Good points from James Gilliland
It pains me to say this, but if we actually “get AGI,” the resulting boom in industrial capacity from robotics and massive society-wide wealth creation will look like a total vindication of neoliberalism.
The discourse about financialization and offshoring being a generational mistake may be replaced by a very different historical interpretation: that the late 20th and early 21st centuries were an enormous capital-accumulation phase, freeing up civilization-scale pools of liquid capital that could ultimately be deployed to accelerate and bring about the most consequential technological phase-change in human history.
In that telling, what looked like deindustrialization and betrayal from inside the period (I grew up in the Rust Belt, I know) becomes the prelude to reindustrialization on an almost unimaginable scale.
None of this is inevitable. The needle has certainly not been threaded. China and x-risk remain enormous contingencies. But if it is, I suspect the future will look back on the last 50 years very differently than we do today.
Here is the link.
Friday assorted links
*My Dreadful Body*
By Egana Djabbarova of Azerbaijan. A wonderful short novel, and as described by Olga Grjasnowa “An extraordinary novel that translates corporality and estrangement into language.” Here is the Amazon link.
This has been a fantastic year for fiction, and in November I will be writing up a report.
Armenia notes
I strongly recommend a trip to Armenia, now is a great time to go. Here are a few things I noticed:
1. The country remains intellectual. The book fair is well attended. The classical music season is excellent, with good concerts multiple times a week, and the theatre scene, in both Armenian and Russian, is active. The country has only a little more than three million people, yet they have won gold medal in the chess Olympiad three times in recent memory. You could say the country has maintained the (few) strengths of the former Soviet Union, and is arguably the only place that has. It feels more like the former Soviet Union than Russia does.
2. The National Gallery has excellent Soviet and Russian paintings, while their Armenian collection is definitive. The Medieval Manuscripts museum is first-rate. Unfortunately, neither does anything to put images online, but all the more reason to go.
3. Armenian society is nearly 100% white and 100% Christian, as most of the immigrants (is that the right word here?) are Russian. Crime is close to zero, and the cars stop when you try to cross the street. Being a loyal northern Virginian, that mix is not “my thing.” But if that is what you wish to experience, if only briefly, Armenia is the place that serves it up without apology. Even secular Armenians have great respect for the national Apostolic church, as they view it as a guardian of Armenian independence.
4. The old monasteries are A level sights, and many of them are mere day trips from Yerevan, the capital. Most of the tourists you see at these are Russians, not Westerners. You also will see some Iranian tourists.
5. Yerevan is not great for old buildings, but the city is very walkable and pleasant and lively. I believe the winters are brutal, but September there is wonderful, every day was perfect weather.
5b. In Armenia you will see how their brutalism in fact comes from their earlier religious architectural traditions, and how the newer churches embody modern brutalist ideas as well. I found this very interesting.
6. I have a separate piece coming out on food in Armenia, for now I will just say it is excellent and novel as well.
7. Armenia is not dirt cheap, but it is much cheaper than most of Europe and so can be considered a bargain in relative terms.
8. Almost everyone in Yerevan speaks good Russian. The influence of Russia is embedded in virtually every institution, people like Russia, Russia supplies most of their energy, and is the number one trading partner. Russian troops protect them from Turkey. A Russian does not even need a passport to enter and live in Armenia. Russia is a permanent fixture in Armenian life, and most people do not seem to mind that. They are very disappointed that Putin did not protect them more in the war with Azerbaijan, but that is their major source of discontent, not that Russia and Putin are evil.
9. Armenia has close relations with Iran, and Armenians do not seem to hate Iran. They regard the country as a partial counterweight to Turkey, and for that matter Russia. People in Armenia are very conscious of the x-risk represented by Turkey. They also will speak to you about history in great detail, and they are very wrapped up in their past history. They are very familiar with maps.
10. You can see Mount Ararat, supposed resting place of Noah’s Ark, from the outskirts of Yerevan. It is beautiful. It remains on the Armenian currency, and in the hearts of Armenians, yet it is now part of Turkey and is very likely to remain so. Armenians refer to that part of Turkey as “Western Armenia.”
11. Here is someone else’s exaggerated take on the place, no it will not be the next Poland.
I would put it this way. At any point in time, there are a few parts of the world that are perfect for visiting and viewing. They should be comfortable, but still exotic and not overtouristed. Not dangerous, and not too full of hassles, yet replete with challenging and stimulating experiences. Yunnan in China is one such place. Currently, aAzerbaijan, Georgia, and Armenia all fit this designation. They all have complex histories, and are not always in great shape, so now is the time to go. They will never get better to visit, and right now they are pretty close to perfect as destinations. See what you can, while you can.
Peter Thiel on AI and tech stagnation and democracy
Lots of fresh material, one of the very best Peter Thiel outputs.
Earth fact of the day
An average of 72 percent of respondents said they felt curious, happy or excited about A.I., compared with 41 percent who felt worried, sad or angry.’@nytimes‘s Damien Cave uses @Gallup data to remind us the rest of the world digs AI.
It is 93 percent positive from China. That is from Nick Gillespie. Snap out of it you sad sacks, hope you can recognize negative emotional contagion when you see it! You do not all need to be regional thinkers. Here are the full rankings. Here is another visualization of the numbers:
Strange bedfellows, you might say…
Thursday assorted links
2. On the drop in Pisa scores. Quite exaggerated, it turns out.
3. Hope you all reoptimize your views accordingly, on AI agreements with China.
4. Dutch economy is picking up.
5. One professor’s AI-assisted output. Hey people, solve for the equilibrium…
CA 91326: A Public Choice Mystery Investigation
Carl Danner writes to me with a political economy mystery. On Sept 9, 2026, The California Public Utilities Commission announced a set of clean energy grants but only “for eligible organizations headquartered in ZIP Code 91326.”
I decided to investigate with ChatGPT. The first thing we discovered is that:
The ZIP-code restriction is about the Aliso Canyon gas leak. More specifically, this is money ultimately intended to benefit residents of Porter Ranch and nearby communities affected by the 2015–16 Aliso Canyon disaster, not a generic clean-energy grant that happens to be located there.
The Aliso Canyon gas leak was a big deal with thousands of families evacuated for months so it’s not surprising that money is allocated to that problem but note that the grants are not for organization serving the people or region affected by the gas leak (which is much larger than zip 91326) but for an organization headquartered in ZIP Code 91326. I smelled a payoff. So I pushed ChatGPT to investigate:
It may be [a payoff], but the evidence supports a narrower claim: the Round 3 rules look unusually tailored to make Save Porter Ranch a likely recipient.
The strongest facts are:
- The legislature appropriated $2 million from the Aliso Canyon Recovery Account for CBO outreach in Los Angeles County, prioritizing a broad “Aliso Canyon Disaster Area” containing 11 communities—not Porter Ranch alone.
- CPUC’s first round distributed roughly $1.3 million through a normal competitive process across multiple organizations.
- For Round 3, CPUC suddenly restricts eligibility to organizations headquartered in the single ZIP code 91326, with a maximum award of $75,000 and exclusion of previous recipients.
- Save Porter Ranch is headquartered at 19360 Rinaldi Street, Porter Ranch, CA 91326 and has been an active participant in CPUC proceedings concerning Aliso Canyon for years.
That is suggestive because the legislative authorization itself does not appear to require this hyper-local 91326 restriction. It defines the relevant disaster area much more broadly. CPUC therefore seems to have exercised administrative discretion to create a tiny eligibility pool.
I would distinguish three possibilities:
- Benign geographic set-aside: CPUC noticed that none of the first-round money had gone to an organization actually based in Porter Ranch and reserved the final $75,000 for a local group.
- De facto earmark: CPUC knew that Save Porter Ranch was one of very few qualifying CBOs in 91326 and wrote the eligibility rule sufficiently narrowly that it was highly likely to win.
- Quid pro quo/payoff: the money was deliberately directed to Save Porter Ranch in exchange for support, silence, settlement behavior, etc.
We have substantial circumstantial evidence for #2, but I have seen no evidence yet for #3. Calling it a “payoff” requires some evidence about why CPUC created the ZIP restriction or about communications with Save Porter Ranch.
I wasn’t satisfied so I pushed the investigation deeper and ChatGPT investigated the legislative history. It found that
The 91326 restriction did not originate with CPUC staff. The Legislature itself inserted it into the 2026 budget cleanup bill, and it is unusually specific….The evidence [for a payoff] is considerably stronger than I thought.
…If I were writing this up now, the sharp factual formulation would be: “In an August 2026 budget bill, the California Legislature quietly directed the CPUC to hold an otherwise-unplanned third grant round restricted to nonprofits headquartered in a single Porter Ranch ZIP code. One conspicuous beneficiary of that restriction is Save Porter Ranch, the local Aliso Canyon advocacy organization, which had previously helped lobby state officials over how Aliso Canyon penalty funds should be spent.”
I then asked ChatGPT to “look for overlap in Save Porter Ranch and CA legislatures, e.g. spouses, children, business partners.” It replied:
The strongest link is Richard Mathews. Save Porter Ranch’s IRS filings list Mathews as a director alongside Matt Pakucko and Kyoko Hibino. Mathews is also the longtime president of the North Valley Democratic Club. He previously served as a regional vice chair of the Los Angeles County Democratic Party and on the California Democratic Party executive board and its Legislation Committee.
That puts a Save Porter Ranch director directly inside the local/state Democratic Party apparatus, not merely in occasional contact with elected officials.
…the Mathews connection is stronger than I expected. This isn’t just an advocacy organization obtaining support from politicians. One of Save Porter Ranch’s three disclosed directors was simultaneously a fairly senior Democratic Party insider whose political club includes and supports legislators involved in the relevant legislative machinery.
…The missing piece remains the most important one: who requested the sentence “headquartered within ZIP Code 91326”?
I enjoyed the fact that ChatGPT seems excited by the new discoveries! Digging deeper:
That gives us a much tighter network than we had initially:
Save Porter Ranch
→ director Richard Mathews
→ president, North Valley Democratic Club
→ Schiavo and Gabriel are identified as club members / repeatedly endorsed by it
→ Schiavo sits on Budget + Utilities & Energy and represents the affected area
→ Gabriel chairs Assembly Budget
→ August 28 Assembly budget amendments insert a bespoke ZIP-code restriction
→ restriction makes Save Porter Ranch an unusually obvious potential recipient.There is another revealing feature. The amendment was handled as part of a budget-bill junior rather than through ordinary policy legislation. The public legislative history is extraordinarily thin: amendment August 28, withdrawn from committee August 30, passed August 31. Neither Gabriel’s Assembly presentation nor Laird’s Senate presentation told legislators that the “third round” was actually limited to one ZIP code. Gabriel merely said CPUC must offer “a third round of unspent funds”; Laird similarly described a third round “as specified.” The Assembly passed it 72–0.
That doesn’t demonstrate corruption, but it is exactly how a highly localized legislative earmark can pass with effectively zero scrutiny.
Alas, “the remaining decisive evidence probably isn’t indexed on the web.” Still, you get the idea.
Of course, this is small potatoes by the standards of California political/regulatory friends and families but it’s a nice case study in political economy. How do we want government to work? Is this ethical? What if the sums were much larger? What if the funds went to an equally well-connected group but for a less justifiable cause?
It’s always surprised me that most public choice is not done in this micro-history way. My early paper on the Separation of Commercial and Investment Banking: The Morgans vs. The Rockefellers (which was inspired by Burch’s magnificent Elites in American History which hardly any public choice scholars know) is one of the few examples. I could have done many more papers along those lines but archival history didn’t appeal to me although I did learn a lot digging through Carter Glass’s papers at UVA. I suppose economists like models and consider this sort of thing journalism or history at best.
If you want more details on CA 91326 you can read my whole conversation with ChatGPT.
*Fear of Data*
The author is Omri Ben-Shahar, and the subtitle is How Privacy Panic Led Tech Regulation Astray — and How to Fix It. I would describe this book as bracing, and full of substantive engagement. Basically the author wishes to give privacy considerations less weight in social decisions. Excerpt:
What is the concrete evidence for the benefits of facial recognition technology in investigation of human-trafficking crimes? I would love to have found global estimates of the magnitude — of the trafficking victims rescued through the most advanced facial recognition methods — but all I have is a collage of reports [reports are then described].
One chapter is entitled “The Futility of Personal Rights.” Agree or not, this book is full of actual arguments, so I approve.
My economics-rich Conversation with Gita Gopinath
Here is the audio, video, and transcript. Here is the episode summary:
Gita Gopinath has spent the last several years inside the room where the world’s monetary plumbing gets fixed — or doesn’t. As first deputy managing director of the IMF and, before that, the Fund’s chief economist, she worked on sovereign debt restructuring, followed Argentina’s disinflation up close, and built her academic reputation on ideas like dollar dominance and the dominant currency paradigm. Now back at Harvard launching a new Global Economics Lab, her conversation with Tyler ranges from why exchange rates don’t adjust the way models predict, to what stablecoins really cost, to whether AI’s growth dividend will show up on schedule.
