Pre-Note:

One thing we did not get into was the relationship between the claps of FTX and the associated fraud and “Effective Altruism”—Effective Altruism not so much as a philosophy, but rather as a doctrine preached by a life-coach.

If you want to have the highest chance of becoming rich, you make your bets as if you had a logarithmic utility function: if the downside to a bet cuts your wealth in half, you will not accept the bet unless the upside more than doubles your wealth. Accepting bets more risky than those that satisfy this Kelly Criterion, even though the gain exceeds the loss, will ultimately make you bankrupt and out of the game with very high probability and absolutely, filthy rich with very low probability.

Effective Altruism tells you not only that you can but that you are under the strongest moral obligation to make such riskier-than-Kelly positive expected-value bets. The question, then, is what you do when the overwhelmingly likely bankruptcy takes place. And then the answer is often: the customers money was just sitting there, so we can borrow it to successfully gamble for resurrection, and then pay it back soon.

Noah, however, is more cynical than I. He thinks there is a moderate chance that SBF, CE, and company are still very rich dudes indeed…

Key Insights:

* Future hypothetical Web3 good, perhaps, if there ever is a use case…

* Web3 as currently existing not good—a fraud opportunity and a strongly negative-sum arena for grifters and loosely-wrapped gamblers…

* Being a greater fool and buying crypto—not good…

* SBF & CE & company may well still be very rich dudes…

* Trust Vitalik Buterin, probably—but perhaps Noah is himself subject to affinity fraud…

* Hexapodia!

References:

(Best to read these in order!)

* Tracy Alloway & al.: Transcript: Sam Bankman-Fried and Matt Levine on How to Make Money in Crypto…

* Sam Trabucco (from April 2021): ‘Two years ago, Alameda maintained pretty strict delta neutrality…

* Adam Fisher: Sam Bankman-Fried Has a Savior Complex—And Maybe You Should Too

* Adam Cochrane: This was a crime plain and simple…

* Tyler Cowen: A simple point about existential risk

* Matt Levine: FTX's Balance Sheet Was Bad...

* Byrne Hobart: Money, Credit, Trust, and FTX…

* @0xfbifemboy: What Happened at Alameda Research…

* Patrick Wyman: The Verge: Renaissance, Reformation, & 40 Years That Shook the World…

+, of course:

* Vernor Vinge: A Fire Upon the Deep <https://archive.org/details/fireupondeep00ving_0/mode/1up>

Key Insights:

* Since 1870, we humans have done amazingly astonishingly uniquely and unprecedentedly well at baking a sufficiently large economic pie.

* But the problems of slicing and tasting the pie—of equitably distributing it, and then using our technological powers to live lives wisely and well—continue to flummox us.

* The big reason we have been unable to build social institutions for equitably slicing and then properly tasting our now more-than-sufficiently-large economic pie is the sheer pace of economic transformation.

* Since 1870 humanity's technological competence has doubled every generation

* Hence Schumpeterian creative destruction has taken hold.

* Our immensely increasing wealth has come at the price of the repeated destruction of industries, occupations, livelihoods, and communities.

* And we have been frantically trying to rewrite the sociological code running on top of our rapidly changing forces-of-production hardware

* The attempts to cobble together a sorta-running sociological software code have been a scorched-earth war between two factions.

* Faction 1: followers of Friedrich von Hayek, who say: "the market giveth, the market taketh away: blessed be the name of the market"

* Faction 2: followers of Karl Polanyi, who say: "the market was made for man; not man for the market"

* Let the market start destroying "society", and society will react by trying to destroy the market order

* Thus the task of governance and politics is to try to manage and perhaps one day supersede this dilemma.

* &, of course, HEXAPODIA!!

Thank you for reading Brad DeLong's Grasping Reality. This post is public so feel free to share it.

