Oct 22, 2022Liked by Noah Smith

Interesting piece, glad you talked about inflation. My head is spinning with all the back and forth blaming about what is causing it. Probably all of the above.

In the old days (whenever exactly that was) it seems that inflation was closely paired with higher wages much more than it is today, a la the below commenter. But maybe it is more than we are acknowledging, people seem to have more money, stores are just as full even with sometimes shockingly high prices.

Also, I saw a graph that showed the bottom 25% of income earners had 50% more savings now than they did before the pandemic.

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Quiet quitting needs some evidence before it get entrenched as a theory. It assumes that in the past people worked hard in the office and now they don’t.

Since we are talking about knowledge workers, the measure of time as a proxy for output is a problem, especially in engineering and such roles.

Quiet quitting is loosely related to work from home which is assumed to be the tool (unsupervised work) but seems to ignore the productivity gains of cutting out commuting, socializing (with other social impacts), shorter meetings etc.

If we just equate “quiet quitting” with the old “slacking off” then not much is new.

Evidence vs wishful thinking of “sticking it to the man” would really help here and seeing how this evidence changes with tougher economic times and layoffs creates an interesting “lab” to test this hypothesis.

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I was taken aback by this statement: "most sources seem to confirm this. Overall, Taiwan seems to have done a decent job of ensuring affordable, abundant housing near the city center" since anecdotally my brother in law bought recently an apartment in not even central Taipei (but admittedly near a metro station which is highly desirable), maybe a bit over a thousand sqft for USD1.5m, or something like 12x the couple's combined incomes (helped by gift from parents + dirt cheap jumbo mortgage - interest rate is well under 2%). That doesn't strike me as affordable and puts them in great danger of financial distress if rates ever rise (these are floating rate mortgages). The critical need to keep mortgage rates low to avoid a revolution is why probably Taiwan has yet to meaningfully hike interest rates despite rising inflation...

I suspect the relatively even distribution of incomes observed on the metro map Noah linked to has more to do with fact that people who bought decades ago never sold/moved out (probably due to rampant fetishization of housing ownership that is maybe endemic to Chinese societies) than to current affordability. E.g. this source https://www.taipeitimes.com/News/biz/archives/2022/10/15/2003787048 cites price per ping (36 sqft) of new apartments is USD33k in Taipei proper and somewhere between $10-20k in surrounding areas. That's NYC level prices, for a city with decidedly non-ibanker level incomes.

Btw while i have no hard data on whether Taipei apartments are on average bigger than Tokyo's (anecdotally have seen plenty of tiny apartments in former too) wonder whether the Japanese custom of sleeping on futons (which can be stored away during daytime to make space) vs. beds is a reason why they can be more space efficient. People in neither place have really income to spare for wasted space and I suspect they are buying just bare minimum they can scrape by with.

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Oct 23, 2022·edited Oct 23, 2022

Hmm, I think I need to push back somewhat on your take on scooters & bicycles in Taiwan.

I think Americans somewhat over-fetishise bicycles (that video of a "waterfall" of scooters isn't going to be substantially more pleasant if they're all replaced by bicycles; there's a real win switching away from polluting 2-stroke engines but you could also just mandate electric scooters).

I think that's in part because they are still in the "cool early adopter" phase, much as cars were for most of a century. Scooters provide tons more utility (try taking a passenger on a bicycle; child seats max out at 60 pounds, or around a 5-year old size) with only slightly more downside around size and weight. What's more the increase in e-bikes further blurs the line between scooters and bicycles on safety measures, making it unclear why you'd have a strong policy preference for one over the other. Electric bikes can already easily go 45kph, which is well above the speed limit of Taipei (and most other urban areas in Asia that I know of). Lightweight scooters like the Honda Cup/Cub with its tiny 50cc engine are barely faster than the fastest electric bikes. (Honda already makes an EV version of this but I don't think they've made it available outside of Japan yet.)

