Independence from What?

Independence from What? (Just Money). This is a really cool piece.

discuss more fundamental constitutional questions of how we can make central banks more democratic internally and at once more independent, by redefining independence as not against democracy but rather against the executive and financial markets.

Delegating Money Power

Does delegation increase efficiency or simply avoid responsibility to handle things democratically?

…I wonder whether debates over the institutional design of central banks hinge more than we commonly think on prior debates about the nature of money and what we might call “money power”, as well as the specific role of private banks in money creation.” vs administrative law theory.

The power to make money, and the power to decide who gets to make money, is one of the most awesome powers of the modern world. A central bank tasked with managing the amount of credit in a system in which most credit is, in fact, created by private banks faces a peculiar set of constraints that make it uniquely vulnerable to elaborate forms of more or less overt blackmailing. This poses challenges that are distinct from other administrative powers, and the resulting questions concerning the banking system as a provider of credit seem to point us instead toward the political theory of, what Chiara Cordelli has recently called, the privatized state.

Constitutions and Democracy

“If our concern is with better decisions and more just distributive outcomes, why not organize central banks more democratically internally by, for example, ensuring that various segments of society—not least labor alongside capital—are equally represented?”

“we can place central banks on a more democratic footings that would operate independently from the rest of the existing political system. This holds open the promise that central banking can be at once more democratic and yet independent.”

Independence from Finance

But is it possible to reconceptualize independence itself? Instead of assuming that the primary source of interference against which central banks have to be insulated consists in elected officials or the public at large, there are a number of obvious forces that are just as possibly distortive and corruptive, if not more so.

Bourdain, banking, chamas, class, liberalism, and localism

A book club I am in recently read Kitchen Confidential. The memoir is a lot of fun if you liked the tone of Anthony Bourdain’s shows, but there are also a bunch of passages that are sort of cringe (though to be fair he is pretty self-aware of and acknowledges most of these moments). One such acknowledged moment involves him carrying around a katana in college. But one unacknowledged moment is the following passage:

Many of the Spanish- speaking members of the crew took part in an unusual ‘banking’ scheme where each week all the members of a large group would sign over all their paychecks to one guy. The recipient was selected on a rotating basis, and the way it worked, I gathered, was that for about two months or so everybody squeaked by, doing their best to make do without a check, spending little . . . until the day it was their turn, at which point they came into thousands of dollars and could spend like drunken sailors. This practice made no sense to me. It also required an extraordinary amount of trust in one’s fellow cooks. I did not share my comrades’ confidence that Luis, for instance, wouldn’t skip town on a drunk after getting his big payday, and leave the others in the lurch. I held on to my meager paycheck. I had no time to spend it anyway.

Anthony Bourdain’s Kitchen Confidential

When I read this, his interpretation struck me as likely underinformed but I could not quite say why.

After reading this interview about “chamas” in Kenya I now see why! The above is a form of mutual credit, a concept I didn’t know much about.

[Chamas are] groups that started in the 80s, when Kenya was really in a cash crunch. They started off as women’s savings groups, but now they’re open to men as well. There are social bonds – family, church, work. They already know and trust each other. They meet up, and they have something called the ‘merry-go-round’ system. They all pay into a fund, and each time, one of the members takes the whole fund. So it’s a micro saving and micro lending scheme.

Wikipedia says that “Some sources have estimated that one in three Kenyans is a chama member.”

The interviewee explains what is really being provided here: “Yes – we’re just liquidity providers. We just come in and say ‘here – trade!’” (my emphasis). “Just” is doing a disservice in that sentence. Creating formal financial liquidity out of informal communal trust is pretty cool, Bourdain’s mistrust of his crew aside!

This all reminded me of a quote I liked from a recent Interfluidity post on Liberalism and class:

The right to live as, where, and among communities one chooses is only valuable to the degree that it is practical and ethical for a person to exercise that right. Among the affluent, the costs of uprooting oneself from where one happens to start to some other community of ones own choosing are tolerable, both to the uprooter and the community left behind, because affluent people rely upon portable financial capital and impersonal markets for most of their requirements. In less affluent communities, people’s wealth and insurance against adversity are bound up in very personal relationships, which get destroyed rather than transported when a person “abandons” her roots. Professional class Americans follow their careers around the country, relocating between liberal cities and college town with remarkable ease, paying expensively for new child care in each. Working class Americans are much more likely to rely on family to render child-rearing manageable and consistent with their jobs. Among the affluent, elderly parents can be left “on their own”, because deliveries can be paid for, rides can be hired, if necessary more intensive, personal help can be paid for. The downscale elderly rely much more upon unremunerated help from children and church, upon the goodwill of particular human beings. When people upon whom they rely leave, they simply become poorer. For the person who might choose to leave, this cost they might impose pits liberal “rights” against very visceral obligations. A person who has faced that dilemma, and chooses to stay, might understandably view the kind of people who make the opposite choice as selfish.

