Dear reader,

The Context is taking an indefinite break. Thank you for your support over the years – first with Brekky Wrap, then The Context – but I need to free up some of my increasingly scarce time to focus on other projects.

In the section at the end of this email I've linked to some excellent writers that I've quoted over the past several months, so be sure to follow them directly. Many have their own Substack newsletters to which you can subscribe, or you can use a free RSS reader such as Inoreader or Feedly to follow their posts.

All the best, Justin.

1—False narratives

Housing is expensive despite generations of politicians attempting to 'solve' the issue. The reason they rarely succeed is because rather than tackle the root cause, they prefer to find scapegoats and spin false narratives that "distract attention from real problems, and plausible solutions":

"To state the obvious, stories can be compelling without being true. Especially suspect are stories that scapegoat a group or an entity that is impossible or at least very difficult to defend: banks or oil companies or criminals, say. The scapegoat takes the blame for a complex problem. The trick is to cast a villain such that the surrounding facts become irrelevant.
...
The latest version of the housing-villain story targets private-equity firms and hedge funds, broadly 'institutional investors' that have supposedly been outcompeting regular homebuyers and are therefore responsible for the skyrocketing rents and home prices of 2020 and 2021. 'One of the largest hedge funds, the largest Wall Street firms in the world, is going around and buying up every single-family home in this country,' J. D. Vance argued at the start of his senatorial campaign in 2021, noting that first-time homebuyers, disproportionately Black Americans, were unable to become homeowners as a result.

I don't want to be hyperbolic, but the idea that these firms are ultimately responsible for our housing-affordability crisis is absolutely ridiculous, and no one who knows anything about housing markets believes it. Yet this story has gained so much traction that it has spawned hearings and bills on Capitol Hill."

According to Jerusalem Demsas, "politicians conflate statistics, tangling up true facts with a predetermined story". But even a cursory look at the data shows that something other than institutional investors is driving prices higher:

"When trying to determine what is responsible for this phenomenon, you have to find an explanation that is common to all of these places, not one that is particular to this market or that one. From August 2020 to August 2021, Nevada, Arizona, Utah, Montana, and Idaho, saw the most significant home-price increases, but of those states, just the first two saw relatively high rates of mega-investors, again according to CoreLogic data."

Demsas agrees that corporate landlords aren't the best – they're much more likely to evict, and "may also take advantage of mobile-home owners, who tend not to own the land beneath their unit" – which is part of what makes them easy targets. But those problems can be solved with good old fashioned regulation. To address housing affordability, you have to go further:

"A lack of supply is caused by a complex web of rules and regulations that prevent developers—profit and nonprofit alike—from building enough housing to meet demand. A recent report from Freddie Mac estimates a shortage of 3.8 million housing units. For decades the United States has been underbuilding in employment hubs (such as San Francisco, New York, and Boston) and the surrounding suburbs, pushing prices up. Elected officials have allowed the home-building process to become hijacked by unrepresentative opposition and gummed up in legal challenges, many under the guise of bogus environmental concerns."

You can read Demsas' full essay here (~9 minute read), in which he notes that one of the reasons private equity is drawn to residential housing is because of the relatively high returns created by the lack of supply. In other words, fix housing supply and the "housing-villain" corporate owners and foreign buyers will find something more lucrative (and productive) to invest in of their own accord – two birds, one stone!

2—The uncanny valley

You may have heard about tech news site CNET using ChatGPT to write a bunch of articles, only for the editors to later discover that there were errors in 41 of the 77 it authored. According to AI expert Gary Marcus, that's because as automation gets better, humans get complacent:

"Automation is a double-edged sword, and there is a kind of uncanny valley. We know perfectly well not to trust lousy systems; and wouldn't need to pay attention to truly reliable systems, but the closer they get to perfect, the easier it is for mere mortals to space out. The CNET editors probably took a quick look at the large-language model generated prose, and thought it looked good enough; 'complacency and over-trust' to their own detriment."

Marcus traces the literature on this issue back to Mackworth's Dictum, named after cognitive psychologist Norman ('Mack') Mackworth, who during World War Two:

"[M]ade a fundamental discovery that is central to how any sensible person should think about artificial intelligence: humans, he discovered, were attentionally challenged; if you gave them a repetitive task, particularly one in which most of the time they don't have to do anything, they will eventually tune out. His finding is so foundational to cognitive psychology, and especially the field of attention, that I learned about it as a teenager. Anyone who thinks about how AI is used should know about it—especially as we are about to head into an era of ubiquitous yet fallible AI."

Mackworth's Dictum is why anything but full automation – i.e., not ChatGPT given how prone it is to making errors and hallucinating, nor Elon Musk's goal for Tesla to maintain partial driver-assistance – will result in potentially catastrophic failures, because they "require humans to stay focused at all times".

You can read Marcus' full post here (~6 minute read), in which he warns us to "be on our guard... if people start to rely on immature AI".

3—The Department of Luddites

4—Practice different

How is basketball's Steph Curry so good? Natural talent, of course, but also practice. Lots and lots of practice:

"Curry uses innovative methods to improve decision making and reaction time in pressure situations. Payne [Curry's trainer] refers to this as neurocognitive efficiency and the goal is to overload or deprive his senses to be able to excel in chaotic environments. Sessions will often include strobe goggles, tennis balls, resistance bands, paddles, and sensory deprivation chambers.

To keep the workouts intense, Payne inserts conditioning and competition into each drill. He explains, 'Everything we do is against time and score. If you beat the number and you don’t beat the time, you still lose.'

One example is the Full-Court Star, outlined below, where Steph had to make at least eight of 10 shots in 55 seconds."

That's from Stephen Vafier, who points out that Curry wasn't always able to "shoot from anywhere at anytime", but developed the skill because while he was always "a good shooter", it got "blocked a lot". It's something he has been working on his whole life:

"Growing up, Steph compensated for his lack of size by perfecting his shooting motion. His mechanics are compact and efficient. This helps increase consistency and it's easier to improvise with less moving parts. He has a high release point and shoots early in his jump making the shot very difficult to block. Unlike traditional jump shooters, his minimal lift helps keep his legs fresh throughout the game.

And Curry is one of the best conditioned athletes on the planet allowing him to keep relentless pressure on the defense and eek out a few extra open shots each game. With his skillset, Steph could lean on endless pick and rolls like Trae Young. Instead he took a page out of the Reggie Miller playbook and never stops moving."

You can read the full story from Stephen Vafier's here (~5 minute read).

5—Further reading...

Economics

• Chartbook by Adam Tooze
• Conversable Economist by Timothy Taylor
• Croaking Cassandra by Michael Reddell (New Zealand focused)
• EconLog by David Henderson and Scott Sumner
• Economic Forces by Josh Hendrickson and Brian Albrecht
• Full Stack Economics by Timothy B Lee and Aden Barton
• Knowledge Problem by Lynne Kiesling
• Marginal Revolution by Tyler Cowen and Alex Tabarrok
• Noahpinion by Noah Smith
• The Grumpy Economist by John Cochrane
• The Macro Compass by Alfonso Peccatiello

History

• Experimental History by Adam Mastroianni
• The Upheaval by N.S. Lyons
• Unsupervised Learning by Razib Khan
• Wrong Side of History by Ed West

Society

• Astral Codex Ten by Scott Alexander
• Don't Worry About the Vase by Zvi Mowshowitz
• Get Down and Shruti by Shruti Rajagopalan (India focused)
• In My Tribe by Arnold Kling
• ParentData by Emily Oster
• Richard Hanania's Newsletter
• The Permanent Problem by Brink Lindsey

Technology

• Essays by Benedict Evans
• Stratechery by Ben Thompson
• The Road to AI We Can Trust by Gary Marcus
• Vitalik Buterin's website

Everything else

• Construction Physics by Brian Potter
• Erdmann Housing Tracker by Kevin Erdmann
• Just Emil Kirkegaard Things by Emil O. W. Kirkegaard
• Rob Henderson's Newsletter
• Slow Boring by Matt Yglesias
• Stream of Randomness by Philippe Lemoine

Is the bond market, which is currently pricing in rate cuts towards the end of 2023, forecasting a US recession? Not exactly:

"- Most of the confusion stems from an overly simplistic approach.
- In the average recession over the last 30 years, the Fed cut by 350 bps over an 18 months period.
- The bond market is pricing 200 bps worth of cuts between Jun-2023 and Dec-2024, so that must mean the bond market's base case (60%) is a recession."

According to Alfonso Peccatiello, that simplistic approach is misleading because it ignores "the ultimate landing point for Fed Funds and real yields; the credit market; and the tails":

"Fed Funds are priced to peak at ~5% in summer, and then 200 bps of cuts are expected. Yet, Fed Funds are never (!) priced to be below reasonable estimates of neutral rate (2.25-2.75% in nominal terms) throughout the next 2-5 years.

This would be the first time ever the US is in a recession and the Fed doesn't cut rates below neutral - it doesn't make sense, right?

Indeed, because the bond market's base case is not a recession: it's immaculate disinflation."

You can read Peccatiello's full analysis here (~5 minute read), which concludes that the probability of a US recession is more like 15-25%, not the 60% claimed by some bond market watchers.