In the Netherlands they're starting to run into problems with bicycles "taking over" from pedestrians, residents in Amsterdam pushing back, and cyclists pushing back against making spaces comfortable for pedestrians. See this article from last year, for instance, https://www.theguardian.com/world/2021/may/21/trouble-cyclists-paradise-amsterdam-accused-favouring-pedestrians where members of the cyclists union complain that it is a "a lot of stress" having to share space with pedestrians.

Or this article about how cycling injuries continue to rise https://www.iamexpat.nl/expat-info/dutch-expat-news/fewer-road-fatalities-more-serious-bike-accidents-netherlands

I think we're just early enough into the bicycle adoption curve that we haven't really run into as many of the problems the same way we have with cars and scooters.

Taiwan does have more traffic deaths but I'm pretty dubious that switching to bicycles would materially affect that. Scooter fatalities are largely driven by scooters colliding with cars & trucks. Being on a bicycle obviously isn't going to improve that situation much.

You suggest building protected bike lanes -- that's the real change. But you could just as easily build protected scooter lanes. Cities like Taiwan (and Ho Chi Minh City, where I live) don't because of a combination of scooters being low-prestige (see Yangon for an example of that gone horribly awry) and thus not worth that level of funding and, well, these countries just aren't as rich as the Netherlands and building dedicated infrastructure for anything is expensive so politicians try not to. (A quick Google seems to say that the Netherlands GNI per capita is nearly 2x Taiwan's.)

The fundamental problem is mixed-mode traffic seems to almost always eventually break down without strong social norms (like the streets in Japan you mention) that encourage people to drive much, much slower than whatever vehicle you're in actually can do. (Witness how even the Netherlands had issues with scooters sharing bicycle infrastructure and had to ban that recently.)

I don't know what a good solution to that is since "fix people so they're not jerks" isn't really actionable.

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Noah, in stronger defense of mathematical economics, I would point to pseudo-scientific economic subfields like Marxism, Austrian economics, or MMT, as well as to fields like psychology and even early physics.

The inability to express predictive models in terms of formal mathematical theorems is really quite crippling, as it renders them almost impossible to fully falsify. Much like MMT, this can make fields impenetrable to outside observers, and require that “gurus” be consulted as to the true meaning of their work. Some degree of esotericism is inevitable, but one can today pick of up an economics textbook and, with a reasonable understanding of mathematics, at least dispute that the formulas match reality. Without the formulas, economics would be far easier to reduce to the kind of debates people have about history--fascinating, but empirically tenuous and nearly predictively useless.

Abstracted, mathematical theories have other advantages. They tell us the purported strength between variables in explicit terms, allowing us to quantify risk beyond mere human expectations. They also remove a significant degree of bias.

Now, lest people think that only economics had this struggle, or that economics is special for the number of assumptions it makes, recall that Aristotle’s “Physics” was the governing text of physics as a discipline until Galileo proved it wrong--first in theory, then empirically. Copernicus too, was accused of relying to heavily on mathematics on rejecting the Ptolemaic model of the Solar system.

And Aristotle’s text, it should be mentioned, failed to recognize even that fundamental distinction of modern physics between velocity and acceleration. Brilliant people for thousands of years failed to notice this error in a literary work. The mathematization of physics has allowed progress to proceed much faster.

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I love Taipei! FYI, the covered walkways in Taipei also help with the oppressive heat of the sun in the summer.

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"there are covered sidewalks everywhere, presumably to protect from the sort of constant light drizzle"

They're even more useful in the summer, when they protect from sunlight in the 95°F weather and from torrential downpours.

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I lived in Taipei for six months in 1991 and I still haven’t kicked the habit of rechecking for surprise scooters zooming out of nowhere when stepping on to the road (or the sidewalk, for that matter) no matter which city I’m in. I did ride a bike in the city when I was there, and the moment when my chain came off mid busy intersection with a sea of scooters roaring towards me is etched into my brain.

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I appreciate Bernanke and Diamond's work that was very useful in 2008-2010 to prevent the GFC from escalating into Great Depression II. What would have been more useful would have been an economic model that would have told people in 2004-2006 that a bubble and financial crisis were on the way and how to stop it before it got going.

