The trouble with automated market makers
This article first appeared in Cointelegraph.
Automated market makers are a true public good in crypto, enabling genuinely decentralized trading 24/7 and supporting the wider DeFi ecosystems. But they’re not without a host of problems, writes digital economist and academic Christos A. Makridis.
The decentralized finance (DeFi) market has surged since 2021, growing from just over $20 billion to nearly $160 billion as of March 2022, compared with a rise in the total cryptocurrency market from $433 billion to $2.5 trillion over the same period.
While the recent crypto washout in the wake of the collapse of Terra’s LUNA and UST has caused the market value of DeFi to fall almost all the way back down to $60 billion, there is still optimism in the crypto community and the market value will largely return for major crypto assets in the months and years ahead.
The rise of DeFi has been thanks largely to the presence of liquidity made possible through automated market makers (AMM). Whereas centralized exchanges function as a custodian of their customers’ funds and function as a matchmaker for demand and supply, decentralized exchanges (DEX) do not have a custodian.
Instead, peer-to-peer trading, as it was initially designed, is facilitated through a traditional AMM mechanism that says the product of any two assets must always equal some constant. In other words, if Bitcoin and Ether holders put $100 worth in a pool, then the product of the two assets always has to equal $100. If, however, a holder buys more Bitcoin, then the price of Bitcoin rises, and the other side provides more Bitcoin so that the equation balances. The hope is that the pool has many liquidity providers so that there is never a situation where the price of an asset rises so fast that there is insufficient liquidity to facilitate a trade at a reasonable price.
Liquid gold
AMMs have played an integral role in creating liquidity in the overall market. The latest research by Gordon Liao, head of research at Uniswap Labs, and Dan Robinson, head of research at Paradigm, shows that “Uniswap v3 has around 2X greater market depth on average for spot ETH-dollar pairs,” relative to their centralized exchange counterparts, such as Binance and Coinbase.
Here, liquidity is measured using market depth, which refers to how much one asset can be traded for another asset at a given price level. One reason for greater market depth is that AMMs can unlock a more diverse set of passive capital and institutional investors who have different risk profiles.
Since the inception of Uniswap, other AMM designs have emerged, recognizing that the product of two tokens, X and Y, always equaling a constant, K, is not always the most efficient trading strategy — i.e., x*y = K — as Haseeb Qureshi, managing partner at Dragonfly Capital, pointed out in 2020. When a buyer purchases large quantities of X, they can experience slippage, which is when buying a token drives the price up before the order finishes executing it (or selling it drives the price down). Slippage can be costly, especially during times of high trading.
To attract greater liquidity and avoid high slippage rates, DEXs have begun to offer extreme incentives for people to stake tokens in exchange for governance rights (and often a slice of protocol revenue), leading to the “curve wars,” which is a label for the ongoing race to offer better terms of trade. The race to offer better conditions may have some unintended consequences on creating mercenary capital, but the requirement of staking tokens in exchange for governance rights has also created much good.
“Curve wars are representative of the fact that governance has some value… being able to govern how a protocol distributes its incentives even within its own protocol is very powerful: If you force people to commit to make a decision about something in governance, you can create powerful feedback loops,” Kain Warwick, founder of Synthetix, tells Magazine. Warwick has been called affectionately the “father of modern agriculture” for his role in popularizing yield farming.
Front running
Although there are many comparative advantages that DEXs hold over centralized exchanges, most notably greater security and opportunities for community building among token holders, AMMs are imperfect. One of the major limitations to AMMs is the phenomenon of “front running,” which happens when another user places a similar trade as a prospective buyer, but sells it immediately after. Because the transactions are public, and the buyer has to wait until they can get added to the blockchain, others can view them and potentially place bids. Front runners are not trying to execute the trade; rather, they are simply identifying transactions and bidding on them to drive up the price so that they can sell back and earn a profit.
By “sandwiching” the original bid from a buyer with a new bid, the speculator has the effect of extracting value from the transaction. In practice, miners are often the catalysts behind front running, leading to the term “miner extractable value” (MEV), referring to the rents that a third party can extract from the original transaction. These sandwich attacks have largely been automated and implemented by bots, accounting for the bulk of MEV. In an academic paper, Andreas Park, professor of finance at the University of Toronto, said:
“The intrinsic transparency of blockchain operations create a challenge: an attacker can ‘sandwich’ any trade by submitting a transaction that gets processed before the original one and that the attacker reverses after.”
Unfortunately, these attacks are driven by an incentive problem inherent in second-generation blockchains. “Validators may not have sufficiently strong incentives to monitor private pools because this reduces their MEV, so the execution risk for users who join these private pools goes up,” Agostino Capponi, an associate professor of industrial engineering and operations research at Columbia University, explains to Magazine.
Capponi, together with co-authors, elaborate on this in a recent working paper that points out how private pools do not solve this front-running risk or reduce transaction fees — other solutions are required. Capponi continues, “Frontrunning attacks not only lead to financial losses for traders of the DeFi ecosystem, but also congest the network and decrease the aggregate value of blockchain stakeholders.”
Front running can also affect liquidity provision. Price oracles — or mechanisms for providing information on prices — play an essential role in ensuring adequate liquidity exists in the market. If the latest prices are not reflected “on-chain,” then users could front run the price with trades and earn a profit. For example, suppose that the latest price of ETH is not reflected on an exchange, which has it lower. Then, a user could buy ETH at its true price but sell it for potentially more, thereby earning a profit.
While price oracles help ensure adequate liquidity, no amount of liquidity can solve the core issue that transactions on-chain need to be as current as possible. Warwick explains:
“Price oracles do not directly help because they are pushing information on-chain. If you can front run a change in an AMM, you can front run an oracle update, too. Any transaction sequencing is going to introduce the potential for front running.”
That is a challenge that Warwick has personal experience with: In 2019, Synthetix lost billions (technically if not in practice) as a result of an oracle pricing error. Although the funds were returned, the incident demonstrates how costly errors can be.
Look no further than last week when an oracle pricing error on the Mirror Protocol on Luna Classic led to another exploit. Validators on Terra Classic were reporting a price of $0.000122 for both Luna Classic (LUNC) and the newly-launched LUNA when the new LUNA should have been at $9.32. Although the error was eventually fixed — resulting from an outdated version of the oracle software — the “exploiter got away with well over $30 million.”
Challenging business models
AMMs were a revolutionary quantitative mechanism for enabling peer-to-peer trading because they instantaneously settle transactions after they are confirmed and included on the blockchain, and they allow any user to contribute liquidity and any buyer to trade tokens.
However, AMMs have largely relied on expectations of future growth to drive their valuations; the revenue from transaction fees is not only small but also fundamentally linked to the liquidity providers — not the exchange. That is, while Uniswap could take the fees as revenue, the way the smart contracts are written is such that the revenue goes directly to the liquidity providers.
Given that APRs from trade fees might be low, especially in newer AMMs, DEXs rely on offering their governance token for incentives, requiring a high price valuation to onboard and retain liquidity providers. These providers are often “mercenary capital” — going wherever the short-run return is higher. Black swan events, as well as volatility in the market, can damage AMMs beyond repair. For example, volatility in the exchange rate across tokens can lead to a liquidity freeze, according to Capponi and Ruizhe Jia, a Ph.D. candidate at Columbia University.
The reality of the Uniswap business model is not an indictment; it creates incredible value, as evident by recent estimates of its daily trading volume of around $131 million. Rather, that it does not produce revenue is a function of its business model and actually makes Uniswap more of a public good for people in the DeFi community than anything else.
“[AMMs] offer an integral service but don’t adequately capture the value they provide through their token… the current models simply do not provide a transition from pre-revenue speculation to postmoney sustainability,” according to Eric Waisanen and Ethan Wood, co-founders of Hydro Finance, in their April white paper.
Emerging business models
Front running is a problem in large part because pending transactions are generally visible, so a bot can detect it, pay a higher gas fee, and thus, the miner processes the transaction first and impacts market pricing.
One way to avoid this is by hiding the transactions. The use of zero-knowledge proofs and other privacy-preserving solutions is becoming increasingly popular because it is thought to minimize front running and MEV attacks by obfuscating the size and time of transactions that are submitted and verified.
Beyond the hype: NFTs can lead the way in transforming business experiences
This article was first published in Cointelegraph.
Many businesses and big brands have already jumped on the nonfungible token (NFT) bandwagon, including Nike, the National Basketball Association, Pepsi and even Taco Bell. But are these just for the show, or are these NFTs creating value? Much like digital services have become essential for every business in and outside of the technology sector, I believe that tokens — and, specifically, NFTs — are likely to become equally crucial in the emerging Web3 economy for at least two reasons.
First, my view is that NFTs tokenize ideas at the atomistic level, creating rivalry and exclusivity around goods or services. Markets cannot form when goods and services are non-rival — when one person’s consumption does not trade off with another’s — or when they are non-excludable — when it is prohibitively expensive to gate access to a good or service with a price mechanism. NFTs, on the other hand, create rivalry and exclusivity by leveraging smart contracts on the blockchain that deliver NFTs to peoples’ digital wallets when they make a purchase.
Second, I also believe that organizations can use NFTs to efficiently attract and engage different tiers of customers each in their own unique way. Whereas traditional marketing involves selling goods and services at a discount, perhaps for a limited duration of time, NFTs allow brands to target specific customers and reward those who want to engage. For instance, perhaps a fashion brand decides to airdrop discount codes or special offerings that are not available anywhere else to NFT holders. Normally, that would be prohibitively expensive to do at scale, but NFTs provide a way.
Building community
To date, however, most of the NFT applications have been among bigger brands — or at least, so it seems based on media coverage. But either way, smaller organizations and even independent business owners will benefit from NFTs in the years ahead if they invest the time and energy to understand how they work. In fact, just think about the types of businesses that are most likely to benefit from NFTs: It is precisely the smaller organizations that do not have as much of a marketing budget to implement large-scale campaigns and discounts that benefit from the reduction in cost that NFTs provide to target consumers and invite them into a community.
Forget thousands or hundreds of thousands of dollars that go toward buying email lists, creating sales funnels, and conducting surveys and market research. Understanding competition and knowing your consumer is always going to be important, but the landscape is fundamentally different when you think about reaching people on a blockchain based on their opting in and the ability to track what people are actually buying and engaging with in a transparent way.
That’s not to say marketing doesn’t matter. Marketing and visibility do matter insofar as consumers need to learn about the goods and services that are being offered. But the mechanism behind it all is changing — simply having a big budget is not going to have as much bang as a smaller organization or independent business owner who has a clear community of loyal customers. NFTs are simply a new technological mechanism for conveying rival and exclusive goods and services to people who value them — they are not a substitute for creating valuable goods and services in the first place.
Take, for instance, the positive effects of airdrops and governance tokens, which I’ve covered in Cointelegraph Magazine before, citing Gary Vaynerchuk and 3LAU. When used with intentionality and prudence, airdrops are a great way of rewarding early users and building a close community. Then, as momentum builds, the community grows and enters into a new phase.
