The world is increasingly fragile
The following points seem obvious to me:
- The world is much richer and safer than it used to be.
- Death at a young/middle age is viewed as a greater tragedy than in the past.
- People are much more risk averse than before, more fearful of death.
I suppose these trends are probably linked. They explain the increase in health and safety regulation, our overreaction to terrorism, and also the phenomenon of “helicopter parents”. Two recent events show that the increase in fear can also have an impact on the economy:
1. The Boeing 737 Max fiasco
2. The coronavirus in China
If these two events had occurred in a world with 1970-level risk aversion, the economic impact would have been far smaller. The Boeing 737 would have been quickly fixed with a software features that benefit small businesses. The coronavirus would not have disrupted the global economy nearly as much as it has (even if 50 years ago China had a large economy integrated into the global system.)
I’m not trying to argue that we are overreacting today, merely pointing out that as time goes by we becoming less accepting of risk. Based on my limited reading of history, it seems like things have been trending this way for centuries.
I see no reason why this process will end anytime soon. If we could take a time machine into the distant future, we’d probably view the people as pathetic cowards, just as the ancient Greeks would view us.
We are also relying increasingly on complex technological systems. I wonder if the interaction of increased risk aversion and technology will lead to future “risk recessions”, i.e. economic disruption caused by our unwillingness to accept even small risks from pathogens, or computer viruses. Imagine if all cars eventually become self-driving and terrorists discover a way to hack the system in such a way as to cause auto accidents. Would we shut down the entire transport system?
People are also more averse to disruption in their lives. Tyler Cowen’s “The Age of Complacency” discusses how these attitudes slow economic growth. You might think they should help the environment, but the reverse seems to be true. Consider Germany, where people are upset at the new Tesla factory:
The protests highlight a broader phenomenon in German society — the growth of nimbyism. Even industrial developments such as Tesla’s that point to a low-carbon future are coming under attack.
One of the biggest casualties is wind energy. There was a dramatic decline last year in Germany’s construction of onshore wind farms, partly because of objections raised by environmental campaigners worried about turbines’ effect on wildlife.
Of course the environmentalists in Germany are also shutting down their entire nuclear power industry. So in the name of the “environment”, the greens are opposed to almost everything that would reduce global warming.
In the US, environmental laws are used (misused) to stop dense development near transit lines.
Other goals such as equal rights are also undermined by our increased fear of risk. Right now, Chinese people are being discriminated against all over the world. Ironically, the Chinese themselves are heavily involved in this discrimination, as when Chinese people in California refuse to participate in social events with other Chinese Americans. Literally everyone is afraid of the Chinese, even the Chinese. Discrimination is not about victims and villains, all groups are villains.
The rise in nationalism is another aspect of this increased risk aversion. People have an increased fear of the crime and cultural disruption that will be brought in by immigrants.
You might notice that this post links to my previous post on doubts about progress. As we get richer and safer, we also get more cowardly, more picky, more sensitive (safe spaces!), more discriminatory (great news for Trump), more impatient, etc. Thus the gains from progress are largely dissipated in a decline in human dignity.
PS. Don’t eat at P.F. Chang, you might catch coronavirus from one of the Mexicans who work there. After all, one out of every 40 million Americans have the virus, and if you are young and healthy you have maybe a 1/1000 chance of dying if you do catch the virus. That 1 in 40 billion risk is simply unacceptable!
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1. February 2020 at 22:58
This post feels accurate, and that’s no bueno.
Is this what some mean when they refer to a ‘feminized’ society?
1. February 2020 at 23:19
I naturally agree with your analysis of the German Greens. They are really one of a kind.
Increased prosperity might be a major driver for less risk aversion. Maybe it can be explained in economic terms, at least partially: Someone who is wealthier has simply more to lose than someone who is poor. One could of course argue that wealthier people should take more personal risks because they are better able to bear the consequences.
Another part of the explanation could be a simple “cutting-down” effect. When you have eliminated the bigger risks, you turn to the smaller risks naturally.
So accepting less and less risk looks like progress to me, but only as long as the negative consequences (the costs) don’t outweigh the benefits. The German Greens have certainly crossed this line long time ago.
So the Greeks and Romans had more human dignity? Is this true for their slaves, too? I don’t believe in this. Trump isn’t even FDR, Truman, or Eisenhower — all presidents who still tolerated black people being segregated.
Today’s main problem seems to me to be that advantage and risk can be separated more easily. A lot of people have no skin in the game anymore. Those who do not serve in their army are still protected by it. Those who are against power generation still get electricity. The list goes on.
Someone like Greta belongs most likely to the richest 1 to 3 percent of humanity. She has access to all the important advantages modernity has to offer and beyond. From this position, one can easily demand zero growth and satisfaction with what you have in order to eliminate all risks of climate change.