Re: Inflation and the Fed. Everybody is focused on housing etc. I think the key thing is employer-employee relationship regarding wage increases and the wage-price spiral. If they start to lock in expectation of annual 4%+ wage increases, it will take a decade to bring inflation back to 2%-3% and could require a Volcker-like move. I think the Fed is trying to cut that off at the pass.

As somebody who has been in a very wide variety of housing markets (lost and made money on houses), housing costs can change on a dime and a city's housing cost can drop 25%-50%. in a couple of years if unemployment rises significantly. Jobs are more important than interest rates for maintaining a stable housing market. Wages are much stickier, so the only way employers can really cut employee costs is by laying them off which dramatically increases unemployment. Victory for the Fed is achieving annual average wage increases to 3% or less and unemployment less than 5% in 2023-24. If they can pull that off, inflation will likely be "transitory" without a significant recession in the grand scheme of things. If they can't, Volcker II is coming in 5-10 years.

The "quiet quitting" thing is a BS social media meme. As somebody who has been in real-world workplaces for several decades, employees are largely the same as they were 30-40 years ago. In low unemployment periods, they just have more options so bad managers become more exposed and management whining increases. Slackers were slacking 30 years ago; you just can't get rid of them now because there is no one to replace them. The bigger problem is that bad managers demotivate the better employees and force them to go elsewhere so the bad managers are left with the slackers.

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If interested in Taiwanese scooter electrification, check out this Volts podcast, very interesting: https://www.volts.wtf/p/volts-podcast-horace-luke-on-decarbonizing

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I love your tour blog was 1st in those Asian cities in 83.

Here's my biz guy take on unemployment v Inflation.

I did take Macro with Samuelson at Sloan. Circa 73 74. Also Labor economics and labor relations. Later as a product and marketing management at a BigCorp.

In the 1970s thru 1990, labor was a larger and more visible component of direct cost (or variable cost). However...

As a geek, I saw the advent, growth and implementation of the greatesr Productivity Tool in history. Greater than the Assembly Line. And no one..really talks about it.. much

The personal computer.

Almost all of Welch's Productivity drive at GE was driven by the hidden hand..not Adam Smiths...Bill Gates and WinTel.

Secretaries, travel agents, draftsman jobs disappeared.

I walked into Fisher Body at the GM Tech Center in 79, and there were 100 row of 50 to a 100 wide of wooden drafting desks. One engineer and 2 to 5 draftsman. And a coffee pot. All gone and 3 engineers and 10 draftsman reduced to one engineer with Solid Works.

So today, labor costs are a dramatically smaller component of cost. Even in hamburger making. As a % of Price.

So I'm frankly baffled about the model today, of Inflation and employment as a. Causative or b. Even loosly correlated.

The theory, and correct me, is that raising interest rates raised the non labor costs of acquisition of debt. That's it. So then debt burden squeezes excess cash from being available to buy "excess" goods, thus reducing demand and thus eventually reducing price to compensate.

Yet, there are other ways to effect rising prices I think. For example, you could configure a value added tax above a baseline of price. Not a control of price..but like the sports luxury tax.

The windfall profit tax is probably close.

For all the kerfuffle about gas prices, I'd argue that the variable cash cost of a gallon of gas is probably hasn't deviated much from 1990.

And wherefore art thou fraking?

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Quiet quitting is definitely a thing. Observed it in IT, observed it in academia, and my parents observed it in retail (well, mostly in office-side managing of retail) and, recently, in politics. That said, you seem right about the math of what its existence would imply :)

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Hi Noah, You asked for thoughts on Singapore, where I've lived the last 30 years. Count me as a full on Singapore fan -- the quality of urban planning and overall government is, I believe, the best in the world. My top ten things to do to get a feel for the place:

1. Take a jog around the reservoir at the end of the Singapore river. This was a saltwater harbor and is now a freshwater reservoir. You'll jog by the Marina Bay Sands (Singapore's foray into casinos), the helix bridge, One Fullerton Bay Hotel and a Promenade (only 3 km). If you are a better runner, try the 10 km that takes you through the "new" botanical gardens. https://www.rqam.com.sg/events/best-evening-run-routes-around-marina-bay/

