Covid-19 federal assistance to state and local governments and its consequences

Gavin Newsom, the governor of California and an optimist for the presidency, recently reached an agreement with state legislators on one more check to mail to families in the state (Luna 2022). The families will receive up to $ 1,050 in cash from the state government, a strategy that will cost about $ 10 billion. This follows two previous rounds of so-called Golden State Stimulus payments to California residents in 2021.

All of this constitutes quite a change of tone from May 2020, when Newsom proposed significant cost reductions in response to the recession caused by the Covid-19 epidemic (Governor Gavin Newsom 2020’s office). What happened?

In the first months of the epidemic, analysts and policymakers alike expressed significant concern about the impact of the initial recession and widespread lockdown on state and local budgets (Bartik 2020, McNichol et al. 2020). Since state and local governments in the United States are generally bound by balanced-budget requirements, revenue cuts can cause sudden disruption of service provision and reduce employment for state and local government employees (Clemens and Miran 2012, Shoag et al. 2019). To avoid such unrest, the federal government has taken responsibility for the stability of state and local budgets.

And it has assumed responsibility. Across the four major Covid-19 relief bills, the federal government has allocated approximately $ 900 billion to state and local governments. This was consistent with the most pessimistic estimates of early revenue for the epidemic (e.g. Bartik 2020). These estimates, however, dramatically overestimate the impact the epidemic will ultimately have on state and local budgets. In fact, since the beginning of 2020, the state’s tax revenue has exceeded the pre-epidemic forecast (Dougherty and de Biase 2021, National Association of State Budget Officers 2021).

There are two main reasons for missing the initial forecast signs of revenue loss (Clemens and Vigar 2020, imminent). First, they did not account for other elements of the recessionary policy response, including the unprecedented amount of support for families and organizations, as well as the rapid development and deployment of vaccines. These policies indirectly supported the tax base of state and local governments, making direct assistance to state and local governments less necessary. Second, they often relied on the historical relationship between macroeconomic indicators and revenues that were quite different during the Covid-19 crisis.

We at Clemens et al evaluate the results of possibly overly generous federal financial assistance to state and local governments. (2022a, 2022b). In both papers, we exploit the fact that the allocation of federal aid was much more generous to residents of states that were more favorably represented in Congress than to residents of less favorable states. Representation does not measure proportionately to population, largely because each state elects two senators regardless of its population, and partly because each state gets at least one member of the House of Representatives. The resulting over-representation of low-population states (or ‘smaller’ states) strongly predicts their aid allocation. This led us to use a measure of representation of the state’s counter-resident congress as a helpful variable. As Figure 1 (Clemens and Vigar 2021) illustrates, this ‘small-state bias’ leads to significant differences in the amount of Covid-19 relief funds per resident received by the public sector in smaller states than in larger states.

Figure 1 Assistance to residents by the level of congressional representation

The difference in federal funds flowing to different states as predicted by the difference in congressional representation cannot be explained by other factors, such as the projected revenue deficit, the severity of the threat to public health, or other proxies for funding needs. As a result, they allow us to avoid an ideal source of bias, namely that aid flows most generously to the most needy states, as we estimate the impact of financial aid on macroeconomic outcomes.

The first and main results of interest we analyze in Clemens et al. (2022b) is state and local government employment. Preserving state and local government employment is important and, in itself, for its role in ensuring the provision of continued services and stabilizing the larger macro-economy.

Figure 2 shows the local-projected emotional response to state and local government employment in financial aid. This indicates that each $ 1 million grant has been modestly reserved for 18 public sector job-months across 18 months of our sample, or more so to speak, financial assistance of $ 855,000 for each state or local government job-year. Saved. This number is much higher than comparative estimates of past recessions. Research on the impact of elements of the 2009 U.S. Recovery and Reinvestment Act, for example, has an estimated cost per year of work ranging from $ 26,000 to 2 202,000 (Chodorow-Reich et al. 2012, Wilson 2012, Conley and Dupor 2013). In the context of the epidemic, the paycheck protection program is estimated to cost $ 169,000 to $ 258,000 per job-year (Autor et al. 2022a, 2022b).

Figure 2 Impact of federal aid per resident on state and local government employment

Figure 3, from the same paper, shows that the impact on the larger economy was (even) more modest (see also Auerbach et al. 2021). Federal assistance to states and locals does not appear to have statistically significant effects on private-sector employment, wages, income, or output. This may also contrast with past work on the multiplier effect of federal spending (e.g. Inoue et al. 2022). Historical recession estimates from the Great Depression through the Great Depression tend to make multiplier estimates between 0.5 and 2 (Ramey 2019, Chodorow-Reich 2020).

Figure 3 Impact of federal aid per resident on macro results

Clemens et al. (2022a), we and John Cairns report some more positive results. Federal assistance appears to have helped states introduce more effective testing activities. As shown in the figure below, the testing benefits of the states that received the most federal funding have steadily increased since the summer of 2020.

Figure 4 Impact of federal assistance per resident on total Covid-19 tests conducted per 100,000 people

An analysis of our states’ vaccination campaigns shows that states that receive more federal funding per resident do not outperform their peers due to higher vaccination rates. It turns out that larger federal funds have created a more equitable type of vaccination: states that have received more federal funding have seen smaller gaps in vaccination rates for residents with college education than those with higher school education.

The overall picture drawn by the brief work here suggests that federal assistance for state and local governments was only decently effective, if only as a macroeconomic stimulus. In addition to the overly generous support allocated to state and local governments, two factors are probably important in explaining this. First, for most of the past two years, the public health situation has led the government to impose restrictions and to discourage families and organizations from voluntarily engaging in a wide range of economic activities. Voluntary pullbacks on these restrictions and economic activity could shut down a core process through which revenue stimulus traditionally works. Second, before the state and local governments used the full amount of their allocated funds, the economy entered a period of significant inflationary pressures. It distinguishes the recent macroeconomic context, for example, in the aftermath of the global crisis, when the overall demand deficit was strong.

It remains to be seen how far federal funds have advanced other targets of interest. Our analysis of the states’ testing and immunization campaigns suggests that federal funding has moved toward at least some interest. The impact of federal funding on education, law enforcement, and other local public services needs to be evaluated in future research.


Auerbach, A, Y Gorodnichenko, PB McCrory and D Murphy (2021), “What Covid-19 Teaches Us About Fiscal Multipliers”,, 23 December.

Autor, D., D. Cho, L. D. Crane, M. Goulder, B. Lutz, J. K. Montes, W. B. Peterman, D. D. Ratner, D. Villar Valenas and A. Yildirmaz (2022A), “Assessment of Paycheck Protection Program Using Administrative Salary Microdata”, N.B.R. Paper 29972.

Autor, D, D Cho, LD Crane, M. Goulder, B. Lutz, J. K. Montes, W. B. Peterman, D. D. Ratner, D. Villar Valenus and A. Ildirmaz (2022b), “The $ 800 Billion Paycheck Protection Program: Where the Money Goes and Why. Went there? “, Journal of Economic Perspectives 36 (2): 55-80.

Bartik, TJ (2020), “An updated proposal for timely, responsive federal assistance to state and local governments during an epidemic recession”, WE Upjohn Institute for Employment Research, 22 May.

