The Macroeconomic Effects of Tariffs: Evidence From U.S. Historical Data
We study the macroeconomic effects of tariff policy using U.S. historical data from 1840–2024. We construct a narrative series of plausibly exogenous tariff changes based on major legislative actions, multilateral negotiations, and temporary surcharges– and use it as an instrument to identify a structural tariff shock. Tariff increases are consistently contractionary: imports fall sharply, exports decline with a lag, and output and manufacturing activity drop persistently. The shock transmits through both supply and demand channels. Prices rise in the full sample but fall post-WWII, a pattern consistent with changes in the monetary policy response and with stronger international retaliation and reciprocity in the modern trade regime.
That is from a new paper by Tamar den Besten and Diego R. Känzig. These effects of course do take some while to appear.
More Saturday assorted links
1. Turning a pdf into a short class.
2. Those mid-Atlantics love to fly to Tokyo. Mexico City not good enough for you?
3. Major AI researchers are rapidly turning more bullish for instance here is Roon. And here is Andrej.
4. The boom in Mexican trade (WSJ).
5. Thailand says its bombings in Cambodia are targeting the scam industry (NYT). Here is some commentary, the whole matter is deeply weird. Consider this a new take on Clausewitz!
Saturday assorted links
1. Some observations on immigration and wage effects. The spread of immigrants to incipient high-wage areas may be one rise why the geographic mobility of resident Americans has gone down.
2. No good explanation for why more boys than girls are born after wars.
3. Slides on ticket resale, by Eric Budish.
4. Steven Durlauf recommends five 2025 books in economics.
5. The ongoing rise of YouTube (FT). “The creator economy advertising market is expected to reach $37bn this year, up 26 per cent from a year ago, according to the estimates by the Interactive Advertising Bureau. The group expects the market to rise another 18 per cent in 2026.”
A model of girl happiness, a compensatory-use study
A statistical model was used to examine these relationships simultaneously by predicting the likelihood that a girl reports being very happy.
The model includes socioeconomic status, parent–child communication, screen-time limits, and an interaction between limits and communication.
The results reinforce the patterns in the figures. Parent–child communication dominates the model. Girls who report strong communication are about three to four times more likely to report being very happy than those who report none. Socioeconomic status shows a smaller independent association. Screen-time limits contribute little on their own and matter modestly only when strong communication is already present.
If phones were the central problem, limits would emerge as a robust solution across contexts. They do not…
What the compensatory-use model rejects is a stronger claim. It rejects the idea that smartphone exposure itself is the primary driver of youth distress and that prohibition is therefore the central remedy. If that causal story were correct, limits would show large and consistent benefits across households, including among those with the weakest communication and highest distress. They do not.
And to close:
The most reliable way to improve youth well-being is to meet individual needs through connection instead of control.
That work depends on cooperation, not compliance.
Here is the full essay by Owen Kellogg, of course this is only a single study.
Friday assorted links
1. David Brooks offers some Sidney awards, including to Works in Progress (NYT).
2. If you are the Lakers, of course you should have traded for the new superstar, namely Luka. But by now it is clear the trade actually will not work out so well, and Dallas is better off with Cooper Flagg.
3. “The threat to German auto producers isn’t from Chinese cars flooding Germany. It’s from Chinese cars flooding to emerging markets (red), where they’re killing the market for German cars. That’s not something EU tariffs on China are going to be able to fix.” Link here.
5. The brother Megan McArdle lost.
6. “Our Archivara Math Research Agent (in alpha) just became the first AI system to fully solve an Erdős problem on its own (zero human input or literature online).” Link here.
Scientific discoveries will be made by the young
The astronomy world was recently shaken by a discovery from an unexpected source: a teenager still in high school. Matteo Paz, a student from Pasadena, utilized archival data from NASA’s retired NEOWISE mission to bring 1.5 million invisible cosmic objects into the light.
During a stint at Caltech’s Planet Finder Academy, and mentored by astrophysicist Davy Kirkpatrick, Paz took a novel approach to data analysis. He built a unique machine learning model capable of sifting through a staggering 200 billion infrared records. In a span of only six weeks, his AI detected subtle patterns that human analysts had missed, identifying everything from distant quasars to exploding supernovas.
Here is the link, via Shruti.
Cayman (U.S.) fact of the day
Over the past four years, hedge funds have doubled their footprint in the U.S. debt market, making the Cayman Islands — where many hedge funds are officially based — the place where the most U.S. debt outside the United States is held, according to the Fed. Typically, people flock to Treasuries for safety in times of crisis. Yet, driven in large part by hedge fund activity, the Treasury market went through unusual turbulence during recent shocks, including the onset of the Covid-19 pandemic in March 2020 and President Trump’s “Liberation Day” tariff announcement in April 2025.
And this:
By the early 2010s, these foreign governments made up over 40 percent of Treasury holdings, excluding those the Federal Reserve held. That was up from just over 10 percent in the mid-1990s…Foreign governments now make up less than 15 percent of the overall Treasury market.
Will AI Improve Undergraduate Economics Education?
For decades, undergraduate economics educators have followed a well-worn playbook featuring textbooks, lectures and problem sets. Students have passively listened, taken notes and studied for exams. AI disrupts this educational process. Some students are using this tool as a substitute for their own precious time. What is our best response? This paper provides a prospective analysis of how to restructure every phase of the undergraduate economics experience to improve the major and better prepare students for their uncertain future. Departments face a principal/agent issue in implementing major curricular reforms. I discuss the incentive problems that arise both within economics departments and across departments. If we win this competition to reimagine the undergraduate experience, will the Deans reward us?
TC again: No.
Emergent Ventures India, 15th cohort
Adnan Abbasi, 25, founder of Thothica, received his grant to add an archive reader to make rare historical texts accessible using AI-powered translation. Also check out his AI generated debate between Nehru and Hayek.
Dheemanth Reddy, co-founder of Maya Research, received his grant to build Veena – cutting-edge speech models for English and Indian languages as naturally spoken by Indians.
Ritisha Sethi, 16, a high schooler from Lucknow, received her grant to develop Qubit Quest, her solution to help learn quantum computing through gamification.
Jnanendra K S received his grant to convert vintage cars to EVs in his automotive mechanic shop.
Sankalp Shrivastava, 21, self-taught developer and entrepreneur from Bhopal, received his grant for general career development.
Bharath H G received his grant to build a robotic system safely cleaning manholes remotely.
Sarthak Pandit, an engineering student, received his grant for building a wireless drone recharging system to eliminate manual battery swaps.
Namrata Rajagopal received her grant for Exception Raised – a grants program to enable India’s AI research ecosystem through funding, community, and mentorship. Check out their first cohort.
CEDA (Center for Economic Data and Analysis) at Ashoka University, received a grant to build the Economic Enterprises Tool, to integrate datasets delivering harmonized indicators across India’s enterprises.
Saransh Duharia received his grant for Garudakshak, to build a smart drone detection and neutralization system for civil use.
Aditya Gupta, 21, received his grant to develop a breath diagnostics tool screening for complex gut disorders non-invasively.
Farraz Mir received his grant for a bioinformatics automation project saving researchers time and lowering barriers to entry.
Yasmin Qureshi, 20, received her grant for travel and career development.
Jainul Abedin received his grant to scale Abyom SpaceTech, and develop India’s first reusable rocket and commercial rocket engine testing facility.
Kunjpreet Arora, 27, received his grant for Angirus, to transform plastic and industrial waste into waterproof, low-carbon bricks.
Vrinda Borkar, 30, received her grant for Wingrow Agritech, to develop agricultural markets for small farmers.
Those unfamiliar with Emergent Ventures can learn more here and here. The EV India announcement is here. More about the winners of EV India second, third, fourth, fifth, sixth, seventh, eighth, ninth, tenth, eleventh, twelfth, thirteenth, and fourteenth cohorts. To apply for EV India, use the EV application, click the “Apply Now” button and select India from the “My Project Will Affect” drop-down menu.
And here is Nabeel’s AI engine for other EV winners. Here are the other EV cohorts.
If you are interested in supporting the India tranche of Emergent Ventures, please write to me or to Shruti at [email protected].
Christmas assorted links
2. India is prepping for major economic reforms (FT).
3. One view on why computers cannot be conscious.
4. “America’s six largest banks added $600bn in market value in 2025, spurred on by the Trump administration’s push to deregulate the industry and a revival in investment banking.” (FT) This is one reason why gdp growth has been robust. Whatever you think of bank regulation more generally, in 2025 we needed less of it, not more.
5. Inmates could escape jail on drones (Times of London).
6. What do soccer tickets cost in New Jersey?
7. The origins of European thought on new discoveries.
8. Titanic, Hagen, 33-minute Guatemalan/Mexican musical avant-garde creation. Here is some background (NYT). I am growing increasingly bullish on Latin American and also Spanish-language music. I will be following it more closely in 2026.
Marginal Returns to Public Universities
From Jack Mountjoy, forthcoming in the QJE:
This paper studies the returns to enrolling in American public universities by comparing the long-term outcomes of barely admitted versus barely rejected applicants. I use administrative admission records spanning all 35 public universities in Texas, which collectively enroll 10 percent of all American public university students, to systematically identify and employ decentralized cutoffs in SAT/ACT scores that generate discontinuities in admission and enrollment. The typical marginally admitted student gains an additional year of education in the four-year sector, becomes 12 percentage points more likely to ever earn a bachelor’s degree, and eventually earns 8 percent more than their marginally rejected but otherwise identical counterpart. Marginally admitted students pay no additional tuition costs thanks to offsetting grant aid; cost-benefit calculations show internal rates of return of 26 percent for the marginal students themselves, 16 percent for society (which must pay for the additional education), and 7 percent for the government budget. Earnings gains are similar across admitting institutions of varying selectivity, but smaller for students from low-income families, who spend more time enrolled but complete fewer degrees and major in less lucrative fields. Finally, I develop a method to separately identify effects for students on the extensive margin of attending any university versus those on the margin of attending a more selective one, revealing larger effects on the extensive margin.
That is one simple way of seeing why I do not think of higher education as largely signaling, noting that signaling theories might give you a higher wage up front but not over extended periods of time, as worker quality becomes known.
Merry Christmas
Thanks for Christmas
Economic growth
Depending on how you look at it growth in Q3 was very very strong or very strong or just possibly merely strong.
Annual rates: GDP: 4.3% Real final sales to domestic purchasers: 2.9% Average of GDP & GDI: 3.4%
GDI: 2.4%
That is from Jason Furman.