Category: Economics
The Research Behavior of Individual Investors
Browser data from an approximately representative sample of individual investors offers a detailed account of their search for information, including how much time they spend on stock research, which stocks they research, what categories of information they seek, and when they gather information relative to events and trades. The median individual investor spends approximately six minutes on research per trade on traded tickers, mostly just before the trade; the mean spends around half an hour. Individual investors spend the most time reviewing price charts, followed by analyst opinions, and exhibit little interest in traditional risk statistics. Aggregate research interest is highly correlated with stock size, and salient news and earnings announcements draw more attention. Individual investors have different research styles, and those that focus on short-term information are more likely to trade more speculative stocks.
That is from a new NBER working paper by Toomas Laarits and Jeffrey Wurgler.
Sell Floyd Bennett Field!
I’ve been shouting Sell! for many years. Perhaps now is the chance to do it. Here’s a recap:
The Federal Government owns more than half of Oregon, Utah, Nevada, Idaho and Alaska and it owns nearly half of California, Arizona, New Mexico and Wyoming. See the map (PDF) for more [N.B. the vast majority of this land is NOT parks, AT 2011]. It is time for a sale. Selling even some western land could raise hundreds of billions of dollars – perhaps trillions of dollars – for the Federal government at a time when the funds are badly needed and no one want to raise taxes. At the same time, a sale of western land would improve the efficiency of land allocation.
But it’s not just federal lands in the West. Floyd Bennett Field is an old military airport in Brooklyn that hasn’t been used much since the 1970s. Today, it’s literally used as a training ground for sanitation drivers and to occasionally host radio-controlled airplane hobbyists.
In August 2023, state and federal officials reached an agreement to build a large shelter for migrants at Floyd Bennett Field, amid a citywide migrant housing crisis caused by a sharp increase in the number of asylum seekers traveling to the city. The shelter opened that November, but its remote location deterred many migrants. City officials announced plans in December 2024 to close the shelter.
Floyd Bennett Field is over 1000 acres and should be immediately sold to the highest bidder.
Brad Hargreaves on twitter has a good thread with some more examples.
Addendum: Here’s a NPR article (!) from 10 years ago that I am sure still applies even if not in all details:
Government estimates suggest there may be 77,000 empty or underutilized buildings across the country. Taxpayers own them, and even vacant, they’re expensive. The Office of Management and Budget believes these buildings could be costing taxpayers $1.7 billion a year.
…But doing something with these buildings is a complicated job. It turns out that the federal government does not know what it owns.
…even when an agency knows it has a building it would like to sell, bureaucratic hurdles limit it from doing so. No federal agency can sell anything unless it’s uncontaminated, asbestos-free and environmentally safe. Those are expensive fixes.
Then the agency has to make sure another one doesn’t want it. Then state and local governments get a crack at it, then nonprofits — and finally, a 25-year-old law requires the government to see if it could be used as a homeless shelter.
Many agencies just lock the doors and say forget it.
Consistency on taxes and tariffs
Peter Navarro is arguing that the pending tariffs will raise $600 billion a year, which might make them the biggest tax increase in U.S: history. I am completely against this! And for reasons I (and Alex) have explained over the years in dozens of MR posts.
I would like to point out one thing, however, in the interests of consistency. If you too are against the tariffs, and arguing they will raise prices by a noticeable amount, that also means you think most of the tariff will not primarily fall on foreign producers.
In light of that, you might wish to reevaluate your stance on the domestic corporate income tax. Perhaps quite a bit of that tax also does not fall on producers, due to competitive forces.
To be sure, the two cases are not identical. The tariff to some extent hits foreign sellers, while the corporate income tax is applied domestically. (If anything, aren’t relatively large, exporting firms more likely to have some market power?) And the structures of how the two taxes are assessed differ. Nonetheless elasticities of supply, demand, and factor mobility usually are the dominant factors in calculating tax incidence, regardless of the details of the tax.
Perhaps those differences between tariffs and corporate taxes all work out so that you can hold the exact mix of position you wish to! And perhaps you figured all this out in advance, and so this post is not inducing any new thoughts in you.
