Telling Stories at the Campfire

Joy BuchananLeave a comment

This week has been busy with the enjoyable task of hosting a distinguished economist in Alabama. I can only briefly follow up on my campfire post. (Yes, this is apropos of everything.)

I do not usually use LLMs to write even part of my posts but since I am pressed for time, I will just take this as a chance to assess Claude. I pay for Claude and Grok, currently. Both of those subscriptions resulted from a particular moment when I thought I could get a particular task done with them and was in a hurry. If I could do it all over again, I would undo those subs, I think, and go more in on the OpenAI Pro products.

Prompt: Finger wagging is surprisingly ineffective; telling a compelling story is surprisingly effective. Can you expand that out into a paragraph for a blog?

Claude response: The art of persuasion often defies our intuitive assumptions. While many of us default to stern lectures and admonishing fingers when trying to change minds, research consistently shows this approach tends to backfire, causing people to become defensive and dig deeper into their existing beliefs. What proves remarkably more effective is the simple act of storytelling. When we encounter a compelling narrative, our brains react differently than they do to facts and figures alone – we become emotionally invested, our neural patterns sync with the story’s flow, and we naturally lower our defensive barriers. Stories create a shared experience that bridges ideological divides, allowing new ideas to take root not through force, but through the gentle power of narrative empathy. This explains why parables and fables have been humanity’s preferred teaching tools for millennia, while memories of being lectured rarely inspire lasting change.

Claude is always a little too verbose, in my opinion. Still, the logic and grammar are good. The machines can write.

I might write more soon about how AI’s used narrative to influence humans in the novel The Diamond Age.

RGDP Underestimates Welfare

Zachary BartschLeave a comment

Like many Principles of Macroeconomics courses, mine begins with an introduction to GDP. We motivate RGDP as a measure of economic activity and NGDP as an indicator of income or total expenditures. But how does more RGDP imply that we are better off, even materially? One entirely appropriate answer is that the quantities of output are greater. Given some population, greater output means more final goods and services per person. So, our real income increases.  But what else can we say?

First, after adjusting for price changes, we can say that GDP underestimates the value that people place on goods and services that are transacted in markets. Given that 1) demand slopes down and 2) transactions are consensual, it stands to reason that everyone pays no more than their maximum value for things. This implies that people’s willingness to pay for goods surpasses their actual expenditures. Therefore, RGDP is a lower bound to the economic benefits that people enjoy. Without knowing the marginal value that people place on all quantities less than those that they actually buy, we have no idea how much more value is actually provided in our economy.

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Triumph of the Data Hoarders

James Bailey3 Comments

Several major datasets produced by the federal government went offline this week. Some, like the Behavioral Risk Factor Surveillance Survey and the American Community Survey, are now back online; probably most others will soon join them. But some datasets that the current administration considers too DEI-inflected could stay down indefinitely.

This serves as a reminder of the value of redundancy- keeping datasets on multiple sites as well as in local storage. Because you never really know when one site will go down- whether due to ideological changes, mistakes, natural disasters, or key personnel moving on.

External hard drives are an affordable option for anyone who wants to build up their own local data hoard going forward. The Open Science Foundation site allows you to upload datasets up to 50 GB to share publicly; that’s how I’ve been sharing cleaned-up versions of the BRFSS, state-levle NSDUH, National Health Expenditure Accounts, Statistics of US Business, and more. If you have a dataset that isn’t online anywhere, or one that you’ve cleaned or improved to the point it is better than the versions currently online, I encourage you to post it on OSF.

If you are currently looking for a federal dataset that got taken down, some good places to check are IPUMS, NBER, Archive.org, or my data page. PolicyMap has posted some of the federal datasets that seem particularly likely to stay down; if you know of other pages hosting federal datasets that have been taken down, please share them in the comments.

Was the US at Our Richest in the 1890s?

Jeremy Horpedahl2 Comments

Donald Trump has repeatedly said that the US was at our “richest” or “wealthiest” in the high-tariff period from 1870-1913, and sometimes he says more specifically in the 1890s. Is this true?

