What Tom Whitwell learned in 2025
52 things, here is one of them:
Most characters in the film Idiocracy wear Crocs because the film’s wardrobe director thought they were too horrible-looking to ever become popular. [Alex Kasprak]
Here is the full list.
Two things that really matter
When analyzing the macro situations of countries or regions, I place more stress than many people do on the following two factors:
1. Human capital: How much active, ambitious talent is there? And how high are the averages and medians?
2. Matching market demands: Are you geared up to produce what the market really wants, export markets or otherwise?
Those may sound trivial, but in relative terms they remain undervalued. They are, for instance, the biggest reasons why I do not buy “the housing theory of everything.”
They are also, in my view, the biggest reasons why the UK currently is in economic trouble. Both #1 (brain drain) and #2 have taken a hit in recent times. The UK continues to deindustrialize, business consulting is not the future, and London as a financial centre was hurt by 2008, Brexit, and superior innovations elsewhere. More and more smart Brits are leaving for the US or Dubai.
You also will notice that #1 and #2, when they are in trouble, are not always easily fixed. That is why reforms, while often a good idea, are by no means an easy or automatic way out of trouble.
These two factors also are consistent with the stylized fact that growth rates from the previous decade are not so predictive of growth rates for the next decades. Human capital often drives levels more than growth rates. And matching market demands often has to do with luck, or with shifting patterns of demand that the supplying country simply cannot match. Once people abandon Toyotas for Chinese electric cars, Japan does not have an easy pivot to make up the loss.
Most other theories of growth rates, for instance those that assign a predominant weight to institutions, predict much more serial correlation of growth rates than we find in the data. That said, institutions do indeed matter, and in addition to their usual effects they will shape both #1 and #2 over the longer run.
Overall, I believe conclusions would be less pat and economic understandings would be more effective if people paid greater attention to these factors #1 and #2. Not putting enough weight on #1 and #2 is one of the biggest mistakes I see smart people — and indeed very smart people — making.
Addendum: You will note the contributions of Fischer Black here. Apart from his contributions to options pricing theory, which are widely known, he remains one of the most underrated modern economists.
Classical music of 2025
These are the releases that I kept on listening to, in no particular order:
Aart Bergwerff, Bach, Six Trio Sonatas for Organ.
Jonathan Ferrucci, Bach Toccatas.
Tom Hicks, Chopin Nocturnes. So little rubato, this one took time getting used to but now I love it.
Linos-Ensemble, Schoenberg-Webern-Berg, The Waltz Arrangements. I am surprised I like this one at all, it brings together the two main strands of Viennese music at the time.
Yuja Wang, Shostakovich Piano Concerti and pieces from Op.87.
Cuarteto Casals, Shostakovich, complete String Quartets.
i am selecting these based on a) are they truly great and important pieces of classical music, and b) does this particular recording add something to the interpretations already out there?
Friday assorted links
1. Best DC art works? (FT) Surely Manet’s The Railway should be on the list? Does Dulles Airport count? The Iwo Jima Memorial or Vietnam Memorial? Maybe even the Air Force Memorial?
2. The raccoon culture that was Virginia and I suppose still is a little bit?
3. Stoppard’s liberal individualism.
4. Jerry Z Muller on conservatism.
5. SPEAK, new organization for free speech in the UK.
Welcome to the Crazy CAFE
To let Americans buy smaller cars, Trump had to weaken fuel-efficiency standards. Does that sound crazy? Small cars, of course, have much higher fuel efficiency. Yet this is exactly how the Corporate Average Fuel Economy (CAFE) standards work.
Since 2011, fuel-economy targets scale with a vehicle’s “footprint” (wheelbase × track width). Big vehicles get lenient targets; small vehicles face demanding ones. A microcar that gets 40 MPG might be judged against a target of 50-60 MPG, while a full-size truck doing 20 MPG can satisfy a 22 MPG requirement.. The small car is clearly more efficient, yet it fails the rule that the truck passes.
