Category: Uncategorized
Will AI save the U.S. fiscal situation?
A tenth of a percentage point of extra productivity growth — well within the range of plausible near-term AI effects — raises the fundamental value of U.S. government debt by $1.3 trillion. If markets fully priced this in, nominal Treasury yields would fall by about 70 basis points.
Half a percentage point of extra growth would raise the value of the debt by $6.5 trillion. For context: under the CBO baseline, the debt-to-GDP ratio rises from 100% today to 172% by 2055. Under the +0.5pp scenario, it stabilizes near 124%. Debt-to-GDP stops exploding. That is an enormous change in the fiscal outlook, and it comes from a rate of growth only modestly above the post-2000 average…
There is a second, subtler point. Because revenue scales as GDP^1.07, the fundamental value of the debt is a convex function of productivity growth. A +1pp growth shock raises value by 108%; a −1pp shock only lowers it by 87%.
That asymmetry means bondholders gain from uncertainty, not just from higher expected growth. If markets become more uncertain about AI’s long-run productivity impact, and that uncertainty is mean-preserving, Treasury valuations should still rise. Holding expected growth fixed, ±0.5pp of growth uncertainty is worth about $0.7 trillion in convexity value. Treasuries embed a long call option on AI, and the option is valuable even when the strike is out of the money.
Here is more from Hanno Lustig, with Howard Kung and James Paron. Here is the full paper. These are of course very important results, kudos to the authors. Via the excellent Samir Varma.
Saturday assorted links
2. Claude doing stand-up comedy, the video is AI too.
3. Thirty more lines from Empedocles have been found.
4. Latin America’s oil resurgence.
5. 25 dead at the Haitian Citadelle.
6. A paean to the earlier University of Chicago law school.
7. Can AI agents read a social science paper and write the code from scratch to reproduce its results?
More on Sir Thomas Gresham (from my email)
…Double-entry book-keeping – John and I believe, with some evidence, that he may well have been the person to bring double-entry book-keeping to the UK from the Low Countries. In turn an Italian invention of the 13th century…
Business exchanges rather than markets – Gresham certainly brought the idea of an exchange or bourse from Antwerp (in turn from Ghent) to England. It really was a radical idea. No phone directory, no advertising, no internet – we used to block of Cornhill with chains so merchants could meet at regular times in the mud and rain to establish ventures, principally voyages, and fund them. The Exchange became more and more populated as the Low Countries fought with Spain. People don’t bring money to a war zone (or a cybersecurity hazard). Thus, it was the vessel into which poured the extensive wealth of the Low Countries and turned London from an outback sheep town of 30,000 at the beginning of the 1500’s to a city of over 200,000 by 1600. Markets for cattle, sheep, produce, chickens, all existed – but a market for intangible things?
1st English Shopping Mall? – Gresham also brought the idea of a shopping mall to England. We have many examples of similar complexes and galleria from ancient times, but not in England. At the time it was the upper floor of his Exchange. The concept of shops not adhering to a physical locality – Bread Street, Milk Street, Boot street, etc. – was more radical than it sounds to modern ears. Amusing then to have England referred to in later centuries as “a nation of shop keepers”.
From Michael Mainelli, here is my original post on Gresham.
Friday assorted links
1. Luis Garicano on the task is not the job. And jobs and the Jevons paradox.
2. The lived experience of aphantasia.
3. Shruti on delimitation in India.
5. Leibniz on symbolic computation, from the unpublished papers.
6. A History of Christian Political Economy, by Ballor and Matson.
7. Michael Tilson Thomas, RIP (NYT).
Which workers are using AI the most and best?
An FT poll of 4,000 workers in the US and UK shows adoption is heavily skewed towards the best-paid workers: more than 60 per cent use AI daily, compared with just 16 per cent of the lower earners.
Link here. Note also that the youngest workers are not those who use AI the most, rather it is workers in their 30s. Men in the workplace are using AI more than women are. A very good piece by Madhumita Murgia and John Burn-Murdoch.
Thursday assorted links
1. The rise of Chinese micro-dramas.
2. Niklas Luhmann.
3. Why Rome never industrialized (YouTube video).
4. One account of the genocidal impulse.
5. Organs on demand? We will see.
6. U.S. at the Venice Biennial (NYT).
7. “Argentina’s economy shrank 2.6 per cent in February compared to January, the largest monthly contraction since President Javier Milei took office in late 2023, as his inflation-busting economic programme weighed on major industries.” FT link here.
From the UAE
Under the directives of the President of the UAE, we launch a new government model.
Within two years, 50% of government sectors, services, and operations will run on Agentic AI, making the UAE the first government globally to operate at this scale through autonomous systems.
AI is no longer a tool. It analyses, decides, executes, and improves in real time. It will become our executive partner to enhance services, accelerate decisions, and raise efficiency.
This transformation has a clear timeline. Two years. Performance across government will be measured by speed of adoption, quality of implementation, and mastery of AI in redesigning government work.
We are investing in our people. Every federal employee will be trained to master AI, building one of the world’s strongest capabilities in AI-driven government.
Implementation will be overseen by Sheikh Mansour bin Zayed, with a dedicated taskforce chaired by Mohammad Al Gergawi driving execution.
The world is changing. Technology is accelerating. Our principle remains constant. People come first. Our goal is a government that is faster, more responsive, and more impactful.
Here is the link. While there is typically a certain amount of PR in such pronouncements, I do not think this one is only PR.
Is each American generation doing better?
We construct a posttax, posttransfer income measure from 1963 to 2023 based on the Current Population Survey Annual Social and Economic Supplement that allows us to consistently compare the economic well-being of five generations of Americans at ages 36–40. We find that Millennials had a real median household income that was 20% higher than that of the previous generation, a slowdown from the growth rate of the Silent Generation (36%) and Baby Boomers (26%), but similar to that of Generation X (16%). The slowdown for younger generations largely resulted from stalled growth in work hours among women. Progress for Millennials younger than 30 has also remained robust, though largely due to greater reliance on their parents. Additionally, lifetime income gains for younger generations far outweigh their higher educational costs.
That is from Kevin Corrinth and Jeff Larrimore in Demography. Via the excellent Kevin Lewis.
Those old factory sector jobs
As AI sweeps into white-collar workplaces, old-timey hands-on jobs are getting a new look—and some of those professions even have shortages.
Consider tailors. Sewing is a vanishing skill, much like lacemaking and watchmaking, putting tailors in short supply when big retailers like Nordstrom and Men’s Wearhouse, as well as fashion designers and local dry cleaners, say they need more of them.
The job, which can take years to master, can be a tough sell to younger generations more accustomed to instant gratification. But apprenticeships that offer pay to learn on the job and new training programs are helping entice more people…
For the first semester of its program, which concluded in December, FIT received more than 190 applications for 15 spots. The nine-week course requires prior sewing experience. Nordstrom hired seven students from the inaugural class.
“It’s increasingly becoming more challenging to find people to fill these alterations jobs,” said Marco Esquivel, the director of alterations and aftercare services at Nordstrom, which employs about 1,500 tailors. Similar to other high-end retailers, Nordstrom offers free basic tailoring for garments purchased at the department-store chain and charges a fee for those bought elsewhere.
Tailored Brands, which employs about 1,300 tailors at its Men’s Wearhouse, Jos. A. Bank and other chains, is updating its apprenticeship program to include more self-guided videos with the goal of moving people through the training faster.
Here is more from Suzanne Kapner at the WSJ. Via LJ Fenkell.
The exposed counties (from my email)
Professor Cowen,
Built a county-level AI displacement model across all 3,204 US counties. Top 5 most exposed counties are all in the DC metro, not the Rust Belt.
https://jakeprokopets.substack.com/p/why-the-most-ai-exposed-counties
18, built it in three days.
Jake Prokopets
Wednesday assorted links
1. On health care price transparency.
2. Interview with Sindarov’s trainer.
3. Tariff increases are contractionary.
5. U.S. manufacturing capacity has been growing for sixteen consecutive quarters.
6. Dean Ball book on AI is coming.
7. DEI statement requirements in academic hiring have more than halved within a year.
Technological unemployment in Victorian Britain
We do not know whether technological unemployment swept across England in the wake of the British Industrial Revolution. In this paper, I propose an approach to quantify jobs lost to, and created by, creative destruction in the 19th century. Using over 170 million individual records from the full-count British census (1851–1911), I generate sub-industry “task” level occupational data. I apply this to the English bootmaking industry as it mechanized. The new data reveal sharp structural changes: 152,000 artisanal jobs disappeared as skills became obsolete, while 144,000 new jobs emerged. However, incumbent bootmakers were rarely displaced. Instead, the decline was driven by young men no longer entering the artisanal trade. These findings challenge assumptions about displacement, showing how slow adoption and persistent demand can shield existing workers, while opportunities vanish for new entrants.
That is a recent paper by Hillary Vipond, a recent PhD from LSE. Via Lukas Freund. Here are other papers by Hillary, some of them on what we can learn about automation from economic history. Here is Hillary on Twitter.
Tuesday assorted links
1. Desmond Morris, RIP (NYT).
2. A long NYT feature on how to be cultured.
5. People laid off from USAID (NYT).
6. Ariel Rubinstein tells his story. And his home page more generally.
Monday assorted links
1. Sindarov profile. And: “I know this GM who made 2600 at 19 without reading a chess book in his life.” And Magnus on Sindarov vs. Gukesh.
2. Inflation-adjusted book prices over time.
3. On the Amanat Iran book and its excellence.
4. More on the wet market hypothesis. We should all be uncertain, but it is mood affiliation (with conspiracy theorizing, for one thing) to be convinced of Lab Leak. It is contributing to negative emotional contagion.
5. Review of the new Knausgaard series. By Max Norman: “(I’d rather read Knausgaard on defecation than predestination, let alone whether machines can think or trees can feel.)”‘
6. AI and the arts, a short Instagram video.
7. AI and the pancreatic vaccine. More testing is needed, but there is a reasonable chance that we have a good treatment for pancreatic cancer, and AI was instrumental in that. It is mRNA as well, so a double burn on the haters.
Sunday assorted links
1. Religion and business economics Substack.
2. WDC crime is way down. Alex T. was right, POTMR.
3. Movie theaters are making an economic comeback?
5. Has the fight against inflation stalled in Argentina? (FT)
6. The case against off-shore processing.
7. Harry Law on alignment. And do AI-written plays have too little conflict?