Two ideas coalesced to contribute to this post. First, for years in my Principles of Macroeconomics course I’ve taught that we no longer have mass starvation events due to A) Flexible prices & B) Access to international trade. Second, my thinking and taxonomy here has been refined by the work of Michael Munger on capitalism as a distinct concept from other pre-requisite social institutions.
Munger distinguishes between trade, markets, and capitalism. Trade could be barter or include other narrow sets of familiar trading partners, such as neighbors and bloodlines. Markets additionally include impersonal trade. That is, a set of norms and even legal institutions emerge concerning commercial transactions that permit dependably buying and selling with strangers. Finally, capitalism includes both of these prerequisites in addition to the ability to raise funds by selling partial stakes in firms – or shares.
This last feature’s importance is due to the fact that debt or bond financing can’t fund very large and innovative endeavors because the upside to lenders is too small. That is, bonds are best for capital intensive projects that have a dependable rates of return that, hopefully, exceed the cost of borrowing. Selling shares of ownership in a company lets a diverse set of smaller stakeholders enjoy the upside of a speculative project. Importantly, speculative projects are innovative. They’re not always successful, but they are innovative in a way that bond and debt financing can’t satisfy. Selling equity shares open untapped capital markets.
With this refined taxonomy, I can better specify that it’s not access to international trade that is necessary to consistently prevent mass starvation. It’s access to international markets. For clarity, below is a 2×2 matrix that identifies which features characterize the presence of either flexible prices or access to international markets.
I previously reviewed Vanguard founder John Bogle’s entry in this series, the Little Book of Common Sense Investing:
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.
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. The specific formula is to pick stocks with a return on assets of at least 25%, then select the ~30 stocks with the lowest P/E ratio among those (excluding utilities, financials, and foreign stocks), then hold them for a year before repeating the process. He shows that this idea performed very well from 1988 to 2010.
How has it done since? He still maintains the website, https://www.magicformulainvesting.com, that gives updated stock screens to implement his formula, which is nice. But the site doesn’t offer updated performance data, and his company (Gotham Capital) offers no ETF to implement the book’s strategy for you despite offering 3 other ETFs, which suggests that Greenblatt has lost confidence in the strategy. Here are the top current top stocks according to his site (using the default minimum market cap):
Perhaps this is worthwhile as an initial screen, but I wouldn’t simply buy these stocks even if you trust Greenblatt’s book. When I started looking them up, I found the very first two stocks I checked had negative GAAP earnings over the past year, meaning Greenblatt’s formula wouldn’t be picking them if it used correct data. The site does at least have a good disclaimer:
“Magic Formula” is a term used to describe the investment strategy explained in The Little Book That Beats the Market. There is nothing “magical” about the formula, and the use of the formula does not guarantee performance or investment success.
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.
SPOILER ALERT FOR THE THIRD SEASON OF THE GILDED AGE
In Season 3 of the drama series “The Gilded Age,” one of the servants (Jack, a footman) earns a sum of $300,000 by selling a patent for a clock he invented (the total sum was $600,000, split with his partner, the son of the even wealthier neighbor to the house Jack works in). In the series, both the servants and Jack’s wealthy employers are shocked by this amount. Really shocked. They almost can’t believe it.
How can we put that $300,000 from 1883 in New York City in context so we can understand it today?
A recent WSJ article attempts to do that. They did a good job, but I think more context could help. For example, they say “Jack could buy a small regional bank outside of New York or bankroll a new newspaper.” Probably so, but I don’t think that quite conveys the shock and awe from the other characters in the show (a regional bank? Ho-hum).
First, the WSJ states that the “figure nowadays would be between $9 and $10 million.” That’s just doing a simple inflation adjustment, probably using a calculator such as Measuring Worth (it’s a good tool, and they mention it later in the story). But as the WSJ goes on to note, that probably isn’t the best way to think about that figure.