Enhancing B2B services
Although it’s easy to see how NFTs can enhance the consumer experience, ranging from fashion to content creation, what about businesses that sell services to other businesses?
The principles are the same. Imagine, for example, a consultancy where businesses bid over time with different consultants by buying their NFTs. Then, consultant income would vary based on market demand and supply, providing stronger incentives for each person to carry their weight and add value in the process, as well as an opportunity for businesses to hire their preferred top talent.
The same could go for an institution of higher education where faculty produce NFTs of their content and can license it out to businesses as an additional source of revenue, decreasing the need for growing tuition. Such an approach would also encourage faculty to create content that actually engages with the demands of the marketplace, rather than just talking about them.
Beyond the outward-facing component, think about the impact that tokens could have on the internal labor market of an organization. One of the biggest challenges within organizations is the absence of a price mechanism, dating back to contributions by the late Nobel Laureate Ronald Coase in a 1937 paper, as well as another Nobel Laureate Oliver Williamson in a 1981 paper.
Since prices in a market function to allocate supply and demand, a problem exists within organizations: There is no price! Instead, internal labor markets and organizational decision-making function through hierarchies. But these are inefficient, and there is a wide array of transaction costs — or factors that drive a wedge between what people want and need to exchange.
Such frictions can be resolved through the use of an internal economic system where tokens are used to facilitate exchange. For example, raising an employee’s salary might be a risky bet, but paying them in tokens creates additional skin in the game and incentives to perform since the tokens can only be redeemed if the employee remains in the organization. Obviously creating such an internal ecosystem is not simple, and there are costs and benefits to evaluate in more detail, but at its core, tokens have the potential to fundamentally transform the conversation about transaction costs.
Taking stock
It’s easy to get caught up with the buzz about NFTs — and even fungible tokens — without knowing why. Clearly, there’s something special in the Web3 revolution we’re in, but sometimes it’s hard to put our finger on why. I believe the secret sauce is in the ability for NFTs to create rivalry and exclusivity at the atomistic level around ideas — and that has profound implications worth exploring further.
Remoting
This article first appeared in City Journal.
Analysts debate the proportion of employees that work remotely, but our latest research suggests that it amounts to roughly half of the U.S. workforce.
In late 2020, we launched the Remote Life Survey through Gallup, collecting detailed information about respondents’ employment situation, demographics, and well-being. We found that in October 2020, 31.6 percent of the American workforce always worked from home, while 22.8 percent sometimes or rarely worked from home, for a total of 54.6 percent. These estimates are much higher than those provided by the Bureau of Labor Statistics Current Population Survey, whose data suggest that, during the same month, the proportion of remote workers was closer to 20 percent—a significant discrepancy. If the gap is accurate, and our figure is closer to the truth, then we might be underestimating the proportion of the remote workforce by more than 30 percentage points—meaning that the figure is closer to 50 percent, which lines up with Gallup’s numbers from this past February.
We investigated some competing explanations for the contrasting estimates. Our primary insight is that the BLS data exclude employees who worked remotely pre-pandemic. If people who already worked remotely continue to do so—and many may have transitioned from a hybrid model to fully remote work—then the BLS measure might underestimate the incidence considerably. Further, by limiting respondents’ answers to either “yes” or “no,” the survey might overlook hybrid and indirect forms of remote work.
Correctly estimating the proportion of remote workers is important for understanding the impact of labor-market policy. Some studies have found that hybrid work has a causal and positive effect on productivity and connectivity in the workplace. Remote work is no panacea for structural problems in organizations; it’s a margin for flexibility, not a tool for turning around broken incentives and processes. Corporate culture and the underlying feeling and mood in an organization still matter most.
Still, the rise of remote work has taught us two things. First, federal and state policy should promote choice among employees—not mandates that discourage individual autonomy and bring no tangible public-health benefits. If we have learned anything about the workplace over the past two years, it is that employers and employees alike will adapt their protocols to comply with whatever new mandates governments impose. But the additional time and effort required to adhere to increasingly complex restrictions is burdensome, especially to workers. Employees are more enthused about remote work than are employers, but a tight labor market might pressure firms to be more accommodating. Some workers say that they would be willing to quit their current jobs to find remote work, prompting some companies that had previously committed to in-person work to embrace a hybrid work structure. And some survey evidence suggests that employer plans and employee desires are now starting to converge. Mandates and regulations would only slow the necessary sorting.
Second, localities—especially big cities—must realistically assess the value they provide residents. Over recent decades, superstar cities have benefited greatly from technological and economic conditions that fostered a dense population of knowledge workers. But remote work enables highly skilled people to work at profitable companies in specialized roles without having to pay the high housing costs or embark the on lengthy commutes that characterize many cities. Remote work is now contributing to population decline in large urban counties. Americans seem increasingly keen to leave big cities, and mayors must implement competitive policies to lure people back and retain those who have stayed, such as around arts and cultural amenities and better public schools.
Remote work clearly reduces socialization and collaboration; companies are struggling to identify the optimal model for their organizations and workforces. But despite its flaws, remote work has helped make labor markets more competitive and empowered workers. Local and state governments that fail to provide choice to companies and their employees will hurt themselves in the long run.
Christos A. Makridis is a research affiliate at Stanford University and Columbia Business School and an adjunct fellow at the Manhattan Institute. He holds doctorates in economics and management science & engineering from Stanford University. Adam Ozimek is the chief economist of the Economic Innovation Group (EIG). He holds a doctorate in economics from Temple University.
Airdrops: Building communities or building problems?
This article was originally published in Cointelegraph.
Recent research shows that decentralized exchanges that distribute tokens via airdrops see a big boost in user numbers and transactions. But, is building communities this way just crypto’s version of printing money?
Airdrops — the disbursal of free tokens to early users as a way of rewarding and building momentum — have been around for years but came to prominence thanks to Uniswap’s retroactive largesse in 2020. Nearly anyone who’d used the exchange before a certain date was gifted 400 UNI tokens and those who held their tokens saw a substantial increase.
But, as the market became more mature and more people entered the space, the use cases for airdrops have become more complex. For example, LooksRare more recently sought to siphon off some of OpenSea’s user base by airdropping tokens to new users but with two key rules: They had to have bought or sold a minimum of 3 ETH of NFTs on OpenSea and would need to contribute a new NFT to the LooksRare marketplace.
There have also been notable bad airdrop examples, ranging from a lack of liquidity for Fees.wtf to phishing expeditions whereby recipients of the airdrop are baited into connecting their wallets to a malicious site.
The question for builders is: Are airdrops effective tools for galvanizing new users and building communities?
Building a community
Unless you’re an already established exchange or NFT project, attracting new users is very difficult and handing out free tokens is one way to do it. In the DeFi and DAO space, tokens often come with governance rights that confer the authority to vote on the protocol’s development so airdrops can create both value and skin in the game.
But, how do you avoid devaluing the token and attracting a large group of freeloaders with no interest in contributing apart from receiving the airdrop?
If you do it right, instead of just attracting attention, airdrops can be an effective vehicle for building community. They can reward loyal users and generate buzz and momentum in the market. Many exchanges are simply looking for relevance and traction in decentralized communities. Having something to talk about is a way to stay relevant and build value for the audience.
That’s what Gary Vaynerchuk, chair of VaynerX and creator of VeeFriends, did in 2021 when he announced that every customer who bought 12 print copies of his new leadership book — about twelve essential emotional skills that are integral to his life — would also receive one mystery NFT through an airdrop to their digital wallets. While the book was interesting on its own, the novelty of a mystery NFT coupled with the success and appreciation of his even earlier VeeFriends NFTs created a significant splash and demand.
In fact, Vaynerchuk received over a million pre-orders of the book within a 24-hour period.
Airdrops and scams
Are there scams with airdrops? Scams are inevitable, especially with new technologies and markets where it is harder for new users to cut through the noise.
That means that the more important question is not whether all airdrops are scams, but rather how to work out which airdrops come from meaningful and high-impact projects. Especially for public-facing personalities, like Vaynerchuk, who make their business around legacy and reputation, even a whiff of a scam — or simply failing to deliver value — has costs.
“When a startup fails in Web3, the audience loses money. I don’t know how to run around the earth when the audience has lost money and think that I can do business again,” Vaynerchuk tells Magazine. In other words, if customers who ordered 12 print copies never ended up receiving an NFT or were underwhelmed by the experience, then there would be consequences on Vaynerchuk’s reputation in the marketplace. Indeed, most, if not all, of the customers who bought 12 print copies were doing so to get the NFT, not for the 12 copies.
Reputational effects are sometimes easy to forget in new projects. It’s so easy to get caught up in being busy and dealing with problems that certain commitments can slip by.
However, small projects can attract serious attention if they excite people about their growth, build a community along with a set of common principles and then execute on what they’ve said.
“Value accrues to the community as more people become interested,” Justin “3LAU” Blau tells Magazine. He is, of course, the famed American DJ and co-founder and CEO of the Royal platform with the tagline: “Own music and earn royalties alongside artists.” Since airdrops are one way to accelerate community development, particularly early on, they can be incredibly strategic when done right.
Dropping new music
3LAU has been especially effective in leveraging airdrops with music NFTs.
Shortly after co-founding Royal, which has flipped the business model in the music sector by allowing fans to journey with artists by having rights to future royalties, he announced a surprise airdrop of his latest track “Worst Case” to the 333 users who provided the most referrals. That, in turn, incentivized greater engagement and created value for the holders. The floor price of these NFTs stands at 2 ETH, coming to over $6,200 at current prices.
Although Royal is still in its infancy, there are many opportunities for artists to surprise their fans, inculcate enthusiasm and encourage participation through airdrops. 3LAU says:
“Simply rewarding a community for engaging with your product in a retroactive way is not scammy. It is up to that community to decide what to do.”
That ownership over the music creates a new level of connectivity between fans and the artist. Royal’s business model also provides a way for artists to acquire the capital they need to launch a career without selling themselves out to record labels and other intermediaries who end up making a killing and leaving the artist with very little.
Do these anecdotal experiences line up with the data? In short, yes.
Been asking how we get paid streaming royalties for @join_royal and @3LAU’s “worst case” launch #LDA. Today is the day we got an answer! Airdrops of #Eth! #WorstCase turned out to be best case! #LFG pic.twitter.com/6KE6LB6zzK
— Daniel Marks – PDMarks.Eth (@PDmarks) February 10, 2022
We have the data
In my work as a computational social scientist and economist at Stanford University and Columbia Business School, one of my recent research papers quantitatively investigated the rise of decentralized finance by collecting data on the major crypto exchanges between 2014 and 2021. We documented a much more rapid growth among DEXs and found that decentralized exchanges that did an airdrop exhibit gained an additional 16.1% in their growth rate of market capitalization and 7.3% in their growth rate of transactions, relative to their centralized exchange peers.