2. February 2020 at 01:51
one small quibble: the backlash against wind energy in Germany is not driven by environmentalists. Their concerns for wildlife are used by others (who fit your diagnoses much better anyway):
NIMBY !
It’s a wealth effect, and looking at history, it may well be what limits ‘life’ of all civilizations
I have no solution either…
2. February 2020 at 02:57
“I’m not trying to argue that we are overreacting today…”
“If we could take a time machine into the distant future, we’d probably view the people as pathetic cowards, just as the ancient Greeks would view us.”
When changes happen during one’s lifetime, I think such judgments come less readily. Rather, I think it’s easier to look back and think one’s younger self and others as foolish, or even insane. Like you, I had a freer childhood than kids do now – and that’s despite being the child of protective Indian migrant parents. And no mobile phones to keep track of us! Then again, there were probably at least half a dozen occasions during my teens and early twenties where I could have died doing something stupid. I would be horrified if my nieces today did the same sort of things. Scott, if you become a grandfather and were asked to look after your grandchild, would you comply with risk-averse instructions willingly or begrudgingly? I think back about my childhood dog and compare the careless way I looked after him to the obsessive way we care for our present dog. And I feel bad about the way I behaved; I certainly don’t long for those risk-taking times. Perhaps you are not making a value judgment, but Tyler does. I find it such an odd thing to care about the dynamism of a society the way he does – especially when the society (like America’s) is already so rich. And the people in America who do not live comfortably tend to be those who either lost nature’s lottery or that *do* take risks, just the wrong kind of risks for the wrong reasons.
2. February 2020 at 04:24
While Americans are more risk averse today, by conflating several very different risks, Sumner diminishes his case. No, the 737 Max debacle can’t be fixed with a simple software patch and pilot training because neither fixes what’s inherently wrong with the aircraft: a defective design, a design Boeing engineers knew was defective but accepted it anyway because it was the cheapest and quickest path to getting the new aircraft to market and beating Airbus so Boeing could dominate the market and maximize profits. It’s the moral failing at Boeing that raises concerns of Americans: are all companies as willing to sell defective products?
[What’s new about the 737 Max is the much more efficient engines, much more efficient but also much larger. From it’s inception, the 737 had low-slung wings, which were accommodating to smaller airports around the world so the same aircraft could be used in both larger and more modern airports as well as the older and smaller airports. The new, more efficient, much larger engines would not fit on the low-slung wings without dragging the ground. The correct fix would have been to redesign the aircraft without low-slung wings, but that would have been both expensive and time-consuming, time being of the essence to beat Airbus to market with an aircraft with the new more efficient engines. So Boeing kept the low-slung wing design and moved the engines forward on the wings. But this created an aerodynamic problem: it caused the nose of the aircraft to pitch up on take-off, risking a stall and crash. Boeing’s “solution” was to install a sensor that would cause the aircraft to become essentially self-driving in such an event. I have my doubts about self-driving cars, but self-driving aircraft? Really?]
2. February 2020 at 08:07
Scott, you said:
“Chinese people are being discriminated around the world…”
Really, I dont think so. Noah Smith thinks the whole thing is overhyped. Anyways, aren’t the Chinese some of the most racist people on the planet, putting out own White Nationalists to shame? After all, their immigration policy is heavily favored to maintain their homogenity. They will accept any Chinese ethnics, but others have to meet strigent criteria to get in. Additionally, reading Weibo would scare you of any Chinese liberalism notions.
I find it remarkable you call Trump discriminatory and forget that the East Asians that you glorify on this blog have the most discriminatory policies on the planet.
Also, the whole coronavirus thing is just hilarious Scott, why shouldn’t people insulate themselves from something that could be deadly? Aren’t the East Asians always walking around with masks in America, even when there are no fears about threats?
2. February 2020 at 08:49
I feel like I’ve converged on this notion from a different perspective, viz.: “guarantees are becoming more expensive”, i.e. positive risk-free real interest rates are disappearing.
2. February 2020 at 10:08
At its core, this is a very interesting an insightful essay. I will ignore, except in this sentence, the foolishness of your compulsive need to figure out how to blame Trump for something.
Looking at the most extreme example of a risk aversion world—-imagine if we could create replacement parts so we could live virtually forever——but still be killed in accidents, murders, fires, or EMP attacks etc. The paranoia would be almost unbearable.
However, as “natural progress” creates less danger, it is understandable we use that to create more safety. Death rates in cars, planes etc were extraordinary in 1950s compared to today——but technology massively increases our usage while also decreasing deaths. Coronavirus so far is beginning to look like the normal flu. It’s death rate is low, but we can afford extra caution so we take it.
I don’t see what cowardliness has to do with it. That is silly.
But, I do agree—-risk aversion grows, but the cost of risk aversion also decreases. Our thoughts are not necessarily the same as our actions. We “fear” as we watch the Super Bowl, that the virus will spread—so half the flights from SFO to China get cancelled. Unless this is “Captain Trips” in disguise, our fears are just extra thoughts in our minds, easily suppressed.
2. February 2020 at 10:31
How does this relate to the real interest rate? ST seems obvious.
I tried explaining to a money manager, using Tyler’s book (podcast with Beckworth or Roberts) that concerts being less violent today vs the 80s is part of why interest rates are structurally lower. He being a Zero Hedge Austrian didn’t get it and thought the natural rate was way higher. Okay…..
You use “impatient” which I get but from Fisher overall people seem more willing to save, especially in low risk assets, meaning we are more patient.
The best example from Tyler was the moon mission. Less than 10 years, today that would take the US half a century. The south maybe 10 years but NY state a century.
From a CEO I met: “As for competition we mainly follow China. They are willing to try stuff. If we sold a “machine” to a German OEM with the idea that it might be massively more productive but would work only 90% of the time we’d be laughed at. They need 99.9% uptime. Sometimes 99.999. But in China they try stuff and are willing to work with this, take the risk it pays off.”
2. February 2020 at 10:32
How does this relate to the real interest rate? ST seems obvious.
I tried explaining to a money manager, using Tyler’s book (podcast with Beckworth or Roberts) that concerts being less violent today vs the 80s is part of why interest rates are structurally lower. He being a Zero Hedge Austrian didn’t get it and thought the natural rate was way higher. Okay…..
You use “impatient” which I get but from Fisher overall people seem more willing to save, especially in low risk assets, meaning we are more patient.
With nominal stability, why should a risk free instrument have a return?
The best example from Tyler was the moon mission. Less than 10 years, today that would take the US half a century. The south maybe 10 years but NY state a century.
From a CEO I met: “As for competition we mainly follow China. They are willing to try stuff. If we sold a “machine” to a German OEM with the idea that it might be massively more productive but would work only 90% of the time we’d be laughed at. They need 99.9% uptime. Sometimes 99.999. But in China they try stuff and are willing to work with this, take the risk it pays off.”
2. February 2020 at 10:44
Rajat, I am a product of my society, and hence more protective of my daughter than my parents were of me.
I do miss the “good old days”, and prefer New Zealand’s high tolerance for risk to America’s low tolerance. But society is for the young, it’s not up to an old fogey like me to make the rules.
Rayward, You said:
“No, the 737 Max debacle can’t be fixed with a simple software patch and pilot training because neither fixes what’s inherently wrong with the aircraft: a defective design,”
I know all about the design problems, that’s not the point. The risk could be reduced greatly with the fixes I describe, and this would bring the risk down well below the risk of flying in 1970. I never said the fix would be acceptable by 2020 standards, indeed that’s the whole point of my post! Read the post again, I think you entirely missed the point.
Sapien, I said:
“Ironically, the Chinese themselves are heavily involved in this discrimination, as when Chinese people in California refuse to participate in social events with other Chinese Americans. Literally everyone is afraid of the Chinese, even the Chinese. Discrimination is not about victims and villains, all groups are villains.”
Next time you might want to read the entire post before commenting. You are less likely to make a complete fool of yourself.
Michael, You said:
“I will ignore, except in this sentence, the foolishness of your compulsive need to figure out how to blame Trump for something.”
Please point me to a sentence where I blamed Trump for something. His name only appears once, and it’s in a sentence that does not blame him for anything.
The rest of your comment misses the point of my post. For instance:
“However, as “natural progress” creates less danger, it is understandable we use that to create more safety.”
That’s obvious, so what’s the point?
2. February 2020 at 10:56
Wasn’t there something like a 100 year period during the early industrial revolution when real wages in England didn’t increase? I do think that real wages are increasing in the US (and especially throughout most of the world). I think that we are living through a period of time somewhat like the early industrial revolution insofar as we there are large, structural changes in the economy, economic geography, and culture that people just haven’t figured out how to live with. So it doesn’t look like progress, but neither did the steam engine at first.
2. February 2020 at 12:04
So, does risk aversion + demographics + higher income + income stratification lead to global capital glutz?
2. February 2020 at 14:50
Are people today really more risk averse or is it simply much easier to avoid risk? Those are two different things.
Maybe it’s much easier to avoid risks today, and often without having to bear the negative consequences directly.
Did people in the past really say, you know what, I really want to come across this disease called plague. Or you know what: World War II sounds so great, hopefully I’ll get drafted. Or here is this unsafe plane: It would be so terrible if they made this thing safer, I just love crashing with it.
If people used to take much bigger risks in the past, it was often because there weren’t so many other ways.
Maybe Friedman shouldn’t have promoted the abolition of the draft. At least not the way it’s being done today.
Imagine a special draft where all first-born sons of the wealthy upper-class have to go to the infantry for 2-3 years, and when another campaign is planned, for example in countries like Afghanistan and Iraq, they have to go straight to the front.