Chodorow-Reich, G (2020), “Regional Data in Macroeconomics: Some Tips for Practitioners”, Journal of Economic Dynamics and Control 115: 103875.

Chodorow-Reich, G, L Feiveson, Z Liscow and WG Woolston (2012), “Does the state’s financial relief during recession increase employment? Evidence from the American Recovery and Reintegration Act “, American Economic Journal: Economic Policy 4 (3): 118-45.

Clemens, J, P Hoxie, J Kearns and S Veuger (2022a), “How Did Federal Aid to States and Localities Effect to Testing and Vaccine Delivery?”, NBER Working Paper 30206.

Clemens, J, P Hoxie and S Veuger (2022b), “Was Pandemic Fiscal Relief an Effective Fiscal Stimulation? Evidence of assistance to state and local government ”, NBER Working Paper 30168.

Clemens, J and S Miran (2012), “Fiscal Policy Multipliers on Subnational Government Spending”, American Economic Journal: Economic Policy 4 (2): 46-68.

Clemens, J and S Veuger (2020), “Fiscal Federalism and the COVID-19 Shock in the US”,, 26 September.

Clemens, J and S Veuger (2021), “Politics and Distribution of Federal Funds: Evidence from Federal Law in Response to COVID-19”, Journal of Public Economics 204: 104554.

Clemens, J and S Veuger (forthcoming), “Lessons from COVID-19 Support for State and Local Governments for the Design of Federal Automatic Stabilizers”, Aspen Economic Strategy Group.

Conley, TG and B Dupor (2013), “The American Recovery and Reinvestment Act: Solely a Government Jobs Program?”, Journal of Monetary Economics 60 (5): 535-549.

Dougherty, S and P de Biase (2021), “State and Local Government Financing at COVID-19”,, 26 October.

Inoue, A, B Rossi and Y Wang (2022), “Why Fiscal Multipliers Estimate Changes Over Time and What Determines Their Dimensions”,, 14 April.

Luna, T (2022), “Planned to return more than 9 billion in gas to California drivers”, Los Angeles Times, June 24.

McNichol, E, M Leachmen, and J Marshall (2020), “States Need Significantly More Financial Relief to Slow Out of Emerging Deep Recession”, April 14, Budget and Policy Priority Center.

National Association of State Budget Officers (2021), “The Fiscal Survey of the States: Fall 2021. An Update of State Fiscal Conditions”.

Office of Governor Gavin News (2020), “Governor Newsom May Revision Budget Proposal 5.14.20 Submitted to Legislature”, 14 May.

Ramey, V (2016), “Macro Economic Shocks and Their Promotion”, in JB Taylor and H Uhlig (eds.), Handbook of macroeconomics 2: 71-162.

Ramey, V (2019), “Ten Years After the Financial Crisis: What Have We Learned from the Renaissance in Financial Research?”, Journal of Economic Perspectives 33 (2): 89-114.

Shog, D., C. Tuttle and S. Viger (2019), “Rules vs. Home Rule: Local Government Response to Negative Revenue Pushes”, National Tax Journal 72 (3): 543-574.

Wilson, DJ (2012), “Fiscal Spending Jobs Multiplier: Evidence from the 2009 American Recovery and Reinvestment Act”, American Economic Journal: Economic Policy 4 (3): 251-282.

Levin: Kasturi has lost interest by pretending to buy Twitter

Alonso out
Kasturi lost interest by pretending to buy Twitter.
Bloomberg, July 9, 2022

I occasionally spotted a newsletter / commentary written by my Bloomberg colleague Matt Levine (see, e.g., this, this, this, or this). No one cuts through the complex world of securities law, M&A and SEC rules like Matt. Here is a quote from his recent post. You can Subscribe to this link.

Oh Elon

I think it’s helpful to start with the big picture. Elon Musk is the richest man in the world and like many other rich people he has some unusual and expensive hobbies. One of his hobbies is that he sometimes likes to pretend that he will acquire public companies.1 She seems to find this fun, and why not? When he pretends to buy a public company, it creates a big drama centering on him. He bosses people in the neighborhood, bankers and lawyers, and hangs-on sources of funding and random2 Hoping to finish the deal, and then when he gets upset he can tell those guys to go home. “Haha you got it,” he could say, and they could all laugh well, or he could anyway.

This is an expensive hobby! When Musk pretended in 2018 that he was going to take Tesla Inc. private, he had to pay a 20 million fine to the U.S. Securities and Exchange Commission and stop being chairman of the Tesla board. You’re not supposed to go around pretending that you should buy a public company; The SEC occasionally considers securities fraud. But Musk is very rich and he could easily pay $ 20 million for his little trick. His appetite for pretending to buy public companies was, apparently, no less.

So this April, Musk announced he wanted to buy Twitter Inc. Why not? Musk seems to have a lot of fun using Twitter, and buying Twitter is a great way to pretend to buy On Twitter. At the time, I assumed that, like Tesla, he was doing something. “Usually,” I wrote, “if a billionaire chief executive officer of a public company offers to buy a company, his disadvantage Naughty Pretty low. When it’s Elon Musk, the historical differences are like 50/50. “

But he surprised me by quickly setting up a financing line (paying millions of dollars in fees to banks for a letter of commitment) and signing a merger agreement with Twitter. If he Was Pretending he’s going to buy Twitter, which ones to go? But he often goes to wide (and expensive) lengths for a joke – he sold 20,000 branded flamingos to make jokes about flamingos, and set up a boring company to make a joke (???) about tunnels – so who knows. Will he line up a billion-dollar financing and sign a mandatory consolidation agreement with a fixed-performance clause and a $ 1 billion breakup fee as a joke? I mean! No one else will! But maybe he is!

In any case, the market sank shortly after he signed the contract. Twitter’s stock closed at $ 44.48 on April 12, the day before Mask announced its offer; He agreed to pay 54.20 per share (420 A weed joke) Since then Twitter has certainly lost value: the stock closed at $ 36.81 on Friday, and other social-media stocks have declined significantly since April. (Snap Inc. has fallen about 57% since April 13; even Meta Platforms Inc. – Facebook – has fallen more than 20%.) Meanwhile, Musk’s main source of wealth is Tesla Inc. The stock is down about 27%. Announced his offer on Twitter. Twitter was worth less than what Musk agreed to pay for and Musk was less wealthy than when he agreed to buy it.. These are not Musk’s valid reasons for exiting the contract: The legally binding consolidation agreement signed with Musk Twitter does not allow him to terminate the contract due to changes in the stock market or his own assets. But because they can be masks I want Get out of the deal, even if he Was not Was joking when he first signed.

Yet, one should be open to that possibility Was He was joking when he first signed the contract. “Elon Musk had a well thought out business and financial plan for Twitter that worked on the economic situation in early April 2022, but the situation has changed and the model no longer works” does not hit me as the most logical description going here. “Elon Musk anxiously thought that owning Twitter could be fun, so he didn’t take it too seriously and signed an attachment agreement and then lost interest a week later,” he said. My first reaction to his Twitter purchase offer, that it was a joke, might be right. He was much more committed than I expected.


