A New SDR Allocation

On March 23, the Managing Director of the International Monetary Fund, Kristalina Georgieva, reported that: “I am very encouraged by initial discussions on a possible SDR allocation of US$650 billion. By addressing the long-term global need for reserve assets, a new SDR allocation would benefit all our member countries and support the global recovery from the COVID-19 crisis.” “IMF Executive Directors discuss new SDR allocation” The SDR is the international reserve asset and unit of account created and issued by the IMF to supplement the U.S. dollar in those roles. There are important advantages to replacing or reducing the dominance of the U.S. dollar in global commerce with an internationally issued currency with a more stable value than the dollar or any other single currency. “Returning to currencies with hard anchors” Real SDR Currency Board

The IMF’s Articles of Agreement require a long-term global need for additional reserves to justify an allocation. Thus, the Managing Directors call for a new allocation is “based on an assessment of IMF member countries’ long-term global reserve needs, and consistent with the Articles of Agreement and the IMF’s mandate.”  “IMF Executive Directors discuss new SDR allocation”  While I think an allocation is justified and useful at this time, the underlying motivation of aiding IMF members to fight the economic impact of the Covid-19 pandemic is unfortunate.

The aid motivation is revealed in a Wall Street Journal editorial on March 24, 2021, which unfortunately misrepresents important features of the SDR. “Special dollars for dictators”

Setting aside for a minute that I have long proposed replacing the SDR allocation system described in this article with issuing SDR under currency board rules (i.e., only and to the extent demanded by the market and purchased by the market at market prices), there are a lot of mistakes in this article. Allocated SDRs are in effect a line of credit for which any country using them pays the market rate of interest (on three-month t-bills). If a country does not use its allocated SDRs the interest rate it pays on its allocation is matched and offset by the interest it earns on its SDR holdings. SDRs are allocated in proportion to member countries’ quotas in the IMF. Quotas are based on each country’s economic size and importance in global trade and determined a country’s financial contribution to the IMF, its borrowing limits and its voting strength. This is an objective and sensible basis for allocations and does not and should not take into account the nature of each country’s government.

The WSJ also misrepresents the implications of the proposed allocation for the U.S. treasury, which like every other recipient of an allocation pays nothing unless it uses some of them. If the U.S. buys SDRs from another holder (only IMF member countries and ten International Financial Institutions such as the World Bank and the BIS), it earns interest to the extent that its holding would then exceed its allocation. If Greece uses its SDRs, it will not necessarily sell them to the U.S. Treasury. Greece could sell them or pay obligations with them to any other IMF member country willing to buy or accept them.

The IMF Articles of Agreement in which SDRs and the rules for using them are established are not the legislative product of the U.S. Congress (though the U.S. needed to support the adoption of these Article) and thus these rules cannot be changed by the U.S. Congress as suggested by the WSJ.

As noted in the WSJ editorial the size of the allocation seems to have been chosen to stay under the cap over which Congressional approval is required for U.S. support for the allocation. As allocations require 85 percent support of the IMF members by quota and the U.S. quota is 17.44%, an SDR allocation cannot be approved without U.S. support. The editorial is right (implicitly) that SDR allocations are not meant as aid and the current scheme proposed by the IMF seems to be a non-transparent work around the need for congressional approval to provide aid. My IMF colleagues Leslie Lipschitz and Susan Schadler explore this aspect more fully in “A New Global Plan to Help Struggling Countries Misses the Mark” http://barrons.com/articles/WP-BAR-0000029758  Sadly this undermines the legitimate purpose and role of SDRs in augmenting international reserves.

Hate Crimes

“The shooting deaths of eight people at Asian-run spas in Georgia this week triggered a vigorous national debate Thursday over whether the mass killing amounted to a hate crime.” “Georgia hate crime law-Atlanta shooting”  These deaths (and recent attacks on Asians more generally) raise several issues that I would like to explore. 1. What is the point of hate crime laws?  The poor ladies killed in this attack could care less what motivated Robert Aaron Long, the 21 year old shooter. 2. Whose fault is it? Let’s start with the shooter (and other attackers), please. 3. What should we do about it (beyond locking the shooter, and other attackers, up)?