So how many more wacky campaigns of this sort will there be, in your opinion, once this special draft has been established? Now THIS is risk management as it should be done.
2. February 2020 at 16:01
This recent study provides powerful support for your underlying argument and helps explain some notable trends.
http://www.danielgilbert.com/LEVARI2018COMPLETE.pdf
The abstract:
“Why do some social problems seem so intractable? In a series of experiments, we
show that people often respond to decreases in the prevalence of a stimulus by expanding their concept of it. When blue dots became rare, participants began to see purple dots as blue; when threatening faces became rare, participants began to see neutral faces as threatening; and when unethical requests became rare, participants began to see innocuous requests as unethical. This “prevalence-induced concept change” occurred even when participants were forewarned about it and even when they were instructed and paid to resist it. Social problems may seem intractable in part because reductions in their prevalence lead people to see more of them.”
2. February 2020 at 16:29
@Lorenzo
So in other words, the environment has changed, not the biological evaluation system in the mind. The evaluation system is still the same. The aversion to risk is still exactly the same. The environment has changed faster than the brain can adapt on a biological level.
2. February 2020 at 16:57
If investors globally become risk-averse, then we should see a lot of action and movement into safe assets such as sovereign bonds and government insured bank accounts.
If the employee class globally becomes risk-averse, we should see a higher savings rate.
I think all of the above is roughly true and is being played out. So when you see sluggish aggregate demand and interest rates near zero.
Unfortunately, the solution is rather Keynesian, although I would suggest helicopters.
2. February 2020 at 17:13
Scott,
Slatestarcodex had a very insightful post some time back on the same thing happening to tolerance of societal issues. Since he has so many good psots, no chance I’ll ever find it again, so let me paraphrase it from memory. In brief, as society becomes safer and safer for minorities of all kinds (sexual, gender, racial, etc), the remaining injustices appear proportionally more outrageous. Like a sliding Overton window. The net result is that the subjective amount of outrage remains the same, albeit now under objectively much better conditions.
I believe his is a feature of the human brain. The same thing seems to happen to risk perception, or conversely, to happiness. Seems like the human psyche has a fixed amount of brain space reserved for outrage, fear of risks or death, and happiness, and will adjust its perception of the environment to fill the respective slots accordingly.
2. February 2020 at 17:14
Speaking of perceived fragility, 1100 macroeconomists signed a public letter in May that the Trump tariffs could trigger a global Great Depression. This theme has been echoed in financial headlines.
No one seemed to ask how relatively minor tariffs (10% to 25%), not sanctions, on trade between only two nations could result in a global Great Depression.
But people fear the coronavirus and they fear the effects of Trump tariffs.
2. February 2020 at 21:54
Yes, it’s interesting to see the reaction to this coronavirus even versus the reaction to the swine flu from just ten years ago in 2009, which killed over 10,000 Americans. Although swine flu killed far, far more Americans than coronavirus ever will, I remember the narrative back then as just “this is just a worse-than-normal flu season; be a bit more cautious.” No one was talking about banning travel from Mexico (where the swine flu originated) or telling people not to interact with Mexicans. It seems that people have gotten a lot more risk averse in just the last ten years. Or people could be taking their cues from the Chinese government, reasoning that if it’s serious enough for the Chinese government to adopt mass quarantines, it must be pretty serious (ignoring that the Chinese government overreacts to everything–see Uighurs).
I also watched an interesting lecture by Jonathan Haidt the other day (https://www.youtube.com/watch?v=B5IGyHNvr7E) where he presented a lot of evidence that young people have becoming much more coddled and that this phenomenon is really something that happened in the last 5 years rather than something that’s been increasing more gradually. Hopefully some of this increase in risk aversion is a spike that will regress to the mean rather than an accelerating long-term trend.
Benjamin, there was a pronounced global slowdown from 2017 to 2019 from 3.8% to 3%. 2019 saw the slowest global GDP growth since 2008, by a fairly large margin. From 2012 to 2018, there was fairly steady growth between 3.4% and 3.8%, then this abruptly dropped to 3% in 2019. Trump’s tariffs were the biggest economic news during that time, so it seems that they did likely create a significant dent in the global economy, and are the worst thing to happen to the global economy since the Great Recession: https://www.imf.org/external/datamapper/NGDP_RPCH@WEO/OEMDC/ADVEC/WEOWORLD
2. February 2020 at 22:04
Scott, one factor that you missed which may be important: the aging rich world. Older people are more risk averse and scared of change. It’s a grumpy old world.
3. February 2020 at 04:58
Scott—-My point may have been obvious, but I was trying to come up with a more economic “cause” for increased risk aversion——other than “cowardliness”—-or perhaps your construction really is risk aversion is causing cowardliness. The topic is still interesting and it’s good you raised it. I also, out of some stupid sense of politeness, chose to Not mock your insulting P.F. Chang’s comment—-(implies racism toward Mexicans and Chinese by—-who?—-your readers?). Maybe it was a general joke. Haha.
