HStencil

HStencil's Comments

Influencing pivotal Individuals

The Center for Security and Emerging Technology (funded by Open Philanthropy) seems like it’s pretty clearly focused on influencing people in power.

Prioritizing COVID-19 interventions & individual donations

Great! Thanks so much for flagging that here! I assume this means that you consider Oxfam, PSI, DMI, and GiveDirectly to be more promising giving opportunities than the COVID-19 response programs of other TLYCS charities, like Living Goods, Project Healthy Children, etc. — is that right?

Prioritizing COVID-19 interventions & individual donations

Thanks so much! This resource has been extremely useful.

Prioritizing COVID-19 interventions & individual donations

I'd also be curious about whether you've looked into the COVID-19 Early Treatment Fund's work sponsoring outpatient trials of promising anti-virals as early treatments for COVID-19. Marc Lipsitch spoke favorably of its work in his recent interview on the 80,000 Hours podcast, and in a number of respects, it strikes me as similarly promising to Fast Grants.

Are we entering an experiment in Modern Monetary Theory (MMT)?

I’m happy to hear that what I wrote was helpful!

I actually don’t think it’s that surprising that we have so much difficulty modeling the macroeconomy with high fidelity. In part, this is because of large degrees of endogeneity and general equilibrium effects (the shocks you are trying to model may alter key parameters of the models themselves), and in part, it is because contemporary macroeconomic models (i.e. DSGE/New Keynesian models) must necessarily make assumptions about human psychology in establishing their “microfoundations.” For a long time, for the sake of simplicity, there was little focus among macroeconomists on ensuring that those assumptions about human psychology were accurate. More recently, significant focus has been dedicated to that question, and more sophisticated, hopefully more accurate New Keynesian models have emerged. That said, even if these models better reflect the expert consensus in psychology and behavioral economics, they are still reliant on empirical findings in those fields for their accuracy, and given the replication crisis in psychology, that reliance may be compromising. It seems that there is no easy way around the difficulty of modeling human behavior.

Regarding the reliability of macroeconomic predictions, I think it’s safe to say that macroeconomists have developed a poor reputation as predictors. Particularly, in the aftermath of the 2008 financial crisis, there was a lot of highly critical discussion about why “no one saw it coming,” where “no one,” more often than not, referred to macroeconomists. While this is not completely accurate (some macroeconomists, like Robert Shiller, did see it coming), macroeconomists, by and large, failed rather grandly to understand what was going on in markets. There are many reasons for this, but a large one, arguably, especially among experts at the U.S. Federal Reserve, was that they were looking at DSGE models based on implausible and largely discredited assumptions both about people (e.g. rational expectations, the permanent income hypothesis, etc.) and about markets (e.g. perfect competition, no asymmetric information, no price stickiness, no financial or labor market frictions, etc.). This inspired a substantial backlash against DSGE models in general (typified in work like chapter three of John Quiggin’s book Zombie Economics).

This criticism, I think, has proven misguided (and not only because the critics never seemed to be equipped with a superior alternative to DSGE). In the years since the crisis, as I mentioned earlier, DSGE models have been updated and improved, and many authoritative New Keynesian approaches today are (to the best of our knowledge) realistic in precisely the same areas in which their predecessors were unrealistic. The Federal Reserve Bank of New York actually now publishes its standard DSGE model on GitHub. If you’re curious about it, you can take a look here. Only time will tell whether the best models of today materially outperform the models of the early 2000s, but I will say that thus far, it looks like the Federal Reserve has done a vastly better job of responding to the COVID-19 economic crisis than it did in responding to the 2008 housing crisis, so I am optimistic about the progress the field has made in the last ten years.

Finally a minor clarification based on your comment: While the impact of monetary policy is mediated just about exclusively through the expectations channel when an economy is at the zero lower bound and nonetheless lacks full employment (like now, in most advanced economies), this is generally not the case when interest rates are well above zero, and monetary policy is reliant upon traditional rather than extraordinary tools (e.g. open market operations rather than quantitative easing).

Are we entering an experiment in Modern Monetary Theory (MMT)?

I pretty strongly disagree with the notion that any country on Earth right now is “trying out MMT” merely by running deficits without concern for their impact on public debt levels. After all, traditional Keynesian macroeconomics recommends the exact same course during a recession. Moreover, MMT itself is far more radical than this. It recommends basically switching the functions of the fiscal taxation authority and the central bank. In particular, it holds that instead of raising taxes to finance new government programs, the central bank should simply buy government debt (i.e. print money) to pay for them, and when this inevitably leads to significant inflation, the fiscal authority (e.g. the national legislature) should address it by raising taxes (thus reducing aggregate demand) rather than having the central bank address it by raising interest rates. With respect to the long-run trajectory of interest rates, MMT’s proponents believe they should be maintained at a low, stable level (zero, according to some).