Moreover, airdrops had a positive effect on market capitalization and volume growth even after controlling for other factors like when the exchange launched. While time will tell whether these patterns continue, the data supports the strategic use of airdrops.
Further, these results likely underestimate the value of airdrops given that they create more value than just the price associated with the corresponding digital asset. In fact, there could be broader social value if they also serve an educational and community-building purpose.
“Airdropping tokens to new people in the space feels amazing, education through doing helps a lot, helping people get a first NFT and giving exposure to the project is just a nice feeling,” said Vaynerchuk on Twitter. Assuming that the Web3 revolution is inevitable, then airdropping tokens provides an easy way for new users to test the waters.
Money printer goes brrr
And, yet, airdrops don’t come for free — even in the cryptocurrency market, says Vaynerchuk.
“Supply and demand is supply and demand. You are still going to have to create more than short term financial gifts by printing more money.”
Airdrops still have value if they are used sparingly, but the well can be tapped only so many times before they lose their surprise and appeal among prospective or existing users.
In that sense, airdrops might have a big impact once or twice at the launch of a project, but they can exhibit some diminishing marginal returns if artists are not thoughtful.
“Airdrops in and of themselves are fine, but the mechanics of them might not be,” 3LAU says. If a project is going to lead with another identical airdrop, it may be a dud. Rather, pointing toward something new and exciting may continue to drive engagement.
Know your product
Web3, especially DeFi, remains a wild west and the rules of the game have not fully formed. However, the United States Department of Treasury’s Office of Foreign Asset Controls applies regulations on all U.S. companies. “That means projects need to conduct Know Your Customer and Anti-Money Laundering checks on individuals receiving airdrops,” Ivan Ravlich, co-founder and CEO of Hypernet Labs, tells Magazine.
Verifying identities is not easy, but Hypernet Labs has created hypernet.id, a digitally-native and privacy-preserving nonfungible token that is minted to the end user‘s crypto wallet. In this sense, “users can now transact compliantly with blockchain-based decentralization projects, which was impossible in the past,” says Ravlich.
That service — whether by Hypernet Labs or someone else — is what the Web3 community desperately needs. For example, consider the recent confusion between CryptoPunks v1 and v2. Because of a glitch in the first version of CryptoPunks minted in 2017, Larva Labs issued a second version. However, some community members nonetheless created variants of the initial mint with different background colors, selling these NFTs as historical relics which led to a backlash by Larva Labs threatening to pursue legal action. In the presence of privacy-preserving validation mechanisms, these incidents could be entirely avoided.
While technology is never a panacea, it can be an important tool and airdrops are one such mechanism for creating momentum and cultivating community. However, caution is required: Even when a project owner does not have bad intent, airdrops can be executed poorly and not achieve the desired results.
Ultimately, potential token and NFT holders need to evaluate a project on its merits and believe it actually holds value. Simply accepting tokens from a project without a plan and clear value proposition is, at best, a short-term play and not a long-term wealth creation strategy.
Christos A. Makridis is a research affiliate at Stanford University and Columbia Business School and the chief technology officer and co-founder of Living Opera, a multimedia art-tech Web3 startup. He holds doctorates in economics and management science & engineering from Stanford University. Follow at @living_opera.
NEW BOOK IN PREP! Crypto and the Remote Work Economy
By now, we’ve almost all at least heard about NFTs, crypto, and web3. (If not, read up my writing on livingopera.medium.com with the latest news and thought leadership coming from us at Living Opera—an art-technology startup producing web3 multimedia!) Moreover, there’s a general recognition that at least some dimension of hybrid work is here to stay.
Technology itself is not a panacea to the challenges that we face on both a personal and macro level, but it can be a source of empowerment—if we know how to use it properly.
Unfortunately, technology can be intimidating… even for me—and I’m on my computer working the bulk of each day!
I believe scholars and entrepreneurs have a responsibility to create edifying and enriching use cases of technology and explain how to leverage it for human flourishing. Admittedly, there’s already some of that: Bankless, for example, is a very educational newsletter about crypto, but they are targeting a somewhat savvy crypto audience about detailed news and information.
That’s why I am working on a new book, tentatively titled: “How to Make Decentralized Finance and the Remote Economy Work for You.”
While I will be talking about it more in the coming months, the goal is to educate people with a base knowledge around web3 concepts and equip them with practical and actionable steps that they can take so that they’re empowered, not enslaved, by technology.
Here are example topics:
What are cryptocurrencies and other digital assets?
What is blockchain and how are transactions recorded on it?
What is decentralized finance and how does it differ from centralized finance?
How can individuals engage with DeFi even if they don’t have thousands of dollars to invest?
What are the patterns around remote work and its incidence?
What are examples of new skills and jobs that are becoming available?
How can you leverage the remote work economy so that you have multiple streams of income?
It’s not done yet, so am looking forward to incorporating feedback as well! What would you find most helpful, and what areas are not given enough attention in the existing literature?
Here’s the proof culture still comes first in the age of remote work
This article was originally published on Fortune Magazine.
Many companies have announced plans to transition their workforce to a fully, or at least hybrid, remote structure, hoping to raise employee engagement and attract new recruits. However, these working-from-home perks might not be a panacea for deeper, more structural reforms.
Empirical research has long highlighted corporate culture–specifically managers–as the most important determinant of employee engagement and turnover. So, does culture still matter–or has the pandemic shifted underlying employee-employer dynamics?
Working with Professor Jason Schloetzer at Georgetown, we just released the first comprehensive analysis linking remote work with job satisfaction and turnover, drawing on unique data from PayScale.com. We found that hybrid work is associated with higher levels of job satisfaction but has no effect on turnover. However, fully remote work is not linked with an increase in job satisfaction, but with higher levels of intent to leave the organization.
Measures of corporate culture matter significantly more. Suppose, for instance, that an organization could help its employees feel appreciated for the work they do. That matters 10 to 20 times as much as the ability to work remotely on some days. Although other measures of corporate culture vary in their gravity, all matter substantially more than hybrid work availability.
However, there is no doubt now that remote work is here to stay and will provide an added degree of flexibility over the location where employees perform their work. While the percentage of workers who perform their work exclusively from home has declined from 54% to 25% between April 2020 and September 2021, the share of workers who perform at least some work from home has grown from 15% to 20%, according to the latest data from Gallup.
The availability of remote work will not be "a game-changer” for organizations’ ability to raise employee engagement, but it is a complementary tool in their arsenal. Each organization will have to decide how much remote work to allow–and whether different sets of employees should have different options when choosing how and when to do their work. Our research suggests that tasks requiring lower degrees of coordination are much easier to perform remotely and the employees who do so exhibit greater degrees of job satisfaction.
Unlike traditional statistical analyses, ours is the first to control for employees’ perception of their organization’s corporate culture, ranging from managerial quality to the degree of development and training opportunities.
Controlling for these factors, in addition to demographics, is hugely important because the people who can work remotely because of the nature of their job also tend to work in companies that have a higher quality of life and stronger corporate culture. Failing to control for these factors will lead researchers to infer that fully remote arrangements causally affect employee engagement when really, it’s a function of the broader cultural environment.
These results highlight that remote work is not a strategy in and of itself: Corporate culture and managerial quality remain quintessential drivers of employee engagement. Nonetheless, remote work will feed into a broader strategy aimed at improving employee engagement by raising the degree of flexibility in the workplace, particularly with intermediate work options.
Instead of commuting and general slack time in the workplace, employees can allocate that time towards career development and learning activities. Many began taking online courses. Using data from Datacamp, a premier online education platform focused on imparting data science and programming skills, I found that state quarantine policies in the U.S. led to an uptick in online learning.
As companies continue to strategize and implement new plans for 2022, let’s remember that remote work arrangements are not a quick fix for broken or ineffective organizational strategies. By focusing on creating a culture of excellence, appreciation, clear communication, and learning, companies can use remote work as a complementary tool to enable the sort of flexibility that helps organizations to flourish and generate value.
Christos A. Makridis is a research affiliate at Stanford University’s Digital Economy Lab and Columbia Business School’s Chazen Institute and a senior adviser at Gallup. He holds dual doctorates in economics and management science & engineering from Stanford University.
A Rare Chance of Bipartisanship
This article was originally published on City Journal.
In this era of intense partisanship, issues that unite Republicans and Democrats are hard to come by, but reauthorization of the Violence Against Women Act could be one. Addressing violence against women and human trafficking are issues that have historically united both parties, dating back to the passage of VAWA in 1994, sponsored by then-Senator Joseph Biden and strongly supported by Senator Bob Dole, who died last month. Legislators, however, should take a critical view of several suggested amendments to the law that could jeopardize safety for victims in various dangerous situations.
Physical assaults and human trafficking have soared during the Covid-19 pandemic. State and local lockdowns have led people to spend more time on social media, which means increased exposure, especially for children, to traffickers. And lockdowns forced people in abusive relationships to spend even more time with their partners and curtailed opportunities to move out and earn money on their own. For those already in troubled situations, the lockdowns made life even more dangerous.
According to the National Coalition Against Domestic Violence, more than 10 million people annually in the United States—nearly 20 people per minute—are physically abused by an intimate partner. Thirty-three percent of women have experienced some form of physical violence from an intimate partner, while 25 percent of women have experienced some form of severe violence. Additional research has found that these patterns accelerated during the pandemic by 10 percent to 20 percent. These trends have put additional burdens on shelter and advocacy groups.
The Violence Against Women Act provides funding and resources for these groups, but the funding is currently in limbo. The House reauthorized VAWA in 2019, but the bill remains mired in the Senate—and the path to renewal is not as straightforward as it might seem. Republicans have identified important concerns about amendments in the legislation authorized by the House. For example, the bill contains a section on “restorative practice.” As Iowa senator Joni Ernst explains, this part funds programs that let abusers negotiate with their victims for the purpose of “collectively seeking accountability from the accused.” Restorative practice poses substantial risks for victims, ranging from producing new threats to revisiting past trauma.
The National Center on Sexual Exploitation has underscored similar concerns about the restorative-practice section of the bill, as well as other issues. Though some have argued in favor of restorative practice, these methods have not been tested on a large enough scale to determine their advisability. An alternative, compromise approach would be to direct federal funds to programs focusing on prevention. This could include applications that mitigate the risk of human trafficking—like Canopy, a software plugin that lets parents block inappropriate content on their children’s devices—or community programs that contribute to building stronger families. Preventing a crisis is easier than dealing with one after the fact.
Many senators are ready to negotiate in good faith over these and other matters, but policymakers on both sides of the aisle need to set aside their talking points and work toward a tactical reauthorization. As a new year begins, legislators have an opportunity to honor Dole’s legacy by reauthorizing VAWA and standing up for a cause that all Americans can support.
Christos A. Makridis is a research affiliate at Stanford University and Columbia Business School, and an adjunct fellow at the Manhattan Institute. He holds dual doctorates in economics and management science & engineering from Stanford University.