Elon Musk says he is canceling his $ 44 billion deal to acquire Twitter Inc. and accepting it personally, starting a legal battle with the company.

Twitter has made “misleading representations” about the number of spam bots on social networks and has “not complied with its contractual obligations” to provide information on how common bots are, according to a letter from Mask’s representatives on Friday as part of a regulatory filing.

Twitter says they will fight in court.

Here is the letter signed by Mike Ringler, lawyer for Scaden, Arps, Slate, Clouds and Flum LLP, Musk. It’s… ehhhhhh. Ehhhhhhhhhhh. Do we have to talk about this? Fine. Wrangler offers three excuses as to why Musk should be allowed out of the deal.

Go see the full column here.


1. It’s a * unusual * rich-person’s hobby, but by no means * unprecedented *. The famous Donald Trump spent some time in the 1980s pretending that he was going to buy public companies. But he did it as a way to make money – by pulling out greenmail from companies – while Mask seems to do it for the most part.

2. And, let’s face it, financial newsletter writers.

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Free America Again (MAFA)

“Saints, por fever,” I said to an old abuella standing on the square of the post-fireworks boardwalk pizza party.

She stared anxiously at the four-foot space of the open bench next to me but was hesitant, perhaps wondering why an old, bald, oversized gringo would please ask her to sit next to him. His reluctance was probably not Fausi-related because not one in a hundred at the festival and none of his team wore a mask of allegiance.

So after a short break, I added, “es un pais libre, todavia, mas o menos,” for the best Spanish I can collect “it’s still an independent country, somewhat sorted.” Then he looked at me as if I were a certified loco en la cabeza when he was relieved, apparently for another slice of pizza.

I felt like a boiled frog for a moment, but my wife came back unexpectedly quickly with blueberry ice cream, which probably makes modern life worth living.

Until the next morning when I read a story about American companies and even the Federal Retirement Thrift Investment Board investing in China despite having a bad record of human rights and cowardly lockdowns, I remember:

Immigrants are flocking to America for pizza, blueberry ice cream and other economic benefits, not freedom or lack thereof.

The babble I heard during the fireworks display was not about immigrants celebrating their new country’s birthday, it was about a free show. The Arabic, Spanish and Eastern European languages ​​I heard about me were not unusually loud or numerous, there were fewer English-speaking Americans. The crowds at the fireworks display on the beach were much smaller than usual.

Why would so few Americans go out for Independence Day fireworks on a night with perfect weather forecasts and deliveries?

Inflation seems to be taking its toll on some resort cities, whispering that this year is worse than last year, despite a much tougher grip on covidcressi a year ago. Tourists still come to the beach, but they always bring their own food instead of buying expensive boardwalk stores. Lots of detergents. The hotels are full but not as full as Covid’s before. Cheap overnight alternatives like indoor campsites, spring like wild flowers of spring.

Then there’s the “progressive” outrage against recent SCOTUS decisions, as they were. One does not need to organize a “F *** The Fourth” march to decide to sit on this Independence Day, especially with all those maskless (and, breathless !, probably vaccinated) people.

There also seems to be some MAGA hesitation, an idea that America is rapidly becoming too Marxist to celebrate. A book with that thesis has sold over a million copies since it was published last summer.

Instead of making America great (or green) again, Americans should strive for MAFA, To liberate America again. MAFA is an admirable goal in itself but can make America great (and green) again. America has become great, in a big sense and in a super sense, because of its independence in the first place, especially its economic independence, not because of its human rights violations.

The Policy Clear the way for MAFA, deregulate everything from Amtrak to monetary policy, revitalize the third sector (non-profit) and form a true ministry for all the demands made by the government, government officials and politicians and only for the demands. It will also be helpful to return to the rule of law by punishing government officials who try to stifle political opposition!

The Political The path to MAFA, though, is perfect. Many Americans, left and right, mostly low-quality public school products, believe that “freedom” means their freedom to say how other people should behave, the most intimate description of what they put or put out in themselves. Corpses

Even more worryingly, both major political parties have become so statistically that left and right critics call “unity” an established fact. While political competition in America has survived to some extent, interests in healthcare, higher education, military defense, and science and technology have created self-sustaining and self-developing “complexes” or “rackets” that seem impenetrable to rational policy discussions.

Indeed, those who best understood the responses to Covid’s principle followed meaning, not “science.” The Fauci and company that has received numerous non-trivial royalty payments (aka kickbacks) from pharmaceutical developers reveal a portion of a huge farm full of corrupt cash cattle. The interests involved are so strong that they can convince even Americans that they have the right to forcibly inject experimental non-vaccine vaccines into their bodies, and that plants like nitrogen and carbon dioxide are so bad for the food environment that everyone would die without major disruption. Economic change is made at the moment.

One hope for MAFA is that Americans will understand that Martin Luther King, Jr. was right when he wrote from Birmingham Prison in 1963 that “injustice everywhere is a threat to justice everywhere” and that untruth is the root of all injustice. Both untruth and injustice eventually fall from their own weight but as a result accidents can come unexpectedly, crushing innocent passers-by. It is best if America cuts its decaying Tree of Liberty on its own terms so that a new MAFA tree can grow faster in full clear sunlight.

Robert E. Right

Robert E.  Right

Robert E. Wright is a Senior Research Fellow at the American Institute for Economic Research. He is the author (or co-editor) of more than two dozen major books, book series and edited collections, including AIER. Best of Thomas Payne (2021) and Financial exclusion (2019). He has also written numerous articles for (including) important journals, including American Economic Review, Business history review, Independent review, Journal of Private Enterprise, Money reviewAnd Southern Economic Review. Since taking his PhD, Robert has taught business, economics and policy courses at Augustana University, NYU’s Stern School of Business, Temple University, University of Virginia and elsewhere. History from SUNY Buffalo in 1997.

Selected publications

  • Reducing Recidivism and Encouraging Prevention: A Social Entrepreneurial Approach Journal of Entrepreneurship and Public Policy (Summer 2022).
  • “The Political Economy of Modern Wildlife Management: How Commercialization Can Reduce Game Excess.” Independent review (Spring 2022).
  • “Sowing the Crisis of the Future Crisis: The Rise of the SEC and the Nationally Recognized Statistical Rating Organization (NRSRO) Division, 1971-75.” Co-author with Andrew Smith. Business history review (Winter 2021).
  • “AI ≠ UBI Income Portfolio Adjustment to Technological Transformation.” Alexandra Prozegalinska co-author. Boundaries of Human Dynamics: Social Networks (2021).
  • “Liberty is for everyone: Stowe and Uncle Tom’s cabinIndependent review (Winter 2020).
  • “Pioneer Financial News National Broadcast Journalist Wilma Sauss, NBC Radio, 1954-1980.” History of journalism (Fall 2018).
  • “The Evolution of the Republican Model of Anglo-American Corporate Governance.” Progress in the financial economy (2015).
  • “The Leading Role of Private Enterprise in the American Transport Age, 1790-1860.” Journal of Private Enterprise (Spring 2014)
  • “Corporate Insurers in Antebellum America.” Co-author with Christopher Kingston. Business history review (Autumn 2012).
  • “The Deadlist of Games: The Institution of Dueling.” Co-author with Christopher Kingston. Southern Economic Journal (April 2010).
  • “Alexander Hamilton, central banker: Crisis management during the 1792 U.S. financial crisis.” Richard E. Silla and David J. Co-author with Cowen 6 Business history review (Spring 2009).
  • “Integration of Trans-Atlantic Capital Markets, 1790-1845.” Co-author with Richard Silla and Jack Wilson. Money review (December 2006), 613-44.
  • “Converting the state into ‘currency’ and the US dollar: to clear up some confusion.” Co-author with Ron Michner. American Economic Review (June 2005).
  • “US IPO Market Reform: Lessons from History and Theory,” Accounting, business and financial history (November 2002).
  • “Bank Ownership and Lending Types in New York and Pennsylvania, 1781-1831.” Business history review (Spring 1999).

