Potpourri

Shafik Hebous, Alexander Klemm, Geerten Michielse, and Carolina Osorio-Buitron from the IMF have written "How to Tax Wealth" (IMF How to Note 2024/001, March 2024, https://www.elibrary.imf.org/view/journals/061/2024/001/061.2024.issue-001-en.xml).

"This note discusses three approaches of wealth taxation, based on (1) returns with a capital income tax, (2) stocks with a wealth tax, and (3) transfers of wealth through an inheritance (or estate) tax. Taxing actual returns is generally less distortive and more equitable than a wealth tax. Hence, rather than introducing wealth taxes, reform priorities should focus on strengthening the design of capital income taxes (notably capital gains) and closing existing loopholes, while harnessing technological advances in tax administration—including cross-border information sharing—to foster tax compliance. The inheritance tax is important to address the buildup of dynastic wealth."

Elroy Dimson, Paul Marsh, Mike Staunton offer a long-run view in "Corporate bonds and the credit premium." It appears in the publicly available part of the UBS Global Investment Returns Yearbook 2024, which is subtitled: "Leveraging deep history to navigate the future" (https://www.ubs.com/global/en/investment-bank/in-focus/2024/global-investment-returns-yearbook.html).

"Traditionally, bonds have been seen as boring, relative to stocks. In choosing the name James Bond, Ian Fleming said, 'I wanted the simplest, dullest, plainest-sounding name I could find.' . . . [D]ebt securities worldwide have a value of some USD 136 trillion compared with around USD 100 trillion for global equities. The debt total comprises some USD 70 trillion in government debt and USD 66 trillion of debt securities issued by corporations. Of this amount, corporate bonds account for around USD 45 trillion, the remainder being other corporate issues. . . . Corporate bonds are a major asset class . . . The return to a higher interest rate environment has led many investors to re-consider their merits. This new chapter is thus timely in presenting long run evidence on corporate bonds since the 1860s from both the US and UK. Even very high-quality corporate bonds have offered a significant credit risk premium. The premium from high-yield (or junk) bonds is appreciably higher. Yield spreads of corporate over government bonds incorporate this premium but are not a measure of the expected premium because they also encapsulate expected default losses. This chapter reports on default and recovery rates over the long haul and reviews the determinants of yield spreads and default rates."

The McKinsey Global Institute has published "Investing in productivity growth," by Jan Mischke, Chris Bradley, Marc Canal, Olivia White, Sven Smit, and Denitsa Georgieva (March 27, 2024, https://www.mckinsey.com/mgi/our-research/investing-in-productivity-growth).

"Advanced-economy productivity growth has slowed by about one percentage point since the global financial crisis (GFC). . . . The slump in capital investment slowed productivity growth beyond manufacturing by 0.5 percentage point in the United States, 0.3 point in our Western European sample economies, and 0.2 point in Japan . . . This decline spanned almost all sectors: in the United States, the only exceptions were mining and agriculture; in Europe, only mining, construction, and finance and insurance generally remained stable, while real estate accelerated. More specifically, slowing growth in tangible capital (for example, machines, equipment, and buildings) explains almost 90 percent of the drop in the United States and 100 percent in Europe. From 1997 to 2019, gross fixed capital formation in tangibles fell from 22 to 14 percent of gross value added in the United States and from 25 to 17 percent in Europe. Intangible capital growth (for example, R&D and software) was more resilient but could not make up for falling investment in the material world. Gross fixed capital formation in intangibles increased from 12 to 16 percent in the United States and from 10 to 12 percent in Europe. Investment in intangibles is needed to boost corporate performance and labor productivity, but it may face barriers (skills needed to scale up, limited collateralization and recovery value), and the productivity benefits can take longer to materialize."

The Congressional Budget Office provides a primer on "The Role of Federal Home Loan Banks in the Financial System" (March 2024, https://www.cbo.gov/system/files/2024-03/59712-FHLB.pdf).

"In 1932, lawmakers created a system of Federal Home Loan Banks (FHLBs) as a government-sponsored enterprise (GSE) to support mortgage lending by the banks' member institutions. The 11 regional FHLBs raise funds by issuing debt and then lend those funds in the form of advances (collateralized loans) to their members—commercial banks, credit unions, insurance companies, and community development financial institutions. . . . The FHLB system is organized as a cooperative; the individual banks are owned by their members, and FHLBs do not issue publicly traded stock . . . As of December 31, 2022, the FHLBs reported assets of $1,247 billion, liabilities of $1,179 billion, and capital (the difference between assets and liabilities) of $68 billion. . . . During financial crises and other periods of market stress, FHLBs also provide liquidity to member institutions, including those in financial distress. . . . FHLBs are a "lender of next-to-last resort." (Banks turn to them before accessing the Federal Reserve’s discount window because borrowing from the window signals that a bank is under stress.)"