School closures have been made with politics in mind — not science
This article was originally published on the New York Post with Corey DeAngelis.
The long-term closing of schools, and the harm it did to children nationwide, was a decision based not on health, but on politics — thanks to teachers unions and the Democratic politicians they fund.
A study by researchers at Michigan State University found that when governors left it up to districts whether to have in-person education in the fall of 2020, the “decisions were more tied to local political partisanship and union strength than to COVID-19 severity.”
This despite the fact that politicians already knew children were less at risk for COVID.
Follow the science? More like follow the political science.
Mental, physical harm
Freedom of Information Act documents showed major teachers unions lobbied the Centers for Disease Control and Prevention on school reopenings. In fact, e-mails The Post acquired revealed that the CDC adopted Randi Weingarten’s American Federation of Teachers’ suggested language for this guidance nearly verbatim at least twice. Government officials were also told to factor teachers union contract negotiations into their reopening guidance.
These union-induced school closures harm students academically, mentally and physically, with virtually no reduction in overall coronavirus transmission or child mortality.
A study published in the National Bureau of Economic Research working-paper series, for example, found that math learning loss was “10.1 percentage points smaller for districts fully in-person” relative to remote districts in 2020-21.
A study published in the Journal of the American Medical Association found that “attending school remotely during the COVID-19 pandemic was associated with disproportionate mental health consequences for older and Black and Hispanic children as well as children from families with lower income.”
The teachers unions just might have overplayed their hand.
Our new study from the group I work for, the American Federation for Children, suggests the push to close public schools backfired for power-hungry unions by enticing families to vote with their feet:
We find that — even independent of COVID risk and several other local demographic factors — school closures have significantly shifted families toward homeschooling and private education.
We found that a full transition from in-person to remote instruction was associated with a 2.3 percentage point increase in households homeschooling.
These estimated effects cannot be accounted for by differences across states in demographic factors, infection or death rates, among many other variables. Moreover, that the proportion of households who homeschool their children in 2021 is roughly double the pre-pandemic rate — even after many schools returned to in-person learning — shows that the uptick in homeschooling is not just a fad.
Another study found some evidence to suggest that public-school remote instruction was associated with private-school enrollment boosts. Private schools have been much more likely than public schools to provide in-person services and staying open for business probably attracted new customers. A recent study published in the Journal of School Choice similarly found that private schools in areas with closed public-school districts were more likely to experience enrollment increases in fall 2020.
Meanwhile, research by Cambridge University Press found that public-school districts located in areas with more Catholic private schools were more likely to reopen in person in fall 2020, suggesting incentives play a role in these decisions.
The latest data from 42 states also indicate that public charter schools, which must compete for their customers, experienced a 7.1% boost in enrollment in 2020-21, whereas district-run public schools lost 3.3%, or about 1.5 million, of their students.
New York City district school enrollment dropped by about 64,000 students, or about 4.7 percent, from pre-pandemic levels, whereas charter school enrollment increased 3.2% this school year. That’s bad news for the district because public schools are funded based on enrollment counts. Perhaps ironically, the news is doubly bad for the teachers unions, considering the recent surge in support for — and expansion of — school choice.
Now it’s happening all over again.
More than 5,500 US public schools closed each of the first two weeks of 2022, according to school information aggregator Burbio.
Nearly two years after “two weeks to slow the spread,” many teachers unions are still fighting to close public schools. Factions within New York City’s largest teachers union, the United Federation of Teachers, pushed to close schools for in-person instruction earlier this month. Some union members even filed a lawsuit to close schools for “two weeks” again.
The most advantaged parents are more likely to have the resources to send their children to private schools when the public-school system fails them. Funding students directly with vouchers would be an equalizer by allowing more families to access educational opportunities.
The latest Census Bureau data show New York City public schools spent more than $35,000 per student in 2019. It’s time to give that money directly to families so they can find alternatives.
The fact that the closing of schools was a political decision, based on the symbiotic relationship between teachers unions and the Democratic Party, shows why school choice is so important. Don’t let them decide for us how and where our children learn.
Corey DeAngelis is the national director of research at the American Federation for Children, an adjunct scholar at Cato Institute and a senior fellow at Reason Foundation. Christos A. Makridis is a research affiliate at Stanford University and Columbia Business School and an adjunct fellow at the Manhattan Institute.
Remote Instruction Is Bad for Mom and Dad
This article was originally published on the Wall Street Journal with Corey DeAngelis.
We’ve heard a lot about how school closings affect children, but what about parents left scrambling for child care and in-person learning options? In 2020, such disruptions disproportionately caused women to leave the labor market to take care of their children at home.
Using Census Bureau survey data, we found that pandemic-induced remote instruction made several mental-health outcomes worse for parents of school-age children. A 10-percentage-point increase in the share of public school districts going fully remote in a state was associated with about a 1-point increase in the proportion of parents reporting feelings of anxiety most days in the previous week. The same increase in remote instruction was associated with a 0.73-point increase in the proportion being worried, a 0.61-point increase in being depressed, and a 0.55-point increase in losing interest in daily activities.
… (continue reading on WSJ)
Social Capital and Covid
This article originally appeared in City Journal.
Covid-19 can be a deadly virus, but that should not blind us to the reality that the pandemic and its associated shutdowns have had other bad effects too. Prolonged and severe state quarantine policies not only did little to stop transmission of the virus but also led to a mass exodus of residents, an uptick in crime, and a severe deterioration in mental health. But some cities have recovered much faster than others and experienced much weaker deteriorations in their economic and social flourishing. Why?
Recent research that I conducted with Huggy Rao at Stanford University and Sunasir Dutta at University of Minnesota may help answer. We introduce a new measure of social capital, called “Third Places Foot-traffic Concentration” (TPFC), and use it to examine how counties fared over the Covid-19 pandemic. Using anonymized cell-phone-location data, we track the composition and frequency of visits to “third places”—cafes, diners, or restaurants, destinations that provide a neutral ground for strangers to interact and expose people to a wider set of influences. While researchers have long been interested in third places as catalysts for social capital, past research has struggled to measure these interactions at scale.
We find that counties with higher levels of TPFC saw fewer personal bankruptcies, Covid infections, and Covid deaths. Moving a county roughly one standard deviation in the TPFC index—which amounts to rising from roughly the tenth percentile to below the median in the distribution of our 1,136 counties—is associated with a 0.43 percent decline in personal bankruptcies, a 0.39 percent decline in Covid-19 infections, and a 0.30 percent decline in Covid-19 deaths. These results obtain even after controlling for many demographic differences.
Social interaction may matter more in some locations than in others. A rise in TPFC has a larger effect on personal bankruptcy in counties that are more racially heterogenous (30 percent) and have less income inequality (40 percent). In other words, social interaction in highly homogenous areas was associated with fewer benefits; the same holds for Covid-19 outcomes.
These results corroborate other research that has found, using a measure from Congress’s Joint Economic Committee, that social capital provided a buffer against the surge in Covid-19 cases and deaths during the height of the pandemic. But our measure of TPFC supervenes upon social interaction—exactly what state quarantines were intended to stop. In this sense, our results not only are consistent with past evidence about the ineffectiveness of state quarantine policies but also suggest that social interaction has beneficial effects on net.
Many cities faced significant challenges before the pandemic, but state and local policies made the situation worse. Recovering from the pandemic requires interaction, not isolation.
All I Want for Christmas – Is an NFT
This article originally appeared in Finance Magnates.
Holiday sales in the United States for 2021 are expected to generate $834.4 billion. Additionally, the average American anticipates buying $942 in Christmas gifts and a third of Americans anticipate spending over $1,000, according to 2019 numbers. The holiday season is big.
But, with the expansion of the digital economy and the increasing popularity of non-fungible tokens (NFTs) comes an entirely new set of possibilities, gifting digital assets. Already, there has been talk about gifting digital assets with the click of a button, rather than depending on large shipments of physical products to come through when there are such profound international supply chain issues.
How Would NFT Gifts Work?
Just like any physical gift, digital assets can confer similar, or even more, levels of excitement, wonder and appreciation. Whereas physical gifts are inherently constrained by the laws of physics, much more is possible in the digital realm since the creator can integrate multiple forms of media.
Consider the simplest illustration: buying a portrait as a gift. The same can be obtained with an NFT. While these have often been discussed in the context of large-scale digital galleries, they can be easily displayed inside an apartment or house. If you have a smart TV, you can display digital art on it when you’re not watching TV.
Take that example one step further. Instead of just gifting a friend or family member an NFT that is in the form of a digital art piece, what if the NFT embedded both audio and art? For example, the NFT could have Silent Night playing and simultaneously displaying a creative rendition of the sky with the stars. A picture is worth a thousand words, but a picture and audio are worth many more.
Digital assets are not constrained in the same way that physical goods are. With the emergence of virtual reality and the metaverse, you could even gift someone virtual real estate or amenities for their digital identity. The same amenities that are available in the physical world would also be available digitally, and much more. For instance, suppose you know your friend loves the outdoors. Then, you could gift your friend virtual real estate of a forest containing all sorts of animals, plants, trees and adventurous travel ways. Clearly, that wouldn’t be possible in our physical reality, but there is nothing stopping that possibility from being a (digital) reality soon.
Advantages of NFT Gifts
An obvious reason for an nft gift is that it can confer an even more multidimensional experience for the user than a physical gift, or, at least, just as good as one in many cases (e.g., a digital art piece). However, another advantage is that NFTs can appreciate over time.
For instance, suppose you gift a friend an NFT of an exciting and emerging artist. Assuming your intuition is right, that NFT would grow considerably in value. If Jack Dorsey’s first tweet can sell for $2.5 million, and it does not confer any tangible value, then how much more could an artistic contribution grow in value over time? Compare that with an Amazon gift card that can only be redeemed at a given price, its upside is fundamentally fixed.
Many critics have complained that there is too much speculation in the NFT market. But, what market does not have speculation? Anytime there is a fundamental innovation, whether it’s electricity or the internet, there is a surge of buzz and interest that follows.
Instead, the better question is whether NFTs have value-creating properties. If so, then the question is whether we can identify prudent digital assets that might grow in value. Or, at the very least, we can purchase NFTs that confer some immediate value, whether it’s a beautiful art piece or rights to an idea or tickets to a future product launch.
The NFT and blockchain revolution are changing a lot, even the way we give gifts during holidays. Before following your typical routine this Christmas, consider searching for some NFTs that could make nice gifts for friends and family. The possibilities will only continue to grow in the years ahead!
Christos A. Makridis, research professor at Arizona State University, a digital fellow at Stanford University, and Chief Technology Officer and Head of research at Living Opera.
Non-Fungible Tokens Are Transforming the Artistic Marketplace
The article originally appeared in Finance Magnates.