References:

* J. Bradford DeLong: Slouching Towards Utopia: An Economic History of the 20th Century <bit.ly/3pP3Krk>

* Robert Gordon: The Rise and Fall of American Growth <https://archive.org/details/risefallofameric0000gord_w5w7>

* Gary Gerstle: The Rise and Fall of the Neoliberal Order: America and the World in the Free Market Era <https://www.google.com/books/edition/The_Rise_and_Fall_of_the_Neoliberal_Orde/3PJbEAAAQBAJ>

* Vaclav Smil: Creating the 20th Century: Technical Innovations of 1867-1914 and Their Lasting Impact <https://www.google.com/books/edition/Creating_the_Twentieth_Century/h78TDAAAQBA>

* Vaclav Smil: Transforming the 20th Century: Technical Innovations and Their Consequences <https://archive.org/details/transformingtwen0000smil/>

* Friedrich von Hayek: The Road to Serfdom <https://archive.org/details/in.ernet.dli.2015.97402>

* Karl Polanyi: The Great Transfomation: The Political and Economic Origins of Our Time <https://archive.org/details/greattransformat0000pola_o9l4>

* John Maynard Keynes: The General Theory of Employment, Interest and Money <https://archive.org/details/in.ernet.dli.2015.50092>

+, of course:

* Vernor Vinge: A Fire Upon the Deep <https://archive.org/details/fireupondeep00ving_0/mode/1up>

Key Insights:

* The only way to buy insurance against the fiscal theory of the price level’s becoming relevant for the inflation outlook is to keep Trump and Trumpists out of office

* We have one political party that could well, someday, turn us inflation-wise into “Argentina”: the Republicans.

* But thankfully we have only one such political party.

* Democrats need to develop a policy framework for a time of inflation: capacity-building progressivism.

* We do not yet know whether what the Fed has done is sufficient to return inflation to its 2%/year Core PCE target.

* If the Fed overdoes inflation fighting, we might well find ourselves back at the zero lower bound on interest rates—and that would be a hell of a mess, much worse than having Core PCE inflation at 5%/year for an extra year or so.

* Hexapodia!

References:

* Olivier Blanchard: Inflation and unemployment. Where is the US economy heading? (August 8, 2022 1:30 PM)

* Olivier Blanchard, Alex Domash, and Lawrence H. Summers: The Fed is wrong: Lower inflation is unlikely without raising unemployment (August 1, 23022 11:15 AM)

* Olivier Blanchard, Alex Domash, and Lawrence H. Summers: Bad news for the Fed from the Beveridge space (July 2022)

Olivier Blanchard, Romain Duval, Pierre-Olivier Gourinchas, Anna Stansbury, and Betsey Stevenson: Labor Market Tightness in Advanced Economies (March 31, 2022 1:00 PM

* Olivier Blanchard: Why I worry about inflation, interest rates, and unemployment (March 14, 2022 1:45 PM)

+, of course:

* Vernor Vinge: A Fire Upon the Deep <https://archive.org/details/fireupondeep00ving_0/mode/1up>

Key Insights:

* We should avoid the tendency to paint the past, nostalgically, as a golden age.

* If we take the long view there is an overwhelming continuity in the immigrant experience.

* The immigrant experience is a very positive story—both then and now.

* There is great hope for positive change in our immigration system: comprehensive immigration reform is not a third rail in American politics.

* Remember George Washington’s take on immigration: “The bosom of America is open to receive not only the Opulent and respected Stranger, but the oppressed and persecuted of all Nations and Religions; whom we shall welcome to a participation of all our rights and privileges, if by decency and propriety of conduct they appear to merit the enjoyment…”

* There is a great deal right with America, but if we want to focus on what is wrong with America, look to intersectionality: what is happening to the sons of 1st-generation Caribbean-American immigrants?

* Hexapodia!

References:

* Ran Abramitzky & Leah Platt Boustan: Streets of Gold: America's Untold Story of Immigrant Success <https://www.amazon.com/Streets-Gold-Americas-Immigrant-Success/dp/1541797833>

* Leah Platt Boustan: Competition in the Promised Land: Black Migrants in Northern Cities and Labor Markets <https://www.amazon.com/dp/B01GP3POLU/>

+, of course:

* Vernor Vinge: A Fire Upon the Deep <https://archive.org/details/fireupondeep00ving_0/mode/1up>

Notes & Questions:

* Americans vastly overestimate how many immigrants are in the country today. Americans guess 36% of the country is born abroad, whereas the real number is 14%.

* The second biggest misconception is that immigrants nowadays are faring more poorly in the economy and are less likely to become American than immigrants 100 years ago. That is simply not true

* Immigrants take steps to 'fit in' just as much today as they did in the past.

* The children of Mexican parents do pretty well today! Even though they were raised at the 25th percentile in childhood, they reach the 50th percentile in adulthood on average. Compare that to the children of US-born white parents raised at the same point, who only reach the 46th percentile.

* One of the main changes for Mexican immigrants in the 1980s and 1990s is that they settled in larger numbers away from "gateway" communities.

* The children of poor Irish or Italian immigrant parents outperformed the children of poor US-born parents in the early 20th century; the same is true of the children of immigrants today—with the exception of the sons of 1st generation Caribbean-Americans.

* Immigrants tended to settle in dynamic cities that provided opportunities both for themselves and for their kids. This makes sense: immigrants have already left home, often in pursuit of economic opportunity, so once they move to the US they are more willing to go where the opportunities are. 

* We suspect that educational differences between groups matter today. Immigrant families can pass along educational advantages to their children.

* For kids in 1910 observed working in 1940, immigrants have lower levels of education than otherwise similar children of US-born parents, but yet they earn more. Why? Geography. Immigrants and their children lived in more dynamic locations (for example: in cities, and outside of the South).

* Immigrants that people (somewhat disparagingly) call "low-skilled" are actually pretty selected: It takes a lot of bravery, motivation, and resourcefulness to pick up and move to a new country, especially without much money or connections or language skills. 

* What role did the Cold War and the Red Scare play in discouraging social movements and progressive legislation?

* What were the effects of the early “computerized factory” on the labor market and on productivity?

Key Insights:

* Be pragmatic! Do what works! Reinforce success! Abandon failure!

* CHIPS & IRA are only, at most, 1/4 of what we should be doing.

* These are both very good things to do, as far as running a successful industrial policy is concerned.

* Maybe there was something to Biden’s claims that he could lead congress after all.

* Hexapodia!

References:

* Matt Alt: Pure Invention: How Japan Made the Modern World <https://www.amazon.com/dp/B07YJZYFTS>

* Stephen S. Cohen & J. Bradford DeLong (2016): Concrete Economics: The Hamiltonian Approach to Economic Policy (Cambridge: HBS Press, 978-1422189818) <https://www.amazon.com/dp/B00O92Q6C6/>

* J. Bradford DeLong (2022): Slouching Towards Utopia: An Economic History of the 20th Century (New York: Basic Books, 978-0465019595) <https://www.amazon.com/Economic-History-Twentieth-Century/dp/0465019595/ref=sr_1_1?crid=3U3XCUXOZ37HW>

* Chalmers Johnson (1982): MITI and the Japanese Miracle: The Growth of Industrial Policy, 1925-1975 (Stanford: Stanford University Press, 978-0804712064) <https://www.amazon.com/dp/0804712069/>

* W. David Marx (): Ametora: How Japan Saved American Style <https://www.amazon.com/dp/B012271ONK>

+, of course:

* Vernor Vinge: A Fire Upon the Deep <https://archive.org/details/fireupondeep00ving_0/mode/1up>

Key Insights:

* The most recent round of Tech elephants, rhinoceroses, unicorns, and spiny lizards—Netflix, Shopify, etc.—are very unlikely to payoff for those investors who stay on the ride to the very end.

* That said, they were very much worth doing even if they never make their shareholders any money. The growth of communities of engineering, entrepreneurial, and organizational practice is a huge benefit for innovation and growth—and the overwhelming bulk of that becomes non-rival public knowledge, that nobody can make scarce and hence charge people through the nose for.

* Having your rich and your superrich fund R&D for little return is not the worst thing to have happen.

* The ideas behind “Web3”—an end to the walled-garden Web2 internet, with the useful parts of the social graph trustable and publicly accessible to anyone who wants to communicate—are great ones.

* The ideas behind “Web2”—the clickbait-ad walled-gardens—are horrible. And it is not just Facebook and Twitter. Google and Amazon are manifestly less useful than they were a decade and a half ago. Why? Because using pixels to inform is less profitable than using them for selling ads, and the companies have decided to be evil.

* Code is fundamental: a tech-finance drought is no reason not to learn to code. It is a reason to get a job working for a company that already has a real product, and, you know, profits.

* At bottom, all of “crypto” is very familiar. It is taking out a map, drawing property lots boundaries on them, and then trying to sell those lots to people by telling them that the railroad is coming through. And in the end everyone will be very happy If the railroad does come through, and does not decide to build its river-crossing bridge ten miles north.

* Hexapodia!

References:

* Scott Chipolina & George Steer: The Terra/Luna Hall of Shame <https://www.ft.com/content/40c06a4f-3586-40be-b5ad-b836b5dcdc0d>

* Brad DeLong: Tesla’s Valuation(s)

* Brad DeLong: Wonders of þe Invisible Crypto World

* Adam Ozimek: Think Bigger About Remote Work

* Noah Smith: Meme Stocks & Bitcoin Will Not Redistribute Wealth: Financio-Populism Is Built on Dreams & Smoke

* Noah Smith: Suddenly Startups Are Having Trouble Raising Money. Why?: ‘A Few Reasons for the Big VC Funding Crunch

* Noah Smith: What Kind of Financial Asset Is Bitcoin?: Is It Money? Digital Gold? A Tech Stock? Recent Events Shed Some Light on The Question

* Nicholas Weaver: Blockchains & Cryptocurrencies: Burn It With Fire <https://www.ischool.berkeley.edu/files/blockchains-and-cryptocurrencies-burn-it-fire-nicholas-weaver>

+, of course:

* Vernor Vinge: A Fire Upon the Deep <https://archive.org/details/fireupondeep00ving_0/mode/1up>

Key Insights:

* Not so much key insights, as key questions: (a) What are the teams? (b) 1920, 1948, 1951, 1974, or 1980? (c) Are there any true members of Team Transitory left? (d) Who is on Team The-Fed-Has-Got-This? (e) Who is on Team Hit-the-Economy-on-the-Head-with-a-Brick? (f) What inflation rate do we want to support economic reopening? (g) What inflation rate do we want to support the sectoral rebalancing—towards goods production, & towards the deliverator economy? (h) How would expected inflation get embedded in the labor market without strong unions and multi-year contracts? (i) How would expected inflation get embedded in the labor market without it first showing up in out-year bond market breakevens?

* With Putin’s invasion-of-Ukraine supply shock, Summers’s position looks a lot stronger

* Near the zero-lower-bound, there is a high option value to waiting to raise

* That optionality still seems to us, for the moment, to be the major consideration

* Thus it is too early to hit the economy on the head with a brick—even the small 5%-interest-rates brick

* But it is not too early for Jay Powell to furrow his brow and say that the Fed is considering Larry Summers’s arguments very carefully.

* Noah Smith finds that he is much more in accord with Larry Summers than he thought he would be.

* Larry and Ezra like Brad’s forthcoming Slouching Towards Utopia

* Elon Musk should take over Twitter

* Hexapodia!

Charts:

References:

* J. Bradford DeLong (2022): Slouching Towards Utopia: An Economic History of the 20th Century (New York: Basic Books, 978-0465019595) <https://www.amazon.com/Economic-History-Twentieth-Century/dp/0465019595/ref=sr_1_1?crid=3U3XCUXOZ37HW>

* J. Bradford DeLong: America’s Macroeconomic Outlook

* Ezra Klein & Larry Summers: I Keep Hoping Larry Summers Is Wrong: What If He Isn’t?: The Ezra Klein Show <https://www.nytimes.com/column/ezra-klein-podcast>

* Paul Krugman: High Inflation in the United States: Newsletter 2022-03-29 <https://messaging-custom-newsletters.nytimes.com/template/oakv2?CCPAOptOut=true&emc=edit_pk_20220329&instance_id=57038&nl=paul-krugman>

* John Scalzi: The Kaiju Preservation Society <https://www.amazon.com/Kaiju-Preservation-Society-John-Scalzi-ebook/dp/B0927B1P8L>

* Noah Smith: When Will the Fed Drop the Hammer?