Roman Kräussl and Alessandro Tugnetti discuss "Non-Fungible Tokens (NFTs): A Review of Pricing Determinants, Applications and Opportunities" (Journal of Economic Surveys, April 2024, pp. 555-574, https://onlinelibrary.wiley.com/doi/full/10.1111/joes.12597). They describe NFT markets in five areas: Gaming, Collectibles, Metaverse, Utility, Art, and Metaverse.

"In the realm of gaming, NFTs represent assets that can be utilized within video games, with their elements stored on the blockchain. This offers a significant departure from traditional video games, as players gain real ownership of in-game assets through the purchase and sale of NFTs. . . . NFT collectibles are released in collections, or series, which represent variations of the same image, video, or other media. The characters in the Cryptopunks project, for instance, differ from each other in certain attributes that also make the price vary: man/woman, human/alien/monkey, and presence or absence of accessories. . . . NFT utilities, the third main group, are assets that provide utility in the real or digital world through the blockchain . . . The most popular NFT utility projects are VeeFriends (which grant access to the VeeCon, a multi-day event exclusively for VeeFriends NFT holders), Ethereum Name Service (ENS, where users can purchase and manage domain names for their digital assets), and Nouns. . . . Art NFTs are assets with an artistic function that have not been released in series (as could happen for collectibles) and that cannot be used within any type of video game hosted on the blockchain. . . . Everyone can create and sell their works on different platforms in a much shorter time than on the traditional art market, with an average time between purchase and resale in art NFTs of just 33 days versus the average resale period on the traditional art market of 25–30 years . . . The fifth main group, Web3 or Metaverse, can be defined as an extension and grouping of the previous ones. The Metaverse is a virtual universe accessible through a computer screen, laptop, virtual reality (VR), or any other digital system. Users who access this world can create their virtual avatar and interact with the surrounding reality, including other users. They can purchase virtual plots of land within the Metaverse to create their own organizations and host events. In many cases, firms have established virtual businesses and created a space where they can offer goods and services, promote their products and organizations, and hold virtual events . . ."

Symposia

Journal of Benefit-Cost Analysis includes papers on 12 policies with the highest benefit-cost ratios in pursuit of development goals (Spring 2023 14: S1, https://www.cambridge.org/core/journals/journal-of-benefit-cost-analysis). The overview essay by Bjorn Lomborg is titled: "Save 4.2 Million Lives and Generate $1.1 Trillion in Economic Benefits for Only $41 Billion: Introduction to the Special Issue on the Most Efficient Policies for the Sustainable Development Goals." He writes:

"The approaches cover tuberculosis, education, maternal and newborn health, agricultural R&D, malaria, e-procurement, nutrition, land tenure security, chronic diseases, trade, child immunization, and skilled migration. Spanning 2023–2030, these policy approaches are estimated to cost an annual average of $41 billion (of which $6 billion is non-financial). They will realistically deliver $2.1 trillion in annual benefits, consisting of $1.1 trillion in economic benefits and 4.2 million lives saved. The pooled benefit–cost ratio of all 12 investments is 52."

As I write, the southern portion of Manhattan is scheduled to start a congestion pricing plan for road traffic as of June 30, lawsuits permitting. Vital City has published a special issue with ten short explainer articles that provide an overview of the plan, the goals, and some likely sticking points (May 2024, https://www.vitalcitynyc.org/issues/congestion-pricing). In the opening essay, Josh Greenman writes:

"The congestion pricing plan has twin, closely related objectives: to reduce stubbornly high automobile traffic in Manhattan, and to raise at least $1 billion, and ideally more, in capital funding annually to support public transit. MTA [Metropolitan Transporttation Authority] officials expect the plan to reduce the number of vehicles entering the central business district by 17%. The program's final details go like this: Cars will pay $15 to enter Manhattan at 61st Street and below during daytime hours (5 a.m. to 9 p.m.), and $3.75 during off-peak hours (9 p.m.-5 a.m. on weekdays, and 9 p.m. to 9 a.m. on weekends). At peak times, motorcycles will pay $7.50; small trucks and charter buses, $24; and large trucks and tour buses, $36. Ubers, Lyfts and for-hire vehicles will charge $2.50 per ride, and yellow taxis, $1.25 per ride. There will be no tollbooths: Automated license-plate-reading cameras at 110 locations will photograph vehicles' license plates."

Journal of Economic Education has published a six-paper symposium on "What should go into the only economics course students will ever take?", edited by Avi J. Cohen, Wendy Stock and Scott Wolla (2024, 55:2, https://www.tandfonline.com/toc/vece20/55/2). In an introductory essay, Wendy Stock writes:

"Among students who began college in 2012, 74 percent never took economics, up from 62 percent in 2004. Fifteen percent of beginning college students in 2012 took some economics, and 12 percent were one-and-done students. About half of introductory economics students never took another economics class, and only about 2 percent majored in economics. The characteristics of one-and-done and some economics students are generally similar and closer to one another than to students with no economics."

In another essay, Avi Cohen notes a comment from George Stigler in 1963 about the intro econ course:

"The watered-down encyclopedia which constitutes the present course in beginning college economics does not teach the student how to think on economic questions. The brief exposure to each of a vast array of techniques and problems leaves with the student no basic economic logic with which to analyze the economic questions he will face as a citizen. The student will memorize a few facts, diagrams, and policy recommendations, and ten years later will be as untutored in economics as the day he entered the class. An introductory-terminal course in economics makes its greatest contribution to the education of students if it concentrates upon a few subjects which are developed in sufficient detail and applied to a sufficient variety of actual economic problems to cause the student to absorb the basic logic of the approach . . ."

Interviews

Jon Hartley has a wonderful interview with Steven Levitt at the "Capitalism and Freedom in the 21st Century" podcast ("Steven D. Levitt (Freakonomics co-author and University of Chicago Economics Professor) on His Career And Decision To Retire From Academic Economics," March 7, 2024, https://capitalismandfreedom.substack.com/p/episode-28-steven-d-levitt-freakonomics). Hartley asks: "Why retire and become an emeritus professor at age 57?" Levitt answers:

"I think two different forces at work here. The first one is that maybe between five and 10 years ago, I worked on three or four projects that I was just incredibly excited about that I felt were some of the best research that I'd ever done . . . [T]hese were four papers that I was really excited about and collectively they had zero impact. They didn't publish well by and large, nobody cared about them and I remember looking at one point at the citations and seeing that collectively they had six citations. I thought, my god, what am I doing? I just spent the last two years of my life and nobody cares about it. . . . And you combine that with the idea, with the fact that along with Stephen Dubner, we've got this media franchise where Dubner's podcast Freakonomics Radio gets a couple million downloads a month. And if I want to get a message out, I can get millions of people through a different medium. It just didn't make sense to me to keep on puttering around, doing all this work, spending years to write papers that no one cared about when I had other ways of getting my ideas out. And really my interests were elsewhere. I didn't get any thrill. . . . The question I should ask myself is why didn't I retire a long time ago? It made no sense. I've just been, I've thought, I've known for years, it's the wrong place for me to be. And it just took me a long time to figure out how to extricate myself from academics. And I'm so glad I’m doing it. It's good for everyone. It doesn't make any sense to, it feels to me awful to be in a place where I'm not excited and where I'm not contributing materially. So, for me, it feels like a breath of fresh air to be saying, 'Hey, I'm not going to be an academic anymore. I'm going to be doing what I really love to do.'"

 Corey S. Powell interviews David Dunning on how the idea of the Dunning-Krueger effect has developed since the original paper published in 2000 ("David Dunning: Overcoming Overconfidence," Open Mind, April 5, 2024. https://www.openmindmag.org/articles/david-dunning-on-expertise).

"The Dunning-Kruger result is a little complicated because it's actually many results. The one that is a meme is this idea: On any particular topic, people who are not experts lack the very expertise they need in order to know just how much expertise they lack. The Dunning-Kruger effect visits all of us sooner or later in our pockets of incompetence. They're invisible to us because to know that you don't know something, you need to know something. It's not about general stupidity. It's about each and every one of us, sooner or later. You can be incredibly intelligent in one area and completely not have expertise in another area. We all know very smart people who don't recognize deficits in their sense of humor or their social skills, or people who know a lot about art but may not know much about medicine. We each have an array of expertise, and we each have an array of places we shouldn’t be stepping into, thinking we know just as much as the experts. My philosopher friend and I call that 'epistemic trespassing,' because you’re trespassing into the area of an expert. We saw this a lot during the pandemic. . . . I think it was Vernon Law, the baseball pitcher, who said that life is the cruelest teacher because it gives you the test before it provides the lesson."