Find Robert

  1. SSRN:
  2. ORCID:
  3. Academia:
  4. Google:
  5. Twitter, Gator and Parlor: @robertewright

Robert E. Wright’s book

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10 Sunday read – big picture

Avoid the eyes! Mine Sunday morning See Incompetence, Corruption and Policy Failure:

A Things Fall Apart, Boris Johnson Edition: No tears for Boris Johnson and no tears for the Tory party. They knew what they were doing and they did it anyway. (Alex Massey)

A Google politicians are going to spam your inbox: The company’s latest pitch for Gmail is a relief for Republicans and a disaster for users. (Business Week) See more Confusion has become another untouchable problem in Washington Numerous federal agencies agree that widely spread lies are a threat to the country’s security. Doing something about them is another matter. (New York Times)

A America’s most miserable man: Why Lindsay Graham, Kevin McCarthy and many more cowards in Congress are still bidding for Trump (The Atlantic)

A The tycoon whose bet broke the nickel market went billionaire away Nickel’s ‘Big Shot’ is moving forward, but the market is still recovering. (Bloomberg)

A TikTok Shop customers are worried that they are buying counterfeit products: “TikTok definitely needs a whole new culture of responsibility,” one customer told BuzzFeed News. (BuzzFeed News)

A Medicare could save $ 3 billion by buying drugs in the Mark Cuban way In a recent study published in the Annals of Internal Medicine, we analyzed 89 generic drugs sold by Cost Plus Drugs and found that Medicare could save more than $ 3 billion by buying 77 Cost Plus drugs in 2020. For example, Medicare pays more than $ 2 per pill for aripiprazole, a commonly used psychiatric drug, while the Cuban company sells the same formulation of the drug for 24 0.24 per pill. (Washington Post)

A Secret police: A private security group regularly sends misinformation to Minnesota police about protesters There are 13 private security guards for every police officer in downtown Minneapolis, but these groups are far less controlled than the police department. (MIT Technology Review)

A Monkey Plains, an Epidemic and a Bochd Deal: Inside the Science Crisis You Never Heard Experts say there is a serious shortage of primates for biomedical research – and that it puts human lives at risk. (Mother Jones)

A The Supreme Court is a mass rogue – and it is a judicial coup When the Supreme Court attacks the Constitution, democracy is in deep trouble. (Eudymonia) See more Exactly how sharp was this term on the right side of the Supreme Court? The biased division of the Supreme Court has not been so sharp for generations. (Thirty five) See more The Supreme Court has pushed America to the brink. Based on the promise of credibility, the court has given itself that power and authority to prevent the government from keeping its citizens alive. But its credibility is now shattered. (Prescription)

A Alaska’s devastating wildfire season is the latest in a series of climate change-energy disasters The state is on track to set a new and terrifying record. (Grid)

Be sure to check out our Masters in Business interview this weekend with Spencer Jacob, editor and author of The Wall Street Journal’s Hard on the Street column. In front of the tape Column He began his career as an analyst at Credit Suisse, where he eventually became director of emerging market equity research. He is the author of “That wasn’t the revolution: Gamestop, Reddit and the flirting of small investors

Public pressure for gun laws after the shooting

Source: Gallup

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Risk assessment requires accurate information to be accurate

I twisted my ankle while hiking recently. The pain was unpleasant, and I was annoyed by the time below from physical exercise.

I could guess from this experience that my hiking boots were inadequate. If I had made this assumption, I would have bought a new, high quality pair of hiking boots. One result would be a reduced chance of twisting my ankles and thus, suffering pain and downtime from exercise. This result, standing alone, will definitely be beneficial.

But of course the decision to buy better, more expensive hiking boots for me, could be the result of an addition to this beneficial one. The most notable of these other results was that I had less money to invest or spend on options other than the new hiking boots. I can’t specify what this kind of sacrifice might look like – a slight reduction in my savings, perhaps, or restoring my wine collection with less delicious vintage. Whatever the negative aspects of buying my new hiking boots, I chose not to fall victim to this negative experience even though I was fully aware that newer and better hiking boots would reduce the chances of my ankle twisting.

Is my inaction on the hiking-boot front unreasonable? If my only goal in life is to avoid twisting my ankles, the answer would be yes. If there were no other goals like big savings or enjoying fine wine, I wouldn’t leave anything out by buying new and improved hiking boots. But since I have countless goals in addition to reducing the chances of my ankle twisting, my decision not to buy more protective hiking boots is perfectly reasonable.

If I keep twisting my ankles in future hiking, I will really buy new and better boots. The reason is that the increased frequency of injuries tells me what a single hit does not do: my hiking boots probably Is I am willing to tolerate and thus, more inadequate than they should be replaced.

None of the personal stories above are startling. I’m sure the essential features of this dull account of my decision making regarding hiking boots apply to the routine decisions you make. You should not, for example, stumble upon a staircase on your front porch and conclude that the stairs are too steep and, thus, should be replaced. You don’t stop eating at your favorite restaurant because you’ve faced a frustrating meal there. You don’t usually change the route you take to drive to work because one morning on your trip you fall into a single fender-bender – or even more serious debris.

In our personal, daily lives we realize that accidents happen. Any special accident or mishap you have must prove that you are doing the wrong thing. In other words, every adult understands – if only subconsciously – that every possible step carries some risk. Therefore, the actual manifestation of a course of action risk is not in itself proof that the risk has been underestimated or that the warning against the risk was inadequate.

Yet this mature perception of the incompetence of risk and the meaning of accidents and sometimes misfortune seems to be missing in the public sector. Often, a newsworthy catastrophe is taken as evidence that warnings against such catastrophes must be strengthened.

Was there a recent mass shooting? So we need to tighten our restrictions on gun ownership!

Were Americans’ access to imported medical supplies blocked? We therefore need to rely less on foreign production of these supplies!

Was there a fatal accident on an amusement park ride? So we need to increase the safety of amusement-park rides!

Have the insiders of a large corporation cheated? So we must strengthen government oversight and control of corporate-manager behavior!

Was anyone caught with a gun through airport security? So we need to increase the rigor of security screening at airports!

Has anyone recently died of food poisoning from canned vegetables bought at the supermarket? So we need to control food security more strictly!

Every incident of this is tragic. But none of them, standing alone, does not mean that we “must do something.” Briefly banning the activity in question altogether, each level of caution about that activity leaves some chance that engaging in that activity will result in an accident, even a catastrophe. For example, even the most stringent and strictly enforced food safety regulations will not eliminate the possibility of someone dying from food poisoning compressed from store-bought food. It follows that if the government responds to a new case of severe food poisoning by tightening food security controls, the result could be controls that are too limited.