* Neal Stephenson: Snow Crash <https://www.amazon.com/Snow-Crash-Novel-Neal-Stephenson-ebook/dp/B000FBJCJE>

+, of course:

* Vernor Vinge: A Fire Upon the Deep <https://archive.org/details/fireupondeep00ving_0/mode/1up>

Key Insights:

* There is a perspective from which “today” means “post-Ordovician”

* Catul-Huyuk as 900 families living cheek-by-jowl, and after 1500 years… people leave…

* Angkor’s uniquely vulnerable water reservoirs… and eventually… people leave…

* Cahokia’s sophisticated organization of labor… but eventually… people leave…

* Pompeii… well, we know why people flee all-of-a-sudden…

* Cities are magical places, but not always, and not forever…

* Cities suffer from abandonment when an overdetermined disaster hits a sclerotic system: you can deal with politics, you can deal with climate change by themselves, but…

* Question: Will Detroit or Miami or Houston be the next “lost city” in the U.S.?

* Hexapodia!

References:

* Annalee Newitz: Four Lost Cities: A Secret History of the Urban Age (New York: W.W. Norton, 2021) <https://www.google.com/books/edition/Four_Lost_Cities_A_Secret_History_of_the/l6K6DwAAQBAJ>

* Joseph Tainter: The Collapse of Complex Societies (Cambridge: Cambridge University Press, 1988) <https://www.google.com/books/edition/The_Collapse_of_Complex_Societies/YdW5wSPJXIoC>

+, of course:

* Vernor Vinge: A Fire Upon the Deep (New York: Tor, 1992) <https://archive.org/details/fireupondeep00ving_0/mode/1up>

We Truly Did Not Have History Rhyming to the Spanish Civil War on Our 2022 Bingo Card!…

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Key Insights:

* Putin’s decision to invade came as a great surprise to everyone.

* The information flow to Putin is very bad, very low quality.

* Muscovy, St. Petersburg, Novgorod, Minsk, Kyiv are all ‘Rus.

* But the cultural, political, and linguistic differences between Kyivan and Muscovite ‘Rus are surprisingly deep, historically speaking.

* Economic sanctions can do a lot to degrade Russia’s war-fighting machine, and should be used to do so.

* Bounties and rewards for defectors and for the neutralization of equipment might be very effective, and should be promoted.

* Countries and régimes run on myth, and military defeat is the most effective way that a pernicious myth gets destroyed.

* Be afraid, be very afraid: Putin’s survival—his personal political, the causes he has invested his life in, and perhaps his mortal—depend on his “winning” in some sense.

* If appeasement of Putin could be made to work, it might well be worth trying.

* But it is highly unlikely that appeasement of Putin could be made to work.

* Really-existing Putinite petro-kleptocracy looks worse than really-existing Brezhnevite socialism.

References:

* ChinaTalk: Russia's Pivot to Asia From Czars to Putin

* Kamil Galeev: Why Russia Will Lose

* Kamil Galeev: Twitter <https://twitter.com/kamilkazani>

* Wilson Center: Kamil Galeev <https://www.wilsoncenter.org/person/kamil-galeev>

+, of course:

* Vernor Vinge: A Fire Upon the Deep <https://archive.org/details/fireupondeep00ving_0/mode/1up>

You can now read Brad DeLong's Grasping Reality in the new ‘Stack app for iPhone—but not (YET) Android.

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Key Insights:

* The Federal Reserve Act directly speaks of the importance of representation—that Governors come from different economic communities with different economic interests, and not be limited to monetary economists, financiers and bankers, and rich asset-heavy worthies. The African-American community—and, indeed, the gloal warming-worrying community—are fine communities to be represented by a Governor.

