2026-05-02 12:35:38
Michael Pettis frequently claims that, by running large surpluses, China is forcing “the demand-suppressing cost of their policies onto their trading partners.” The idea here is relatively straightforward: by disincentivizing consumption within China, China’s policies are reducing domestic demand, which, ceteris paribus, reduces global demand.
The problem with this logic should be fairly obvious: ceteris is not in fact paribus. It assumes other countries passively hold their own demand fixed in response to suppressed Chinese demand. But if that were the case, we should expect to see excess unemployment in the rest of the world in response to rising Chinese surpluses.
The empirical record decisively rejects this prediction: both US and EU unemployment was falling during China Shock 1.0 (2000-08), and post-2021 we’ve seen falling unemployment in the EU and stable full-employment in the US.
Monetary policy in other countries adjusts, preventing any shortfall of demand. The more sophisticated version of this argument recognizes that it only bites if other countries are constrained by the zero lower bound (ZLB). In that case, monetary policy cannot lower interest rates to offset a fall in demand elsewhere in the world.
But reports of the death of domestic demand levers at the ZLB have been greatly exaggerated. The monetary authority can raise the inflation target, implement (NGDP or price) level targeting, use forward guidance, and open up the spigots on QE. Furthermore, fiscal policy remains an adequate tool for boosting demand.
That is from J. Zachary Mazlish, the rest of the post has separate interesting points about China shock 2.0
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2026-05-02 01:54:59
This coming Tuesday at Johns Hopkins University in Baltimore, here is the event information, with three others as well. With debate partner Brandon Ogbunu I will be arguing the “yes” side, science is too risk-averse. Self-recommended!
Here is the Open to Debate Substack.
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2026-05-01 23:42:10
1. Does trade cause peace? (FT)
2. Where the goblins came from.
3. The next big advance to come from AI?
4. Georg Baselitz, RIP. And now in English. I am happy to own a print of his, one of the upside-down eagles.
6. In spite of what polling says, political events do not much affect voter attitudes?
The post Friday assorted links appeared first on Marginal REVOLUTION.
2026-05-01 17:35:17
The subtitle is How the Nature of Belief Shapes the Fate of Societies. Here is Ryan doing a podcast with Brink Lindsey. As Brink writes:
All of the blessings of modernity, Ryan Avent argues in a fascinating new book, rest on faith. It is our faith in others, our ability to trust strangers we will never meet, that makes possible the large-scale cooperation that has given us science, modern economic growth, and liberal democracy. But if everything depends on our ability to weave and maintain particular webs of complex meaning, what happens when we allow those webs to weaken and fray? In his book In Good Faith, Ryan contends that the dysfunctions and discontents plaguing 21st century democracies reflect such underlying neglect.
I am pleased to see “thought books,” as one might call them, headed in this direction and I was happy to blurb Ryan’s latest effort.
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2026-05-01 15:30:42
AI-powered mental health apps have attracted growing interest as a low-cost way to expand care. Yet questions remain about their effectiveness, safety, and whether they may crowd out psychotherapy. We evaluate one such app in a randomized controlled trial among 1,964 Mexican women with mild to severe psychological distress. Over six months, app access improved mental health by 0.3 standard deviations with no evidence of harm, improved sleep quality, increased healthful behaviors, and reduced missed work, yielding considerably larger benefits than costs. Treated participants were also more likely to seek traditional psychotherapy, but this increase does not explain most of the mental health gains. App use was high in the first month but then declined, as is common in digital interventions. Despite this drop in use, treatment effects persisted. Participants continued to implement practices promoted by the app, suggesting that even short-term engagement can produce durable improvements through sustained behavioral change.
That is from a new paper by Manuela Angelucci, Raissa Fabregas, and Antonia Vazquez. Those are some pretty strong results for a cheap intervention, let us hope they hold up. Via John Holbein.
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2026-05-01 13:04:16
Do market-oriented reforms cause economic growth? This paper revisits this question using a cross-country panel of reform episodes identified from various changes in well-known economic freedom and structural reform indices. We exploit the timing of reforms using distributed-lag and event-study frameworks that trace the dynamic response of per-capita GDP. We find little evidence of immediate growth gains and some short-run adjustment costs following reform. However, growth rises gradually and persistently over time, with economically meaningful effects emerging after several years. These patterns are robust across alternative measures of reform and specifications. The results reconcile conflicting findings in the literature by showing that market reforms generate long-run growth gains despite short-run disruptions. Overall, the evidence supports the view that institutional liberalization operates through slow-moving channels that accumulate into sustained improvements in economic performance.
That is from a recent paper by Jon Hartley and Brian Wheaton.
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