Or perhaps not.
Peter Marks Forced Out at FDA
Peter Marks was key to President Trump’s greatest first-term achievement: Operation Warp Speed. In an emergency, he pushed the FDA to move faster—against every cultural and institutional incentive to go slow. He fought the system and won.
I had some hope that FDA commissioner Marty Makary would team with Marks at CBER. Makary understands that the FDA moves too slowly. He wrote in 2021:
COVID has given us a clear-eyed look at a broken Food and Drug Administration that’s mired in politics and red tape.
Americans can now see why medical advances often move at turtle speed. We need fresh leadership at the FDA to change the culture at the agency and promote scientific advancement, not hinder it.
This starts at the top. Our public health leaders have become too be accepting of the bureaucratic processes that would outrage a fresh eye. For example, last week the antiviral pill Molnupiravir was found to cut COVID hospitalizations in half and, remarkably, no one who got the drug died.
The irony is that Molnupiravir was developed a year ago. Do the math on the number of lives that could have been saved if health officials would have moved fast, allowing rolling trials with an evaluation of each infection and adverse event in real-time. Instead, we have a process that resembles a 7-part college application for each of the phase 1, 2, and 3 clinical trials.
A Makary-Marks team could have moved the FDA in a very promising direction. Unfortunately, disputes with RFK Jr proved too much. Marks was especially and deservedly outraged by the measles outbreak and the attempt to promote vitamins over vaccines:
“It has become clear that truth and transparency are not desired by the Secretary, but rather he wishes subservient confirmation of his misinformation and lies,” Marks wrote in a resignation letter referring to HHS Secretary Robert F. Kennedy Jr.
Thus, as of now, the FDA is moving in the wrong direction and Makary has lost an ally against RFK.
In other news, the firing of FDA staff is slowing down approvals, as I predicted it would.
Is Mexico falling into recession?
Mexico’s economy is slowing sharply and will soon fall into recession, several economists predict, as Donald Trump’s changing tariff plans cast uncertainty over the relationship with its largest trading partner.
Mexico is one of the countries most vulnerable to the US president’s drive to reshore investment and close trade deficits. The country’s economy was already fragile, with the government cutting spending due to a gaping budget deficit and investors spooked by its radical judicial reforms.
Mexico’s GDP shrank 0.6 per cent in the fourth quarter of last year from the previous three months, while economic activity fell 0.2 per cent in January.
The central bank cut its key interest rate by 50 basis points on Thursday, warning that the economy would show weakness in the first quarter and that trade tensions posed “significant downward risks”.
Here is more from the FT.
Stripe economics of AI fellowship
The economics of AI remains surprisingly understudied, even as technical progress in artificial intelligence continues rapidly. The Stripe Economics of AI Fellowship aims to help fill that gap by supporting foundational academic research in the area.
We invite graduate students and early-career researchers who are interested in studying the economics of AI to apply, regardless of prior experience. Fellows receive a grant of at least $10k, participate in conferences with leading economists and technologists, and have the potential to access unique data via Stripe and its customers. Our initial cohort will include 15-20 fellows, and will form the foundation of a community at the bleeding edge of economic research.
The link has further information, here is the tweet thread from the excellent Basil Halperin.
Is a VAT an export subsidy?
Here is a good post by Brian Albrecht, he works through the logic. A VAT, properly understood, does not favor say European producers over American producers. Work through his example if you don’t see this right away. In this sense the pro-tariff “fairness” arguments are quite wrong. Yet I am not entirely convinced by the rebuttals. If you compare “the European expoter market position” to “the American exporter market position” it is correct that parity of treatment holds.
But there is another way to pose the question and that is “should the resources in the EU be allocated toward export, or not?” And then exports are VAT-free, and within-EU sales generally are not VAT-free. So there is an encouragement to exports here. America has sales taxes, but VAT rates usually are higher. Thus you can say that Europe does more to encourage exporters than does the United States. Of course you can say the same about many other European government interventions. Germany’s notorious Sunday closing laws also encourage more exports. Send it to the US, and let it be sold on a Sunday, bitte! (Just not in Paramus, NJ.)
From an American point of view, I don’t think anything is wrong with this kind of “export subsidy” (and that is not how I would describe it in a first-order sense, but we are steelmanning here). We get more German goods because they keep their shops closed on Sundays. Good for us, Alex nails the bottom line. Note that every time we liberalize and improve some part of the American economy, the “net European subsidy to exports” goes up. We want to keep on doing that, not its opposite.
It perhaps would be helpful if the people on the free trade side of the debate recognized this point a little more explicitly.
Where do stock market returns come from?
Here is a new and sure to be controversial piece from the JPE:
Why does the stock market rise and fall? From 1989 to 2017, the real per capita value of corporate equity increased at a 7.2% annual rate. We estimate that 40% of this increase was attributable to a reallocation of rewards to shareholders in a decelerating economy, primarily at the expense of labor compensation. Economic growth accounted for just 25% of the increase, followed by a lower risk price (21%) and lower interest rates (14%). The period 1952–88 experienced only one-third as much growth in market equity, but economic growth accounted for more than 100% of it.
That is by Daniel L. Greenwald, Martin Leftau, and Sydney C. Ludvigson. Of course in more recent times it is tech stocks that have done very well, and they also tend to elevate pay standards.
The Madmen and the AIs
In Collaborating with AI Agents: Field Experiments on Teamwork, Productivity, and Performance Harang Ju and Sinan Aral (both at MIT) paired humans and AIs in a set of marketing tasks to generate some 11,138 ads for a large think tank. The basic story is that working with the AIs increased productivity substantially. Important, but not surprising. But here is where it gets wild:
[W]e manipulated the Big Five personality traits for each AI, independently setting them to high or low levels using P2 prompting (Jiang et al., 2023). This allows us to systematically investigate how AI personality traits influence collaborative work and whether there is heterogeneity in their effects based on the personality traits of the human collaborators, as measured through a pre-task survey.
In other words, they created AIs which were high and low on the “big 5” OCEAN metrics, Openness, Conscientiousness, Extraversion, Agreeableness and Neuroticism and then they paired the different AIs with humans who were also rated on the big-5.
The results were quite amusing. For example, a neurotic AI tended to make a lot more copy edits unless paired with an agreeable human.
AI Alex: What do you think of this edit I made to the copy? Do you think it is any good?
Agreeable Alex: It’s great!
AI Alex: Really? Do you want me to try something else?
Agreeable Alex: Nah, let’s go with it!
AI Alex: Ok. 🙂
Similarly, if a highly conscientiousness AI and a highly conscientiousness human were paired together they exchanged a lot more messages.
It’s hard to generalize from one study to know exactly which AI-human teams will work best but we all know some teams just work better–every team needs a booster and a sceptic, for example– and the fact that we can manipulate AI personalities to match them with humans and even change the AI personalities over time suggests that AIs can improve productivity in ways going beyond the ability of the AI to complete a task.
Hat tip: John Horton.
Why LLMs are so good at economics
I can think of a few reasons:
At least for the time being, even very good LLMs cannot be counted on for originality. And at least for the time being, good economic reasoning does not require originality, quite the contrary.
Good chains of reasoning in economics are not too long and complicated. If they run on for very long, there is probably something wrong with the argument. The length of these effective reasoning chains is well within the abilities of the top LLMs today.
Plenty of good economics requires a synthesis of theoretical and empirical considerations. LLMs are especially good at synthesis.
In economic arguments and explanations, there are very often multiple factors. LLMs are very good at listing multiple factors, sometimes they are “too good” at it, “aargh! not another list, bitte…”
Economics journal articles are fairly high in quality and they are generally consistent with each other, being based on some common ideas such as demand curves, opportunity costs, gains from trade, and so on. Odds are that a good LLM has been trained “on the right stuff.”
A lot of core economics ideas are “hard to see from scratch,” but “easy to grasp once you see them.” This too plays to the strength of the models as strong digesters of content.
And so quality LLMs will be better at economics than many other fields of investigation.
Rethinking regulatory fragmentation
Regulatory fragmentation occurs when multiple federal agencies oversee a single issue. Using the full text of the Federal Register, the government’s official daily publication, we provide the first systematic evidence on the extent and costs of regulatory fragmentation. Fragmentation increases the firm’s costs while lowering its productivity, profitability, and growth. Moreover, it deters entry into an industry and increases the propensity of small firms to exit. These effects arise from redundancy and, more prominently, from inconsistencies between government agencies. Our results uncover a new source of regulatory burden, and we show that agency costs among regulators contribute to this burden.
That is from a new paper by Joseph Kalmenovitz, Michelle Lowry, and Ekaterina Volkova, forthcoming in Journal of Finance. Via the excellent Kevin Lewis.
Argentina’s DOGE
Cato has a good summary of Deregulation in Argentina:
- The end of Argentina’s extensive rent controls has resulted in a tripling of the supply of rental apartments in Buenos Aires and a 30 percent drop in price.
- The new open-skies policy and the permission for small airplane owners to provide transportation services within Argentina has led to an increase in the number of airline services and routes operating within (and to and from) the country.
- Permitting Starlink and other companies to provide satellite internet services has given connectivity to large swaths of Argentina that had no such connection previously. Anecdotal evidence from a town in the remote northwestern province of Jujuy implies a 90 percent drop in the price of connectivity.
- The government repealed the “Buy Argentina” law similar to “Buy American” laws, and it repealed laws that required stores to stock their shelves according to specific rules governing which products, by which companies and which nationalities, could be displayed in which order and in which proportions.
- Over-the-counter medicines can now be sold not just by pharmacies but by other businesses as well. This has resulted in online sales and price drops.
- The elimination of an import-licensing scheme has led to a 20 percent drop in the price of clothing items and a 35 percent drop in the price of home appliances.
- The government ended the requirement that public employees purchase flights on the more expensive state airline and that other airlines cannot park their airplanes overnight at one of the main airports in Buenos Aires.
- In January, Sturzenegger announced a “revolutionary deregulation” of the export and import of food. All food that has been certified by countries with high sanitary standards can now be imported without further approval from, or registration with, the Argentine state. Food exports must now comply only with the regulations of the destination country and are unencumbered by domestic regulations.
Needless to say, America’s DOGE could learn something from Argentina:
Milei’s task of turning Argentina once again into one of the freest and most prosperous countries in the world is herculean. But deregulation plays a key role in achieving that goal, and despite the reform agenda being far from complete, Milei has already exceeded most people’s expectations. His deregulations are cutting costs, increasing economic freedom, reducing opportunities for corruption, stimulating growth, and helping to overturn a failed and corrupt political system. Because of the scope, method, and extent of its deregulations, Argentina is setting an example for an overregulated world.
What should I ask Ken Rogoff?
Yes I will be doing a Conversation with him. He has a new book coming out, namely
Ken is tenured at Harvard, here is his Wikipedia page, here is Ken on scholar.google.com, here is o1 pro on Rogoff, and he also holds the title of chess grandmaster.
What Follows from Lab Leak?
Does it matter whether SARS-CoV-2 leaked from a lab in Wuhan or had natural zoonotic origins? I think on the margin it does matter.
First, and most importantly, the higher the probability that SARS-CoV-2 leaked from a lab the higher the probability we should expect another pandemic.* Research at Wuhan was not especially unusual or high-tech. Modifying viruses such as coronaviruses (e.g., inserting spike proteins, adapting receptor-binding domains) is common practice in virology research and gain-of-function experiments with viruses have been widely conducted. Thus, manufacturing a virus capable of killing ~20 million human beings or more is well within the capability of say ~500-1000 labs worldwide. The number of such labs is growing in number and such research is becoming less costly and easier to conduct. Thus, lab-leak means the risks are larger than we thought and increasing.
A higher probability of a pandemic raises the value of many ideas that I and others have discussed such as worldwide wastewater surveillance, developing vaccine libraries and keeping vaccine production lines warm so that we could be ready to go with a new vaccine within 100 days. I want to focus, however, on what new ideas are suggested by lab-leak. Among these are the following.
Given the risks, a “Biological IAEA” with similar authority as the International Atomic Energy Agency to conduct unannounced inspections at high-containment labs does not seem outlandish. (Indeed the Bulletin of Atomic Scientists are about the only people to have begun to study the issue of pandemic lab risk.) Under the Biological Weapons Convention such authority already exists but it has never been used for inspections–mostly because of opposition by the United States–and because the meaning of biological weapon is unclear, as pretty much everything can be considered dual use. Notice, however, that nuclear weapons have killed ~200,000 people while accidental lab leak has probably killed tens of millions of people. (And COVID is not the only example of deadly lab leak.) Thus, we should consider revising the Biological Weapons Convention to something like a Biological Dangers Convention.
BSL3 and especially BSL4 safety procedures are very rigorous, thus the issue is not primarily that we need more regulation of these labs but rather to make sure that high-risk research isn’t conducted under weaker conditions. Gain of function research of viruses with pandemic potential (e.g. those with potential aerosol transmissibility) should be considered high-risk and only conducted when it passes a review and is done under BSL3 or BSL4 conditions. Making this credible may not be that difficult because most scientists want to publish. Thus, journals should require documentation of biosafety practices as part of manuscript submission and no journal should publish research that was done under inappropriate conditions. A coordinated approach among major journals (e.g., Nature, Science, Cell, Lancet) and funders (e.g. NIH, Wellcome Trust) can make this credible.
I’m more regulation-averse than most, and tradeoffs exist, but COVID-19’s global economic cost—estimated in the tens of trillions—so vastly outweighs the comparatively minor cost of upgrading global BSL-2 labs and improving monitoring that there is clear room for making everyone safer without compromising research. Incredibly, five years after the crisis and there has be no change in biosafety regulation, none. That seems crazy.
Many people convinced of lab leak instinctively gravitate toward blame and reparations, which is understandable but not necessarily productive. Blame provokes defensiveness, leading individuals and institutions to obscure evidence and reject accountability. Anesthesiologists and physicians have leaned towards a less-punitive, systems-oriented approach. Instead of assigning blame, they focus in Morbidity and Mortality Conferences on openly analyzing mistakes, sharing knowledge, and redesigning procedures to prevent future harm. This method encourages candid reporting and learning. At its best a systems approach transforms mistakes into opportunities for widespread improvement.
If we can move research up from BSL2 to BSL3 and BSL4 labs we can also do relatively simple things to decrease the risks coming from those labs. For example, let’s not put BSL4 labs in major population centers or in the middle of a hurricane prone regions. We can also, for example, investigate which biosafety procedures are most effective and increase research into safer alternatives—such as surrogate or simulation systems—to reduce reliance on replication-competent pathogens.
The good news is that improving biosafety is highly tractable. The number of labs, researchers, and institutions involved is relatively small, making targeted reforms feasible. Both the United States and China were deeply involved in research at the Wuhan Institute of Virology, suggesting at least the possibility of cooperation—however remote it may seem right now.
Shared risk could be the basis for shared responsibility.
Bayesian addendum *: A higher probability of a lab-leak should also reduce the probability of zoonotic origin but the latter is an already known risk and COVID doesn’t add much to our prior while the former is new and so the net probability is positive. In other words, the discovery of a relatively new source of risk increases our estimate of total risk.
Wind turbines lower Danish real estate prices
We analyze the impact of wind turbines on house prices, distinguishing between effects of proximity and shadow flicker from rotor blades covering the sun. By utilizing data from 2.4 million house transactions and 6,878 wind turbines in Denmark, we can control for house fixed effects in our estimation. Our results suggest strong negative impacts on house prices, with reductions of up to 12 percent for modern giant turbines. Homes affected by shadow flicker experience an additional decrease in value of 8.1 percent. Our findings suggest a nuanced perspective on the local externalities of wind turbines regarding size and relative location.
Here is the full paper by Carsten Andersen and Timo Hener, via the excellent Kevin Lewis. I rather like how they look, and would gladly buy a home near some, if only for the scenery. Though I would rather have a nearby gas station instead?