Weber said Protestant theology created capitalism's spirit — thrift, diligence, deferred gratification. A century of argument, almost no causal proof. Until Bryan, Choi (@jameschoi_econ) & @DeanKarlan did a randomized trial. The experiment: International Care Ministries partnered to randomly assign evangelical Protestant education to households in extreme poverty in the Philippines. Six months later — higher religiosity, higher income. No significant change in labor supply or consumption.

Loss aversion — losses hurt twice as much as gains — is Kahneman and Tversky’s most famous finding, taught as universal. But @GalorOded and Savitskiy show it varies systematically across populations. Your ancestors’ climate shapes how loss-averse you are. Why? In pre-industrial farming, some regions faced droughts that hit every farm at once. No neighbor to bail you out. Populations enduring shared catastrophes developed stronger loss aversion. When everyone loses together, extreme caution is the only survival strategy.

Banks avoid poor rural areas for a reason: low returns. India decided to force them anyway — a 1:4 rule told banks to open four rural branches for every urban one, 1977–1990. Burgess and Pande found it cut poverty. But someone paid for that. Who? Banks don’t expand randomly — rich areas attract more branches anyway. The 1977 licensing rule flipped that: banks opened more rural branches in states with the least financial development. That policy-driven variation let researchers isolate cause from coincidence.

The most famous inequality prediction of our era: when returns to capital exceed economic growth, wealth concentrates without limit. Piketty’s “r > g” became the formula for why capitalism is rigged. Acemoglu & Robinson ran the test. It fails. First, what r > g actually claims: if capital earns 5% annually while the economy grows 2%, wealth compounds faster than incomes rise — so the rich get richer, mechanically, as an iron law. The data should show countries with high r − g having surging top income shares.

For a century, lower-income students have made up roughly 5% of elite college enrollment. The GI Bill didn't change that. The SAT didn't change that. Financial aid didn't change that. Abramitzky et al. tracked 2.5 million students across 65 elite schools since 1923. The number barely moved. Upper-income share did decline — from 70% to 50% between the 1940s and 1980s — but the gains went to middle-income students, not poor ones. Then it rebounded. Today it's back to pre-war levels. The floor never rose.

In 1000 CE, China was richer than Europe. By 1800, Europe had industrialized and China had not. Standard explanations — geography, culture, institutions — are too vague. Mokyr & Tabellini find the answer in one organizational difference: the clan vs. the corporation. Both societies needed local public goods the state couldn’t reach. China solved this with clans: kin-based networks. Europe, with weaker family bonds, built corporations: guilds, universities, self-governing towns. Same function, very different organizational logic.

I wrote my dissertation on placebo effects. My advisors were Gary Becker and Steve Levitt. This was not a normal thesis topic for a Chicago economist. Here's why I did it — and why it changed how I think about economics. At Chicago, surrounded by Nobel laureates and Clark Medal winners, I didn't think I could just write a thesis. I had to write one that left a mark. Placebo effects was my third project. The first two I abandoned — they weren't big enough.

A two-question test that most people — including economists who should know better — fail. It reveals that we don't make decisions the way rational choice theory assumes. Try it yourself before reading on. Choice 1: $1M guaranteed, or a lottery (89% chance of $1M, 10% chance of $5M, 1% chance of $0)? Most pick the sure thing — 82% in Kahneman & Tversky's data. Choice 2: 11% chance of $1M, or 10% chance of $5M? Now 83% pick the riskier gamble. You probably flipped too.

Kerala fishermen used to sail to shore, pick a market, and hope for the best. On any given day, 5-8% of the catch was thrown away — fish rotting at glutted beaches while neighboring beaches had none.

Then they got cell phones. Waste dropped to nearly zero. Fishermen's profits rose 8%. Consumer prices fell 4%. Price dispersion across markets collapsed. The law of one price was nearly perfectly achieved.

All from a technology that just let people make phone calls while at sea.

I’ve always thought the most important US constitutional doctrine was the dormant commerce clause. It (mostly) guaranteed an unfettered large internal market in the US. I think it plays a huge role in America’s ~2% GDP growth over the last 150 years, which is our superpower. 1/n

https://twitter.com/lugaricano/status/1922575504550363169

This is ironic bec the dormant commerce clause, despite its name, is unwritten. It’s implied by the commerce clause, which says Congress can regulate trade b/w states. The Supreme Court said the negative implication is that states cannot erect trade barriers b/w themselves. (It’s also unpopular among con law scholars because it’s non-textual. Chalk this up as a victory for natural rights!)

***New paper***

@jetson_econ & I have an NBER WP on economics of healthcare fraud. In it, we provide

- An economic definition of fraud
- Explain 3 main categories of fraud
- Distinguish fraud from malpractice
- Offer a model of why fraud occurs
- Examine trends in prosecutions Fraud is a confusing legal concept. It is defined by multiple statutes.

But nearly all *healthcare fraud* meets a simple definition:

Fraud occurs when there is a mismatch in
1/what a provider does
2/what the insurer thinks the patient needs &
3/what the provider bills for

Two important charts for understanding why US lags Europe in longevity.

1/ It's behavior, not healthcare: US infant mortality is higher in the months after a baby goes home from the hospital. Suggesting it's at-home behavior, not bad healthcare that is responsible. 2/ The gap is driven by less-educated or lower economic status populations in the US. Being high status in the US is akin to being high status in Europe.

Source: Alice Chen, @ProfEmilyOster, @heidilwilliams_

Single most under-appreciated chart for understanding health insurance policy in the US.

Uninsured typically pay less than $5k out of pocket for care, regardless of their bill.

So, even without formal health insurance, ppl effectively have a $5000 deductible insurance policy. The reason is

1/ the govt requires hospitals treat people before billing them (EMTALA)

2/ the threat of bankruptcy (incl exemptions) gives people bargaining power to negotiate down these bills (debts)

***New working paper alert***

With Ari Jacob, I present a new measure of the # of surviving children per female over time & across countries.

It shows slower decline globally than total fertility rate (TFR).
Show remarkable stability within countries over time.

@_alice_evans Available at nber.org/papers/w33175 and bfi.uchicago.edu/working-papers…

I'm teaching microeconomics this quarter & frame the class as policy-relevant by discussing different methods of allocating scarce resources.

The purpose is to stop students from immediately going from mkt failure --> govt intervention. Instead... I want them to compare mkt allocation to non-market methods, incl public ones by first specifying the alternative method & then discussing how it compares to mkts. Trashing mkts is easy, specifying better alternative is hard.

Teaching microeconomics today & explained Friedman point that econ, unlike eg biology, seeks a parsimonious predictive model rather than a descriptively accurate one.

But raises a q: as cost of info & processing power falls, should economics use a more complex base model? The way I explain it is that predictive power (of a model for human behavior) is an increasing, concave function of complexity (eg number of variables k). Cost of complexity is increasing and complexly. Suggests an optimal complexity point where slope of power = slope of cost.

Research involves a *lot* of admin costs that reduce scientific productivity. Here are 8 ways to reduce this (especially in economics), with little cost to journals or grantors. We should pressure organization to make these changes.... But first, this thread is inspired by a @salonium post at @WorksInProgMag. Also H/T @MargRev.

worksinprogress.co/issue/real-pee…

What if you could bid to get quicker ref repts for your submission to the peer review journals? At least for econ journals.

Refs would be chosen by editor (not authors), remain anonymous. But payment for completed repts would increase acceptance of invitation & faster review... Seems like the mechanism economists would like.

Benefits obvious: refs get $$ for time, encourages reviews at a time ppl are complaining abt how hard it is, etc.

Also research is public good w/ inadequate private supply. Why discourage supply w/ 0 or low-price caps on refs?

Two conversations this week got me to think differently. They end w/ requests for recommended reading.

TL;DR:
1/Economics needs to be as empirically rigorous about welfare analysis of politics as markets.
2/Economics must supplement causal ev w/ non-causal ev to be impactful. Convo #1: @APanagariya's wonderful India conference @columbia. There was a discussion of farm & ed reforms. There was some discussion of the politics of the farm reforms, but less on ed.

I've had similar convos about US housing reform w/ @DanielJHemel @ProfSchleich.

How valuable is causal inference?

Economists & statisticians embody high human capital and spend a ton of time showing (policy) X causes Y. What is the rate of return on this effort? TL;DR: The policy & business does not seem to value causation as much as academic economists do. It suggests that economists need to either:

-convince ppl on the value of investing a lot of effort on causation
-work on reducing the costs of inferring causation

Thinking about Uber given recent news about their app hosting taxis and Showtime's super pumped, I had the following question:

What is the optimum level of antitrust scrutiny of startups that seek to displace vested interests? TL;DR: Attacking vested interests is a public good, subject to collective action problems. To get a socially optimal amount of sectoral innovation, we may want to tolerate some collusion or give a period of monopoly rights to new entrants. A useful analogy is Hatch-Waxman.