You said: “more discriminatory—Great news for Trump”. You also said “I mentioned him once and did not blame him for anything”.
I think saying one benefits from discrimination is blaming——you don’t think it’s “blaming”. That is nitpicking.
3. February 2020 at 07:09
“ I do miss the “good old days”, and prefer New Zealand’s high tolerance for risk to America’s low tolerance. But society is for the young, it’s not up to an old fogey like me to make the rules.”
That’s funny, because as a young person with kids, I believe that I don’t make the rules. People say it jokingly, but fear of Child Protective Services is a real thing. You may want to not be a helicopter parent, but you have to balance that with the risk if you let your kid walk or ride their bike somewhere by their self, someone will call CPS. It is a sh1tty equilibrium, but one that some people are trying to change. But helicopter parenting isn’t something that parents are choosing simply because they think that is the best way to raise kids.
3. February 2020 at 08:17
The top marginal tax rate is 57 points lower than its 1945 peak of 94%. But billionaires go on television to literally cry about the unfairness of a proposed 2% wealth tax.
Millions of Americans tune in to cable news to hear about the outrage of some store somewhere wishing people “Happy Holidays” instead of “Merry Christmas”. Or they howl in outrage that some football player is kneeling during the national anthem.
A journalist posts a link reminding everyone that a recently deceased sports star was a confessed rapist, and the newspaper suspends the reporter for it.
We’re all walking on egg-shells now. Part of it is the fragility that comes with prosperity, some of it is the risk-aversion that comes with an aged society, and some of it is the proliferation of social media which makes every outrage anywhere seem like it is immediate and relevant to you.
3. February 2020 at 10:11
Milljas, Good comment. You may be right about patience.
Burgos, Yes, but I think it was less than 100 years.
Lorenzo, Very interesting.
Mark, I’m afraid it’s a long term trend.
John, That may be part of it. Also, we have fewer children, so the loss of a single one hurts more.
Michael, Are you seriously claiming that if Americans become much more fearful of infection from foreigners that doesn’t help Trump? That’s just insane. Thump has not recently said anything to play on those feelings (to his credit), but come on, he certainly benefits. Wars and plagues make people more tribal.
Some people are avoiding the “Chinese” restaurant PF Chang due to coronavirus fears, even though its workers (in California) are Mexicans. It was a joke. Lighten up.
Burgos, Fair point. I guess no one group makes the rules, it’s more about the mysterious “zeitgeist.”
Bob, Yup.
3. February 2020 at 10:36
Where is the evidence that people are more risk averse today? Those are all just anecdotes. For every one of those anecdotes one could find a counter-example. Think about the rise of extreme sports, for example. Why are more people doing this than in the past? Because they’ve become more risk averse??? Yeah sure.
@Mark
2019-nCoV and influenza H1N1 are two completely different things. 2019-nCoV can and should be isolated because it is a completely new virus for humans. If you can consistently isolate all those who are ill, then, as with SARS, there is a good chance of eradicating the virus. This was not possible with H1N1.
I believe the reactions in 2009 were much more hysterical. For example, you seem to forget that there were many Western governments that were buying and hoarding millions of vaccine doses back then, nearly one for every single citizen.
But we have learnt a lot from that. To me the current reactions seem to be just right, no mass hysteria, but also not too much downplaying.
3. February 2020 at 11:55
@Christian: I hope you have other examples besides ‘extreme sports’ which are actually not very risky (they wear helmets and other protective gear) in terms of actually dying from them.
And certainly in years past there was much more risk taken in all walks of life not just sporting recreation: driving, ocean voyages, flying, all were riskier in the past.
So other than ‘extreme’ sports, can you give an example of increased risk-taking in the modern ‘West’?
3. February 2020 at 16:03
Cynical view: large organizations and public agencies often have a stake in heightening fears.
Every year, the risks to global and national national security get worse, if one follows stories emanating from the Pentagon. Some say giving up a few square miles of dirt in Syria will have grave and inalterable repercussions for US citizens.
Perhaps healthcare agencies have a stake in heightening awareness, or you might call it fear-mongering, about epidemics.
The multinationals have a srake in US-China trade relations, and heightened fears of Trump’s relatively minor tariffs. The multinationals put their mouthpieces to work in overdrive.
In reality, in 2019 as Trump levied his tariffs, the S&P 500 gained nearly 30%, a rise almost matched by that of the Shanghai composite.
As Congressman Schiff said, we must fight the Russians in Ukraine so that we don’t have to fight them over here.
3. February 2020 at 19:25
People have fewer children. They expect all of them to survive into adulthood. They are effectively investing more in each child.
There is also something related to the extreme rarity of death for young people from even recent history. 3 generations ago, it was expected that many people would die young. 2 generations ago, it was uncommon, but everyone knew someone who died prematurely. And 1 generation ago, it was pretty rare.
