election that Trump would be back in 2024. It wasn’t hard to figure out that after 4 years of Biden, America’s voters would be in a very conservative mood. Even San Francisco voters are shifting to the right. The pendulum effect.

People ask me: “What do you think about X?” It might be the path of interest rates or stock prices or the rate of inflation. I might respond “Well, the market is predicting . . . ” They respond; “No, what do YOU think about X.”

I can only respond, what do you mean by “you”?

Most people probably find me to be rather annoying, as I don’t believe in lots of things that are widely accepted, like asset bubbles, objective truth, and personal identity. That last one is especially hard to explain.

It’s not so much that I have multiple personalities, rather my single personality has multiple aspects. Yes, I may have a hunch as to where some economic variable is headed, and my hunch may differ from the market forecast. But unlike most people, I don’t privilege that hunch over my rational belief in the EMH. It makes no sense to speak of what I “really believe”, as I have multiple beliefs, located in different parts of my brain.

A few years back, I got into hot water for a post where I said I thought another pundit’s ideas seemed crazy, but on the other hand some extremely brilliant economists thought her views were quite interesting, so I had to accept that my gut reaction might not be correct.

Because most people do believe in the concept of personal identity, they took my gut reaction as my “real belief” and my reference to what other people believe as just so much window dressing. But that is not how I look at things. If my life were on the line, I’d go with what the market forecast, not my “hunch” as to where an asset price was headed.

There are many issues where people should not hold strongly held views. I’ve read many articles on AI risk. I’ve listened to podcasts. It’s obvious that the most brilliant minds in the world have reached absolutely no consensus on the question of whether AI poses an existential threat. It’s also obvious to me that many of these experts are much smarter than me. Not just smarter in the sense that they know more about AI whereas I know relatively more about the Fed (although that’s true), but smarter in the sense that they have far higher IQs.

So if someone far smarter and far more well informed than me tells me that AI is extremely dangerous, and he or she has studied the issue intensively for their entire adult life, on what possible basis could I tell them that they’re wrong? Do you think I have a counterargument that they’ve never heard? Do you think that they aren’t smart enough to understand my arguments?

“Previous fears over technology proved to be groundless, or wild overreactions.”

“Oh really, and which of those technologies involved creating entities that were far smarter than humans.”

At the same time, there are equally bright people who don’t see AI as a threat to humanity. Do you think I know something that they don’t know? Of course not. So I’m agnostic on the AI risk question. You should be too.

When it comes to personal beliefs, people tend to have big egos. They are overconfident in their views on politics, religion, economics, sociology, even sports.

On almost any issue, you should have at least two views. An inside view, which represents your hunch as to what is true, and an outside view that represents the rational forecast of the truth given both your hunch and weighted average of the views of experts. When it comes to AI risk, I put a weight of roughly zero on my inside view, and 100% on the experts. The problem here, of course, is that even the experts don’t agree.

PS. Wait, didn’t I say I don’t believe in truth? No, I said I didn’t believe in objective truth. When I say something is true, I merely mean that I predict that this will be the consensus view in the very long run. Since we never reach the end of time, there is no objective truth. It’s always provisional—things regarded as true, with varying levels of confidence.

PPS. Think about these questions:

1. What would an entity with an IQ of 250 be capable of doing?

2. What would an entity with an IQ of 250 choose to do?

You think you know the answer to either question? Oh really, what’s your IQ?

BTW, I’m agnostic on the question of whether we could even build something this smart.

Josh Hendrickson argues that an ideal price index should include asset prices. I am not going to address that issue, as I’m not sure what an ideal price index is. But it’s a good post—worth reading if you are interested in price indices.

Instead, I’d like to focus on a less controversial claim in the Hendrickson post:

From that description, one can easily understand why I called that “ideal.” How would one go about finding changes in the cost of a constant-utility basket of goods when utility isn’t really observable?