This points towards a weird tension in attempts to bridge between formal and informal finance. As mutual credit networks formally capitalize social capital that previously wasn’t legible to markets, they simultaneously reduce some “liberal” values like the right to exit (that is geographically move) when one wants, something that people comfortably situated in the formal sector take for granted. Once you are on the community credit merry-go-round, it is hard to get off.


Chamas and community credit seem cool. Some of the above links indicate this stuff works and it also has a certain “farm-to-table locally sourced” appeal. But I wonder if the downside of only being able to receive certain financial services by coordinating with your community comes at a cost. And does that suggest a need for different approaches to financial inclusion.

The transformation of informal social relations into formal financial liquidity creates easily measured monetary value. But how do you measure the cost of being reliant on and responsible to your neighbors for financial services that are normally provided by boring impersonal financial services companies?

Obviously there is a certain charm to a community banking itself. But there is also a certain charm to being able to pick up and leave a place if you want. I genuinely am not sure which of those points of view is more charming. And I don’t think a spreadsheet could ever shoot out the answer to this political question.


So of course Bourdain wouldn’t join his crew’s unusual ‘banking’ scheme. He sat squarely in the formal financial system and would not want the social obligations that come with being part of a chama.

The appeal of community credit is understandable but formal, impersonal financial relationships that can be easily settled can be nice too (see Graeber, Debt, and The Venmo Generation).

Maybe in addition to mutual credit networks that formalize social capital, we need institutions that allow people to separate that capital from social relationships and onramp into the formal sector.

And to be fair, maybe we could use some institutions that help people comfortably in the formal sector deformalize parts of their financial lives. I suspect there are plenty of people who might be interested in finding ways to partially organize their financial lives in a more communal manner. A bit less financial efficiency in exchange for a more locally, communally oriented financial product might be a welcomed trade.

Maybe someday one in three Americans will be involved in a chama. Maybe someday someone like Bourdain would jump at the opportunity to get into the community’s unusual ‘banking’ scheme.

Other notes:

Note 1: On a less “they used AI to recreate his voice!” note, while watching the trailer for the new doc, I liked the ending audio/visual montage with Brian Eno’s “The Big Ship.” Looks like Bourdain was a big Brian Eno fan:

Neville, who won an Academy Award for “20 Feet from Stardom,” his 2013 documentary about backup singers, says it was also Bourdain’s “punk rock attitude about everything” that drew him to explore his life.

“He had the best taste in movies, in books and music,” Neville said. So as the director combed through footage to use in his film, he jotted down every time Bourdain mentioned a song and created a 19-hour playlist.

“It’s all of Tony’s music,” he added. “And it’s Brian Eno and Iggy Pop and Johnny Thunders — it’s all these songs from his whole life, and I gave that to everybody that worked on the film to listen to and the songs on the film come out of that playlist. So the music was another way of getting inside his head.”

Note 2: Just putting it here as a reminder for when it happens… Chamas for Robinhood seems like it could be rocket fuel for meme finance / WSB investing. Your turn to spend the merry-go-round fund, @TheRoaringKitty.

Tradeoffs: formal / informal

Arnold Kling recently gave a brief overview on how the formal and informal sectors of finance relate to each other.

We can think of financial institutions as lying on a continuum somewhere between informal and formal. At the formal end of the spectrum, institutions are adjacent to the government. At the informal end of the spectrum, institutions are adjacent to criminal activity…

In short, institutions that are distinct from the formal sector can reach customers that the formal sector will not serve. Informal institutions can compete away some of the excess profits of the formal sector. But an advanced economy still depends heavily on the formal sector. The benefits provided by letting the informal sector expand should be weighed against the costs of undermining the formal sector.

As the informal sector displaces the formal sector, unexpected outcomes occur. New regulatory responses are created and the game starts over.

