This is an incredibly subtle, yet provocative paper. If you think we should treat future humans the same as present humans, then it implies that we should have massive transfers from old to young, even if wasteful! Let me show you why 1/ I should be clear about the terms. The interest rate is simply what the rate we need to be paid in order to defer consumption. If interest rates are 6%, then I am indifferent between $100 and $106 in a year. (We will abstract away from risk-aversion here)

Why does the state emerge? Is it beneficial? Why are some states stronger than other states? It is rare that we can see a state emerge, but Raul Sanchez de la Sierra has 18 years of data collection efforts to answer the questions. 1/ The “stationary bandit” view of the state derives from Mancur Olson. In the state of anarchy, some people are bandits who profit by stealing from others. This theft prevents people from increasing output, though. It is profitable for the bandit to settle down and impose taxes.

How important was the railroad, and why did it raise incomes? Dave Donaldson’s classic paper “Railroads of the Raj” found that access to the railroad raised real income by 16%, and trade accounted for half. Let’s understand how he got this! 1/ India’s infrastructure, before the railroad construction campaigns began, was extremely poor. Transport was main through putting packs on the back of cattle, and driving them through fields, which was incredibly expensive. Railroads were both much cheaper, and much faster.

Why did the theory of endogenous growth develop? What problems is it solving? Before we go into the details of how the models work, I want to provide the intellectual context. 1/ Recall that, in the Solow model, output is a function of labor and capital, with it converging to a steady state. Technological progress is represented by an A multiplying the function. Capital has decreasing marginal returns.

Robert Solow’s 1956 paper “A Contribution to the Theory of Economic Growth” is the fundamental paper in economic growth theory. Everything which has come since is built upon it. With that said, let’s explore it and Solow (1957) too! 1/ Its predecessor is the Harrod-Domar model, which is essentially a port of short-run Keynesian economics into long run growth. It assumes that factors of production are not substitutable, which gives it an unpleasant “knife-edge” characteristic.

Autor, Dorn, and Hanson is the canonical shift-share paper, and something you should absolutely have read and understood if you want to do serious work in economics today. 1/ I am not discussing it so much for the empirical results as for the methods, but it follows in the footsteps of Krugman (1981) and Brander and Krugman. If you allow for frictions, trade will create winners and losers. How big are these?

This is a really good paper, but I’m concerned that their method cannot detect the effects that they are looking for? We don’t really know the labor market effects from this. Short thread. They are able to find the productivity effects easily, because that’s input/output, and they have sufficiently detailed data to measure that. They then turn to whether this is passed through to wages, and estimate a very precise null.

The Trump administration is trying to impose sweeping price controls on medication. So what will the effects be? Let’s look at the actual evidence. Spoilers: this will kill millions of people. 1/ But first, theory. Ideas are just different from other goods! You need to pay to find it, but once you have an idea, you can replicate it at a low cost. Since competition drives down price to marginal cost, we end finding too few ideas.

Let’s learn together! This tweet will be a thread of threads — lecture notes, essentially, on some of the formative papers in economics. I hope this is a helpful guide to being an economist.

https://twitter.com/captgouda24/status/1919447672076861558

Krugman (1980) “Scale Economies, Product Differentiation, and the Pattern of Trade” princeton.edu/~pkrugman/scal…

x.com/captgouda24/st…

What Aella is discussing is a form of non-wage compensation. But why do firms offer non-wage compensation at all? Why don’t they pay in money? After all, not everyone would value this highly. There are a few reasons why. 1/

https://twitter.com/Aella_Girl/status/1918929091874423263

The first and obvious reason is the favorable tax treatment granted to non-wage compensation. Health insurance is tax deductible, so most health insurance is purchased through an employer. Perks might be treated as an investment, if spent by the company.

A tariff is doing to ourselves in times of peace, what our enemies do to us in times of war.

https://twitter.com/AnechoicMedia_/status/1854732106053595327

Anti-free trade sentiment is *profoundly* stupid, btw. First, there is absolutely no reason to believe tariffs are optimal — Dasgupta/Stiglitz 1988 is clear that even in the presence of increasing returns, subsidizing imports may be the optimal policy.

Is horizontal pay transparency good? By any reasonable standard, no. It does indeed reduce the gender pay gap, but only through reducing total wages! Everyone is worse off! A small thread: People in the same role differ in productivity. Pay transparency makes it much harder to pay more productive workers more, because you will need to give a formal promotion.

Some claims about Sweden: it is indeed true that Sweden became much more equal during the 70s and 80s — this was accomplished by chasing away the very top, however. 🧵 Sweden was, by that point, still very much living off the dividends of past laissez-faire. Not until the neoliberal reforms of the early 90s would Sweden resume its prior growth.

The Chinese Communist Revolution was one of the most leveling events in history. The land of the better off was confiscated, and those who were wealthy were denied education. Yet, none of that mattered. Those who wealthy before, went back on top.
nber.org/system/files/w… Why was this? Why did class reassert itself, with the same people back on top? And what does this tell us about *why* income inequality occurs? The reason cannot be wealth alone; and neither can it be formal education? So why does it happen?