Economics Links, 1/4/2024

Paul Krugman on natural Ponzi schemes; The WSJ on the MicroStrategy cult; Carl R. Danner on regulation, and John Cochrane's comments; Joseph Addington on Milei's miracle

Paul Krugman writes,

while ordinary gambling can and does ruin people’s lives, gambling that takes the form of asset speculation can suck in far more people, because, as Robert Shiller pointed out long ago, widespread optimism about an asset’s price can for a while be self-fulfilling, because it initiates a “natural Ponzi scheme”

…Shiller’s analysis of bubbles still rings true, but with gambling on asset prices easier than ever, natural Ponzi schemes can run even longer and higher than in the past. And crypto, built on a foundation of technobabble and libertarian derp, is both a Ponzi scheme and a cult.

Regarding stock prices, Krugman cites an article by Clifford Asness, who writes,

I believe markets have gotten less efficient over the 34 years since the data in my dissertation ended. I believe it’s likely happened for multiple reasons but technology, gamified 24/7 trading on your phone, and social media in particular are the biggest culprits.

I can’t say that I got much out of that paper.

Speaking of crypto, the WSJ had a story on MicroStrategy, a company that is a vehicle for leveraged bets on crypto, and its cult leader CEO, Michael Saylor.

Saylor belongs to a new class of market influencers who have been on the rise since at least 2020, helping transform the fortunes of companies big and small, while turning the traditional rules of investing upside down.

Tesla’s base helped catapult the electric-vehicle maker’s valuation above $1 trillion, defying the bearish predictions of money managers. Many of the company’s rabid fans follow its leader, Elon Musk, into other investments including SpaceX and dogecoin while clamoring for him to receive monster pay packages.

Palantir Technologies’ avid fans call Alex Karp, its eccentric leader, “Daddy Karp.” Followers refer to themselves as Palantarians. Shares have more than quadrupled this year.

We live in strange times.

Carl R. Danner writes,

retail electricity prices are staggeringly high for these California utilities. …These prices are elevated because of three types of California government initiatives—that is, three types of state commandeering of the utilities’ monopoly power. The first is mandated programs, funded through utility bills, whose costs fall on customers. The second is an assignment of liability to these utilities for wildfire damages they may not have caused. The third is mandated transfers between customers for an environmental initiative, where some pay higher utility bills so that others can more easily purchase rooftop solar systems.

John Cochrane places this in the context of various economic theories of regulation.

Carl’s theory of “Commandeering” is a better articulated version of two-way capture

Ordinary capture theory says that regulators get captured by the businesses that they regulate, ending up helping the incumbent firms by making it hard for new firms to enter. For example, higher education is regulated by requiring new entrants to obtain accreditation, which is controlled by a the incumbents.

Two-way capture, or commandeering, is when the regulatory agency makes rules not to benefit consumers but instead to achieve its ends. In addition to the examples in Danner’s article, I would add financial regulation. From Klassic Klingisms:

Regardless of the stated purpose of financial regulation, governments are out to allocate capital to favored uses, including financing the government

Joseph Addington writes,

Leftists, Milei insists, are parasites. They cannot exist without other people protecting them from the social and economic realities of their decisions. Cut down the bloated rolls of government workers; privatize the state industries; strictly control state contracting; end subsidies, handouts, and grants of all kinds; destroy the buildup of laws, rules and regulations that provide the rationale for the existence of the administrative state, and they will dissipate like fog in the morning sun.

…In one stroke, he eliminated nine of the 18 ministries in the Argentine executive branch, folding their competencies into other executive agencies or abolishing them entirely. The famous video of Milei tearing ministries off the whiteboard and shouting “afuera” was not intended for rhetorical effect

…Milei’s government has also successfully defunded universities, traditionally a hotbed of left-wing activism whose social status has often rendered them untouchable by right-wing governments. Its privatization of state enterprises has destroyed an entire class of sinecures for political hangers-on; the same follows for its institution of strict controls on government contracting. The drastic cutbacks on labor regulation have proven damaging to the unions, who form the principal backbone of the Peronist political coalition. At every point, Milei has systematically undercut the institutional power of his political opponents.

You may recall that back in November I wrote him in on my Presidential ballot.

substacks referenced above:@

Conceptualizing Regulation

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America the Addicted