Here’s my best attempt to contextualize the $300,000 figure: as a footman, Jack probably made $7 to $10 per week. Or let’s call it $1 per day. That means Jack’s fellow servants would have had to work 300,000 days to earn that same amount of income — in other words, assuming 6 days of work per week, they would have had to work for almost 1,000 years to earn that much income. Jack appears, to his co-workers, to have earned that income almost in one fell swoop (though in reality, he spent months of his free time toiling away at the clock).
Arrrr, me hearties! What think ye of a venture to raise a gigantic hoard of sunken treasure?
The story begins with the last voyage of RMS Republic. This was a luxurious passenger steamship of the White Star Line, which sailed between Europe and America.
Republic was a large vessel (15,000 tons displacement) for her day, and was known as the “Millionaires’ Ship” for the number of wealthy Americans who sailed back and forth on her. A number of such magnates were aboard on her last voyage. In January, 1909 Republic left New York City with passengers and crew, bound for Gibraltar and Mediterranean ports. In thick fog off the island of Nantucket, Republic was rammed amidships by the Italian liner Florida. Florida’s bow was crumpled back, but she stayed afloat. The damage to Republic was fatal. The engine rooms flooded, the ship began to list, and it was clear that the passengers needed to be evacuated.
Using the new-fangled Marconi “wireless” apparatus, a CQD distress signal was broadcast by radio operator Jack Binns. This was the first wireless transmission that resulted in a major life-saving marine rescue. (Binns had to scramble and improvise to get this done, since his apparatus had been damaged and the ship’s power was lost as a result of the collision, so he was a technology nerd turned hero, duly lauded by a ticker-tape parade). It was hard for other ships to locate Republic in the fog, but eventually nearly all the passengers and crew from Republic and from the damaged Florida were safely transferred to other ships.
As was the custom of the time, she did not carry enough lifeboats to hold all the passengers, but only enough to ferry them to some other ship; it was assumed that on the busy Atlantic route there would always be other large ships around. (That scheme played out well with the Republic, but when sister White Star liner Titanic sank four years later, the dearth of lifeboats helped doom some 1,500 people to a watery grave.) Despite efforts to save her, Republic went down stern-first on January 24. She was the largest ship ever to sink at the time. There were reports at the time that she was carrying some $3 million (1909 dollars) of gold, which went down with the ship. That would translate to hundreds of millions of dollars today for that gold.
But wait, there’s more, maybe much more. Enter a modern-day pirate, Martin Bayerle:
Bayerle looks like a pirate, sporting a genuine eyepatch covering an eye lost in an explosives accident. He killed a man who was fooling around with his wife, which seems like a piratical thing to do, and he is after a ship’s gold. His salvage enterprise is even formally described in legal court papers as “modern day pirates”.
His company, Martha’s Vineyard Scuba Headquarters, Inc. (“MVSHQ”), acquired salvage rights to the wreck of the Republic. In 2013 he published a book, The Tsar’s Treasure, detailing his thesis that Republic carried far more gold than was publicly acknowledged. He notes that there was no formal inquiry regarding the sinking of Republic, which was highly unusual and is suggestive of a cover-up. Cover-up of what?
Well, Europe at the time was a tinder box of potential conflict, which did in fact erupt five years later in World War I. Czarist Russia was a key part of the European military equation. Britain was counting on Russia to help contain the emerging militaristic Germany. Russia had incurred huge debts in its disastrous war with Japan in 1905. Russia was about to issue a new round of bonds in 1909, to roll over its debt from 1905. It was critical that that bond issuance would go forward.
Bayerle believes that a large amount of gold was stashed in the hold of the Republic, destined for European banks, to support the Russian bonds of 1909. The revelation that that gold was lost would have jeopardized this crucial financial transaction, perhaps leading to Russia’s collapse, which is something Britain could not afford. Hence, the cover-up. Bayerle estimates that the value of this trove is up to $10 billion in today’s money. Shiver me timbers!
This geopolitical speculation, together with stories of failed previous salvage attempts on Republic, all make for a rollicking yarn. Is it for real? Nobody knows, but Bayerle is offering investors a chance at a slice of the booty. If you are inclined to “Dare to dream the impossible” (per the website), you have the opportunity to invest in his Lords of Treasure enterprise as they make a dive on the site this summer.