Of course, if reducing the likelihood of food poisoning is the only goal of humanity, then every increase in the rigor of food-safety control will be fruitful. But since we have countless goals other than avoiding human food poisoning, the steps we take to avoid such poisoning are costly. With every step we take, we deny ourselves other valuable products, services and experiences. At some point, then, an extra dolph – what economists call a “marginal increase” – is no longer food security. The (very real) benefits that we get from additional protection from food poisoning are less than the (very real) benefits we get from other products, services and experiences that we have to give up to get this extra dolph of protection from food poisoning.

Unfortunately, politicians tend to react to recent headlines. Responding in this way is a cheap and glamorous way to create the look of being caring and responsive. And reporters and headline writers tend to cover the news of recent tragedies and even exaggerate. Often, in response, governments take steps to implement or strengthen protections against what is happening in today’s headlines. The most frequent result is excessive protection against particular risks.

While a series of specific misfortunes may accurately express a desire to be more cautious against that misfortune, in almost all cases a single or rare misfortune – a misfortune that occurs only once or comparatively rarely – does not indicate that one should be careful standing alone. . Intensification In our personal lives, each of us has a strong motivation to make these assessments correctly, because if we do not do so, we are personally harmed. In contrast, politicians and bureaucrats are not only harmed personally by taking extra precautions, they are often praised for doing so – which is another good reason to downplay the role of government.

Donald J. Boudrox

Donald J.  Boudrox

Donald J. Boudroux is a Senior Fellow at the American Institute for Economic Research and with the FA Hayek Program for Advanced Study in Philosophy, Politics and Economics at George Mason University’s Markatas Center; A Mercatus Center board member; And Professor of Economics and former chair of the Department of Economics at George Mason University. He is the author of books The Essential Hayek, Globalization, Hypocritical and half-wittedAnd his articles appear in such publications The Wall Street Journal, The New York Times, U.S. News & World Report As well as numerous scholarly journals. He writes a blog called Cafe Hayek and writes regular columns on economics Pittsburgh Tribune-Review. Boudreaux holds a PhD in economics from the University of Auburn and a law degree from the University of Virginia.

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Leave me alone and I will make you rich, Part 2

Reprinted from Future of Freedom Foundation. Part 1 can be found here.

Leave me alone and I will make you rich – how the bourgeois treaty has enriched the world
By Deirdre Nansen McCloskey and Art Carden (University of Chicago Press, 2020).

McCloskey and Cardin have devoted many chapters to refuting misconceptions about the cause of great prosperity.

Many economists have interpreted this as a result of capital savings, but the authors disagree. When they point to that capital Necessary For progress, not enough. In most societies, capital exists beyond the means of subsistence, and no prosperity has yet begun. There will be no significant progress unless capital is used by the people to try new ideas and this requires a liberal “bourgeois agreement”.

How will the study be? No, that’s not the reason. In England and elsewhere, prosperity was not driven by “educated” people. Most had little formal education. Instead, they had practical knowledge gained from their work as mechanics, craftsmen and engineers. To give just one revealing example, the problem of longitude calculation was not solved by a prominent scientist but by John Harrison, a carpenter in rural Lincolnshire. Of course, McCloskey and Cardin are not opposed to the school but there is no reason why the government should subsidize it.

And in the context of education, the authors noted that one of the reasons why Britain developed and prospered faster than its long-time rival, France, was that its hardworking young men were more likely to work in business than in the military. This was part of the price paid by the French for the aggression of rulers like Louis XIV – talented people were turned away from the innovations of trade to meet the national ambitions of the kings.

Many statisticians are convinced that the reason Westerners became rich was because they used imperialism to exploit helpless tribals. This belief is useful to them because it paves the way for government programs to redistribute wealth internationally. Although the authors have nothing good to say about the imperialism of Spain, France, England, Portugal and other nations, they show that it has nothing to do with their economic progress. In stark contrast, imperialism has exploited resources that would otherwise have been used productively.

McCloskey and Cardin quote the great French liberal Jean-Baptiste as saying: [home] The subject is of no use. “Imperialism existed long before great prosperity and never improved the lives of regular people. Prosperity is not due to imperialism but to non-liberal countries nonetheless.

Another popular explanation for the wealth of some nations (especially the United States) is that it was due to slavery. Among “progressives” in recent years, it has become fashionable to maintain that slavery was the cause of society’s wealth, and since the injustice of slavery still has a lasting effect, government compensation programs must be adopted. The problem is that enslaving others is not a way to make big profits, much less a catalyst for economic growth. “Slavery,” the author writes, “is a common if horrible human institution. If slavery had led to great prosperity, it would have happened in the slave society of Greece or Rome.”

McCloskey and Carden then take a scalpel to academic literature that supports the notion that slavery enriched Western nations, found it erroneous, and concluded that the end of slavery was due to the efforts of liberals. The way – through trade.

For readers who may not yet be attracted to the “bourgeois agreement”, the authors compare it to the other four “deals” that people have imposed on them. There was the Blue Blood Deal, where people had to bow their heads, pay taxes and fight for the elite, who could ultimately protect them from the coercion of other elites. There is also the Bolshevik Treaty, the gist of which was (and is): “Do what you have been given, return the fruits of your labor for distribution by the Communist Party, and above all, do not criticize the party. Obey … and at least we won’t abandon you. “

Who doesn’t care about the deal? How about the Bismarckian deal, which bribes the poor to treat themselves with promises of public security, which is the essence of the modern welfare state. What people need is to “abandon the animation of adult life and become a child of government.” Or there is the bureaucratic pact, which turns economic life into an endless “Mother May I” game, a game of seeking permission from well-paid, high-ranking officials who have not created anything themselves. Obey all bureaucratic rules and regulations, pay your taxes and you can stay out of jail. Modern America, of course, is a mixture of Bismarckian treaties and bureaucratic treaties. Unfortunately, this appeals to many people who cannot imagine how much better they would be if we accepted the bourgeois agreement. This is the subject of the book persuading them.

People have benefited greatly from this happy accident that, in a few places, the bourgeoisie seized the treaty, giving those who had innovative ideas the freedom to try. But historically writers know that liberalism is not the norm. The United States has enjoyed liberalism for nearly two centuries, but the forces of statistics are firmly reclaiming themselves. They say that the wave of our prosperity will continue, provided that “we keep our intellect about ourselves.” To quote Hamlet, “There’s rubbing.” Many of our political and intellectual leaders have lost their minds.

COVID’s response to former liberal countries, such as the United States, the United Kingdom, Canada, New Zealand, and others, has given a frightening look in the minds of many of our leaders who are eager to assert extraordinary power in the lives and minds of many. Ordinary people, who were happy to demand compliance with the mask mandate and other “security” restrictions. These are not people who are generous. It is clear that many of our fellow citizens are authoritarian at heart.

If liberal society is to be defended, there is no time to lose trying to shore up its philosophical foundations. Leave me alone A conceivable attempt to do so. It’s a simple, engaging reading that will make thoughtful statisticians question their premises. If you know someone like that, give him a copy.