Janet Bush interviews Edward Glaeser on the topic, "What’s the future for cities in the postpandemic world?" (McKinsey Global Institute, April 17, 2024, https://www.mckinsey.com/mgi/forward-thinking/whats-the-future-for-cities-in-the-postpandemic-world). On his views of the "15-minute city," Glaeser says:

"I certainly applaud the idea that we’re going to have land-use regulations that are such that it’s easy to put residences, and workplaces, and cafés, and stores all in the same neighborhood. There are wonderful things about the 15-minute city, a vision of neighborhoods being full of lots of different amenities. It’s great. The ability for us to have access to lots of things without driving a car, that’s fantastic. But the view that we should basically see ourselves as being citizens of a sort of small neighborhood, rather than citizens of an entire metropolis, that feels deeply dangerous to me, especially in America, with its history of profound racial and income segregation. Together with Carlo Ratti and a series of other coauthors, we put together a paper looking at, essentially, mobility using cellphones and the 15-minute city. And what we find in the US is actually the more that rich people, elites, live within their 15-minute area, they actually integrate more. So in an elite setting, it's not a terrible thing. If you're coming from a poorer area, if you're an African American, the 15-minute-city experience is one that involves just much more experience segregation for them. And so if you want a city that’s integrated, you want to eschew the 15-minute city. You want to embrace a metropolis-wide vision of the city, not one that focuses on small little neighborhoods. . . . In most American cities, you get up in the morning, you leave your segregated neighborhood. You go to an integrated firm. You interact with lots of different people. And so the neighborhood doesn't matter. But it does matter for kids. Because the kids actually don't go to work in an integrated company. They go to a segregated school. They play on a segregated street corner. Understanding this feels important to me. I have new work with Cody Cook and Lindsey Currier that tries to differentially look at them, the cellphone mobility patterns of poor kids and rich kids, and just documents how much more of a life that is disconnected from the marvels of urban areas that the kids of poverty experience, even in wealthy cities."

Discussion Starters

Tim Sablik discusses "Tipping: From Scourge of Democracy to American Ritual," subtitled "Over the course of the 20th century, tipping went from rare and reviled to an almost uniquely American custom. We still like to complain about it" (Econ Focus: Federal Reserve Bank of Richmond, First/Second Quarter 2024, pp. 18-21, https://www.richmondfed.org/publications/research/econ_focus/2024/q1_q2_economic_history).

"If you feel like you're being asked to tip in more places lately, you aren't alone. According to a Pew Research Center survey released in November 2023, 72 percent of Americans agreed that tipping is now expected in more places than it was five years ago. Social media is filled with stories of customers being asked to tip for all sorts of transactions where that custom previously wasn't the norm: buying office furniture, going through the drive-thru, or even paying for lunch at a self-checkout. ... [T]the rest of the world has tended to view Americans as somewhat tip obsessed. One travel guide by Australian airline Qantas advises travelers to the United States that 'in America, tipping is optional in name only.' In many countries in Europe and Asia, tipping is either not the norm or the size of tips is much smaller. But it wasn't always this way. In America's early years, tipping was rare and faced intense opposition from many who called the practice un-American."

Steven M. Rosenthal and Livia Mucciolo ask "Who’s Left to Tax? Grappling With a Dwindling Shareholder Tax Base" (Tax Notes, April 1, 2024, https://www.taxnotes.com/featured-analysis/whos-left-tax-grappling-dwindling-shareholder-tax-base/2024/03/29/7j9cr).

"From 1965 to 2022, the share of outstanding U.S. stock held in taxable brokerage and mutual fund accounts declined from 79 percent to 27 percent . . . Foreign investors, retirement accounts, and other tax-exempt entities now dominate U.S. stock ownership. The transformation over the past 60 years in the nature of U.S. stock ownership from overwhelmingly domestic taxable accounts to overwhelmingly foreign and tax-exempt investors has many important policy implications, including how we can most effectively tax corporate profits; who is affected by changes in corporate taxation; and the form of corporate payouts to shareholders. Policymakers must continue the process, only now beginning, of grappling with the dwindling shareholder tax base."