Economics – Economist Writing Every Day

Ricardian Equivalence: Reasonable Assumption #2

March 6, 2026March 5, 2026Zachary BartschLeave a comment

There are several requirements for Ricardian Equivalence:

Individuals or their families act as infinitely lived agents.
All governments and agents can borrow and lend at a single rate.
The path of government expenditures is independent of financing choices

Assumption 2) appears patently absurd on its face. I certainly cannot borrow at the same interest rate that the US Treasury can. QED. Do not pass go, do not collect $200. The yield on 1-year US treasuries is 3.58%. I can’t borrow at that rate… Or can I?

Let’s do some casuistry.

What is a loan?

It’s a contract that:

Provides the borrower with access to spending
with or without collateral
with a promise to repay the lender at defined times, usually with interest.

So, when you borrow $5 from a friend and pay it back on the same day, it’s a loan. The contract is verbal, there is no collateral, the repayment time is ‘soon’ with flexibility, and the interest rate is zero.

A mortgage is a collateralized loan. You borrow from a bank, make monthly payments for the term of the loan, and accrue interest on the principal. The contract is written, the house or a portion of its value is the collateral, and the interest rate is positive.

What about a Pawnshop loan? Most of us are probably unfamiliar with these. In this circumstance, a person has valuable non-assets that and the pawnshop has money. They engage in a contractual asset swap. The borrower lends the non-money asset to the pawnshop as collateral and borrows money from the pawnshop. The pawnshop borrows the non-money asset and lends the money to the borrower. The borrower can use the money as they please, but the pawnshop can not use the non-money asset – they can simply hold it. They collect interest in order to cover their opportunity costs.

One outcome is that the borrower repays the loan and interest by the maturity date and reclaims their non-money asset. Another outcome is that the borrower retains the option to default without any further obligation. But they lose the right to reclaim their property according to the repayment terms. If the borrower exercises the option to default, then the pawnshop acquires full rights to the non-money asset. The pawnshop often resells the asset at a profit. The profit is relatively reliable because the illiquidity of the non-money asset allows the pawnshop to lend much less than its retail value. That illiquidity is also why the borrower is willing to accept the terms.

If we accept that the pawnshop contract is a loan, which is just a collateralized loan with a mostly standard default option, then get ready for this.

Continue reading →

Iran on Markets, Markets on Iran

March 5, 2026James BaileyLeave a comment

We’re bombing Iran, and Iran is now bombing most of its neighbors. Oil prices are up ~20% since the bombing began last weekend, and stocks are down.

Iranian “Supreme Leader” Khamenei is now dead. Prediction markets sort of saw this coming; I mentioned here a month ago that markets thought it more likely than not that Khamenei would be “out of office” this year.¹

Real-money US-regulated exchanges can’t directly cover the war, but others can and do, such as the international Polymarket:

*Polymarket’s argument for why they offer these markets*

This market shows that regime change is likely, but will take time- a 51% chance by the end of the year, but only a 13% chance by the end of the month.

How would this be achieved? Markets see a 60% chance that there will be US troops in Iran this year, though this market could be triggered by just a few special forces operators, or by troops visiting for humanitarian purposes after domestically-driven regime change. There will likely be a US-Iran ceasefire by the end of May. It’s not clear at all who will be running Iran at the end of the year:

Iran is far from the only country whose future leadership is unclear. Last month I noted that the current leaders of Britain, Hungary, and Cuba would likely be out of office by year end. These are all now looking even more likely than they did a month ago:

So I’ll repeat:

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.

US-regulated exchanges can’t offer markets on death. Kalshi’s rules stated that if Khamenei died, the market would refund everyone at current prices rather than paying as if he were “out of office”. When he died many people got mad at Kalshi- some who had bet he’d be “out of office” and were mad that they weren’t paid at 100%, others that Kalshi was offering something too close to a death market- “how else would he lose power” (even though Maduro and Assad provide clear recent examples) ↩︎

The Declining Cost of Adam Smith

March 4, 2026Jeremy HorpedahlLeave a comment

Last week I had the opportunity to see (and touch!) some first edition copies of Adam Smith’s books, including The Wealth of Nations and The Theory of Moral Sentiments.

For an economist, of course this was a very cool experience. The books from the Remnant Trust were still in great condition, despite people like me handling these copies from time-to-time. The books were also beautiful editions, which got me thinking: how much did these cost to purchase when originally published?

According to John Rae’s Life of Adam Smith, the original price for The Wealth of Nations was 1 pound, 16 shillings. Average wages per day in England were somewhere around 15 pence per day (1 pence is 1/12 of a shilling), it would take close to 30 days of labor to purchase the book. But that’s assuming you spent all of your wage on books, which of course would have been impossible: a common laborer would have been spending 80-90% of their wages on food, beer, and rent. And that’s assuming no unexpected expenses or sickness. In reality, it might take a common laborer months, years, or maybe his entire life to save up for that book.

Today, of course we can read this book online for free, but what if you want a nice hardcover version? Amazon has several nice hardback versions available for just under $30. These are not quite as beautiful as the 1776 edition, but they would look nice in any library. Given that the average wage in the US today is close to $32, it would take less than one hour of labor to purchase the book. And thankfully the cost of necessities today is much lower than 1776, indeed much lower than 1900, so it would be much easier to set aside that one hour of wages relative to the past, and purchase yourself a little treat like a book written 250 years ago.

Autism Is Largely Genetic (Not Environmental)

March 3, 2026March 3, 2026Scott Buchanan1 Comment

Autism is a condition that can cause enormous anxiety and grief, especially for parents of autistic children. The economic implications are also considerable. A 2021 study by Blaxill, et al., estimated the annual costs to society of autism in the U.S. to be $223 billion in 2020, $589 billion in 2030, $1.36 trillion in 2040, and an astonishing $5.54 trillion by 2060.

The rising diagnosis rates are sometimes attributed to changes in environmental factors or diets. It is obviously essential to get the science right on this. Here I will summarize an article by epidemiologist Mark Strand, “Understanding Autism Spectrum Disorder Epidemiologically and Theologically”. This article was published on the Biologos web site on January, 2026. The author addresses the medical aspects sand also the moral aspects. Upfront disclaimer: I have no expertise in this area; I am just trying to faithfully convey the scientific consensus.

The Myth of the “Autism Epidemic”

The article begins by addressing a common misconception: that autism is experiencing a sudden, alarming surge in cases—an “epidemic.” This idea gained traction when the current administration announced a “massive testing and research effort” to identify environmental causes behind the rise. But as the author explains, this framing is scientifically inaccurate.

Autism is not an acute condition like strep throat or a viral outbreak. It’s a lifelong neurodevelopmental disorder that emerges during early brain development, typically between ages two and four. Unlike infectious diseases that appear suddenly and resolve quickly, autism is chronic and complex. The term “epidemic” refers to a rapid, atypical increase in cases—something that doesn’t align with the actual data.

In 2022, the CDC’s Autism and Developmental Disabilities Monitoring (ADDM) Network reported 32.2 cases of ASD per 1,000 children. This is massive (fourfold) increase from two decades ago. But this rise isn’t due to a sudden environmental trigger. Instead, it reflects broader diagnostic criteria, increased public awareness, better screening practices, and greater access to services:

While this increase may seem alarming at first glance, it is widely accepted that it largely reflects changes in the definition used for ASD and the importance placed on ASD by society and educational systems.

Since it was first recognized as a condition in the Diagnostic and Statistical Manual of Mental Disorders (DSM), the definition for ASD has been broadened several times. This included combining a cluster of related neurological disorders into one disorder, relaxing the age of onset, and better classifying the presentation of autism in girls and children of color, leading to more accurate, but higher, numbers.

States like California and Pennsylvania, which have robust early intervention systems and strong Medicaid coverage for autism services, report the highest prevalence rates.