The policy was meant to be fair to producers of large vehicles, but it rewards bloat. Make a car bigger and compliance gets easier. Add crash standards built around heavier vehicles and it’s obvious why the US market produces crossovers and trucks while smaller and much less expensive city-cars, familiar in Europe and Asia, never show up. At a press conference rolling back CAFE standards, Trump noted he’d seen small “kei” cars on his Asia trip—”very small, really cute”—and directed the Transportation Secretary to clear regulatory barriers so they could be built and sold in America.
Trump’s rollback—cutting the projected 2031 fleet average from roughly 50.4 MPG to 34.5 MPG—relaxes the math enough that microcars could comply again. Only Kafka would appreciate a fuel-economy system that makes small fuel-efficient cars hard to sell and giant trucks easy. Yet the looser rules remove a barrier to greener vehicles while also handing a windfall to big truck makers. A little less Kafka, a little more Tullock.
Political pressure on the Fed
From a forthcoming paper by Thomas Drechsel:
This paper combines new data and a narrative approach to identify variation in political pressure on the Federal Reserve. From archival records, I build a data set of personal interactions between U.S. Presidents and Fed officials between 1933 and 2016. Since personal interactions do not necessarily reflect political pressure, I develop a narrative identification strategy based on President Nixon’s pressure on Fed Chair Burns. I exploit this narrative through restrictions on a structural vector autoregression that includes the President-Fed interaction data. I find that political pressure to ease monetary policy (i) increases the price level strongly and persistently, (ii) does not lead to positive effects on real economic activity, (iii) contributed to inflationary episodes outside of the Nixon era, and (iv) transmits differently from a typical monetary policy easing, by having a stronger effect on inflation expectations. Quantitatively, increasing political pressure by half as much as Nixon, for six months, raises the price level by about 7% over the following decade.
That is not entirely a positive omen for the current day.
Emergent Ventures winners, 50th cohort
Geby Jaff, Berkeley, publication medium for AI-generated science.
Laura Ryan, London, data for the AIs.
Tara Rezaei, MIT, general career support/AI/o1.
Mihir Rao, Princeton, bio and AI.
Lorna MacLean, London, AI medical diagnosis of endometriosis.
David Yu, Waterloo, Ontario/Taiwan, fellowship program for agentic Taiwanese college students.
Aniket Panjwani, Lombard, Illinois, EconNow, AI-based software for economics.
Zixuan (Eric) Ma, GMU, to write about China.
Ivan Khalamendyk, Lviv, “I’m an independent Ukrainian physicist developing a ψ-field model of the universe – a single real wave ψ(x,t) that reproduces quantum matter, forces and gravity.”
José Luis Sabau, Mexico City, Perpetuo, Substack for Mexico.
Soleil Wizman, Yale University, longevity.
Abu Dhabi fact of the day
International Holding Company has been growing:
IHC’s $240bn market capitalisation makes it by far the biggest constituent of the Abu Dhabi stock exchange, taking up 41.5 per cent of the FTSE ADX General Index — a figure that rises still further when listed subsidiaries such as Alpha Dhabi and 2PointZero are included.
First Abu Dhabi Bank, the country’s largest lender and runner-up at a 10 per cent weighting, is also chaired by Sheikh Tahnoon. Because IHC is ultimately controlled by Sheikh Tahnoon, who is also the UAE’s national security adviser and chairs two of Abu Dhabi’s sovereign wealth funds, academics classify it as a “state-related entity”.
IHC in turn consists of about 1500 firms, though consolidation is promised. Here is the full FT article.
Thursday assorted links
1. Protestant magic and occultism in Ireland.
2. Funny that academics should feel the need to provide a defense of the positive benefits of status.
3. Immersive summer workshops on rationality for teens.
4. New Justin Sandefur blog/newsletter.
5. Evan Goldfine music recommendations.
Innovations in Health Care
The latest issue of the journal Innovations focuses on health care and is excellent. It’s a very special issue–a double Tabarrok issue!
My paper, Operation Warp Speed: Negative and Positive Lessons for New Industrial Policy, asks what can learn from the tremendous success of OWS about an OWS for X? What are the opportunities and the dangers?
