Wei_Dai's Comments

Concern, and hope

The witch hunts were sometimes endorsed/supported by the authorities, and other times not, just like the Red Guards:

Under Charlemagne, for example, Christians who practiced witchcraft were enslaved by the Church, while those who worshiped the Devil (Germanic gods) were killed outright.

By early 1967 Red Guard units were overthrowing existing party authorities in towns, cities, and entire provinces. These units soon began fighting among themselves, however, as various factions vied for power amidst each one’s claims that it was the true representative of Maoist thought. The Red Guards’ increasing factionalism and their total disruption of industrial production and of Chinese urban life caused the government in 1967–68 to urge the Red Guards to retire into the countryside. The Chinese military was called in to restore order throughout the country, and from this point the Red Guard movement gradually subsided.

I would say the most relevant difference between them is that witch hunts were more "organic", in other words they happened pretty much everywhere where people believed in the possibility of witches (which was pretty much everywhere period), whereas the Cultural Revolution was driven/enabled entirely by ideology indoctrinated by schools, universities, and mass media propaganda.

What values would EA want to promote?

If so, what are the support values needed for maximizing those values?

I think a healthy dose of moral uncertainty (and normative uncertainty in general) is really important to have, because it seems pretty easy for any ethical/social movement to become fanatical or to incur a radical element, and end up doing damage to itself, its members, or society at large. ("The road to hell is paved with good intentions" and all that.)

A large part of what I found attractive about EA is that its leaders emphasize normative uncertainty so much in their writings (starting with Nick Bostrom back in 2009), but perhaps it's not "proselytized" as much as it should be day-to-day.

Concern, and hope

Re "Cultural Revolution" comparison, let me put it this way: I'm a naturalized citizen of the US who has lived here for 30+ years, and recently I've spent 20+ hours researching the political climate and immigration policies of other countries I could potentially move to. I've also refrained multiple times from making a public comment on a topic that I have an opinion on (including on this forum), because of potential consequences that I've come to fear may happen in a few years or decades later. (To be clear I do not mean beatings, imprisonment, or being killed, except as unlikely tail risks, but more along the lines of public humiliation, forced confessions/apologies, career termination, and collective punishment of my family and associates.)

If there are better or equally valid historical analogies for thinking about what is happening and what it may lead to, I'm happy to hear them out. But if some people are just offended by the comparison, I can only say that I totally understand where they're coming from.

EA considerations regarding increasing political polarization

The Cultural Revolution analogy may be more fitting in some ways though. For example it pretty quickly devolved into factions of Red Guards fighting (physically as well as rhetorically) each other to show who is more "red" or more "revolutionary", which is a bit similar to how many people being canceled today are Democrats who strongly oppose Trump. (See this and this.) My knowledge of history is limited, but I'm not aware of this kind of thing happening during the Red Scares?

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

And here's a confirmation from a prominent proponent of MMT:

In 2020, Congress has been showing us — in practice if not in its rhetoric — exactly how M.M.T. works: It committed trillions of dollars this spring that in the conventional economic sense it did not “have.” It didn’t raise taxes or borrow from China to come up with dollars to support our ailing economy. Instead, lawmakers simply voted to pass spending bills, which effectively ordered up trillions of dollars from the government’s bank, the Federal Reserve. In reality, that’s how all government spending is paid for.

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

This has been the best article I can find on MMT. It's very long, but the most relevant part to your question is this:

The QE model can create a synthetic version of MMT if the government and Federal Reserve work closely together, which is what is happening now. My previous example of the Treasury sending out helicopter checks to people that are ultimately paid for by issuing Treasuries that the Federal Reserve buys with newly-created dollars (with primary dealer banks as intermediaries), is basically MMT in practice. In other words, what people think of as MMT can essentially be done in the current legal framework.

However, although QE creates new dollars out of thin air, the process still goes through the motions of pretending to respectfully treat money in the same way it was treated in the first two models, meaning something that has to be borrowed from somewhere before spent, and balanced by an asset on the other side (a Treasury security that gets locked away on a central bank balance sheet in place of newly-created dollars, forever to be rolled to the next one when it matures). For a while, those motions along with statements by officials provided many investors reasons to believe that maybe newly-created dollars would be paid back, maybe the Federal Reserve will be able to reduce their balance sheet, and so forth. Those beliefs proved to be unrealistic, but the realization that it was debt monetization is only coming years later for many people after the temporary nature of it proved permanent when quantitative tightening failed in 2019.

MMT, on the other hand, drops a lot of those pretenses of QE and just treats money as something that can be printed whenever unused economic capacity exists. It's not that fundamentally different than QE; it just cuts to the heart of it and removes some of the steps.

Racial Demographics at Longtermist Organizations

I'm a POC, and I've been recruited by multiple AI-focused longtermist organizations (in both leadership and research capacities) but did not join for personal reasons. I've participated in online longtermist discussions since the 1990s, and AFAICT participants in those discussions have always skewed white. Specifically I don't know anyone else of Asian descent (like myself) who was a frequent participant in longtermist discussions even as of 10 years ago. This has not been a problem or issue for me personally – I guess different groups participate at different rates because they tend to have different philosophies and interests, and I've never faced any racism or discrimination in longtermist spaces or had my ideas taken less seriously for not being white. I'm actually more worried about organizations setting hiring goals for themselves that assume that everyone do have the same philosophies and interests, potentially leading to pathological policies down the line.

How Much Leverage Should Altruists Use?

In a taxable account I can buy 1x SPY and 1.3x SPY futures. Then my after-tax expected return is again (2x SPY − 1x interest).

The catch is that if I lose money, some of my wealth will take the form of taxable losses that I can use to offset gains in future years.

This is a really interesting and counterintuitive idea, that I really like, but after thinking about it a lot, decided probably does not work. Here's my argument. For simplicity let's assume that I know for sure I'm going to die in 30 years[1] and I'm planning to donate my investment to a tax-exempt org at that point, and ignore dividends[2]. First, the reason I'm able to get a better expected return buying stocks instead of a 30-year government bond is that the market is compensating me for the risk that stocks will be worth less than the 30-year government bond at the end of 30 years. If that happens, I'm left with 0.3x more losses by buying 1.3x futures instead of 1x stock, but the tax offset I incurred is worth nothing because they go away when I die so they don't compensate me for the extra losses. (I don't think there's a way to transfer them to another person or entity?) So (compared to leveraged buy-and-hold) the futures strategy gives you equal gains if stocks do better than risk free return, but is 0.3x worse if stocks do worse than risk free return. Therefore leveraged buy-and-hold does seem to represent a significant free lunch (ultimately coming out of government pockets) compared to futures.

ETA: The situation is actually worse than this because there's a significant risk that during the 30 years the market first rises and then falls, so I end up paying taxes on capital gains during the rise, that later become taxable losses that become worthless when I die.

ETA2: To summarize/restate this in a perhaps more intuitive way, comparing 1x stocks with 1x futures, over the whole investment period stocks give you .3x more upside potential and the same or lower downside risk.

[1] Are you perhaps assuming that you'll almost certainly live much longer than that?

[2] Re: dividends, my understanding is that equity futures are a pure bet on stock prices and ignore dividends, but buying ETFs obviously does give you dividends, so (aside from taxes) equity futures actually represent a different risk/return profile compared to buying index ETFs. I'm not sure how to think about this, e.g., can we still treat SPY and SPX futures as nearly identical (aside from taxes), and which is a better idea overall if we do take both dividends and taxes into account?

How Much Leverage Should Altruists Use?