Genetics Over Environment: The Scientific Consensus

One of the most critical points the article makes is that autism is primarily genetic. Twin studies show that if one identical twin has autism, the other twin has a 60% to 90% chance of also having it. A large Swedish study of over 37,000 twins found that 83% of autism cases could be attributed to genetics.

While environmental factors may play a role, the evidence is far from conclusive. The article debunks popular myths—like the claim that acetaminophen (Tylenol) use during pregnancy causes autism. High-quality studies, including one of 2.5 million children in Sweden with sibling controls, found no link between prenatal acetaminophen use and autism risk. Similarly, the idea that vaccines cause autism has been thoroughly discredited by decades of rigorous research.

The real danger lies in chasing unproven causes—a practice that wastes resources and distracts from meaningful science. Instead, researchers should focus on gaps in knowledge using the scientific method: building on what we know, forming new hypotheses, and testing them rigorously.

The Spectrum of Experience: Diversity, Not Deficit

Autism is not a monolithic condition. It exists on a spectrum, ranging from individuals with significant support needs to those with high intelligence and exceptional skills.

The article highlights some striking statistics:

14% of autistic individuals graduate from college, compared to 32% of the general population.
Among college graduates with autism, 34.3% major in STEM fields, significantly higher than the 22.8% in the general population.

These numbers challenge the harmful stereotype that autistic people are universally disabled or burdensome. Many autistic individuals thrive in science, technology, engineering, and mathematics—fields that value pattern recognition, attention to detail, and deep focus.

Yet, challenges remain. Social communication difficulties, restricted interests, and repetitive behaviors can be isolating. Early intervention—especially for those with moderate to mild autism—can make a meaningful difference in socialization and quality of life.

A Call for Grace, Truth, and Inclusion

The article concludes by noting that autism is not a tragedy, but a part of human diversity. It calls on society at large to respond with truth, grace, and care—not fear or stigma.

The article notes: “It is not a good use of resources to repeat studies on well-established scientific evidence or chase popular beliefs about supposed causes.” Rather than searching for a single cause to “eliminate,” we should focus on understanding, supporting, and empowering autistic people. This includes investing in early screening, improving access to therapy, and promoting inclusive education and employment.

The rise in autism diagnoses is not a crisis to panic about—it’s a call to do better with better science, better policies, and better compassion. By grounding our understanding in data, embracing neurodiversity, and responding with love, we can build a world where autistic individuals are not just accepted—but valued.

How to retain your worst employees, US Army edition

March 2, 2026March 2, 2026mdmakowsky3 Comments

I almost titled this article “The dumbest auction I’ve ever heard of”, but I want to be careful, just in case I fundamentally don’t understand the auction the US army is creating for it’s warrant officers.

Under the new program, called the Warrant Officer Retention Bonus Auction, eligible warrant officers will submit confidential bids for how much money it would take to keep them on active duty for an additional six years, the Army announced last week….Eligible officers can submit a minimum bid of $100 per month, increasing at $100 intervals, the release said, and once the market closes, the Army will use those bids to define a “single, market-clearing bonus rate,” to pay as many officers as the service’s budget allows.

Officers who submit bids at the chosen rate — or lower — will be awarded those bonuses. The catch? Those whose bid above the rate will get no bonus.

Did I just read that right? The they want their officers to 1) estimate their reservation bonus for remaining in the employ of the US Army, and then 2) bid that within a closed bid auction. There is a pool of bonus funds, such that a maximum bid will be established, paying out exclusively to those officers who bid below the maximum. All officers who estimated their reservation bonus (effectively, their reservation wage) above that threshold will receive nothing, almost guaranteeing their exit from the Army.

Are. You. Kidding. Me.

Allow me to rephrase it another way. You want to award retention bonuses to the officers with the weakest outside options and, in turn, have the lowest reservation wages while, at the same time, awarding nothing to your best and brightest officers, those with the greatest outside options? I doubt you could more cleverly design a policy to maximally purge talent from the armed forces. Military bodies have enough problems as is retaining talent, particularly as the promotion pyramid gets narrow in the upper ranks that continue to be filled by older officers uninterested in retiring. We’re going to have to invent entire new swaths of Murphy’s Laws to internalize these leadership shenanigans.

There are, in my outsider estimation, two broad categories of officers with the strongest outside options: 1) young officers with strong technical skills and a demonstrated ability to engage critical thinking skills under pressure, and 2) top tier officers whose personal networks are invaluable to military contractors looking to secure big ticket military contracts. This auction structure will create a mass exodus of the former and an accelerated pathway to the latter. Both are bad, but the loss of young talent could be absolutely devastating as warfare shifts to an ever more technical landscape.

Please tell me I am missing something in the comments and that this isn’t the dumbest labor market policy in the history of moderm US military operations

Most Married Women with Children Were Working By the Late 1970s

February 25, 2026March 4, 2026Jeremy Horpedahl1 Comment

A recent essay by Jeffrey Tucker asks “Has Life Really Improved in Half a Century?” Specifically, Mr. Tucker is interested in measuring median income of families (he uses household income, but families are clearly what he is interested in).

Tucker grants that real median household income has increased by about 40 percent from 1984 to 2024 (if he had used family income instead, the increase is almost 50 percent). But… he says this is illusory. That’s because it now takes two incomes to achieve that median income, whereas it only took one income in the past:

“Adding another income stream to the household is a 100 percent rise in work expectations but it has yielded only a 20-plus percent rise in material income. The effective pay per hour of work for the household has fallen by 40 to 50 percent!”

(He makes a data error by saying that in 1976 real median household income was $68,000-$70,000, when it was actually $59,000 in 2024 dollars in 1976 — real income didn’t fall from 1976 to 1984!)

Continue reading →

Supply and demand has a mind of its own

February 23, 2026February 22, 2026mdmakowskyLeave a comment

I think there’s a lot of crosstalk about AI in part because proponents tend to focus on the immenient supply side shifts from innnovation, while critics seem to happily observe failures to stoke consumer demand. Not being much of a futurist, I’m largely content to watch and wait with minimal speculation. At the same time, I see signs of increasing demand for other products, in blatant disregard for past and present identity politics. It’s probably good to remember that supply and demand are less a beast to be wrangled than a rocking ocean to be adapted to.

My First Exit

February 19, 2026February 18, 2026James BaileyLeave a comment

I invested in my first private company in 2022; my first opportunity to cash out of a private investment came this year when Our Bond did an IPO, now trading on Nasdaq as OBAI.

I’m happy to get a profitable exit less than 4 years after my first investment, given that I’m investing in early-stage companies. Venture funds tend to run for 10 years to give their companies time to IPO or get acquired, and WeFunder (the private investment platform I used) says that “On average, companies on Wefunder that earn a return take around 7 years to do so.” The speed here is especially striking given that I didn’t invest in Our Bond itself until April 2025.

Most private companies that raise money from individual investors are very early stage, what venture capitalists would call “pre-seed” or “seed-stage” companies looking for angel investors. Later-stage companies often find it simpler to raise their later stages (Series B, et c) from a few large institutional investors. But a few choose to do “community rounds” and allow individuals to invest later. This is what Our Bond did right before their IPO, allowing me to exit in less than a year.

This helps calm my biggest concern with equity crowdfunding- adverse selection:

The companies themselves have a better idea of how well they are doing, and the best ones might not bother with equity crowdfunding; they could probably raise more money with less hassle by going to venture funds or accredited angel investors.

My guess is that the reason some good companies bother with this is marketing. Why did Substack bother raising $7.8 million from 6000 small investors on WeFunder in 2023, when they probably could have got that much from a single VC firm like A16Z? They got the chance to explain how great their company and product is to an interested audience, and to give thousands of investors an incentive to promote the company. Getting one big check from VCs is simpler, but it doesn’t directly promote your product in the same way.

All this is enough to convince me that the equity crowdfunding model enabled by the 2012 JOBS Act will continue to grow.

Still, things could have easily gone better for me, as these markets are clearly inefficient and have complexities I’m still learning to navigate. Profitability is not just about choosing the right companies to invest in, but about managing exits. I expected the typical IPO roadshow would give me months of heads-up, but Our Bond surprised its investors with a direct listing. The first thing I heard about the IPO was a February 4th email from “VStockTransfer” that I thought was a scam at first, since it was a 3rd-party company I’d never heard of asking me to pay them money to access my shares. But Our Bond confirmed it was real- VStockTransfer was the custodian for the private shares, and charges $120 to “DRS transfer” them to a brokerage of your choice where they can be sold.

I submitted the request to move the shares to Schwab the same day, but Schwab estimated it would take a week to move them. Neither Schwab nor VStockTransfer ever sent me a notification that the shares had been transferred, and by the time I noticed they had moved a week later, the stock price had fallen dramatically:

As I write this on February 18th, the OBAI price represents a 1.3x return on the price I invested in the private company at last April. When I was first able to sell some stock on February 11th, the price represented a 3x return; if I’d been able to sell right away on the 4th without waiting for the brokerage transfer process, it would have been a 10x return.

By the Efficient Market Hypothesis this timing shouldn’t be so critical, but I knew there would be a rush for the exits as lots of private investors would want to unload their shares at the first opportunity, an opportunity some would have waited years for. Sometimes old-fashioned supply and demand analysis is a better guide to markets than the EMH: demand for OBAI stock had no big reason to change in February, but freely floating supply saw a big increase as private shares got unlocked and moved to brokerages.

Getting a 10x return vs a 1.3x return on one of your winners is the difference between a great early investor and a bad one. I always thought such differences would be driven by who picks the best companies to invest in, but at least in this case it could be driven by who is fastest on the draw with brokerage transfers.

If I ever find myself holding shares in another company that does a direct listing, I’ll be doing whatever I can to make sure the transfer goes as fast as possible (pick the fastest brokerage, check on the transfer status every day, et c). This process also seems like one reason to do fewer, larger private investments- a fixed $120 transfer fee is a big deal if the initial investment was in the low hundreds but wouldn’t matter much for a larger one.

Being accredited would help there, allowing access to additional later-stage, less-risky companies. But I’ll call OBAI a win for equity crowdfunding, and a big win for asset pricing theories based on liquidity and flows over efficient estimation of the present discounted value of future cashflows.

Disclaimer: I still hold some OBAI

GDP Forecasts for 2025Q4

February 18, 2026February 19, 2026Jeremy Horpedahl1 Comment

UPDATE 2/19/2026: the last GDPNow estimate from the Atlanta Fed is 3.0% and the Kalshi markets are now predicting 2.8%. I would expect this is a slightly better range than the 3.3-3.6% from my post written on 2/18/2026.

In April 2025 I wrote about several different forecasts for GDP growth. At the time the latest GDP quarter available was 2025Q1. We’ve had two more quarters of data since then, plus a highly anticipated report for Q4 coming out this Friday. How have these different predictions done recently? Here is the updated table from that prior post:

When I wrote the post in April 2025, I said that a simple average of the Atlanta Fed and Kalshi forecasts was the best simple predictor of the actual BEA advance figure. Based on the middle quarters of 2025, I think that continued to be true: each of them was the best estimate in one quarter, and perhaps just as importantly the NY Fed and WSJ survey of economists understated GDP growth pretty significantly.

There is still one more Atlanta Fed GDPNow update coming tomorrow before we get the actual BEA data on Friday, but based on where the numbers are now, we should expect Q4 to be around 3.4-3.5% (annualized) growth rate. This would put the total 2025 calendar year growth at around 2.3% — decent, but still below 2024’s 2.8% growth.

Bad ideas are costly

February 16, 2026February 16, 2026mdmakowskyLeave a comment

I know this has gotten coverage at other econ blogs, but I’ve been thinking about this paper for a couple days now.

Combine this with the classic Besley and Burgess paper on the political economy of government responsiveness to natural disasters, and you have a perfect Venn diagram of how bad ideas and bad political incentive alignment can lead to truly awful outcomes. An unfortunately “evergreen” mechanism in political economy.