I want to emphasize how different this would look from what we’re seeing right now in developed economies facing COVID-19-induced recessions. To do this, I’ll walk through a hypothetical based on the U.S. Here (in the U.S.), MMT would likely require the legislative abolition of central bank independence. Then, it would involve the Chair of the Federal Reserve, the Secretary of the Treasury, and the Speaker of the House of Representatives (presumably) jointly announcing that from this point forward the Fed would no longer be adjusting interest rates to maximize the objectives of full employment and stable prices specified in its (now former) dual mandate. Instead, it would be (permanently) buying as much government debt as necessary to pay for fiscal programs passed by Congress while maintaining some specified target interest rate (presumably around zero — it’s hard to get much below that) irrespective of the amount that this would expand the money supply. The Speaker of the House, for her part, would announce that when this new policy caused inflation to exceed some specified rate (the Fed’s current symmetrical 2% target?), Congress would pass a tax increase to wrangle aggregate demand back in check, thus reducing demand-pull inflation and (hopefully) ensuring continued stable prices.

MMT’s proponents often argue that we can trust that what they’re defending would not cause runaway inflation because even as advanced economies around the world have radically expanded their money supplies over the last few decades (some by nearly an order of magnitude), none of those economies have struggled with elevated inflation (ostensibly indicating a persistent gap between the money supplies and the productive capacities of these economies). This is a basically fair observation, but it misses the point. Today, we understand far better than we did 20 years ago that the inflationary consequences of extraordinary monetary policy (at the zero lower bound — i.e. like now) are caused primarily by the ways in which policy affects expectations regarding the future trajectory of interest rates and inflation rates. That is to say: Policy changes that radically reconfigure market participants’ expectations regarding the long-run monetary trajectory will almost certainly yield substantial changes in the inflation rate.

This is a policy that would radically reconfigure market participants’ expectations regarding the long-run monetary trajectory (pretty much by definition). It’s true that in MMT proponents’ perfect world, we would simply raise taxes to combat this rising inflation, and if market participants trusted that would occur as described when the transition to MMT policy were first announced, then perhaps the effects of the policy announcement on market expectations would be less pronounced. However, basically no one believes that (for example) the U.S. Congress could be trusted to pass (inevitably unpopular) tax hikes merely for the purpose of mitigating the risk of runaway inflation sometime down the road (remember, good monetary policy is proactive, not reactive!), given that it has proven unable to pass tax hikes to finance overwhelmingly popular government programs for the last decade. As a result, a government declaring an MMT policy approach would wildly shift market inflation expectations, thus causing significant inflation (a self-fulfilling prophecy), demanding, presumably, an increase in taxes shortly thereafter. When this increase fails to materialize, the market’s suspicions that the national legislature was not fully committed to the elements of MMT that require economic discipline would be confirmed, and inflation would increase even further, potentially surpassing the ability of any relevant government authorities to control it.

Even if you don’t buy any of that, though, I think there are some other pretty serious problems with the notion of using the tax code to control inflation. Intuitively, it’s an idea with significant distributive implications (though, of course, controlling inflation by raising interest rates also has distributive implications, and I can imagine how a person might reasonably conclude that those distributive implications are worse). More importantly, however, it could have a pretty substantial impact on labor market incentives. Bear in mind that if your intent in raising taxes is to reduce aggregate demand, you can’t just raise the corporate rate and call it a day (at least in the U.S., that would spur some tax inversions and some deduction-hunting but probably would not have much of an impact on demand). Rather, to have the desired effect, you would need to raise income taxes. That’s fine for a while, but eventually, inflation could get so high that the tax rate required to rein it in would meaningfully reduce people’s interest in working, thus diminishing the economy’s productive capacity (and GDP, etc.). Moreover, you better trust that your tax code is well-designed; otherwise, differentially disincentivizing work in this manner could produce some pretty odd labor market distortions. (Yes, many arguments similar to this one have been grossly mis-used by conservative economists to defend empirically indefensible conclusions. As Paul Krugman himself notes, this is not such a case.)

To close, I’d just note that MMT has substantial factual and theoretical faults entirely unrelated to anything I discussed here but nonetheless worthy of consideration. For a cogent run-through of just a few, I’d recommend these three columns by Krugman (one of which is also linked above).

Prioritizing COVID-19 interventions & individual donations

Thanks for this great post! I'm curious whether you've looked into any of the other developing world COVID-19 initiatives for which The Life You Can Save is currently raising money (beyond Development Media International and GiveDirectly). These include programs by TLYCS top charities D-Rev, Evidence Action, Living Goods, Population Services International, and Project Healthy Children, several of which are also, as you know, highly regarded by GiveWell.