I don’t happen to have that much risk appetite, but it should be an interesting story to follow.
UPDATE
According to the June 2025 Lords of Fortune Newletter, salvage operations originally slated for 2025 are being put off till 2026, as funding is still being developed. We note the technical challenge of picking through hundreds of tons of steel plate and girders, deep underwater, in search of a smallish volume of gold. On the other hand, Capt. Bayerle’s recent researches suggest the gold trove may be even larger than earlier estimated, up to some $30 billion. So high risk meets high reward here. It seems ironic that VC’s will throw say $300 million into dubious tech unicorns or the latest crap-coin, but eschew a pretty sure bet of at least breaking even here (if only the lowest estimates of the Republic gold pan out) with a good shot at 10X-ing their investment. We will stay tuned.
I’m here to discuss women in the criminal justice system as part of the ongoing BRIDGE series organized by Arnold Ventures. DC remains one of my very favorite cities, one I lived in and around for decades. I arrived with some trepidation, of course, now that the federal government is attempting to “occupy” it while deploying National guard troops (“some armed”) while ICE agents execute their own specific combination of random assault sprinkled in with some light kidnapping. I wasn’t quite sure whether I should expect military vehicles on every other street or just the odd rented van with masked men claiming to be ICE agents pouring out.
What I’ve seen so far is mostly…nothing. I don’t me DC seems normal, not in the slightest. I mean the streets feel emptier. There’s far too few tourists for mid-August. There were families on the steps of the museums, but normally they’d be swarmed. I’m sure to some degree I’m layering my own sensitivies on the scene, but I really do think it is far quieter than it normally is. Than it should be.
Tonight I’m going to head to U street to visit an old friend, have a drink, catch up. I’ve done this a million times, in this exact neighborhood, for going on 20 years. That this time, with a cheap tinny authoritarian claiming to clean up crime while DC is experiencing the lowest rate of violent crime of my lifetime, that this is the only time I’ve really had any sense of insecurity, that something bad could happen around me, is some of a grossest irony I’ve ever experienced first hand.
Anyway, it’s always nice to come home, no matter how hard some are trying to take feeling away.
As marriage rates decline nationally, Esther Perel’s “Where Should We Begin?” offers more than dating advice. These episodes are recordings of real couples or single people today who explain why they are struggling to find relationship success. It provides an anthropological study of why coupling is challenging in the 21st century.
Each couple’s struggle with intimacy and commitment reflects broader questions about what it means to build a life together in an age of individualism. “Where Should We Begin?” doesn’t offer easy solutions to the coupling crisis, but it does helps us understand the deeper currents shaping modern love. Especially now that she has branched out to non-romantic friendship topics this year, almost anyone can find an episode here that might help them navigate one of their own personal problems as if they had the world’s leading relationship therapist on hand.
One of Perel’s points is that modern couples are drowning under expectations that previous generations never faced. Partners are expected to be best friends, passionate lovers, co-parents, financial partners, emotional support systems, and personal growth catalysts all at once. Perel points out that they’re asking their relationship to fulfill needs that used to be met by entire communities.
One episode I listened to is “I Can’t Love You the Way You Want Me To” Description: Their relationship is on the edge. They’re grappling with communication issues and the emotional scars from their past. And they’re trapped. Trapped in an endless cycle of blame, defensiveness, and attack.
As someone who grew up on the periphery of Philadelphia, I was interested in their specific fight. The man said that Philly sports fans are trash. The woman defended the honor of Philly with specific examples, and now they hate each other. Honestly sounds like my high school.
Did president Trump’s first term tariffs, enacted in 2018, increase manufacturing employment or even just manufacturing output? Let’s set the stage.
Manufacturing employment was at its peak in 1979 at 19.6 million. That number declined to 18m by the 1980s, 17.3m in the 1990s. By 2010, the statistics bottom out at 11.4m. Since then, there has been a rise and plateau to about 12.8m if we omit the pandemic.