July 19, 2021 Monday links

  1. Saul Bass: The Art Of The Title Sequence (youtube, from Ted Gioia): The video has two examples including Catch Me If You Can
  2. Even God Would Get Fired as an Active Investor – stay. in. the. game (if God is your money manager)
  3. We Don’t Sell Saddles Here: Slack’s pre-product launch internal memo | “test & iterate vs scale & optimize” — During first pair, provide people what they want and communicate that to them. | Slack was selling an innovation that would change human behavior. Acme Saddle Company sells horseback riding, not saddles.

Veb account on inflation and how measurement is politics

Veb account essay on inflation being socially situated aggregate measure used to make the complex pricing decisions of millions of people legible to policy makers. Makes a great point about how thinking inducitvely about this stuff is both more accurate (cus this stuff differs across quantities, places, and time) and more useful politically. Some quotes below but worth reading the whole very readable thing:

inflation: Oren Cass and Jacques Derrida as Harold Bloom wlog

The basic thesis today is that the specification of alternative consumption baskets for measuring inflation is a good historical/narrative/rhetorical method, and should be taken up as such by folks with policy in view. “Inflation” is always only ever deeply socially situated, and mostly works as a point of social and political contestation. Rather than fighting over which is the capital-T True account of inflation, we should instead build out a profusion of accounts of inflation all originating from different constituencies with clear and justifiable methodological choices. From there, we can maybe start to triangulate towards what’s going on in the economy in the discourse.

The title is a little goofy, and a play on a core idea in the work of Harold Bloom: that the only interpretation of a poem is another poem. Unlike Derrida, Bloom says that this dynamic is only true for “Strong Poets” (something meant to be read as Famous White Bigwigs, the kinds of people David Foster Wallace would deem important). In Derrida, the only interpretation of anything is another interpretation, bonus points if you can take apart another interpretation and use its bits for yours. It only matters where it comes from insofar as that fact of origin is an unavoidable aspect of the interpretation itself. The argument I’m trying to make today maybe comes close to “the only way to beat a model is with another model,” but I’m using literary figures to make sure everyone understands that I’m trying to situate things within rhetorical rather than predictive space. Ultimately, the interpretation of a measurement of inflation is only ever going to be a different measurement of inflation.

The problem is – as everyone clever has been pointing out since the beginning of the pandemic, and really back to the 1930s – there’s no “final” measurement of inflation that meaningfully holds for all people in all locations. Pretty much everyone buys different things in different amounts every year. Worse, things are usually priced differently in different places!

The idea that the only valid levels of analysis are the individual and the full aggregate is a little silly to me….

At the same time, working bottom-up helps inoculate against the idea that the optimal response to inflation is the curtailment of demand. If the price of housing is rising somewhere, the best answer is probably to build more housing, not make everyone so poor that they can’t afford to keep bidding the price up.

FT Alphaville Catchup Part 2/2

Continuation of this:

  1. Everything Wrong with the “Money Printer Go Brrrr” Meme – pragcap: Problem #1 – Jerome Powell Doesn’t actually Print Cash; Problem #2- Jerome Powell Doesn’t Really Have the Money Printer; Problem #3 – Jerome Powell Doesn’t Enable Fiscal Policy; Problem #4 – The Fed’s Powers are More Constrained Than Many Assume.
  2. World War 2, M2 and 2020s vision: Velocity matters!
  3. Man Group analysis shows it pays to own oil, gold and wine, and possibly also a bitcoin if and when inflation bites. – alphaville op-ed
  4. No Floor, No Ceiling – “Today, we face the opposite problem. We are individuals, at the whims of forces we do not understand, trying to convince ourselves that our old institutions have the power to save us. There is no longer a ceiling above us to restrict our earning potential. But there is also no floor underneath.

What is the optimal way to read the internet? Would quaretly intakes of “the discourse” be more efficient? More effective? Would it be a stronger filter and separate signal from noise? I like the ritual of Alphaville, Marginal Revolution, Matt Levine, and the likes everyday but maybe there is a variation on that consumption pattern that would improve my well-being.

The Church of the Transfiguration

From The Art Newspaper: Newly reopened 18th-century Church of the Transfiguration, topped with 22 domes, is said to have been built without a single nail.

