Why Care About Debt-to-GDP?
Here is another piece for “contrarian Tuesday,” like it or not:
We construct an international panel data set comprising three distinct yet plausible measures of government indebtedness: the debt-to-GDP, the interest-to-GDP, and the debt-to-equity ratios. Our analysis reveals that these measures yield differing conclusions about recent trends in government indebtedness. While the debt-to-GDP ratio has reached historically high levels, the other two indicators show either no clear trend or a declining pattern over recent decades. We argue for the development of stronger theoretical foundations for the measures employed in the literature, suggesting that, without such grounding, assertions about debt (un)sustainability may be premature.
That is from a new NBER working paper by , it is worth repeating this basic idea. And here is my earlier podcast with Alex on similar themes.
The puzzle of Pakistan’s poverty?
Until 2009, India was poorer than Pakistan on a per capita basis. India truly became richer than Pakistan after 2009 and since then it hasn’t looked back. If trends continue for a decade, India will be more than twice as rich as Pakistan soon…
So why has India pulled ahead in GDP per capita? The reason is simple. Pakistan’s high fertility has driven population growth faster than India’s. In 1952 Pakistan had about one-tenth of India’s population; by 2025 it had grown to nearly one-seventh.
In other words, many of the added Pakistanis have not started working yet, but they are on the books to lower the per capita esstimate. There is much in this Rohit Shinde essay I disagree with, but it is a useful corrective to those who simply wish to sing “policy, policy, policy.” Putting aside its per capita lag, Pakistan has done a better job keeping up with India than you might think at first.
In any case, I am not predicting that trend will continue in the future, I do not think so. So someday this essay might look especially “off,” nonetheless it is worth a moment of ponder.
O-Ring Automation
We study automation when tasks are quality complements rather than separable. Production requires numerous tasks whose qualities multiply as in an O-ring technology. A worker allocates a fixed endowment of time across the tasks performed; machines can replace tasks with given quality, and time is allocated across the remaining manual tasks. This “focus” mechanism generates three results. First, task-by-task substitution logic is incomplete because automating one task changes the return to automating others. Second, automation decisions are discrete and can require bundled adoption even when automation quality improves smoothly. Third, labour income can rise under partial automation because automation scales the value of remaining bottleneck tasks. These results imply that widely-used exposure indices, which aggregate task-level automation risk using linear formulas, will overstate displacement when tasks are complements. The relevant object is not average task exposure but the structure of bottlenecks and how automation reshapes worker time around them.
That is from a new paper by Joshua S. Gans and Avi Goldfarb. Once again people, the share of labor is unlikely to collapse…
Monday assorted links
1. Séb Krier.
2. Institute for Progress class in the economics of innovation.
3. It’s over, people. Alternately, here is Joshua Gans using AI for research.
6. The year in Neanderthals (NYT).
The wisdom of Garett Jones
Two cases for capital share going to zero in a strong AGI world: 1. Capital and labor are more like perfect complements than perfect substitutes, always will be as long as the economy is for humans, and so astronomical increases in capital shrink the capital share to zero.
Why capital share goes to zero in a strong AGI world: 2. Capital & labor are more like perfect substitutes than complements because AGI de facto replicates free humans. Astronomical increases in capital make capital so abundant it’s unpriced like air, so capital share is zero.
The link has a bit more. Of course this is a thought experiment and a reductio, not a prediction. (It seems people in the rationalist community systematically misunderstand how economists communicate? Maybe that is partly the fault of the economists, but they should not so dogmatically believe that the economists are wrong.) And here are very good comments from Basil Halperin.
The bottom line is that it is premature, to say the least, to expect that the share of labor falls to zero or near-zero.
Africa possibility of the day
Call it a statistical quirk if you must. But this year, with a bit of luck, Africa will grow faster than Asia. If the 54 African economies manage to outpace their Asian counterparts, it would be the first time in modern history that this has happened.
To achieve it, African economies will need to grow marginally faster on average than they did last year. In 2025, despite war in Sudan, insurgency in the Sahel and coups in Madagascar and Guinea Bissau, sub-Saharan Africa is expected to have mustered growth of about 4.1 per cent. The IMF expects this to notch up to 4.4 per cent as economies continue to reap the benefits of a weak dollar — good for cutting debt-service payments and easing inflationary pressure — and of high commodity prices, including for gold and copper.
At the same time, the IMF is predicting that, as the Chinese motor whirrs more slowly, the combined economies of Asia will slow in 2026 to around 4.1 per cent.
Here is more from David Pilling at the FT.
U.S. interventions in the New World, with leader removal
I can think of a few. I am not thinking of ongoing struggles, such as the funding of opposition to the Sandinistas, rather I wish to focus on cases where the key leaders actually were removed. After all, we know that is the case in Venezuela today. Maybe these efforts were rights violations, or unconstitutional, and yes that matters. But how did they fare in utilitarian terms?
Puerto Rico: 1898, a big success.
Mexican-American War: Removed Mexican leaders from what today is the American Southwest. Big utilitarian success, including for the many Mexicans who live there now.
Chile, and the coup against Allende: A utilitarian success, Chile is one of the wealthiest places in Latin America and a stable democracy today.
Grenada: Under Reagan, better than Marxism, not a huge success, but certainly an improvement.
Panama, under the first Bush, or for that matter much earlier to get the Canal built: Both times a big success.
Haiti, under Clinton, and also 1915-1934: Unclear what the counterfactuals should be, still this case has to be considered a terrible failure.
Cuba, 1906-1909: Unclear? Nor do I know enough to assess the counterfactual.
Dominican Republic, 1961-1954, starting with Trujillo. A success, as today the DR is one of the wealthiest countries in Latin America. But the positive developments took a long time.
I do not know enough about the U.S. occupation of the DR 1916-1924 to judge that instance. But not an obvious success?
Can we count the American Revolution itself? The Civil War? Both I would say were successes.
We played partial but perhaps non-decisive roles in regime changes in Ecuador 1963 and Brazil 1964, in any case I consider those results to be unclear. Maybe Nicaragua 1909-1933 counts here as well.
So the utilitarian in you, at least, should be happy about Venezuela, whether or not you should be happy on net.
You should note two things. First, the Latin interventions on the whole have gone much better than the Middle East interventions. Perhaps that is because the region has stronger ties to democracy, and also is closer to the United States, both geographically and culturally. Second, looking only at the successes, often they took a long time and/or were not exactly the exact kinds of successes the intervenors may have sought.
Absher, Grier, and Grier consider CIA activism in Latin America and find poor results. I think much of that is springing from cases where we failed to remove the actual leaders, such as Nicaragua and Cuba. Simply funding a conflict does seem to yield poor returns.
Stories Beyond Demographics
The representation theory of stories, where the protagonist must mirror my gender, race, or sexuality for me to find myself in the story, offers a cramped view of what fiction can do and a shallow account of how it actually works. Stories succeed not through mirroring but by revealing human patterns that cut across identity. Archetypes like Hero, Caregiver, Explorer, and Artist, and structures like Tragedy, Romance, and Quest are available to everyone. That is why a Japanese salaryman can love Star Wars despite never having been to space or met a Wookie and why an American teenager can recognize herself in a nineteenth-century Russian novel.
Tom Bogle makes this point well in a post on Facebook:
I have no issue with people wanting representation of historically marginalized people in stories. I understand that people want to “see themselves” in the story.
But it is more important to see the stories in ourselves than to see ourselves in the stories.
When we focus on the representation model, we recreate a character to be an outward representation of physical traits. Then the internal character traits of that individual become associated with the outward physical appearance of the character and we pigeonhole ourselves into thinking that we are supposed to relate only to the character that looks like us. Movies and TV shows have adopted the Homer Simpson model of the aloof, detached, and even imbecilic father, and I, as a middle-aged cis het white guy with seven kids could easily fall into the trap of thinking that is the only character to whom I can relate. It also forces us to change the stories and their underlying imagery in order to fit our own narrative preferences, which sort of undermines the purpose for retelling an old story in the first place.
The archetypal model, however, shifts our way of thinking. Instead of needing to adapt the story of Little Red-Cap (Red Riding Hood) to my own social and cultural norms so that I can see myself in the story, I am tasked with seeing the story play out in myself. How am I Riding Hood? How am I the Wolf? How does the grandmother figure appear in me from time to time? Who has been the Woodsman in my life? How have I been the Woodsman to myself or others? Even the themes of the story must be applied to my patterns of behavior or belief systems, not simply the characters. This model also enables us to retain the integrity of the versions of these stories that have withstood the test of time.
So if your goal is actually to affect real social change through stories, I would encourage you to consider how the archetypal approach may actually be more effective at accomplishing your aims than the representational approach alone (as they are not necessarily in conflict with one another).
Adam Smith markets in everything
Gustavo Dudamel — the Oscar L. Tang & H.M. Agnes Hsu-Tang Music & Artistic Director Designate — conducts the World Premiere of the wealth of nations, a highly anticipated commission from the Pulitzer Prize–winning composer David Lang. Inspired by economist Adam Smith’s 1776 magnum opus, Lang dramatizes this foundational work about economics as inspired by Handel’s treatment of Biblical texts in Messiah. “I want this work to be enjoyable and thought-provoking,” says Lang, “encouraging audiences to consider what we truly value.”
Here is the link.
What I’ve been reading
Michael Wachtel, Viacheslav Ivanov: A Symbolist Life. 615 pp. of what Russian/Soviet cultural life was like in the early 20th century. Focuses on broader strands, rather than just the most famous names. Ivanov today is largely forgotten, but he was at the time arguably the most influential figure of that period. “They were mostly a bunch of nuts” is one of my takeaways.
Herbert Breslin and Anne Midgette, The King and I: The Uncensored Tale of Luciano Pavarotti’s Rise to Fame by his Manager, Friend, and Sometime Adversary. Usually people tell me books like this are “delightful,” and then they bore me to tears. This one actually is fantastically fun. “To tell the truth, though, Luciano didn’t care about the money at the beginning. In the early years, he never asked me how much he was going to get paid for a recital. He had only one condition: it had to be sold out.”
Alan Manning, Why Immigration Policy is Hard and How to Make it Better is a thoughtful and balanced look at its topic, recommended.
Alex Mayyasi, Planet Money: A Guide to the Economic Forces that Shape Your Life is a useful introduction to economic concepts.
Nicolas Niarchos, The Elements of Power: A Story of War, Technology, and the Dirtiest Supply Chain on Earth is a good treatment of minerals issues as they relate to the Congo today. It will not make you more bullish on Rwanda, or for that matter the Congo.
Eve MacDonald, Carthage: A New History covers what we do know about those people. That isn’t much at the conceptual level, and I wonder why archaeology has not taught us more there.
I expect I will very much agree with Brink Lindsey, The Permanent Problem: The Uncertain Transition from Mass Plenty to Mass Flourishing.
Saturday assorted links
1. How to improve nursing homes in America.
3. On Nietzsche (Zarathustra always bored me).
5. LLMs describing the best very long-term investment you could have made in 1300 A.D. Excellent answers, I like the GPT one best.
Why Some US Indian Reservations Prosper While Others Struggle
Our colleague Thomas Stratmann writes about the political economy of Indian reservations in his excellent Substack Rules and Results.
Across 123 tribal nations in the lower 48 states, median household income for Native American residents ranges from roughly $20,000 to over $130,000—a sixfold difference. Some reservations have household incomes comparable to middle-class America. Others face persistent poverty.
Why?
The common assumption: casino revenue. The data show otherwise. Gaming, natural resources, and location explain some variation. But they don’t explain most of it. What does? Institutional quality.
The Reservation Economic Freedom Index 2.0 measures how property rights, regulatory clarity, governance, and economic freedom vary across tribal nations. The correlation with prosperity is clear, consistent, and statistically significant. A 1-point improvement in REFI—on a 0-to-13 scale—correlates with approximately $1,800 higher median household income. A 10-point improvement? Nearly $18,000 more per household.
Many low-REFI features aren’t tribal choices—they’re federal impositions. Trust status prevents land from being used as collateral. Overlapping federal-state-tribal jurisdiction creates regulatory uncertainty. BIA approval requirements add months or years to routine transactions. Complex jurisdictional frameworks can deter investment when the rules governing business activity, dispute resolution, and enforcement remain unclear.
This is an important research program. In addition to potentially improving the lives of native Americans, the 123 tribal nations are a new and interesting dataset to study institutions.
See the post for more details amd discussion of causality. A longer paper is here.
The Venezuela conflict
Comments are open, in case you have intelligent insight or useful facts to add…
Luis Garicano career advice
Take the messy job:
The other option is to go for a messy job, where the output is the product of many different tasks, many of which affect each other.
The head of engineering at a manufacturing plant I know well must decide who to hire, which machines to buy, how to lay them down in the plant, negotiate with the workers and the higher ups the solutions proposed, and mobilise the resources to implement them. That task is extraordinarily hard to automate. Artificial intelligence commoditizes codified knowledge: textbooks, proofs, syntax. But it does not interface in a meaningful way with local knowledge, where a much larger share of the value of messy jobs is created. Even if artificial intelligence excelled at most of the single tasks that make up her job, it could not walk the factory floor to cajole a manager to redesign a production process.
A management consultant whose job consists entirely of producing slide decks is exposed. A consultant who spends half of her time reading the room, building client relationships, and navigating organizational politics has a bundle AI cannot replicate.
Here is the full letter.
Direct and Indirect Effects of Vaccines: Evidence from COVID-19
Sorry people, but the verdict on this one continues to come in:
We estimate direct and indirect vaccine effectiveness and assess how far the infection-reducing externality extends from the vaccinated, a key input to policy decisions. Our empirical strategy uses nearly universal microdata from a single state and relies on the six-month delay between 12- and 11-year-old COVID vaccine eligibility. Vaccination reduces cases by 80 percent, the direct effect. This protection spills over to close contacts, producing a household-level indirect effect about three-fourths as large as the direct effect. However, indirect effects do not extend to schoolmates. Our results highlight vaccine reach as important to consider when designing policy for infectious disease.
That is from American Economic Journal: Applied Economics, by Seth Freedman, Daniel W. Sacks, Kosali Simon, and Coady Wing. So many different methods and papers are pointing in the same direction…