Historically, economists weren’t too worried about the transition to services for a while. After all, despite falling employment in manufacturing, output continued to rise through 2007. But, after the financial crisis, output has been flat since 2014, again, if we omit the pandemic. Since manufacturing employment has since risen by 5% through 2025, that reflects falling productivity per worker. That’s not comforting to either economists or to people who want more things “Made in the USA”.
Looking at the graphs, there’s no long term bump from the 2018 tariffs in either employment or output. If you squint, then maybe you can argue that there was a year-long bump in both – but that’s really charitable. But let’s not commit the fallacy of composition. What about the categories of manufacturing? After all, the 2018 tariffs were targeted at solar panels, washing machines, and steel. Smaller or less exciting tariffs followed.
Breaking it down into the major manufacturing categories of durables, nondurables, and ‘other’ (which includes printed material and minimally processed wood products), only durable manufacturing output briefly got a bump in 2018. But we can break it down further.
I’ve taught college classes since 2010, but I never graded attendance directly until this year. I thought that students are adults who can make their own choices about where to spend their time, and if they could do well on my tests and assignments without spending much time in class, more power to them.
But I got tired of seeing students miss a lot of class, then fail by getting poor grades on the tests and assignments, or scramble for the last few weeks to avoid failing. Explaining the importance of attendance didn’t seem to help, so I finally turned to the economist’s solution- incentives. This Spring I tried grading attendance in one class, and this successful experiment plus the growth of AI mean I plan to grade attendance in all classes from now on.
The Benefits:
Get to know student’s names faster
Students feel rewarded for showing up
Students show up more, bringing more energy to the room
Students show up more, so they learn more and do better on other assignments
Physically showing up is one thing I can be sure the AI isn’t doing for them, it will be a while before humanoid robots are that good
The Costs That Turned Out Not to Be Big Deals
I thought students would dislike me policing their whereabouts and give me lower course evaluations (which is part of why I waited for tenure to try this). But my Spring evals were at least as high as usual, with none mentioning the attendance policy. When I asked students in a different class about this, most said they wished I would grade attendance if it meant less weight on exams.
I thought tracking attendance would be burdensome, but it turns out my main course software (Canvas) already has an attendance-tracking tool built in that lets you just click on names in a seating chart each day and enters grades automatically. It is certainly less burdensome than grading most assignments.
I still had some students disappear for a while due to personal issues; sometimes even the strongest grade incentives aren’t enough to get people to class. But overall I can’t believe I waited this long. I’m currently putting attendance as 10-15% of the course grade, but I dream about someday running a discussion-based class like a Liberty Fund seminar, doing a 100% attendance/participation grade, and not having to grade anything.
Yesterday I showed that BLS jobs reports from the CES aren’t getting worse over time, if we judge them by how much they are later revised. In fact, they are much better than decades past, with the last 20 years or so standing out as much better than the past.
Today I want to address a related but separate topic: are the initial jobs reports good at telling us when a downturn in the labor market is beginning? This is actually the strongest argument for releasing this survey data in a timely manner, even though the data often goes through significant revisions later. The report typically comes out the first Friday of a new month, so it is very current data. Given that the likely new BLS Commissioner has signaled he prefers the more accurate quarterly release, even though it is 7-9 months after the fact, it is useful to ask if these initial reports have any value in telling us when labor market declines (and recessions) are beginning.
That’s right: you are getting two posts from me this week, on essentially the same topic. Because it’s very important right now.
The short answer: the report is very good for the purpose of identifying downturns, especially the start of the downturns. Let’s walk through the past few recessions.
You’ve probably heard a lot about BLS data recently (or at least more than usual) with Trump firing the BLS Commissioner after a bad monthly revision to the nonfarm payroll jobs figures. But this didn’t come out of the blue, as there was plenty of criticism of the jobs numbers during the Biden term as well, mostly coming from the political right.
The two main criticisms leveled at the BLS, in my reading of it are:
The BLS is getting worse at estimating jobs numbers over time, leading to larger revisions
The revisions are done in a way that is favorable to Democrats
I think both of those claims can be analyzed with the following chart, which also shows those claims to be incorrect:
Economist Writing Every Day 
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