George Live

George Live

George Leaf James G. Martin is the editorial director of the Center for Academic Renewal. He holds a bachelor of arts degree from Carol College (Waukesha, WI) and a Juris Doctor from Duke University School of Law. He was vice-president of the John Lock Foundation until 2003.

A regular columnist for, Leaf was the book review editor for The Freeman, published by the Foundation for Economic Education from 1996 to 2012. He has published numerous articles in The Freeman, Reason, The Free Market, Cato Journal, The Detroit. News, independent review, and control. He is a regular contributor to The Corner Blog and EdWatchDaily.

He recently wrote the novel, The Awakening of Jennifer Van Arsdale (Bombardier Books, 2022).

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MiB: Spencer Jacob on Reddit, Gamestop and Meme stocks

This week, we spoke with Spencer Jacob of the Wall Street Journal, the author ofThe revolution that was not there: Gamestop, Reddit and the flirting of small investors“Jacob, who edits the journal It was heard in the street Column, also wrote “Heads I Won, Tails I Won: Why Smart Investors Fail and How Adversity Can Tilt You

We discuss how Keith Gill (aka Deep F *% King Value + Roaring Kitty) started speculating with Gamestop (GME) in late 2020 by buying a $ 53,000 non-long-dated call. He posted a screenshot in the subredited Wall Street bet, with the phrase YOLO. The incredibly long shot was widely ridiculed before his stupidity.

Brokerage firm Robinhood has made it a lot easier with its gamified – and free – trading app.

Then Michael Burry (Big Short fame) identified GameStop as a deep value game – a classic “cigar butt” stock. As stock prices soared, Gill’s “Hail Mary” trade suddenly reached one, then two million dollars. Shortly afterwards, Ryan Cohen, founder and chairman of, took an employee position, and the share price ran out.

Jacob explains how Reddit boards suddenly discovered Gill’s trade and started an online chatter about orchestrating a short squeeze. Explain how a “gamma squeeze” works – purchase calls that force alternative dealers to hedge by buying more stock. Soon, the mall-based retailer that looks more like a blockbuster than Amazon is suddenly skyrocketing in price.

Here is a list of his favorite books; A transcript of our conversation is available here later this week.

You can stream and download our entire conversation, including podcast extras on iTunes, Spotify, Stitcher, Google, Bloomberg, and Acast. All our previous podcasts on your favorite pod host can be found here.

Be sure to check out our Masters in Business next week with Antti Ilmanen, co-head of AQR Capital at Portfolio Solutions Group. Ilmanen is highly respected in market theory and research, and has won multiple awards, including the Graham and Dodd Awards, Harry M. The Markovitz Special Distinction Award, multiple Bernstein Faboji / Jacobs Levy Awards, and the CFA Institute’s Leadership in Global Investment Award. His latest book “Invest in less than expected returns

Spencer Jacob’s latest book

The revolution that was not there: Gamestop, Reddit and the flirting of small investors By Spencer Jacob

Spencer Jacob’s favorite book

Freezing Order: A true story of money laundering, murder and the wrath of the surviving Vladimir Putin By Bill Browder

Red Notice: A True Story of High Finance, Murder and One Man’s Fight for Justice By Bill Browder

The Contrarian: Peter Thiel and Silicon Valley’s Pursuit of Power By Max Chuffkin

Bad blood: secrets and lies in Silicon Valley startups By John Carreyrou

Just keep shopping: Proven ways to save money and build your wealth By Nick Maguly

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10 weekend reading – big picture

Weekend here! Pour yourself a mug of Volcanica coffee, grab a seat by the pool, and get ready to read our long-form weekend:

A How the brain ‘builds’ the outside world Neurological activity searches your physical surroundings to select only the information needed for survival and development. (Scientific American)

A The middle class is shrinking Americans are increasingly living in areas that are either much richer or much poorer than the regional norm. (New York Times) See more What’s behind that ‘no trespass’ sign?: At one time there was free movement of people in America. Then came the Civil War and after that a new crime was invented. (Atlantic)

A The women wanted to fly jets in battle. That barrier will be broken in their life struggle. In the early 1990s, some of the military’s corner fighters were as rude as the world of fighter pilots. This is the story of the female Navy officers who managed to fly the horrible F-14 beyond that culture. (Vox)

A What is happening with the crazy housing market? Rising mortgage rates. The rhythm of home sales. Skyrocketing rent. Here’s how to make money in a wonderful real estate market. (New York Times)

A The makers of the iPhone have revealed results that they never expected: Not even Apple’s own executives সাথে with front row seats to develop the core features of the iPhone তেন knew how to change the world (Wall Street Journal)

A ‘London Bridge Is Down’: The Secret Plan of the Days After the Queen’s Death He is respected all over the world. He has surpassed 12 U.S. presidents. He stands for stability and discipline. But his kingdom is in turmoil, and his subjects are denying that his kingdom will ever end. That is why there are plans for palaces. (Parent)

A The best word of the year is: sophistry. Well, it deserves to be anyway Despite the shallowness of their thinking, the Sophists have far more influence than honest and serious thinkers, especially when it comes to politics and policy. This is because Sophist’s speeches are always shaped by what their listeners want to hear. (Honest broker)

A Is there anything that General Z will not drink? Alcohol brands are thinking of fueling and satisfying a new drinking culture outside the bottle (Bloomberg)

A NASA engineer who worked on the James Webb Space Telescope: Greg Robinson has turned a 10 billion failure into a groundbreaking scientific mission. Each moonshot results in marginal improvement. (Wall Street Journal)

A Inside a superfan’s secret friendship with Eddie Van Helen: In the last five years of his life, Rock Icon had secret correspondence with a former music journalist, gossip, grips, hope, fear – and expressed himself in a way that had never happened before. (Rolling Stone)

Be sure to check out our Masters in Business interview this weekend with Spencer Jacob, editor and author of The Wall Street Journal’s Hard on the Street column. In front of the tape Column He began his career as an analyst at Credit Suisse, where he eventually became director of emerging market equity research. He is the author of “That wasn’t the revolution: Gamestop, Reddit and the flirting of small investors

China is cutting tariffs? Tariff reductions are seen as a potential weapon against inflation

Source: Bloomberg

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To find out how these readings come together every day, See this.

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Social media influences mainstream media

In April 2022, tech billionaire Elon Musk tried to buy Twitter, saying the social media company needed to be personally transformed. Significantly, the founders of PayPal, Tesla and SpaceX argued that he wanted to restore freedom of speech on the platform. Many have mentioned since then – exactly – that Musk’s track record with free speech is problematic to say the least. Nevertheless, there is another reason why the acquisition of Mask on Twitter could jeopardize democracy: by controlling the platform, the self-described “free speech absolutist” will also influence the mainstream media agenda.

Many recent studies have shown that social media has changed society (e.g. Fujiwara et al. 2021, Levy 2021). But the power of Twitter goes beyond its impact on its users. In a new research project, relying on nearly two billion tweets and an innovative empirical approach, we measure long-held suspicions – which affect the production and editorial decisions of Twitter publishers (Cage et al. 2022).