What is the point of hate crime laws?

“Georgia State Rep. Chuck Efstration, a Republican who helped shepherd [Georgia’s Hate Crime] bill into law, said it was intended to allow for especially stiff penalties for crimes in which “the perpetrator’s prejudices and biases are attacks not only on the victims but on all of society.  Thank goodness law enforcement will have the ability to charge this as a hate crime if the facts support that,”   [op cit]

Georgia State University law professor Jessica Gabel Cino noted that: “The majority of the victims are women, and they are Asian. Those are two protected statuses.” And what if they hadn’t been?

Traditional laws do differentiate between first, second, and third degree murders, but if you plan to and succeed in killing someone, it didn’t traditionally matter whether you loved or hated the victim. I can understand why such information might be useful in exploring approaches to mitigating the risk of such future murders, but I don’t see its relevant to the guilt and punishment of the murderer. I do not support capital punishment, but Mr. Long should surely be put away for the rest of his pathetic life whatever motivated his killing spree.

According to Mr. Long, “he was on a mission… to stem his addiction to sex. The spas were ‘a temptation for him that he wanted to eliminate.’”  “What happened-Atlanta shooting”

In determining the length of a sentence, courts do pay some attention to the motive for a crime as well as the crime itself but a special category of “hate crimes” has always seemed troubling and unnecessary to me.

Whose fault is it?

In a free society of responsible citizens, we must never forget that in the first instance the fault for a crime rests with the criminal. But it is fair to ask what motivated the criminal. While Mr. Long’s horrible crimes do not appear to be motived by the hatred of Asian’s, there has definitely been an increase in verbal and physical attacks on Asians over the past year. Much of the press has been quite eager to point to the hate filled and divisive statements against China by former President Trump. While he is certainly guilty of poisoning public discourse on China, immigration, Muslims and related topics, it is an odd place to look first.

Animosity toward Asians, and Chinese in particular, arises in the first instance from the behavior of China (shorthand for the government of China — synonymous with the Communist Party of China). In fact, unfavorable attitudes toward China have skyrocketed around the globe over the last three to four years. “For our enemies we have shotguns explaining Chinas new assertiveness” Public attitudes toward China are lower in Australia and the U.K., for example, than in the U.S. and fell sharply well before the Covid-19 pandemic.  “China global reputation coronavirus”  Attitudes toward China began to deteriorate in the face of Chinese assertiveness in the South China Sea, violations of the one country, two systems agreement for Hong Kong, theft of intellectual property from the West, and treatment of the Uighurs in the Xinjiang region, to name a few. China’s suppression of information on the virus producing covid-19 pales in comparison to its bad behavior in other areas.

What should we do about it?

The world that objects to China’s behavior needs to stand together in pointing it out. Former President Trump’s stand-alone, bilateral approach was a failure. But it is very important when the U.S. and other governments criticize China to clearly differentiate the government of China from the Chinese people, whether citizens of China or the U.S. or elsewhere. It is the Chinese government–the Communist Party of China–that is misbehaving.

The distinction between a government and its people is important more generally. For example, those who criticize the misbehavior of the Israeli government toward the Palestinians in the West Bank and Gaza, are sometimes mistakenly accused of anti-Semitism–i.e., of being against the Jewish people. It is likely that many are reluctant to criticize the Israeli government for fear of being accused of anti-Semitism. As the Biden administration joins with other countries to criticize the misbehavior of the Chinese government, it must, and it is, clearly distinguishing the Chinese government from the Chinese people. And we, each one of us, must speak out at the sight of rude or inappropriate behavior toward Asians, or anyone else. ALL LIVES MATTER.

Should you get vaccinated for Covid-19?