A practical solution to estimating a price index might be as follows. Consider two-period, two-good example. We observe the price of eggs and the price of milk each period. We also observe the quantity of eggs purchased and the quantity of milk purchased each period. If we want to track changes in prices over time, we could calculate expenditures for period 1 and period 2 using the quantities of eggs and milk purchased in the first period. Alternatively, we could calculate expenditures for period 1 and 2 using the quantities of eggs and milk purchased in the second period. In each case, the first period’s expenditure could be normalized to 100 and the second period price level could be calculated by multiplying 100 by the ratio of expenditures in period 2 to expenditures in period 1. Or, if we want to get really fancy, we could take the geometric average of the ratio of expenditures using both methods and multiply that by 100 to get the price level in the second period.

The purpose of doing any of these three options is that, since you are holding quantities constant across periods, your measures of expenditures are only capturing changes in prices. Effectively, what you are doing is constructing a weighted average of prices in which the weights are fixed quantities of the goods.

This is all pretty standard, similar to what you might find in an economics textbook. But this discussion implicitly assumes an equivalence between fixed quantities and fixed utilities. I will argue that this assumption is not justified, and then use my analysis to explain problems with the Michigan survey of inflation expectations.

To make things as simple as possible, imagine an economy with only one good and no quality changes over time. According to our textbooks, it should be easy to measure the rate of inflation in that sort of economy. But even in that case the inflation rate will differ depending on whether you assume constant utility or constant quantity.

Imagine an economy where the aggregate quantity of the only good increases at 5% per year, while the price of that good rises by 10%/year. You can think of that economy as having a 15% nominal growth rate. (I’ll ignore compounding for simplicity; technically it’s 15.5%). How much extra income would a person need each year in order to maintain a constant utility? I’m not sure, but I’m pretty confident the answer is not 10%, and it’s also not 15%.

1. A person that got a 15% raise would be able to buy 5% more real goods. So presumably their utility would be higher than before.

2. A person that got a 10% raise would be able to buy the same amount of goods, while that person’s acquaintances would be 5% ahead in real terms. So presumably that person would feel worse off in terms of utility.

This suggests that a measure of inflation that holds utility constant would be somewhere between 10% and 15%. You can think of utility as being a function of both absolute quantity of consumption and consumption relative to other people. Furthermore, it would vary by individual. A loner with no friends might be satisfied with a 10% raise, while a person that acutely feels any sort of “unfairness” in life might need almost 15% more income to maintain a constant utility. In other words, there’s a different ideal price index for each person.

Let’s assume that instead of holding utility constant, we hold quantity constant. Then it becomes easy to calculate inflation—which would be exactly 10% in this case. Unfortunately, our textbooks seem to conflate “constant quantity” and “constant utility” in a way that ignores the social aspect of consumption.

My thought experiment involves an economy where quantity grows over time. But the same problem occurs with quality improvements. Here again, a “hedonic” adjustment that attempts to account for quality changes will typically come up with a lower estimate of inflation than an index that holds utility constant. Thus the BLS says that the price of TVs has fallen by more than 99% since 1959 (due to quality improvements), but average people don’t think that way. They want to know how much more it costs to buy the sort of TV their neighbors have, not how much more it costs to buy the sort of TV their grandparents had.

Notice that the Michigan survey of 12-month inflation expectations generally hovers close to 3% from 2000 to 2020, even as measured inflation averaged a bit under 2%. Economists might be inclined to write off the public’s estimate as being “biased”, or “uninformed”. The public doesn’t understand about substitution bias, or quality changes.

Or perhaps the public is taking seriously the “constant utility” definition of inflation. Perhaps they are saying they need about 3% more income to maintain their utility at a constant level. Notice that the public’s estimate of inflation is slightly below the average rise in per capita nominal incomes, and slightly above the inflation estimate you’d get using the economists’ preferred “constant quantity” approach. That’s the same qualitative result we derived in my thought experiment above. Coincidence?

[Readers trying to avoid sugar for health reasons may want to skip this post.]