My son Maxwell Tabarrok’s paper is Peptide-DB: A Million-Peptide Database to Accelerate Science. Max’s paper combines economics and science policy. Open databases are a public good and so are underprovided. A case in point is that there is no big database for anti-microbial peptides despite the evident utility of such a database for using ML techniques to create new antibiotics. The NIH and other organizations have successfully filled this gap with databases in the past such as PubChem, the HGP, and ProteinDB. A million-peptide database is well within their reach:
The existing data infrastructure for antimicrobial peptides is tiny and scattered: a few thousand sequences with a couple of useful biological assays are scattered across dozens of data providers. No one in science today has the incentives to create this data. Pharma companies can’t make money from it and researchers can’t produce any splashy publications. This means that researchers are duplicating the expensive legwork of collating and cleaning all of this
data and are not getting optimal results, as this is simply not enough information to take full advantage of the ML approach. Scientific funding organizations, including the NIH and the NSF, can fix this problem. The scientific knowledge required to massively scale the data we have on antimicrobial peptides is well established and ready to go. It wouldn’t be too expensive or take too long to get a clean dataset of a million peptides or more, and to have detailed information on their activity against the most important resistant pathogens as well as its toxicity to human cells. This is well within the scale of the successful projects these organizations have funded in the past, including PubChem, the HGP, and ProteinDB.
Naturally, I am biased towards Tabarrok-articles but another important paper is Reorganizing the CDC for Effective Public Health Emergency Response by Gowda, Ranasinghe, and Phan. As Michael Lewis wrote in The Premonition by the time of COVID the CDC had became more akin to an academic department than a virus fighting agency:
The CDC did many things. It published learned papers on health crises, after the fact. It managed, very carefully, public perception of itself. But when the shooting started, it leapt into the nearest hole, while others took fire.
Gowda, Ranasinghe, and Phan agree.
The COVID-19 pandemic revealed significant weaknesses in the CDC’s response system. Its traditional strengths in testing, pathogen dentification, and disease investigation and tracking faltered. The legacy of Alexander Langmuir, a pioneering epidemiologist who infused the CDC with epidemiological principles in the 1950s, now seems a distant memory. Tasks as basic as collecting and providing timely COVID-19 data, along with data analysis and epidemiological modeling—both of which should have been the core capability of the CDC—became alarmingly difficult and had to be handled by nongovernmental organizations, such as the Johns Hopkins University Coronavirus Resource Center.
A closer examination of the CDC’s workforce composition reveals the root cause: a mere fraction of its employees are epidemiologists and data scientists. The agency has seen an increasing emphasis on academic exploration at the expense of on the-ground action and support for frontline health departments. (Armstrong & Griffin, 2022).
The authors propose to reinvigorate the CDC by integrating it with the more practical and active U.S. Public Health Service. This is a very good suggestion.
For one more check out Bai, Hyman and Silver as a primer on Improving Health Care. The entire issue is excellent.
South Korea fact of the day
100 South Koreans will have an estimated 15 grandchildren
Barring a change in current levels. Here is the link.
My Conversation with the excellent Dan Wang
Here is the audio, video, and transcript. Here is part of the episode summary:
Tyler and Dan debate whether American infrastructure is actually broken or just differently optimized, why health care spending should reach 35% of GDP, how lawyerly influences shaped East Asian development differently than China, China’s lack of a liberal tradition and why it won’t democratize like South Korea or Taiwan did, its economic dysfunction despite its manufacturing superstars, Chinese pragmatism and bureaucratic incentives, a 10-day itinerary for Yunnan, James C. Scott’s work on Zomia, whether Beijing or Shanghai is the better city, Liu Cixin and why volume one of The Three-Body Problem is the best, why contemporary Chinese music and film have declined under Xi, Chinese marriage markets and what it’s like to be elderly in China, the Dan Wang production function, why Stendhal is his favorite novelist and Rossini’s Comte Ory moves him, what Dan wants to learn next, whether LLMs will make Tyler’s hyper-specific podcast questions obsolete, what flavor of drama their conversation turned out to be, and more.
Excerpt:
COWEN: When will Chinese suburbs be really attractive?
WANG: What are Chinese suburbs? You use this term, Tyler, and I’m not sure what exactly they mean.
COWEN: You have a yard and a dog and a car, right?
WANG: Yes.
COWEN: You control your school district with the other parents. That’s a suburb.
WANG: How about never? I’m not expecting that China will have American-style suburbs anytime soon, in part because of the social engineering projects that are pretty extensive in China. I think there is a sense in which Chinese cities are not especially dense. Indian cities are much, much more dense. I think that Chinese cities, the streets are not necessarily terribly full of people all the time. They just sprawl quite extensively.
They sprawl in ways that I think the edges of the city still look somewhat like the center of the city, which there’s too many high-rises. There’s probably fewer parks. There’s probably fewer restaurants. Almost nobody has a yard and a dog in their home. That’s in part because the Communist Party has organized most people to live in apartment compounds in which it is much easier to control them.
We saw this really extensively in the pandemic, in which people were unable to leave their Shanghai apartment compounds for anything other than getting their noses and mouths swabbed. I write a little bit about how, if you take the rail outside of major cities like Beijing and Shanghai, you hit farmland really, really quickly. That is in part because the Communist Party assesses governors as well as mayors on their degree of food self-sufficiency.
Cities like Shanghai and Beijing have to produce a lot of their own crops, both grains as well as vegetables, as well as fruits, as well as livestock, within a certain radius so that in case there’s ever a major devastating war, they don’t have to rely on strawberries from Mexico or strawberries from Cambodia, or Thailand. There’s a lot of farmland allocated outside of major cities. I think that will prevent suburban sprawl. You can’t control people if they all have a yard as well as a dog. I think the Communist Party will not allow it.
COWEN: Whether the variable of engineers matters, I went and I looked at the history of other East Asian economies, which have done very well in manufacturing, built out generally excellent infrastructure. None of these problems with the Second Avenue line in New York. Taiwan, like the presidents, at least if we believe GPT-5, three of them were lawyers and none of them were engineers. South Korea, you have actually some economists, a lot of bureaucrats.
WANG: Wow. Imagine that. Economists in charge, Tyler.
COWEN: I wouldn’t think it could work. A few lawyers, one engineer. Singapore, Lee Kuan Yew, he’s a lawyer. He thinks in a very lawyerly manner. Singapore has arguably done the best of all those countries. Much richer than China, inspired China. Why should I think engineers rather than just East Asia, and a bunch of other accompanying facts about these places are what matter?
WANG: Japan, a lot of lawyers in the top leadership. What exactly was the leadership of Hong Kong? A bunch of British civil servants.
COWEN: Some of whom are probably lawyers or legal-type minds, right? Not in general engineers.
WANG: PPE grads. I think that we can understand the engineering variable mostly because of how much more China has done relative to Japan and South Korea and Taiwan.
COWEN: It’s much, much poorer. Per capita manufacturing output is gone much better in these other countries.
And:
WANG: Tyler, what does it say about us that you and I have generally a lot of similar interests in terms of, let’s call it books, music, all sorts of things, but when it comes to particular categories of things, we oppose each other diametrically. I much prefer Anna Karenina to War and Peace. I prefer Buddenbrooks to Magic Mountain. Here again, you oppose me. What’s the deal?
COWEN: I don’t think the differences are that big. For instance, if we ask ourselves, what’s the relative ranking of Chengdu plus Chongqing compared to the rest of the world? We’re 98.5% in agreement compared to almost anyone else. When you get to the micro level, the so-called narcissism of petty differences, obviously, you’re born in China. I grew up in New Jersey. It’s going to shape our perspectives.
Anything in China, you have been there in a much more full-time way, and you speak and read Chinese, and none of that applies to me. I’m popping in and out as a tourist. Then, I think the differences make much more sense. It’s possible I would prefer to live in Shanghai for essentially the reasons you mentioned. If I’m somewhere for a week, I’m definitely going to pick Beijing. I’ll go around to the galleries. The things that are terrible about the city just don’t bother me that much, because I know I’ll be gone.
WANG: 98.5% agreement. I’ll take that, Tyler. It’s you and me against the rest of the world, but then we’ll save our best disagreements for each other.