Tyler and Gita discuss why trade balances are only weakly related to real exchange rates, before turning to Argentina, Milei’s fiscal discipline, the peso, and dollarization. Then they discuss whether economists got the euro wrong; whether trade imbalances with China are really the problem; stablecoins, CBDCs, and the Treasury market; and whether AI will ease the debt burden, cause stagflation, or transform economics itself. Finally, they turn to her family’s Kerala roots: why the state keeps electing communists, the relationship between matriarchy and social indicators, single-sex education, and what she’s building next.
Excerpt:
COWEN: Now, Scott Sumner argues we shouldn’t be worried about trade imbalances at all. We don’t worry about them across American states. A lot of the EU has a pretty big current account surplus. Not many people are worried about that. Yet when it comes to China, the talk is all about trade imbalances. Scott argues that’s more of a political project than an actual economic argument. Do you agree with Scott or not?
GOPINATH: I would agree with Scott along the following lines, which is that the trade imbalance in and of itself is not something that we should be focused on. I think what we care about is welfare, and welfare involves jobs and consumption, what’s inflation, purchasing power, and so on. People do not wake up in the morning saying, “Okay, my current account deficit is too big, or my current account surplus is too big.” If all of your policies that were delivering good outcomes for your country were to bring along a deficit or a surplus, that’s perfectly fine. There are lots of good reasons to be running deficits and surpluses we know. There’s nothing that tells you that you shouldn’t.
The problem arises when you have policies that countries have in place that are inconsistent with any kind of a balanced growth model, and they manifest themselves in that trade deficits and surpluses. This is what I’m saying as an economist.
Now, of course, from a politician’s perspective, there are other arguments for why they would point to it. What we have seen historically over and over again is that whenever you had these increases in these deficits and surpluses, you’ve had trade wars or calls for protectionism. That’s what happened during Reagan’s time, 1980s. That’s what led to the Plaza Accord and then all the adjustments that followed after that.
Then you also do worry about the possibility of crises. The Great Financial Crisis was preceded by growing imbalances. There was a sense in which all this big savings glut. All this money flushing around. All these large surpluses and deficits were part of the problem. Now I would say where we are now in this third wave of concern about imbalances.
To be clear, it’s not the imbalance itself. As an economist, I would say that it’s not the imbalance in itself. You don’t wake up and say, “This is what I’m trying to prevent. I’m trying to prevent us from having a deficit. I want us to have balanced trade.” I think that’s bad economics.
COWEN: Say China is channeling what would have been wage income into investment, and that’s plausibly the case. Now, it may be politically unstable in the sense that we Americans object to it, but that’s not an argument per se, right? We have a choice as to whether or not we should object to it. It doesn’t seem that rigorous to say, well, this will cause another financial crisis like 2008. There’s just not real evidence for that. Scott Sumner would say, “Let’s just be happy we have cheaper goods. We send them paper. We get back stuff and go our merry way.” Why is that wrong?
GOPINATH: A few things. Firstly, I could go into these differences between trade deficits and surpluses versus what I would call sectoral imbalances, or the fact that China’s running a big manufacturing surplus, which is different from a trade surplus itself, or that it has big EV production. What we do recognize, again, is that we do a pretty bad job in moving or helping workers that have lost their jobs in certain sectors.
COWEN: We’re at full employment now or very close to it.
GOPINATH: Again, we’re at full employment right now, but we’ve had this period of time when we had communities that were deeply affected by—not just trade—automation was a big part of it too. We don’t do a great job in terms of getting people back into jobs, and that can affect, depending upon your ideal welfare function for the country, if you care a lot about those people, then obviously in that case, that’s something that should matter in your policy decisions.
In the case of China, I would say firstly that, in both the case of the US and China, we’re very far from the world where countries are doing good policies, and this is all about comparative advantage, and this is all about this would be the outcome we would have in a world where every country was doing the right policy. We’re very far from that.
China’s surpluses are a reflection of things going wrong in China. It’s not a reflection of strength in China. It’s a reflection of weak consumption. It’s a reflection of misallocated resources going into different sectors. They did that with their property markets. Now they have a huge property market problem that they haven’t been able to fix in five years. They have this now with other markets, including EVs and the other sectors. They have the problem with inflation being too low.
They’re trying to do so called anti-involution policies, bringing companies together and telling them, “You’ve got to keep prices higher than what you’re doing right now.” This is not the world where they’re playing good policies, and this is all comparative advantage, and this is the outcome that we see. I wouldn’t push the argument that this is, “Oh, we should be just happier with cheaper goods from China.”
