Share this page!

Noah Smith 🐇 Profile picture
Twitter logo
7 Oct, 13 tweets, 4 min read
1/Today's @bopinion post is about Trump's taxes, and what they show about how America allocates capital.

We appear to have some big problems.

bloomberg.com/opinion/articl…
2/Trump has a bunch of businesses that lose money. Our financial system has lent him money to throw into unsuccessful golf courses, hotels, and so on.

bloomberg.com/news/articles/…
3/A lot of these loans are loans that Trump hasn't even paid back yet, using loopholes in the tax system to avoid paying taxes on those unpaid debts.

Why would creditors give money to a guy who wastes the money on bad businesses and doesn't even pay them back?
4/One seemingly obvious answer is that capital is just really cheap these days. Companies are able to borrow more easily than at any time in the last few decades.
5/But this presents us with a mystery.

Why hasn't an abundance of cheap capital caused the return on financial capital to fall? Interest rates are low, but stock returns have held up strongly.
6/Standard economic theory says this isn't supposed to happen.

When you increase the supply of loanable funds, prices are supposed to go down. In other words, cheap capital should fund a lot of marginal businesses that compete away profits...
7/But far from being competed away, profits have risen to unprecedented levels!!
8/Economists are starting to notice that capital markets aren't working like an Econ 101 textbook says they're supposed to work.

Simcha Barkai and Matt Rognlie have both written about this:

1. onlinelibrary.wiley.com/doi/full/10.11…

2. mattrognlie.com/kn_comment_rog…
9/One possible explanation -- which Barkai prefers -- is that market power is growing in the economy. Meaning that big profitable quasi-monopolies are sucking up all the cheap capital, while all the little guys starve.

bloomberg.com/opinion/articl…
10/But Rognlie doubts this explanation.
mattrognlie.com/kn_comment_rog…

And it doesn't really explain Trump, does it? He's not a monopolist, and he doesn't even make profit. He's just a huckster who can borrow cheaply because he's famous.
11/An alternative idea is that capital is being RATIONED in the U.S., rather than priced.

Financiers are willing to throw tons of cheap money at big powerful companies or at famous hucksters like Trump, but charge inordinate prices to fund new entrants or marginal businesses.
12/If this is true, it means lots of perfectly good companies are probably struggling to get the capital they need, leaving the playing field to the big boys who can borrow cheaply. As a side effect, crappy borrowers like Trump waste some of our nation's savings.
13/Our financial system isn't working the way it's supposed to. Cheap capital should be reducing the return on financial capital, increasing business entry, and competing down profits.

We need to figure out what's going wrong, and fix it!

(end)

bloomberg.com/opinion/articl…

• • •

Missing some Tweet in this thread? You can try to force a refresh
　

Keep Current with Noah Smith 🐇

Noah Smith 🐇 Profile picture

Stay in touch and get notified when new unrolls are available from this author!

Read all threads

This Thread may be Removed Anytime!

PDF

Twitter may remove this content at anytime! Save it as PDF for later use!

Try unrolling a thread yourself!

how to unroll video
  1. Follow @ThreadReaderApp to mention us!

  2. From a Twitter thread mention us with a keyword "unroll"
@threadreaderapp unroll

Practice here first or read more on our help page!

More from @Noahpinion

Noah Smith 🐇 Profile picture
8 Oct
It's a little more complicated.

Unobservable structural parameters are fine IF you're willing to reject structural models outright, based on data.

But if (like many economists) you don't reject models, unmeasurable variables can lead to misspecification that never goes away.
For example: The coefficient of relative risk aversion. If people don't have CRRA preferences, this isn't a structural parameter; it changes when risk changes. So if preferences aren't CRRA and you decide rho=2, you're going to run into problems...
Of course, the example everyone is thinking about is TFP. A certain Nobel-winning business cycle model (which shall remain nameless) famously assumed that the TFP residual is exogenous and follows an AR(1) process. That turned out to be wrong in any number of ways...
Read 5 tweets
Noah Smith 🐇 Profile picture
7 Oct
WOW. It isn't just in the U.S. where negative opinions of China have soared. It's all across the developed world.

pewresearch.org/global/2020/10…
The % of people with no confidence in Xi Jinping is now over 70% in every country surveyed.

Japan (84%) and South Korea (83%) are the most negative on Xi.
Here's a longer-term picture.

Almost every country surveyed seems to have become more unfavorable towards China around 2012, when Xi took power. And then there was another big jump in unfavorability this year.
Read 9 tweets
Noah Smith 🐇 Profile picture
6 Oct
1/I wrote a post about a bright spot in the U.S. economy: The upward mobility of Hispanic Americans.

bloomberg.com/opinion/articl…
2/During the recent economic boom, Hispanic incomes grew faster than White, Black, or even Asian incomes. Image
3/Now, that growth is from a lower base -- at median, White households still make almost $20,000 more per year than Hispanic households.

But it's good progress. And it's accompanied by a widespread feeling of economic optimism and upward mobility.

pewresearch.org/hispanic/2012/… ImageImage
Read 17 tweets
Noah Smith 🐇 Profile picture
5 Oct
1/This raises an interesting point. Does antipathy toward the government of a country imply antipathy toward its people?

Hopefully not. But maybe! It's complicated.
2/If you're not a bigot, then you'll recognize the basic truth that most people, in most countries, are good people (most of the time).

But organizations, made up of people, sometimes do very bad things. Concentration camps, invasions, ecological destruction, etc. etc.
3/Therefore there's a natural tendency to mentally separate the people of a country from its leadership.

To view Americans positively while hating Trump, for example.

Or to say "I don't hate China, I hate the CCP." Which many people say.
Read 15 tweets
Noah Smith 🐇 Profile picture
28 Sep
Among the points I made in my debate with @CarlZha:

1. China's neighbors mostly have negative opinions of China, because they're (justifiably) afraid of it

2. China's repression of the Uighurs is a bad sign about what kind of hegemon it would be

Carl basically argued that Chinese regional hegemony in Asia would be benign, citing the "tributary" system that prevailed in imperial times.

I expressed my doubts as to whether China's neighbors would like to be its tributaries.

Carl questions the sources that report 1,000,000 Uighurs imprisoned in camps in Xinjiang.

To which I reply: "Suppose it's only 500,000. Should we be less scared?"

Read 7 tweets
Noah Smith 🐇 Profile picture
23 Sep
It absolutely should. The government should be building luxury condos in superstar cities and selling them cheaply to young people.
Housing only works as a sustainable wealth vehicle if you keep building more of it.

Building more housing creates actual real wealth.
Right now, the debate is between 3 factions:
1. YIMBYs: allow more private housing development
2. PHIMBYs: govt. constructs social housing and rents it to people
3. NIMBYs: do nothing, fuck the world

I want a fourth option: Govt. builds new housing and sells it cheaply.
Read 4 tweets

Did Thread Reader help you today?

Support us! We are indie developers!

This site is made by just two indie developers on a laptop doing marketing, support and development! Read more about the story.

Become a Premium Member ($3/month or $30/year) and get exclusive features!

Become Premium

Too expensive? Make a small donation by buying us coffee ($5) or help with server cost ($10)

Donate via Paypal Become our Patreon

Thank you for your support!

Follow Us on Twitter!

Like this author's thread?

Get email notifications when new thread is out from this Author!

Check out other threads from this Author!

Read all threads by @Noahpinion