Author: James Bailey

Read Grant’s Memoirs

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I heard so many recommendations to read Julius Caesar on the Conquest of Gaul and Winston Churchill on the Second World War– and the recommendations were right. We’re incredibly lucky that some great wartime leaders also happened to be great writers who chose to take the time to share their perspective on the history they helped make.

I rarely heard Ulysses S Grant mentioned as being in the same class of writer- but after reading his memoirs I think he should be. He was obviously a central wartime leader like they were, the highest-ranking general in the victorious Union army by the end of the US Civil War. But I’d never heard how he was also a great writer. He makes history like the campaigns of the Mexican and Civil wars feel understandable, while also sharing funny human stories. Some of these asides feel like they could have been written by Mark Twain, who did in fact help Grant edit and publish his memoirs.

It’s the rare doorstopper book that I wish were much longer- Grant was a two-term US President but his memoirs don’t cover those years at all. I don’t know how much of this is because he wanted to avoid the topic (he’s usually considered a much better general than president) and how much is that he simply ran out of time by dying of cancer.

A few highlights to give you an idea of what Grant was like. Certainly more like a modern economist than I expected:

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The Welfare-Productivity Tradeoff in US-China Trade

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Who benefits from trade between the US and China? If China subsidizes their exporting industries, should the US see this as a threat that undermines our industries, or thank China for lowering prices for US consumers? Does it matter that China runs a persistent trade surplus (exporting more than they import), while the US runs a persistent trade deficit?

Everyone has a take on these questions, but the answers I hear even among economists rarely draw from the leading modern models in the international trade literature. Krugman (1980) (10k citations) shows how large home markets matter for industries with increasing returns to scale. In a simple increasing returns model, unlike with Econ 101 comparative advantage, temporary subsidies can permanently flip which country an industry efficiently operates in.

Melitz (2003) (20k citations) extends the Krugman model to include firm-level productivity differences. Rubini (2014) extends the Melitz model to include innovation. Now Xiao (2025) has extended the Rubini model to include unbalanced trade, then calibrated the model with data from the US and China. Now that the mathematical models are able to incorporate more and more features of the real world, what do they show?

China’s trade surplus and the US trade deficit have tradeoffs. Specifically, China’s trade surplus leads them to be more productive than they otherwise would be, but have lower welfare, because so much of the fruit of their production is enjoyed by other countries. Conversely the US trade deficit leads us to produce less than we otherwise would, but to have higher welfare thanks to consumers enjoying the cheaper foreign goods.

In one sense this recapitulates some of the same debates people had without the math. Some people like trade because it benefits US consumers and overall present-day US wellbeing. Some don’t like it because it harms US manufacturing and our resiliency in any potential future conflict.

One advantage of the models is that it puts numbers on the tradeoffs. In this case, the welfare benefit to the US may be small relative to China’s welfare loss and relative to both countries’ productivity changes:

the average productivity increase caused by trade surplus ranges from 1.2 percentage points to 5.46 percentage points when the innovation cost changes. These results explain China’s long-term export promotion policies and align with its new policy goal of developing “new productivity forces”. I also identify a negative effect on China’s trade partners’ productivity (namely, the US), of between -2.74 percentage points and -5.89 percentage points. This comes at a welfare cost, equivalent to between 3 percentage points and 5.7 percentage points of consumption units. Correspondingly, China’s cheaper goods increase welfare in the US by between 0.26 percentage points and 1.22 percentage points

In addition to the big complex model, Xiao’s paper shares nice background on the sheer size of Chinese export subsidies, noting that they account for 2/3 of all manufacturing subsidies in G20 countries, and that export tax rebates are almost 2/3 as large as Chinese net exports. In short, China’s trade surplus is not simply driven by differing preferences and production capabilities across countries, but is largely driven by deliberate policy choices.

P.S. The paper’s author, Aochen Xiao, is on the econ job market.

Most Published Research Findings Are Directionally Correct

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As a new quick rule of thumb inspired by the Nature papers, you could do worse than “cut estimated effect sizes in half”. If a published paper says that a college degree raises wages 100%, then chances are the degree really does raise wages, but more like 40–50%. In 2005, John Ioannidis said that “most published research findings are false”. By 2026, we seem to have improved to “most published research findings are exaggerated.”

That’s the conclusion of my piece out today at Econlog: “Is Economics Finally Becoming Trustworthy?“

There’s plenty of both good and bad news for economics and the social sciences in both my piece and the Nature special issue it describes. It’s kind of like the Our World in Data motto:

In short, our attempt to replicate hundreds of papers showed that published social science results shouldn’t be trusted precisely today, but they seem to be getting more reliable over time, and they are much more reliable than chance. Economics and political science look the best, though we are still very far from perfect:

You can read the full piece here.

How To Blog

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Scott Alexander of Astral Codex Ten shares writing advice for aspiring bloggers here. He is very much worth listening to on this- he earns more from Substack subscriptions than he does as a doctor, and even that undersells his influence. He distinguishes two types of writers worth reading:

If you write brilliantly, the world will read your review of watching paint dry. If you’re a normal person, you have to content yourself with reaching the limited subset of people who are interested in your topic.

There’s one new brilliant person per year, maybe less. But dozens of bloggers – dozens! – reach the lower bar of providing value to the people who care about the same things they do. That could be you!

Here we just aim to be the second sort of writers. For me Scott is the first sort, and if that’s true for you too, you should just go read his whole 6000 word post. But many people find his writing overly long, so for you I offer a summary with highlights:

TLDR: Honesty is key. Write what you know and care about. Write what you really think. Write original by being, doing, and thinking original:

The problem with bloggers is that they read blogs. So when they want to write about their exciting new opinion, it’s probably an opinion they got from a blog.

The problem with blog readers is that they also read blogs. So when they read your opinion that you got from a blog, they’ll think “Oh yeah, I read that on that other guy’s blog last week.”

The end result is that everyone talks about the same thing over and over, hoping they can be the one to educate the last person on Substack who hasn’t heard that social priming studies don’t replicate, or that stairwell restrictions are bad housing policy….

If everything good in writing comes from contact with the world, then your goodness is proportional to how direct your contact is. Best-case scenario, you live with a Southeast Asian tribe yourself and report your results. Second-best case, you at least read the book by the guy who did that and form your own opinion. Third-best case, now you’re reading a blog post by someone who read the book, three levels distant from the world. But even that’s getting rarer. Now people are reading tweets by someone who read the review of the book by the person who met the tribe, and forming opinions based on those. At that point, almost all the work is being done by the prejudices of your sources, rather than brute facts about Southeast Asians.

You contribute to the blogosphere by injecting first-level facts about the world, or second-level primary sources by experts who have gotten the first-level facts. You draw down those contributions by playing too many games of telephone with popular topics that you got from the blogosphere itself.

Read Matt Levine:

You can write brilliantly about anything. Consider Matt Levine. I have no interest in finance. Even though I could make hundreds of thousands of dollars by understanding finance better, every time I consider doing this I bounce off the fact that all the relevant books include terms like “credit default swap” and “ergodicity”. But the first time I read Matt Levine’s finance newsletter, I thought “I am going to read this approximately every day for the rest of my life”, and I was right – even though I will never trade credit default swaps or do anything else that would make reading Matt Levine directly valuable to me.

Likewise, many discussions of Freddie deBoer start “I’m a huge fan of Freddie, even though I disagree with everything he says, and find him personally abrasive, and his topics are unoriginal and repetitive, and I hate him, and I hope he dies.” Then in what sense are you a fan? “Well, I read all of his posts.” Good work if you can get it.

I don’t think anyone wants to read our reviews of watching paint dry, but I do think we are sometimes the first to get to the bottom of something important, and I hope that’s part of what keeps you coming back:

There’s almost no topic so overdone that you can’t be the first person to do a good job writing about it…. When you demand even the flimsiest of details, nobody’s written a good blog post even on the ultra-controversial topics that everyone talks about every day.… Some of the posts I’m proudest of involved taking a topic everyone was talking about, then being (as far as I can tell) the first blogger to put in significant effort to see which side was right.

(Not the first person; often the answers are hidden in old scientific papers. But ordinary people won’t know about those papers unless someone blogs about them.)

Raise Rates- But Not Because Of Oil

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Next week the Fed will almost certainly hold interest rates steady. Stephen Miran will probably dissent saying the Fed should be cutting rates. Kevin Warsh, Trump’s nominee for Fed Chair, would also like to see cuts. But other prominent voices think that rising oil and gas prices mean we should be raising rates.

I still think that rate hikes make more sense than cuts- but not because of oil. The high oil and gas prices we’re seeing are obviously driven by supply shocks from the Iran war- not increasing demand. Raising rates to fight an oil shock would mean repeating a classic mistake.

But raising rates to fight core inflation that is at 3% makes perfect sense. Especially when inflation (overall or core) hasn’t been at or below the Fed’s supposed 2.0% target in over 5 years, and market forecasts predict it will stay well above 2.0% for the next 5 years.

Especially when real GDP is growing, and NGDP is still above trend, and the unemployment rate is 4.3%. Financial conditions are so loose that stock markets are hitting all time highs in the middle of a war.

Various Taylor Rules suggest that the Fed Funds rate should be between 4.25% and 6.25%, but the Fed currently has us at 3.75%.

I see so many good arguments to raise rates- there is no reason to bring up a bad one like oil prices. If we must latch on to a headline to find the argument to raise rates, let’s focus on a shoe company’s stock going up 600% because they announced they were pivoting AI.

The Novelist Paradox

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If novelists are so smart, why don’t they succeed at much besides writing fiction?

When I read a good novel I think “the author must be very smart to be able to write this and understand people so well”.

But novelists tend not to be very successful at things in life other than writing fiction, certainly not at anything like the rate of people who write good non-fiction books.

Just off the top of my head, people who wrote good / highly acclaimed non-fiction books while also being highly successful in other fields:

  • Julius Caesar
  • Marcus Aurelius
  • Benjamin Franklin
  • Richard Feynman
  • Winston Churchill
  • Barack Obama
  • JD Vance
  • Many top economists (Keynes, Hayek, Friedman)

While off the top of my head, novelists who reached anything like that level of success in other fields include:

… No one?

The best that comes to mind is people that started philosophical movements related to their writing, like Ayn Rand, Scott Alexander, or Eliezer Yudkowsky. But that’s clearly a different kind of success than for most non-fiction authors. Likewise when I ask Claude the best examples I get are doctors, lawyers, and academics, not world leaders. I’ve been kicking this idea around for years but was inspired to finally write it down because I found out that before Ben Hur was a movie it was a wildly successful novel, and the novel was written by former Civil War general Lew Wallace (not a great general as they go, but its still impressive to be a general at all). But I still think that is the exception.

In fact, worse than just “not being world-changingly successful”, some of my favorite living novelists sometimes seem crushed by the weight of everyday tasks like giving public talks, maintaining relationships, or completing their work anywhere close to on time.

Naming the living novelists I’m thinking of would be mean so here’s F Scott Fitzgerald

The paradox: if novelists are so smart, why aren’t they more broadly successful?

Potential resolutions:

  1. I’m wrong and novelists actually are broadly successful.
  2. Novelists are so smart, but tend to have other deficits that keep them from being broadly successful, or from wanting to try, e.g. being neurotic introverts
  3. Novelists aren’t so smart, it’s more of a narrow skill that we shouldn’t expect to indicate general intelligence, like being good at painting or football.

The question can be flipped: why can’t / won’t many very successful people write fiction? Are they more grounded in the real world when it treats them well? I’m not ‘very successful’ but I write a lot. In my case I’m not convinced I could even write a bad novel, much less a good one. Wouldn’t know where to start.

Cunningham’s Law Update: John Giebfried writes in with excellent counterexamples along the lines of resolution #1-

Making Friends In Politics Is Possible

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I knew getting involved in politics was a great way to make enemies, but it never occurred to me until I saw it in action that it can also be a way to make friends.

I’m still not very involved, even as academics go. I think many of us are a bit too eager to talk about political issues in general, but too slow to engage with the policy process in areas directly tied to our research. It’s hard to keep track of every relevant bill and proposed regulation, but I think we bring the most value when we’re the 3rd person to weigh in to share what the research says on an obscure topic, rather than the 3000th person to weigh in on a hot-button issue with a take that sounds just like everyone else on the same side.

