Longreads

• From Harpers: Bad News, on earlier bouts of misinformation panic. The fact that people panicked about something in the past doesn't mean that it's not a problem in the present (there were drug panics in the 1960s and the 2010s, but the recent crop of substances is a lot more deadly, for example). But this is a very useful exercise in getting perspective. One important point the piece makes is that worries about social media are, in moderate doses, very beneficial to social media companies. If the average person thinks that Russia can use Facebook to swing an election, they're also likely to think that running ads of their own on Facebook will grow their business. The sweet spot is for the average person to be worried about media influence, but for the average Congressperson not to care, and Facebook is clearly well past that point.

• ChinaTalk has a great piece on China and education policy. It offers one reason to think that for-profit tutoring companies are a special case, at least in terms of how severely they'll be chastised: the content of education is very important to a one-party state, and the state can't tolerate unregulated alternatives even if they're small-scale.

• This Interfluidity piece is a great look at inequality from a Keynesian perspective. Setting aside the politics, the economic point is sound: if rich people tend to save more of their money, then growth that skews to them produces less demand than more broad-based growth would, which means that larger deficits are possible without triggering inflation. Note that this is true whether the rich are getting that way by extracting economic rents from everybody else or by creating wealth—i.e. whether you view Google as a way to monopolize part of the ad industry or as an extremely useful tool that also has an excellent business model driven by ads, growth that skews to Google is deflationary, which means there’s room for otherwise-inflationary policy.

• In Chinese Characteristics, an overview of the semiconductor supply chain, China's role in it as a consumer and producer, and why it's viewed as strategic. This is especially useful as a look at how much harder chip fabrication gets as chips get more advanced, which is a very important phenomenon to be aware of. There's a plausible future where in 2030, the most advanced chips are made by five different companies, instead of two, because more places have decided that leading edge chip manufacturing is a national priority. And there's a more interesting near-future hypothetical where instead of two manufacturers, there's just one.

• A paper from the BIS on window-dressing and bank capital requirements. "Window dressing" is the general term for taking actions at the end of a quarter that make the final numbers look good. This can include fund managers buying more of their biggest holdings in order to make the numbers look better, or businesses trying to close deals in the last few days of one quarter rather than the first few of the next. For banks, it's actually important to that they do this, because a) it means they're taking more risk than they appear to be, and b) because it means that there will be a moderate annual liquidity cycle, where disruptions in the market are more likely at the end of the quarter as banks close out some of their positions. It is nearly always the case that a regulation will have second-order effects in the opposite direction of its first-order effects, and effective regulations are the ones that control this tendency, not the ones that ignore it. Banks are generally well-capitalized right now, as the early 2020 experience showed, so the real effect will be on more levered financial institutions that deal with banks but aren't regulated as banks.

Books

• America's Bank: The Fed was a synthesis of progressive reformers, Europhile technocrats, bankers, and expedient politicians, and this book tells the story of how it went from a concept to a legal reality (and then on to an existence very different from what its framers intended). Part of that historical context is that various institutions filled the role of the Fed. J.P. Morgan is the most notable example, but there are others: during some panics, clearinghouses allowed banks to settle transactions with IOUs, which is functionally equivalent to having a lender of last resort, just on a less organized basis.

• Richard Rhodes' Energy is a history of energy transitions from both a technical and economic perspective. If you've ever longed for a book that considers both the economics of whaling and has diagrams of Galvani's twitching frogs, this is the one to read. Especially interesting: a tangent on guano, which was a more effective fertilizer than horse manure and which thus made horses more of a pollutant in cities. As it turns out, one of the forces that drove adoption of cars was a millennia-old pile of bat droppings off the coast of peru.

Open Thread

• Drop in any links or books of interest to Diff readers.

• The rogue traders we know about are the ones who lost money and got caught, but surely there are some who got away with it. Are there any rogue traders who have admitted to it after the fact? Sometimes in early interviews, startup founders will talk about growth hacks that they’d rather forget about later, but traders are less likely to give interviews.

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