Brian Albrecht isn’t giving up on price theory. A slice:
[Tyler] Cowen defines price theory as “the view that the basic intuitive economic concepts, as would be taught in intermediate microeconomics, are highly useful and for advanced problems too.” A hypothesis should be “intelligible in terms of microeconomic concepts that you can hold in your mind and understand.” You should be able to explain it to a smart non-economist.
That’s what we’ve been doing at this newsletter for six years. And what Cowen describes is real; the profession has moved on.
It’s important to note that he’s measuring the market share of price theory as a research technique, and finding it has fallen. Fair enough. The credibility revolution raised the bar for publishable empirical work. Machine learning generates predictions from 360,000 factors. Structural estimation recovers parameters from computational models. Mechanism design proves theorems. In all of these, the technique itself is a large part of the contribution. Price theory doesn’t work that way. You can’t build a career around “I thought clearly about the problem using supply and demand.” I would be much more high status if one could. But the profession rewards new techniques, it always has, and broad, basic price theory isn’t one in 2026.
Instead, price theory plays a different, hidden role in research.
Price theory is the reasoning that tells you whether the technique was pointed at the right question and whether the answer makes sense. It’s upstream of the identification strategy, upstream of the structural model, upstream of the theorem, heck even upstream of data collection. It’s the discipline that hears “corporate profits rose during inflation” and immediately asks, relative to what, as a share of what, and is that consistent with the standard model, or does it require a special story?
The profession has gotten extraordinarily good at technique. The tools are more powerful than they were 30 years ago. The results are more carefully identified. But every one of those results still needs someone asking whether the mechanism is plausible, whether the magnitudes are realistic, whether the finding generalizes or is specific to one context, and what it means for policy. Those questions are not answered by running the technique again with better data. They require economic reasoning. Price theory.
Wall Street Journal columnist Mary Anastasia O’Grady writes insightfully about Cuba. A slice:
But now the regime and its apologists, like Rep. Jim McGovern (D., Mass.), are pushing the line that Cuba’s recurring electricity blackouts are caused by the U.S. “By blocking power to Cuba’s hospitals, the United States is guilty of committing a serious human rights abuse,” Mr. McGovern wrote on X.
Mr. McGovern has long wanted to treat the military dictatorship like a normal government. But it’s worth correcting the record.
Cuba’s economic crisis is caused by a hard-currency shortage. Output from once-vibrant export industries like sugar, tobacco, coffee and fruit can’t even supply the domestic market. Barren agricultural fields are covered in weeds. Manufacturing is gone. Even tourism, which the regime has tried to hype since the 1990s, is in bad shape. Handouts from the Soviet Union, bilateral lenders and Venezuela, which kept the country afloat for decades, are no more.
Even before January, when the Trump administration began to ensure that Venezuelan oil largess couldn’t go to Cuba, the monthly Cuban ration book supplied food for less than two weeks. Cubans are kept alive thanks mainly to the country’s most reliable export: people. If not for remittances, families would suffer even greater privation.
Andrew Follett makes a free-market case for the building of data centers. Here’s his conclusion:
Data centers are not a luxury or a niche issue; they are the indispensable infrastructure for the AI-driven economy. Prioritizing their rapid build-out, paired with bold expansion and reform of the bulk power system, is essential for long-term U.S. competitiveness against China and sustained American prosperity. The U.S. does not need central planning; it needs the regulatory barriers removed so free enterprise can meet the AI moment.
James Pethokoukis is correct: “America needs a bigger pie, not just bigger slices.”
Jack Nicastro decries the bipartisan itch to have government regulate AI.
Antony Davies explains that many Americans’ economic misperceptions are caused by the illusions uncorked by the government’s covid-era spending. Here’s his conclusion:
If current trends continue, we’ll be into the 2030s before more than half of households recover the purchasing power they enjoyed at the height of the Covid stimulus. Economists can keep pointing to solid fundamentals, but people will continue to be unimpressed. The stimulus showed them a better life that they have yet to recapture. That this better life was an illusion built on unsustainable government borrowing is of little comfort.
Scott Winship tweets: (HT Scott Lincicome)
“Current generation of young adults will be the first to do worse than their parents” is a perennial claim that never comes true (not economically anyway). I’ll bet [Bernie] Sanders has said it of multiple generations at this point.