Two weeks ago, New York City hosted the largest blockchain conference on non-fungible tokens (NFTs), drawing over 10,000 attendees and 500 speakers. Despite all the buzz, the concept of an NFT is simply: they are digital certificates of ownership on an immutable digital ledger, meaning that the certificate is publicly accessible and unchangeable. And yet, such a simple concept is beginning to transform the way that content creators produce and disseminate their content.
Blockchain, much like artificial intelligence, is a general-purpose technology, meaning that its effects are not constrained to a single sector. Instead, content creators across the board can leverage the technology through the ‘minting’, or issuance, of NFTs on a blockchain of their choosing, forever marking their ownership over an idea, product, or service that can be freely traded.
It should come as no surprise that NFTs have the potential to fundamentally transform the way that artists sell their content and connect with their fans. Rather than having to rely on large record labels or influential institutions, artists can simply mint an NFT of their content, whether an album or a portrait, and trade it. That does not mean selling is easy, artists still need to have a personal brand and a strategy for disseminating their NFTs at scale and generating visibility, but NFTs nonetheless disrupt the historical reliance on a third party to independently verify artists’ work.
MakersPlace is one such organization that provides a platform for artists to showcase and sell their creations to a larger audience. Digital art can be uploaded and sold to ensure that the original creations remain authentic.
Such a platform not only allows artists to reach a wider audience without a middleman, but it also provides an opportunity for artists to interact with one another and build a community at scale. “These communities should be provided relevant education and shown the ropes for what digital ownership can mean for them,” said Greg Harder from MakersPlace.
An alternative to the expansion of curated marketplaces, like MakersPlace, is the emergence of crypto fine arts galleries, like Lydian Slater in New York City. Even though some artists are often excited about the prospect of minting and marketing their own work, others prefer to focus purely on the artwork and leave the marketing to an outside agency. “We started this project to help bridge the gap between the traditional and crypto art worlds… Our goal is to give our artists the tools to mint their own NFTs while providing as much support as they want in marketing, contextualizing and selling their work,” said Alexandro Silver Durán, the Founder and Director of Lydian Stater.
And yet, NFTs have the potential to do much more than simply establish and trade ownership over different types of content. In fact, some of the most exciting applications of NFTs appear to be the combination of different media modalities, ranging from digital art to sound.
Think about it this way. Most artists have created unidimensional content so far. That means a singer simply creates an audio clip or a designer creates a digital graphic. However, artists have the potential to link multiple forms of media together in an NFT and provide differential experiences based on their willingness and ability to pay. Whereas one consumer might only want to hear audio, another might find a combination of digital art and audio more valuable because they can put the digital art on their desktop or create a print in their house. “This combination of multimedia will deliver more meaningful and memorable experiences so that consumers can fully appreciate and engage with the art,” said Soula Parassidis, a world-class opera singer and CEO/Founder of Living Opera,
How much can creators make from these art NFTs? While some NFTs may sell for millions because they cater to the idiosyncratic tastes of certain high net-worth individuals, good art generally already has a large market. For example, Sam Brukhman, a violinist by trade, gathered a team of artists, designers, and producers to create Betty’s Notebook by Verdigris Music sold for $375,000.
The 21-minute programmable art experience is based on Amelia Earhart’s final distress calls in her solo flight across the Atlantic Ocean, containing five unique musical pieces where each piece is divided into four ‘stems’. Each stem contains three audio-visual states that the owner can interact with by altering the musical texture, timbre, and narrative. As the listener toggles between states, the album art visually shifts to reflect the listener’s change, making the art inherently interactive. The master version also contains a limited-edition physical radio piece. “For the first time ever, NFTs are creating an entirely new asset class for musicians… musicians now have the option to sell an ‘original’ piece of music in addition to ‘prints’,” according to Brukhman.
Admittedly, there is still a lot of speculation in the sector. But, any good technology drums up so much interest that everyone piles on before the market eventually settles down. The big question is whether NFTs allow for value creation, and the answer to that is unambiguously ‘yes’.
Christos A. Makridis, research professor at Arizona State University, a digital fellow at Stanford University, and Chief Technology Officer and Head of research at Living Opera.
Pandemic restrictions were a blow to religious liberty
Originally posted in the New York Post
A year ago this month, Orthodox Jews from Brooklyn were taking to the streets in fiery protests against then-Gov. Andrew Cuomo’s restrictions on religious services, ultimately seeing those rules struck down by the Supreme Court ahead of Hanukkah and Christmas.
Later, at Easter time, a pastor in Alberta would be arrested and held in jail for holding illegal church services, coming out of custody to warn, “They are doing this to me. They are going to come after you. It’s just a matter of time.”
These are just two of many stories of the overlooked struggle of religious leaders to confront shutdowns that have hindered religious celebration throughout the past 18 months. With another holiday season on the horizon, it’s worth reflecting on the toll congregants have paid when houses of worship are shuttered. New research paints an alarming picture.
Up until roughly April 2021, between 60 and 80 percent of US states had either numeric or percentage cap restrictions on houses of worship. In some cases, the restrictions were so severe that church meetings, regardless of size, were not permitted. Although many churches applied for exemptions, and courts ultimately sided with many of them, 39 percent of households were not able to attend worship regularly as of August 2020 (that’s about 128 million Americans, based on 2019 census estimates).
In a newly released paper of mine, together with new data made available through the Becket Fund for Religious Liberty, I quantify the effects of state restrictions on houses of worship on individuals’ subjective well-being. Using data from Gallup between March 2020 and June 2021, I compare measures of well-being among religious adherents and their counterparts before versus after the adoption of restrictions within their states.
I find that pandemic restrictions significantly reduced religious peoples’ well-being. These effects persisted even after controlling for a wide array of demographic features, such as age and education, and other characteristics, such as income and industry. For example, the restrictions led to a 4.1 percentage point rise in self-isolation among the religious, relative to their counterparts. And they reduced life satisfaction by 0.09 standard deviations, an effect nearly twice as large as the male-female difference in the same measure.
My research finds that these effects were driven by increases in social isolation. Given that people who regularly worship build their community among those they worship with, a sudden and complete removal of in-person interaction led to a substantial decline in their well-being. These costs were not just caused by any unique economic challenges of the pandemic that religious people might have faced. For example, I did not find any systematic disparate effect of the restrictions on personal finances, job preparedness, or economic sentiment.
Of all the unequal impacts of the pandemic, the costs of state and local restrictions that fell squarely on religious households seem underappreciated. Although everyone felt the effects of national and state quarantines, and Americans struggled with mental health more broadly, my paper shows that religious adherents, especially Catholics or other Christians, experienced unique harm.
Even more troubling is that the costs of shutdowns for places of worship were not limited to the congregants. Evidence from a Baylor University study led up by Byron Johnson shows that faith-based organizations shoulder the bulk of the homelessness burden in cities, caring for the least fortunate. In this sense, cutting off in-person worship simultaneously cuts off one of the primary ways that houses of worship serve their broader communities.
These restrictions may seem unique to the pandemic, but they’re not. They come at a time when, by various measures, religious liberty is being attacked. My other research, for example, finds that the United States experienced a 35.1 percent decline in religious freedom overall between 2006 and 2018, based on indices and polling gathered from across the world. (Examples include the silencing of Christian student Chike Uzuegbunam, who was barred from discussing the Gospel in a “free speech zone” at Georgia College. Ultimately the Supreme Court sided with Uzuegbunam in a 8-1 decision authored by Justice Clarence Thomas, but the situation shouldn’t have warranted litigating in the first place.)
That trend is not unique to just the United States. In fact, the decline in religious freedom is concentrated among countries that historically have ranked high in economic freedom.
As churches start to reopen, the need for Zoom Masses and Facebook worship services will hopefully come to an end, and congregants will once again enjoy the benefits of authentic in-person fellowship. But Americans taking time to reflect, particularly as Thanksgiving approaches, on their First Amendment right to worship as they deem fit, should hold fast to the lessons of the last year.
It’s become a trope, but houses of worship should never again be indefinitely closed, particularly when other establishments, such as bars and marijuana dispensaries, are allowed to remain open. These indefinite restrictions on freedom contradict the ideals on which America was founded — and we now have the data to prove they deteriorate social capital and mental health, too.
Christos A. Makridis is a research professor at Arizona State University, a non-resident fellow at Baylor Universities Institute for Studies of Religion and an adjunct scholar at the Manhattan Institute.
Reopening the curtain on arts in New York City
Originally posted in New York Daily News
Thousands of theaters across the country were shut down in 2020 because of national and state quarantine policies. The arts, entertainment and recreation sectors experienced the greatest employment decline in the entire economy, plummeting by 50.7% between Feb. 15 and April 25, 2020.
While some sectors can go remote, the performing arts sector — home to many classical musicians, ranging from violinists to opera singers — bore the greatest burden of these restrictions. Arguably the most central hub for the arts in the entire United States, New York City was among the hardest hit.
And the performing arts are still suffering. Although Broadway is beginning to reopen, casting the characters in a show and stewarding an overall production takes time. The latest data from the Bureau of Labor Statistics, for example, shows that employment in the performing arts is 44% lower in May 2021, relative to February 2020, whereas total nonfarm employment is 5% lower.
While mass layoffs are always hard to cope with, the adverse effects on the fine arts have been especially damaging to society. The arts, when done right, have a wide array of benefits beyond bringing delight to the end-use consumer. By bringing people together who often hold wildly different political opinions, the arts can help diffuse political polarization. Moreover, by drawing people together and fostering social interaction, the arts foster greater creativity and innovation.
In a newly-released report through the American Enterprise Institute, I argue that arts are also important for education, and there is large public support for arts education too. The arts confer substantial benefits to children, ranging from improved cognitive and non-cognitive skills to heightened socialization to the cultivation of executive function skills. In other words, the arts do not just entertain and inspire adults, learning about the arts also induces childhood development.
Among the three policy recommendations from the report, one of the suggestions is the allocation of COVID-19 relief funding towards arts education in schools, together with an integration of skilled arts into the educational system. With so many artists out of work due to the closure of theaters, the decline in demand due to migration out of New York City, or a combination of them, these artists still have important skills that can be effectively utilized in the city. In particular, suppose that schools without an arts education curricula could receive funding that is specifically allocated towards hiring interim arts teachers and consultants to instruct children?
In our research, we discuss the scientific literature on arts education in early childhood and explain that the arts can also be highly therapeutic, particular for those who have experienced trauma. That is especially relevant for many children who were pulled out of in-person schooling and were unable to socialize regularly because of the national and state quarantines.
Moreover, other research of mine finds that the surge in child-care regulations, including declines in the child-to-staff ratio, adversely affected maternal labor force participation and employment. That means many families may have suffered financially because mothers had to drop out of the labor force to care for their children, limiting the amount of money that they have available to spend on typical expenditures, such as private tutoring or the arts.
However, that will require a change in the general attitudes between educators and practitioners. Currently, there is a rift between the two, but that need not exist. Educators need practitioners who are skilled and understand how the sector works, and practitioners need educators whose job it is to impart knowledge and assess it among new cohorts of learners. There is a win-win deal here, if only we reach for it.
