If you’ve been on LinkedIn recently, then you may have seen the chatter about teaching your artificial intelligence to have various skills. I saw one post by a guy who claimed to have created several skills, each representing a tech billionaire.
At first, I thought “I am behind the 8-ball. What is this new thing?”. Obviously I know what the word “skill” is and how people use it, but I had not encountered its use in the context of AI having it. What does it mean for an AI to have a skill? I somewhat dreaded the the work of learning the new skill of teaching my AI skills.
Then I had lunch with a computer scientist and I learned that skills are nothing new.
No, according to a new paper from the University of Georgia’s Michael Kotrous.
Many people expected it to, partly by thinking about the jobs that could benefit from faster internet, and partly by looking at the experience of Chattanooga, Tennessee. Chattanooga was the first major city to get gigabit-speed broadband, and they did see a huge improvement in the labor market right afterwards:
But as the graph shows, the introduction of broadband there coincides with the end of the nationwide Great Recession. Was the boom in jobs after 2009 because of the broadband, or would it have happened anyway as party of the recovery from recession? A synthetic control strategy shows that Chattanooga’s recovery was pretty typical for cities like it, so the broadband angle probably didn’t do much:
This might seem like a historical curiosity about one city, but the federal government is currently trying to spend $42 billion to expand broadband to more places, partly motivated by the idea of bringing jobs. I thought the Broadband Equity Access and Deployment Program‘s big problem is how slow it is- Congress created with the Infrastructure Investment and Jobs Act of 2021, but money didn’t start getting sent out until late 2025, and it could be many more years before it leads to any useable broadband. Even then it now seems unlikely to bring jobs, though there could be other benefits.
This paper’s author Michael Kotrous is currently on the economics job market. As his former professor and coauthor, I recommend hiring him if your school gets the chance.
In the (so far) short military engagement with Iran, crude oil and gasoline prices have jumped significantly. The three-week change in gasoline prices at the pump for US consumers was 27 percent, the largest three-week increase consumers in the US have ever seen (with data back through the 1990s). The four-week increase is also a record.
Despite this sharp increase, gasoline prices remain near the long-run average in terms of affordability: it takes about 7 minutes of work at the average wage to purchase a gallon of gasoline. To be sure, this is a big jump of where it had been earlier in 2026, at about 5 minutes of labor. Nonetheless, gasoline is still (for now!) more affordable than it was, relative to wages, for almost all of 2022 and 2023.
Negative headlines tend to get more attention than bland positive titles. We have seen a lot of angst in the past few months over the massive capex spend by big tech companies, with questions over whether there will be adequate returns on these investments.
There was a genuine untethered bubble in tech stocks circa 1997-2000. Companies with no earnings and no moats were given billion-dollar valuations, on the strength of a business plan sketched on a cocktail napkin. After the brutal bursting of that bubble, tech stocks repriced and then steadily strengthened for the next 25 years.
Nevertheless, it seems there is always some negative narrative to be found regarding tech stock valuations and prospects. Seeking Alpha author Beth Kindig writes that investors who were spooked by all those bubble warnings lost out big time:
Investors have been hearing “tech bubble” warnings for more than a decade — but instead of collapsing, the Nasdaq‑100 has gained 550%. If we look back ten years ago to 2015, headlines such as “Sell everything! 2016 will be a cataclysmic year” confronted investors with calls for an imminent recession. The bears made repeated claims that a “tech bubble” was about to burst with some of the world’s most prominent venture capitalists drawing parallels to the dot-com era.
What followed tells a very different story, with not only the Nasdaq-100 up 550% over a 10-year period but also high-flying stocks like Shopify returning as much as 5200% and Nvidia returning 22,000% over the same period.
It’s true that capturing those gains does not come easy. Investors had to hold through five drawdowns that were greater than 20%, including two declines greater than 30%, while tuning out a constant stream of bearish commentary – often from reputable sources – proclaiming the long-awaited tech bubble has finally “popped.” Despite these strong convictions, the long-term trend remained intact.
She presented this graphic which illustrates many of the negative headlines over the past decade:
While she acknowledges that traditional cloud computing applications are slowing in growth rates, and there will be general market price volatility, she contends that AI is still in an acceleration phase:
The dot-com era was defined by oversupply and fragile fundamentals; today’s AI buildout is being led by the world’s strongest operators, backed by real revenues and profits, and constrained by hard limits in compute, memory, networking, and power.
The more important question isn’t whether we’ll see a pullback — it’s where we are in the cycle. AI is still transitioning from the training phase into the inference phase, where monetization will accelerate and the “capex with no revenue” narrative will begin to fade. In other words, the loudest bubble debates are arriving before the most important revenue engine fully turns on.
Those of us who are long tech stocks hope she is correct.
I learned about the children’s cartoon Gravity Falls this year from my kids.
Bluey is wonderful for kids and adults, but it does feel like a baby show since the younger dog Bingo is 4. If you are getting out of the baby stage with kids, Gravity Falls is great next step with 12-year-old twins. The jokes are funny, especially for American parents today who would have grown up with the cultural references.
Gravity Falls has emotional depth. These days the young folks are in “situationships” trying not to catch feelings (I hear). In Gravity Falls, everyone catches feelings so hard. It’s tragically beautiful like Anna Karenina. You can watch it on Disney+ and YouTube.
Mike Mulligan and His Steam Shovel, by Virginia Lee Burton, is a classic 1939 children’s book about a man, Mike Mulligan, and his beloved steam shovel, Mary Anne, who are replaced by modern machinery. They get one last chance to demonstrate their worth by digging the cellar for a new town hall in a single day.
This book is more than just a nostalgic children’s story with a happy ending. This is a tale about economic history, comparative advantage, non-pecuniary benefits, labor and capital heterogeneity, and, of course, transaction costs.
Here’s some background. Historically, excavating or earth-moving equipment was powered by steam. Much like a steam engine locomotive (train), a steam shovel burns coal to heat water in a boiler, creating steam that can drive pistons that operate the mechanics. The result is machinery that can move a greater volume of soil at a faster speed than humans with simple hand shovels. Advancements in oil extraction and refining and internal combustion made the steam methods obsolete. Diesel or gasoline made earth movers safer, faster, and larger all because there was no need to build high pressures from boiling water. Steam pressure in the field takes a lot of time and is dangerous.
Here is how the story goes. Mike enjoys his earth-moving work with his steam-shovel and is proud to be more productive than hand-shovels. One day, diesel, electric, and gasoline-powered shovels arrive. They’re bigger and better than Mary Anne. She is now obsolete. It’s unclear whether Mike’s skills are transferable to the newer equipment, but he implicitly prefers working with Mary Anne. Together, they can’t compete in the urban areas where the value placed on quick excavation is high. So, they flee to the countryside.
The text doesn’t say why the newer shovels aren’t in the countryside. Let’s address that first. The new shovels haven’t spread to the rural areas because the opportunity cost is too high. Diesel Shovels are expensive and the owners/operators need revenue from many jobs in order to pay for their equipment in a reasonable amount of time and earn a positive return. Rural areas don’t have the same willingness to pay for as many projects, so less specialized capital is limited by the smaller extent of the market. Clearly, a higher cost of capital – the cost of the loan that pays for the diesel shovels or the alternative uses of the resources – accentuate the necessity for project volume.
The Iran regime’s military strategy seems to be that by bombing the oil infrastructure of their neighbors and neutral shipping, US gasoline prices will go so high that Americans will demand an end to the war.
How many Americans would be willing to pay $6/gallon gas for months for a ~50% chance of toppling a regime that oppresses 90 million people and destabilizes its region on the other side of the world? Probably only a minority of voters, especially when the President didn’t make the case to the American people or Congress beforehand.
But the US produces more than enough oil for its own needs. Why does the Strait of Hormuz being closed mean higher gas prices here? Only because US oil companies can sell to global markets, and they won’t choose to sell a barrel of oil to a US refiner for $60 when they could sell it to a foreign refiner for $100. If the government took away the foreign option, US oil producers would sell to US refiners at prices consistent with pre-war sub-$3/gallon gasoline.
Naturally there would be costs to an export ban. US oil producers would miss out on windfall profits, while Russian producers would benefit. Foreign customers of US oil, many of them in allied countries, would be angered by the missed shipments and global oil prices would soar further.
But if the US administration wants to avoid a midterm wipeout driven by high gas prices, I see only 3 options:
Get lucky and see the Iranian regime fall quickly
Negotiate an end to the war quickly (which might itself be unpopular if they can’t get a good deal) or just declare victory and go home (but its not clear whether Iran would re-open the strait now just because the US stopped bombing)
Restrict Exports
I say “restrict” not “ban” because I don’t think a complete export ban is necessary to stabilize US prices. You could instead do an export tax (high enough to stop many exports but low enough to allow the buyers with the highest values / fewest alternatives to stay in the market), or you could do a ban but allow a few export waivers for favored buyers or sellers (which seems like Trump’s style), or similarly a quota limiting exports to a certain number (say, limit each company’s monthly exports to 90% of their volume in the same month last year).
This has an obvious precedent: the Biden administration stopped issuing new permits to export liquified natural gas in 2024 to prevent prices spiking here during the Ukraine war (which led to even higher prices for our European allies). But a total ban on oil exports would be a much bigger deal.
Will the Trump administration actually try something like this? It will be an interesting test of US political economy to see what happens when the interests of the military-industrial complex conflict with the interests of oil producers.
The following chart shows cumulative population growth in the US since 2010, from two sources: the natural population growth (birth minus deaths) and international migration:
In total, the US population has increased by about 30 million people since 2010. Cumulatively, about 55 percent of the growth has been from international migration, but there are two distinct periods within this 15-year timeframe. From 2010 to 2020, about 60 percent of the population growth was from natural population change, both cumulatively and in most of those years. From 2021 forward, 70-90 percent of the growth has been from international migration.
The flip in 2021 happens because both factors changed. First, the natural rate of population growth slowed dramatically, with just 146,000 people added to the population, compared with close to 1 million or more before the COVID pandemic. The decline in population growth is a result of gradually slowing birth rates, but also skyrocketing death rates in 2021-2022: about 3.4 million deaths per year, compared with about 2.8 million pre-pandemic. Second, international migration picked up dramatically, from around half a million people in 2019-2020, to an average of over 2 million per year from 2022-2024.
Note: the years in this data run from July to June, so when it says 2025 in the chart, this means from 7/1/2024 to 6/30/2025. Thus, we don’t yet have a full year of data under Trump. But even with the half year under Trump, which includes 6-7 months under Biden when the border policy was already being reversed, the latest year of data from Census suggests the US still had a net international migration of almost 1.3 million people. That’s half the number from 2024, but still well above pre-pandemic numbers. Keep in mind that these are estimates, subject to change, and estimating changes in the illegal immigrant population is often very difficult to do accurately. But these are probably the best estimates that we have right now.
What does the future hold? Of course, any future projection has to make assumptions about how both the birth rate and immigration rate will change over the coming years. But a recent estimate from CBO suggests that by around 2032-2033 the natural rate of population growth will essentially hit zero, and that by the early 2050s it will be so negative as to completely offset the projected immigration. In other words, total population growth could essentially be zero in the US by 2055 or so. That’s 30 years in the future, so take it with a grain of salt, as any small change in immigration, births, or deaths could throw that projection way off. But it seems like a fairly likely scenario.
After being convinced by a series of favorable articles, I bought a few shares last month of the EWY fund, which holds shares of major South Korean companies. The narrative seemed compelling: the vast production of compute processing chips for AI has led to a structural supply shortage of fast memory chips. South Korean firms excel in making these chips, and so high, growing profits seemed assured. What could possibly go wrong?
What I didn’t know was that thousands of other retail investors were thinking the exact same thing, and hence had bid the price of EWY up to possibly unreasonable levels. Somehow, my bullish analysts missed that point. In particular, the South Korean market is driven by an unusually high level of margin trading, where investors borrow money on margin to buy shares. A market drop leads to margin calls, which leads to forced selling, which really crashes prices.
The other thing I did not know was that, two days after my purchase, the attacks on Iran would commence. Oops. Among other things, this would drive up the world price of oil, which impacts energy importers like South Korea. This seems to have been the trigger for the sharp stock drop.
Here is the six-month price chart for EWY:
As it happened, I bought pretty much at the top, and as of Monday midday when I am writing this, EWY was down about 17%. That doesn’t look like much of a drop on the chart, because of the long run-up to this point, but it is an unpleasant development if you just bought in two weeks ago.
Fortunately, when I bought the EWY shares, I set up a protective options collar, since this was not a high conviction buy. First, I bought a put with a strike price about 7% below my purchase price, which would limit my maximum loss on the EWY shares to 7%. A problem is that this put cost serious money (about 11% of the share price), so my maximum loss could actually be 7% plus 11% = 18%. Therefore, I offset nearly all the cost of the put by selling a call with a strike price about 17% above the current EWY share price. That meant that I could profit from a rise in EWY share price by up to 17%, while being protected against a drop of more than 7%. That seemed like a favorable asymmetry (7% max loss vs 17% max gain).
This arrangement (buying a protective put to limit downside, financed by selling a call which limits upside) is called an options “collar”. I’d rather accept a limited upside than have to worry about doing clever trading to mitigate a big loss.
As of Monday, my collar was working well to protect the overall position. As might be expected, the value of my put increased, with the drop in EWY share price. But also, the value of my call decreased, which further helps me, since I am short that call. The net result was that about 75% of the loss in the stock price was compensated by the changes in values of the two options.
This is just a small, experimental position, but it was nice to see practical outcomes line up with theory.
Disclaimer: As usual, nothing here should be considered advice to buy or sell any security.
I don’t have an article or statistic to point to, just a question: what is the threshold at which a betting market outcome becomes endogenous to the existence of the betting market?
Polymarket recenttly removed its market for a nuclear detonation. The implication is straightforward: if a market exists for an outcome that a singular individual (or small group) can make manifest, then as the market becomes takes on greater volume, the maximal reward for independently producing the wagered upon outcome increases. This generates a testable hypothesis: does the predicted possibility of a positive outcome increase with market volume?
If and when the answer is yes, market volume has a positive causal relationship with market outcomes, then the welfare proposition of the market existing comes into question. I don’t care about more accurately predicting nuclear detonation if the market yielding the prediction is increasing it’s probability of occurring.
Now, do I think betting markets are increasing the probability of a nuclear explosion? Eh….probably not, or at the very least the effect should be quite modest. But there are lots of events on prediction markets that raise this possibility without wading into the waters of apocalypse-adjacent outcomes. As I discussed previously, the endogeneity of sports outcomes to betting markets is threatening the integrity of professional competition. Many of those obscure sports wagers don’t seem like thick markets, but relative to a 20 years where such wagers didn’t even exist, they are positively rippling with volume.
In a world where unscrupulous individuals are betting big on their ability to extract enough rents in public life before the world catches up with them, we would be wise not that add more profit channels for corruptuon than we are capable of credibly monitoring.
Economist Writing Every Day 