Located on a remote island in Lake Onega, the Russian Orthodox church is part of an ensemble of storied wooden buildings known as Kizhi Pogost, listed as a Unesco World Heritage Site since 1990
“According to legend, the lead builder, known as Master Nestor, built the church with a single axe, which he threw into the lake after his masterpiece was completed. He said “there never had been and would never be another church like it again””

Calculations by contemporary engineers and builders have not been able to fully explain how the structure holds together, because of its complexity and also the unpredictable nature of wood, “which behaves just like a person, completely differently in different situations”, Nezvitskaya says…

For now, those will be held just once a year, on the Orthodox Feast of the Transfiguration on 19 August.

More images here and google maps location here.

Creating Your Own Deflation

Tyler Cowen was on a podcast with James Altucher and at the ~25:30 mark, Tyler comments how “We can create our own forms of deflation as individual human beings.

They list a few examples:

  • Moving from the Upper West Side to Nashville
  • Getting a dog – high upfront costs today (and to be fair, plenty of maintenance costs…) but for years on the margin you will swap expensive nights on the town for free nights hanging with your pup
  • Playing chess
  • Not purchasing the weird old multi-$100 hardcover academic book on Amazon

My considerations of inflation have been limited to discussions on index components, labor/wage dynamics, and menu pricing. I liked the exercise of placing preferences surrounding good, services, and activities on the inflation/deflation spectrum.

What are other examples of inflationary/deflationary preferences? And what happens if you place inflation/deflation towards the center of your personal aesthetics? And if you do, which way on the spectrum should you optimize towards?

  • I bought a nice road bike during the pandemic and now spend hours a week riding it that might have otherwise been spent on spin classes (the upfront cost impacts the breakeven “deflation point” but still…)
  • Can you rank games on a deflationary spectrum? Settlers of Catan has expansion packs. A deck of playing cards provides fun for years. Aforementioned chess depends on just how long someone sticks with it. Is Dungeons and Dragons the ultimate deflationary game?
  • Wikipedia is deflationary for infovores
  • Are libraries more deflationary than book stores?
  • From an inflation viewpoint, is it better to go out for dinner with friends or invite them over to cook?
  • Drinking has to be inflationary
  • Is religion an inflationary or deflationary force?
  • What about dating and marriage? And at what phases?
  • AI and ML?
  • Fashion rentals company are getting more and more popular (and then you have places like Esty and Ebay):


Some of these are just examples of underutilized fixed assets being squeezed out of the economy. But others are aesthetic choices about how to spend your time. To the extent you can aspire to shift your preferences, which way should you attempt to move them?

I can imagine a nice deflationary life where I stretch my current assets to go very very far. But I suspect that might not lead to sustained happiness. And at the aggregate level my intuition is that would tend to decrease societal progress.

Be it because of some sort of mimetic desire dynamic or incentives in the job market or something else, I think we are probably a bit happier individually (and on the whole wealthier as a society) with inflation “at or around 2 percent.” But don’t let that hold you back from moving to Nashville!

ESG and Tradeoffs

Cliff Asness has the class piece on how ESG might sort of impact corporate decision making when it comes to climate change in “Virtue Is its Own Reward: Or, One Man’s Ceiling Is Another Man’s Floor.” Negative screening is not a free lunch. “Accepting a lower expected return is not just an unfortunate ancillary consequence to ESG investing, it’s precisely the point.” Higher returns for non-ESG investors are the other side of a high cost of capital for offending firms.

Matt Levine expands on the idea in a discussion of how a fund manager was coached by his sales team to answer questions about how a new ESG fund actually reduced emissions.

The first paragraph hits the same notes as the above summary. The second paragraph is a good admonishment of green washing of ESG investing that asks for no tradeoffs.

One is the answer [to how an ESG strategy reduces emissions] that Fancy gave to his client: “This low-carbon fund reduces emissions by raising the cost of capital of high-carbon emitters, leading them to shift to lower-emissions businesses.” This is an appealing theory because it makes some rough sense as a matter of economics. It has problems though. For one thing, you have to have a lot of low-carbon funds to meaningfully increase the cost of capital of high-emissions businesses; it’s not like any one fund manager — even at BlackRock — can point to coal companies that he put out of business just by refusing to buy their stock. For another thing, “raising the cost of capital of high-carbon emitters” means increasing the returns on their stocks, which implicitly means ”our ESG fund will get a lower return than a non-ESG fund, because we hope to raise the returns of non-ESG stocks.” This answers the client’s question — ”how does this fund reduce emissions?” — but not necessarily in the way that the client wants to hear: “We reduce emissions by giving you a lower return on your investments.” You can see why the salesman might have been mad.