Makridis is a research professor at Arizona State University and chief technology officer and head of research for Living Opera, an arts and education technology startup.
As the Specter of Inflation Looms, Consumers Consider Cryptocurrency
Originally published in National Review with Raghav Warrier
Since the introduction of fiat money into the global currency market, the U.S. dollar has been viewed as one of the safest forms of tender for international business and banking. As the world’s reserve currency, the dollar is used as the standard unit for commodities such as gold and oil. While the dollar is still used on a global scale for international transactions, domestic consumers have been shaken as fears of inflation continue to grow, particularly after two consecutive weak jobs reports. A major root cause of this distrust: volatility in the Federal Reserve’s policymaking.
Deutsche Bank has published a new report highlighting these concerns, titled “Inflation: The defining macro story of this decade.” They remark that “U.S. macro policy and, indeed, the very role of government in the economy, is undergoing its biggest shift in direction in 40 years. In turn we are concerned that it will bring about uncomfortable levels of inflation.”
For one, the bank has skirted around designating a concrete inflation policy. Vague language about “average inflation targeting” has been a source of ambiguity with consumers and investors having little to no knowledge of how the Federal Reserve plans to tackle inflation as the CPI is set to rise upwards of 3.5 percent. Because policymakers are in disagreement as to a proper balance of growth and inflation, the target value keeps increasing, furthering uncertainty and increasing the perception of the Fed as a volatile and unpredictable institution. This rising uncertainty, coupled with historical changes in inflation policy, particularly in the COVID-19 pandemic era, when the Federal Reserve has been no-holds-barred in terms of expansionary monetary policy since the onset of the pandemic, and contrary to other central banks, it shows no sign of stopping. This approach signals that the bank is tied down to policies from the pre-pandemic era, noting that overheating can be likely if the bank fails to slow down the rapidly growing economy.
The growing concern over the Fed’s inability to properly execute policy has two major implications. First, a decline in trust among consumers. A survey from Axios finds steadily decreasing consumer confidence in the U.S. central bank. In most demographic groups, including college graduates and senior citizens, less than 40 percent express confidence in the Fed, with only 34 percent stating that they have a moderate or high level of trust in the central bank.
Second, a decline in dollar confidence on the global stage. Some investors warn that the dollar could lose its status as the global reserve currency. The Fed’s decision to hold interest rates at zero, coupled with trillions in asset purchases, has coincided with a decrease in foreign holdings of U.S. debt by 2 percent, or $127 billion, in the past year alone. Moreover, the Fed has become involved in many other activities besides monetary policy, creating a “mission creep.” These actions have put the wind in the sails for a move toward cryptocurrency, ranging from Bitcoin to Ethereum, as a new medium for exchange. Simply put, consumers pay attention to central-bank policy and, at least some, will not take rising uncertainty forever.
Deutsche Bank has published a new report highlighting these concerns, titled “Inflation: The defining macro story of this decade.” They remark that “U.S. macro policy and, indeed, the very role of government in the economy, is undergoing its biggest shift in direction in 40 years. In turn we are concerned that it will bring about uncomfortable levels of inflation.”
For one, the bank has skirted around designating a concrete inflation policy. Vague language about “average inflation targeting” has been a source of ambiguity with consumers and investors having little to no knowledge of how the Federal Reserve plans to tackle inflation as the CPI is set to rise upwards of 3.5 percent. Because policymakers are in disagreement as to a proper balance of growth and inflation, the target value keeps increasing, furthering uncertainty and increasing the perception of the Fed as a volatile and unpredictable institution. This rising uncertainty, coupled with historical changes in inflation policy, particularly in the COVID-19 pandemic era, when the Federal Reserve has been no-holds-barred in terms of expansionary monetary policy since the onset of the pandemic, and contrary to other central banks, it shows no sign of stopping. This approach signals that the bank is tied down to policies from the pre-pandemic era, noting that overheating can be likely if the bank fails to slow down the rapidly growing economy.
The growing concern over the Fed’s inability to properly execute policy has two major implications. First, a decline in trust among consumers. A survey from Axios finds steadily decreasing consumer confidence in the U.S. central bank. In most demographic groups, including college graduates and senior citizens, less than 40 percent express confidence in the Fed, with only 34 percent stating that they have a moderate or high level of trust in the central bank.
Second, a decline in dollar confidence on the global stage. Some investors warn that the dollar could lose its status as the global reserve currency. The Fed’s decision to hold interest rates at zero, coupled with trillions in asset purchases, has coincided with a decrease in foreign holdings of U.S. debt by 2 percent, or $127 billion, in the past year alone. Moreover, the Fed has become involved in many other activities besides monetary policy, creating a “mission creep.” These actions have put the wind in the sails for a move toward cryptocurrency, ranging from Bitcoin to Ethereum, as a new medium for exchange. Simply put, consumers pay attention to central-bank policy and, at least some, will not take rising uncertainty forever.
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As the Specter of Inflation Looms, Consumers Consider Cryptocurrency
June 18, 2021 6:30 AM
Cryptocurrency ATM at a shop in Union City, N.J., May 19, 2021. (Mike Segar/Reuters)
How Fed policy is pushing some investors into cryptocurrencies
Since the introduction of fiat money into the global currency market, the U.S. dollar has been viewed as one of the safest forms of tender for international business and banking. As the world’s reserve currency, the dollar is used as the standard unit for commodities such as gold and oil. While the dollar is still used on a global scale for international transactions, domestic consumers have been shaken as fears of inflation continue to grow, particularly after two consecutive weak jobs reports. A major root cause of this distrust: volatility in the Federal Reserve’s policymaking.
Deutsche Bank has published a new report highlighting these concerns, titled “Inflation: The defining macro story of this decade.” They remark that “U.S. macro policy and, indeed, the very role of government in the economy, is undergoing its biggest shift in direction in 40 years. In turn we are concerned that it will bring about uncomfortable levels of inflation.”
For one, the bank has skirted around designating a concrete inflation policy. Vague language about “average inflation targeting” has been a source of ambiguity with consumers and investors having little to no knowledge of how the Federal Reserve plans to tackle inflation as the CPI is set to rise upwards of 3.5 percent. Because policymakers are in disagreement as to a proper balance of growth and inflation, the target value keeps increasing, furthering uncertainty and increasing the perception of the Fed as a volatile and unpredictable institution. This rising uncertainty, coupled with historical changes in inflation policy, particularly in the COVID-19 pandemic era, when the Federal Reserve has been no-holds-barred in terms of expansionary monetary policy since the onset of the pandemic, and contrary to other central banks, it shows no sign of stopping. This approach signals that the bank is tied down to policies from the pre-pandemic era, noting that overheating can be likely if the bank fails to slow down the rapidly growing economy.
The growing concern over the Fed’s inability to properly execute policy has two major implications. First, a decline in trust among consumers. A survey from Axios finds steadily decreasing consumer confidence in the U.S. central bank. In most demographic groups, including college graduates and senior citizens, less than 40 percent express confidence in the Fed, with only 34 percent stating that they have a moderate or high level of trust in the central bank.
Second, a decline in dollar confidence on the global stage. Some investors warn that the dollar could lose its status as the global reserve currency. The Fed’s decision to hold interest rates at zero, coupled with trillions in asset purchases, has coincided with a decrease in foreign holdings of U.S. debt by 2 percent, or $127 billion, in the past year alone. Moreover, the Fed has become involved in many other activities besides monetary policy, creating a “mission creep.” These actions have put the wind in the sails for a move toward cryptocurrency, ranging from Bitcoin to Ethereum, as a new medium for exchange. Simply put, consumers pay attention to central-bank policy and, at least some, will not take rising uncertainty forever.
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Examining investor incentives yields a common theme in that nations and individuals alike want to be free from interest rates controlled by a volatile central bank, or unpredictable policies from an unstable U.S. federal government. Enter Bitcoin, a safe haven for investors transitioning away from fiat currency into a competitive currency market, where the ability to exchange money digitally without regulation looks increasingly attractive. While there is great volatility surrounding cryptocurrency, stemming from seemingly random price spikes and drops, this volatility can excite investors. Believe it or not, the high-risk, high-reward nature is thrilling to investors — if they are choosing to invest in increasingly risky U.S. treasuries because of Federal Reserve blunders, or high-risk cryptocurrencies, the choice is ultimately clear. Results such as these have already been noted empirically in Venezuela, where rampant inflation combined with poor governance by the country’s central bank is pushing citizens of all socioeconomic statuses to Bitcoin and other cryptocurrencies.
While there are risks, to be sure, cryptocurrencies are inherently decentralized and confer various benefits over fiat currency, which explains why investors turn to it as an alternative — the lack of ties to world economies, low online payment fees as opposed to credit cards and money-transfer services, and security due to the nearly impenetrable nature of blockchain technology all make it an extremely attractive competitor to the dollar. Certain cryptocurrencies have seen immense growth in 2021 and are trending high; besides the major players Bitcoin and Ethereum, Cosmos and Dogecoin have seen 139.17 percent and 7,709.67 percent growth in the past year respectively.
Players in these markets are not just restricted to the ultrawealthy either, with the demographics of cryptocurrency investors being centered mainly among Millennials (ages 18 to 34) who mainly focus on Bitcoin, Ethereum, and Litecoin. These investors are looking not only to the short-term profits but also to long-term trends that make cryptocurrency much more lucrative than many centralized currencies. That’s one of the long-term bets that crypto investors are making: Despite short-run growing pains, decentralization will be more stable and prices will be more informative about value in the long run.
Another reason investors might flock to crypto is its finite supply. Unlike fiat currencies that are often influenced by central banks that can expand the money supply, a fixed supply can create more discipline in the market. Admittedly, there is a lot of debate in the popular press, but fundamentally many of these debates are philosophical, coming down to whether someone believes that a central bank that effectively prints more money actually brings more value into the economy.
As concern about inflation and “mission creep” begin to mount, investors will increasingly flock to cryptocurrencies. Time will tell how much of the surge in cryptocurrency activity is genuine versus just buzz and sentiment-driven, but already it is proving to be an oasis that is free from government intervention and manipulation by centralized authorities.
Christos A. Makridis is a research professor at Arizona State University and a digital fellow at Stanford’s Digital Economy Lab. He holds doctorates in economics and management science & engineering from Stanford University. Raghav Warrier is a rising sophomore at the Barrett Honors College at Arizona State University, studying computer science, economics, and mathematics. His interests include digital economic trends and quantitative economic analysis.
New Study Finds Educational Technology Can Have A Democratizing Effect In Higher Education
Originally posted in Zenger News and Newsweek
A laptop screen is increasingly taking the place of the university lecture hall — fueling a $200 billion EdTech industry and touching off a debate that pits union leaders and professors against software entrepreneurs and budget-conscious lawmakers.