How to vote in Shareholder Meeting proxy votes

While it’s certainly true that in most instances, a retail shareholder’s participation will have no impact whatsoever on the outcome of a proxy vote, I think this breakdown of proxy proposals may obscure more than it clarifies. After all, the biggest reason why an individual shareholder’s votes typically make no difference is because the vast majority of ballot items each proxy season are uncontested. Presumably, thecommexokid is not wondering how they should vote on those. And with respect to meaningfully contested ballot items, I think it’s probably not quite right to say that the majority are proposed by cranks. Among other things, only about a quarter of shareholder proposals are proposed by retail shareholders of any variety. (It’s worth noting that in the U.S., companies regularly receive the SEC’s permission to exclude genuine crank proposals from their proxy statements on a variety of legal grounds.)

The vast majority of shareholder proposals in the U.S. fall into one of three categories: requests for certain kinds of disclosures (e.g. of environmental impact, of lobbying expenditures, of pay equity data, etc.), changes to technical governance rules (e.g. the requirements for proxy access or for calling a special meeting), and activist hedge funds seeking to replace members of a board of directors. In most cases, these are proposed in the context of some kind of organized campaign. This doesn’t guarantee that the vote will be close (obviously, many such campaigns are not meritorious), but it does mean that more often than not, the contested shareholder proposals that make it onto companies’ proxies have non-trivial support within the shareholder base. Consider, for instance, that around 37% of proposals submitted by public pension funds passed in 2017, as did 20% of proposals submitted by hedge funds. Moreover, sometimes, those votes do end up being quite close! And even if a vote fails (by a modest margin), it can send a powerful signal to the management and the board. Notably, whenever an executive pay package receives less than around 70% shareholder support in the U.S., there is a strong norm (supported by the major proxy advisors) for the company to propose a more modest package the following year.

Admittedly, the domains on which shareholders can exercise influence through the proxy process do not lend themselves to promoting the kinds of change that a socially concerned (or EA-focused) investor might like to see (in the U.S., the operations of the company are strictly off-limits). However, it isn’t difficult to imagine a story in which a particular shareholder’s vote mattered in bringing about a meaningfully positive outcome. If a person is already inclined to look into this stuff—perhaps because they find it interesting and have a bit of free time—I don’t think it’s unreasonable to try one’s best to use this resource, however modest, to bring about some good. After all, hedge fund activism in particular can be quite high-stakes. It’s plausible that it really does matter in some of those cases that the right side wins. And as far as disclosure campaigns go, making more information available to researchers, investors, employees, and consumers seems likely to, more often than not, improve the function of markets and maybe even advance the social good.

How to vote in Shareholder Meeting proxy votes

I know a bit about the proxy advisory ecosystem, so I can provide something of a generic summary, though nothing specific to EA.

In the U.S., there are five different companies that advise institutional investors about how they should vote their shares: Institutional Shareholder Services, Glass Lewis, Egan-Jones, Segal Marco Advisors, and ProxyVote Plus. However, Institutional Shareholder Services (ISS) has around 61% market share, and Glass Lewis has another 36%, so the industry is quite concentrated. While ISS guarantees its clients 100% portfolio coverage (and as a result, produces research reports addressing pretty much every proxy ballot item on the planet each year), many of its smaller competitors offer narrower, more specialized services. For instance, Segal Marco advises primarily labor union pension funds, and there are a few other proxy advisors outside of the U.S. that specialize in companies listed in the country in which they are located.

ISS (like most of its competitors) offers its clients voting recommendations determined through the application of a defined voting policy selected by the client in question. While the plurality of its clients use its benchmark policy, which is focused on long-term shareholder value creation, ISS also offers a number of specialized policies targeted at investors concerned about corporate social responsibility, sustainability, labor interests, etc. For clients who feel that none of ISS’s preexisting policies fit their particular goals, ISS offers custom policies that clients can develop collaboratively with its advisors.

Assuming you are not an institutional investor, you will probably have a hard time accessing ISS’s proxy research (or that of any of its competitors) at a cost-effective price. In light of that, I’d refer you to two other organizations that work in the corporate governance space. The first is As You Sow. It runs shareholder campaigns at companies to promote largely environmentalist goals (though it does work in a few other areas, as well). If you own shares in any of the companies that it is targeting, you might be interested in taking a look at its campaign materials and considering them in the context of EA, your own values, etc.

The second organization is CtW Investment Group. It runs governance advising and shareholder campaigns on behalf of a coalition of U.S. labor unions on a broadly similar model to As You Sow, though it is more focused on worker interests and general good governance norms than on environmental concerns (by virtue of the stakeholders it represents). Like As You Sow, its campaign materials are publicly available online and might be worth reviewing if you’re voting a proxy at a targeted company. Both of these organizations are considered to be highly credible in the governance space, and while there’s room for disagreement about certain elements of their respective agendas, their research is considered to be of a reasonably high quality.

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