Wednesday assorted links
1. New data on the economics of LLMs: “Fifth, we estimate preliminary short-run price elasticities just above one, suggesting limited scope for Jevons-Paradox effects.”
2. How much is Germany still using fax machines?
3. Top ten pieces from Works in Progress.
4. MIE claims about Slovenia. Cheap talk, or can this be true?
6. Top economics papers from 2025?
7. The best “best movies of the year” set of lists I have seen.
8. The basics on Sudan. And more ongoing trouble in the Gulf and in East Africa. I hope this is not the big story of the year to come, but fear it may be.
Existential Risk and Growth
By Philip Trammell and Leopold Aschenbrenner, a new paper:
Technological development raises consumption but may pose existential risk. A growing literature studies this tradeoff in static settings where stagnation is perfectly safe. But if any risky technology already exists, technological development can also lower risk indirectly in two ways: by speeding (1) technological solutions and/or (2) a “Kuznets curve” in which wealth increases a planner’s willingness to
pay for safety. The risk-minimizing technology growth rate, in light of these dynamics, is typically positive and may easily be high. Below this rate, technological development poses no tradeoff between consumption and cumulative risk.
Self-recommending…
“What we got wrong this year”
This is from The Free Press, and the instructions were to fess up to a mistake made in a piece for The Free Press (not elsewhere). Here is mine:
On October 26 I wrote about President Trump’s $20 billion support package for Argentinian president Javier Milei. At the time I, along with many other economists, thought the bailout was a costly mistake, but so far the decision has been vindicated.
The backstory is that Milei was trying to peg the Argentinian peso artificially high. Such policies usually do not work, even with strong backing from the International Monetary Fund, or in this case the U.S. It felt like the U.S. would lose a lot of money supporting a doomed economic policy. After all, Milton Friedman taught us long ago that floating exchange rates, set by market forces, usually are best.
But Milei stuck to his guns with the peg, an unusual move for a libertarian-oriented reformer, and Trump decided to back him. What happened in the “market test of strength” is that Milei and Trump won. The peg held, and the U.S. government seems not to have suffered any losses from this policy. By December, Argentina announced that it would be softening its currency peg and moving closer to a floating-rate system, as most economists recommend.
Why were the economists—including me—wrong? Maybe we were right ex ante, and Milei and Trump got lucky ex post. An alternative view is that the political symbolism of holding the peg was more important than the economics of the decision, and Milei had insight the economists did not.
When you are not sure why you were wrong, or how wrong you were, that is all the more reason to stay humble.
There are many other answers at the link.
Derek Thompson on 2025
I think this was a really bad year for American politics, a mediocre year for the American economy, and an exceptional year for America.
In 12 months, you’ve got
– the largest decline in murder rate ever recorded
– huge declines in traffic fatalities, drug overdoses, and suicide
– first ever personalized gene editing treatment and breakthroughs in HIV and cancer therapy
– continued advances in GLP1 technology that seems to reduce weight and inflammation and a bunch of other stuff
– declines in teen anxiety and despair
– surge in self-driving car technology*
– all this happened in a period when both the SP500 and inflation adjusted median wages hit record highs
Here is the link, a good record for tech most of all. Except perhaps on the politics.
Conor Sen claims
Resale housing inventory has climbed toward or above pre-pandemic levels in most of the South and West. Even in the supply-constrained Northeast and Midwest, there are signs of inventory growth. By 2027 — the year in which the oldest members of Gen Z start turning 30 — the US will probably have more existing homes for sale than it’s had in a decade.
This normalization is putting gradual but persistent pressure on prices. At a metro level, price growth is either decelerating or prices are outright falling just about everywhere. A surge in delistings heading into year-end indicates that market dynamics are weaker than advertised home prices suggest. The S&P Cotality Case-Shiller US National Home Price Index rose just 1.3% in September from a year ago, well below the 3.7% growth in the average hourly earnings of American workers.
Here is more from Bloomberg. Conor has further analysis and suggests the 2030s will be quite a good house-buying time for Generation Z.
Tuesday assorted links
1. Ulkar on Kodaly and the cello.
2. “Lowbrow fiction is good sex and highbrow fiction is bad sex.”
3. The economics of Duke University.
4. Beginner’s Guide to the Mahabharata and Ramayana.
5. Andrew Batson on music of the year for him.
6. Model this (claim about Freemasonry and the British police).
7. Zhengdong Wang year end letter on AI.
8. I do not think these particular estimates are reliable, nonetheless murder rates would be much higher if not for medical advances.
What is the greatest artwork of the century so far?
That question is taken from a recent Spectator poll. Their experts offer varied answers, so I thought at the near quarter-century mark I would put together my own list, relying mostly on a seat of the pants perspective rather than comprehensiveness. Here goes:
Cinema
Uncle Boonmee, In the Mood for Love, Ceylan’s Winter Sleep, Yi Yi, Artificial Intelligence, Her, Y Tu Mama Tambien, Four Months Three Weeks Two Days, from Iran A Separation, Oldboy, Silent Light (Reygadas), The Three Burials of Melquiades Estrada, Get Back, The Act of Killing, Master and Commander, Apocalypto, and New World would be a few of my picks. Incendies anyone?
Classical music (a bad term these days, but you know what I mean):
Georg Friedrich Haas, 11,000 Strings, Golijov’s Passion, John Adams Transmigration of Souls, The Dharma at Big Sur, Caroline Shaw, and Stockhausen’s Licht operas perhaps. Typically such works need to be seen live, as streaming is no substitute. As for recordings, recorded versions of almost every classic work are better than before, opera being excluded from that generalization. So the highest realizations of most classical music compositions have come in the last quarter century.
Fiction
Ferrante, the first two volumes of Knausgaard, Submission, Philip Pullman, and The Three-Body Problem. The Marquez memoir and his kidnapping book, both better than his magic realism. The Savage Detectives. Sonia and Sunny maybe?
Visual Arts
Bill Viola’s video art, Twombly’s Lepanto series, Cai Guo-Qiang and Chinese contemporary art more generally (noting it now seems to be in decline), the large Jennifer Bartlett installation that was in MOMA, Robert Gober. Late Hockney and Richter works. The best of Kara Walker. The second floor of MOMA and so much of what has been shown there.
Jazz
There is so much here, as perhaps the last twenty-five years have been a new peak for jazz, even as it fades in general popularity. One could mention Craig Taborn, Chris Potter, and Marcus Gilmore, but there are dozens of top tier creators. Cecile McLorin Salvant on the vocal side. Is she really worse than Ella Fitzgerald? I don’t think so.
Popular music (also a bad term)
The best of Wilco, Kanye, D’angelo, Frank Ocean, Bob Dylan’s Love and Theft. How about Sunn O)))? No slight intended to those listed, but I had been hoping this category would turn out a bit stronger?
Television
The Sopranos, the first two seasons of Battlestar Galactica, Srugim, Borgen, and Curb Your Enthusiasm.
Assorted
Hamilton, and there is plenty more in theater I have not seen. At the very least one can cite Stoppard’s Coast of Utopia and Leopoldstadt. There is games and gaming. People around the world, overall, look much better than ever before. The Museum of Islamic Art in Doha and the reoopened Great Egyptian Museum in Cairo. The new wing at MOMA. Architecture might need a post of its own, but I’ll start by citing the works of Peter Zumthor. (Here is one broader list, it strikes me as too derivative in style, in any case it is hard to get around and see all these creations, same problem as with judging theatre.) I do not follow poetry much, but Louise Glück and Seamus Heaney are two picks, both with many works in the new century. The top LLMs, starting (but not ending) with GPT-4. They are indeed things of beauty.
Overall, this list seems pretty amazing to me. We are hardly a culture in decline.
I podcast again with Kevin Gentry
Monday assorted links
1. Medical breakthroughs from 2025.
2. 52 things Kent Hendricks learned in 2025.
3. Séb Krier.
4. Nusantara (NYT). A good piece, good photos.
5. What is the difference between cheap vs. expensive jeans?
Top Posts of 2025
Here are the top MR posts of 2025 as measured by page views. Number one post goes to Tyler:
An excellent post that pairs well with another Tyler post, also in the top ten, A median voter theory of right-wing populism which has the punchline:
The right-wing populists are gaining ground in so many countries because the cultural liberals in various parliaments and congresses are extremely reluctant to meet the preferences of their median voters.
Number two was also a Tyler post. Why I think AI take-off is relatively slow, an excellent accounting of AI economic and institutional bottlenecks. This pairs well with another top-ten post in which Tyler announces that AGI is already here. Both posts are correct. An interesting conundrum.
Third and fourth are two of my posts:
3. UCSD Faculty Sound Alarm on Declining Student Skills
4. One-Third of US Families Earn Over $150,000
Next is Tyler’s rundown of non-fiction books. Well worth re-reading.
5. Best non-fiction books of 2025 with one late addition.
Next I was pleased to see my post in which I explain some standard economics but in a deeper, more fundamental way than is usually done: One of my favorite posts of the year:
Why Do Domestic Prices Rise With Tariffs?
Zephyr Teachout’s op-ed wasn’t fun to read but I admit I did have some fun writing a response
Here’s another issue which makes me mad. The destruction of boarding houses, a perfectly reasonable housing form that reduces homelessness. Or to put it more simply, why is sharing a house illegal? Outrageous.
The War on Roommates: Why Is Sharing a House Illegal?
I am all for American greatness but the approach of the Trump administration is often backwards. I pointed out the big differences between the Sputnik moment and what I called the DeepSeek Moment in two posts.
The Sputnik vs. DeepSeek Moment: Why the Difference? and The Sputnik vs. Deep Seek Moment: The Answers.
I was pleased that David Brooks picked up on my framing in the NYTimes.
Finally my post The Library Burned Slowly sparked a brief spat with Chris Rufo. Rufo’s ability to turn the tools of the left on them is impressive but I haven’t changed my mind that “Bludgeoning your enemies is fun while it lasts but you can’t bludgeon your way to a civilization.”
What were your favorite posts of the year, either at MR or elsewhere?
J. M. W. Turner, financial arbitrageur
Abstract. J. M. W. Turner is famous for his achievements in graphic arts. What is not known is that he engaged in some pioneering market arbitrage, a profitable and risk-free swapping of British government securities. His activities lead to interesting insights into British markets of the 19th century. Financial innovation frequently created profitable arbitrage opportunities. However, among regular investors it seems that it was mostly mavericks like Turner who took advantage of them. Apparently there were strong cultural factors that inhibited most people from imitating him, which allowed obvious pricing anomalies to persist for extended periods.
That is from a recent paper by Andrew Odlyzko. Via Colin.
The Inflation Attention Threshold
From Oliver Pfäuti:
The recent inflation surge brought inflation back on people’s minds. I quantify when and how much attention to inflation changes and derive the macroeconomic implications of these attention changes. I estimate an attention threshold at an inflation rate of 4%, that attention doubles when inflation exceeds this threshold, and that supply shocks have stronger and more persistent effects on inflation in times of high attention. Developing a model featuring the attention threshold, I show that the observed attention changes offer a joint explanation for the recent inflation surge, its interplay with inflation expectations, and the long last mile of disinflation.
Here is the paper.
Canada fact of the day
Since 2015, Canada has tripled its Indigenous spending – paying more than on national defense. Over those same years, Indigenous people have suffered a catastrophic collapse in health and well-being: on average almost a full decade of lost life expectancy.
That is from David Frum.
Sunday assorted links
2. Ryan Briggs: “Prediction: in the short-to-medium term LLMs will make the reputation of the researcher matter more for whether or not we view results as credible because it will become too hard to read everything and people will want shortcuts for filtering. Again, this hits juniors hardest.”
3. Brian Greene and Ed Witten discuss string theory.
4. Short video of the Grand Egyptian Museum. Go, go, go!
5. Why Israel recognized Somaliland? Many things going on, risk of war in East Africa is now heightened, here is some speculation. Big story for 2026?
6. Gary Graffman, RIP (NYT).
The Hainan Free Trade Port
Earlier I wrote about China’s Libertarian City, Boao Hope City (officially the Boao Lecheng International Medical Tourism Pilot Zone), China’s first special economic zone for advanced healthcare. Boao Hope City is following the peer approval model I have long argued for:
Daxue: Medical institutions within the zone can import and use pharmaceuticals and medical devices already available in other countries as clinically urgent items before obtaining approval in China. This allows domestic patients to access innovative treatments without the need to travel abroad…. The medical products to be used in the pilot zone must possess a CE mark, an FDA license, or PMDA approval, which respectively indicate that they have been approved in the European Union, the US, and Japan for their safe and effective use.
Boao Hope City is part of the larger Hainan Free Trade Zone. Hainan is a large island off China’s Southern Coast, often called the Hawaii of China. The entire island is being turned into the world’s largest free trade zone. As of Dec. 18, 2025, Hainan now boasts:
- Expanded “Zero-Tariff” Coverage…“zero-tariff” eligible goods expand from about 1,900 to approximately 6,600 tariff lines, increasing coverage from 21% to 74% of total import/export items, encompassing most production equipment and raw materials. This exemption applies to import tariffs, import VAT, and consumption tax, potentially saving enterprises about 20% in tax costs on imported equipment.
- Optimized “Tariff Exemption for Value-added Processing” Policy: One of the most transformative measures, this policy sees significantly relaxed restrictions (e.g., on core business income ratios) and now allows cumulative value-added calculation across upstream and downstream enterprises. This makes it easier for businesses to meet the “over 30% value-added” threshold for tariff exemption when selling finished products into the mainland market. Companies can ship primary products or components to Hainan for substantial processing; if the value-added meets the standard, the final products can enter the mainland market tariff-free.
- “Dual 15%” Tax Incentives as a Long-term Advantage: Encouraged industries registered and substantively operating in the Hainan FTP enjoy a reduced 15% corporate income tax rate. Eligible high-end and in-demand talents benefit from an individual income tax exemption for the portion exceeding 15%, providing long-term, stable fiscal predictability.
- Enhanced Trade and Investment Liberalization/Facilitation: Measures include implementing a negative list for cross-border trade in services, relaxing foreign investment access, adopting a “commitment-based registration system” for business setup, and streamlining procedures. A visa-free policy for nationals of 59 countries is in effect, with further eased entry-exit restrictions for business personnel.