First, in terms of personal income or wealth, this is nowhere near true. I’ve looked at the purchasing power of wages in the 1890s in a prior post, and Ernie Tedeschi recently put together data on average wealth back to the 1880s. As you can probably guess, by these measures Trump is quite clearly wrong.

So what might he mean?

One possibility is tax revenue, since he often says this in the context of tariffs versus an income tax. Broadly this also can’t be true, as federal revenue was just about 3% of GDP in the 1890s, but is around 16% in recent years.

But perhaps it is true in a narrower sense, if we look at taxes collected relative to the country’s spending needs. Trump has referenced the “Great Tariff Debate of 1888” which he summarized as “the debate was: We didn’t know what to do with all of the money we were making. We were so rich.” Indeed, this characterization is not completely wrong. As economic historian and trade expert Doug Irwin has summarized the debate: “The two main political parties agreed that a significant reduction of the budget surplus was an urgent priority. The Republicans and the Democrats also agreed that a large expansion in government expenditures was undesirable.” The difference was just over how to reduce surpluses: do we lower or raise tariffs?

It does seem that in Trump’s mind being “rich” in this period was about budget surpluses. Let’s look at the data (I have truncated the y-axis so you can actually read it without the WW1 deficits distorting the picture, but they were huge: over 200% of revenues!):

It is certainly true that under parts of the high-tariff period, we did collect a lot of revenue from tariffs! In some years, federal surpluses were over 1% of GDP and 30% of revenues collected. But notice that this is not true during Trump’s favored decade, the 1890s. Following the McKinley Tariff of 1890, tariff revenue fell sharply (though probably not likely due to the tariff rates, but due to moving items like sugar to the duty-free list, as Irwin points out). The 1890s were not a decade of being “rich” with tariff revenue and surpluses.

Finally, also notice that during the 1920s the US once again had large budget surpluses. The income tax was still fairly new in the 1920s, but it raised around 40-50% of federal revenue during that decade. By the Trump standard, we (the US federal government) were once again “rich” in the 1920s — this is true even after the tax cuts of the 1920s, which eventually reduced the top rate to 25% from the high of 73% during WW1.

If we define a country as being “rich” when it runs large budget surpluses, the US was indeed rich by this standard in the 1870s and 1880s (though not the 1890s). But it was rich again by this standard in the 1920s. This is just a function of government revenue growing faster than government spending. And the growth of revenue during the 1870s and 1880s was largely driven by a rise in internal revenue — specifically, excise taxes on alcohol and tobacco (these taxes largely didn’t exist before the Civil War).

1890 was the last year of big surpluses in the nineteenth century, and in that year the federal government spent $318 million. Tariff revenue (customs) was just $230 million. There was only a surplus in that year because the federal government also collected $108 million of alcohol excise taxes and $34 million of tobacco excise taxes. In fact, throughout the period 1870-1899, tariff revenues are never enough to cover all of federal spending, though they do hit 80% in a few years (source: Historical Statistics of the US, Tables Ea584-587, Ea588-593, and Ea594-608):

One more thing: in some of these speeches, Trump blames the Great Depression on the switch from tariffs to income taxes. In addition to there really being no theory for why this would be the case, it just doesn’t line up with the facts. The 1890s were plagued by financial crises and recessions. The 1920s (the first decade of experience with the income tax) was a period of growth (a few short downturns) and as we saw above, large budget surpluses. The Great Depression had other causes.

After the Fall: What Next for Nvidia and AI, In the Light of DeepSeek

Scott Buchanan1 Comment

Anyone not living under a rock the last two weeks has heard of DeepSeek, the cheap Chinese knock-off of ChatGPT that was supposedly trained using much lower resources that most American Artificial Intelligence efforts have been using. The bearish narrative flowing from this is that AI users will be able to get along with far fewer of Nvidia’s expensive, powerful chips, and so Nvidia sales and profit margins will sag.

The stock market seems to be agreeing with this story. The Nvidia share price crashed with a mighty crash last Monday, and it has continued to trend downward since then, with plenty of zig-zags.

