Category: Economics
How Restrictive is U.S. Trade Policy?
This short note computes Trade Restrictiveness Index measures for current U.S. trade policy. Building on the ideas of Anderson and Neary (1996, 2005), the Trade Restrictiveness Index is the uniform tariff that leaves the U.S. consumer as well off as under actual policy. As of October 2025, U.S. trade policy is twice as restrictive as headline tariff numbers suggest. The Trade Restrictiveness Index is 23 percent, which stands in contrast to the 11 percent average tariff rate. Trade policy towards Canada and Mexico is two to three times more restrictive than average tariff rates suggest. Sectoral analysis shows that the restrictiveness is concentrated in vehicles, machinery, and electrical equipment.
That is from Michael E. Waugh.
Sectoral shifts in supply, wartime agriculture edition
It is all the more remarkable, then, that within six years Britain’s agricultural output had transformed, more profoundly and at a faster pace than any time since the start of the Industrial Revolution. The most urgent need was to provide a substitute for all that previously imported foreign wheat. In 1939, Britain only had 11.8 million acres of suitable land under the plough, compared to 17.3 million acres of grass and pastureland. Four years later those figures had been almost exactly reversed — to 17.3 million and 11.4 million acres respectively. The amount of tillage soil devoted to wheat had doubled. Just over 4.2 million harvested tons of wheat, barley and oats had become 7.6 million tons. By 1943 the potato crop was almost twice as big as it had been in 1939. Less pastureland meant fewer animals, and so a veritable massacre on pork and poultry farms ensued. By 1943 there were almost 30 million fewer British chickens and 2.2 million fewer pigs than pre-war numbers. Cows were spared — but strictly for milk production, not beef.
That is from the new and excellent book by Alan Allport, Advance Britannia: The Epic Story of the Second World War, 1942-1945.
Measuring Efficiency and Equity Framing in Economics Research
Using LLMs:
We measure how frontier research frames what is normatively at stake along the efficiency and equity dimension. We develop and validate an LLM-based measurement pipeline and apply it to 27,464 full-text journal articles from 1950 to 2021. Efficiency focused framing rises through the late 1980s, then declines as equity related framing expands after 1990, especially in applied work and policy evaluations. By 2021, papers with an equity component are about as common as papers framed purely around efficiency. President transmittal letters in the Economic Report of the President show a similar post 1990 shift toward equity, providing an external benchmark.
Here is the new NBER working paper by . I take this to be a sign of radical decline in the quality of our profession. I am all for welfare economics considering values other than efficiency. How about liberty, opportunity, and merit? Actual people, especially Americans, care about those too. The longstanding focus on equity as the relevant alternative to efficiency is one of the most blatant politicizations of economic research you will find. Most people doing it are not even aware of that, they simply take for granted that is the relevant trade-off.
Podcast with Salvador Duarte
Salvador is 17, and is an EV winner from Portugal. Here is the transcript. Here is the list of discussed topics:
0:00 – We’re discovering talent quicker than ever 5:14 – Being in San Francisco is more important than ever 8:01 – There is such a thing like a winning organization 11:43 – Talent and conformity on startup and big businesses 19:17 – Giving money to poor people vs talented people 22:18 – EA is fragmenting 25:44 – Longtermism and existential risks 33:24 – Religious conformity is weaker than secular conformity 36:38 – GMU Econ professors religious beliefs 39:34 – The west would be better off with more religion 43:05 – What makes you a philosopher 45:25 – CEOs are becoming more generalists 49:06 – Traveling and eating 53:25 – Technology drives the growth of government? 56:08 – Blogging and writing 58:18 – Takes on @Aella_Girl, @slatestarcodex, @Noahpinion, @mattyglesias, , @tszzl, @razibkhan, @RichardHanania, @SamoBurja, @TheZvi and more 1:02:51 – The future of Portugal 1:06:27 – New aesthetics program with @patrickc.
Self-recommending, here is Salvador’s podcast and Substack more generally.
When did Argentina lose its way?
From a new paper by Ariel Coremberg and Emilio Ocampo:
This paper challenges the increasingly popular view that Argentina’s economy performed relatively well under the corporatist import substitution industrialization (CISI) regime until the mid-1970s, and that its much-debated decline began only after 1975. Instead, it advances the alternative hypothesis that although real GDP per capita growth during this period was high by Argentina’s historical standards, it was low relative to the rest of the world, to typical comparator countries, and to what was achievable given the country’s factor endowments and investment levels. Distortions in relative prices and systemic capital misallocation generated significant inefficiencies that constrained economic dynamism and limited productivity gains. We support this hypothesis using a range of empirical methodologies—including comparative GDP per capita ratios, convergence analysis, growth accounting, and cyclical peak-to-peak analysis— complemented by historical interpretation. Although post-1955 modifications to the CISI regime temporarily improved performance, by the early 1970s it had exhausted its capacity to sustain growth. The prolonged stagnation that followed the 1975 crisis can be explained by the inability of successive governments to overcome the resistance of entrenched interest groups and thus complete the transition to an open market economy. Abrupt regime reversals fostered social conflict, political instability, and macroeconomic uncertainty, all of which undermined the sustained productivity gains required for long-term growth.
Via the excellent Samir Varma.
The share of factor income paid to computers
Via Kevin Bryan.
Why are groceries so expensive in NYC?
The lowest-hanging fruit is to simply legalize selling groceries in more of the city. The most egregious planning barrier is that grocery stores over 10,000 square feet are not generally allowed as-of-right in so-called “M” districts, which are the easiest places to find sites large enough to accommodate the large stores that national grocers are used to. Many of these districts are mapped in places that are not what people have in mind when they think “industrial” — mixed-use neighborhoods with lots of housing like stretches of Williamsburg’s Bedford Avenue and almost all of Gowanus, even post-rezoning, are in fact mapped as industrial districts.
To open a full-sized grocery store in these areas, a developer must seek a “special permit,” which requires the full City Council to get together and vote for an exception to the rules. This is a long, uncertain process, and has in the past even been an invitation to corruption.
Most famously, the City Council uses this power to keep out Walmart at the behest of unions and community groups. Thwarted in its plans to open a store in East New York — a low-income Brooklyn neighborhood that could desperately use more grocery options — the nation’s largest grocer instead serves New Yorkers with a store just beyond the Queens/Nassau line in Valley Stream, rumored to be the busiest Walmart in the country. New Yorkers with a car and the willingness to schlep beyond city limits — or pay the Instacart premium — get access to cheaper groceries; the rest get locked out.
When politicians are willing to approve a grocery store, the price can be high.
That is by Stephen Smith, via Josh Barro.
Michelle Tandler on NYC rent control
This is what I’m seeing: + 2.4 million rent-controlled apartments in a city with a massive housing shortage and 1.4% vacancy rate.
+ A huge % of these tenants are wealthy, white boomers using the units as pieds-a-terres while they spend their weekends and summers elsewhere.
+ Meanwhile, the government is using rent control to purposely drive down the value of multifamily housing, so that it can be purchased in a fire sale by the government.
+ The small-time landlords with big rent rolls of “stabilized” units are going under. Their portfolios end up in the arms of PE and foreign money (how are Progressives okay with this?) The banks will get hit by this too.
+ Because there is such a reduction in supply (~40% of units are price-controlled), leftover supply is ~33% more expensive + Because NYC gov is not friendly towards landlords, there is a lack of development –> even less supply
+ Rich and homeowners overwhelmingly support these laws b/c it drives up the value of their condos & co-ops (less supply –> higher prices for condos)
+ Big PE companies like these policies b/c they can buy buildings in fire sales and wait for rent control reform (5-10 years out)
+ Meanwhile – ~2.4 million units are rotting and won’t be brought up to code as tenants leave b/c the numbers don’t pencil –> 50k “ghost apartments” padlocked off market now, maybe 100k soon
+ Gen Z and the working class continue to vote for these policies, hoping they will be among the lucky few to win the lottery ticket of a rent-controlled apartment
+ Meanwhile, boomers hang onto their units and pass them to their children, family members, etc. –> NYC’s housing stock is rotting slowly, going offline, and becoming more expensive
Here is the link. Thoughts to ponder, whether or not you believe in all of those steps. Here is some Maryland data, not sophisticated econometrics.
AI Physicians At Last
In 2004 (!) I wrote:
Many people complain that medicine is too impersonal. I think it is not impersonal enough. I have nothing against my physician (a local magazine says he is one of the best in the area) but I would prefer to be diagnosed by a computer. A typical physician spends most of the day playing twenty questions. Where does it hurt? Do you have a cough? How high is the patient’s blood pressure? But an expert system can play twenty questions better than most people. An expert system can use the best knowledge in the field, it can stay current with the journals, and it never forgets.
It took longer than it should have, but we are finally here. Today, most people already use AI to help diagnose and manage medical conditions, and now:
Utah is letting artificial intelligence — not a doctor — renew certain medical prescriptions. No human involved.
It’s a pilot program for routine renewals but a welcome start. The AMA, of course, is not pleased.
In a statement, Dr. John Whyte, CEO and executive vice president at the American Medical Association, said: “While AI has limitless opportunity to transform medicine for the better, without physician input it also poses serious risks to patients and physicians alike.”
One concern is misuse or abuse, including the possibility that people struggling with addiction could try to game automated systems to obtain drugs inappropriately. Another concern is missing subtle clinical red flags or drug interactions that a doctor would catch.
It’s amazing that anyone can say these things with a straight face. As far as I know, AI has never run a pill mill, unlike human physicians. And the AI
“missing subtle clinical red flags or drug interactions that a doctor would catch.” Is this a joke?
Thomas Sargent is a wise man
The protests began on December 28, initially led by traders and business owners who took to the streets against the rapidly weakening economy, soaring inflation, and the sharp fall in the rial’s value. The currency’s decline has been dramatic: against the Indian rupee, the rial is now valued at just 0.000091 paise, while against the US dollar it has fallen to around 0.0000010 cents.
Most strikingly, the rial’s value against the euro has dropped to zero, meaning it is no longer accepted or exchangeable in any of the 27 European Union countries.
Five Key Drivers Behind the Rial’s Freefall
- US and International Sanctions: Restricting access to dollars from exports, especially oil, has intensified pressure on the rial.
- Hyperinflation: Consumer prices rose by 42.5% in December 2025, forcing citizens to seek foreign currencies, gold, or essentials instead of holding cash.
- Weak Economic Growth: Iran’s GDP contracted by 1.7% in 2025, with further shrinkage projected in 2026, limiting government revenue and fiscal stability.
- Policy Changes: Recent reforms requiring importers to purchase foreign currency at open-market rates increased demand for dollars overnight.
- Political Unrest: Ongoing protests against clerical leadership and economic mismanagement have added a “risk premium,” accelerating currency depreciation.
Here is the full story. And that was before what appears to be, as I am writing this post earlier in the evening, the air attack on Iran [now called off, for the time being at least].
Negative political externalities from migration to Britain?
Following up on my recent post, which suggested less skilled immigration into the UK has not been a disaster, the question has been raised about long-term negative political externalities. Will not migrants enter the country and make electoral outcomes worse? I would offer a few points in response:
1. If this is the argument, one needs to admit that immigration has gone well enough in the UK to date. This argument is about the future, not the past.
2. The UK has indeed had a variety of poor leaders as of late. It is very difficult to hold immigrants responsible for them, mostly it is the native white Brits who have been at fault. You might not like how UK Muslims have shaped some of the Middle Eastern statements of Labour, but that is hardly a relevant factor behind the slowdown of the British economy, or of British gridlock.
3. There is a very real risk that Reform will win the next election and then implement bad economics policies, above and beyond whatever you think of their approach to immigration. But if that is the real fear, it would be good to limit their popularity by talking up the positive side of immigration. I am not suggesting that any of us should tell anything less than the full truth, but obviously there are many positive aspects of migration that even professional economists can get wrong. Does immigration mean “higher home prices” or “capital gains for domestic homeowners”? Well, both, but you hear much more about the former than the latter (even Gemini got that one wrong). Let’s redress the balance, and lower the risk of future bad economic policy while we are at it.
4. Sometimes immigration weakens the demand for welfare state transfers, since the immigrants are viewed as outsiders. In Britain, that would currently be a positive at current margins. I recognize that is by no means the only political effect, but in any case do not assume that all of the political externalities are negative.
Above all else, it is difficult to paint immigrants as major villains for Britain’s troubles so far. Just read through the original analysis again. It has not been seriously countermanded, and do most of their problems are indeed the fault of the white people.
That all said, I would readily admit, and indeed stress, that a better set of migration policies could have put Britain in a much better position than it is today.
A new economic model of AI and automation
Here is but one part of the results:
Given complementarity between the two sectors, the marginal returns to intelligence saturate, no matter how fast AI scales. Because the price of AI capital is falling much faster than that of physical capital, intelligence tasks are automated first, pushing human labor toward the physical sector. The impact of automation on wages is theoretically ambiguous and can be non-monotonic in the degree of automation. A necessary condition for automation to decrease wages is that the share of employment in the intelligence sector decreases; this condition is not sufficient because automation can raise output enough to offset negative reallocation effects. In our baseline simulation, wages increase and then decrease with automation.
That is from Konrad Kording and Ioana Elena Marinescu of the University of Pennsylvania. I am very glad to see ongoing progress in this area. Via the excellent Kevin Lewis.
Claims about AI productivity improvements
This paper derives “Scaling Laws for Economic Impacts”- empirical relationships between the training compute of Large Language Models (LLMs) and professional productivity. In a preregistered experiment, over 500 consultants, data analysts, and managers completed professional tasks using one of 13 LLMs. We find that each year of model progress reduced task time by 8%, with 56% of gains driven by increased compute and 44% by algorithmic progress. However, productivity gains were significantly larger for non-agentic analytical tasks compared to agentic workflows requiring tool use. These findings suggest continued model scaling could boost U.S. productivity by approximately 20% over the next decade.
That is from Ali Merali of Yale University.
The downside of NAFTA?
We study how NAFTA changed the geography of violence in Mexico. We propose that this open border policy increased trafficking profits of Mexican cartels, resulting in violent competition among them. We test this hypothesis by comparing changes in drug-related homicides after NAFTA’s introduction in 1994 across municipalities with and without drug-trafficking routes. Routes are predicted least cost paths connecting municipalities with a recent history of detected drug trafficking with U.S. land ports of entry. On these routes, homicides increase by 2.1 per 100,000 inhabitants, which is equivalent to 26% of the pre-NAFTA mean. These results cannot be explained by changes in worker’s opportunity costs of using violence resulting from the trade shock.
That is from a new JDE paper by Eduardo Hidalgo, Erik Horning, and Pablo Selaya. Via the excellent Kevin Lewis.
Chairman Powell’s Statement
Whether an independent Fed is desirable is beside the point. The core issue is lawfare: the strategic use of legal processes to intimidate, constrain, and punish institutional actors for political ends. Lawfare is the hallmark of a failing state because it erodes not just political independence, but the capacity for independent judgment.
What sort of people will work at the whim of another? The inevitable result is toadies and ideological loyalists heading complex institutions, rather than people chosen for their knowledge and experience.