Conversable Economist

Sara Frueh interviews David Autor on the subject: “How Is AI Shaping the Future of Work?” (Issues in Science and Technology, January 6, 2026). Here are some snippets that caught my eye, but it’s worth reading the essay and even clicking on some of the suggested additional readings:

How broadly are AI tools already being used at work?

At least half of workers, at this point, are using it in their jobs, and probably more. In fact, more workers use it on their jobs than employers even provide it because many people use it even without their employer’s knowledge. So it’s caught on incredibly quickly. It’s used at home, it’s used at work, it’s used by people of all ages, and it’s used now equally by men and women and across education groups.

The problem when people are paid for expertise–but the expertise becomes outdated

People are paid not for their education, not for just showing up, but because they have expertise in something. Could be coding an app, could be baking a loaf of bread, diagnosing a patient, or replacing a rusty water heater. When technology automates something that you were doing, in general, the expertise that you had invested in all of a sudden doesn’t have much market value. … And so my concern is not about us running out of jobs per se. In fact, we’re running out of workers. The concern is about devaluation of expertise. And especially, even if, again, we’re transitioning to something “better,” the transition is always costly unless it happens quite slowly. And that’s because changes in people’s occupations is usually generational. You don’t go from being a lawyer to a computer scientist, or a production worker to a graphic artist, or a food service worker to a lawyer in the course of a career. Most people aren’t going to make that transition because there’s huge educational requirements to making those types of changes. So it’s quite possible their kids will decide, “Well, I’m not going to go into translation, but I will go into data science,” but that doesn’t directly help the people who are displaced.

How is the “China shock” of rising imports from China in the early 2000s likely to be different from the current AI shock?

There are important differences. One of those differences is that the China shock was very regionally concentrated. It was, as I mentioned, in the South and the Deep South, in places that made textiles and clothing and commodity furniture and did doll and tool assembly and things like that. So it’s unlikely that the impacts of AI will be nearly as regionally concentrated. And that makes it less painful because it doesn’t sort of knock out an entire community all at once. We’ve lost millions of clerical and administrative support jobs over the last few decades, but nobody talks about the great clerical shock. Why don’t they? Well, one reason is there was never a clerical capital of the United States where all the clerical work was done. It was done in offices around the country. So it’s not nearly as salient or visible. And it’s also not nearly as devastating because it’s a relatively small number of people in a large set of places. So that’s one difference. The other is that AI will mostly affect specific occupations and roles and tasks rather than entire industries. We don’t expect entire industries to just go away. And so that, again, distributes the pain, as well as the benefits, more broadly.

Can the new AI tools be steered toward collaborating with people to improve their output, rather than displacing existing jobs?

So what does steering it mean? It means using it in ways that collaborate with people to make their expertise more valuable and more useful. Where are there opportunities to do that? They’re dispersed throughout the economy. One place where this could be very impactful is in healthcare. Healthcare is kind of one out of five US dollars at this point, employs a ton of people. It’s the fastest-growing, broadly, employment sector, and there’s expertise all up and down the line. We could, using these tools, enable people who are not medical doctors, but are nurses or nurse practitioners or nurses aides, for example, or x-ray techs, to do more skilled work, to do a broader variety or depth of services using better tools. And the tools are not just about automating paperwork, it’s about supporting judgment because professional expert work is really about decision making where the stakes are high and there’s not usually one correct answer, but it matters whether you get it approximately right or approximately wrong. And so I think that’s a huge opportunity. …

Another is how we educate. We could educate more effectively. We could help teachers be more effective in providing better tools. We could also provide better learning environments using these tools. Another is in areas like skilled repair or construction or interior design or contracting, where there’s a lot of expertise involved. Giving people tools to supplement the work they do could make them more effective at either doing more ambitious projects, doing more complex repairs, or even designing and engineering in a way where they would be able to do tasks that would otherwise require higher certification.

Everyday life is easier because of certain types of standardization: you buy something with an electrical plug, and it fits the socket on your wall. But beyond issues like using common weights and measures, standards can be transformative for economic growth. The World Banks’s, World Development Report 2025, “Standards for Development,” explores the big picture role of standards–as well as the danger that standards can be used by incumbents to hinder competition from entrants.

One can make a plausible case that for the wave of globalization in the last half-century or so, the standardization of common containers was more important than all the inter-governmental negotiations about global tariffs. The report notes:

[T]he real revolution came quietly—and relatively recently: from a US trucking entrepreneur named Malcom McLean in the mid-1950s. Until then, goods were transported using methods that had hardly changed over the centuries. Cargo had to be loaded piece by piece, using crates, sacks, or barrels, onto carriages, trucks, trains, and ships. At each stage, everything was hauled off of one vehicle and then reloaded onto the next, usually with different types of specialized equipment. McLean standardized the humble steel box, readying it for easy loading and shipping across all forms of transportation: road, rail, air, and sea. In doing so, he crushed handling
costs and delays: The cost of shipping fell by at least 25 percent. The risk of theft and damage eased. If treaties set the stage for the rise of globalization after World War II, McLean’s container made the show possible.

McLean’s standardization did not just tidy up shipping. Standard containers gave the world a common commercial language. A container sealed in Shanghai could roll off a ship in Rotterdam and onto a truck, rarely opened or even touched by human hands. Standards turned chaos into order, unleashing the economic miracles of just-in-time manufacturing. Ships got bigger. Supply chains proliferated. Commerce surged. McLean then turbocharged the process by granting free licenses to his container patents to the International Organization for Standardization (ISO).

In 1965, ISO codified almost everything about the containers: dimensions, stacking rules, twist locks, strength, and lifting. Suddenly, there was a single playbook—and global interoperability.

The payoff was extraordinary. Containers delivered a permanent boost to trade: a 1,240 percent cumulative jump in trade among advanced economies after 15 years: by many estimates, more than the combined effect of all trade agreements of the previous half century. Across 22 industrial countries, standardized containers lifted bilateral trade by 300 percent in just 5 years and nearly 800 percent in 20. That far exceeded the 45 percent from bilateral free trade agreements over the same 20 years and 285 percent from membership in the General Agreement on Tariffs and
Trade (GATT), the precursor to the World Trade Organization (WTO).

Love globalization? Hate it? Either way, the underlying impetus is more about Malcom McLean than about WTO negotiations.

The report discusses all kinds of standards: environmental, banking, accounting, interoperability, performance, safety, reliability, testing, and more. Such standards are often an important part of forcing real competition between producers, as well as developing economies of scale. But there is an element of push and pull here. In many countries, the history of economic development is also a history of standardization. On the other side, the same standards may not apply well at all times and places–and can even end up as a tool for giving an advantage to existing firms.

For some historical examples of the link between standards and development, the report points out:

As a new sovereign nation in 1947, India launched its first National Sample Survey of living standards in 1950. The survey revealed a striking lack of standardization of weights and measures in the country’s rural areas: 143 different systems for measuring weight, 150 different systems for measuring volume, and 180 systems for measuring land area. The lack of consistency that was hobbling India’s economic union paralleled the mayhem in France before the metric system established order there; in the 1700s, France had about 250,000 local weights and measures.

In such settings, a common standard of weights and measures enables markets to function at scale. Or here’s a story from the 20th-century US experience:

It was also the government’s drive for “simplification,” initiated during World War I, to push industry toward compatibility: standard (fewer) sizes and mass production. Industrial standards in the early 1900s were mostly in house; fragmentation was rampant, fed by a tangle of state and local rules and custom-made orders. Mattresses came in 78 sizes in 1914; within a decade, that number had fallen to 4 for 90 percent of output. Wartime agencies, working through trade associations, slashed product variety across some 250 lines in 18 months.

President Hoover revived and institutionalized the effort in the 1920s, creating the Division of Simplified Practice as a neutral broker for voluntary, industrywide standards. Early wins—paving bricks, mattresses, bedsprings—cut varieties by more than 90 percent. By the early 1930s, 135 Simplified Practice Recommendations were in place, growing to 173 by 1939 and 267 by 1971. Each one tightened the link between design and efficiency, reducing waste, cutting costs, and freeing up capital for innovation. Compatibility standards powered the US leap in mass production and consumption, turning variety into scale and waste into efficiency. What looked like a technical exercise was in fact an economic policy of uncommon power, one that quietly multiplied productivity across an entire economy.

The authors also point out that standards can end up limiting competition in some cases. A few examples from my own mind: back in the 1970s, Sweden had rules that cars had to have wipers on the headlights, which many foreign producers of cars did not; in Japan, stringent standards have had the effect of limiting imports of rice. This report focuses more on standard adoption in developing countries. It points out that standards are often drawn up by the high-income countries of the world. The costs of complying with these standards–sometimes called an nontariff barrier–are often a bigger hindrance for developing countries to participate in global trade in certain products than actual tariff rates.

Perhaps the best kinds of standards are those that, most of the time, can be taken for granted.

Demography is the study of the structure of human populations, including factors like births, deaths, aging, as well as health and economic factors. Some demographic changes happen slowly, over decades, but in a predicable way. For example, if you want to look at projections for the year 2050 of the ratio of the US working-age population–say, ages 25 to 64–to the ratio of the US over-65 population, you need to start by recognizing that all of the the native-born US population that will be 25-and-over in 2050 has already been born! So your demographic projections can tinker around the edges with possible future immigration rates, or how how health and mortality rates may change for the elderly, or how labor force participation rates may evolve for different groups in the next 25 years. But the basic age-group ratio for working-age vs. elderly in 2050 is already baked into the cake.

The Congressional Budget Office offers a look at these kinds of projections in “The Demographic Outlook: 2026 to 2056” (January 7, 2026). As you think about the future shape of the US economy–number of people, number of workers, overall population aging, the sustainability of government programs in which working-age people support the elderly, and more–these projections shape what’s possible.

For example, this figure shows how, in the past, US population growth has been a mix of immigration (gray bars) and births-exceeding-deaths (blue bars). But the blue bars are shrinking, and in a few years the number of deaths will exceed births. As result, all of US population growth will be tradeable to immigration–and the US population growth rates is headed for zero in the next 30 years or so. Overall, the US population rises from about 349 million people this year to 364 million in 2056–and then declines after that.

As the US gets older the ratio of (traditionally) working-age population to over-65 population will shrink. This is a long-term-trend, going back 70 years and more. The “baby boom” generation born in the 15 years or so after World War II helps support the working-age population for a time, but the US is in the middle of that population age group entering retirement age. The ratio of working-age to elderly does level off around 2036 (given the assumptions about immigration above).

US fertility rates have been dropping, and have fallen below the “replacement rate” of roughly 2.0. One big shift here is that the fertility rate for 30-and-older women now exceeds the fertility rate for 29-and-younger women. Between these forces, the overall US fertility rate seems to be levelling out.

Meanwhile, the overall mortality rate is falling as life expectancy rises.

The immigration rate spiked during the last few years of the Biden administration, then plummeted. There are rises and falls related to economic factors and the pandemic. The projections expect total immigration in the next few decades closer to average of levels prevailing in the first two decades of the 21st century.

Many of these underlying factors are susceptible to policy and happenstance. But such policies and events are likely to be around the edges of the big-picture evolution taking place.

“Fiscal dominance” refers to a situation where government debt grows so large that the nation’s central bank feels that it has little choice except to focus on making sure the government does not default–even if it means a surge of inflation. Janet Yellen described the issue and risks of fiscal dominance concisely in her comments at a session on the future of the Federal Reserve at the recent meetings of the Allied Social Science Associations in Philadelphia (January 6, 2026).

This postwar policy framework is characterized by monetary policy dominance that is, the Fed is not and must never become the fiscal authority’s financing arm. Fiscal policy’s job is to set taxes and spending, and to finance deficits through issuing debt to the market at prevailing interest rates. It is the responsibility of Congress and the president—not the Federal Reserve—to insure that the government’s intertemporal budget constraint is satisfied. It is their duty to ensure that the path of debt is sustainable.   

Fiscal dominance refers to the opposite configuration—a situation where the government’s fiscal position—its deficits and debt—puts such pressure on its financing needs that monetary policy becomes subordinate to those needs.  As a result, the central bank is pressured, implicitly or explicitly, to keep interest rates lower than warranted by macroeconomic conditions; or to purchase large quantities of government debt, not primarily to stabilize inflation and employment but to ease the government’s financing burden. In a fiscally dominant world, the government’s intertemporal budget constraint drives the price level. If markets don’t expect future primary surpluses to cover the debt, the adjustment eventually comes via inflation or default. This is the “fiscal theory of the price level.”

Fiscal dominance is dangerous because it typically results in higher and more volatile inflation or politically driven business cycles. When the central bank is constrained from raising rates or shrinking its balance sheet because that would increase debt service or trigger fiscal stress, inflation expectations may become unanchored. Households and firms may come to expect that inflation is the path of least resistance for managing high debts. Once such expectations take hold, stabilizing prices becomes significantly more costly. If inflation is firmly under control, the Fed has more flexibility to respond to labor market weakness. Fiscal dominance is also likely to raise term premia and borrowing costs as investors become concerned that the government will rely on inflation or financial repression to manage its debt. In addition, a central bank that is perceived as an arm of the Treasury may have less space to act forcefully in a crisis. For all of these reasons, avoiding fiscal dominance has been a central objective of modern central banking frameworks. 

Yellen does not believe that the US Federal Reserve currently faces a situation of “fiscal dominance.” But with the federal government running high annual deficits, while having already accumulated historically high levels of total debt, political pressures are building in that direction. Yellen says:

What would keep the U.S. out of fiscal dominance? First and foremost, this requires credible medium-term fiscal adjustment—not abrupt austerity, but a believable path that stabilizes debt/GDP; for example, through gradual changes to taxes and entitlements or reforms that tilt growth and productivity higher. Unfortunately, however, the revealed preference of both parties has been toward deficit-increasing policy. … I doubt that Americans will end up on the fiscal dominance course, but I definitely think the dangers are real.  

I almost always steer away from the personal in this space, but it feels like time to make an exception. Last weekend, at the 2026 Annual Meetings of the Allied Social Science Associations (which includes a number of associations with overlapping memberships joined by economics and finance academics), I was named a Distinguished Fellow of the American Economic Association.

It’s a considerable honor. The Distinguished Fellow award started in 1965, and in the 60 years since then, about 200 people have received it. For comparison, the Nobel Prize in economics started in 1969, and has been awarded to 99 people since then. There is partial but meaningful overlap in the lists of those who have won the two awards.

For me, the honor was quite unexpected. Distinguished Fellows are typically PhD economists who have been prominent in published research. But my job since 1986 has been Managing Editor of the Journal of Economic Perspectives. (All issues of the JEP from the first one to the most recent are freely available online.) As the prize citation notes: “Steering the JEP and ensuring continuity in its unique approach and voice has been Taylor’s primary contribution to economics over his four-decade career.”

Thus, being named a Distinguished Fellow reminded me of the time a decade ago when Bob Dylan was awarded the Nobel Prize in literature. Yes, Bob in general deserves awards. Me, too. But this particular award was not one I ever expected would come my way. I am more pleased about it than I can easily say.

You can read the prize citation here. Here is a picture of me receiving the award from Katherine Abraham, the current president of the American Economic Association.

By conventional big-picture measures, the US labor market looks pretty good. However, the mood about the US labor market feels undeniably grim. Is this a “vibe-session,” based on little more than gloomy moods? Or can we dig a little deeper into the data and find some reasons for concern?

Let’s start with the big-picture good news. The US unemployment rate at 4.4% has edged up a bit from the remarkably low levels that prevailed in the late days of the pandemic, but remains quite low by the standards of the last half century–for example, less than half the level at the worst of the Great Recession.

Overall real wages have been edging up. The figure shows inflation-adjusted median wages for wage and salary workers. The median means that half of workers are above this level and half below–so while a wage increase that only affects the upper-wage workers would cause the average to rise, it will not cause the median wage to rise.

The rise in real wages applies across the distribution of skill levels. This figure may look messy, but its message is straightforward. Divide up the labor force according to level of education. Focus again on workers over age 25, and the median wage. In the figure, the level of wages for each group has been set equal to 100 in the year 2000. Thus, the graph shows what education groups have received the highest increase in (nominal) wages over this time.

The orange line at the top shows that the biggest wage gains have gone to workers with less than a high school education. The purple line shows that the lowest wage gains have gone to those with “some college or associate degree.” The other three education categories–high school degree only, bachelor’s degree only, and bachelor’s degree and above–have seen median wages grow at about the same rate in the last 25 years.

Of course, these big picture labor market measures don’t mention everything. But they surely don’t suggest that the US labor market is in dire straits. So what is causing the feelings of gloom? Jeff Horwich of the Minneapolis Federal Reserve takes a deeper look at the labor market data in “Off the sidelines and into the low-hire economy: More Americans are diving back into the job hunt despite `ugliest’ labor market in years” (December 15, 2025). He points to several factors worth pondering.

First, the “hiring rate” is measured by the number of new hires divided by the number of current employees. Even as the unemployment rate nudges up, the hiring rate is sagging.

Second, the proportion of the unemployed who are long-term unemployed–that is, unemployed for 27 weeks or more–is on the rise. In the aftermath of the Great Recession, the long-run unemployment rate remained stubbornly high for years. It spiked again after the pandemic recession. But in the last few years, it’s on the rise again.

Third, labor market economists divide up adults into three groups: 1) those who are employed, 2) those who are in the labor force in the sense that they are actively looking for jobs, but are unemployed, and 3) those who are out of the labor force, not looking for a job, and thus not counted as unemployed. Horwich points out that people who were counted as “out of the labor force” are reentering the labor force (red line). The common pattern is that people move from out-of-the-labor-force straight into a job. But the number of people moving from out of the labor force into actively looking for a job but ending up unemployed is edging up (blue line).

Fourth, of those who remain out of the labor force in the sense that they are not actively searching for a job, a rising number say that they “want a job now.” As Horwich points out, about two million people each month are entering the labor force and looking for a job, but not finding one (the figure above), but another six million of those who are out of the labor force would like a job, with that number rising.

Fifth, as the share of those previously out of the labor force drops, the “labor force participation rate” (which counts both the employed and those actively looking for jobs but currently unemployed) is rising. This figure shows the proportion for “prime age workers” the 25-54 age bracket, but it’s rising for most age and demographic groups other than the elderly.

Finally, when existing workers perceive that the labor market is strong, they are more likely to quit an existing job to take another one. But when existing workers are more worried about finding an alternative job, the quit rate falls. For example, the quit rate plummets during the Great Recession from 2008-2010. After some big oscillations related to the pandemic and its aftermath (including changes in work-from-home rules), the quit rate has been dropping for several years now.

An overall picture begins to emerge from this data. A rising number of people are reentering the labor market seeking jobs–some after being absent from the labor market for several years–but hiring is down. Among the unemployed, long-run unemployment is on the rise. Existing workers don’t perceive that alternative jobs are plentiful, and quit rates have fallen. These issues aren’t apparent in the basic unemployment or median wage data, but they are nonetheless very real.

Observing the labor market data doesn’t reveal how to interpret it. Changes in immigration patterns may have some effect, but it’s not obvious how fewer immigrants looking for jobs would lead to lower hiring rates, fewer quits, or greater long-run unemployment. I’ve heard it speculated that employers perceive a rise in the uncertainty of the economic environment, with different reasons applying to different groups: for some firms, it’s the seesaw pattern of tariffs threatened, coming, and going; for others, the rapid advance and potential disruption of artificial intelligence technologies; and for still others in certain areas, the ongoing push for substantially higher minimum wages. When employers are doubt, they become more likely to default toward not hiring, at least not immediately.

As Horwich points out, burdens of consumer and mortgage debt are on the rise, in part because of higher interest rates, which can make getting a job feel even more urgent. In addition, I’ve heard it speculated that finding a job in the modern online labor market can feel forbiddingly dicey. You look at a website, fill out lots of online forms, maybe get an form letter notification back, or even a few interviews, but the sense is that every position that is posted online gets many, many applicants. Your chance of standing out from the crowd of other applicants feels small, unless you know someone or have a personal connection. To me, some of the grimness in the current labor market is about a justified and all-too-real feeling that navigating through the modern labor market feels like a long run up an icy hill–with the possibility of no reward waiting at the top.

It’s become a nearly standard claim that economics inequality makes people feel worse-off, or perhaps even leads to mental illness. However, Nicolas Sommet,  Adrien A. Fillon, Ocyna Rudmann,  Alfredo Rossi Saldanha Cunha and Annahita Ehsan did what is called a “meta-analysis” of the available studies–that is, they went back and looked at the underlying data, methods, and findings of the available studies. They state their findings bluntly in the title: “No meta-analytical effect of economic inequality on well-being or mental health” (Nature, published November 26, 2025, a readable overview/summary of the study is available here, and I quote from it below).

It’s perhaps useful to clarify the question being asked. Many studies have used survey data that asks people questions about themselves, and also asks them to rank their own well-being–say, on a scale from 1-7. Those with lower incomes will generally report lower well-being than those with higher incomes. But that finding shows only that income is associated with lower well-being–not that the degree of inequality affects the level of well-being.

Instead, imagine that you are in a society where inequality rises over time. Does the reported well-being of those at the lower end decline as inequality rises? Or imagine that you are comparing between people in different societies, some with greater inequality than others. Do those with lower income levels who also live in higher-inequality societies consistently report a lower level of well-being, compared with those with lower income levels who live in lower-inequality societies? Here’s a summary of the method and results of the study:

[E]xisting studies have mostly looked at a small number of countries, regions or cities, making their results sensitive to random variations and hard to replicate. Researchers have tried to address this limitation with meta-analyses (methods that combine findings across studies), but earlier efforts included only 9–24 studies and rarely examined for whom and when inequality might affect well-being and mental health.

To review the relationship between economic inequality and well-being or mental health, we screened thousands of scientific papers and contacted hundreds of researchers to identify all work on the subject. We included 168 studies, involving a total of more than 11 million participants. Nearly all samples were nationally representative, spanning countries across most world regions. We extracted more than 100 study features from each paper and linked them to more than 500 World Bank indicators to describe each study’s national context. We summarized the papers’ findings and conducted further analyses, including replicating results using data from the Gallup World Poll, which from 2005 to 2021 surveyed more than two million respondents from more than 150 countries.

First, we found that people living in more-unequal places did not, on average, report lower well-being (life satisfaction or happiness) than those in less-unequal places. The average effect across studies was not statistically significant, was practically equivalent to zero and did not depend on study quality, design, outcome or geographic scale. Second, although some studies reported that people in more-unequal places had poorer mental health, we found that this pattern reflected publication bias: small, noisy studies that reported larger effects were over-represented .. After adjusting for this bias, the average association between economic inequality and mental health shrank to essentially zero.

Further analyses showed that the near-zero averages conceal more-complex patterns. Greater income inequality was associated with lower well-being in high-inflation contexts and, surprisingly, higher well-being in low-inflation contexts. Greater inequality was also associated with poorer mental health in studies in which the average income was lower. We conclude that inequality is a catalyst that amplifies other determinants of well-being and mental health (such as inflation and poverty) but on its own is not a root cause of negative effects on well-being and mental health.

Of course, no single study or meta-study will offer a final consensus resolution to a big question like this one. Moreover, the statement that living in a society with greater income inequality does not make the poor worse off does not contradict the statement that being poor–regardless of the level of inequality in your society–can have negative effects on subjective well-being and on mental health.

Hat tip: I ran across this study because of a mention at the ever-useful Marginal Revolution website.

By “selective universities,” I mean places like Ivy League schools, along with places like Stanford, MIT, Duke, and the Chicago. Such schools admit only a small fraction of their applicants. However, to reassure both insiders and outsiders that they are open to admitting a broad range of students–whatever their socioeconomic background–these schools also have large numbers of people working departments of admissions to screen and evaluate applicants.

It turns out, perhaps unsurprisingly, that the actual effect of departments of admissions is that the student bodies of these institutions end up including more students from the top 1% of the income distribution than would happen if the schools just admitted students purely by SAT scores. Raj Chetty, David Deming, and John N. Friedman provide the evidence in “Diversifying Society’s Leaders? The Determinants and Causal Effects of Admission to Highly Selective Private Colleges” (Quarterly Journal of Economics, published online October 30, 2025, ungated copies available a various places, like here). They write at the start of the essay:

Leadership positions in the United States are held disproportionately by graduates of a small number of highly selective private colleges. Less than half of one percent of Americans attend Ivy-Plus colleges (the eight Ivy League colleges, Chicago, Duke, MIT, and Stanford). Yet these twelve colleges account for more than 10% of Fortune 500 CEOs, a quarter of U.S. senators, and three-fourths of Supreme Court justices appointed in the last half-century.

From the abstract of the paper, they summarize the results this way (emphasis is mine):

We use anonymized admissions data from several colleges linked to income tax records and SAT and ACT test scores to study the determinants and causal effects of attending Ivy-Plus colleges (Ivy League, Stanford, MIT, Duke, and Chicago). Children from families in the top 1% are more than twice as likely to attend an Ivy-Plus college as those from middle-class families with comparable SAT/ACT scores. Two-thirds of this gap is due to higher admission rates for students with comparable test scores from high-income families; the remaining third is due to differences in rates of application and matriculation. In contrast, children from high-income families have no admissions advantage at flagship public colleges. The high-income admissions advantage at Ivy-Plus colleges is driven by three factors: (i) preferences for children of alumni, (ii) weight placed on nonacademic credentials, and (iii) athletic recruitment. Using a new research design that isolates idiosyncratic variation in admissions decisions for waitlisted applicants, we show that attending an Ivy-Plus college instead of the average flagship public college increases students’ chances of reaching the top 1% of the earnings distribution by 50%, nearly doubles their chances of attending an elite graduate school, and almost triples their chances of working at a prestigious firm. The three factors that give children from high-income families an admissions advantage are uncorrelated or negatively correlated with postcollege outcomes, whereas academic credentials such as SAT/ACT scores are highly predictive of postcollege success.

In the paper, they write:

We consider a counterfactual admissions scenario in which colleges eliminate the three factors that drive the admis- sions advantage for students from high-income families—legacy preferences, the weight placed on nonacademic ratings, and the differential recruitment of athletes from high-income families—and refill slots with students who have the same distribution of test scores as the current class. Such an admissions policy would increase the share of students attending Ivy-Plus colleges from the bottom 95% of the parental income distribution by 8.8 percentage points …

The selective private colleges that are the focus of this study are what economists sometimes call “donative nonprofits,” meaning that they rely on donations (and earnings from an endowment based on those donations) as a major form of income. From a financial point of view, it is unsurprising that a donative nonprofit–with the potential for large future donations in mind–would tend to favor children of alumni or those from the top 1% of the income distribution over other applicants with equivalent test scores. But it’s useful to be clear on what’s happening here: when these selective schools tell potential applicants that they don’t just look at test scores, but instead use a variety of nonacademic criteria like being “well-rounded” or “authentic” for admissions, the actual result of their process is that applicants from families in the top 1% of the income distribution are admitted at a higher rate than others with the same test scores.

New Year’s Day feels like a time to reminisce about times past, to speculate about times to come, and to reflect and worry about one’s place along the journey. A concern that I perhaps share with others is that the pathway to future happiness may seem like a narrow one, so that my choices could so easily turn out to be incorrect, with catastrophic long-term consequences. Ralph Waldo Emerson’s 1841 essay “On Self-Reliance” offers a number of reflections on this theme, include modern-sounding admonitions to trust your own intuition and ideas, and to push back as needed against social pressures and expectations.

The essay is perhaps best-known today for Emerson’s aphorism: “A foolish consistency is the hobgoblin of little minds.” In other words, feeling an internal pressure to “be consistent” is another of those social pressures and expectations that should be critiqued and reconsidered. (Of course, being automatically opposed to social pressures and expectations would be another example of a “foolish consistency.” And making a change rather than giving in to “foolish consistency,” but then feeling compelled to stick to the change as new experience and evidence emerges, may only exchange one foolish consistency for another. I suspect that Emerson underestimates the difficulties of discerning, enunciating, and believing in one’s own intuition and ideas. Also, the possibility of “foolish consistency” does not rule out the possibility that a wise consistency may be a hallmark of great minds. This stuff isn’t easy.)

But on this re-reading of Emerson’s essay, I was struck by a comment that he attibutes to Caliph Ali: “Thy lot or portion of life is seeking after thee; therefore be at rest from seeking after it.”

The phrase appears as the saying numbered XV in a 1717 manuscript Sentences of Ali, Son-in-law of Mohamet, and his fourth successor, translated from an authentick Arabick manuscript in the Bodleian Library at Oxford, by Simon Ockley. Caliph Ali (c 600-661) was a cousin and son-in-law of Muhammad.

Imagine that looking for your true long-term happiness, for your destiny, is like searching for a needle in a haystack. If so, the task may seem impossible. But now imagine that you are rolling around the haystack, or perhaps more apropos, that the haystack is also rolling around you. You become much more likely to be pricked with that needle, whether you are carefully searching for it or not, especially if you remain sensitive to the presence of the needle. I know that I’m a lucky guy. But many of the deepest connections and joys in my personal and work life in large part seemed to come seeking after me, and my task was to notice when they pricked my attention. May you experience your destiny seeking you in the year to come.

In his Essays, Moral, Political, and Literary, Part 2 (1752, 1777), David Hume included a short essay titled “Of the Jealousy of Trade,” which speaks to certain sentiments of international trade in our own time, as well as his own. Hume wrote:

Nothing is more usual, among states which have made some advances in commerce, than to look on the progress of their neighbours with a suspicious eye, to consider all trading states as their rivals, and to suppose that it is impossible for any of them to flourish, but at their expence. In opposition to this narrow and malignant opinion, I will venture to assert, that the encrease of riches and commerce in any one nation, instead of hurting, commonly promotes the riches and commerce of all its neighbours; and that a state can scarcely carry its trade and industry very far, where all the surrounding states are buried in ignorance, sloth, and barbarism. …

Compare the situation of Great Britain at present, with what it was two centuries ago. All the arts both of agriculture and manufactures were then extremely rude and imperfect. Every improvement, which we have since made, has arisen from our imitation of foreigners; and we ought so far to esteem it happy, that they had previously made advances in arts and ingenuity. But this intercourse is still upheld to our great advantage: Notwithstanding the advanced state of our manufactures, we daily adopt, in every art, the inventions and improvements of our neighbours. The commodity is first imported from abroad, to our great discontent, while we imagine that it drains us of our money: Afterwards, the art itself is gradually imported, to our visible advantage: Yet we continue still to repine, that our neighbours should possess any art, industry, and invention; forgetting that, had they not first instructed us, we should have been at present barbarians; and did they not still continue their instructions, the arts must fall into a state of languor, and lose that emulation and novelty, which contribute so much to their advancement.

The encrease of domestic industry lays the foundation of foreign commerce. Where a great number of commodities are raised and perfected for the home-market, there will always be found some which can be exported with advantage. But if our neighbours have no art or cultivation, they cannot take them; because they will have nothing to give in exchange. In this respect, states are in the same condition as individuals. A single man can scarcely be industrious, where all his fellow-citizens are idle. The riches of the several members of a community contribute to encrease my riches, whatever profession I may follow. They consume the produce of my industry, and afford me the produce of theirs in return.

Nor needs any state entertain apprehensions, that their neighbours will improve to such a degree in every art and manufacture, as to have no demand from them. Nature, by giving a diversity of geniuses, climates, and soils, to different nations, has secured their mutual intercourse and commerce, as long as they all remain industrious and civilized. Nay, the more the arts encrease in any state, the more will be its demands from its industrious neighbours. The inhabitants, having become opulent and skilful, desire to have every commodity in the utmost perfection; and as they have plenty of commodities to give in exchange, they make large importations from every foreign country. The industry of the nations, from whom they import, receives encouragement: Their own is also encreased, by the sale of the commodities which they give in exchange.

But what if the result of these interactions is an imbalance of trade, with a mixture of trade surpluses and deficits? Hume has you covered here, as well, with a short essay “Of the Balance of Trade.” During Hume’s time, the primary concern was that if a nation had a trade deficit, it would experience an outflow of gold and silver. Hume points to several writers of his time who made dire predictions about what would happen with a sustained trade deficit. Then he points out that these dire predictions did not, in fact, come true. Similarly, the US economy has had trade deficits for about a half-century now, and while trade has disrupted certain industries (with real costs that deserve a policy response), it would be bloviating ignorance to claim that the US economy as a whole has been impoverished as a result.

Instead, Hume argues, as long as an economy remains productive, then trade imbalances are not a primary concern. He points out that paper currency can substitute for actual gold and silver if needed. Hume also offers a thought experiment: Surely there are trade imbalances within regions of a given country, and yet, the national economy proceeds forward. Hume writes:

How is the balance kept in the provinces of every kingdom among themselves, but by the force of this principle, which makes it impossible for money to lose its level, and either to rise or sink beyond the proportion of the labour and commodities which are in each province? Did not long experience make people easy on this head, what a fund of gloomy reflections might calculations afford to a melancholy Yorkshireman, while he computed and magnified the sums drawn to London by taxes, absentees, commodities, and found on comparison the opposite articles so much inferior? And no doubt, had the Heptarchy subsisted in England, the legislature of each state had been continually alarmed by the fear of a wrong balance; and as it is probable that the mutual hatred of these states would have been extremely violent on account of their close neighbourhood, they would have loaded and oppressed all commerce, by a jealous and superfluous caution. Since the union has removed the barriers between Scotland and England, which of these nations gains from the other by this free commerce? Or if the former kingdom has received any encrease of riches, can it reasonably be accounted for by any thing but the encrease of its art and industry? It was a common apprehension in England, before the union, as we learn from L’Abbe du Bos, that Scotland would soon drain them of their treasure, were an open trade allowed; and on the other side the Tweed a contrary apprehension prevailed: With what justice in both, time has shown. What happens in small portions of mankind, must take place in greater.