2. Eat chili crab and pepper crab. The "classic" place to go is the East Coast Seafood -- 6-7 restaurants grouped together on the water, with a view towards Indonesia. https://www.tripadvisor.com.sg/RestaurantsNear-g294265-d5874326-East_Coast_Seafood_Centre-Singapore.html There is also a branch of Jumbo Seafood at Clarke Quay which may be more convenient

3. Try having a brunch at Common Man Roasters in the Joo Chiat area. https://commonmancoffeeroasters.com/pages/our-cafes This used to be a somewhat run down area that is now thriving. One of the best coffee places in Singapore

4. Ten restaurants worth trying, depending on your tastes: Violet Oon's Kitchen (for local food in the old Parliament), Burnt Ends (highly rated BBQ that is really sensational -- not your US style sauce heavy BBQ), Min Jiang at Goodwood Park Hotel for Chinese, Coconut Club near Club Street for Nasi Lemak, Kotuwa for Sri Lankan, Candlenut for Perannakan, Rang Mahal for Indian, DOC (South Beach) for Pizza, Maxwell Road Hawker for a food center experience and Meta for Korean (slightly fusion)

5. Two places to see the tropical landscape -- the Singapore Botanic Gardens and a walk around MacRitchie Reservoir

6. For history I would recommend the Asian Civilizations Museum

7. If I were reading a book before arriving I would read Lee Kuan Yew's autobiography (actually two volumes)

8. If you want a feel for the history, read King Rat by James Clavell or watch Saint Jack on YouTube (based on a Paul Theroux novel)

9. If you have time for a bicycle ride the easiest place for a visitor is to go up and down the East Coast Park.

10. To have a few drinks after the day, I'd recommend Kampong Glam

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At least now I know what economists like Bernanke did while the banks were busy plundering the common hardworking people of the US of A. They were busy with meaningful mathematical modeling !

Too busy to check what was happening in the real world. In an interview B. talked rising housing prices. Apparently it was the same to him as the sea levels rising - a natural phenomenon. But higher housing prices means people getting into larger financial obligations. Nobody wondered if these people could make the payments ? Nobody wondered how a part of the US known for AG - meaning immigrants, often illegally here - had so many wealthy home owners all of a sudden ?

We did not have a sudden Great Depression, we had a more "leveled out" one, with consequences spread out over several years. A large number of people lost their house, their savings, their job, and never recovered from those losses. Many of them were so desperate they voted D. Trump into the Presidency.

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Taiwan is a step ahead of you on some of the recommendations.

Beneath the surface it's actually a very bike friendly city, with dedicated bike routes separate from roads, often cutting through riverside parks, and ubiquitous rental stations. No surprise there's some bike love in the home of Giant.

Scooter electrification is being pioneered by Gogoro. Innovative rental setup where you pop fuel cubes in and out at various stations. More support would help it spread more of course

The Gogoro system is very tech utopia when you see it, the aesthetic and convenience of it seems very much your style, I hope you check it out.

They've licensed this platform to other scooter manufacturers and are trying to expand to other countries. I really hope they take off in places like Hanoi and Delhi where small motor pollution is much worse.

Gogoro also makes an ebike, incidentally. It's very light, bit of an innovative design.

Google recommends buses because the coverage is excellent, cost is pennies, and outside of rush hour there are often open seats. MRT is very good though. Taxis are plentiful and inexpensive too, though more dependent on language.

I hope you get to enjoy some soup dumplings and beef noodle soup. The Indian food in Taipei can be surprisingly good too.

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"That said, Larry is probably right that the Fed will have to cause some kind of recession in order to beat inflation. Hopefully it will be a very mild one."

Depressions are damaging to everyone, especially the poor and middle income. And high interests rates are themselves inflation: they are the cost of borrowing money, a component of the cost of everything else.

Please explain to an ignorant layman why controlling inflation is not done by raising taxes on the rich and using the revenue generated to pay down the debt, thus reducing the money supply and making money more valuable?

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