My biggest surprise when testifying in state legislatures or public hearings has been that friends follow through while opponents don’t. People who disagree with me will say so at the time, then leave it at that. But people who agree with me will follow up afterwards with messages like “thanks for saying that” or “let’s get coffee”, or let me know when related issues come up.

Perhaps this is unusual, just some good luck in a small sample size, or a reflection of the fact that I only weigh in on relatively obscure issues far from the culture war. But again, I never even thought of this as a possibility. I still wouldn’t run for office any time soon. But if this wasn’t already obvious to everyone else, I encourage you to add this as one term in your own equation as you weigh the pros and cons of political engagement: “nudge the policy process in directions you like” + “engagement takes time and energy and makes enemies” + “maybe friends too”.

How Much To Trust Research Papers? My Rules Of Thumb

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  1. Trust literatures over single papers
  2. Common sense and Bayes’ Rule agree: extraordinary claims require extraordinary evidence
  3. Trust more when papers publicly share their data and code
  4. Trust higher-ranked journals more up to the level of top subfields (e.g. Journal of Health Economics, Journal of Labor Economics), but top general-interest journals can be prone to relaxing standards for sensationalist or ideologically favored claims (e.g. The Lancet, PNAS, Science/Nature when covering social science)
  5. More recent is better for empirical papers, data and methods have tended to improve with time
  6. Overall effects are more trustworthy than interaction or subgroup effects, the latter two are easier to p-hack and necessarily have lower statistical power
  7. Trust large experiments most, then quasi-experiments, then small experiments, then traditional regression (add some controls and hope for the best)
  8. The real effect size is half what the paper claims

That last is inspired by a special issue of Nature out today on the replicability of social science research. An exception to rule #4, this is an excellent project I will write more about soon.

Experimental Banking Reveals the Value of Leisure

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In 2014 India required banks to offer no-cost accounts. This led hundreds of millions of people to open bank accounts for the first time, and more than doubled the number of Indian women who had a bank account:

This increased households’ collective ability to save and borrow, but didn’t shift decision-making power towards women despite the larger change for them. That is the finding of a paper by Tarana Chauhan, a Brown University postdoc who is currently on the job market. The paper is a well-executed example of a difference-in-difference analysis of observational data- that is, carefully examining data that other people generated to examine events that help establish causality. But the validity of difference-in-difference strategies in separating correlation from causation can always be questioned, and always is in economics seminars.

So Dr. Chauhan, this time with coauthors Berber Kramer, Patrick Ward and Subhransu Pattnaik, followed up by directly running an experiment. They got a company to offer subsidized loans to hundreds of randomly selected Indian farmers, then surveyed the farmers to see if they behaved differently than a control group that didn’t get loans. The loans carried a 14% interest rate, which seems high to Americans but was apparently 10pp lower than the other options available in India. They wanted to know whether farmers would use the loans to improve farm productivity, and whether this would have any differential effects on women.

The first stage of the experiment worked: households took the loans and got more engaged with the financial system.

Some used the money for smartphones:

But for the most part they seem not to have spent the money on farming- they didn’t buy significantly more land, seeds, fertilizer, or farm equipment. They did spend more on “non-farm business equipment” and “large consumer durables”. Despite not producing more food themselves, they reported higher food security. Income stayed flat, but women were able to shift some time away from work and toward leisure:

I find these results surprising given how poor the households receiving the loans are. They earn the equivalent of about $1,000/yr, putting them around the global “extreme poverty” line. At that income level I’d think they would value additional income highly relative to leisure, and yet when they get the loan, work time goes down and leisure time increases. Could it really be the case that they’ve already hit their income target, and are on the backward bending part of the labor supply curve? Some other possibilities are that they don’t expect that investing in farming would increase yields enough to be worthwhile, or that they worry any increased income would be taken away through explicit or implicit taxes. But the households generally seem better off as a result of the loan.

The other surprise- enough of the loans were paid back that the lenders made a profit despite the research pushing the interest rate below-market.