Author: James Bailey

Commodity Sports

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I’m trying to coin “Commodity Sports” as the term to refer to sports betting that takes place on exchanges regulated by the US Commodity Futures Trading Commission, as opposed to sports betting that takes place through casinos regulated by state gaming commissions. So far it seems to be working alright, I haven’t convinced Gemini but have got the top spot in traditional Google search:

That article- Will Commodity Sports Last?– is my first at EconLog. I’m happy to get a piece onto one of the oldest economics blogs, one where I was reading Arnold Kling’s takes on the Great Recession in real time, where I was introduced to Bryan Caplan’s writing before I read his books, and where Scott Sumner wrote for many years (though I started reading him at The Money Illusion before that).

The key idea of the piece, other than the legal oddity of sports betting sharing a legal category with corn futures, is that the Commodity Sports category is being pioneered by prediction markets like Kalshi. As readers here will know, I like prediction markets:

I love that CFTC-regulated exchanges like Kalshi and Polymarket are bringing prediction markets to the mainstream. The true value of prediction markets is to aggregate information dispersed across the world into a single number that represents the most accurate forecast of the future.

But I’m not so excited to see them expanding into sports:

Although I see huge value in prediction markets when they are offering more accurate forecasts on important issues that help policymakers, businesses, and individuals make more informed plans for our future (e.g., Which world leaders will leave office this year?, or Which countries will have a recession?)… I see much less value in having a more accurate forecast of how many receptions Jaxon Smith-Njigba will have.

Like Robin Hanson, I worry that the legal battles against Commodity Sports and the brewing cultural backlash against sports betting risk taking the most informative prediction markets down along with it.

The full piece is here.

Forecasting An Eventful 2026

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May you live in interesting times – apocryphal Chinese curse

In early 2025 I shared forecasts about the economy that turned out to be pretty good. This year, economic forecasts center around a boringly decent year (2.6% GDP growth, inflation below 3%, unemployment stays below 5%, no recession), though with high variance. But forecasts about politics and war foretell a turbulent year.

In the US, midterm elections have a 78% chance to flip control of the House and 35% chance to flip the Senate despite a tough map for Democrats. A midterm wave for the out-of-power party is typical in the US, given that the party in power always seems to over-play their hand and voters quickly get sick them. More surprising is that forecasters give a 44% chance that Donald Trump leaves office before his term is up, and a 16% chance that he leaves office this year. Markets give a 20% chance that he will be removed from office through the impeachment process, so the rest of the 44% would be from health issues or voluntary resignation.

Forecasters at Kalshi predict a greater than even chance that 4 notable world leaders leave office this year:

I find this especially notable because Viktor Orban is the only one who would be removed through regularly scheduled elections. In the UK, Keir Starmer was just elected Prime Minister in 2024 and doesn’t have to face reelection until 2029; but he is so unpopular that his own Labor Party is likely to kick him out of office if local elections in May go as badly as polls indicate. If so, he would join Boris Johnson and Liz Truss as the third British PM in four years to leave office without directly losing an election. The leaders of Cuba and Iran don’t face real elections and would presumably be pushed out by a popular uprising or US military action.

Some other important world leaders will probably stay in office this year, but forecasters still think there is a significant chance they leave: Israel’s Netanyahu (49%), Ukraine’s Zelenskyy (32%), and Russia’s Putin (14%). For the latter two, this belief could be tied to the surprisingly high odds given to a ceasefire in the Russia-Ukraine war this year (45%). Orban leaving office could be tied into this, as Hungary has often vetoed EU support for Ukraine.

Myself, I find most of these market odds to be high, and I’m tempted to make the “nothing ever happens” trade and bet that everyone stays in office. But even if all these markets are 10pp high, it still implies quite an eventful year ahead. Prepare accordingly.

The Wealth Ladder

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The Wealth Ladder is a 2025 personal finance book from data blogger Nick Maggiulli. The core idea is good: that the best financial strategies will be different based on your current wealth level. Maggiulli divides people into 6 net worth levels based on orders of magnitude, from less than $10K to over $100M. The middle of the book has separate chapters with advice for people in each level, so a book that is already a fairly quick and easy read as a whole could be even quicker if you skipped the chapters about levels other than your own.

The beginning of the book tries to develop some simple rules phrased in a way that they can apply across every level, because they are based on a percentage of your net worth. I like the idea but don’t think it really worked. His “1% Rule” says you should only accept an opportunity to earn money if it will increase your net worth by at least 1%. But in practice, whether an earning opportunity is worth your time depends less on how many absolute dollars in generates as a % of your net worth, and more on how many $ per hour it generates. The “0.01% Rule” (don’t worry about spending money on anything that costs less than 0.01% of your net worth) is better. But whether it is a good rule for you will depend on your age and income.

In short, while tailoring his advice in 6 different ways for the 6 wealth levels of his ladder is an improvement on one-size-fits all personal finance books, even this much tailoring isn’t enough. Having a $1 million net worth is normal for a household in their 60s but would be exceptional for one in their 20’s; and vice-versa for a household with under $10k net worth. Chapter 10 explains the data on this well, but it kind of undermines the ideas of the previous chapters. Households with the same net worth should be making very different decisions in their 20s vs 60s.

The strongest part of the book is the use of data from the Survey of Consumer Finances and the Panel Study of Income Dynamics to show how people differ by wealth level and how people move from one level to another. For instance, he shows that the poor have most of their wealth in cash and vehicles; the middle class in homes; the wealthy in retirement accounts and stocks; the very rich in private businesses. Americans tend to climb the wealth ladder slowly but steadily; over 10 years they are twice as likely to move up the ladder as to move down; over 20 years, 3 times as likely. The median person who made it to one of the top 3 rings (i.e. the median millionaire) is in their 60s.

If you get ahold of a copy of the book it’s definitely worthwhile to flip through all the tables and figures, but I won’t be adding to to my short list of the best personal finance books. The core metaphor of the ladder carriers the implicit assumption that everyone should be trying to get to the top of the ladder. But if someone is satisfied with less than $10 million, why should they take on lots of time and effort and risk to start a business for a small chance to go over $100 million?

Continue reading →

How to Make a Few Billion Dollars

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The title is excellent, given that the author Brad Jacobs did in fact make a few billion dollars.

The book itself is fine to read, but also fine to skip if you aren’t yourself burning to build a billion dollar company through excellent management and mergers and acquisitions. I certainly don’t care to, which Jacobs says would make me a bad hire for one of his companies:

I only hire people who are motivated to make a lot of money…. If an candidate says to me ‘I’m not motivated by money’, I suspect either they’re not being candid or they lack the hunger that’s necessary to succeed

The book has plenty of hard-driving sentiments like this that you’d expect from a self-made billionaire:

Fire C players

For the first time ever, an American company, Exxon, had reported quarterly earnings in excess of $1 billion. The words “obscene profits” flashed on my TV screen, and I remember thinking “That sounds pretty good! Maybe I ought to check out the oil sector.” [This part I agree with, economic theory predicts that entrepreneurs will enter the sectors with the highest profits and its what I’d do if I wanted to make money, though in practice I think it is surprisingly rare for would-be entrepreneurs to choose this way -JB]

“The CEO trait most closely correlated with organizational success is high IQ” [specifically more important than EQ]

But Jacobs balances these ideas with some surprisingly hippy-like attitudes. Jacobs went to Bennington College and almost had a career as a jazz keyboardist. Chapter 1 is titled “How to Rearrange Your Brain”, and emphasizes the importance of meditation. Page 21 is basically “have you ever really looked at your hands, man… do it, it’s a trip”

I don’t want to spend even one hour around people who are unkind. An organization is like a party. You only want to invite people who bring the vibe up

Though perhaps this hippy/anti-hippy balance shouldn’t be surprising for someone who says one of the main things he asks about potential hires is “can this person think dialectically”.

Strongly recommend the book if you want to follow Jacobs’ path; weakly recommend it as a general management/self-help book or way to learn about markets.

The Hot Social Network Is… LinkedIn?

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So says the Wall Street Journal. They have data to back it up:

Plus quotes from yours truly:

Even before Elon Musk gutted X’s content moderation, James Bailey was tired of the shouting. “It’s like a cursed artifact that gives you great power to keep up with what’s going on, but at the cost of subtly corrupting your soul,” said the 38-year-old Providence College economics professor.

He retreated. This year, he realized he was spending five to 10 minutes a day on a site he used to ignore.

The WSJ reporter contacted me after seeing my previous post about LinkedIn here, explaining how I think LinkedIn has improved as a way to share and read articles, and was always good as a way to keep up with former students. Just in the short time since the WSJ article came out, I finally used LinkedIn for one of its official purposes, hiring, where it worked wonders helping to fill a last-minute vacancy.

If you don’t trust me or the WSJ to identify the hot social network, lets see what the actual cool kids are up to

Is This the End of the Largest Refugee Crisis in the Americas?

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Our 2024 post on the Venezuelan election provides context for this week’s dramatic events:

Venezuela held an election this week; President Maduro says he won, while the opposition and independent observers say he lost. Disputed elections like this are fairly common across the world, but where Venezuela really stands out is not how people vote at the ballot box- it is how they vote with their feet.

Reuters notes that “A Maduro win could spur more migration from Venezuela, once the continent’s wealthiest country, which in recent years has seen a third of its population leave.”

This makes Venezuela the largest refugee crisis in the history of the Americas, and depending on how you count the partition of India, perhaps the largest refugee crisis in human history that was not triggered by an invasion or civil war.

Instead, it has been triggered by the Maduro regime choosing terrible policies that have needlessly and dramatically impoverished the country

Plus some foreshadowing:

I hope that the Venezuelan government will soon come to represent the will of its people. I’m not sure how that is likely to happen, though I guess positive change is mostly likely to come from Venezuelans themselves (perhaps with help from Colombia and Brazil); when the US tries to play a bigger role we often make things worse. But what has happened in Venezuela for the past 10 years is clearly much worse than the “normal” bad economic policies and even democratic backsliding that we see elsewhere. 

Here’s an update on the chart I shared then, showing that the diaspora has continued to swell:

I hope that Venezuela will soon become the sort of country people don’t want to flee. I don’t necessarily expect that it will, but it’s not now a crazy hope:

How Good Were 2025 Forecasts?

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Last January I shared a roundup of forecasts for the year from markets and professional economists. Were they any good? Here was their prediction for the US economy:

WSJ’s survey of economists reports that inflation expectations for 2025 were around 2% before the election, but are closer to 3% now. Their economists expect GDP growth slowing to 2%, unemployment ticking up slightly but staying in the low 4% range, with no recession. The basic message that 2025 will be a typical year for the US macroeconomy, but with inflation being slightly elevated, perhaps due to tariffs.

The verdicts (based on current data, which isn’t yet final for all of 2025):

Inflation: Nailed it exactly (2.7%)

GDP: We’re still waiting on Q4, but 2025 as a whole is on track to be a bit above the 2.0% forecast.

Unemployment: 4.6% as of November 2025, a bit above the 4.3% forecast

Recession: Didn’t happen, making the 22% chance forecast look fine

So the professional forecasters were probably a bit low on GDP and unemployment, but overall I’d say they had a good year. What about prediction markets?

For those who hope for DOGE to eliminate trillions in waste, or those who fear brutal austerity, the message from markets is that the huge deficits will continue, with the federal debt likely climbing to over $38 trillion by the end of the year. This is one reason markets see a 40% chance that the US credit rating gets downgraded this year.

While the US has only a 22% chance of a recession, China is currently at 48%, Britain at 80%, and Germany at 91%. The Fed probably cuts rates twice to around 4.0%.

Deficits: Nailed it, the federal debt is currently around $38.4 trillion.

US Credit Downgrade: It’s hard to score a prediction of a 40% chance of a binary event happening, but in any case Moodys downgraded the US’ credit rating in May, so that all three major agencies now rate it as not perfect.

The Fed: Cut rates a bit more than expected.

Foreign Recessions: China and Britain avoided recessions. Germany had a recession by the technical definition of Kalshi’s market, but not really in practice (FRED shows -0.2% Real GDP growth in Q2 followed by 0.00000% growth in Q3). Britain avoiding recession when markets showed an 80% chance was the biggest miss among the forecasts I highlighted.

Overall though, I’d say forecasters did fairly well in predicting how 2025 turned out, in spite of curveballs like the April tariff shock.

If you think the forecasters are no good and you can do better, you have more options than ever. Prediction markets are getting more questions and more liquidity if you’re up for putting your money where your mouth is; if you don’t want to put your own money at risk, there are forecasting contests with prizes for predicting 2026.

What to Do Before the New Year?

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Merry Christmas! I’m gifting you a couple ideas for money things to do in the remaining six days of 2025.

Ways to Help Yourself

Money in US Flexible Spending Accounts (FSAs) often disappears if not requested by New Year’s Day. Don’t forget to draw these down- especially it is a Dependent Care FSA, which can’t carry any money over to the new year. The money goes back to your employer if you don’t spend it, which means they don’t have an incentive to remind you themselves; so I’ll remind you to save you from having to go Krieger.

The next few days are also your last chance to do most tax-deductible spending in 2025, which could be business expenses, or contributing to tax-deductible accounts that don’t expire like a 401k or HSA (not FSA). See a more detailed list of tax ideas here. Depending on your situation (especially whether you itemize), this might also be a good time to make tax-deductible donations, which would:

Help Others

There are many good causes to donate to, but funding high-value low-cost health interventions in poor countries was probably the cheapest reliable way to save a life even before this year. When one of the largest funders of global health, USAID, was shut down this year, the marginal benefit of donations to global health likely went even higher. Givewell does the cost-effectiveness calculations to identify good options for specific charities in this area, like Helen Keller International. I like that I’ve been donating to these charities for years via Givewell’s donation portal and none of them have ever called me (since they don’t require a phone number) or mailed me anything.

This picture shows all the remains of the website of USAID, an agency that spent $32 billion in FY 2024

See you all in 2026

2025 In Books

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What I read in 2025:

Econ Books I Wrote Full Reviews Of:

The Little Book of Common Sense Investing: “John Bogle, the founder of Vanguard, wrote a short book in 2006 that explains his investment philosophy. I can sum it up at much less than book length: the best investment advice for almost everyone is to buy and hold a diversified, low-fee fund that tracks an index like the S&P 500.”

The Little Book that Beats the Market: “Greenblatt offers his own twist on value investing that emphasizes just two value metrics- earnings yield (basically P/E) and return on capital (return on assets). The idea is to blend them, finding the cheapest of the high-quality companies…. Greenblatt’s Little Book is a quick and easy way to learn a bit about value investing, but I think Bogle’s Little Book has the better advice.”

When Genius Failed: “Myron Scholes was on top of the world in 1997, having won the Nobel Prize in economics that year for his work in financial economics, work that he had applied in the real world in a wildly successful hedge fund, Long Term Capital Management. But just one year later, LTCM was saved from collapse only by a last-minute bailout that wiped out his equity (along with that of the other partners of the fund) and cast doubt on the value of his academic work…. The story is well-told, and the lessons are timeless”

The Art of Spending Money: “Its main point is that people tend to be happier spending money on things they value for their own sake- rather than things they buy to impress others, or piling up money as a yardstick to measure themselves against others (this is repeated with many variations). Overall it is well-written at the level of sentences and paragraphs with well-chosen stories and quotes, but I’m not sure what it all adds up to.”

Non-fiction I didn’t previously mention here:

The Napoleonic Wars: A Global History, Alexander Mikaberidze: Aims to educate us about the surprisingly major effects of the Napoleonic Wars outside of Europe. Succeeds wildly; I also learned a lot about the main European theatre. Hadn’t realized how poor British Russian relations were in this era, since they defeat Napoleon together in the end. But they were heading for war early on until a czar was assassinated, then actually went to war in the middle over Sweden and trade. Outside Europe, Britain briefly took Buenos Aires and Montevideo, and accidentally (?) captured Iceland, along with all the French and Dutch overseas colonies.

Talent: How to Identify Energizers, Creatives, and Winners Around the World, Tyler Cowen and Dan Gross: A business book that works best for someone who hires a lot. How to attract and retain diverse candidates, including but not limited to the most-discussed types of diversity. Tyler says that when he lived in Germany people often thought he was Turkish, and one told him to ‘get out of here, you Turk’.

Almost Human: The Astonishing Tale of Homo Naledi and the Discovery That Changed Our Human Story, Lee Berger and John Hawks: The story of how the authors excavated a cave in South Africa that held many remains from a previously unknown type of early human. Good storytelling, good explanations of what we know about early humans from other discoveries, and surprisingly frank discussions of the academic politics behind getting paleontology research funded.

The Ends of the World, Peter Brannen: The book explains Earth’s 5 previous mass extinctions and the geology / science behind how we found out what we know about them. Written explicitly about what all this means for current global warming; see my full review on that here.

Annals of the Former World, John McPhee: New Yorker writer follows geologists from New York to San Fransisco to learn about the land in between. Published as a series of 4 books (Basin and Range, In Suspect Terrain, Rising from the Plains, Assembling California), each one focusing on a different geologist and region. McPhee is known as an excellent stylist but the books are also quite substantive, I feel like I learned a lot.

Fiction

The Works of Dashiell Hammet: My friend Dashiell mentioned that this is who he was named after, and that Red Harvest was a good book of his to start with. He was right, and it lead me to read many others: The Thin Man (you may have heard of Hammet because of the movies adapted from this and The Maltese Falcon), Best Cases of the Continental Op, Honest Gain: Dicey Cases of the Continental Op. Almost every story has a twist more interesting than “the murderer isn’t who you suspected”.

Tress of the Emerald Sea, Brandon Sanderson. Sanderson is one of the most prolific authors of our time, so where do you start with him? He suggests “Mistborn or Tress of the Emerald Sea, depending if they want something more heisty and actiony or something more whimsical.”

The Frugal Wizard’s Handbook for Surviving Medieval England, Brandon Sanderson: Sanderson doing his best impression of Terry Pratchett rewriting Mark Twain’s Connecticut Yankee in King Arthur’s Court, with shades of Scott Meyer’s Off to Be the Wizard.

Janissaries, Jerry Pournelle: What if instead of going to a more primitive world alone, you got sent there with an army?

The Narrow Road Between Desires, Patrick Rothfuss: Enough of an expansion of The Lightning Tree to be worth reading, but at this point anything Rothfuss does other than finally finish Doors of Stone can’t help but be disappointing.

Beguilement, Lois McMaster Bujold: Her Sci Fi works are great so I looked forward to her take on the Fantasy genre, but this turns out to be her take on the Romance genre.

Meta

This year I realized that Hoopla has a lot of books that Libby doesn’t, it is worth checking both apps for a book if you have access to libraries that offer both

Macroeconomic Policy In a Nutshell

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What I’m telling my Intro Macro students on the last day of class, since we weren’t able to get through every chapter in the textbook:

A few of you might end up working in economic policy, or in highly macro-sensitive businesses like finance. For you, I recommend taking followup classes like Intermediate Macroeconomics or Money and Banking so you can understand the details. For everyone else, here are the very basics:

  1. In the long run, economic growth is what matters most. The difference between 2% and 3% real GDP growth per capita sounds small in a given year, but over your lifetime it is the difference between your country becoming 5 times better off vs 10 times better off.
  2. How to increase long-run economic growth? This is complicated and mostly not driven by traditional macroeconomic policy, but rather by having good culture, institutions, microeconomic policy, and luck.
  3. In the shorter run, you want to avoid recessions and bursts of inflation.
  4. High inflation means too many dollars chasing too few goods. To fix it, the federal government and the central bank need to stop printing so much money (the details can get very complicated here, but if we’re talking moderately high inflation like 5% the solution is probably the central bank raising interest rates, and if we’re talking very high inflation like 50% the solution is probably a big cut to government spending).
  5. If there is a recession (which will look to you like a big sudden increase in layoffs and bankruptcies), the solution is probably to reverse everything in the previous point. The government should make money ‘easier’ via the central bank lowering interest rates while the federal government spends more and taxes less.
  6. If you don’t take more economics classes, you will likely hear about macro issues mainly through the news media and social media. You should be aware of their two main biases: negativity bias and political bias.
    • Negativity Bias: If It Bleeds, It Leads on the news. Partly this is because bad news tends to happen suddenly while good news happens slowly, so it doesn’t seem like news; partly it just seems to be what people want from the news and from social media.
    • Political Bias: People tend to seek out news and social media sources that match their current preferences. These sources can be misleading in consistent ways for ideological reasons, or in varying ways based on whether the political party they like is currently in power.
  7. There are different ways to measure each key macroeconomic variable. Think through them now and make a principled decision about which ones you think are the best measures, and track those. Otherwise, your media ecosystem will cherry-pick for you whichever measures currently make the economy look either the best or the worst, depending on what their biases or incentives dictate.
  8. There are good ways to keep learning about economics outside of formal courses and textbooks, I list a few here.