I am not an expert in this area, but have done a bit of reading. There seems to be an emerging consensus that DeepSeek got to where it got to largely by using what was already developed by ChatGPT and similar prior models. For this and other reasons, the claim for fantastic savings in model training has been largely discounted. DeepSeek did do a nice job making use of limited chip resources, but those advances will be incorporated into everyone else’s models now.

Concerns remain regarding built-in bias and censorship to support the Chinese communist government’s point of view, and regarding the safety of user data kept on servers in China. Even apart from nefarious purposes for collecting user data, ChatGPT has apparently been very sloppy in protecting user information:

Wiz Research has identified a publicly accessible ClickHouse database belonging to DeepSeek, which allows full control over database operations, including the ability to access internal data. The exposure includes over a million lines of log streams containing chat history, secret keys, backend details, and other highly sensitive information.

Shifting focus to Nvidia – – my take is that DeepSeek will have little impact on its sales. The bullish narrative is that the more efficient algos developed by DeepSeek will enable more players to enter the AI arena.

The big power users like Meta and Amazon and Google have moved beyond limited chatbots like ChatGPT or DeepSeek. They are aiming beyond “AI” to “AGI” (Artificial General Intelligence), that matches or surpasses human cognitive capabilities across a wide range of cognitive tasks. Zuck plans to replace mid-level software engineers at Meta with code-bots before the year is out.

For AGI they will still need gobs of high-end chips, and these companies show no signs of throttling back their efforts. Nvidia remains sold out through the end of 2025. I suspect that when the company reports earnings on Feb 26, it will continue to demonstrate high profits and project high earnings growth.

Its price to earnings is higher than its peers, but that appears to be justified by its earnings growth. For a growth stock, a key metric is price/earnings-growth (PEG), and by that standard, Nvidia looks downright cheap:

Source: Marc Gerstein on Seeking Alpha

How the fickle market will react to these realities, I have no idea.

The high volatility in the stock makes for high options premiums. I have been selling puts and covered calls to capture roughly 20% yields, at the expense of missing out on any rise in share price from here.

Disclaimer: Nothing here should be considered as advice to buy or sell any security.

Shocked

mdmakowsky1 Comment

Two weeks in and it’s safe to say the United States federal government has been shocked out of it’s previous equilibrium (whether that shock is “exogenous” is honestly besides the point). Some thoughts, in no particular order

The federal talent drain is going to get even worse

At some point in the last 100 years the equilibrium strategy for the government has been to pay employees in the non-pecuniary benefits of a) job security, b) status, c) retirement d) pro-social civic pride, and e) still more job security. Almost none of that remains wholly intact. The previous bundle of non-pecuniaries resulted in a federal labor force where, glibly estimated, 20% of the employees did 80% of the work. The federal government functioned off the talent and committment of employees whose non-pecuniary preferences led them to forego considerable amounts of income in the private sector. Not sure who’s going to stick around or start a career in the federal government at this point, but I expect the selection effects to be sometimes darkly tragicomic, but mostly just tragic. People have already been hurt. More people will continue to be hurt.

The shrill cranks were right

It’s time for a lot of people to start publicly accepting the fact that the new administration is actually running an authoritarian playbook. Words like “fascism” are neither shrill nor overwrought. Is it unfortunate that people have being making accusations of fascist intent everyday for the last 30 years? Yes, but just because they were wrong then doesn’t mean it’s inappropriate now. The stopped clock is in fact right twice a day. Guess what time it is?

On raptors and resistance

If you’re looking for metaphor instead of adjectives, the new administration are raptors testing their cages for weakpoints, seeing what they can get away with. The bad news is that they are finding no shortage of potential weaknesses to advance their agenda. The good news is that finding and exploiting weaknesses takes time. If we are willing to accept that tariffs are going to impose a lot of price-related pain on consumers and, as the previous round of elections around the world has evidenced, voters do in fact punish incumbents for consumer pain, then the optimal strategy is to merely survive the next 206 weeks with as little damage as possible. So how do we do that?

