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.
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 orUS 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.
A village charges a boy with watching the flock and raising the alarm if wolves show up. The boy decides to have a little fun and shout out false alarms, much to the chagrin of the villagers. Then an actual wolf shows up, the boy shouts his warning, but the villagers are proper Bayesians who, having learned from their mistakes, ignore the boy. The wolves have a field day, eating the flock, the boy, and his entire village.
I may have augmented Aesop’s classic fable with that last bit.
The boy is certainly a crushing failure at his job, but here’s the thing: the village is equally foolish, if not more so. The boy revealed his type, he’s bad at his job, but the village failed to react accordingly. They updated their beliefs but not their institutions. “We were good Bayesians” will look great on their tombstones.
They had three options.
A) Update their belief about the boy and ignore him.
This is what they did and look where that got them. Nine out of ten wolves agree that Good Bayesians are nutritious and delicious.
B) Update their beliefs about the boy, but continue to check on the flock when the boy raises the alarm.
They should have weighted their responses. Much like Pascal taking religion seriously because eternal torment was such a big punishment, you have to weight you expected probability of truth in the alarm against the scale of the downside if it is true. You can’t risk being wrong when it comes to existential threats.
C) Update their beliefs about the boy and immediately replace him with someone more reliable.
It’s all fine and good to be right about the boy being a lying jerk but that doesn’t fix your problem. You need to replace him with someone who can reliably do the job.
So this is a post about fascism. Some think that fascism is already here, others dismiss this as alarmism, others splititng the difference claiming that we are in some state of semi- or quasi-fascism. Within the claims that it is all alarmism, what I hear are the echoes of villagers annoyed by 50 years of claims that conservative politics were riddled with fascism, that Republicans were fascists, that everything they didn’t like was neoliberalism, fascism, or neoliberal fascism. Get called a wolf enough times and you might stop believing that wolves even exist.
Even if I am sympathetic, that doesn’t get you off the hook. It hasn’t been fascism for 50 years will look pretty on your tombstone.
Let’s return to our options
A) Don’t believe the people who have been shouting about fascism for years, but take seriously new voices raising the alarm.
B) Find a set of people who, exogenous to current events, you would and do trust and take their warnings seriously.
C) Don’t believe anyone who shouts fascism, because shouting fascism is itself evidence they are non-serious people.
D) Start monitoring the world yourself
Both A) and B) are sensible choices! If you’ve Bayesian updated yourself into not trusting claims of fascism from wide swaths of the commentariat, political leaders, and broader public, that’s fine, but you’ve got to find someone you trust. And if that leads you to a null set, then D) you’re going to have to do it yourself. Good luck with that. It takes a lot of time, expertise, and discipline not to end up the fascism-equivalent of an anti-vaxxer who “did their own research.”
Because let me tell you, C) is the route to perdition in all things Bayesian. Once your beliefs are mired in a recursive loop of confirmation bias, it’s all downhill. Every day will be just a little dumber than the one before. And that’s the real Orwellian curse of fascism.
This post is just some thoughts about perspective. I apologize for any lack of organization.
My academic influences include North, Weingast, Coase, Hayek, the field of Public Choice, and others. I’m not an ‘adherent’ to any school of thought. Those guys just provided some insights that I find myself often using.
What lessons did they teach? Plenty. When I see the world of firms, governments, and other institutions, I maintain a sharp distinction between intention and outcome. Any given policy that’s enacted is probably not the welfare maximizing one, but rather must keep special interests relatively happy. So, the presence of special interests is a given and doesn’t get me riled up. When I see an imperfect policy outcome, I think about who had to be enticed to vote for it. We live in a world where ‘first bests’ aren’t usually on the table.
Historically, or in lower income countries, I think about violence. Their rules and laws are not operating in a vacuum of peaceful consent. There is always the threat of violence. Laws are enforced (or not) conditional on whether and what type of violence that may result. All of the ideal legislation is irrelevant if theft and fraud are the lay of the land.
I think about institutional evolution with both internal and external pressures. I’m a bit worried about the persistence of the US republic, or at least worried for its pro-growth policies. I’m not worried about China in the long run. I don’t think they have the institutions that get them to ‘high income’ status. I do think that they are a tactical concern in the short run and that the government does/will have access to great volumes of resources in the medium run. That’s a bit of a concern. But like I said, I’m not super worried in the long run.