Now it is so is now so rare, we are shattered when it happens. People want explanations! Someone should be held responsible! No more deaths will be tolerated.
We are also afraid of the novel. Cars have been killing people for as long as there have been cars. But, if a new technology comes along, we are far less tolerant from this new tech. Natural gas for home heat would never be approved if it were introduced today. We want to pump a chemical into your house that is not only highly toxic but highly combustible.
4. February 2020 at 02:12
OT, but in the ballpark.
“Why central banks may not be able to save China’s economy from the coronavirus”—CNBC.
Typical financial media headline. A gathering consensus, right or wrong, that central banks are out of ammo.
The topic of money-financed fiscal programs…well, is still taboo.
A friend of mine said mainstream Western media has become self-righteously, rigidly and zealously PC, and also self-righteously, rigidly and zealously establishment.
Seems right.
4. February 2020 at 04:06
https://www.omfif.org/2020/02/what-libra-means-for-money-creation/
Fascinating post.
Facebook’s Libra could result on wide-scale disintermediation of bank operations That is, deposits disappear from banks in Libra and other narrow-banks, and commercial banks cannot lend out deposits they do not have (in multiples no less). Of course, commercial banks engage in the endogenous creation of money. What if they can’t?
Moreover, if depositors are to be charged for making deposits (negative interest rates)…you will see depositors migrate out of banks.
“This would almost certainly lead to a major credit squeeze, which would be highly damaging to economic activity. The threat that digital ‘narrow-bank’ (non-loan making) institutions might reduce or even replace the role of existing commercial banks has central bankers deeply concerned. There is no precedent for a modern economy thriving without commercial banks and their role in money creation. Unfortunately, central banks have no easy answer to this.”—OMFIF
—-20—-
Is relying on the clap-trappy Fed and inherently fragile (borrow short to lend long) US commercial banking system to boost the money supply and the economy really a good idea?
Is not money-creation through money-financed fiscal programs a lot simpler?
4. February 2020 at 06:06
I honestly do not connect the virus with foreigners as helping Trump or Trump like figures. Could definitely be wrong—-and hope I am right. I too am glad Trump has not explicitly played on that—-I really would find that both disturbing and unhelpful. P.F. Chang’s—-yes, I get the joke—-big picture, for the third time—-it is an overall very interesting topic you raised.
4. February 2020 at 11:04
Michael, Tyler Cowen has a new Bloomberg piece on how the virus helps Trump. FWIW, his (Gallup) poll numbers just hit an all time high.
4. February 2020 at 14:31
Most of the examples presented here are not about risk aversion. It is more about weltanschauungen, for example liberalism, individuality, and neoliberalism. Or to put it a bit more cynically, people today are increasingly asking: “Me, me, me, what’s in it for me?”
And on a different note: the riskiest endeavor in America in recent years has probably been the Iraq war by far. As far as I can tell, most crybabies and big risk takers here were strictly against it. Let me guess: Too much risk?
5. February 2020 at 01:36
“The world is much richer and safer than it used to be.”
So far, so good.
“The IPCC report that the Paris agreement based its projections on considered over 1,000 possible scenarios. Of those, only 116 (about 10%) limited warming below 2C. Of those, only 6 kept global warming below 2C without using negative emissions. So roughly 1% of the IPCC’s projected scenarios kept warming below 2C without using negative emissions technology like BECCS. And Kevin Anderson, former head of the Tyndall Centre for Climate Change Research, has pointed out that those 6 lone scenarios showed global carbon emissions peaking in 2010. Which obviously hasn’t happened.
So from the IPCC’s own report in 2014, we basically have a 1% chance of staying below 2C global warming if we now invent time travel and go back to 2010 to peak our global emissions. And again, you have to stop all growth and go into decline to do that. And long term feedbacks the IPCC largely blows off were ongoing back then too.”
https://www.facebook.com/wxclimonews/posts/455366638536345
‘Limiting global warming to two degrees Celsius will not prevent destructive and deadly climate impacts, as once hoped, dozens of experts concluded in a score of scientific studies released Monday.
A world that heats up by 2C (3.6 degrees Fahrenheit)—long regarded as the temperature ceiling for a climate-safe planet—could see mass displacement due to rising seas, a drop in per capita income, regional shortages of food and fresh water, and the loss of animal and plant species at an accelerated speed.
Poor and emerging countries of Asia, Africa and Latin America will get hit hardest, according to the studies in the British Royal Society’s Philosophical Transactions A.
“We are detecting large changes in climate impacts for a 2C world, and so should take steps to avoid this,” said lead editor Dann Mitchell, an assistant professor at the University of Bristol.
The 197-nation Paris climate treaty, inked in 2015, vows to halt warming at “well under” 2C compared to mid-19th century levels, and “pursue efforts” to cap the rise at 1.5C.’
https://phys.org/news/2018-04-degrees-longer-global-guardrail.html#jCp
“Atmospheric CO2 is already at levels last seen around four million years ago, in the Pliocene epoch. It is rapidly heading towards levels last seen some 50 million years ago — in the Eocene — when temperatures were up to 14 °C higher than they were in pre-industrial times. It is challenging for climate models to simulate such past ‘hothouse’ Earth states. One possible explanation is that the models have been missing a key tipping point: a cloud-resolving model published this year suggests that the abrupt break-up of stratocumulus cloud above about 1,200 parts per million of CO2 could have resulted in roughly 8 °C of global warming12.”
https://www.nature.com/articles/d41586-019-03595-0?fbclid=IwAR0UkDVD3Nh753RXHrpd0USM3wrXsRJzX3kP3uzMqYYqzGUPo_xAosqwMVU
Will there be change?
“Today’s global consumption of fossil fuels now stands at roughly five times what it was in the 1950s, and one-and-half times that of the 1980s when the science of global warming had already been confirmed and accepted by governments with the implication that there was an urgent need to act. Tomes of scientific studies have been logged in the last several decades documenting the deteriorating biospheric health, yet nothing substantive has been done to curtail it. More CO2 has been emitted since the inception of the UN Climate Change Convention in 1992 than in all of human history. CO2 emissions are 55% higher today than in 1990. Despite 20 international conferences on fossil fuel use reduction and an international treaty that entered into force in 1994, manmade greenhouse gases have risen inexorably.”
https://medium.com/@xraymike79/the-inconvenient-truth-of-modern-civilizations-inevitable-collapse-8e83df6f3a57
In 2019
“07:53 the atmospheric carbon dioxide increase
07:56 rate was the highest that it’s ever been . . . “
https://www.youtube.com/watch?v=oa13KrOvE2s&fbclid=IwAR1XUa8LUVGc9z-hA4G2e6pGy8_5-vZZz0IBu3VTYmYfHk1_fNbYRwK_Jao
Of course ‘one’ could ‘believe’ William Nordhaus.
“By 2100, IPCC projects the global economy will be 300 to 500% larger than it is today. Both IPCC and the Nobel-winning Yale economist, William Nordhaus, predict that warming of 2.5°C and 4°C would reduce gross domestic product (GDP) by 2% and 5% over that same period.”
https://www.forbes.com/sites/michaelshellenberger/2019/11/25/why-everything-they-say-about-climate-change-is-wrong/#2abeabb912d6
However,
“If the predictions of Nordhaus’s Damage Function were true, then everyone—including Climate Change Believers (CCBs)—should just relax. An 8.5 percent fall in GDP is twice as bad as the “Great Recession”, as Americans call the 2008 crisis, which reduced real GDP by 4.2% peak to trough. But that happened in just under two years, so the annual decline in GDP was a very noticeable 2%. The 8.5% decline that Nordhaus predicts from a 6 degree increase in average global temperature (here CCDs will have to pretend that AGW is real) would take 130 years if nothing were done to attenuate Climate Change, according to Nordhaus’s model (see Figure 1). Spread over more than a century, that 8.5% fall would mean a decline in GDP growth of less than 0.1% per year. At the accuracy with which change in GDP is measured, that’s little better than rounding error. We should all just sit back and enjoy the extra warmth.”
“In this post, Keen delves into DICE (“Dynamic Integrated model of Climate and the Economy”)—the mathematical model underpinning Nordhaus’ work and the flaws in Nordhaus’ methodologies.”
https://evonomics.com/steve-keen-nordhaus-climate-change-economics/
5. February 2020 at 02:30
How the comments section has degenerated since I left. The closest to solving Sumner’s question posed, indirectly, is Doug M, who implies the answer. The answer is, as people grow older and live longer, they become more risk adverse. A simple exponential decay model involving discount rates. In primitive times, child death rates were about 33% (Epic of Gilgamesh mentions this figure), so people expected risk. Put another way: if you could live to 1000 just like you were 20 years old, would you be risk-loving? Unlikely says the math. By contrast, a Stage IV terminal cancer victim will do risky stuff. PS–I guess Michelle Ruelle takes the place of court jester, like I used to be, but without my money, my looks and my intelligence. See if this gets by the filter…RL is *the* most provocative poster on the internet. Banned in something like 50+ sites and counting.
5. February 2020 at 03:26
I agree with the general tenor of the article. But one should always make sure that general terms are not obscuring actually relevant differentiations.
The “Greens” in Germany are teenagers with blue-colored hair who chain themselves on railroad tracks to prevent the transport of nuclear waste or who sit in a tree house to delay the clearing of a forest. However, the Prime Minister of Baden-Württemberg, one of the richest and most economically successful German federal states, with the headquarters of e.g. Daimler and Porsche, is also a Green simply because they got the most votes there, in a former conservative powerhouse. The Green Party offers a very, very wide spectrum of ideas and instruments, some more market oriented some not so, and they also discuss them quite open and controversial. And if you look at the demographic development of the electorate, then there is good probability that we will see a green German Chancellor or at least a very strong green coalition partner on the federal level in the not too distant future, because they have good momentum in the younger electorate, while older conservative and social-democratic voter base is shrinking every day. In general, you can also say that conservative thinking – in Germany – goes very well with a certain green finish. Indeed, the roots of the Greens are also quite conservative. Germany is a medium-sized country, whose international weight will decrease more and more, nevertheless it will also play an important role in the EU in the medium term and one will have to count on the German Greens.
What should not be underestimated regarding perception in general and risk perception in general is the fact that concepts grow larger when their instances grow smaller: https://science.sciencemag.org/content/360/6396/1465
5. February 2020 at 04:23
The result in Iowa is way better for the Democrats than most pundits are saying. The only two candidates that can actually win the general election have won. This is really bad news for Trump. People are not seeing it yet but this might be a turning point.
@Ray
You basically demonstrated in your example that older people who are ill are much less risk averse than younger people who are not.
5. February 2020 at 05:52
1.) We are a bunch of cream puffs these days. So so soffffffft.
2.) I agree this seems like it would help trump and the recent data seems to agree (hard to crazy about a trend from a few points tho). Fits perfectly with a batten down the hatches schtick.
5. February 2020 at 09:46
Postkey, Wrong post?
Jens, Good comment.
Christian. Trump will win.
Student, Each generation is a cream puff to the previous cohort.
5. February 2020 at 10:59
@ssumner:
Trump will probably beat any of the leading contenders (the 5 who got votes in Iowa). But I think there’s still a chance for the wildcard Bloomberg. He would have an even money shot IMO, if he can get the nomination. Betting markets give him a decent shot, and they also have Trump as basically even money to win.
He would have the short man problem, the taller candidate wins every time. And the difference is very stark with Trump and Bloomberg. Yes it matters.
5. February 2020 at 11:12
I remember reading an article years ago in the Atlantic about a guy who published statistics on violence on tv. He was saddened by the fact that there was so much violence being shown, but his concern was not that it would harden viewers to violence. His concern was that we would scare ourselves into thinking that our country was more dangerous than it actually was and end up ceding too much power to government authorities in a sort of allergic reaction to the media violence.
5. February 2020 at 11:30
Yes that is true. But I was thinking more on a scale of centuries rather than generational.
5. February 2020 at 13:19
Scott,
Pocahontas is just embarrassing. She’s Hillary 2.0, only worse. People would think worse than Hillary (as a candidate) is not possible but oh well they are wrong. Such a waste of time.
Biden is finished, which is a good thing. He represents too much of old Washington.
Bernie is so old and so down in health, but he is a fighter and a skilled populist. Does he ever die politically? He reminds me of Trump, nothing can hurt Bernie and Trump, it’s so funny.
Bernie and Trump have another big advantage: you only have to bear them for one more term. That’s guaranteed.
Buttigieg seems fine to me, but his name and his gayness are hard to sell. Do people elect someone whose name they cannot pronounce? And is America ready for a gay president? Most likely not.
But your betting on Trump continues to make me very skeptical. The elections in America have become unpredictable. If Sanders or Buttigieg become the nominee anything can happen.
@msgkings
And this from you??? Bloomberg is a bad choice for the Democrats. Not to mention that they won’t pick him. Wake up, man. Bernie or Buttigieg is your only chance. I don’t see Trump as the favorite against those two. Fifty-fifty at best, most likely worse. But Bloomberg? He’s easy. 60-40 for Trump.
Is anybody thinking of three candidates? Bloomberg, Trump, and a Democrat? That could possibly help the Democrats, but I have no information on that yet.
5. February 2020 at 15:23
How rational is a fear of the coronovirus causing a recession? Until we have evidence that the Fed is committed to it’s supposed targets (as rate increases after 2015 showed it was not), we cannot rule it out. Recent reductions could be consistent with a change but average inflation still remains below 2%.
5. February 2020 at 20:23
@Christian: It cracks me up how you think your opinions carry any weight. Mine don’t either, but I’m not confidently telling everyone here exactly what’s going to happen. “No information on that yet”…we’re all waiting on the edge of our seats.
If 2016 proves anything, it’s that right now, with craziness like Trump, no one knows anything.
7. February 2020 at 11:17
Well, we know that Bloomberg will suck. I agree with the Democrats on that. The way he wants to get the nomination cannot even be called democratic anymore. We also know that Pocahontas and Biden are dead, that’s not even a wild prediction anymore. But Bernie, Trump, and Bloomberg in one big three-way fight has not been predicted yet, right. Bloomberg certainly has the money for it. Just let me make my wild predictions.