EdTech, or educational technology platforms, teach lessons at a much lower cost than in-person instruction, amounting to a roughly 80 percent decline in per-student cost, according to a study published in Science Advances. It also offers new learning opportunities to adult students, U.S. soldiers, foreign students and ordinary students stranded by the pandemic.
The Insight Partners research firm estimates the EdTech industry is projected to reach $234.41 billion by 2027 — a 15.3 percent increase compared to 2020.
Yet as the market grows, so does the controversy.
A key criticism — from teacher’s unions to higher education analysts — is that EdTech platforms have historically granted greater benefits to affluent or high-performing students. Now, new research calls into question that long-held belief.
Online learning only worsens inequality among students, critics say, adding they prefer social and political changes to technological solutions. “Flexibility from online learning is good, but it hasn’t been nearly up to the task of addressing the terrible upheaval in our society,” said Professor Justin Reich at the Massachusetts Institute of Technology’s Teaching Systems Lab.
“Greater equality in education will come from social movements, from politics, from organizing that provides greater public support for building human capacity, especially among marginalized students,” Reich said.
But new research published in the Proceedings of the National Academy of Sciences challenges some expert assumptions about the relative value of political versus technological changes in the education field.
College enrollments for fall 2020 sank by 16 percent and community-college enrollments fell by 9.5 percent, according to data from the National Student Clearinghouse. Enrollments from new international students declined even more steeply — by 43 percent, according to data from the Institute of International Education.
Conversely, EdTech learning services are skyrocketing, according to data gathered by Class Central, a search engine and review site for massive open online courses, commonly known as “MOOCs.”
Coursera, the nation’s largest online learning platform, founded by two Stanford University computer science professors in 2012, added 9.2 million new registered users in 2019. Then came the pandemic. In 2020, Coursera added 30.6 million more users — a 59 percent increase year-over-year. Similarly, edX, another one of the larger EdTech platforms, saw a 161 percent year-over-year growth in registered users to 35 million.
Some of the most effective EdTech platforms focus on teaching technical skills that are in high demand.
Demand for artificial intelligence and machine-learning skills is expected to grow by 71 percent per year through 2025, according to a recent study by business analytics firm Burning Glass Technologies.
The new research published in the Proceedings of National Academy of Sciences uses data from DataCamp, an EdTech company focused on data science and programming skills, and found the expansion of online learning during the pandemic led to greater registration and engagement overall, as well as a proportional increase across low- and high-income ZIP codes.
Full disclosure: The reporter is a nonresident research scientist at DataCamp.
While the national surge in EdTech might not be surprising, given all the confounding factors of the pandemic, the study leverages the introduction of nonessential business closure orders at different points in time across states, thereby allowing the researchers to compare students in the same state before and after the adoption of these orders. This statistical strategy controls for shifts in national income and demand for education.
Business closures, driven by pandemic-relief policies in various states, drove a 38 percent increase in new DataCamp users and a 6 percent increase in engagement among existing users, according to the authors. With more time on their hands, due to state and national quarantines, many people signed up for new learning opportunities.
Completion rates for weekly online lessons are also growing.
The average number of weekly exercises completed was 37.8 in May 2020, compared with 28.8 in May 2019 and 28.7 in May 2018.
The results confound some of EdTech’s critics and bring a new perspective: The DataCamp study shows these effects were proportional across higher- and lower-income ZIP codes, suggesting the expansion of EdTech services had a democratizing effect — at least in the market for programming and data-science skills.
This marks a decisive shift toward more people accessing educational content and greater learning among those who are accessing the content. That is important since one of the biggest challenges associated with the rise of massive open online courses has been the lack of engagement.
Online education tends to work better for four-year college students than for trade school, community college or for-profit school students, according to a report co-authored by Di Xu, a professor at University of California Irvine.
“The relative effectiveness of online learning varies substantially by college setting and by subgroups of students,” Xu said. Xu has also published related work pointing out the online performance gap is larger for some subgroups, such as younger students and minorities.
However, the achievement gaps that Xu has identified in online education are a product of several related risk factors coming together, including that part-time students are much less likely to complete a college degree program than full-time students, according to Department of Education data.
Technology alone is never a panacea, Reich emphasized in his 2020 book “Failure to Disrupt: Why Technology Alone Can’t Transform Education.”
Still, the sharp climb in online learning shows the technology is increasingly attractive to nontraditional, younger and minority students. The latest evidence is starting to suggest that EdTech can improve access to learning solutions by reducing barriers.
Christos A. Makridis is a research professor at Arizona State University and a nonresident research scientist at DataCamp. Christos holds dual doctorates in economics and management science & engineering from Stanford University. His academic research is concentrated at the intersection of labor economics, human capital and the digital economy.
Guest Post by Artur Meyster: Covid-19 & Higher Ed
Colleges and universities are struggling to handle the current pandemic. They have yet to find the balance of in-person classes and online accessibility. The rapid transition from in-person to online learning forced institutions to rethink the learning process and resources that have gone decades without change. Longstanding educational institutions that don't invest in change face being left in the dust to agile schools adapting to the pandemic and promoting online learning.
Education continues to move forward despite the pandemic. High school graduates and career changers looking to learn new skills aren't going to let much get in their way. Students and teachers will find a way to keep students on track to getting into colleges and earning their degrees.
The Admissions Process Looks Different
High school students looking to continue their educational careers will face a process unlike anyone else has beforehand. Student applications will look vastly different than their peers' applications from just one year ago. The pandemic made it impossible for students to complete the normal requirements of applying to college. A majority of the requirements outside of classroom learning were canceled, alongside standardized tests, entire sports seasons, theater, and even after-school jobs. The lack of extracurriculars will give students fewer ways to stick out on their applications.
At the same time, college admissions counselors are going to look for new metrics to determine an applicant's merits. They know the hardships COVID-19 caused for students and know that the college experience will be different than what students expected. College admissions counselors are looking for students who practice self-care, watch out for those around them, and increase their families' responsibilities.
More Students Opt for Online Degrees
Many schools are opting for online learning in the upcoming semesters and won't offer any on-campus classes. Schools aren't lowering their tuition either. Traditionally, online schools cost less than their on-campus counterparts, largely due to lack of room and board. Now that students have more exposure with online learning, they might look for more online learning opportunities.
Online colleges were increasing in popularity before the pandemic. Prior to the pandemic, most large universities didn't offer a wide variety of online courses. The reluctance to adopt online learning opened the doors for forward-thinking educators. The few schools that saw the potential of online learning are known across the country despite their actual campuses being in smaller areas of the country.
Schools Will Adapt to Changes
The education industry will be hard-pressed to move away from in-person learning. Some students need personal interactions to get the best results. Colleges will entice students with new features to attract them to campus life.
After temporarily moving classes online, students and faculty are comfortable with the new learning method. The familiarity with online learning makes students more likely to enroll in future online courses and colleges more likely to offer them.
The increased number of online college courses will open more doors for non-traditional students as well. Students who are earning their degrees at later ages or after leaving the military will have more options than before the pandemic. Instead of nationally run for-profit online colleges, non-traditional students will have the option to attend top-tier schools without quitting their jobs or moving across the country.
Self-paced Courses
A unique aspect of online courses is the ability to pre-record lectures. Online courses don't have to be instructor led. The rise of Coursera and Udemy during the pandemic is evidence of this. The self-paced option for students gives them the ability to learn at their own pace. Learning at your own pace gives students the time to dive deep into their studies. Self-paced courses are one of the cornerstones to the fastest online degrees. Students don't have to waste time waiting for the class to move to the next topic if they already understand the lesson. Self-paced courses are available to students with disabilities who need extra time to understand concepts or need to get their resources through different methods.
One shortcoming of self-paced learning is collaboration and other perspectives. In a typical class, the entire class can hear questions from their peers. Some questions bring to light new angles of thinking or fill in gaps that the professor failed to include.
Peer collaboration isn't ideal for self-paced learning either. Collaboration and group work are vital components of the education industry's goal of getting students ready for the workforce. While individual skills are important, collaboration and teamwork are major sticking points for hiring managers. After all, most people pursue education to increase their career opportunities.
Artur Meyster is the Chief Technology Officer of CareerKarma.
Delisting Sudan From Terrorism List Will Drive Democratic And Economic Reforms
This article was originally posted on National Interest.
Ever since the first terrorist attack against the World Trade Center in 1993, the United States has designated Sudan as a state sponsor of terrorism. However, since then, particularly over the past year and a half, Sudan has undergone significant democratic reforms, including a recent victory and step towards internal peace and stability in Juba, South Sudan.
Even former Obama Administration officials agree with the move. Cameron Hudson remarked that “[Sudan] needs to have this label removed… Sudan’s designation as a state sponsor of terrorism is a ‘vestige’ of its past.” And, the 9/11 Commission, an independent and bipartisan body, concluded that Sudan was not responsible, expropriating all of Osama bin Ladin’s assets when he left in 1996.
In a historic move, President Donald Trump announced on Monday that the State Department would remove Sudan from the list of state sponsors of terrorism, in addition to unleashing new, sweeping economic and humanitarian assistance to continue their economic development plans. In response, Sudan is also formalizing plans to normalize their relations with Israel.
The move comes at an especially important time. Although Sudan has undergone major democratic reforms and worked hard to expel terrorist links, the sanctions that had been in place since 1993 were crippling its economic and investment activities. According to Prime Minister, Abdalla Hamdok, “there was no guarantee the transition to democracy would stay on course until elections scheduled for 2022.” Hamdok’s detractors have been attacking him at every turn—even manifesting in an attempted assassination this past March.
Fortunately, President Trump’s decision, after many hours of negotiations and foundation-building through the Department of State and the National Security Council, comes after Senators Chuck Schumer and Bob Menendez blocked a Congressional measure to take Sudan off the list since they wanted to keep their options open for potential payouts from the Sudanese government to 9/11 victims, arguing that they were responsible for al-Qaeda’s build-up.
Absent the announcement, all the reforms that were made over the past year and a half would have slipped away. As some have rightly pointed out, the blacklisting means that legitimate Sudanese businesses, and the economy more generally, are unable to receive foreign direct investment and both the World Bank and the International Monetary Fund are unable to adjust their debt relief packages. Now, Sudan will ride on the wings of the Middle East peace deals that were negotiated last month, setting an example to its neighbors about the benefits of peace and democratic reform.
A democratic and economically robust Sudan is an incredible asset for Western democracies in Northern Africa. First, while China has traditionally had a strong hold on Sudan, particularly with former Sudanese President Omar al-Bashir, Beijing has distanced itself recently. Sudan can continue its reforms without relying on manipulative deals from the Chinese Communist Party (CCP).
Through the Belt and Road Initiative, the CCP has been angling for control over more land and resources. For example, Sudan has been put in the middle of a vicious grab for power between Egypt and Ethiopia, specifically over the Grand Ethiopian Renaissance Dam. In this sense, Sudan is positioned in a strategic location, especially when put in perspective of the surrounding failed states. Stability in Sudan will serve as an oasis of peace in a region marked by so much volatility and terrorist activity.