To do this, we proceed in three steps. First, we collect a representative sample of all tweets produced in French between August 2018 and July 2019 and combine it with content published online in all mainstream media outlets (including newspapers, television channels, radio stations, pure online media and news). Dispatch of the organization). Our dataset, which contains about 1.8 billion tweets, includes about 70% of all tweets in French (including retweets) during this period. Figure 1 Daily distribution plot number of tweets.

Figure 1 Number of tweets in the sample distributed daily

Comments: The image plots the number of daily tweets included in our dataset. The red line plots all tweets, the blue dotted line shows these tweets after we apply the filter, and the green dashed line shows only the actual tweets. Duration is 18 June 2018 – 10 August 2019 Some days without information when the server crashed due to a rare event and so we could not capture tweets in real time.

For each of these tweets, we collect information about their ‘success’ on Twitter (likes, number of comments, etc.), as well as user profile information when tweeting (such as the number of followers). To create this unique dataset, we’ve combined sample and filter Twitter application programming interfaces (APIs) and selected keywords. Figure 2 summarizes our data collection setup.

Figure 2 Image of our experimental setup to select the best tweet collection method

Second, we create fancy algorithms to identify all the ‘news stories’ covered in both social and traditional media. One event here is a cluster of documents (tweets and media articles) that discuss the same news story. So, for example, all documents (tweets and media articles) discussing the Hokkaido Eastern Iburi earthquake on September 6, 2018 will be classified as part of the same event. Events are identified by our algorithm that documents share enough semantic similarities. In short, for Twitter, our method is modeling the event detection problem as a dynamic clustering problem using a ‘first story detection’ (FSD) algorithm (see Mazoyer et al. 2022) for more details. To identify news events in stories published online by traditional media outlets, we follow Cagé et al. (2020) and describe each news article by a semantic vector (using TF-IDF) and use cosine distances to measure their semantic similarity. Used jointly with temporal constraints, we can cluster articles to form events. Finally, to bridge the gap between social media events and mainstream media events, we rely on the Louvain community identification algorithm (Blondel et al. 2008), as shown in Figure 3.

Figure 3 Graphical Presentation: Creating joint events

We identify 3,992 joint events, i.e. events that are covered on social and traditional media, of which 3,904 originally originated on Twitter.

Third, we rely on the structure of social media networks – and in particular, its user-centricity – to isolate the popularity of stories on Twitter from ‘external’ pushes (measured by the number of tweets, retweets, likes, etc.). In other words, we differentiate the popularity of stories on Twitter Independent The underlying interest in these stories. To do this, we use the vastness of our dataset to propose a fancy mechanical variable strategy: our device is the interaction between the centrality of the first Twitter users on the network (measuring computing pagerank centrality just before the event) and news pressure. Social media during the first tweet at the event. Our identification hypothesis is that once we control for the direct effect of centrality and news pressure, the interaction between user centrality and news pressure will only affect traditional news production by affecting the visibility of tweets on Twitter.

Our results are enlightening. Everything else is the same – and in particular, independently of a story’s newsworthiness – the number of tweets posted before a story’s first media article increased by 55%, resulting in an average 17% increase in story-related news articles. In other words, Twitter sets the media coverage agenda in a quantitatively meaningful way.

Why is that? First, a growing literature on the study of journalism highlights the fact that social media plays an important role as a news source. Consistent with this notion, we show that the level of influence is higher for media outlets that have a higher number of journalists with a Twitter account, pointing to the role of journalists in monitoring Twitter.

But the use of platforms as a source of journalism is not the only reason to play here. In particular, we investigate whether the level of transition between social and mainstream media depends on the business model of the outlets. For each media in our dataset, we collect information about whether Paywal is used (at the time of data collection), the features of this Paywall (such as Soft vs. Hard) and the Paywal launch date. This information is summarized in Figure 4.

Figure 4 Business models of news editors

Comments: Image reports the share of media outlets in our sample based on their online business model. 52% of our sample media do not have a payroll (“no payroll”), and 4.3% require reading paid articles based on the authenticity of an ad view (“Payment articles can be accessed by viewing an ad”). Among the outlets that have paywall, we distinguish between three models: hard paywall, metered paywall and soft paywall (“some articles are locked behind the paywall”).

We show that our level of influence is much higher for those media outlets that rely entirely or strongly on advertising revenue than those whose online content is behind a payroll (and thus mainly rely on subscriptions). For the previous ones, a 50% increase in popularity resulted in news coverage of 22.0% (no paywall), 20.3% (soft paywall) and 21.1% (‘watch-on-pay’ paywall). Up to 6.2% of the average number of outlets using a metered wall, a coefficient that is not statistically significant. In other words, Twitter influences the mainstream media because of the short-term considerations generated by advertising revenue-bearing clicks.

Although there are widespread fears that new technologies are undermining editorial quality – especially because they have led to savings in the newsroom, resulting in reduced quality of news delivery and reduced production of key content (Cagé et al. 2017) – our results suggest that they are inconsistent. Quality is deteriorating for those who cannot afford or are unwilling to pay for the news. In other words, since the content of media outlets is available online for free they are more influenced by the popularity of stories on Twitter than using Paywal, this platform increases information inequality, making voters more vulnerable to fraud (Kennedy and Morning 2019).

Also, our results – which capture the effects of changing popularity unrelated to the underlying newsworthiness of a story – suggest that social media can provide a biased signal of what readers want, which in turn could explain why, as highlighted by survey data, a population A significant portion is not interested in the news produced by the media (and thus may decide not to accept the news). Twitter users are not actually representatives of the general news-reading population. This indicates a negative impact on social media, driven by the production side, consistent with recent changes in both Guardian And New York Times The Social Media Guide, which highlights the fact that journalists rely heavily on Twitter as both reporting and response tools1 And it can distort their view of who their audience is.

Turning to news demand and using audience data, we finally show that news articles covering more popular events on Twitter do not get more views than other articles, further reflecting that journalists’ reliance on Twitter may be distorted. The information they create is more than what citizens actually like.

Whether Elon Musk will actually buy Twitter remains an open question. Whether new European regulations such as the Digital Markets Act (Crémer et al. 2022) and the Digital Services Act will be effective in controlling content on social networks has not yet been proven, although the DSA is a step in the right direction. In the meantime, it is vital to remember that social media is important for democracy beyond what one might expect. In fact, it not only affects users who spend time on platforms, but also has a contagion from social to mainstream media. This transition has cast doubt on the business model of the legacy media as well as the welfare effects of the platforms. In particular, our results question whether citizens would be better informed in the absence of Twitter and whether social media could be detrimental to both journalism and democracy.


Blondel, VD, JL Guillaume, R Lambiotte, and E Lefebvre (2008), “Fast Unfolding of Communities in Large Networks”, Journal of Statistical Mechanics: Theory and Experiment 2008 (10): P10008.

Cagé, J, N Hervé and ML Viaud (2017), “The Commercial Value of News in the Internet Age”,, 19 June.

Cagé, J, Nicolas H, and ML Viaud (2020), “Online Information Production”, Review of Economic Studies 87 (5): 2126–64.

Cagé, J, N Hervé, and B Mazoyer (2022), “Social Media Influence Mainstream Media: Evidence from Two Billion Tweets”, CEPR Discussion Paper No. 17358.

