David Rapson

How will the oil disruption from the Iran war affect global economic growth? @DallasFed economists describe some potential scenarios. TL/DR: the effects of a prolonged closure of the Strait of Hormuz would be severe. dallasfed.org/research/econo…

@akoustov I don’t believe it is true that AI now can do social science better than most professors.

I'd like to maximize social welfare and wealth inequality is at best an indirect input into it. Theory and empirics on related topics suggests that "wealth tax" is an esoteric (if at all) piece of an optimal tax system. Its practical implementations have been underwhelming too

75 years ago, 1 out of every 5 dollars a US family earned went to food. Today that's closer to 1 in 10. A slow, steady, easy-to-miss kind of progress.

Just days ago, a senior statesman of my field warned a co-author of mine to “be careful” framing an important result that cuts against conventional left environmental policy wisdom. There are a few ways to interpret it, but one is chilling. Debate should be encouraged.

This is a brilliant move by Jon Stewart. When faced with accusations of being profoundly ignorant about economics, follow up by interviewing the famous “economist” who isn’t actually an economist, and who doesn’t understand basic economics.

The level of ignorance revealed by Jon Stewart here about what economists actually do and prescribe is staggering.

In #Canada, you literally have to meet face-to-face with the manager of your local branch in order to send a wire transfer. It’s an insane requirement, and particularly inconvenient when you live 5000km from your branch. Banks allowing remote wires will earn all my cdn business.

Full respect for this principled position. I hope Congress will expand its efforts to protect important principles and institutions.

This is very cool.

Are you looking for a new energy job in the New Year? I’ve never seen so many cool, well-paid energy jobs posted at once. Let’s do a 🧵 of some standout roles I’ve seen lately 👇

1/3 SCMP: "About 50 unprofitable mainland Chinese EV makers are under pressure to scale down their business or wind down operations, as the country’s automotive sector is projected to report a sales drop next year – the first such contraction since 2020." scmp.com/business/china…

Seeing the high priests of climate alarm demonize @JesseJenkins is disappointing because he’s a decent person who doesn’t deserve this nonsense It’s also a lesson for those of us who have been demonized over the years for questioning climate policy The zealots can’t be appeased

* Congestion Down * Sales tax revenue up * Vehicle traffic: -11% * Foot traffic: +3.4% * Pollution: -22% * Revenue for mass transit: $548M NYC Congestion Pricing has been a *HUGE* success

Mainstream economics strikes again.

Perhaps the greatest failure of the economics profession has been our inability to sell the idea that we should tax "bads" like congestion and pollution. One reason building is so expensive is that we have so many regulations instead of just prices.

Have to hand it to the Fed. First, it voluntarily imposes a set of trading restrictions on its leaders. And then, it actually follows through on enforcing them! (Strangely, some Americans want to think this is a sign of a sick institution 🤷‍♂️).

👇🏻

Here's a longer-term chart. The simple story is correct. Capitalism created Poland's miracle, and socialism created Venezuela's catastrophe.

Let me explain why I believe modern economics is such a powerful tool for understanding the world. I’ll do this by discussing a great paper by Simone Cerreia-Vioglio, @UncertainLars, Fabio Maccheroni, and Massimo Marinacci, “Making Decisions Under Model Misspecification,” published in the Review of Economic Studies a few months ago. Imagine I want to drive from UC San Diego to UCLA, but I’ve never driven that route before. I need to build a “model of the world” to guide me, which we usually call a map. Maps are simplified representations of reality. They can’t include every detail if they’re to be useful. Borges, in his short story On Exactitude in Science, makes this point beautifully. (In practice, I don’t draw the map myself—I use an app—but someone still had to make it.) Because maps simplify, I can’t fully rely on them. Maybe last night’s storm knocked down a tree and closed a street, or there’s construction and the ramp off the highway in LA is shut down. This uncertainty matters. Suppose I’m driving to UCLA for an important talk at 11 a.m. If the ramp is closed, I might need 15 extra minutes. When should I set my alarm to arrive on time, while still getting enough sleep to give a good talk? The problem is that I can’t assign precise probabilities to all these contingencies. How likely is the fallen tree? Or new roadwork? Even the best traffic apps can’t capture every disruption, and some might happen after I’ve already left. In economic terms, my “model of the world” (the map) is misspecified—and no matter how hard I try, I can’t fully fix that. But sitting down and crying about misspecification doesn’t answer my basic question: when do I set the alarm? Too early, and I’m exhausted. Too late, and I’m late. Simone and his co-authors offer a way to think about this. They start from the idea that we often hold several structured models of an economic phenomenon, grounded in theory. For example, a central bank might use a standard New Keynesian model and a search-and-matching model of money. Yet, aware that each model is misspecified by design, the bank adds a protective belt of unstructured models—statistical constructs that help it gauge the consequences of misspecification. The beauty of the paper is that it provides an axiomatic foundation for this protective belt (and even generalizes it to include a Bayesian approach). It shows that if a decision-maker’s preferences meet certain conditions —reflecting both rational and behavioral features— then those preferences can be represented by an augmented utility function that formally accounts for misspecification. Crucially, we don’t assume that augmented utility function; we derive it. We start with general, plausible properties of preferences and prove that they imply such a representation. That’s real progress. Instead of writing endless critiques of expected utility or rational expectations (as many have done for decades, with little to show), we now have a formal way to reason about misspecification—precise definitions, clear boundaries of validity, and awareness of what we still don’t know. Take, for instance, a brilliant Penn graduate student on the market, Alfonso Maselli economics.sas.upenn.edu/people/alfonso… His job-market paper pushes this frontier further. He studies cases where a decision-maker not only faces model misspecification but is also unsure which model best fits the data and can’t assign probabilities to them—what we call model ambiguity. In my example, the central bank is unsure whether the New Keynesian or the search-and-matching model fits better, and it worries that both might be incorrect. If you read Simone et al. or Alfonso’s paper, you’ll see how misguided—and, frankly, cartoonish—many of the recent criticisms of economics on X have been. First: the idea that economists don’t understand math or have “physics envy.” The math in these papers is subtle and advanced—utterly different from what physicists do (neither better nor worse, just distinct). An engineer transitioning into economics would find these tools unfamiliar. Second: claims of ideological bias are unfounded. I have no idea about the political views of the authors, and I’d be surprised if anyone could infer them from the analysis—beyond vague guesses about typical academics. Third: This has almost nothing to do with what one learns as an undergraduate, or even in first-year graduate school. If your knowledge of economics stops at an intro textbook, it’s best not to pontificate on the field’s frontiers. Fourth: Is this science? Debating that word’s boundaries is pointless; every definition of “science” breaks down somewhere. The Germans solved this long ago with the idea of Wissenschaft—the systematic pursuit of knowledge, whether of nature, society, or the humanities. By that measure, modern mainstream economics is clearly a Wissenschaft: a disciplined, cumulative, and highly useful effort to understand how the world works. Simone and his co-authors have demonstrated that beyond any reasonable doubt.