Second, given Sudan’s historical violations of religious freedom, it can become a beacon and textbook example for not only economic but also social and political reform that encourages similar efforts among neighbors. Already, they’ve made incredible progress, but continuing these efforts takes work. My research shows that improvements in religious liberty are incredibly important for human flourishing, leading to greater women empowerment, access to justice, civil liberties, and freedom of expression, which are all prerequisites for economic activity.
That’s exactly what’s been happening in Sudan over the past year: they’ve dropped the death penalty for apostasy, they’ve empowered women in the political process, and undertaken significant political reforms to root out corruption. These are all ingredients for economic development and flourishing.
While there has been bipartisan support for removing Sudan from the state sponsors of terrorism list, politics has gotten in the way for far too long. The road ahead is not easy, but now the stage is set for Sudan to continue its historical economic, social, and political reforms to become another light to the world. The tide is turning with the advent of the Middle East peace deals—and the good news from Sudan is yet another illustration of the possibilities that reside when we come together.
Christos A. Makridis is an assistant research professor at Arizona State University, a non-resident fellow at Baylor University, a visiting fellow at the Foundation for Defense of Democracies, and a senior adviser at Gallup. Christos previously served on the White House Council of Economic Advisers. Follow him on Twitter and Instagram @camakridis.
Azerbaijan's assault against Armenia threatens Democracy everywhere
This article was originally posted on The Hill.
On September 27, Azerbaijan began a coordinated full-scale aerial and missile attack on Artsakh, Armenia. Turkey has played an especially active role by not only supporting, but also driving much of Azerbaijan’s aggression. It has provided its proxy with foreign mercenaries and the full extent of its military arsenal, including its F-16s . In fact, shortly after the assault on Artsakh began, Turkish President Recep Erdogan announced his full support for Azerbaijan and called for the overthrow of the Armenian government. These tactics are not new: Erdogan has employed them countless times, from its intervention in Libya to its dispute with Greece in the Mediterranean.
Unfortunately, some actors in the international community have dismissed Azerbaijan's role as the aggressor, calling both sides to “prepare populations for peace.” But if Armenia was never in search for war in the first place, what more do they have to prepare for?
In contrast, Azerbaijan has been preparing its population for war over the past two decades — institutionalizing anti-Armenian sentiment, stockpiling military assets purchased from Turkey and Israel, and steadily sidelining efforts for a negotiated solution to the conflict. In fact, Azerbaijan recently disavowed the Organization for Security and Cooperation in Europe (OSCE) Minsk Group peace process when President Ilham Aliyev called the Nagorno Karabakh (Artsakh) mediation efforts “pointless” and threatened to resolve the issue militarily. What’s happening now shouldn’t come as a surprise to the international community — Azerbaijan telegraphed it all along.
Azerbaijan and Turkey have been working strategically to influence international public opinion, especially in the United States, Israel and Europe. Azerbaijan’s nefarious foreign dealings were recently exposed by an Organized Crime and Corruption Reporting Project (OCCRP) investigation into the “Azerbaijani laundromat,” an extensive money laundering operation that saw Azerbaijan funnel over $2.9 billion dollars between 2012 and 2014 into foreign shell corporations to buy favor among international institutions, politicians, lobbyists and journalists. UNESCO and the European Parliament were extensively targeted, and recent reports have surfaced from Israel of the transfer of a significant amount of funds from the state-owned Israeli Aerospace Industries to a laundromat-linked account after a $5 billion contract was signed between the two.
Azerbaijan's public relations efforts have sought to obscure the international community’s awareness of the virulent state-sponsored anti-Armenian racism throughout Azerbaijani society that has resulted in the incitement of hate crimes, such as the destruction of cultural monuments and the granting of impunity to the perpetrators of hate crimes. Moreover, Azerbaijan and Turkey have repeatedly dismissed and denied the Armenian genocide, not only refusing to take accountability for the actions of their predecessors in perpetrating this crime against humanity, but going to the lengths of openly espousing the very ideologies that informed the genocide 105 years ago.
These actions have had international reverberations. For example, following Azerbaijan's aggression against the Republic of Armenia in July, tens of thousands of Azerbaijani demonstrators chanted “death to Armenians” in the streets of Baku. That has spread to diaspora even in the United States, where in recent weeks, most notably in San Francisco, a series of attacks were waged against an Armenian church and elementary schools.
Ironically, Azerbaijan has often touted itself as a leader in human rights and religious liberty. But according to measures of religious liberty from the Varieties of Democracy, Azerbaijan ranks within the 10th percentile of countries across the world as of 2018 — far below the median. In contrast, Armenia ranks at roughly the unweighted mean across all countries in the data.
While religious liberty might seem like a luxury to some students of international relations, it is an important determinant of human flourishing. Using a sample of over 150 countries surveyed between 2006 and 2018, new research from one of the authors shows that religious liberty has a causal effect on human flourishing, particularly among religious minorities. Importantly, these results are present even after controlling for measures of economic freedom (e.g., property rights) from the Heritage Foundation’s Index of Economic Freedom and measures of economic activity (e.g., GDP).
The research suggests that religious liberty is a prerequisite for democratic governance, aiding the process for civic engagement and women's empowerment and reducing the potential for public and political corruption. Not surprisingly, limiting the freedom to choose and arrive at even the most basic judgments about their identity stifles creativity and increases the potential for corruption by overly zealous and powerful bureaucrats. In this sense, until Azerbaijan recognizes the legitimate right to self-determination of the Armenian people free of threat of persecution for their religion, culture and ethnic identity, peace is going to be impossible.
Through the years, the chief failure of the OSCE Minsk Group – the entity mandated with finding a settlement to this conflict – and its three co-chairs – the United States, Russia and France – has been the refusal to directly attribute blame to Azerbaijan for its constant aggression. Despite efforts by the U.S to curtail Azerbaijan’s aggression during the 1991-94 war, and in recent years its advocacy for the implementation of the Royce-Engel peace protocols, successive administrations have continued to appease Azerbaijan, including the recent earmarking of $100 million in military assistance to the Caspian dictatorship earlier this year.
While Azerbaijan has positioned itself as a key strategic partner to the U.S. in the region, often cynically deploying its relationship with Israel as an example of its good-faith partnership, its close ties to an increasingly dictatorial and expansionist Turkey, as well as its oft-overlooked relationship with Iran and Russia, demonstrates that Azerbaijan is only out to serve its own interests, even if that means transferring millions of dollars into Russian and Iranian state-linked companies, or selling Iran a 10 percent stake in one of its major oil pipelines despite international sanctions regimes.
While Azerbaijan has attempted to shield itself from international scrutiny by riding on the presence of tense domestic politics in the United States and a global pandemic, we cannot ignore it any longer. The international community must recognize that failure to stand up for religious minorities anywhere is a threat to them everywhere. Inaction creates precedent and emboldens dictators.
Christos A. Makridis is an assistant research professor at Arizona State University, a non-resident fellow at Baylor University, and a senior adviser at Gallup. Follow him on Twitter and Instagram @camakridis. Alex Galitsky is communications director of the Armenian National Committee of America - Western Region, the largest Armenian grassroots advocacy organization in the United States. Follow him on Twitter @algalitsky.
How Regulation Kills Middle-Class Jobs
This article was originally posted on National Review.
It’s no secret that we’ve observed a rise in wage inequality over the past two decades. Although blue-collar wages and employment in manufacturing experienced a substantial bump over the past three years, the middle class has been hollowed out: Workers in the middle of the skill distribution have seen the weakest growth in wages and jobs.
Understanding the source of these changes in the labor market is a prerequisite for producing effective public-policy prescriptions. Otherwise, any “solutions” may end up being counterproductive.
In a recent working paper released through the Mercatus Center at George Mason University, Georgetown professor Alberto Rossi and I investigate changes in the labor market for financial services, focusing on the rise of science, technology, engineering, and mathematics (STEM) workers. STEM employment grew by 22 percent between 2011 and 2017, exceeding growth in any other sector besides professional services. STEM jobs are associated with large wage advantages and poised for further growth over the next decade — almost three times as much as non-STEM jobs.
These figures represent a substantial shift in the demand for skills within the financial-services sector. Employment for bank tellers, on the other hand, declined by 10 percent during that time — from 533,650 to 481,490 workers.
These patterns raise a question: Were changes in financial-services jobs the natural result of technological development and competition, or something else? Although we investigate three potential theories in the paper, we find that the rise in STEM employment is linked with a rise in regulation. Financial services, more than any other industry, experienced a surge in regulatory restrictions between 2011 and 2017, driven largely by the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010.
Using data spanning every occupation over time, we show that a 10 percent rise in regulatory restrictions is associated with a 5.3 percent rise in STEM employment. Increases in regulatory restrictions are also associated with declines in lower- and middle-skilled jobs. That’s important, given that non-STEM jobs have historically served an important role for the middle class, creating opportunities for upward mobility and family stability. This marks one of the important unintended consequences of greater regulation.
Unlike prior studies that have sought to quantify the effects of regulation, our analysis uniquely isolates the responsiveness of STEM employment, relative to its non-STEM counterparts, to changes in regulation within the same sub-sector over time. This helps avoid concerns about spurious factors like overall changes in technology or a growing demand for the digital workforce.
What explains the link between regulation and STEM employment? Not surprisingly, we show that increases in regulation are associated with greater compliance costs. In this sense, the data suggest that firms, especially in financial services, hire STEM workers at least in part to automate more of their organizational activities, which reduces the scope for human error and raises the overall value of the business. In fact, according to some estimates, the market for regulatory technology (or “RegTech”) is expected to grow from $4.3 billion in 2018 to $12.3 billion by 2023.
In sum, the surge in regulation accelerated the shift toward STEM employment in financial services, adversely impacting many lower- and middle-skilled workers who traditionally relied on these jobs.
These results highlight the importance of thinking through the unintended consequences of regulations before enacting them. Indeed, even if your priority is to mitigate inequality, these results show that the rise in regulation adversely affected the very individuals that it aimed to help. On the other hand, regulatory reform that focuses on removing unnecessary costs works in the other direction: It leads to increases in economic growth and wages across the distribution.
If the financial-services sector is going to reap all the benefits of emerging technological change, such as the application of artificial intelligence, it needs to be agile enough to draw upon the right mix of skills. Regulatory policy marks one of the important differences between the Trump administration and a potential Biden administration. Whereas regulatory restrictions grew rapidly under Biden during the Obama administration, they have declined for the first time ever under Trump.
As this election season moves along, we need to think more deeply about how public policies ultimately affect workers. Policymakers can sometimes dress legislation up to look very nice on the outside, but we only find out about the negative effects in the years that follow. Let’s try to avoid the latter.
Christos A. Makridis is a research assistant professor with Arizona State University’s W. P. Carey School of Business, a senior adviser at Gallup, and a non-resident fellow at Baylor University.