My basement recently flooded, and I was forced to knock out some drywall to prevent mold. At one point, I discovered a secret compartment that was completely walled in. It contained several boxes.

Here I should digress and mention that I’ve always been fascinated by the idea of finding treasure. When I was young, I collected old coins. Thus the specific form of treasure I imagined was a box of gold or silver coins that some old rich guy had hidden away, due to the fact that he lost trust in banks after losing his money in the Depression. (I once knew a guy like that.)

As an adult, the few cases where I found treasure involved finding valuable posters and prints in an obscure midwestern antique shop, not hoards of gold coins. It’s thrilling!

For me, the utility derived from treasure vastly exceeds its monetary value. I’d get more pleasure out of finding a box of coins worth $10,000 than I would from seeing my 401k go up by $100,000.

In any case, you cannot imagine how excited I was to see those boxes in that walled-in space. Why would someone hide something there if it were not valuable? I ripped open the first box and discovered . . . 6 rolls of holiday wrapping paper. There was a second box (dimly visible on the right), which was even larger. It contained 10 rolls of wrapping paper. Based on the style, the rolls are from the late 1960s. That means they were brought to this house by the owner who built it in 1979—and then sealed in. Why?

By coincidence, I’ve been reading the short stories by Nathaniel Hawthorne, which are full of parables, allegory and symbolism. What sort of message would Hawthorne find in my anecdote? What sort of message is the universe sending me? A greedy old miser seeks buried gold coins, and discovers that life’s greatest treasure is actually . . .

. . . giving?

Bah humbug.

I saw the following headline in the National Review:

What It Took for Republicans to Break with Trump

The article discussed the overwhelming vote to force a TikTok sale, which Trump “opposes”. This is supposedly in contrast to their kowtowing to Trump in voting against a border control bill, which Trump also “opposes”.

Why do I keep using scare quotes for “opposes”? Because with Trump nothing is as it seems. Obviously, Trump supports forcing China to sell TikTok, indeed he tried to do so back in 2020 when he was president. (The courts preventing the forced sale.) And Trump obviously supports the sort of stricter border controls contained in the bill that failed to clear Congress–he enacted similar policies. So what’s going on here?

In the case of the border control bill, Trump “opposed” it because he wants border chaos in the period leading up to the November election. In his “opposition” to forcing the TikTok sale, he wishes to curry favor with younger TikTok users, who would not like to lose their favorite app. Ideally, Biden would succeed in forcing the sale (something Trump secretly wants) and Trump would get votes for loudly defending free speech rights of younger voters.

So it’s a bit disingenuous to suggest the GOP is courageously “breaking with Trump” over TikTok; they are doing precisely what he wants them to do. When Trump makes a public statement, there is only one criterion that determines it’s content—will it win him votes.

This Matt Yglesias tweet caught my eye:

The truth is, almost every single top Republican official privately opposes Trump. We only see these views surface in cases where people are free to speak their minds, as with former GOP presidential candidates, former Trump officials, former vice presidents, Congressmen who are retiring, etc. We also see it in people before they become involved in politics, as with JD Vance. Or in private email conversations, as with Tucker Carlson. The GOP elite virtually all hold Trump in total contempt. (I say virtually all, as there are a few nutcases like Marjorie (Jewish space laser) Greene and Peter (federal prison inmate) Navarro that are true believers.)

DeSantis has “endorsed” Trump. Does anyone seriously think DeSantis will go into the voting both and pull the lever for Trump? Would you, if Trump had accused you of “grooming” teenage girls? People need to use their common sense. Trump has almost no support in the GOP elite. The endorsements are merely a facade, lapped up by people who believe we should take political statements as if they reflect the actual beliefs of the politicians.

PS. People talk a lot about the “deep state”. This is silly. Almost every single person who has the career accomplishments required for a high level DC job privately hates Trump. So why would you expect anything different? It’s not a deep state—there’s no conspiracy. It’s merely that almost all highly qualified people see Trump for what he is.