Put simply, waste time. The entire opposition strategy should be to force the administration to use as much time as possible at every step. Procedural, judicial, and legislative moves are all available. Aspiring fascists they may be, but they are not particularly competent fascists. These people are not grinding out 16 hour work days to write air tight executive orders. They are not career bureacrats who know exactly what buttons to push. They are carnival barkers, reality tv producers, third-rate social media influencers, and niche celebrities. Every time they make a misstep, design something poorly, and have to rescind it 44 hours later? That’s a win. It’s wasted time on a ticking clock that they will never get back. It doesn’t feel like a win because it imposed a lot of pain on a lot of people, but that pain fell well short of the administration’s ambitions.

This works for the tariffs as well. This is not the 18th century where you would simply put someone with a coin purse on the docks to inspect and collect tariffs from every ship that came to port. Modern supply chains are outrageously complex. Collecting tariffs effectively requires institutional infrastructure closer to a VAT tax. Do you really they think these people are going to design it in a manner impervious to bureaucratic and market resistance on the first or second try? Resistance means tying things up in courts on one side while publicly broadcasting the loopholes for the marketplace on the other. Resistance means not just smiling when Canada designs retaliatory tariffs that target “red state” produced goods, but actively broadcasting and supporting that targeting (he wrote while living in a red state and knows he should probably stock up on maple syrup).

Complaining in Stereo

Incumbents lost around the world because nothing pierces rational voter ignorance quite like inflation. Unemployment is salient, but until you hit ~8% or more it might not be sufficiently pervasive to move enough votes. The converse is even more true – it’s almost impossible to get credit for high employment because all you really know is that you have a job which you would have had anyway because you are good and smart and deserve to have a job. Higher prices though, those are always someone else’s fault. The current adminstration blamed Democrats and foreigners. Now it’s the new opposition’s turn to blame Republicans and incompetent public figures in the bureacracy. When consumers take it on the chin, the opposition needs to amplify, amplify, amplify. If there is one thing that seems to be universally true in the modern social media age, it’s that few things are as welcomed by the audience as anxiety and anger. People love to complain. I see no reason not to feed that complaining.

Using Taylor Swift to teach about Adam Smith

Joy BuchananLeave a comment

It’s a niche thing, but Art Carden and I wrote a collection of Taylor Swift/Adam Smith essays. I’m going to use some for teaching this semester, so I wanted to post this in case it’s useful for other teachers.

In introductory economics courses, students often encounter Adam Smith as a one-dimensional figure – the patron saint of self-interest who wrote about the “invisible hand” of the market. But Smith was a far more nuanced thinker, and his insights about human nature remain relevant today. The challenge is making these complex ideas accessible to modern undergraduates.

That’s where this comes in as a teaching aid. Through three recent articles examining Swift’s very public decisions and artistic output, we can introduce students to Smith’s key ideas in a way that feels immediately relevant and engaging. From Swift’s struggles with public perception in “Anti-Hero” to the economic implications of her homemade cinnamon rolls, these pieces provide concrete, contemporary examples that illuminate Smith’s dual role as both moral philosopher and economic thinker. Many undergraduates are already familiar with Swift’s music and public persona, providing an accessible entry point to Smith’s more abstract concepts.

Here’s the recommended order to introduce our articles and a blurb on what you can learn (seriously).

“Anti-Hero as a Smithian Anthem” – This article introduces Smith’s foundational concept of the impartial spectator and his sophisticated view of human nature through a contemporary example. The article demonstrates that Smith wasn’t just an economist but a moral philosopher who understood how deeply humans care about others’ perceptions of them, showing students that economics isn’t just about money.

“Taylor Swift & The World’s Most Expensive Cinnamon Rolls” – This piece provides a bridge between Smith’s moral philosophy and his economic thinking, using opportunity cost analysis while simultaneously showing how rational economic actors might “inefficiently” spend time on activities that build social bonds. The article illustrates how Smith’s ideas about sympathy and social connection exist alongside, not in opposition to, his economic insights about specialization and efficiency.

“Would Adam Smith Tell Taylor Swift to Attend the Super Bowl?” – This article builds on the previous readings to explore the full complexity of Smith’s thought, showing how his ideas from both The Theory of Moral Sentiments and The Wealth of Nations can be applied to analyze real-world decisions.

How FRASER Enhances Economic Research and Analysis

Zachary BartschLeave a comment

Most of us know about FRED, the Federal Reserve Economic Data hosted by the Federal Reserve of St. Louis. It provides data and graphs at your fingertips. You can quickly grab a graph for a report or for a online argument. Of course, you can learn from it too. I’ve talked in the past about the Excel and Stata plugins.

But you may not know about the FRED FRASER. From their about page, “FRASER is a digital library of U.S. economic, financial, and banking history—particularly the history of the Federal Reserve System”. It’s a treasure trove of documents. Just as with any library, you’re not meant to read it all. But you can read some of it.

I can’t tell you how many times I’ve read a news story and lamented the lack of citations –  linked or unlinked.  Some journalists seem to do a google search or reddit dive and then summarize their journey. That’s sometimes helpful, but it often provides only surface level content and includes errors – much like AI. The better journalists at least talk to an expert. That is better, but authorities often repeat 2nd hand false claims too. Or, because no one has read the source material, they couch their language in unfalsifiable imprecision that merely implies a false claim.

A topical example would be the oft repeated blanket Trump-tariffs. That part is not up for dispute. Trump has been very clear about his desire for more and broader tariffs. Rather, economic news often refers back to the Smoot-Hawley tariffs of 1930 as an example of tariffs running amuck. While it is true that the 1930 tariffs applied to many items, they weren’t exactly a historical version of what Trump is currently proposing (though those details tend to change).

How do I know? Well, I looked. If you visit FRASER and search for “Smoot-Hawley”, then the tariff of 1930 is the first search result. It’s a congressional document, so it’s not an exciting read. But, you can see with your own eyes the diversity of duties that were placed on various imported goods. Since we often use the example of imported steel and since the foreign acquisition of US Steel was denied, let’s look at metals on page 20 of the 1930 act. But before we do, notice that we can link to particular pages of legislation and reports – nice! Reading the Smoot-Hawley Tariff Act’s original language, we can see the diverse duties on various metals. Here are a few:

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The Big Ideas

James Bailey2 Comments

Do I really think that the things I write about here and in my papers are the most important things in the world? No. Like most academics, I tend to emphasize the issues where I think I bring a unique perspective, rather than most important issues. But if you don’t realize this, you might get the impression that I think the things I normally talk about are the most important, rather than simply the most neglected and tractable / publishable. I don’t work on the most important issues because I see no good way for me to attack them- but if you do see a way, that is where you should focus. So what are the big issues of the 2020’s?

I see two issues that stand out above the many other important events of the day:

  • Artificial Intelligence: At minimum, the most important new technology in a generation; has the potential to bring about either utopia or dystopia. Do you have ideas for how to nudge it one way or another?
  • Rise of China: From extreme poverty to the world’s manufacturing powerhouse in two generations. What lessons should other countries learn from this for their own economic policy? How can we head off a world war and/or Chinese hegemony?

Focusing a bit more on economics, I see two perennial issues where there could be new opportunities to solve vital old questions:

  • Economic Development: We still don’t have a definitive answer to Adam Smith’s founding question of economics- why are some countries rich while other countries are poor, and how can the poor countries become rich? I think economic freedom is still an underrated answer, but even if you agree, the question remains of how to advance freedom in the face of entrenched interests who benefit from the status quo.
  • Robust Prediction: How can we make economics into something resembling a real science, one where predictions that include decimal places don’t deserve to be laughed at? Can you find a way to determine how much external validity an experiment has? Or how to use machine learning to get at causality? Or at least push existing empirical research to be more replicable?

I’ve added these points to my ideas page, since all this was inspired by me talking through the ideas on the page with my students and realizing how small and narrow they all seemed. Yes, small and narrow ideas are currently easier to publish in economics, but there is more to research and life than easy publications.