2—Shifty shades of grey

How is Russia coping with the West's sanctions? Rather well, as it turns out:

"Russia's exports took a knock after Europe's initial salvo in December. Two months on, however, they have recovered to levels last seen in June. The volume of oil on water, which tends to climb when the market jams up, is back to normal. As expected, China and India are picking up most of the embargoed barrels. Yet there is a surprise: the volume of cargo with unknown destinations has jumped. Russian oil, once easy to track, is now being distributed through more shadowy channels."

That's from The Economist, which delved into the shadowy grey trade and found that it still has "plenty of room to grow":

"For Russia, an expansion of the grey trade has advantages. It puts more of its export machine outside of the control of Western intermediaries. And it makes pricing less transparent. Western estimates of Urals prices, based on few actual trades, are struggling to track costs. Indian customs data from November—the latest available—show the country bought oil at much lower discounts than those reported at the time, notes a former Russian oil executive. Grey-market intermediaries, which capture costs such as freight, offer a conduit for funnelling money to offshore company accounts that the Kremlin can probably influence."

You can read the full article here (~8 minute read), which notes that one side effect of the West's sanctions and growing grey trade is that it will "further split the oil trade along sharp geopolitical lines", and the growing number of ageing ships run by firms with no reputation increases the likelihood of a potentially catastrophic accident.

3—Electric vehicle subsidies

4—The mouse that roared

There is a vocal, influential minority led by the likes of Olivier Blanchard that are calling for central banks to target a higher rate of annual inflation than the current standard of ~1-3%.

It's an important topic down under, too, with the results of the review into Reserve Bank of Australia (RBA) to be released this year. There's a reasonable chance that the reviewers are a) foolish enough to suggest raising the target; and b) that Treasurer Chalmers goes along with it.

But before condemning us to repeat the errors of the 1970s/80s, it's worth remembering the lessons from the "mouse that roared" – New Zealand:

"More than 30 years ago, some relatively youthful central bank and Treasury economists in New Zealand were grappling with how to bring two decades of double-digit inflation under control in an economy less than 1% the size of its U.S. counterpart.

What if, they asked, they just told everyone the rate should be much lower - say roughly 2% - and then aim for that?

'It was a bit of a shock to everyone, I think,' said Roger Douglas, the Labour Party finance minister at the time who worked with the Treasury and Reserve Bank of New Zealand (RBNZ) to pioneer the policy. 'I just announced it was gonna be 2%, and it sort of stuck.'
...
When New Zealand became the first country to mandate inflation targeting, the upper limit was 2% and the lower one just 0%. At the time, inflation was running at 7.6% but had tracked above 10% on average between 1970 and 1990, and few people thought the target was realistic."

That's from Lucy Craymer (~4 minute read), who quotes several people involved in the process, including "Arthur Grimes, a former chief economist and senior official at the RBNZ who was seen as one of the key architects of the policy":

"Zero's the obvious sort of place to head for - it is basically saying, on average, prices in 10 years time should be roughly the same as prices now. Why would you want anything different?"

We tend to agree. Inflation is effectively taxation without representation; the lower the better!

5—Further reading...

📉 "Almost 18% of the UK's listed companies issued a profit warning — a similar proportion as during the global financial crisis in 2008."

💩 "FTX founder Sam Bankman-Fried attempted to stall bankruptcy proceedings in the U.S. in November in order to transfer assets from his crypto exchange to foreign regulators, the Justice Department alleged in a filing Monday."

🙈 It'll be trained on Xi Jinping thought: "Baidu is planning to roll out an artificial intelligence chatbot service similar to OpenAI's ChatGPT, according to a person familiar with the matter, potentially China's most prominent entry in a race touched off by the tech phenomenon."

🏡 "We show that the Great Resignation among older workers can be fully explained by increases in housing wealth."

Lots more people than usual, including the non-elderly, died during the pandemic years. That was especially true in United States, fuelling antivax sentiment as people looked for answers. But Ron Unz dug into the data for several countries and found that:

"All of these national mortality results seem very consistent with the hypothesis that the combination of Covid and obesity produces a large number of non-elderly deaths, but they show no sign of any significant number of deaths from the Covid vaccines. Furthermore, the obesity rate itself may actually be a proxy for a larger constellation of negative personal health characteristics.
...
Those arguing that the Covid vaccines are highly dangerous regularly make the point that large vaccination drives have often been followed by substantial rises in the death rate. But although this is certainly true in some cases, the above mortality charts demonstrate that it is not true in many others.

As a further example, a recent article in the Daily Sceptic discussed a sharp rise in British deaths, analyzing the possible connection to Covid booster campaigns. According to the data presented, surges in deaths were sometimes correlated with boosting, they were sometimes uncorrelated, and they were sometimes anti-correlated, so the overall relationship was hardly clear.

Moreover, I think that even if there were usually a tight association, this sort of statistical relationship might perfectly illustrate the phrase 'correlation does not imply causality'."

You can read Unz' full essay here (~17 minute read).

2—The Adani crisis

The short sellers at Hindenburg Research – named after the infamous German hydrogen blimp that descended in flames – put out a lengthy note on Friday taking aim at India's Adani Group, helmed by its namesake Gautam Adani, one of the world's richest men:

"By early Friday morning New York time, Adani's group had lost $51bn in value. This is a shocking blow to a business that is synonymous with the success story trumpeted by Delhi and the BJP leadership."

Adani's post-pandemic rise has put what one might consider frothy US companies to shame, accounting for a large part of India's recent equity outperformance:

According to Adam Tooze, the looming crisis puts Prime Minister Narendra Modi's "house of cards at risk":

"[T]he rise of Gautam Adani is deeply connected not just with rise of Indian equity market but more specifically with Modi's vision & the Gujarat connection. As the FT reported back in 2020, Adani's firms own everything from ports to coal mines.

Adani's reach extends beyond India to highly controversial mega coal projects in Australia. More recently, the Adani group has positioned itself at the forefront of India's dramatic Green energy projects.
...
At the same time as driving national infrastructure development, Adani personifies the oligarchic linkages and rentier profits generated by licensing system for infrastructure on which Modi's growth model has heavily relied."

If Adani were in fact one giant fraud, then "the financial stability of the Indian economy" is at risk:.

"Adani's growth has been driven by a cycle between rising equity values and corporate debt. Already In 2014 Gautam Adani boasted that his deals were 'immensely bankable'. And Wall Street has really begun to take a major interest since his turn to green energy.
...
Against this backdrop, the data in the Hindenburg report are both ominous and damning.

The report alleges that the stock values of the Adani Group and thus its ability to raise debt and leverage has been wildly inflated. A valuation of the group at levels more typical of the market and the sectors that it is in, would imply a spectacular devaluation."

Do read Tooze's full summary here (~9 minute read).

3—All in on the current thing™

4—Don't make air travel worse

Let's be honest, travelling the post-pandemic world hasn't been great. High prices, fewer options, delays, cancellations, and in the US, a complete failure of air traffic control. That has led some pundits to suggest "that the chickens have finally come home to roost from America’s grand experiment with airline deregulation and urging a return to kinder, gentler air travel under the guiding hand of Washington".

But following their advice would only make air travel suck even more:

"Suppose regulators appeased those who claim that flying costs too much by putting a cap on air fares. The airline industry has periods of fat profits, but those profits are notoriously fickle. And if they’re expected to stay in business in down times, airlines can’t be expected to sacrifice revenue generated when demand is high without trying to make it up elsewhere.

Note, too, that their options to make up for lost revenue would create other problems. Paying employees less would mean more of that much-evident grumpiness, not to mention employee turnover and less competence. Raising the price of checked luggage would turn cabins into hand-to-hand combat zones for overhead space. Jamming more passengers into cabins would require narrower seats with (even) less legroom and longer boarding times.

What about service reliability? Suppose policymakers force an airline that cancels a flight to immediately provide a cash reimbursement to all affected passengers – as the European Union requires in many circumstances. All airlines, not just Southwest, scratch thousands of flights every year, sometimes due to human or equipment error — but mostly because of bad weather. If airlines are forced to incur all the financial risks of delayed flights, something else must give — back to amenities and/or fares."

That's from Clifford Winston, who argues (~5 minute read) that economists are still right about airline deregulation, and that to improve air travel a better place for regulators to start would be to remove their limits on competition: imagine having Singapore Airlines flying between Perth and Sydney, rather than just the duopoly of Qantas and Virgin?

5—Further reading...

🙌 "The Fifth Circuit Court of Appeals has granted an injunction allowing PredictIt to continue operating while the Court considers granting longer term relief."

👨‍🔬 "A new video from Project Veritas surfaced online and quickly gained traction, garnering over 7 million views on Twitter in the first 10 hours of its upload. The video shows a Pfizer executive, Jordon Trishton Walker, claiming that his company is exploring a way to “mutate” the virus causing COVID-19 through 'Directed Evolution'."

📉 "By the end of next year, the average British family will be less well off than the average Slovenian one... by the end of this decade, the average British family will have a lower standard of living than the average Polish one."

At the peak of his fraud, former crypto billionaire Sam Bankman-Fried (SBF) was referred to as a "wunderkind". But at the time of his arrest he was "a grown-ass, 30-year-old man":

"He is twelve years older than many of the men and women we sent to Iraq and Afghanistan. Twelve years older than the adults we encourage to swallow hundreds of thousands of dollars in college debt before even declaring a major."

Katherine Boyle recently argued that the mischaracterisation of SBF is but a symptom of the times:

"The tens of millions of Americans that are, like me, millennials or members of the generation just younger, Gen Z, have been treated as hapless children our entire lives. We have been coded as 'young' in business, in politics, and in culture. All of which is why we shouldn't be surprised that millennials are the most childless and least home-owning generation in modern American history. One can't play house with a spouse or have their own children when they've moved back into mom's, as 17 percent of millennials have.

Aside from the technology sector—which prizes outliers, disagreeableness, creativity and encourages people in their twenties to take on the founder title and to build things that they own—most other sectors of American life are geriatric.

The question is why."

You can read more from Boyle here (~6 minute read), which covers the various theories going around and what the "Boomer ascendancy" and "tri-polar geopolitical order led by septuagenarians and octogenarians" might mean for the future.

2—Wokery vs blokery

Jeremy Clarkson is set to be cancelled by Amazon after penning a rather crude post criticising Harry and Meghan. But is the demise of Clarkson an aberration, or does it signal the demise of the "English male id":

"He is, like it or not, quite a lot of us writ ludicrously, satirically large. Like a 21st-century John Bull: to paraphrase Auden, a self-confident, swaggering bully of meaty neck and clumsy jest. Whatever Clarkson's professional fate, the question of whether our society can tolerate him has implications for the stomach and sensibility of the national character, of which he is a significant avatar and champion. And his rise and fall reads as a history of a changing English firmament, one in which public morality has come to supersede mere entertainment."

That's from Nicholas Harris, who tracked Clarkson's rise in "an England of quick, coarse wit, and quicker, coarser money; of the triumphant red-top, and the unrepentant 'lad'," to his downfall in a world where his "nose and instinct for provocation... [gets him] blown into the no man's land of an interminable culture war".

You can read Harris' full essay here (~6 minute read).

3—Rome wasn't built in a day

4—Japan has changed a lot

If you were asked which East Asian country had the lowest fertility rate, you might be tempted to say Japan. But it actually has the highest rate, above Hong Kong, Macau, Taiwan, China and South Korea. It's just one of the many changes Japan has accomplished over the past couple of decades:

"The city [Tokyo] is actually much more beautifully manicured than when I first saw it two decades ago. Grungy 'shitamachi' areas have been modernized, many dowdy old 'Showa' style apartment buildings have been replaced with modern construction, sculptures and decorations have been added everywhere.

Meanwhile, the glittering signs and soaring towers that we associate with urban Japan have only multiplied. If you're impressed by big buildings, for example, it's impossible to miss the vast, towering structures that the Mori Building Company is putting up all over the city. The biggest one, shown in the photo at the top of this post, is due to open this year. But it's not just big towers getting built. Shopping centres, bars, clubs, and glittering zakkyo buildings (the ones with all the signs) continue to multiply. How could you live in Tokyo for a decade and miss all that?

In fact, Japan's fervour for constant scrap-and-build construction is a major reason why rent there is so affordable, and why local politics haven't halted dense development as they have in the West."

According to Noah Smith, while some Japanese problems have not gone away – such as "corporate ossification, technological slowness, etc" – Japan "has done better in terms of housing policy, construction, landscaping and urbanism than just about any country in the West".

You can read Smith's full post here (~8 minute read).

5—Further reading...

🙅‍♂️ "North Korean authorities have ordered a five-day lockdown in the capital, Pyongyang, amid an increase in unspecified respiratory illnesses."

🥝 The NYT on Jacinda Ardern: "Mario Cuomo said that we campaign in poetry and govern in prose. Ms. Ardern gave us the poetry, showing that elections can be won with progressive values and a promise to leave no child behind. But you've got to deliver. Rising crime, inflation and stubborn inequality matter more to New Zealand voters than global star power."

🙊 Elon Musk, free speech absolutist: "Twitter and YouTube censored a report critical of Indian Prime Minister Narendra Modi in coordination with the government of India. Officials called for the Big Tech companies to take action against a BBC documentary exploring Modi’s role in a genocidal 2002 massacre in the Indian state of Gujarat."

☢️ "The US Nuclear Regulatory Commission recently announced its approval of the designs for a first-of-its-kind small modular reactor (SMR). This could signal a potential shift in the development and integration of next generation power plants in the US."

🕵️‍♀️ "Research-integrity sleuths have uncovered hundreds of online advertisements that offer the chance to buy authorship on research papers to be published in reputable journals. Publishers are investigating the claims, and have retracted dozens of articles over suspicions that people have paid to be named as authors, despite not participating in the research."

The US has entered yet another debt ceiling crisis. Despite what's often reported in the media, this is a recurring political – not economic – crisis. Treasury is threatening default in an attempt to persuade Congress to raise the arbitrary debt limit, which it's rapidly approaching. Not because there's a legal requirement for it to pay for things like social security before the principal and interest on its debt, but because the government doesn't want to cut any spending (see: Washington Monument Syndrome).

Whenever the debt ceiling approaches, so too does the call for it to mint a platinum coin. While "Treasury is prohibited from simply printing money to pay the government's bills",  it can still mint coins thanks to "a legislative drafting error", so just... mint one trillion-dollar coin, problem solved, right? Not quite:

"The coin strategy depends on the Fed agreeing to accept the coin for deposit. Back in 2013, when the Obama administration was seeking to squash talk about the coin — they thought it undermined their ultimately successful efforts to get Congress to agree to raise the debt limit — a Treasury spokesperson told the Washington Post that the Fed had told them it would be unwilling to accept the coin. The Fed, they said, did not believe the coin's issuance would be legal."

That's from Josh Barro, who thinks that even if it were legal to force the Fed to accept the coin at the 11th hour, it would spook financial markets to such an extent that it's no better than any of the alternatives. As for the economic consequences:

"...the Fed's ability to manage inflation could be severely impaired by taking on the fiscal responsibilities required by the coin approach. In 2013, this was somewhat less of a worry because inflation was, if anything, too low. Right now, the Fed's efforts to tame inflation without putting the economy into a recession are the most important part of the federal government's economic policy, and undermining its resources there — both political resources and operational ones — would be a big mistake.

Finally, it's important to note these challenges would increase the government's cost to borrow through several channels: interest costs would rise due to greater uncertainty over future inflation; interest costs would rise if the Fed had to raise rates in order to address inflation fears; and interest costs would rise to the extent the process fails to allay concerns about potential future debt defaults."

You can read Barro's full essay here (~9 minute read).

2—Your new virtual assistant

The latest in artificial intelligence – ChatGPT and other large language models – may not be anywhere close to what we might consider artificial general intelligence, but they do make good personal assistants. Earlier this month Mark McNeilly listed a few ways he's using it to improve his workflow:

General Office Tasks, such as drafting emails, and laying out slide presentation, spreadsheets and processes.

Writing Tasks, such as outlining and drafting an article or composing poetry.

Learning by asking questions to get facts or gain insights.

Teaching by developing a syllabus, learning outcomes or test questions and more.

Advice, both on how to do things all the way up to offering therapy.

Brainstorming all kinds of things, like generating lists of names for organizations and products or ideas for blogs.

Check out McNeilly's full post here (~4 minute read), in which he provides plenty of example uses that can "give you a quantum leap of productivity, creativity and learning". But be sure to check its work – ChatGPT is often confidently wrong.

3—Now that's inflation!

4—Integrating AI

Many educators have kicked up a stink about the emergence of ChatGPT – New York City's education department went as far as banning it entirely (good luck with that). But the correct approach is to embrace our new AI personal assistants:

"All of my students have tremendous skills (seriously, one of the best parts of teaching is being amazed by the people you have in class), but not all of my students are good writers. Some may have recently arrived in the country and know English as a second (or third, or fourth) language, or never had an education that emphasized writing, or are simply not particularly talented in this particular way.

But being a bad writer is a problem. Often, people who write badly are penalized, including in academia. Many people get around this in elaborate and risky ways. They may do it by hiring editors, or they may cross the line into plagiarism and cheating by paying people to write essays for them (this is very widespread: 20,000 people in Kenya alone make a living writing essays).

ChatGPT levels the playing field. Everyone can now produce credible writing."

That's from Ethan Mollick, who teaches "three classes to undergraduates and MBAs". While ChatGPT won't be for everyone – it "is a problem for writing classes (which will likely have to return to blue books and longhand essays)" – for most educators, the benefits far outweigh the costs:

"When students hear you explain and discuss a concept, they often feel that they understand what you mean, but that feeling isn't always accurate. One powerful way to turn concepts from theory into practice is to teach someone else, to evaluate their work, and to give concrete and timely advice about how to improve. As any teacher knows, the act of assessing and evaluating someone else’s work and teaching someone else improves our own knowledge of a topic.

By acting as a 'student,' the AI can provide essays about a topic for students to critique and improve. The goal of this exercise is to have the AI produce an essay based on a prompt and then to 'work with the student' as they steadily improve the essay, by adding new information, clarifying points, adding insight and analysis, and providing evidence. It takes advantage of the AI's proneness to simplify complex topics and its lack of insightful analysis as a backdrop for the student to provide evidence of understanding."

You can read Mollick's full post here (~5 minute read).

5—Further reading...

🐟 James Cameron's Avatar: The Way of Water has become the sixth movie ever to cross the $2B mark worldwide.

☢️ So, free ride on other countries. Bill Gates said that because of the "political challenge... Australia should watch over the next 15 years and see what the progress is on nuclear fission and fusion."

👴 Japan's Prime Minister Fumio Kishida said due to an aging population: "Our nation is on the cusp of whether it can maintain its societal functions. It is now or never when it comes to policies regarding births and child-rearing - it is an issue that simply cannot wait any longer."

The world's populating is getting older:

"If countries are smart, they'll replenish their young populations with immigration. But even domestic political reluctance can be overcome, immigration is only a temporary stopgap; fertility is already fairly low everywhere except Africa, where it's falling at an accelerating pace. In 1990 the average African woman was expected to have 6 children in her lifetime; today that’s down to 4, and the drop is accelerating.

In other words, it's not just China. Every single country on Earth is either having to deal with population aging, or soon will have to deal with it."

But how big of a problem is it, really? That's the question recently posed by Noah Smith, who went through various viewpoints starting with the 'no big deal' argument:

"There's a school of thought that says aging is no biggie — population decline may reduce total GDP, but per capita GDP could stay the same, since the denominator will be shrinking as well. Yes, there will be more retirees, but we'll just replace their labour with robots. And of course, having fewer human beings allows us to grow living standards more without destroying the natural world and putting strains on scarce resources."

While it's true that worsening demographics "aren't the death knell for a civilization", there's a lot of evidence "that they exert a persistent drag on a country's economic prospects", through:

1. A higher dependency ratio, "when the number of old people increases and the number of workers shrinks, the size of the burden each worker carries on their shoulders goes up".
2. "Having companies dominated by elderly managers and executives could decrease industry's ability to respond to new market trends and technologies — instead they might simply do things the way they used to, rule their comfy little empires, and let new opportunities drift by."
3. Macroeconomic effects – "what company wants to invest in a country that's going to have fewer and fewer customers each year?"

You can read Smith's full essay here (~8 minute read), which looks at the literature and concludes that "The problem of aging isn't dire, but it is relentless, and it remains unsolved."

2—How woke is ChatGPT?

David Rozado put our new AI assistant to the test:

"On December 6th I published a preliminary analysis showing a left-leaning political bias embedded in the first release of ChatGPT from November 30.

After the December 15th update of ChatGPT, I replicated my analysis and it appeared as if the political bias had been partially mitigated and the system often strived to provide a multitude of viewpoints for questions with political connotations.

After the January 9th update of ChatGPT, I replicated and extended my original analysis by administering 15 political orientation tests to ChatGPT. The moderation of political bias is no longer apparent. 14 out of 15 different political orientation tests diagnose ChatGPT answers to their questions as exhibiting a clear preference to provide left-leaning viewpoints."

What's interesting is that ChatGPT's political leanings have changed over time, likely due to human intervention. Is that a margin on which machine learning tools will compete (social media is somewhat fragmented on that margin)? Or will the most efficient, politically neutral version become dominant, as was the case with search engines?

You can read Rozado's full post with all of his results here (~3 minute read).

3—Epic growth

4—Should you nap?

At least 30% of adults take regular naps. But should we? Emily Oster recently dug into the napping research:

"There is substantial evidence that even short naps improve attention and cognitive performance... Notably, napping seems beneficial both for people who sleep enough and those who do not. So you might benefit from napping even if you are not sleep-deprived."

But the duration of the nap matters. A longer nap is more effective, but at the cost of a short-term decline in cognitive function:

After going through various studies, Oster concluded that if you're going to nap, do it in the mid-afternoon, keep it short – 15 minutes – and drink a coffee about 30 minutes before the nap (so you're ready to go when you wake up). But be aware that depending on what you do for work, napping does reduce overall productivity – it's very hard to make up for the lost time!

You can read Oster's full analysis here (~5 minute read).

5—Further reading...

👷‍♀️ "The [US] 2022 unionization rate (10.1 percent) is the lowest on record. In 1983, the first year where comparable union data are available, the union membership rate was 20.1 percent."

🤖 In response to schools reporting rising "AI plagiarism", Sam Altman, the CEO of OpenAI (which develops ChatGPT), said "Generative text is something we all need to adapt to. We adapted to calculators and changed what we tested for in math class, I imagine. This is a more extreme version of that, no doubt, but also the benefits of it are more extreme, as well."

😬 Kuroda's legacy: "If Japanese bond yields were to rise by just 0.25 percentage points, the [Bank of Japan's] total holdings as of January 10th would slump in value by around ¥7.5trn, or 1.4% of GDP."

Dogecoin, 'Buy Now, Pay Later', meme stocks. All junk, and all with one thing in common – that they were "a manifestation of a magical thinking":

"For these purposes, magical thinking is the assumption that favored conditions will continue on forever without regard for history. It is the minimizing of constraints and trade-offs in favor of techno-utopianism and the exclusive emphasis on positive outcomes and novelty. It is the conflation of virtue with commerce.

Where did this ideology come from? An exceptional period of low interest rates and excess liquidity provided the fertile soil for fantastical dreams to flourish. Pervasive consumer-facing technology allowed individuals to believe that the latest platform company or arrogant tech entrepreneur could change everything. Anger after the 2008 global financial crisis created a receptivity to radical economic solutions, and disappointment with traditional politics displaced social ambitions onto the world of commerce. The hothouse of Covid's peaks turbocharged all these impulses as we sat bored in front of screens, fuelled by seemingly free money."

That's from Harvard's Mihir Desai, who has observed an entire generation brought up on "over-promising the scope of change created by technology and the possibilities of business and finance", rather than "solving problems in new ways that sustainably deliver value to employees, capital providers and customers".

A consequence may be that they "nurse a grudge against capitalism, rather than understand the perverse world they were born into". But Desai ends with hope:

"Hopefully, a revitalization of that great American tradition of pragmatism will follow. Speculative assets without any economic function should be worth nothing. Existing institutions, flawed as they are, should be improved upon rather than being displaced. Risk and return are inevitably linked."

You can read Desai's full opinion piece here (~5 minute read).

2—Is there no escape?

Brink Lindsey conducted a thought experiment where despite "the concerted efforts of governments around the world to encourage couples to have more kids", birth rates continue to fall until "By the end of the 21st century... [the] world population has already been shrinking for decades":

"If a worker-hour of innovative activity yields less and less progress over time, and the total number of worker-hours is flat or declining, how can progress escape this squeeze?
...
I can see a couple of deus ex machina possibilities. The first is the development of anti-aging therapies that considerably extend the human life span. Widespread use of these therapies would reduce death rates, perhaps to the point that they fell below birth rates and the population started growing again. Furthermore, if people were living dramatically longer lives — let's say the prime-age working years, once 25-54, expanded to 25-84 or 25-114 (that is, they doubled or tripled) — the twenty-something years devoted to raising kids would now constitute a much smaller fraction of people's working lives. With this considerable drop in the relative cost of having children, we might expect a corresponding rise in the demand for kids and thus the fertility rate."

Lindsey goes through a few other ideas, before "entering the murky domain of population ethics", concluding that the answer to what's the right number of humans "in principle at least, is clear: the more, the merrier":

"With effectively limitless territory to spread out in and resources to use and consume, there's no necessary upper limit on the number of people capable of living full and fulfilling lives. But if the question is 'what's the right total number of people on this one planet?', things get much more complicated."

You can read Lindsey's full essay here (~12 minute read), in which he discusses everything from automation and artificial intelligence to finding the "missing Einsteins", concluding that we don't have to take the "the path of least resistance [that] leads to stagnation".

3—Suicidology

4—Concentrated benefits, dispersed costs

A relatively new paper titled The redistributive politics of monetary policy, by Louis Rouanet and Peter Hazlett, examined three past monetary policy events in an attempt to determine just how independent – i.e., protected from private and political influences – central banks really are. The three periods examined were:

1. the 2007 financial crisis;
2. the Fed's reaction to the COVID crisis; and
3. the establishment and development of the euro.

According to the authors:

"When there are large benefits to being the first receiver, well-organized interest groups will form to capture those benefits. Additionally, when costs are dispersed and losers are unaware of the costs, they are less likely to advocate against the monetary policy. This seems to be the case for the Federal Reserve's policy after the 2007 financial crisis and during the current COVID crisis. However, when losers can identify the costs and others who are also losing, they will lobby for more beneficial policies, as evident from the ECB."

You can read the full paper here (~40 minute read), which predicts that the recent bout of inflation and inevitable central bank reforms might cause the influence of "key private interest groups such as the banking industry", to decline in favour of "the Treasury and its political overlords".

A change in influence from bankers to politicians would mean that future "inflation is more likely", as "the returns to seeking aid from the Fed increase".

5—Further reading...

🏗️ The Rise of Steel, Part 2.

💉 COVID-19 vaccines and sudden deaths: Separating fact from fiction.

❌ New Zealand's Prime Minister Jacinda Ardern resigned and called an election for October amidst unfavourable polling and record-low consumer confidence.

🤭 Tesla faked its 2016 self-driving demo "that essentially kicked off the entire industry-wide spending spree".

🤖 "OpenAI Used Kenyan Workers on Less Than $2 Per Hour to Make ChatGPT Less Toxic"

⌨️ Tech media site CNET "has been forced to issue multiple, major corrections" to posts created via ChatGPT, despite the articles supposedly being "reviewed, fact-checked and edited by real, human staff".

Last year the conservative Australian Liberal Party lost control of the federal government, its first defeat in nearly a decade. It's increasingly likely that the UK's Conservative Party (Tories) will suffer the same fate, having been in power for nearly fifteen years by the time the next election takes place (no later than 24 January 2025).

But is an election defeat after such a long period of time in power necessarily a bad thing? It could be viewed as a chance "look inward, to focus on itself, to shake off the stasis and emerge renewed and revitalised".

John Oxley argues that's often not the case:

"Politics is a game of possession. If you don't control power, there is little you can do. Opposition is a miserable, pointless place. All oppositions can do is wait, sustaining themselves on whatever parliamentary concessions they might inflict as they watch their opponents govern. Only when the government has fumbled sufficiently to grant them an electoral opening can they become reanimated.

During that time, your opponents get to change the country broadly as they wish. Every day that the opposition has a majority is a day that their policies become practice and yours do not. As time passes by, these become more entrenched, a greater part of the status quo, the sediment of government building up upon them. By the time you are in power, these become harder and harder to undo.
...
When political parties crash out of power, their recovery depends on a clear-sighted understanding of why they have failed and a determination to correct it. Neither is guaranteed. If taking place in opposition, the next leadership election will be among the ruins of Tory success. Those left to endorse and shortlist candidates will be from the very safest seats, the low watermarks of Tory success. There is just as much chance of them myopically ignoring the median voter as there is of intensive renewal."

You can read Oxley's full essay here (~7 minute read), which is littered with warnings for Australia's Liberal Party, including that unless "the party is ready to embrace why it is failing and find the fixes... it is no longer fit to govern".

2—The success sequence

Is intelligence important for success in life? Yes, but it's not the only thing that matters:

"If you live in a developed country, studies indicate that there is a simple and highly effective formula for avoiding poverty:

1. Finish high school.
2. Get a full-time job once you finish school.
3. Get married before you have children.

This has come to be known as 'the success sequence.' Ninety-seven percent of people who follow these steps do not live in poverty. In contrast, seventy-six percent of those who do not adhere to any of these steps are poor.

Meeting these steps does not require a big brain. It doesn't require high intelligence or academic achievement."

That's from Rob Henderson, who concedes that while "Life is undeniably harder for the less talented", social norms "can help guide and channel ordinary people into the constructive social roles of work and marriage":

"Norms, and the associated feelings for upholding them (pride, enhanced self-esteem, gratification, etc.) and the feelings for failing to meet them (guilt, shame, anxiety, etc.) are far stronger motivators of behaviour than mere knowledge."

You can read Henderson's full essay here (~14 minute read).

3—Picking pennies in front of bulldozers

4—Don't feed the trolls

Next time you feel like tweeting a response to someone obviously wrong, remember that social media has changed the dynamic of debate and that 'losing' can easily result in 'winning':

"In the real world, if you make a verbal attack and the other person comes back with a devastating riposte, you lose. You are humiliated and slink off home. But that's not how social media works, at least not for figures like Tate. The fact that Greta's putdown was so funny was not a bad thing from Tate's point of view. It was great! It made the beef an even bigger story. Had he not been hauled away by Romanian cops at that point, I'm sure he would still be spinning out videos from it. A second, related defence, was that Greta was doing something politically necessary by 'calling out' Tate's misogyny and climate neanderthalism. But there is nothing to be gained by calling out Andrew Tate. The people attracted to him revel in being disapproved of by people like Thunberg."

Ian Leslie reckons that "hostile conflicts [on social media] are often mutually beneficial collaborations in disguise". But abstaining can be hard:

"The bitter truth is that there are no incentives to abstain from the game. You don't get any likes or retweets for the posts you don't make. You receive no external validation for silence. I fantasise about a system in which people, under certain circumstances, are somehow rewarded with status points for not engaging. In lieu of that, we should try and remember that quite often, the best contribution we can make to a debate is to not say anything, even if nobody will notice us (not) doing so."

You can read Leslie's full essay here (~10 minute read), in which he notes that even silent partners in a social conflict can benefit, such as the Royal Family gaining – in the long run – "from the Meghan-and-Harry circus just as much if not more than Meghan and Harry do".

5—Further reading...

👩‍🏫 It's fairly obvious if you just read the assignments: "Anti-cheating software used in NSW schools cannot detect if students have used artificial intelligence programs to write their assignments for them."

🤖 "CPR's analysis of several major underground hacking communities shows that there are already first instances of cybercriminals using OpenAI to develop malicious tools... [and] many cybercriminals using OpenAI have no development skills at all."

❌ "Amazon has reportedly cut ties with Jeremy Clarkson... [after] the former Top Gear host published a controversial column in The Sun, writing that he despised Meghan on 'a cellular level' and dreamt of the duchess being paraded naked through Britain while a crowd threw 'excrement' at her."

📉 According to official data, in 2022 China's population declined for the first time since the early 1960s. New births were down 22% in 2020 and 13% in 2021.

Prince Harry's tell-all memoir – "Spare" – was released last week. If you missed the myriad articles that flooded our news feed, the TL;DR is that Harry was treated as a second class citizen in the House of Windsor:

"I was the shadow, the support, the Plan B. I was brought into the world in case something happened to Willy. I understood my role as a diversion and a distraction from my brother. Or to provide, if necessary, a spare part to him. Kidney, perhaps. Blood transfusion. Speck of bone marrow."

Poor guy. But he does raise an interesting question – namely, "the problem of royal brothers falling out". Ed West points out that Harry's life is far better than it would have been were he a "spare" in the former Ottoman Empire:

"When the old sultan died the strongest of his sons would simply take the throne, and then have the head gardener strangle all his half-brothers with a silken cord, with their bodies thrown off a cliff.

If this seems a bit cruel, the Ottomans feared the alternative — endless strife caused by excess brothers, who invariably rose in rebellion or went to foreign courts to become rallying points for discontent."

Genetics is a roll of the dice, and that's an issue for monarchies. West notes that Prince Philip (Harry's grandfather) was a highly intelligent man, while "Harry, in contrast, is described as not being 'the family scholar'."

"He grew up surrounded by inhuman press intrusion, family conflict and grief. And, like so many could-have-been kings or sultans, he has become a destabilising force for the ruling dynasty, a perhaps unwitting vector for the family's enemies — even while helping his mother's real tormentors, the press, who now follow his story around like crows eyeing a line of men going into battle."

Do read the full essay by West here (~9 minute read), which includes plenty more on the history of conflict within royal families and how Meghan and Harry compare.

2—AI and the tower of capabilities

"ChatGPT is a remarkable achievement in automating the doing of major human-like things", but that doesn't make it suitable to all tasks. According to Wolfram|Alpha:

"[O]ne of the great achievements of our civilization over the past several centuries has been to build up the paradigms of mathematics, the exact sciences—and, most importantly, now computation—and to create a tower of capabilities quite different from what pure human-like thinking can achieve."

For those out of the loop, Wolfram|Alpha is a competitor of ChatGPT in that it "answers factual queries by computing answers from externally sourced data", curated by humans. By contrast, ChatGPT:

"[I]s a system for generating linguistic output that 'follows the pattern' of what's out there on the web and in books and other materials that have been used in its training. And what's remarkable is how human-like the output is, not just at a small scale, but across whole essays. It has coherent things to say, that pull in concepts it's learned, quite often in interesting and unexpected ways. What it produces is always 'statistically plausible', at least at a linguistic level. But—impressive as that ends up being—it certainly doesn't mean that all the facts and computations it confidently trots out are necessarily correct."

ChatGPT is especially poor at answering math-related questions because it doesn't understand it, providing users with very plausible answers that happen to be very wrong.

There are lots of interesting examples in the full post (~12 minute read), although the solution provided (connecting ChatGPT to Wolfram|Alpha) won't actually solve any of the problems inherent to large language models.

3—Energy lessons from blueberries

4—Systematically overexposed

Rumours are swirling that the Chinese government plans to revive the local property market, a sector that has had a rough time from regulators ever since Xi Jinping said that "houses are for living in, not for speculation".

But according to Michael Pettis, "this may be harder than policymakers think":

"It wasn't an accident, or the result of misguided policy implementation, that the property sector contraction has been so painful. It was the consequence of how large parts of the Chinese economy had become systematically overexposed to the sector.

This was inevitable when economic agents – including developers, businesses, banks, households and local governments – had been encouraged over decades into directly and indirectly reinforcing the overextension of the sector. It is precisely why the eventual adjustment was always going to be far more difficult than regulators expected."

You can read Pettis' full essay here (~4 minute read), in which he warns that the adjustment will be painful because the banks, local governments, households and developers who bet on property over the past four decades did extremely well, causing an economic shift "in ways that become increasingly speculative and dependent on rising real estate prices".

5—Further reading...

🤖 "The worst thing about ChatGPT's close-but-no-cigar answer is not that it's wrong. It's that it seems so convincing. So convincing that it didn't even occur to the Tweeter to doubt it."

💸 Bigger deficits for years to come (the RBA also made this mistake): "The Fed's remittances would have exceeded $100 billion per year throughout the coming decade if QE4 had not been conducted."

👩‍⚖️ "If the highest court in India can double as a moot court, debating a policy that invalidated 86% of the currency in circulation through a surprise telecast without any constitutional remedy, it will surely repeat it for lesser cases."

🏴‍☠ "[T]he more I've seen SBF try to make his case, the less sympathetic I've gotten. Because the fundamental question is pretty simple: Did he allow Alameda to borrow billions of dollars from FTX without customer consent? At this point, almost everyone thinks the answer is 'yes.' And while he's been far more talkative than most criminal defendants, he hasn't offered anyone a good reason to change their minds."

Where Is My Flying Car? That's the title of a somewhat recent book (2021) by J. Storrs Hall, in which he lamented the fact that energy use in rich countries plateaued around 1970, and "the marvels we missed" because of it. In a review of the book, the NYT's Ezra Klein summarised Hall's main point:

"We've flown plenty of flying car prototypes over the decades. The water crises of the future could be solved by mass desalination. Supersonic air travel is a solved technological problem. Lunar bases lie well within the boundaries of possibility. The path that Richard Feynman, a Nobel Prize-winning physicist, outlined for nanotechnology — build machines that are capable of building smaller machines that are capable of building smaller machines that are capable of, well, you get it — still seems plausible. What we need is energy — much, much more of it. But Hall thinks we've become an 'ergophobic' society, which he defines as a society gripped by 'the almost inexplicable belief that there is something wrong with using energy'."

After listing a number of gripes with the book, Klein agrees with "two big things":

"First, that the flattening of the energy curve was a moment of civilizational import and one worth revisiting. And second, that many in politics have abandoned any real vision of the long future... We've lost sight of the world that abundant, clean energy could make possible."

You can read Klein's full review here (~10 minute read), in which he urges "progressives... to hasten into existence" a world where abundant energy would "make new miracles possible".

Alternatively, buy or view a PDF summary of Hall's book itself via Stripe here.

2—Controls on growth

In 1961, New York City implemented zoning laws that "capped the amount of floor space that could be built per square foot of land". It also imposed parking requirements and "various other technical changes that restricted the volume and variety of affordable housing":

"To this day, even after incremental reforms under the Bloomberg and de Blasio administrations in New York City, significant net housing growth remains impossible. At least 40 percent of Manhattan would be illegal to rebuild merely as densely as in its current form — let alone more.

Rapid suburban growth kept the city cheap amid an exodus of residents from 1960 to 1980. This suburban growth accommodated regional housing demand until single-family suburbs reached the (very limited) density allowed by suburban zoning.

Since population growth within the city resumed in the 1980s, policymakers have been playing catch-up with the housing supply. But measured by the yardsticks of housing costs, homelessness, and the flight of families with children from the city, we are losing."

According to Alex Armlovich, New York City would grow faster than any other area in the US – other than California – if it removed its controls on growth. Persistent homelessness and housing shortages, despite population loss, are a choice:

"People are still paying top dollar to move to New York City and similarly pricey, high-wage cities, but it remains effectively illegal to move there without first buying out an existing homeowner or evicting an existing renter. It is not a crisis of abandonment — it is a crisis of elite complacency, privilege, and exclusion."

You can read Armlovich's full essay here (~5 minute read), which has ideas for "much bolder citywide reform... [that are] fully within the mayor, council, and governor's combined powers".

3—The warnings were everywhere

4—Europe's astonishing luck

Blackouts. Industrial shutdowns. The war in Ukraine and subsequent energy crisis led to dire predictions for Europe as winter approached. But due to some astonishing luck, Europe has emerged relatively unscathed:

"A warm autumn postponed the heating season, allowing gas-storage facilities to be filled to the brim. The present warmth has enabled them to be topped up again (see chart)—a startling turn in the middle of winter. All told, Europe has sucked out half as much gas from storage facilities as at this point in the past two winters. And forecasts suggest a mild end to winter.

The good weather is not the only reason for cheer. Gas supply is growing as new liquefied-natural-gas terminals begin work. A wet autumn and windy winter have helped propel hydro and wind generators. French nuclear plants, turned off for maintenance, are slowly returning to the grid... Power prices in Europe have fallen back to levels last seen before the summer."

That's from the Economist (~2 minute read), which cautions against complacency as energy prices remain elevated, Asian demand for gas is increasing as China reopens, and Europe is still short of what it will need for a bad winter next year.

5—Further reading...

✈️ More than 9,500 flights were delayed and over 1,300 were cancelled across the United States due to "a Federal Aviation Administration system outage".

💱 "China needs to spend more on its people if it wants its people to spend more. But none of these changes can be accomplished in the near term, suggesting that increased consumption—and its contribution to China's economic recovery—will be modest."

👨‍🍳 "A crisis of the chef as artist" – The world's best restaurant, Noma, is closing down because of the enormous amount of labour required by chef René Redzepi and his staff to produce an innovative "menu of only hyperlocal Nordic ingredients".

👨‍👩‍👧‍👦 "India is expected to surpass China and become the world's most populous nation within the next three months, according to a recent report by the United Nations' population division, marking a seismic shift on the global stage in a trend with significant social and economic impact for both countries."

The world's population will soon begin to decline due to plunging fertility rates. But why is that the case when stated fertility preferences – which "are extremely strong predictors of actual fertility behaviours, stronger than covariates like religion, education, race, income, or any other socioeconomic or cultural variable... have not declined much"?

According to Lyman Stone, by only focusing the demographic decline many policymakers may be missing the "the 'tragedies' under the 'statistics'":

"Whatever role economic and technological shocks may have had, they have not led people in most countries to report desiring fewer children. Actual fertility has fallen even as desired fertility has not in most of the high-income countries of the world. Thus, as with marriage, the likeliest story on falling fertility in the last two decades is not one of people simply freely choosing not to have so many children. Rather, fertility has most plausibly fallen because of economic 'failure to launch' among young people, long delays in career stability, excessive housing costs, exploding childcare costs, rising student debts, and other adverse circumstances, not least the oppressive panopticon of social media which makes prisoners of us all."

You can read Stone's full essay here (~14 minute read), which suggests looking beyond the statistics and focusing more on rectifying the causes of the decline in fertility, such as reducing drug and alcohol use and the resulting 'deaths of despair'; helping people achieve stability earlier in life; and improving housing affordability through liberalised zoning policies.

2—AI - bull or bear?

ChatGPT launched in November 2022 and has taken the world by storm. But will it – and its inevitable successors – be "civilisation-altering", or "pure hot air" like Web3 (blockchain), relegated to the fringes of society once the novelty wears off?

That's the question recently posed by Google's François Chollet, who provided a bull and bear case for large language models (LLMs) like ChatGPT:

"The bull case is that generative AI becomes a widespread UX paradigm for interacting with most tech products (note: this has nothing to do with AGI [artificial general intelligence], which is a pipe dream). Near-future iterations of current AI models become our interface to the world's information.

The bear case is the continuation of the GPT-3 trajectory, which is that LLMs only find limited commercial success in SEO, marketing, and copywriting niches, while image generation (much more successful) peaks as a XB/y industry circa 2024. LLMs will have been a complete bubble."

You can read Chollet's full twitter thread here (~4 minute read), which concludes that LLMs will keep getting better but will most likely be confined to "consumer products, and perhaps even in education and search".

3—How to slow down scientific progress

4—The honeypot effect

If a government restricts immigration, it raises the wages of the local working class by reducing the supply of unskilled labour. But even ignoring the possibility of capital/labour substitution, Dean Hoi found that in the long run doing so actually hurts local workers:

"The Chinese Exclusion Act [1882] had a significant, negative long-term effect on American workers. My estimate is that workers in locations exposed to the Act earned on average 6-15% less over their working lives than their counterparts in other locations.

The negative effects were strongest for low-skilled and unemployed workers.

The exclusion of Chinese immigrants not only failed to improve conditions for working-class Americans, but made them substantially worse off in the long run."

But why? According to Hoi, the negative outcomes were due to the 'honeypot effect':

"A closer look suggests the Chinese Exclusion Act was initially successful in boosting low-skilled wages and the employment of Americans in low-skilled jobs in the regions it had an effect.

This created a 'honeypot' – American workers in those locations increasingly took and remained in low-skilled jobs. They became significantly less likely to become educated, meaning they fell behind their counterparts in other locations on the occupational ladder."

You can read Hoi's full summary here (~4 minute read), in which he concludes that the higher wages caused by the Act incentivised many workers to stop progressing up the career occupation ladder, reducing their lifetime earnings.

5—Further reading...

👮‍♀️ 1,500 supporters of former President Jair Bolsonaro have been detained in Brazil "after the Congress building, presidential palace and Supreme Court were ransacked on Sunday".

🐦 But still up nearly 300% since Musk took over: "The number of active users on the Mastodon social network [an open source, federated Twitter competitor] has dropped more than 30% since the peak and is continuing a slow decline, according to the latest data posted on its website."

🐭 "Disney CEO Bob Iger told hybrid employees on Monday they must return to corporate offices four days a week starting March 1".

❌ "China suspended issuing short-term visas to South Koreans and Japanese on Tuesday... in apparent retaliation for restrictions imposed on Chinese travellers over Covid concerns."

Steel – because of its "useful material properties", and the fact "it's cheap" – has become ubiquitous in the modern world. Without steel, "modern life would largely be impossible", especially construction:

"Every modern structural system, for instance, relies on steel to function. Steel gets used for the beams and columns in structural steel framing (used in everything from 100 story skyscrapers to single-story commercial buildings), as the reinforcing in both concrete and masonry, and as the connectors – bolts, nails, screws, staples, truss plates – that hold together light framed wood and heavy timber construction. Roughly half the world's steel produced each year is used by the construction industry, and the spread of steel into building systems is one of the main ways that modern methods of construction differ from historical ones."

That's from Brian Potter who penned an interesting two-part essay (~15 minute read) on the history of steel, covering the development of the blast furnace to the Bessemer process, which reduced costs and led to its widespread use in construction and manufacturing.

2—Unintended consequences

Implemented on 25 May 2018, the EU's General Data Protection Regulation (GDPR) was designed to protect "fundamental rights and freedoms of natural persons and in particular their right to the protection of personal data".

But even the best intentioned policies often come with unintended consequences:

"The present state of play is unsettling. Scientists are struggling to find a legal basis for sharing data under the regulation. US federal agencies such as the National Institutes of Health, the largest global funder of biomedical research, and its sister public agencies have no pathway available to receive pseudonymised data collected by research partners in the EU. Without an adequacy decision, US agencies and many publicly supported research universities are legally barred from agreeing to GDPR data-transfer requirements."

That's from Robert Eiss, who notes that because of the GDPR, some cancer patients in the US are unable to access matched samples from Europe for stem-cell transplantation treatment, despite donor consent. European clinical research is also set to suffer, with one estimate indicating that an inability of Europeans to share data with foreign agencies "may lead to €8.9bn less a year spent by companies within the EU on trials".

You can read the full article here (~4 minute read).

3—Only in America

4—A world of movement in all directions

What impact did the 'Viking Age' have on the movement of people? Quite a bit, but in ways not previously understood:

"We used to speak of a 'Viking expansion,' in which the ancient Scandinavians somehow pushed out into the wider world in search of portable wealth, trading contacts, and lands to settle. [But] this was a world of movement in all directions—into Scandinavia as well as out of it."

That's from Neil Price, an Uppsala University professor of archaeology who was commenting on new research published the journal Cell, which used the DNA of ancient Scandinavians to examine the movement of peoples into the region during the Viking Age around 1,000 years ago.

Interestingly, the newcomers to Scandinavia did not flourish, with a notable decline in Baltic and British-Irish ancestries among Scandinavians following the Viking Age.

According to Anders Götherström, a co-author of the study, the decline may be due to the fact that many of the people who came to Scandinavia during the Viking period "didn't build families and weren't as efficient in getting children as the people who were already living there".

You can read the full summary by Aylin Woodward here (~6 minute read), or check out the paper itself here.

5—Further reading...

💂‍♂️ "[I]f social authoritarianism is more of a deal-breaker for younger voters (and there are good reasons to believe it is) then we would expect those voters to reject the right even when sharing its economic outlook - which could account for what we see in GB & US [& AUS]."

👩‍💻 Twitter was hacked in 2021 (before Musk's reign), with 235 million users' details "now available to anyone on the dark web with a couple extra bucks to spend".

🚘 "Phoenix is the first airport anywhere in the world to have autonomous service bringing people to our airport [they're using electric Jaguar Waymo vehicles."

🤖 A war they will not win (and shouldn't be fighting): "The New York City Department of Education is blocking access to ChatGPT on networked devices... due to concerns about negative impacts on student learning and [the] accuracy of content."

🏛️ Why was Roman concrete so durable? "Hot mixing, the team has now concluded, was actually the key to the super-durable nature."

📚 What books does Xi Jinping have on his bookshelf?

According to a new paper published in Nature, scientific research has become less innovative since the 1950s:

"Recent decades have witnessed exponential growth in the volume of new scientific and technological knowledge, thereby creating conditions that should be ripe for major advances. Yet contrary to this view, studies suggest that progress is slowing in several major fields."

The authors – Michael Park, Erin Leahey and Russell Funk – analysed 25 million papers (1945–2010) and 3.9 million US patents to measure the disruptiveness of science and technology. They found that "despite large increases in scientific productivity" – i.e. people are still publishing lots of papers and filing plenty of patents – innovative activity is slowing.

Why might that be? After ruling out several possible explanations that were inconsistent with the data, the authors suggest it could be due to the trend of:

"...scientists' and inventors' reliance on a narrower set of existing knowledge. Even though philosophers of science may be correct that the growth of knowledge is an endogenous process—wherein accumulated understanding promotes future discovery and invention—engagement with a broad range of extant knowledge is necessary for that process to play out, a requirement that appears more difficult with time. Relying on narrower slices of knowledge benefits individual careers, but not scientific progress more generally."

You can read the full paper here (~30 minute read), which offers up solutions such as having universities change their focus from quantity to quality, and giving researchers time "to read widely... to keep up with the rapidly expanding knowledge frontier", allowing them to "inoculate themselves from the publish or perish culture".

2—The demographic transition

In 1968 Paul Ehrlich published The Population Bomb, which as you might have guessed from the title warned about global overpopulation, and began with the following grim prediction:

"The battle to feed all of humanity is over. In the 1970s and 1980s hundreds of millions of people will starve to death in spite of any crash programs embarked upon now. At this late date nothing can prevent a substantial increase in the world death rate."

He was, of course, wildly off point:

"Meanwhile, the global fertility rate peaked in 1965 at over 5 children per woman. Since then, it has been in relentless decline — now all the way down to 2.3. While the Green Revolution was the product of innovation and thus the resulting productivity spike was legitimately unexpected, the drop in birthrates merely recapitulated at the global level a dynamic that had begun in rich countries a century earlier. Between 1870 and 1920, fertility rates fell by 30 to 50 percent in western Europe and the United States. Along with a corresponding, and generally earlier, drop-off in mortality rates, this phenomenon is known as the 'demographic transition' — the sea change from a high birth-rate, high death-rate society to one with low birth and death rates."

That's from Brink Lindsey, who recently penned an essay on the global fertility collapse – precisely the opposite of Ehrlich's fearmongering back in 1968 (thankfully Ehrlich didn't manage to get many of his forced population control "crash programs" implemented). Lindsey continued:

"Awareness of the problem remains far from widespread. I reckon more people today are still worried about the nonexistent danger of runaway population increase than share my concern about demographic stagnation and decline. To the extent people are even aware of the dramatic worldwide fall in fertility, they are more likely to see it as a lucky break that has saved us from the population bomb than as the Charybdis to overpopulation's Scylla."

You can read Lindsey's full essay here (~17 minute read).

3—Invoking 'science'

4—The struggle for power

You might have heard about how the US Republican party has, at the time of writing, failed to elect a new speaker of the House after eight attempts. It was the first time since 1923 that the House had to adjourn without choosing a speaker.

The difficulty for what should be a simple task comes from a power struggle within the party itself. So writes Aden Barton:

"When John Boehner took the speaker's gavel in 2011, he led a caucus that broadly agreed on the need for dramatic deficit reduction. In contrast, Kevin McCarthy—or whoever takes the speaker's gavel—will preside over a Republican caucus that's internally divided over fiscal issues.

On the one hand are fiscal hawks who want deficit reduction to be a top Republican priority in 2023, just as it was in 2011 and 1995.

Inflation has made this narrative especially salient, as Republicans are able to blame higher prices on Democrats' fiscal irresponsibility. Danny Weiss, a senior fellow at the Century Foundation and former chief of staff to Speaker Nancy Pelosi, told me that so long as inflation stays high, Republicans have a strong incentive to focus on the deficit.

But there's also a significant faction of fiscal moderates who draw their inspiration from President Donald Trump, who vowed not to cut Social Security and Medicare during the 2016 campaign and presided over a large increase in the deficit.

'This Republican class is very different than the one elected in 2010,' Ben Ritz of the Progressive Policy Institute told me. A decade ago, Tea Party Republicans viewed cutting government spending as a top priority. In contrast, he said 'this class is all in on the Trump culture war'."

Barton has plenty more about the internal divide and struggle for power within the Republican party here (~6 minute read), including what it means for the inevitable debt-ceiling showdown that will occur sometime this year.

5—Further reading...

🍟 "Top [Chinese] officials are discussing ways to move away from costly [microchip] subsidies that have so far borne little fruit and encouraged both graft and American sanctions, people familiar with the matter said."

🧐 "[C]onsumers respond to a 1-cent increase from a 99-ending price as if it were more than a 20-cent increase."

✈️ "When private equity funds buy airports from governments, the number of airlines and routes served increases, operating income rises, and the customer experience improves."

🚚 "Amazon plans to cut more than 18,000 jobs [~1.2% of its workforce], the largest number in the firm's history."

Millennials – the generation born between 1981 and 1996 – are much less conservative than were the generations that came before at the same age (at least in the Anglosphere). There are multiple possible explanations, with the FT's John Burn-Murdoch believing the "most likely" is:

"[A] cohort effect — that millennials have developed different values to previous generations, shaped by experiences unique to them, and they do not feel conservatives share these.
...
The data is clear that millennials are not simply going to age into conservatism."

Burn-Murdoch only looked at the US and UK, but the causal data he cites are similar to those in Australia. For example, Australian Millennials are less likely to own their own home (55%) compared to Generation X (62%) or Boomers (66%) when they were the same age. They also delay family formation – one in five Millennials live with a partner and children, compared to more than half of Baby Boomers – and are less religious, with the proportion of Australians that identify with Christianity falling from 76.4% in 1981 to 43.9% in 2021. By the time of the next census, believers of Christianity will almost certainly have fallen behind "No religion" (38.9% in 2021).

According to Burn-Murdoch, that poses a challenge for conservative politics:

"To reverse a cohort effect, you have to do something for that cohort. Home ownership continues to prove more elusive for millennials than for earlier generations at the same age in both countries. With houses increasingly difficult to afford, a good place to start would be to help more millennials get on to the housing ladder. Serious proposals for reforming two of the world's most expensive childcare systems would be another."

A lack of serious policy effort in those areas and the abandonment of fiscal responsibility might partly explain the poor performance of the conservative Australian Liberal Party at the recent federal election.

You can read John Burn-Murdoch's full essay here (~3 minute read).

2—Impossible to win

Solving inequality is the holy grail of public policy. But that's only because the official statistics that measure inequality have made it impossible to solve:

"Government statistical reports exclude 'noncash' sources of income, which excludes most transfers from social programs. Taxes (paid disproportionately by high earners) are also ignored in official calculations. Furthermore, even the government's 'cash' income numbers are reported in a way that understates improvements in real (inflation-adjusted) income over time because government inflation measures fail to use the appropriate chained price indexes or take account of new products and services."

That's from Charles Calomiris in a review of a new book called The Myth of American Inequality, by Phil Gramm, Robert Ekelund and John Early. Their research shows that transfer programs have been working, "taxation of the rich has flattened the distribution of consumption across household", and that measurement errors are leading policymakers astray:

"Ironically, it is the very success of redistribution in reducing poverty and inequality that has led mismeasurement to create the false perception of increasing inequality."

You can read the full review here (~4 minute read), or preview the book on Google here.

3—Urban white elephants

4—A series of continuous miracles

Should governments listen to Elon Musk, "the Martian spiritual leader", and attempt to send human beings to Mars before 2050? Probably not:

"Like the Space Shuttle and Space Station before it, the Mars program would exist in a state of permanent redesign by budget committee until any logic or sense in the original proposal had been wrung out of it.
...
How long such a program could last is anyone's guess. But if landing on the Moon taught us anything, it's that taxpayer enthusiasm for rock collecting has hard limits. At ~$100B per mission, and with launch windows to Mars one election cycle apart, NASA would be playing a form of programmatic Russian roulette. It's hard to imagine landings going past the single digits before cost or an accident shut the program down. And once the rockets had retired to their museums, humanity would have nothing to show for its Mars adventure except some rocks and a bunch of unspeakably angry astrobiologists. It would in every way be the opposite of exploration."

That's from Maciej Cegłowski on why a mission to Mars using current technology – i.e., without "a series of continuous miracles" – would be a "destructive, wasteful stunt". And our own success in space is partially to blame:

"It wasn't always like this. There was a time when going to Mars made sense, back when astronauts were a cheap and lightweight alternative to costly machinery, and the main concern about finding life on Mars was whether all the trophy pelts could fit in the spacecraft.
...
But fifty years of progress in miniaturization and software changed the balance between robots and humans in space... The imbalance between human and robot is so overwhelming that, despite the presence of a $250 billion International Space Station National Laboratory, every major discovery made in space this century has come from robotic spacecraft. In 2023, we simply take it for granted that if a rocket goes up carrying passengers, it's not going to get any work done."

You can read Cegłowski's full essay here (~21 minute read).

5—Further reading...

🧠 "A Danish intelligence official said Putin was taking thyroid-cancer drugs in February 2022... [which] can cause "delusions of grandeur" and may have warped his thinking."

🏡 "We're in the second biggest home price correction of the post-WWII era... [but] relative to the last bust, a large home price correction this time around wouldn't see as many borrowers go underwater (i.e., their mortgage balance being greater than their home value). While U.S. home prices are falling, they're still up big-time. In fact, October 2022 home prices are 38.1% above March 2020 levels."

❤️ "Are the top 20% of men showered with attention and are "Chads" poaching average women on dating apps?" An interesting twitter thread on modern dating.

📉 Taisu Zhang: In 2023, China's "economy will grow more than 5 percent year on year, but none of the underlying structural problems (demographics, housing bubble, local government debt, relatively low consumption) will significantly improve".

👩‍⚖️ "Sam Bankman-Fried, the disgraced co-founder and former CEO of the cryptocurrency exchange FTX, pleaded not guilty to eight criminal charges at his arraignment on Tuesday."

Please note that from today we're taking a bit of a break for the holiday season. We'll be back to our usual Mon/Wed/Fri schedule in the New Year but until then, content will be sporadic. Merry Christmas!

1—Gaslighting for the CCP

China's turn to be overwhelmed by COVID-19 has finally arrived, and it looks set to be a particularly rough winter given its immune-naïve population and relatively low elderly vaccination rates. According to TheZvi, who is still providing weekly pandemic updates:

"I do think that in the long run, letting this happen is a better option than continuing to not let it happen. The timing of doing this is December, exactly when weather conditions might be at their worst, seems not great, and I'd have tried to do it either earlier or later. That is an additional sign that this was not planned, rather circumstances forced Xi's hand."

In other words, some combination of the recent protests, a partial easing of restrictions, and the huge cost of slowing the spread of the Omicron strain had undermined 'dynamic zero-COVID' to the point that it forced a further easing of restrictions. Waiting any longer would have risked accusations of complete failure.

TheZvi then moved on to the World Health Organisation (WHO), which decided the time was right "to spout obvious nonsense and gaslight us on behalf of the CCP [Chinese Communist Party]", by claiming that "the control measures in themselves were not stopping the disease":

"What is fair is that China's Zero Covid policy was slowly failing to work, although this too was due to a loosening of those restrictions. Things would have eventually spiralled out of control, one way or another, the necessary level of restrictions was unsustainable.

Still, the fundamental story of the last few weeks is that China dramatically changed its Covid policies and the result of this is a lot more Covid. The WHO suddenly transforming to 'no the giant additional number of Covid cases has nothing to do with suddenly doing much less to prevent Covid,' after spending years desperately telling everyone to destroy their economies in the name of preventing Covid, is… well, exactly what I would expect from them. Yet somehow also remarkable."

The WHO's credibility has been one of the biggest losers from the pandemic. You can read the full weekly update from TheZvi here (~12 minute read).

2—Embracing fragmentation

Elon Musk's takeover of Twitter has been anything but smooth, with the latest headline-grabber coming courtesy of a top European Union official, who warned about "red lines" and "sanctions" after Twitter suspended multiple journalists for supposedly 'doxing' (revealing info about) Musk.

But Musk's centralised approach to moderation isn't new; Twitter's moderation has always been that way. While Musk's arrival shifted the decision-making needle from left-leaning to right-leaning, it remains to be seen whether that:

"...will be enough to cause an exodus of the generally left-leaning journalists who give Twitter its reputation as the mainstream media's 'assignment desk', or cause advertisers to abandon the platform, or result in a more general move to alternative sites. If core users in general do decide to leave, expect the platform to decline pretty abruptly.

But what's interesting is that even the people who do expect this sort of exodus don't seem to believe that there will be another single, unified platform that just replaces Twitter. The look and functionality of the original is simple to replicate, but no one seems to think that everyone will just move to New Twitter; everyone seems to expect that if and when Twitter does decline, the future is fragmented.

Because maybe, just maybe, we've learned our lesson. Maybe we've realized that the internet simply works better as a fragmented thing."

That's from Noah Smith (~10 minute read), who believes that centralised social media is dying and people will increasingly move to platforms that use an "old internet" model – one of community moderation, where people are separated "based on who they want to talk to and what they want to be exposed to".

3—What a difference a year makes

4—Morally superior

In March 2021, China's President Xi Jinping "took a post-pandemic victory lap":

"[P]roclaiming that his country had been the first to tame COVID-19, the first to resume work, and the first to regain positive economic growth. It was the result, he argued, of 'self-confidence in our path, self-confidence in our theories, self-confidence in our system, self-confidence in our culture'."

The New York Times was glowing in its review of China's response:

"In the year since the coronavirus began its march around the world, China has done what many other countries would not or could not do. With equal measures of coercion and persuasion, it has mobilised its vast Communist Party apparatus to reach deep into the private sector and the broader population, in what the country's leader, Xi Jinping, has called a 'people's war' against the pandemic — and won."

But did China merely delay the inevitable, at huge cost? It's certainly looking that way:

"Bloomberg Intelligence estimates China could see up to 700,000 deaths after abandoning Covid Zero. Researchers in Hong Kong are even more gloomy, predicting almost 1 million people in China may die. That could prove to be troublesome for Xi Jinping's government, which had long defended its policy as morally superior to the West, saying the latter's policies led to the deaths of many elderly people. Chinese state media is now cranking up its propaganda to defend Xi's decision."

We may never know how many people are getting sick – "China decided to stop releasing comprehensive data" – but rising cases and deaths will likely "offset some of the positive impact of the easing [of restrictions] in the near term".

You can read the full update from Bloomberg here (~6 minute read).

5—Further reading...

💸 He's right but also recently took on $13 billion in high-interest debt to buy Twitter. Elon Musk: "At risk of stating obvious, beware of debt in turbulent macroeconomic conditions, especially when Fed keeps raising rates."

🚀 Japan "will double its military spending in the next five years [to 2% of GDP], citing threats posed by China and North Korea. It will also acquire the ability to strike enemy bases".

🐀 After spending a few days in a rat-infested Bahamas prison, Sam Bankman-Fried is expected "to reverse his decision to contest extradition to the United States".

🤝 At the Reserve Bank of Australia, "the staff recommendation and the Board decision have been the same in 110 of the past 110 meetings! This is a culture where people do not express disagreement. Bad decisions result."

⚔️ "Russian troops have turned to Wikipedia to find instructions on handling weapons and used 1960s-era maps in the country's invasion of Ukraine."