“A CBS/YouGov poll released this weekend found 33 percent of GOP voters say they will not get the vaccine when it’s available to them. Another 20 percent say they aren’t sure.” “The-daily-202”  After being thoroughly satisfied that Moderna was safe and effective, I have received both of my jabs. But I sympathize with those who are skeptical and/or distrusting of the information they have been fed over the last year. The messaging from the Trump administration was inconsistent and the CDC has now removed some earlier postings that had been more influenced by politics than by science (which, by the way, is far from having all of the answers yet).

In addition to poor messaging from the government, some badly misguided, if not deliberately evil, groups have spread false information.  So, I find it very encouraging that many of those refusing to get the vaccine say that they “want to be educated not indoctrinated.  The responses of focus group participants suggest they can be persuaded — but perhaps not by politicians, including the former president…. Be honest that scientists don’t have all the answers. Tout the number of people who got the vaccines in trials. And don’t show pro-vaccine ads with politicians — not even ones with Donald Trump.  That’s what a focus group of vaccine-hesitant Trump voters insisted to politicians and pollsters this weekend….

 “’These people represent 30 million Americans. And without these people, you’re not getting herd immunity,’ said Frank Luntz, the longtime GOPpollster who convened Saturday’s focus group over Zoom.” Unfortunately Mr. Luntz is speaking nonsense as well. We would still get herd immunity even without a vaccine as people would acquire immunity as a result of being infected. The process would be slower with more deaths, but we would get there. I am sure that Mr. Luntz meant well.

Participants in these focus groups “all believed the coronavirus threat was real, with many having contracted it themselves or aware of critically ill friends and family, and they didn’t want to be condemned as “anti-vaxxers” who opposed all vaccines. Instead, they blamed their hesitation on factors like the unknown long-term effects of new vaccines, even though scientists have stressed their confidence in the products. They also accused politicians and government scientists of repeatedly misleading them this past year….

“For instance, [House Minority Leader Kevin] McCarthy said he understood the Trump voters’ hesitation because pharmaceutical companies waited until after Trump lost the election to announce their promising vaccine results — a comment that sparked participants to share their own resentments.

‘It was political stunts like that that leave doubt in our minds,’ said a man identified as David from Texas.”

In another session “a man called Chad from Minnesota,… praised [former head of the CDC Dr.] Frieden for acknowledging that the long-term risks of the vaccines aren’t yet known. “He’s just honest with us and telling us, nothing is 100 percent here, people.”

The lessons are clear. The best results are obtained by treating the public like adults. The government needs to honestly present the best information available, acknowledging what is known and what is uncertain.

“’I’ve been thinking the messaging was going to be very different for communities of color, for Democrats, for Republicans,’ said Natalie Davis, co-founder of United States of Care, a public health advocacy group working on vaccine outreach with organizations like the de Beaumont Foundation and Kaiser Family Foundation. ‘But it feels like it comes down to the basics that are shared across populations. People want full, accurate information so they can decide if this is the right thing for them and their loved ones….’

“‘The vaccines were approved quickly in part because red tape was cut, not corners,’ [Dr. Frieden said. ‘And almost all the doctors who are offered the vaccine get it.’”   “Vaccine hesitant republicans focus group”

Shifting Gears: The Way Forward

The Trump administration accomplished many good things and many bad things (especially in the trade and foreign policy areas). Trump himself belongs in jail in my opinion. Hopefully, with the new Biden administration we can turn our attention to policy issues and stop calling our policy opponents nasty names. We must state the positive case for why our policy views are more appropriate–why they are better for our country. These are the sorts of public debates that we have been missing for a while and to which we should return.