Economics throughout…
From the Master of Industrial Organization
Believing that AI will be incorrigible leads us to proposing the wrong solutions, including ones which are likely to increase the danger than decrease it. I think that an AI pause is using the wrong method to fix an ill-posed problem. The point of a pause would be to research AI until we have a deep enough theoretical understanding as to predict what an AI will do. I think this goal will always elude us. I cannot conceive of what this deep theoretical understanding would look like; I don’t think anyone actually does. It’s a call for a stop, not a pause.
The world would not stand still, though. The companies far behind the frontier now would doubtless learn more about what it is that the frontier AI companies are doing. If cooperation were to break down, we would have restarted the race with many more competitors. This is no improvement.
Optimal liability for offensive and defensive AI
How much liability should AI providers bear when their services enable both attack and defence? Liability can improve welfare while increasing harm. Providers sell a common input to productive users, attackers and defenders. Within a defended contest, a higher common price reduces effort without changing attack success or attacker profits, saving resources and improving the target’s security payoff. Compensation weakens defence and raises attacker profits. Optimal liability balances these effects against productive exclusion. Greater competition can lower optimal liability; every such decline must end at an outcome retaining defence. With cybersecurity access fixed, monopoly can warrant partial liability but never full liability when provision is worthwhile. When guardrails preserving productive uses are available, strong competition favours universal guarding socially but encourages unilateral removal at insufficient liability. At a fixed provider count, sufficiently many productive users ensure a pure equilibrium with universal guarding under high liability. A universal-guarding requirement makes liability redundant. Under monopoly, adoption follows a unique liability threshold, while zero liability remains uniquely optimal for a range of parameters with sufficiently many productive users.
That is from a new paper by Joshua Gans.
Wednesday assorted links
2. Guatemala update.
3. Tech-utopian project coming in Uruguay?
5. Do stock buybacks bring harm?
6. How AI competition works in China.
7. Economist column on AI risk and shorting the market (hint: ask the AGI what to do! And of course asset prices fall along the way).
The Price of Intelligence is Falling Rapidly
An amazing Epoch AI report from Emberson and Roodman:
- Over the past three years, the cost of a given level of AI performance has fallen an average of some 47% per quarter. That is a 13-fold drop every year – a faster rate than any other transformative technology in history.
To give an example, OpenAI o3 cost about $0.30/question to attain 75% on GPQA Diamond in January 2025, while GPT-5.6 Luna attained roughly the same score for $0.0004 in mid-2026—a roughly 725-fold decline in under 18 months.
Thus, it’s not just that the models are getting smarter. A given level of intelligence is also requiring dramatically less inference expenditure. This is one reason the open-model threat is not as large as it appears: frontier models don’t merely outperform older models; they are rapidly becoming cheaper to run at any given level of performance. Smarter and cheaper.
What I’ve been reading
1. Constance Reid, Hilbert. We should all be reading more mathematics these days, right? Because the field is “on fire.” Hilbert is not a bad place to start, and I found this book clear and biographical in a good way. It is less on the math and more closely tied to broader German history. Soon to come is Jeremy J. Gray, The Hilbert Challenge.
2. Ben Buchanan and Tantum Collins, The Bitter Struggle: Superintelligence, Superpowers, and the Fate of the World. This will become the standard source on the history of chip bans, the surrounding technological developments, and chip and AI policy under the Biden administration. Written by the people who were there.
3. Jeanna Smialek, The Invisible Hand of Maria Edgeworth: How a Nineteenth-Century Novelist Taught the World Economics. Maria Edgeworth was an Anglo-Irish writer and novelist, Castle Rackrent being my favorite book by her. This study of her work is excellent and much-needed.
4. Anton Jäger Hyperpolitics: Extreme Politicization without Political Consequences. I am sorry, but this book just isn’t very good. The title and subtitle are spot on, but the author just does not have enough accurate factual knowledge about the world.
5. Robert Alter, The Language of Fiction: The Craft of Writing and the Pleasures of Reading. A wonderful short take on why reading fiction is so worthwhile. As one might expect, Alter has exquisite taste. The last two pages of the work are marred by some not very good comments about LLMs, but overall this is excellent.
There is Ed Conway, Trade World: The Ties that Bound Our Past and May Unravel Our Future.
Owen Zidar and Eric Zwick, The Everywhere Millionaire: Who is Really Rich in America and How They Got There. Not a b.s. whiner sort of book, based on real data and written by real economists.
Matthew Botvinick, AI & Political Freedom: The Risk to Democracy and How to Respond, contains plenty of analysis and social science. The author is now with Anthropic.
And Branko Milanovic, The Great Global Transformation: The United States, China, and the Remaking of the World Economic Order. I find his concept of National Market Liberalism useful.