One of the major goals of the new Trump administration, particularly the DOGE unit, was to shrink the size of the federal government’s budget. Did they achieve this goal?
Last spring both my co-blogger Zachary and I pointed to a tool from the Brookings Institution to track federal spending, pulling in data directly from the US Treasury in a convenient format. Back in March I said “this will be a useful tool to follow going forward.” Now we have a full year of spending data for 2025.
When we look at total spending for Calendar Year 2025, it was about $318 billion higher than 2024, or about 4 percent higher. So, it seems that by that measure, the cuts that the Trump administration made were too small to overcome the other areas that grew.
But…
It may be more useful to remove some spending from the equation. In particular, entitlement programs and interest spending are very large spending categories that aren’t subject to the annual budgeting process. Of course, any program is ultimately under the control of Congress, so it’s a little bit of a cheat to remove Social Security and Medicare, but those programs are on autopilot with respect to the annual federal budget process. They are worth talking about, but they are probably worth talking about separately (especially because they have their own funding mechanisms). And interest on the debt isn’t something a President can control directly: it can only be reduced in future years by closing the budget gap today.
Removing those programs — which constitute about $4.8 trillion of the $7.9 trillion in 2025 spending (so a lot!) — gives you this chart (note: figures have been slightly updated with more complete data since I originally posted this chart):
Federal spending by this measure was about $85 Billion lower in 2025 than the prior year, or about 5 percent. And that’s in nominal terms: it is an even bigger cut if we adjust for inflation. Notice too that the pattern fits what we might expect: spending was slightly higher in the first half of the year (before any Trump changes could have had much of an effect), almost exactly equal for most of the second half, and then slightly below once we get to November and December (after the Deferred Resignation Program layoffs in October). If we ignore the first two months of the year (when it would have been really hard for Trump to have an effect), the drop in spending is about 8 percent.
What were the biggest cuts that led to the $85 billion drop? Keep in mind that some programs increased spending, such as military spending, so there are more than $85 billion in cuts. Using the Daily Treasury Statement categories, here are the big ones:
Federal Financing Bank (Treasury): $59 billion
Department of Education: $46.8 billion
USAID: $30.2 billion
EPA: $17 billion (though EPA seems to have gone on a spending binge at the end of 2024. Compared with 2023, the first Trump year was 50% higher!)
Federal Employee Insurance Payment (OPM): $16.3 billion
Those are all the programs I could find that declined by at least $1 billion, totaling a little over $200 billion. There were some other highly salient cuts that were under a billion dollars (such as the Corporation for Public Broadcasting, which was completely eliminated). Looking at that list I don’t think there is an easy way to sum up a “theme,” but I think the real theme is that if the Trump administration wants 2026 discretionary spending to be even lower than 2025, they will really need some major action from Congress. These cuts are mostly low-hanging fruit, and some are long-running goals of the GOP (such as Dept. of Education, foreign aid, and public television).
Of course, to really get federal spending under control, Congress will have to tackle entitlement reform and shrink the budget deficit to lower interest costs. Social Security, Medicare, and interest payments — the bulk of federal spending, over 60% of the total — increase by 9% in 2025. Again, it was probably unreasonable to expect Trump and Congress to have done anything major with them in a single year, but something must be done soon: the Social Security Old Age trust fund will be depleted in about 8 years, and the Medicare Part A trust fund will be depleted in about 10 years.
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 largestrefugee 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:
With the arrest of Venezuelan President Maduro, the US is potentially attempting to remake the institutions of yet another country. I say potentially because, as of now, all that has happened is that Maduro was removed. His VP stepped in to replace him, and it appears that, for now, the rest of the structure of government is in place.
Nonetheless, any time the US intervenes in the affairs of another country, it brings back the old debates about regime change, nation building, exporting democracy, etc. Many want to discuss the legal and moral implications of these actions — and these are certainly worth discussing! — but as social scientists we should also ask “does it work?”
For example, one excellent paper on regime change via CIA covert intervention is from Absher, Grier, and Grier. They look at five cases during the Cold War in Latin America of CIA-sponsored regime change, and find moderate declines in income and large declines in democratic institutions. Not a good case for regime change and exporting democracy!