Crémer, J, D Dinielli, A Fletcher, P Heidhues, M Schnitzer and F Scott Morton (2022), “The Digital Markets Act: An Economic Perspective on the Final Negociation”,, 11 February.

Fujiwara, T, K Muller, and C Schwarz (2021), “The Impact of Social Media on Elections: Evidence from the United States”, NBER Working Paper No. 28849.

Kennedy, PJ, and A. Pratt (2019), “Where will people get their news?”, Economic policy 34 (97): 5-47.

Levy, R. (2021), “Social Media, News Consumption and Polarization: Evidence from a Field Experiment”, American Economic Review 111 (3): 831-70.

Mazoyer, B, N Hervé, C Hudelot, and J Cagé (2022), “Short-Text Embedding for Unsupervised Event Detection in a Stream of Tweets”, Knowledge discovery and management progress 10, upcoming.


1 -Sometime /

Debt and climate crisis are on the rise সময় it’s time to tackle both

A major debt crisis is brewing in the Global South. The IMF had already expressed concern over the growing debt sustainability problem in many low-income countries before the coronavirus crisis. For more than two years after the epidemic, the debt situation has worsened significantly. According to the IMF, 60 percent of low-income countries are now at high risk or are already in a debt crisis. Moreover, a growing number of middle-income countries are also suffering from high credit services. The number of emerging markets with sovereign debt trading at a miserable level – yielding more than 10 percentage points on top US Treasuries of similar maturity – has more than doubled in the last six months. Fiscal austerity in the United States and other developed economies is increasing the cost of debt and making international refinancing more difficult for countries that still maintain access to international capital markets. The combination of financing is evolving toward new, more expensive sources.

Russia’s aggression in Ukraine has exacerbated the situation, creating a perfect storm. The war has sent shockwaves into the world economy and pushed the biggest commodity since the 1970s. Where oil, gas and grain exporters can find temporary relief in the short term, many developing and emerging market countries সাব including sub-Saharan Africa নি are net importers of fossil fuels and grains. The effects of the war in Ukraine could significantly worsen the social and economic situation in many developing and emerging market countries, further reducing debt stability.

High levels of public debt services and inadequate financial and financial space have already limited the response to the crisis in most low- and middle-income economies. Although developed countries were able to implement highly expansive monetary and monetary policies in response to the epidemic crisis, few countries in the Global South had this option.

The uncertain debt situation has not only threatened recovery. It has also hampered much-needed investment in climate resilience. These investments are essential and urgent: governments must climate-proof their economies and public finances or tackle a growing spiral of understanding of climate vulnerability and unstable debt. In a number of empirical studies replicated by the IMF and others, we have shown that physical climate vulnerability is exacerbating the capital expenditures of climate-protected developing countries. As financial markets raise the price of increasing climate risk, and global warming accelerates, the risk premium of these countries, which is already high, may increase further. There is a risk that at-risk developing countries will enter a vicious circle where greater climate vulnerability will increase borrowing costs and reduce the financial space to invest in climate resilience.

Figure 1. Vicious cycle of climate vulnerability and capital expenditure

Figure 1, vicious circle of climate vulnerability and capital expenditure

Source: Volge, “Climate Change and Capital Expenditure in Developing Countries”, Presentation at the Understanding Risk Finance Pacific Forum 2018 organized by the Vanuatu Government and the World Bank Group Disaster Risk Financing and Insurance Program in Port Vila from 16-19 October 2018.

The impact of COVID-19 on public finance strengthens this vicious circle. In many countries, including many small island developing states, high public debt services are crowding out important investments needed for a climate-proof economy and to enable a green, resilient, and equitable recovery. As the effects of the climate crisis become economically detrimental, there is an urgent need to tackle sovereign debt problems and keep countries in a position to respond to the short-term needs caused by the epidemic and food price crisis, but much-needed climate resilience investment.

There is a risk that at-risk developing countries will enter a vicious circle where greater climate vulnerability will increase borrowing costs and reduce the financial space to invest in climate resilience.

In 2020, as an ambitious, integrated and comprehensive debt relief initiative, we will present a debt relief proposal for a green and inclusive recovery that frees up resources to support recovery in a sustainable way and allows governments to invest in development strategies, including climate change. Tolerant infrastructure, health, education, digitization and cheap and sustainable energy. A key principle of this proposal is that debt relief should not only provide temporary breathing space. It should empower the government to lay the foundation for sustainable, climate-tolerant development. As part of our proposal, indebted countries that receive debt relief will be committed to reforms that align their policies and budgets with Agenda 2030 and the Paris Agreement. The country’s commitments will be designed by the governments of the country under the involvement of the parliaments and in consultation with the concerned stakeholders.

Ahead of the 2021 United Nations Climate Change Conference in Glasgow, V20 finance ministers – representing 55 climate-risk countries with a total population of 1.4 billion – issued a statement on restructuring debt for climate-vulnerable countries based on our proposal. In a statement, the V20 finance ministers called for “a major debt restructuring initiative for debt-ridden countries – a kind of grand-scale climate-debt swap where developing countries’ debt and credit services are reduced according to their own plans.” .

As the debt and climate crisis grows, it’s time to listen to these calls. The G20 did not provide a common framework for debt treatment, established in November 2020 to address bankruptcy and chronic liquidity problems. Not only does it exclude middle-income countries, it also lacks incentives and processes to bring together indebted governments and private lenders. As the World Bank noted, “[t]Its lack of measures to encourage private sector participation could limit the effectiveness of any negotiating agreement and increase the risk of private sector debt transfer to public lenders. “

In order to encourage the participation of private lenders যারা who place more than 60 percent of all debt claims on countries in the Global South নে debt restructuring requires a combination of positive incentives (“carrots”) and pressure (“sticks”). In terms of incentives, we are proposing to create a new guarantee facility for green and inclusive recovery that is designed to entice the commercial sector to engage in debt restructuring. This facility, which could be established relatively quickly at the World Bank, would repay the issuance of newly issued sovereign bonds that would be replaced with a significant “haircut” for old, durable, and privately held loans. Private creditors will benefit from a partial guarantee of principal, as well as an 18-month interest payment guarantee, similar to the Brady Plan, which helped overcome the stagnation of the debt crisis of the 1980s.

Under pressure, the financial authority of the jurisdiction where the chief private creditors (both banks and asset managers) reside and who manage most sovereign loan agreements সবচেয়ে most importantly the United States, the United Kingdom, and China ব্যবহার can be used. Strong ethical suggestions and regulations on accounting, banking supervision, and taxation to improve creditors’ willingness to participate in debt restructuring.

Economic history teaches us that delays in resolving the debt crisis are extremely costly for indebted countries. In the absence of a proper international sovereign debt restructuring system, creditors and borrowers alike continue to take to the streets. It is a chronic problem that has repeatedly caused decades of development and human suffering that can be avoided. What makes matters worse now is the increased risk in the face of a growing climate crisis.

The international community বিশেষ especially the major advanced economies and China হবে needs to overcome the current stalemate and work towards resolving the debt crisis that will enable all countries to respond to the multiple crises they face. The consequences will be dire if they fail to do so.