* A former senior advisor to the Secretary of the T reasury for development and finance, a former senior economist at the Council of Economic Advisors who served as the point person on the European side of the Great Recession’s financial crisis, a tenured economics professor from a major state university in the Midwest and a former National Fellow at the Hoover Institution—there would be no Republican senatorial opposition to her from other than the ten wingnuttiest wingnuts were Lisa Cook not Black.

* We—at least Brad—is thus more scared than he was about the Republican-conservative white racial panic that this backlash reveals: 400 years of guilt from the enforcement of white supremacy have led at least the people who speak for the Republican Party to fear a former Hoover Institution National Fellow as a mortal threat by reason of what they presume is her hyper-wokeness.

* If Lisa Cook does not satisfy that Republican community, I cannot think of a single African-American who could.

* We are in an era of unrest, in which people are stupid and very stupid things happen. This white backlash against Lisa Cook is just one of the many very, very stupid things happening at the moment.

* This moment will pass: 10 years ago Lisa Cook’s nomination would not have generated a backlash; 10 years from now it would not generate a backlash.

* At this moment in America our competence as a nation to do even the very simple things is heavily compromised by the racialized hyper-politicization of nearly every single thing.

* Hexapodia!

References:

* Lisa Cook: Statement Before the Committee on Banking, Housing, & Urban Affairs, United States Senate

* Lisa Cook: Website <https://lisadcook.net>

* Lisa Cook: Biography <https://lisadcook.net/wp-content/uploads/2021/05/lisadcook_bio_short_0521.pdf>

* Lisa Cook: C.V. <https://lisadcook.net/wp-content/uploads/2021/05/Revised-CV-PDF-Edits-0521.pdf>

* Lisa Cook: Violence and Economic Growth: Evidence from African American Patents, 1870- 1940 <https://www.jstor.org/stable/44113425?seq=1>

* Amanda Terkel: Biden’s Federal Reserve Nominee Lisa Cook Is Facing A Racist Smear Campaign <https://www.huffpost.com/entry/lisa-cook-federal-reserve-nominee-racist-criticism_n_61f367eee4b02de5f516fa2a>

* Olivier Blanchard: ‘I like Lisa Cook and believe she will be a very useful addition to the Board…

* Nina Banks & al.: NEA Supports the Nominations of Drs. Cook and Jefferson to the Federal Reserve Board <https://neaecon.org/nea-supports-the-nominations-of-drs-cook-and-jefferson-to-the-federal-reserve-board/>

* Brad DeLong: Lisa Cook Has Not Been Playing the Game of Life on Easy Mode…

* Craig Torres & Daniel Flatley: Fed’s First Black Female Nominee Brings New Focus, Stirs GOP Ire <https://news.bloomberglaw.com/daily-tax-report/feds-first-black-female-nominee-brings-new-focus-stirs-gop-ire>

* Paul Romer: Theories, Facts, and Lisa Cook <https://paulromer.net/lisa-cook/>

* George F. Will: Biden Proposes Saddling an Already Struggling Federal Reserve with Two Political Activists <https://www.washingtonpost.com/opinions/2022/01/28/two-political-activists-nominated-to-federal-reserve/>

* John Cochrane: Fed Nominees <https://johnhcochrane.blogspot.com/2022/01/fed-nominees.html#more>

* Chris Brunet: Biden’s Fed Nominee Lisa Cook Criticized For Being Unqualified, Embellishing Resume <https://dailycaller.com/2022/01/20/bidens-fed-nominee-lisa-cook-criticized-for-being-unqualified-embellishing-resume/>

+, of course:

* Vernor Vinge: A Fire Upon the Deep <https://archive.org/details/fireupondeep00ving_0/mode/1up>

Become a free subscriber to receive this ‘Stack in your email. Do note that this Grasping Reality newsletter is a reader-supported publication—I really would like to collect enough from it to hire an RA. So consider becoming a paid subscriber, please, if you find this project worthwhile and think it worth continuing: