Economics & Marginalia: November 18, 2022

Hi all,

When will I learn? Every time I take a week off, some corner of the world begins to crumble. Last time it with the UK economy and with it, the political careers of Liz Truss and Kwasi Kwarteng. This time it was the digital world, first crypto (of which more below) and now Twitter. The slow motion car crash (something Tesla know a bit about) of Elon Musk’s “management” of Twitter is gradually rendering the website unusable, for three reasons: lots of the best people have jumped before the site becomes too toxic and glitchy (I have begun to join them on Mastodon, though I’m still acclimatising); bits of the website have stopped working smoothly as Musk wafts around the building, randomly firing people for insufficient genuflection; and because the users remaining on Twitter are spending so much time talking about Twitter that the entire platform is starting to feel like climbing an Escher staircase. I don’t ascribe to the generally-held view that Twitter is a bad equilibrium, in which people log on and feel bad; I don’t engage with the trolls and mute everyone I find annoying (so Musk never appears on my timeline); what’s left might not be representative of the whole world, but that’s a good thing, to my mind. Anyway, on to the links, which I’ll hopefully still be able to tweet out later tonight.

1. I can’t believe it’s already that most wonderful time of year: not Thanksgiving, not Christmas, but the Development Impact Job Market Papers series. This is my favourite annual tradition in economics, narrowly beating the scorn we pour upon the “it’s not a real Nobel, you know” people when the Prize is released, and this year has started well. Of the first five posts my favourites so far have been this piece by Eleanor Wiseman, which uses data from Kenyan-Ugandan trade around the Covid-19 border closure and an RCT in Kenya to investigate the role of information frictions in informal trade, and the first in the series, Anna Vitale’s which also considers information frictions, but in this case those affecting consumers, and how they drive firm agglomeration in developing countries. Also from DI (and CGD) this week: Almedina Music and David Evans do their magic with another development economics conference, summarizing a mind-boggling number of papers for those of us who couldn’t attend.
2. If you’re one of the lucky people who has managed to get this far in the 2020s without really paying any attention to cryptocurrencies, do not worry: understanding the spectacular collapse of FTX and how Sam Bankman-Fried lost $15 billion in 24 hours does not require any understanding of blockchain or the ins and outs of cryptocurrency at all. It’s a straightforward tale of malpractice, fraud, financial mismanagement and basic macroeconomics. Planet Money do a good job going through the history of how Bankman-Fried made and lost his money (transcript), but the short version is this: he made his fortune exploiting glitches in the minutiae of how the currency was traded, setting up and operating his businesses like Calvin selling lemonade (except rather than being subsidized, he made up his own currency and then counted it as an asset on his balance sheet), then he absconded with his clients’ money to place bets… which he lost—again, much like Calvin. It was so bad, the dude who tried to resolve the Enron situation thinks it’s the worst set up he ever saw. What made Bankman-Fried more interesting than the garden-variety scammer was the fact that he was—allegedly—doing it all to give his money to charity and try and make the world a much better place, as a central figure in the Effective Altruism movement. But even that has been cast into doubt by his extraordinary twitter messages to a journalist, revealing that large parts of his persona were flat out lies. What’s stunning to me is that many people who knew him from early on, and must have been directly aware of the extremely dubious way he made his money initially did not for a moment suspect he was capable of this. These are the people trying to tell us how to spend all our money; we should probably add a little salt to some of those recommendations now.
3. I very, very much enjoyed Georgina Sturge’s piece about bad data in UK political discourse in the Grauniad.
4. Two links on tax and tax policy. In the first, Tim Harford explains how taxes work as incentives. Sometimes those incentives are set up intentionally: I tax your cigarettes and hope people smoke less. Sometimes they are unintentional: I tax based on the number of windows your house has, aiming to raise money from the rich, and they block up their windows with bricks. The lesson here is that taxation is part of a game, in which the taxer and taxee change their behaviour and actions based on what the others are doing. And in a very nice illustration of this, a new paper by Sebastian Bustos and co-authors (link is to the VoxDev summary) finds that when tax policy in Chile tightened significantly, to make it more difficult for multinationals to shift their profits to lower-tax jurisdictions it had… no impact on tax receipts. Why? Because taxes are incentives, and in this case, they incentivised the firms to hire tax consultants like KPMG, Deloitte, and the like to help them navigate the new rules without paying extra tax. It seems like the big winners were the consultants, which is a truly depressing (if unsurprising) policy outcome. Related: Tim Harford has a forthcoming book for children about data and using it.
5. If you have been lucky enough to avoid the Magness / Makovi paper which finds that Marx becomes a global thinker of influence as a result of the Russian Revolution, I am sorry to introduce you to it now. But Branko’s take on their paper is truly worth reading. He doesn’t try and falsify the central finding (of course, of COURSE Marx becomes far more prominent after a literal revolution in his name occurs in one of the largest and most culturally and politically significant places in the world occurs). Instead he takes issue with what their analysis of this fact says about how they assess the value of social scientists.  
6. In very good news for USAID, Dean Karlan has been appointed their Chief Economist. Maybe near the top of his agenda, he can put addressing this problem: that US aid fails so very badly at localisation that it should be relatively easy to improve. I know there are very good people inside USAID thinking about this, and I hope they have his ear.
7. The World Cup is starting tomorrow, and it’s not been a great advert for FIFA, with corruption, homophobia and mistreatment of migrant workers all in the news from the host nation (not to mention the last-minute ban on beer); nevertheless a few festive links: my colleagues update Dean Karlan’s World Cup utilitarian fan index, a measure of which team you should support if your objective is to make as many people as happy as possible, concluding that the utilitarians among us should support Brazil (I, on the other hand, find comical drubbings of good teams much more fun, so I’m hoping for a repeat of this). Meanwhile, 538 have a preview, with odds of winning (it aligns with the utilitarian approach, though an Argentine wife and a lifelong love of Leo Messi means I’ll almost certainly be cheering for Argentina), and the Ringer have a podcast preview. And if the football bores you to tears (as it often does me these days), here’s something to get you through the next few weeks as your partner has the TV blaring.

Have a great weekend, everyone!

R