But what if we look at more recent interventions — post-Cold War — and look at direct military interventions by the US, rather than covert CIA operations or indirect funding of factions within a country. This is more in line with what might be happening in Venezuela right now (if regime change is ultimately what the US military pushes for). Using a list from Chris Coyne’s book After War (table 1.1) as a starting point for the relevant cases, and then using data from the V-Dem Liberal Democracy Index, we have seven cases since 1990 to examine (note: I have added Libya to Coyne’s list, which I believe is the only new addition of explicit military intervention since he created the list):
The first thing you might notice is that relevant to their starting position (pre-US military intervention), all except one of these countries saw improvements in their V-Dem Liberal Democracy Score after 25 years (or whatever the end point is for those more recent than 25 years). Some of the improvements — such as Libya, Somalia, and Iraq — are quite small, around 0.1 points on the 1-point scale. But other improvements — especially Kosovo and Bosnia — are quite large, around 0.3 points on the 1-point scale.
The one decline is Afghanistan, though you will note that during the occupation (which lasted a very, very long time, until 2021) their liberal democracy score did improve slightly, about as much as Iraq. I should also note that if we didn’t use my 25-year cut-off, Haiti would also have slipped back to roughly where they were in 1993, with a large decline happening since 2020.
For reference on this scale: the US scores 0.75 in 2024, the best scoring country is Denmark with 0.88, the World average is 0.37 (or 0.29 weighted by population), and the European average is 0.62 (or 0.56 weighted by population).
So while the improvements in Kosovo and Bosnia are impressive, they still fall below the average score in Europe. And those examples point to another problem with my simple analysis: we don’t have the counterfactual of what their score would be without US intervention. That kind of sophisticated analysis is what the above-mentioned Absher paper does (using synthetic control), but it’s more than I can do in a short blog post. Nonetheless, we should note that while we can’t say that US intervention caused these improvements, things didn’t get worse in most countries (as many critics of intervention assume always happens) — Afghanistan being the notable exception after the US ended the occupation.
Now that I’ve got the causation caveat out of the way, we should note a few more limitations of my analysis. First, perhaps the V-Dem Liberal Democracy Index isn’t the best one to use. Our World in Data has seven democratic measurement sets to choose from, and even from V-Dem there are others we could have used. I think Liberal Democracy best captures what we are usually talking about in terms of “does it work?” but you could use another measure. However, glancing through the other available measures, such as Polity, I don’t think the picture would be radically different with another measure of liberal democracy. 25 years is also somewhat arbitrary of a cut-off, though in Coyne’s book he uses 20 years, so I’m going beyond that.
Finally, I want to stress even more than on the causation point: none of these improvements mean the intervention passes a cost-benefit test. There was much destruction of lives and property in all of these cases, the use of US tax dollars, and some other harms to the US and international law (e.g., restrictions of civil liberties in the US from the War on Terror). I do not want to suggest that this means the interventions were worth the cost, merely that they did not fail on this one measure of improving democracy. It is also not a prediction that future interventions, such as in Venezuela, will succeed. Instead, I wrote this post because it goes against my priors (I would not have guessed improvements in 6/7 cases).
My new article, “Prohibition and Percolation: The Roaring Success of Coffee During US Alcohol Prohibition”, is now published in Southern Economic Journal. It’s the first statistical analysis of coffee imports and salience during prohibition. Other authors had speculated that coffee substituted alcohol after the 18th amendment, but I did the work of running the stats, creating indices, and checking for robustness.
My contributions include:
National and state indices for coffee and coffee shops from major and local newspapers.
A textual index of the same from book mentions.
I uncover that prohibition is when modern coffee shops became popular.
The surge in coffee imports was likely not related to trade policy or the end of World War I
Both demand for coffee and supply increased as part of an intentional industry effort to replace alcohol and saloons.
An easy to follow application of time series structural break tests.
An easy to follow application of a modern differences in differences method for state dry laws and coffee newspaper mentions.
Evidence from a variety of sources including patents, newspapers, trade data, Ngrams, naval conflicts, & Wholesale prices.
Generally, the empirical evidence and the main theory is straightforward. I learned several new empirical methods for this paper and the economic logic in the robustness section was a blast to puzzle-out. Finally, it was an easy article to be excited about since people are generally passionate about their coffee.
Bartsch, Zachary. 2025. “Prohibition and Percolation: The Roaring Success of Coffee During US Alcohol Prohibition.” Southern Economic Journal, ahead of print, September 22. https://doi.org/10.1002/soej.12794.
The Fraser Institute released their latest report on the Economic Freedom of the World today, measuring economic policy in all countries as of 2023. They made this excellent Rosling-style graphic that sums up their data along with why it matters:
In short: almost every country with high economic freedom gets rich, and every country that gets rich either has high economic freedom or tons of oil. This rising tide of prosperity lifts all boats:
This greater prosperity that comes with economic freedom goes well beyond “just having more stuff”:
The full report, along with the underlying data going back to 1970, is here. The authors are doing great work and releasing it for free, so no complaints, but two additional things I’d like to see from them are a graphic showing which countries had the biggest changes in economic freedom since last year, and links to the underlying program used to create the above graphs so that readers could hover over each dot to identify the country (I suppose an independent blogger could do the first thing as easily as they could…).
FRDM is an ETF that invests in emerging markets with high economic freedom (I hold some), I imagine they will be rebalancing following the new report.
The subjects of two of our posts from 2023 are suddenly big stories.
First, here’s how I summed up New Orleans’ recovery from hurricane Katrina then:
Large institutions (university medical centers, the VA, the airport, museums, major hotels) have been driving this phase of the recovery. The neighborhoods are also recovering, but more slowly, particularly small business. Population is still well below 2005 levels. I generally think inequality has been overrated in national discussions of the last 15 years relative to concerns about poverty and overall prosperity, but even to me New Orleans is a strikingly unequal city; there’s so much wealth alongside so many people seeming to get very little benefit from it. The most persistent problems are the ones that remain from before Katrina: the roads, the schools, and the crime; taken together, the dysfunctional public sector.
Today, New Orleans is smaller, poorer and more unequal than before the storm. It hasn’t rebuilt a durable middle class, and lacks basic services and a major economic engine outside of its storied tourism industry…. New Orleans now ranks as the most income-unequal major city in America…. In areas that attracted investment — the French Quarter, the Bywater and the shiny biomedical corridor — there are few outward signs of the hurricane’s impact. But travel to places like Pontchartrain Park, Milneburg and New Orleans East that were once home to a vibrant Black middle class, and there are abandoned homes and broken streets — entire communities that never regained their pre-Katrina luster…. Meanwhile, basic city functions remain unreliable.
I wrote in 2023 about a then-new Philadelphia Fed working paper claiming that mortgage fraud is widespread:
The fraud is that investors are buying properties to flip or rent out, but claim they are buying them to live there in order to get cheaper mortgages…. One third of all investors is a lot of fraud!… such widespread fraud is concerning, and I hope lenders (especially the subsidized GSEs) find a way to crack down on it…. This mortgage fraud paper seems like a bombshell to me and I’m surprised it seems to have received no media attention; journalists take note. For everyone else, I suppose you read obscure econ blogs precisely to find out about the things that haven’t yet made the papers.
Well, that paper has now got its fair share of attention from the media and the GSEs. Bill Pulte, director of the Federal Housing Finance Agency and chairman of Fannie Mae and Freddie Mac, has been going after Biden-appointed Federal Reserve Governor Lisa Cook over allegations that she mis-stated her primary residence on a mortgage application:
Pulte has written many dozens of tweets about this, at least one of which cited the Philly Fed paper:
Now President Trump is trying to fire Cook. Federal Reserve Governors can only be fired “for cause” and none ever have been, but Trump is using this alleged mortgage fraud to try to make Cook the first.
The Trump administration seems to have made the same realization as Xi Jinping did back in 2012– that when corruption is sufficiently widespread, some of your political opponents have likely engaged in it and so can be legally targeted in an anti-corruption crackdown (while corruption by your friends is overlooked).
I’m one of a few people hoping for the Fed to be run the most competent technocrats with a minimum of political interference:
Economist Writing Every Day 