Side note on tax considerations of financing methods (for investing in taxable accounts):

  • With futures you are forced to realize capital gains or losses at the end of every year even if you hold the futures longer than that.
  • With either box spread financing or margin loans, if you buy and hold investments that rise in value, you don't have to realize capital gains and can avoid paying capital gains taxes on them altogether if you donate those investments later.
  • With box spread financing, the interest you pay appears in the form of capital losses (upon expiration of the box spread options, in other words the loan), which you can use to offset your capital gains if you have any, but can't reduce your other taxable income such as dividend or interest income (except by a small fixed amount each year).
  • With margin loans, your interest expense is tax deductible but you have to itemize deductions (which means you give up your standard deductions).
  • With futures, the interest you "pay" is baked into the amount of capital gains/losses you end up with.

I think (assuming the same implicit/explicit interest rates for all 3 financing methods) for altruists investing in taxable accounts, this means almost certainly avoiding futures, and considering going with margin loans over box spread financing if you have significant interest expenses and don't have a lot of realized capital gains each year that you can offset. (Note that currently, possibly for a limited time, it's possible to lock in a 2.7-year interest rate using box options, around .6%, that is lower than IB's minimum interest rate, .75%, so the stated assumption doesn't hold.)

How Much Leverage Should Altruists Use?

Thanks for engaging on this. I've been having trouble making up my mind about international equities, which is delaying my plan to leverage up (while hedging due to current market conditions), and it really helps to have someone argue the other side to make sure I'm not missing something.

This is most obvious in the case of bonds—if 30-year bonds from A are yielding 2%/year and then fall to 1.5%/year over a decade, while 30-year bonds from B are yielding 2%/year and stay at 2%/year, then it will look like the bonds from A are performing about twice as well over the decade. But this is a very bad reason to invest in A. It’s anti-inductive not only because of EMH but for the very simple reason that return chasing leads you to buy high and sell low.

Assuming EMH, A's yield would only have fallen if it has become less risky, so buying A isn't actually bad, unless also buying B provides diversification benefits. Applying this to stocks, we can say that under EMH buying only US stocks has no downsides unless international equities provide diversification benefits, and since they have been highly correlated in recent decades (after about 1990) we lose very little by buying only US stocks.

Of course in the long run this high correlation between US and international equities can't last forever, but it seems to change slowly enough over time that I can just diversify into international equities when it looks like they've started to decorrelate.

If I had to guess I’d bet that US markets are salient to investors in many countries and their recent outperformance has made many people overweight them, so that they will very slightly underperform. But I’d be super interested in good empirical evidence on this front too.

US stock is 35% owned by non-US investors as of 2018 and had been going up recently. Meantime non-US stock is probably >90% owned by non-US investors (not sure how to find the data directly, but US investors only have 10% international equities in their stock portfolio). My interpretation is that non-US investors are still under-weighing US stocks but have reduced their bias recently and this contributed to US outperformance, and the trend can continue for a while longer before petering out.

A lot of my thinking here comes from observing that people in places like China have much higher savings rates, but it's a big hassle at best for them to invest in US stocks (due to anti-money laundering and tax laws) and many have just never even thought in that direction, so international investment opportunities have been exhausted to a greater degree than US ones, and the data seems consistent with this.

Let me know if the above convinces you to move in my direction. If not, I might move to a 4:1 ratio of US to international equities exposure instead of 9:1.

I personally just hold the market portfolio.

BTW while looking for data, I came across this article which seems relevant here, although I'm not totally sure their reasoning is correct. I'm confused about how to reason about "market portfolio" or "properly balanced portfolio" in a world with strong "home bias" and "controlling shareholders".

But in Corporate Governance and the Home Bias (NBER Working Paper No. 8680), authors Lee Pinkowitz, Rene Stulz, and Rohan Williamson assert that at least some of the oft-noted tilt is not a bias at all but simply a reflection of the fact that a sizeable number of shares worldwide are not for sale to the average investor. They find that comparisons of U.S. portfolios to the world market for equities have failed to consider that the "controlling shareholders" who dominate many a foreign corporation do not make their substantial holdings available for normal trading.

Take this into account, the authors argue, and as much as half of the home bias disappears. A more accurate assessment of globally available shares, they say, would show that about 67 percent of a properly balanced U.S. portfolio would be invested in U.S. companies.

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