Saturday assorted links
Why Tariffs On More Countries Can Be Better
Today, I am going to explain why tariffs on more countries can be better! Not to worry, I still think free trade is the best policy (modulo some special cases discussed in Modern Principles) but I am going to show that a uniform tariff can be better than a selective tariff. My example comes from a nice tweet from Malaysia expert Apurva Sanghi, modified for the US context.
Suppose the U.S. can import Hyundai Sonatas from Korea and Toyota Camrys from Japan, and consumers view the two cars as perfect substitutes. We compare three scenarios:
A) Free trade
B) 10% tariff on both countries (uniform tariff)
C) 10% tariff on Korea only (selective tariff)
The surprising result: B can be better than C, even though C is, in one sense, closer to free trade (the “best” policy) than B as it tariffs fewer countries. To focus on the key points I will assume 50 car buyers and no change in the number of buyers when tariffs change (so I will ignore the standard deadweight loss from reduced quantities).
Assumptions
Korea (Hyundai Sonata): $40k pre-tariff
Japan (Toyota Camry): $43k pre-tariff
50 buyers; perfect substitutes
A) Baseline (free trade)
Everyone buys Sonatas from Korea at $40k.
U.S. tariff revenue: $0.
B) Uniform 10% tariff on all countries
Sonata: $40k → $44k
Camry: $43k → $47.3k
Consumers buy Sonatas from Korea (lowest-cost source preserved).
Per car: consumers pay +$4k; government gets +$4k.
Totals (50 cars):
Consumer loss: $200k
Tariff revenue: $200k
Total losses (national): ≈ $0 (consumers transfer $ to government; ignoring DWL from Q changes).
C) Selective 10% tariff (on Korea only)
Sonata (Korea): $40k → $44k
Camry (Japan): $43k (untaxed)
Buyers switch to Camry’s from Japan (trade diversion).
Totals (50 cars):
Consumer loss: 150k (consumers now pay $43k vs $40k in the no tariff baseline → $3k more per car)
Tariff revenue: $0 (imports shifted to untaxed Japan).
Net (national): –$150k.
Global efficiency: production cost rises from $40k → $43k per car → $150k real resource loss.
Total losses: 150k (consumer loss = real resource loss)
The total losses under scenario C in which just some countries are tariffed are larger than in scenario B in which all countries are tariffed! What’s going on? Under a uniform tariff, the lowest-cost supplier still wins. Tariffs create distortions, but a uniform tariff at least preserves efficient sourcing and generates government revenue. Under a selective tariff, sourcing can shift to a higher-cost supplier purely because of the tariff. That’s trade diversion —bad for efficiency which means some combination of consumers and government must lose.
Here’s an analogy. Forget tariffs for a moment and imagine taxing GM but not Ford. That could make Ford win sales even if GM can produce the same car more cheaply — an obvious waste. The same logic applies in international trade.
In general, as Brian Albrecht argues, tariffs are a costly way to raise revenue. Selective tariffs are especially inefficient and wasteful. Sad to say, the U.S. tariff system today is highly selective — wildly different rates on different countries and times. Trade diversion isn’t a necessary consequence of selective tariffs but our current high and chaotic tariff structure makes it all but inevitable. Thus selective tariffs mean standard deadweight losses will compound with large-scale trade diversion and inefficiency, raising losses above headline numbers. Finally, the selective structure invites rent seeking, as firms and industries lobby for favorable treatment — adding yet another layer of economic waste.
Addendum: Thanks to KarterB in the comments for correcting a calculation.
Northern Ghana travel notes
You will see termite mounds, baobab trees, and open skies.
The major city is Tamale, the third largest urban settlement in the country. The town is manageable and traffic is not intense. At night it is quiet. The “main street” is just a strip of stuff, and it feels neither like a center of town nor an “edge city” growth. Some of the nearby roads still are not paved. It is a shock to the visitor to realize that the center of town is not going to become any more “center of town-y,” no matter how much you drive around looking for the center of town.
We all liked it.
The “Red Clay” is a series of large art galleries and installations, of spectacular and unexpected quality, just on the edge of Tamale. Some of the installations reminded me of Beuys, for instance the large pile of abandoned WWII stretchers. One also sees there a Polish military plane from the 1930s, an old East German train, and a large pile with tens of thousands of glass green bottles. Some of the galleries have impressive very large paintings by James Barnor, mostly of Ghana workers building out the railroad. Goats wander the premise and scavenge for garbage. If you are an art lover, this place is definitely worth a trip.
The Larabanga mosque does not look as old as internet sources claim. I consider it somewhat overrated?
The surrounding area is 80-90 percent Muslim.
A driver explained to me that Islam in Tamale was very different from Islam in Saudi Arabia, because a) in Ghana women can drive motorbikes, and indeed have to for work, and b) in northern Ghana husbands cannot take any more than four wives.
Many more people here speak English than I was expecting. Some claim that they all speak decent English. I doubt that, but the percentage is way over half.
It all feels quite safe, and furthermore the drivers are not crazy.
Zaina Lodge has a kind of “infinity pool,” at a very modest scale, with views of the forest and sometimes of elephants drinking at the nearby water hole. It is one of the two or three best hotel views I have had.
My poll will grow in size, but so far zero out of two hotel workers use ChatGPT. One had not heard of it. High marginal returns!
Friday assorted links
1. Was it emigration that ended the British empire?
3. A kind of Jevons Paradox for AI pricing and usage.
4. Redux of Patrick Collison interviewing me in 2017.
5. “Dynastic composers are between 14 and 21 percent less prominent than their non-dynastic peers…”
6. Not many top American researchers are moving to Europe, European schools cannot put together top offers (NYT, scroll down a bit).
7. GPT-5 summary from @sama. And GPT-5 on whether conscientiousness amongst the young is falling. And Nabeel’s review. And Noam Brown on hallucination rates.
What should I ask Steven Pinker?
Yes, I will be having another Conversation with him. Much of it will focus on Steven’s forthcoming book When Everyone Knows that Everyone Knows…Common Knowledge and the Mysteries of Money, Power, and Everyday Life.
Here by the way is my previous Conversation with Steven.
My Bach podcast with Evan Goldfine
Here is the transcript and also the link to the audio. Forty five minutes or so. Here is the YouTube. We discuss much more than Bach, full of fresh material, plus Evan knows a lot and prepares, definitely recommended. There are a few glitches in the transcript, but you should be able to figure them out.
Personalism and the returns to democracy
Studies of income and regime type typically contrast democracies and autocracies, ignoring heterogeneity in the character of authoritarian regimes. We focus on the consequences of personalist rule, where power is concentrated in an individual or small elite. Extending the dynamic panel strategy of Acemoglu, Naidu, Restrepo, and Robinson (2019), we estimate the differential growth performance of democracies, institutionalized autocracies, and personalist autocracies. Across eight GDP series, eight autocracy codings, and six measures of personalism, we observe a consistent pattern: Whenever an “autocratic penalty” emerges, it is concentrated in personalist regimes. The growth performance of institutionalized dictatorships, in contrast, is statistically indistinguishable from that of democracies. We document evidence that the “personalist penalty” is driven by some combination of low private investment, poor public-goods provision, and conflict. These findings emphasize the analytic payoff of unpacking autocracy and highlight the different incentives facing leaders with narrow and broad bases of power.
That is from a new NBER working paper by Christopher Blattman, Scott Gehlbach, and Zeyang Yu.
Is anyone worth a billion dollars?
That is the topic of my latest Free Press column. Excerpt:
…in recent years they [Meta] have moved into AI in a big way. Over that same time period, the valuation of the company has risen from about $236 billion in November 2022 to almost $2 trillion at the end of this July.
The reasons for share price movements are not always transparent, but it is common consensus that AI investments are a significant reason why Meta is now worth much more. The original metaverse plans did not take off, and Facebook and Instagram are relatively mature products and they have not changed much as of late.
So the market, responding to Meta’s promises about AI, expects that it will deliver on that $2 trillion value. Yet their current Llama models are not state of the art. Meta needs something better and more competitive.
Meta thus has to justify an extra $1.8 trillion in its valuation, which of course they could lose if markets decide they are not up to the task. Spending some billions on top-quality AI personnel is easy to justify when viewed in terms of the value gain Meta already has been reaping.
And it is not just about justifying the current $2 trillion valuation. Meta possibly could be worth more yet. It probably has not escaped their attention that as of late, both Nvidia and Microsoft have had valuations of about $4 trillion. So the possibility of further upside enters the equation as well.
Keep in mind that better AI also will boost the profits Meta can receive from ads on Facebook and Instagram. Click-through rates on ads typically are small, so even a modest increase in targeting ability can mean a lot more profit. Meta does not have to achieve superintelligence to get its money back on these investments; they just need better AI. There is also a plan to put more ads on WhatsApp (currently the user experience is mostly ad-free), and that too can benefit from better AI and better ad targeting.
The general principle is that top talent is typically undervalued, if only because of egalitarian norms in pay structures.
Markets in everything, Indian fake wedding edition
What comes to mind when you think of a big fat Indian wedding?
Dazzling lights, glittering outfits, Bollywood hits, a lavish spread of food and an atmosphere soaked in celebration. Everything feels extravagant, emotional and larger than life.
Now imagine all of that without the bride and groom. No pheras (a Hindu marriage ritual where the couple takes seven rounds around a sacred fire), no relatives, no tearful farewells. Just the party.
Welcome to the world of fake weddings – a rising trend in Indian cities where people gather to enjoy the wedding party, minus the actual marriage.
These ticketed events, organised by hotels, clubs and companies, are designed purely for fun and promise to offer the full experience of a wedding party without any stress, rituals or responsibilities. Simply put, it’s a wedding-themed party night…
Ticket prices typically start at around 1,500 rupees ($17; £13) and can go up to 15,000 rupees or more, depending on the venue and facilities. Shivangi and her friends paid 10,000 rupees per couple to attend.
Here is more from the BBC, and thanks to Rich Dewey for the pointer.
GPT-5, a short and enthusiastic review
I am a big fan, as on my topics of interest it does much better than o3, and that is saying something. It is also lightning fast, even for complex queries of economics, history, and ideas.
One of the most impressive features is its uncanny sense of what you might want to ask next. And it has a good sense for when to give you a (sometimes interactive!) chart or diagram. It is a much better writer than o3.
I have had early access, and love to just keep on asking it, asking it, asking it questions. Today I was asking about Irish coinage disputes from 1724 (Swift) and now about different kinds of Buddhism and their historical roots. It was very accurate on cuisine in northern Ghana.
It is the best learning tool I have. Furthermore, it feels fun.
Here is a review from Ethan Mollick.
Thursday assorted links
What to Watch (or Not): Ballard, Perfect Days, Billy Joel
Ballard (Amazon Prime) — I liked Bosch, so I had high hopes for this spinoff. The core premise—a team of misfits solving cold cases—is solid enough but the writing is unimaginative and lazy. In one scene, Ballard is told she needs to get a confession. We expect clever interrogation tactics. Instead, she walks in and bluntly asks, “Did you shoot Yulia Kravetz?”
Maggie Q is charismatic but the writers don’t write for her. She’s exceptionally slim, for example, yet the show repeatedly asks us to believe she can physically overpower men twice her size. I have no problem with that in a superhero movie but it’s off putting in a show that pretends to be grounded and gritty. If you’re casting someone with that physique, write her as sharper, more cunning, more insightful—not as a female stand-in for macho Bosch.
Worst of all is the ending: a killer reveal that comes out of nowhere, with no foreshadowing or internal logic. The writers don’t understand the difference between a twist and a cheat. Disappointing.
Perfect Days (Hulu, Amazon) — a 2023 Wim Wenders film that won the award at Cannes for “works of artistic quality which witnesses to the power of film to reveal the mysterious depths of human beings through what concerns them, their hurts and failings as well as their hopes.” The film follows the life of Hirayama (Kōji Yakusho, who won at Cannes for best actor) as he cleans public toilets in Tokyo’s Shibuya district. You will not be surprised to learn that the movie proceeds slowly. The toilets and the cleaning are the most interesting part of the first hour! I say this not as critique–I liked Perfect Days and the toilets really are interesting–only to illustrate the kind of movie that it is.
It helps to know the following from a useful Sean Burns review:
Komorebi is a Japanese word for the dancing shadow patterns created by sunlight shining through the rustling leaves of trees. There’s no equivalent term in English, and it’s tough to imagine any American caring enough to come up with one. But every afternoon on his lunch break, Hirayama (Koji Yakusho) takes a picture of the komorebi from his favorite park bench using an old Olympus film camera. Back at his apartment, he’s got boxes and boxes of black-and-white photos of the same spot, every one of them unique. Subtle shifts of the light and swaying branches in the breeze make similar snapshots strikingly different every time. Indeed, the whole concept behind komorebi is that it can exist only in a moment, never to be repeated. “Next time is next time,” Hirayama’s fond of saying, “Now is now.”

Although I would disagree with Burns slightly because there is an English term for something related to komorebi and that is crown shyness, the phenomena where trees grow in such a way that their branches keep from touching one another creating a canopy of closeness yet also distance. Indeed, I would argue that crown shyness expresses more of what the movie is about than komorebi.
A key question that divides reviewers is whether Hirayama is happy or content. The standard interpretation is that he has found, as Davis puts it, “beauty in the routine,” stopping to smell the roses. Yes, that is one aspect, but the routine is also a narcotic for the lost. Hirayama is estranged from his family. Barkeeps like him but all his relationships are superficial. He plays a game with a “friend” he never meets—distance and disconnection are everywhere.. In two scenes he finds meaning and joy in looking after a child but in both these scenes the child’s mother quickly rips the child away. Hirayama’s work partner disappears in the second half of the film. He almost makes connections with three women but in each case, crown shyness intervenes. He takes pride in his work but is operating well below his ability. He is isolated, alone, and without someone else to share a life, he is incomplete.
There are great scenes and music in Perfect Days, including a beautiful scene in which a Japanese hostess (Sayuri Ishikawa) sings House of the Rising Sun.
Billy Joel: And So It Goes (HBO) — 52nd Street was one of my favorite albums as a youth and it was fun to revisit his career. Billy Joel’s first wife, Elizabeth Weber, was the muse for many of his early songs including Big Shot and Stiletto:
She cuts you hard, she cuts you deepShe’s got so much skillShe’s so fascinatingThat you’re still there waitingWhen she comes back for the killYou’ve been slashed in the faceYou’ve been left there to bleedYou want to run awayBut you know you’re gonna stay‘Cause she gives you what you need
She is indeed, fascinating! Wow. Even today, she comes across as formidable.
I thought a lot about genetics while watching And So It Goes. Joel’s father was a classical musician, though his only notable comment on Billy’s playing was to knock him unconscious for taking too much liberty with a piece. The father left when Billy was eight. Not much nurture. Years later, they reunite in Vienna—where Joel discovers he has a half-brother, Alexander Joel, a successful pianist and conductor.
Joel grew up poor, but his paternal grandfather had been a wealthy Jewish businessman in Germany until the Nazis forced him out. His mother, Rosalind, was also musical, but her primary inheritance may have been bipolar disorder. Joel’s mental health struggles are never explicitly named in the documentary, but the signs are everywhere: an early suicide attempt, alcoholism, repeated motorcycle and car crashes of a self-destructive nature. The emotional cycles also help explain the pattern of intense, short-lived marriages to beautiful and accomplished women—Weber, Christie Brinkley, Katie Lee, and Alexis Roderick. In his highs, he was irresistible. In his lows, unbearable. He goes to extremes.
Critics didn’t always love Joel’s music, but his catalog has become part of the American songbook. Proof of something Tyler and I often discuss, the power of simply keeping going.
The consumer surplus from AI
Our research, with Felix Eggers, widens the lens and finds that Americans already enjoyed roughly $97 billion in “consumer surplus” from generative AI tools in 2024 alone. Consumer surplus—the difference between the maximum a consumer is willing to pay for a good or service and its actual price—is a more direct measure of economic well-being than GDP. Generative AI’s $97 billion in consumer surplus dwarfs the roughly $7 billion in U.S. revenue recorded by OpenAI, Microsoft, Anthropic and Google from their generative AI offerings last year. It doesn’t appear in GDP because most of the benefit accrues to users rather than the companies.
That is from Avinash Collis and Erik Brynjolfsson in the WSJ.
My entertaining Conversation with Annie Jacobsen
Here is the audio, video, and transcript. Here is part of the episode summary:
Tyler and Annie explore whether we should be more afraid of nuclear weapons or if fear itself raises the risks, who should advise presidents during the six-minute decision window, whether moving toward disarmament makes us safer or more vulnerable, what Thomas Schelling really meant about nuclear war and rational actors, the probability that America would retaliate after a nuclear attack, the chances of intercepting a single incoming ICBM, why missile defense systems can’t replicate Israel’s Iron Dome success, how Pakistan-India nuclear tensions could escalate, why she’s surprised domestic drone attacks haven’t happened yet, her reporting on JFK assassination mysteries and deathbed phone calls, her views on UFOs and the dark human experiments at Area 51, what motivates intelligence community operators, her encounters with Uri Geller and CIA psychic research, what she’s working on next, and more.
Excerpt:
JACOBSEN: I quote him in the notes of my book, and this is perhaps the only regret I have in the entire book, that I put this quote from Schelling in the notes rather than in the text. Maybe it’s more interesting for your listeners if we drill down on this than the big platitudes of, “Do more nuclear weapons make us more safe?” It goes like this. This was Schelling in an interview with WGBH Radio in 1986 in Boston.
He says, “The problem with applying game theory to nuclear war is that nuclear war, by its very nature, does not involve rational men. It can’t. What sane person would be willing to kill hundreds of millions of people, ruin the earth, and end modern civilization in order to make somebody called the enemy doesn’t win first?”
COWEN: But Schelling did favor nuclear weapons. That was his dark sense of humor, I would say.
JACOBSEN: You think what I just read was his sense of humor?
COWEN: Absolutely.
JACOBSEN: I believe it was a man in his elder years coming to the conclusion that nuclear war is insane, which is the fundamental premise that I make in the book.
COWEN: You can hold both views. It is insane, but it might be the better insanity of the ones available to us.
JACOBSEN: Yes. From my take, he, like so many others that I have interviewed, because, for some reason — call it fate and circumstance — I have spent my career interviewing men in their 80s and 90s, who are defense officials who spent their entire life making war or preventing war. I watch them share with me their reflections in that third act of their life, which are decidedly different — in their own words — than those that they would have made as a younger man.
I find that fascinating, and that’s my takeaway from the Schelling quote, that he came to terms with the fact that intellectualizing game theory — like von Neumann, who never got to his old age — is madness.
COWEN: Let’s say that Russia or China, by mistake, did a full-scale launch toward the United States, and they couldn’t call the things back, and we’re in that six-minute window, or whatever it would be with hypersonics. What do you think is the probability that we would do a full-scale launch back?
…COWEN: The word madness doesn’t have much force with me. My life is a lot of different kinds of madness. I’ve heard people say marriage is madness. A lot of social conventions seem to me to be madness.
The question is getting the least harmful form of madness out there. Then, I’m not convinced that those who wish to disarm have really made their case. Certainly, saying nuclear war is madness doesn’t persuade me. If anything, if enough people think it’s madness, we won’t get it, and it’s fine to have the nuclear weapons.
A different and quite stimulating episode.
My talk at DeepMind
The first part was on what I have changed my mind on, in the time following GPT-4. Then I field questions from the excellent Zhengdong Wang and also from the audience. Here is the link. By the way, this was from very early July, so a few things have changed since then, just fyi.
She cuts you hard, she cuts you deep