One of our most fundamental principles is America’s commitment to equal treatment under the law for everyone regardless of race, religion, sexual orientation, or preferred hair style. Equal treatment is extended to everyone whether they or their ancestors came from Asia, Europe, Africa or Ireland (yes, even Ireland). We have never fully measured up to this principle, but it remains, and should remain, the objective to which we continually strive. It means that our accomplishments and “place” in society largely reflect our own talents and efforts. We are a nation of individual liberty. We are free (to a large extent) to make our own decisions. Our policy disputes often concern where to draw the line between what we decide for ourselves and what the government decides for us. My blog last week on our response to Covid-19 provides an example: https://wcoats.blog/2021/03/06/the-unnecessary-fight-over-covid-19/

Equity (equal outcomes) was the fundamental principle of the Soviet Union, though its outcomes fell far short of the principle. Between these extremes of equity (communism/socialism) and equality (equal treatment under the law) is our actual world of governments with more intrusive or less intrusive rules and dictates on our behalf, with broader or narrower social safety nets, etc.  America continues to debate where and how to set these boundary’s, but one of our great strengths, and a source of our broadly shared affluence, is undertaking the debate from the side of (and with the presumption of) self-reliance (with family and friends) and equality under the law.

The distinction between equity and equality is sharply contrasted in the following WSJ oped.


Friday,  March  5,  2021.

Section A, Page 17, Column 1

‘Equity’ Is a Mandate to Discriminate

The new buzzword tries to hide the aim of throwing out the American principle of equality under the law.

By Charles Lipson

On his first day as president, Joe Biden issued an “Executive Order on Advancing Racial Equity and Support for Underserved Communities.” Mr. Biden’s cabinet nominees must now explain whether this commitment to “equity” means they intend to abolish “equal treatment under law.” Their answers are a confused mess.

Arkansas Sen. Tom Cotton raised the question explicitly in confirmation hearings. Attorney General-designate Merrick Garland responded: “I think discrimination is morally wrong. Absolutely.” Marcia Fudge, slated to run Housing and Urban Development, gave a much different answer. “Just to be clear,” Mr. Cotton asked, “it sounds like racial equity means treating people differently based on their race. Is that correct?”

Ms. Fudge’s responded: “Not based on race, but it could be based on economics, it could be based on the history of discrimination that has existed for a long time.” Ms. Fudge’s candid response tracks that of Kamala Harris’s tweet and video, posted before the election and viewed 6.4 million times: “There’s a big difference between equality and equity.”

Ms. Harris and Ms. Fudge are right. There is a big difference. It’s the difference between equal treatment and equal outcomes. Equality means equal treatment, unbiased competition and impartially judged outcomes. Equity means equal outcomes, achieved if necessary by unequal treatment, biased competition and preferential judging.

Those who push for equity have hidden these crucial differences for a reason. They aren’t merely unpopular; they challenge America’s bedrock principle that people should be treated equally and judged as individuals, not as members of groups.

The demand for equal outcomes contradicts a millennium of Anglo-Saxon law and political evolution. It undermines the Enlightenment principle of equal treatment for individuals of different social rank and religion. America’s Founders drew on those roots when they declared independence, saying it was “self-evident” that “all men are created equal.”

That heritage, along with the lack of a hereditary aristocracy, is why claims for equal treatment are so deeply rooted in U.S. history. It is why radical claims for unequal treatment must be carefully buried in word salads praising equity and social justice.

Hidden, too, are the extensive measures that would be needed to achieve equal outcomes. Only a powerful central government could impose the intensive—and expensive—programs of social intervention, ideological re-education and economic redistribution. Only an intrusive bureaucracy could specify the rules for every business, public institution and civic organization. Those unhappy implications are why advocates of equity are so determined to hide what the term really means.

Americans have demanded that all levels of government stop giving special treatment to the rich and powerful. That is simply a demand for equality. Likewise, they recognize that equal treatment should begin early, such as with adequate funding for K-12 students.

Since the New Deal, most Americans have supported some form of social safety net for the poor and disadvantaged. But this safety net doesn’t demand that out-of-work coal miners receive the same income as those who are working. The debate has always been about how extensive the safety net should be and how long it should last for each recipient. There is broad agreement that no worker should be laid off because of his race, gender or religion. Again, that is a demand for equal treatment.