COWEN: Let’s see if you can pass an intellectual Turing test. Why is it that I think Yunnan is the single best place in the world to visit? Just flat out the best if you had to pick one region. Not why you think it is, but why I think it is.
Strongly recommended, Dan and I had so much fun we kept going for about an hour and forty minutes. And of course you should buy and read Dan’s bestselling book Breakneck: China’s Quest to Engineer the Future.
The importance of the internet
From my recent chat with Alex, mostly about fiscal policy:
TABARROK:To be clear, a 0.5% increase in the rate of productivity growth, that doesn’t seem like a lot, but that would be historically a bigger increase than we got from anything. A bigger increase than the internet. Sure, yes.
COWEN:It is the internet in a way, but yes.
TABARROK:It was founded on the internet, yes. The internet was the agar culturefor the growth of the AI.
COWEN:That’s why the internet’s important. We’re just beginning to realize this,right?
TABARROK:Exactly, yes.
COWEN:It’s why a lot of people can’t admit AI might be a good thing, because then they’d have to admit the internet was a good thing. They’re so committed to never saying that.
TABARROK:Is that why?
COWEN:That’s why, yes.Believe me. That’s why.
TABARROK:It is funny that I think historically, when we look back, I think you’re right, we’ll think about what was the internet. The growth culture was putting everything online, was for the AI. It wasn’t for us.
Wednesday assorted links
1. Dwarkesh speaks. And Dwarkesh on AI progress.
2. Merve Emre on what makes Goethe special. A good piece, but has anyone actually captured and expressed this yet?
3. Japanese washing machine for humans?
4. Anthropic estimates the productivity impact of Claude. And the Twitter summary. And Zvi on Claude Opus 4.5. And Dean Ball. It loves Op.132.
The MR Podcast: Debt!
On The Marginal Revolution Podcast this week, Tyler and I discuss the US debt. This is our final podcast of the year. Here’s one bit:
TABARROK: I do agree that it is puzzling that the interest rate on bonds is so low. Hanno Lustig and his co-authors have an interesting paper on this. They point out that not only is it the case that we have all of this debt with no plans to pay it, as far as we can tell right now, but the debt is not a very good asset in the sense that when will the debt be paid? If it is going to be paid, it’s going to be paid when the times are good. That means that you’re being paid when GDP is higher and the marginal utility money is low.
When is the debt not paid? When does it get bigger? It means when the economy is doing poorly. The debt as an asset has the opposite kind of structure than you would want. It’s not like gold, which arguably goes down in good times and goes up in bad times. You get some nice covariance to even out your portfolio. The debt as an asset is positively correlated with good times, and that’s bad. You should expect the interest rates to be much, much higher than they actually are.
COWEN: The easy out there is just to say it’s always going to be paid. Let me give you a way of reconceptualizing the problem. The Hanno Lustig paper, which is called “US Public Debt Valuation Puzzle,” like a lot of work on debt, it focuses on flows. There’s the rate of interest, there’s government spending. If you look at stocks, look at the stock of wealth in the United States. A common estimate from the past was wealth is six to eight times higher than GDP. That’s a little misleading. How do you value all the wealth? How liquid is it?
Still, we all know there’s a lot more wealth than GDP. If your economy stays at peace, if anything, that ratio rises. You build things, they’re pretty durable. None of it is destroyed by bombs. We’re just headed to having more and more wealth. If you take, say, 100% debt-to-GDP ratio, and you think wealth is six to eight times higher, what’s our debt-to-wealth ratio? Well, it’s going to depend what kind of wealth, how liquid, blah, blah, blah. Let’s say it’s like 20%. Let’s say you had a debt ratio of 20% to your wealth at some point in the history of your mortgage. I bet you did. You weren’t worried. Why should the US be worried?
TABARROK: The US is a much longer-lived entity, presumably, than I am.
COWEN: That’s right. You could have 200% debt-to-GDP ratio. In terms of your debt-to-wealth ratio, again, it’s somewhat arbitrary, but say it’s 40% to 50% that might be on the high side. It’s not pleasant, but I’ve been in that situation with mortgages.
Here’s the episode. Subscribe now to take a small step toward a much better world: Apple Podcasts | Spotify | YouTube.