The other theory is: “This low-carbon fund profits from the coming long-term shift to clean energy, giving it a higher return than funds that foolishly invest in fossil-fuel assets that will be stranded when regulations and societal norms change.” That tells the client a good story — “you can do good and make money too” — but, you’ll notice, doesn’t answer the question. “How does this fund reduce emissions?” “It profits when governments move faster than expected to regulate emissions.” “Yes but how does the fund cause that to happen?” It doesn’t, really.

FT Alphaville Catchup Part 1

FT Alphaville has been a long time daily read for me but as of May 2021, I have not read the blog as I have car camped around the good o’ US of A. This is some notes as I skim and catchup a backlog of posts:

  1. Tell me lies, tell me sweet little VIEs: Wall Street finds out about known unknowns – Variable interest entities seem like a nice case study in LPE point that states create markets and set rules of the game. And can change them! Nice complement to Matt Levine piece on how derivatives could interplay with this development. Maybe derivatives are virtual private statecraft?

2. Snap AV: the broad growth trade takes hold – Top 5 contributing stocks by year chart is bonkers with 2020 jump (12% of SPX returns) and YTD relative decline (4% of SPX).

3. Record Skew index shows nagging investor nerves on US stocks rally – Skew is at all-time highs. Calls often have lower implied volatility than than their symmetrical dollar amount puts. At Matt Levine explained once, there is a conditional explanation. On the way up companies become bigger and more stable. On the way down they become smaller and more risky. There is also a structural explanation in that more people are buying downside protection with puts and selling calls to get a bit of extra yield. “Implied volatility of a stock option generally goes up as the strike price goes down.” Though skew is up in traditional measures, meme stocks are also breaking the dynamics of the two above explanations.

4. Did FT Alphaville unwittingly fuel the GameStop madness? – looks that way!

FT Alphaville


5.1 Libor’s US replacements: no one rate to rule them all – a nice overview of the developments to replace LIBOR in USD capital markers… “a chicken and egg problem”; But, as Schopenhauer says, the truth grows in three stages: first, it’s ridiculed; the second, it is violently opposed; the third, it’s accepted as self-evident

When you think about it as much as we have had to, it begins to strike you as bizarre that pretty much all the floating rate contracts all over the world were underpinned by one rate put together on the back of guesswork by a dozen or so people every morning in skyscrapers in the Square Mile and Canary Wharf. It’s a bit like having one stock index for the world. Or one oil price. With neither based on actual transactions.

Having one rate to rule them all made life simpler. It made markets more efficient too. What we are confronted with now is more complex, but also more reflective of how finance actually works. If we want to avoid ending up here again decades from now, it may well be that there is no choice but choice.

5.2 And: Officials at the state and federal level are writing fallbacks for some of the thorniest Libor-linked contracts into law. They might be inadequate.

5.3 And: The bank rate is emerging as a fix for firms without big treasury operations.

5.4 And: UK regulators are wading into the US’s Libor transition; NOTE: obvious but good reminder that credit risk is related to (and just it?) term risk


6 Chime ProPublica article from further reading – Chime, a “neobank” serving millions, is racking up complaints from users who can’t access their cash. The company says it’s cracking down on an “extraordinary surge” in fraudulent deposits. – security / access paradox.

Chime, which provides app-based banking services to an estimated 12 million customers, has according to experts been generating a high rate of complaints, with 920 filed at the Consumer Financial Protection Bureau since April 15, 2020… By comparison, Wells Fargo, a bank with six times as many customers and a lengthy recent history of misbehavior in its consumer bank, has 317 CFPB complaints tagged for closed accounts over the same time period. Marcus, the new online bank created by Goldman Sachs, with 4 million customers, has generated seven such complaints.

Chime portrayed the customer complaints as largely driven by the company’s attempts to crack down on accounts that use fraudulently obtained unemployment insurance or federal stimulus payments.

(security/access paradox – I can easily imagine a story saying VC backed neobank facilitates UI fraud)

For all of Chime’s Silicon Valley tech patina, one thing it’s not is an actual bank. Like others in its category, Chime is a digital interface that hands over the actual banking to, in this instance, two regional institutions, The Bancorp Bank and Stride Bank. Chime customers interact with the Chime app, but Bancorp and Stride, both of which are FDIC-insured, hold their money.

“They’re primarily regulated as a vendor to the existing bank, because banks are required to manage their vendors and they’re responsible for third-party relationships. But it’s still a step removed.”