What we are seeing now is different. It is the claim that the unfair treatment of previous generations or perhaps a disadvantaged childhood entitles one to special consideration today as an adult or young adult. Most Americans, who are both generous and pragmatic, have been willing to extend some of these benefits, at the margins and for limited periods. They don’t want to turn these concessions into large, permanent entitlement programs, giving substantially different treatment to different groups, even if those groups have suffered historical wrongs.

One measure of how unpopular these unequal programs are is how often their proponents need to rename them. “Quotas” were restyled as “affirmative action.” The goal was still to give special benefits to some groups to achieve desired outcomes. Now “affirmative action” has also become toxic, rejected most recently by voters in deep-blue California. Hence, the new name, “equity.”

Instead of making their case openly and honestly, advocates of equity twist and turn to avoid revealing their radical goal of re-engineering society through coercion. If the results fall short, as they inevitably would, the remedy is obvious: more money, more rules and more indoctrination. Why not tell us who will receive these special benefits and for how long? At whose expense? Who will administer these programs? Who will judge whether the outcomes are fair enough? When will it all end?

Since the ultimate goal is achieving equal outcomes, these evasions raise the hardest question of all. Isn’t equity just a new brand name for the oldest program of achieving equal outcomes? Its name is socialism.

Mr. Lipson is a professor emeritus of political science at the University of Chicago, where he founded the Program on International Politics, Economics, and Security.

The unnecessary fight over Covid-19

We American’s expect to be able to make our own choices about what risks we are willing to take. The limits on our behavior generally concern when it threatens to harm others. When state after state issued stay at home orders and mandated the closing of many businesses (restaurants and theaters, etc.) a year ago they violated this principle. Many people rebelled at this intrusion into their prerogatives, but sadly by often making foolish decisions of their own. Of course, those who contract a contagious disease, such as Covid-19, should be legally quarantined.  Otherwise, businesses and individuals should make their own decisions about how to respond to this pandemic on the basis of the best possible information about its risks and how to mitigate them. A role in which the government failed miserably.

As with economic decisions more generally, countries that give maximum scope to individuals about what to produce and/or buy have been far more prosperous than those in which more decisions are made centrally and imposed from the top (socialism). Among other things the CARES Act suspended debt payments (and associated defaults, bankruptcies, and evictions) for understandable reasons https://wcoats.blog/2020/04/11/econ-202-cares-act-who-pays-for-it/. However, it was part and parcel of centralized mandatory decision making and inferior to individual case by case decisions by lenders and borrowers (debt restructuring) and landlords and tenants (rent forgiveness or holiday or eviction). In normal times when a debtor is unable to service its debt, for purely profit maximizing reasons lenders evaluated case by case whether to allow temporary arrears (debt restructuring) or to invoke the default provisions of the loan (bankruptcy).

Restaurants that felt they could safely open with social distancing and other safety measures that would convince their customers to return should be allowed to do so. They should be free to decide whether requiring face masks when entering and walking about the restaurant would attract more customers than not doing so. Customers who were not comfortable in a restaurant that did not take these safety measure would not patronize them. The relevant government should decide whether to require them on public transportation, etc.  If you come to my house, be sure that you are wearing one.

The culture war we now witness over face masks and other aspects of appropriate public behavior with regard to Covid-19 was so unnecessary. The American government behaved like a parent dealing with children and many Americans responded by behaving like children. They didn’t choose not to wear face masks because they were convinced by medical data that they are not effective (most data shows that they are very effective). Rather they chose not to wear them because the government told them they must. Childish indeed. Almost a year ago I wrote that the government’s most effective role was to provide the best information available (and more was coming available every week) about the nature and risks of Covid-19 and how best to avoid or mitigate those risks. If restaurants felt that they could safely remain open, they would need to convince potential customers that they had taken measures to protect them from exposure to the virus. This was not the approach taken by the government and public trust in the statements of the government in recent years has been, to say the least, low.

I expressed these views almost exactly a year ago (March 31, 2020). I repeat that blog here: