Random Walks, Long Shots and Charity Floors · Morning Gist
Monday, October 125 stories · 15 min
Random Walks, Long Shots and Charity Floors
The economics Nobel goes to two economists whose ideas underpin modern tax and Fed thinking, alongside new charity deduction rules, EU carbon trade evidence, and long-odds betting data.
Picked from 20 new articles across 16 sources · arrow keys for other days
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Robert Hall shares the economics Nobel. His random-walk consumption work shapes how economists judge whether stimulus checks get spent. story 1 ↓
Co-laureate Michael Woodford built a monetary theory with no money in it, and the Fed's rate decisions and signals largely run on it. story 5 ↓
Starting in 2026, people who don't itemize can deduct up to $2,000 in cash gifts to charity. Itemizers now face a 0.5%-of-income floor. story 2 ↓
A study finds the EU carbon market boosted trade between EU members instead of pushing it abroad, and covered sectors' exports held steady. story 3 ↓
Over 65% of recent Kalshi volume chased payoffs of 1,000% or more, many of them sports parlays. Know who takes the other side. story 4 ↓
1/5Marginal Revolution· Alex Tabarrok· Oct 12
Robert Hall and Michael Woodford win the 2026 economics Nobel
Robert Hall and Michael Woodford share the 2026 economics Nobel. Alex Tabarrok's tribute covers only Hall, whose best-known result is that consumer spending should change only when people get news, making it unpredictable.
Why it matters · Hall's ideas shape how economists judge whether stimulus checks get spent, how flat and consumption taxes work, and whether rising health spending is a problem at all.
Know this first
Context from the editor, not the article · 27 sec
1 · The Keynesian consumption function
Older macro models treated spending as a fixed share of current income, written C = a + bYd. The share b, the marginal propensity to consume, sets how much a dollar of government spending or tax cuts boosts the economy.
2 · Permanent income and rational expectations
Milton Friedman argued people base spending on expected lifetime income, not this month's paycheck. Rational expectations adds that people form those expectations using all the information they have, so they don't make predictable mistakes.
3 · The other laureate
Michael Woodford, the co-winner, is widely known for New Keynesian monetary theory, the framework behind inflation targeting and central-bank forward guidance. Tabarrok's post doesn't discuss his work at all.
2/5HumbleDollar· Rick Connor· Oct 12
2026 tax rules let people who don't itemize deduct cash gifts to charity
Starting with 2026 returns, people who take the standard deduction can also deduct up to $1,000 (single) or $2,000 (married filing jointly) of cash gifts to charity. Itemizers get new limits on their charitable deductions.
Why it matters · Most households take the standard deduction, so this is the first charitable tax break many donors have had in years. The new rules for itemizers may also change how gifts are best timed.
Know this first
Context from the editor, not the article · 27 sec
1 · Standard versus itemized
Each filer subtracts either a flat standard deduction or the total of specific itemized expenses, such as mortgage interest, state taxes and charitable gifts. Most households take the standard deduction, so until now their donations usually saved them no tax.
2 · Where these changes come from
The 2026 changes come from the 2025 federal tax law often called the One Big Beautiful Bill Act. The article describes the rules but doesn't name the law.
3 · Above or below the line
Adjusted gross income (AGI) is income minus certain adjustments. Deductions taken "below the line" come after AGI is calculated. They cut taxable income but leave AGI unchanged, and AGI drives many thresholds and phase-outs.
3/5Klement on Investing· Joachim Klement· Oct 12
Europe's carbon price increased trade inside the EU instead of pushing it abroad
A study by Angelo de Santis and colleagues finds that as Europe's carbon market expanded, the industries it covered bought more from other EU countries, not less. Their exports held steady.
Why it matters · The EU's carbon border tax starts charging importers in 2026, and this evidence suggests carbon rules can redirect trade as much as carbon prices do.
Know this first
Context from the editor, not the article · 28 sec
1 · The EU carbon market
The EU Emissions Trading System (ETS), legislated in 2003 and launched in 2005, caps emissions from power plants and heavy industry. Covered firms must buy permits for each tonne of CO2. It expanded in phases.
2 · The carbon leakage worry
A carbon price makes goods produced inside the EU more expensive. Critics feared buyers would switch to suppliers in countries without a carbon price, such as China or India, moving emissions abroad rather than cutting them.
3 · The new border tax
The Carbon Border Adjustment Mechanism (CBAM) charges importers of goods like steel, cement, aluminium and fertilisers for their embedded carbon. It covers the same kinds of goods as the ETS. Its payment obligations begin in 2026.
4/5A Wealth of Common Sense· Ben Carlson· Oct 11
Most prediction-market and sports bets chase long odds, data show
Ben Carlson points to data showing that most gamblers on prediction markets and sports apps chase long odds against professional traders. He argues they are paying for hope, much like people who buy lottery tickets.
Why it matters · Betting apps now sit on the same phones as brokerage apps. Knowing who takes the other side of a long-odds bet, and how the odds are priced against you, protects your money.
Know this first
Context from the editor, not the article · 23 sec
1 · What prediction markets are
Exchanges like Kalshi sell contracts on future events. A contract pays $1 if the event happens and nothing if it doesn't. A price of 8 cents means the market puts the odds at roughly 8%.
2 · What a parlay is
A parlay combines several bets, called legs, into one ticket. It pays only if every leg wins. That makes the payout large and the chance of winning small.
3 · Legal sports betting is new
In 2018 the US Supreme Court struck down the federal ban on sports betting. States then legalized betting apps one after another, and betting volume grew fast.
5/5Marginal Revolution· Alex Tabarrok· Oct 12
Michael Woodford wins Nobel for the theory central banks run on
Economist Michael Woodford has won the Nobel prize. He built the standard model central banks use: policy works through the interest rate, and inflation is costly mainly because it pulls prices out of line with each other.
Why it matters · When the Fed explains why it is raising rates, holding them, or signaling future moves, it is mostly reasoning inside Woodford's framework.
Know this first
Context from the editor, not the article · 24 sec
1 · Friedman's money-supply view
Milton Friedman argued that inflation comes from too much money growth, so central banks should watch and control money aggregates like M2, the total of cash, checking and savings deposits.
2 · How central banks act today
The Federal Reserve and its peers mostly set one short-term interest rate, steer markets with statements about future policy, and pay little direct attention to how fast the money supply grows.
3 · New Keynesian economics
This is the mainstream school of macroeconomics. Prices are sticky, meaning firms don't change them constantly, so central bank policy can move real output and jobs in the short run.
Robert Hall of Stanford and Michael Woodford share the 2026 Nobel memorial prize in economics. Alex Tabarrok's post on Marginal Revolution covers Hall only and says nothing about Woodford's work. Tabarrok notes that Hall had been a contender for so long that the award came as a surprise.
Why consumption is a 1
Older Keynesian models treated spending as a fixed share of current income, C = a + bYd. Here b is the 2, the share of an extra dollar that gets spent. Fiscal policy depended on estimating it correctly.
Hall combined two ideas many economists already accepted. The first is Milton Friedman's 3: people spend according to expected lifetime income. The second is 4: people use everything they know to form those expectations. Together they imply that changes in consumption should be unpredictable.
Tabarrok's example: if you learn today that a permanent raise starts in January, you start spending more now. When the bigger paycheck arrives, it isn't news, so your spending doesn't jump. Only surprises move consumption. Formally, the expected change in consumption is zero.
Hall's test didn't need a model of how people forecast income. He simply checked whether anything known today predicted tomorrow's change in spending, and mostly nothing did. Later studies found consumption somewhat more predictable than that, but the random walk became the benchmark. Tabarrok calls the shift in method enormous: economists began testing the restrictions that forward-looking behavior implies, rather than just fitting income–spending curves.
Three other ideas
5 dollar. Hall proposed defining the dollar as a fixed bundle of ammonium nitrate, copper, aluminum and plywood. The bundle's price had tracked the consumer price index since World War II, so pegging the dollar to it would have nearly stabilized living costs. Gold can't do that because its price swings too much. Private traders, not government stockpiles, would hold the peg. Hall offered it as an exploration, not a campaign.
The 2026 Nobel memorial prize in economics goes to Robert Hall of Stanford and Michael Woodford. Alex Tabarrok's post on Marginal Revolution is a tribute to Hall alone. Woodford appears only in the title. (He is widely known for New Keynesian monetary theory, which underpins modern inflation targeting, but the post says nothing about his work or what the committee cited.) Tabarrok notes that his co-blogger Tyler Cowen picked Hall as a future laureate 25 years ago, and that Hall had been a contender for so long the award came as a surprise. What makes Hall unusual, Tabarrok argues, is how many creative papers he wrote on topics that have little to do with each other.
The problem Hall changed: predicting spending
In the textbook Keynesian model, output is Y = C + I + G + NX: consumption, investment, government spending and net exports. Consumption is the largest piece, and it depends on income, so the two have to be solved together. The simplest consumption function is C = a + bYd, where Yd is disposable income (income after taxes) and b is the 1, the fraction of an extra dollar that gets spent. The MPC drives the 2: if b is high, a dollar of stimulus gets spent again and again. Estimate b wrongly and you get fiscal policy wrong, so economists put a lot of effort into estimating it.
The 3
Hall started somewhere else. He took Milton Friedman's 4, which says people spend according to their expected lifetime income, and combined it with 5, which says they form those expectations from everything they know. Many economists already accepted both ideas. Hall showed that putting them together produces a surprising result: consumption should follow a random walk.
Tabarrok's example: you learn today that you'll get a large, permanent raise starting next January. If you can borrow and save freely, you should start spending more today. When January's bigger paycheck arrives, nothing changes, because you already knew it was coming. Expected changes in income are already in your spending plans. Only surprises make you revise them.
In the simplest case, the theory gives Et(Ct+1 − Ct) = 0: given what you know today, your best forecast of the change in consumption is zero. "The simplest case" means three things: quadratic utility (a particular mathematical form for preferences), costless borrowing and saving, and an interest rate that exactly offsets impatience. It follows that once you know today's consumption, past income shouldn't help predict tomorrow's.
The test was clever because it didn't require a model of how people forecast income. Older work used stand-ins such as a weighted average of past income (a "distributed lag") to proxy expected future income. Hall asked a simpler question: does anything known today predict tomorrow's change in consumption? Mostly, nothing did. Later research found consumption somewhat more predictable than the strict version allows. One standard explanation is people who can't borrow and so spend windfalls when they arrive, though Tabarrok doesn't go into the reasons. Even so, the random walk became the benchmark that deviations are measured against.
Tabarrok calls the change in method "enormous." Economists stopped just fitting income–spending relationships and started testing the restrictions that forward-looking choice implies. He points to John Cochrane's account of learning macroeconomics at Chicago as evidence of how deeply this approach spread.
A dollar backed by fertilizer and plywood
Hall was part of the "New Monetary Economics," a school that questioned how money and the price level are anchored. His contribution was a commodity standard that wasn't gold. Under a gold standard, the price level moves with the relative price of gold, which swings widely. Hall proposed defining the dollar as a fixed bundle of ammonium nitrate, copper, aluminum and plywood, which he called 6. He picked those four because a price index of the bundle had tracked the consumer price index (CPI) closely since World War II, so pegging the dollar to it would have nearly stabilized the cost of living. The government wouldn't stockpile anything. Private arbitrage, meaning traders profiting from any gap between the paper dollar and the basket, would hold the peg. Tabarrok says Hall offered ANCAP as an exploration of what a commodity standard could do, not as a policy he campaigned for.
The flat tax
Hall's best-known policy idea, written with Alvin Rabushka at the Hoover Institution, is the flat tax. Workers pay one rate on wages above a generous family allowance. Businesses pay the same rate on revenue minus wages, minus purchases from other firms, minus investment, which is deducted immediately. Households pay no tax on interest, dividends or capital gains, because the business has already been taxed. Taken together this is a consumption tax: in effect a 7 (value-added tax) with a worker allowance that keeps some progressivity. Most households could file on a postcard.
Flat-tax bills came up in Congress through the 1980s and 1990s, and Steve Forbes ran on the idea in 1996 and 2000. It never passed. It did influence the Tax Reform Act of 1986, which cut rates and broadened the base. But the mortgage interest deduction, the charitable deduction and other carve-outs each had a constituency, and Tabarrok says 8 theory (the study of how interest groups shape policy) explains why they won.
Abroad, the idea spread. Estonia adopted a flat tax in 1994 and Russia a 13% one in 2001, followed by Slovakia, Georgia, Romania, Bulgaria and others. Rabushka keeps about thirty countries' flags in his office, though some of those countries later backed away. Post-communist states were building tax systems from scratch, had no entrenched deductions, and faced heavy evasion that a simple low rate could reduce. But most adopted only a flat-rate income tax, not Hall-Rabushka's exemption of saving and investment. Estonia came closest: it stopped taxing corporate profits until they are paid out as dividends.
Health spending as a luxury good
Tabarrok also highlights Hall and Charles Jones's paper "The Value of Life and the Rise in Health Spending." As people get richer, each extra car or vacation adds less, but an extra year of life becomes more valuable, because there's more to enjoy during it. Their model implies it could be optimal for the US to spend more than 30% of GDP on health care by 2050. On this view, a rising health share isn't necessarily a sign that something is broken. Tabarrok's own judgment is that it's what you'd expect in the richest large country.
Remember
Hall's test checks whether known information predicts spending changes, without needing a model of how people forecast income.
The Hall-Rabushka flat tax is really a consumption tax; foreign adopters mostly copied the single rate, not the saving exemption.
Hall and Jones argue that rising health spending may be what rich people should want, not evidence of waste.
Starting with the 2026 tax year, people who take the 1 will get a charitable deduction of their own. People who itemize face new limits. Rick Connor sets out the rules on HumbleDollar.
The problem
Every filer subtracts either the flat standard deduction or the total of their itemized deductions. Charitable gifts have counted only as itemized deductions. Most households take the standard deduction, so their donations have brought no tax benefit.
The new deduction
From 2026, filers who take the standard deduction can also deduct cash gifts to charity: up to $1,000 for single filers and $2,000 for married couples filing jointly. On the draft Form 1040 it appears on line 12f. It is a "2" deduction. It lowers taxable income but not 3, the income figure used for many other tax thresholds.
The rules:
Cash only. Cash, checks and credit cards count. Clothing, property and stock don't.
Not every recipient qualifies.4 are excluded. These are accounts you fund now and use to make grants to charities later. Private foundations and most supporting organizations are excluded too.
No carryover. Any part of the limit you don't use is lost.
Keep records that show the date, the amount and the charity's name.
New limits for itemizers
If you itemize, only the charitable gifts above 0.5% of your AGI are deductible. Filers in the top 37% bracket get at most 35 cents of tax savings per deducted dollar.
Illustrative example: a couple with $200,000 of AGI and $6,000 of gifts has a $1,000 floor, so they can deduct $5,000. If they had given $800, none of it would be deductible.
Can itemizers take both?
Connor asks whether an itemizer whose gifts fall below the floor can claim the $1,000 or $2,000 deduction instead. His research says no, because that deduction is only for people who take the standard deduction. His rule of thumb: if your itemized total is less than the standard deduction plus the new charitable deduction, take the standard deduction.
Caveats
The benefit is modest. Even in the 22% bracket, $2,000 saves at most $440. The deduction also does nothing for gifts of appreciated stock. The post works from a draft form and Connor's own research, so check the final IRS instructions. Donors aged 70½ or older have a separate option: 5, which send money straight from an IRA to charity and are excluded from income altogether.
What's changing
Rick Connor, writing on the personal-finance site HumbleDollar, went through the charitable-giving rules that take effect for the 2026 tax year, the return most people will file in spring 2027. His post followed one by fellow contributor Dick Quinn, who reminded readers that now is the time to plan 1 (QCDs). A QCD sends money directly from an IRA, a tax-advantaged retirement account, to a charity. It is open only to people aged 70½ or older. Connor says he and his wife are too young for QCDs, but several new rules still affect how they give.
There are two big changes. People who take the 2 get a charitable deduction for the first time in years. People who itemize face new limits.
The problem this solves
Each taxpayer subtracts either the flat standard deduction or the total of their itemized deductions, whichever is larger. Charitable gifts count only among itemized deductions. Since most households take the standard deduction, the gifts of most donors have brought no tax benefit. The new provision gives these donors a smaller deduction of their own.
The non-itemizer deduction: how it works
From 2026, filers who take the standard deduction can also deduct cash gifts to eligible charities, up to these limits:
Single filers: up to $1,000
Married filing jointly: up to $2,000
The deduction has its own line on the draft 2026 Form 1040: line 12f, just after the line where you choose the standard or itemized deduction. It is a "3" deduction. It lowers taxable income but not 4, the income figure calculated before deductions. That matters because many other tax rules are keyed to AGI. In general, a smaller AGI can help with things like the taxation of Social Security benefits or Medicare premium surcharges. This deduction won't affect any of them.
The rules, as Connor lists them:
Cash only. Cash, checks and credit-card gifts count. Clothing, property and stock do not.
Some recipients don't count. Gifts to donor-advised funds (DAFs) don't qualify. A DAF is an account you fund now and use to make grants to charities later. Gifts to private foundations and most "supporting organizations" (charities set up to back another charity) are also excluded.
Use it or lose it. Any unused part of the limit cannot be carried forward to later years.
Keep records. Hold on to bank records or written receipts that show the date, the amount and the charity's name.
New limits for itemizers
People who keep itemizing face two new constraints:
A 0.5% floor. Only the charitable gifts above 0.5% of your AGI are deductible.
A cap for top earners. Filers in the 37% federal bracket can claim itemized charitable deductions worth no more than 35%. That means each deducted dollar saves at most 35 cents, not 37.
Illustrative example (our numbers, not the article's): A couple with $200,000 of AGI itemizes and gives $6,000 to charity. The floor is 0.5% × $200,000 = $1,000, so $5,000 of the gifts is deductible. If they had given $800, all of it would fall under the floor and none would be deductible.
The question Connor raises
Can an itemizer whose gifts fall below the 0.5% floor take the $1,000 or $2,000 non-itemizer deduction instead? According to Connor's research, no. The new deduction is only for people who take the standard deduction. If you itemize, only gifts above the floor count.
His practical rule is to compare your itemized total with the standard deduction plus the new charitable deduction, and take whichever is larger. Illustrative: a married couple whose itemized deductions are only slightly above the standard deduction may find that the standard deduction plus up to $2,000 of cash gifts comes out ahead. Both because of the floor and because of the extra deduction, itemizing now has to clear a higher bar than before.
Trade-offs and what's left open
The non-itemizer deduction is small. For a married couple in the 22% bracket, the full $2,000 saves at most $440 of federal tax. Because it is limited to cash, the familiar strategy of donating appreciated stock (which avoids capital-gains tax) gets no help from this deduction. Since unused amounts can't be carried forward, the deduction rewards giving steadily each year.
For itemizers, the floor makes it more attractive to "5" gifts, packing several years of giving into one year so the floor is cleared once. Connor doesn't discuss bunching, and he doesn't cover QCDs beyond the opening mention. A QCD keeps the donated money out of taxable income altogether, so these new floors and limits don't apply to it. The post is a short summary based on a draft form and Connor's own research, not formal guidance. Anyone near the threshold between itemizing and taking the standard deduction should check the final IRS instructions.
Remember
The new deduction is cash-only, can't be carried forward, and excludes gifts to donor-advised funds.
Itemizers can deduct only gifts above 0.5% of AGI, and top earners get at most 35% tax value.
Take the standard deduction unless itemizing beats the standard deduction plus the new charitable deduction.
Intra-EU imports rose as each phase of the EU carbon market took effect (de Santis et al., 2026).1 / 2
The EU began charging its 1 in 2026. CBAM is a levy on the carbon emitted in making imported goods such as steel and cement. Joachim Klement expects it to reshape European trade. His evidence is what happened under the EU's earlier carbon policy, summarised in a new study by Angelo de Santis and colleagues.
What the study looked at
The 2 makes covered European firms pay for each tonne of greenhouse gas they emit. It was phased in starting in the mid-2000s. The researchers tracked how trade changed as each phase took effect.
Two predictions pulled in opposite directions:
Cost. A carbon price raises the cost of goods made inside the EU. Buyers should then switch to cheaper suppliers outside it, such as China or India.
Alignment. Suppliers inside the EU all follow the same rules. That shared rulebook could mean less paperwork and smoother trade, which would make buying from EU neighbours more attractive.
What happened
Alignment won. Imports from other EU countries rose as the phases rolled out. Exports from the EU did not change, so the study found no sign that the carbon price made European exporters less competitive. The article shows both results as charts but doesn't quote figures, so we can't say how big the effects were.
Ruling out a general trend
EU economies were becoming more integrated anyway, so the rise in internal trade might have nothing to do with carbon pricing. To check this, the researchers compared industries covered by the ETS with industries it didn't cover. Intra-EU imports grew much more in the covered industries, which links the shift to the ETS itself.
How far to take it
Klement concludes that 3 outweighed the price advantage of non-EU suppliers. He adds that the UK might keep this in mind when it considers moving closer to EU rules. He also expects CBAM to reorder trade flows. That is a forecast, though. The study covers the ETS, not CBAM.
Two other gaps are worth keeping in mind. The summary doesn't spell out how the paperwork savings actually work. It also doesn't say whether imports from outside the EU fell. The core finding is still useful for anyone thinking about climate policy and trade: a carbon price didn't push European buyers abroad, and in the covered industries it went along with more trade inside the EU.
The EU's 1 moved into its charging phase in 2026. CBAM is a levy on the carbon emitted in producing imported goods such as steel, cement, aluminium and fertilisers. Joachim Klement, writing on his Klement on Investing newsletter, is "pretty sure" it will reorder EU trade flows. His evidence is the EU's earlier carbon policy, which he says already did this. He draws on a new study by Angelo de Santis and colleagues (2026) of how the EU Emissions Trading System affected European trade.
The policy being studied
The 2 is a 3 scheme. It sets a ceiling on emissions from covered sectors, mainly power generation and heavy industry. Covered firms must hand over one permit for each tonne of CO2-equivalent they emit, and they can buy and sell permits. The law was passed in 2003 and trading began in 2005. Since then it has run in successive phases, each with tighter caps and broader coverage. The study uses this staggered rollout: each phase is a fresh change in carbon costs, so the researchers can see how trade responded to each one.
Two competing predictions
Before looking at the data, it isn't obvious which way trade should move.
The cost story. The ETS raises production costs for covered firms inside the EU. A European steel buyer could then get relatively cheaper steel from a mill in China or India that pays no carbon price. On this logic, imports from inside the EU should fall and imports from outside should rise. This is the familiar "4" worry: emissions move abroad instead of being cut.
The alignment story. Every supplier inside the ETS follows the same rules for measuring, reporting and pricing emissions. A buyer dealing with an EU supplier faces one familiar framework. With a supplier outside it, the buyer faces a different one. If that shared framework cuts bureaucracy and other trade frictions, buying within the EU gets easier. On this logic, intra-EU imports should rise.
The article doesn't explain exactly how the alignment savings work, for example which compliance costs disappear. It treats them as the general benefit of trading under one rulebook.
What the data show
The study's first chart tracks imports from within the EU around each ETS phase. They rose. Klement concludes that "the greater 5 and less bureaucracy beat the cost savings available from importing from China, India, or other places."
The second chart tracks exports from within the EU, and they did not change. If the ETS had made European goods uncompetitive, exports should have fallen. They didn't, so Klement concludes there was no "cost penalty" for European exporters.
The article reproduces the charts but doesn't state the size of either effect in numbers. So we know the direction of the import effect and that exports showed no measurable change, but not how large the import shift was.
Separating cause from trend
The obvious objection is that EU members were integrating economically throughout this period. If so, intra-EU trade would have grown with or without a carbon price.
The researchers dealt with this by comparing two groups of industries over the same years:
sectors covered by the ETS, which faced the new carbon cost and the shared rules;
sectors not covered, which shared the same general integration trend but not the ETS.
General integration should lift both groups. The ETS should only affect the first. The covered sectors increased their intra-EU imports "much more" than the uncovered ones. That gap is the part of the rise that can be attributed to the ETS rather than to the background trend.
As an illustration only (these numbers are not from the study): suppose intra-EU imports rose 10% in uncovered sectors and 25% in covered ones over the same period. The 10% would be the background trend, and the extra 15 points would be the estimated ETS effect. This method is known as a 6 comparison.
What Klement takes from it
Klement makes two arguments that go beyond the study.
CBAM will reorder trade. If the ETS shifted buying toward EU suppliers, then CBAM, which puts a carbon charge directly on imports, should push further in the same direction. That is a forecast. The study is about the ETS, and CBAM works differently: it taxes foreign goods at the border, while the ETS raised costs at home.
A lesson for the UK. Klement suggests in passing that the UK government should take note when considering closer regulatory alignment with the EU. The implication is that shared rules can increase trade even when they carry costs.
Caveats and open questions
No magnitudes. As written, the article gives directions, not sizes. Whether the effect is economically large is unclear from the summary.
Extra-EU imports. The article doesn't say what happened to imports from outside the EU. It frames the result as alignment beating cheaper foreign supply, but doesn't show non-EU imports falling. Higher intra-EU imports alone don't prove buyers switched away from China or India.
Free permits. For much of the ETS's history, many industrial firms received free permit allocations to protect them from foreign competition. That may have softened the cost story, and it is an alternative reason exports held steady. The article doesn't discuss it.
Why alignment matters. The mechanism is asserted rather than measured. Other explanations could produce the same pattern, such as supply chains reorganising around lower-emission EU producers.
What the study does establish is useful: when the EU priced carbon in the covered sectors, buyers didn't flee to foreign suppliers, trade within the bloc increased, and exporters showed no clear cost penalty.
Remember
As the EU carbon market expanded, covered industries bought more from EU neighbours, not from cheaper non-EU suppliers.
European exports showed no drop, so the study found no sign the carbon price made exporters less competitive.
Comparing covered and uncovered sectors separates the ETS effect from general EU integration.
Bloomberg chart from Carlson's post: Kalshi volume clusters at extreme long odds, betting against favorites.
Ben Carlson, who writes the A Wealth of Common Sense blog, starts from a statistic he loves. Each year Americans spend more on lottery tickets than on sporting events, books, video games, movie tickets and music combined. He thinks the same urge to buy a cheap shot at a different life explains the growth of 1 and sports betting apps.
The data
Bloomberg News analyzed more than a billion transactions on 2, the largest prediction market. Kalshi is a regulated exchange where contracts pay $1 if an event happens. Since the start of 2025, about half of all trading volume has had one side chasing returns of at least 1,000%. To earn that much, you have to buy a contract at about 9 cents or less, which means betting on something the market gives under a 10% chance. In recent weeks that share has passed 65%, driven by sports 3. A parlay is a single bet built from several bets, and it pays only if every one of them wins.
Who is on the other side? According to Bloomberg, it is mostly sophisticated traders and 4, companies that profit by always offering to take either side of a trade.
The sportsbooks show the same pattern. A study of millions of NFL bets found that nearly three-quarters were parlays, and the number of parlay bets more than doubled between 2018 and 2023.
Why parlays work against you
Carlson's point is that winning one bet against professionals is already hard, and a parlay makes you win several in a row. Here is an illustrative example. Take four legs, each a fair coin flip. All four win only 1 time in 16, so a fair payout would be 15-to-1. On standard sportsbook pricing, a four-leg parlay pays about 12.3-to-1. That leaves the house an edge of around 17%. On a single bet at the same pricing, the edge is under 5%. The more legs you add, the bigger the dream and the bigger the house's cut.
Carlson's view
Carlson doesn't call this rational. He says plainly that it isn't. He also doesn't preach. Nobody needs lotteries, casinos or betting apps, he writes, but people like them because they are buying a story about a different future. He calls a multi-leg parlay a kind of "world-building", where the bettor pictures a game playing out a certain way.
The post is short and offers no policy argument or numbers on bettor losses. Its value lies in the Bloomberg and NFL figures, and in the reminder to look at who is taking the other side of a long-odds bet.
Ben Carlson writes A Wealth of Common Sense, a blog about investing and personal finance. In a short post he points to new data showing that most money on 1 and sports betting apps goes to long-odds bets. He argues that this is the lottery instinct in a new form: people paying a little to buy some hope.
The lottery baseline
Carlson starts with a statistic he calls one of his favorites about human nature. Each year Americans spend more on lottery tickets than on sporting events, books, video games, movie tickets and music combined. Industry figures put annual US lottery sales above $100 billion. Lotteries pay out well under what they take in, so the expected return on a ticket is clearly negative.
Carlson admits some people are just bad with probabilities. His main explanation is different, though. A ticket is a cheap daydream, and people love betting on longshots. He thinks the same pull explains why prediction markets and sports betting have grown so fast.
What Bloomberg found on 2
Kalshi is the largest prediction market platform. It is a US-regulated exchange that sells contracts on events such as elections, economic data releases and, more and more, sports results. A contract pays $1 if the event happens and $0 if it doesn't, so its price in cents works as the market's estimate of the odds.
Bloomberg News analyzed more than a billion Kalshi transactions. It found that since the start of 2025, about half of all trading volume has involved one side chasing potential returns of at least 1,000%. Here is what that means in contract terms. Paying 9 cents for a contract that might pay $1 is a return of about 1,000% if it wins. So these traders are buying outcomes the market gives under a 10% chance. In recent weeks that share has risen past 65%, as users piled into sports 3.
Bloomberg also describes the other side of those trades. It is mostly sophisticated traders and 4. Market makers are companies that keep offering to buy and sell, and they earn their profit from the gap between the two prices. The post includes a chart from the analysis (shown here) that Carlson sums up as "betting on extremes and betting against the favorites".
Parlays at the sportsbooks
The same habit shows up at traditional sportsbooks. Carlson cites a study of millions of NFL bets. Nearly three-quarters of them were parlays, and the number of parlay bets more than doubled between 2018 and 2023. That window starts the year the Supreme Court struck down the federal ban on sports betting, after which states legalized betting apps. Carlson notes that parlays are big business for the betting sites.
Why the math is tough
A parlay links several bets, or "legs", into one ticket that pays only if every leg wins. Carlson's point is simple: beating professionals once is hard enough, and a parlay asks you to do it several times on one ticket.
Here is an illustrative worked example using general sportsbook pricing, not figures from the post.
A single bet on a 50/50 outcome is usually priced at "5". You risk $110 to win $100. A fair bet would pay $110, so the house keeps an edge of about 4.5%.
Combine four such legs. All four win only 1 time in 16, or 6.25%. A fair payout would be 15-to-1.
A typical book pays about 12.3-to-1 on a four-leg parlay at -110 pricing. Bet $10 sixteen times and you get back about $133 for $160 staked, on average. That is a 6 of roughly 17%.
Each extra leg multiplies the pricing gap, so the house's cut grows with the size of the dream. Bettors trade a small, steady loss for a rare large win, and they pay more for it.
Researchers in horse racing documented a related effect, the "7", decades ago. Longshots tend to be overbet, so they lose more per dollar wagered than favorites do. Carlson doesn't name the bias, but the Kalshi numbers look like it: casual bettors crowd into the long odds while professionals take the other side.
Carlson's view: irrational, but human
Carlson describes building a multi-leg parlay as "world-building". The bettor pictures a game unfolding a particular way and pays to own that story. He grants that some users have a system and make high-probability bets. Most, he says, do not.
His conclusion is a shrug, not a lecture. We don't need lotteries, casinos, prediction markets or betting apps on our phones, he writes, but people like them because they are buying dreams of a new future. Is that rational? "Of course not." Everyone is irrational in their own way, he says, and for many people that means gambling on long odds.
What the post leaves out
The post is brief and mostly passes along others' data. It doesn't measure how much bettors lose in total. It doesn't separate one-time fun money from problem gambling, and it doesn't argue for regulation. It also doesn't say whether prediction markets on economic or political events show the same pattern once sports are removed. Much of the recent jump to 65% came from sports parlays, so the answer is unclear.
For an investor, the useful lesson is about structure. On these platforms the other side of a long-odds bet is often a professional whose business is pricing it a little in their own favor. Carlson links his earlier post Smart Investors vs. Dumb Investors for more on that theme.
Remember
About half of Kalshi's volume since 2025, and over 65% recently, comes from bets seeking 1,000%+ returns.
Nearly three-quarters of NFL bets studied were parlays, and parlay betting more than doubled from 2018 to 2023.
Each added parlay leg compounds the house's edge, so a bigger dream comes at a steeper price.
Michael Woodford has won the Nobel prize in economics. Writing on Marginal Revolution, Alex Tabarrok argues that nobody since Milton Friedman has done more to shape how central bankers think about their work. Woodford's 2003 book, Interest and Prices, is often called the central bankers' bible. Tabarrok's point is that if you have read a Fed governor's speech in the last twenty years, you have read Woodford's ideas, even where his name doesn't appear.
Three pieces, one model
Woodford built on work by Guillermo Calvo, Julio Rotemberg, John Taylor, Jordi Galí, Mark Gertler and others. He combined it into one 1 theory, meaning one derived from how individual households and firms decide what to do. The model has three parts:
Households decide whether to spend now or later according to the 2. A higher real interest rate makes saving more attractive and spending today less so.
Firms have some pricing power but can change their prices only occasionally.
The central bank sets the short-term interest rate.
Put these together and monetary policy can move real output in the short run. The model also says what inflation actually costs. Firms reprice at different times, so inflation pulls prices out of line with one another, and that misalignment distorts what people buy and what firms produce.
Monetary economics without money
The model has no money in it. Woodford showed that you can do monetary economics in a cashless economy, which is close to how the Fed works now: it sets a rate and mostly ignores money measures like 3.
The book's title comes from Knut Wicksell's 1898 book of the same name. Wicksell argued that inflation depends on whether the central bank holds its rate above or below the 4, the rate at which the economy neither overheats nor slumps. Tabarrok sums up the shift this way: Friedman taught central banks to watch the money supply, and Woodford taught them to watch the gap between their policy rate and the natural rate, and to manage what the public expects about both.
When rate rules work
Woodford also worked out when an interest-rate rule actually holds inflation in place. If the central bank raises its nominal rate by more than one-for-one with inflation, the economy settles on a single outcome. If it raises rates by less, inflation expectations can become self-fulfilling. This is the reasoning behind the 5, now grounded in household and firm behavior.
In a less-remembered twist, Woodford was also an early developer of the 6. That theory says that under some policy setups, government budgets rather than the central bank determine the price level. Tabarrok calls this an unexpected position for the leading 7.
Michael Woodford has won the Nobel prize in economics. Alex Tabarrok, writing on Marginal Revolution, makes a large claim for him: no one since Milton Friedman has done more to shape how central bankers understand their jobs. Woodford's 2003 book, Interest and Prices, has been called the central bankers' bible. Tabarrok puts it this way: if you have read a speech by a Fed governor in the past twenty years, you have read Woodford, even if his name wasn't on it.
Tabarrok's post is a short tribute and doesn't give the prize citation, so the account below sticks to the ideas he highlights.
The problem Woodford solved
Friedman's monetarism gave central banks a simple instruction: control the growth of the money supply. In practice, central banks came to work differently. The Federal Reserve sets a target for a short-term interest rate and mostly ignores monetary aggregates such as 1, a broad measure of cash and bank deposits. That left a gap between theory and practice. What, in theory, ties an interest-rate target to inflation and output, and how should a central bank set that target to do the most good?
Answering that is hard because many separate pieces have to fit together. One is how households react to interest rates. Another is why prices don't adjust instantly. A third is how expectations about future policy feed back into today's decisions. On top of that sits a welfare question: what is actually costly about inflation?
The machinery
Woodford built on work by Guillermo Calvo, Julio Rotemberg, John Taylor, Jordi Galí, Mark Gertler and others. He combined it into a coherent, 2 theory, one derived from the optimizing choices of individual households and firms rather than from assumed relationships between economy-wide totals. The model has three building blocks:
Households use Hall's 3. This is the condition, associated with economist Robert Hall, that governs how people split consumption between today and tomorrow. When the real interest rate (the nominal rate minus expected inflation) rises, saving pays more, so people shift spending into the future.
Firms have some market power but change prices only now and then. In Calvo's version, which is widely used, each period only a random fraction of firms gets to reset its price. The rest keep their old prices.
The central bank sets the short-term nominal interest rate.
Because prices are sticky, a change in the nominal rate also changes the real rate in the short run. That shifts household spending, and with it real output. Monetary policy therefore has real effects in the short run, which is the defining feature of 4 economics.
The model also produces a specific account of why inflation is bad. Its main cost is relative-price distortion. An illustrative example: two otherwise identical firms sell similar goods for $100. Inflation runs at 10%. One firm gets to reprice to $110 and the other is stuck at $100. Now their prices differ for no real reason, so buyers crowd toward the cheap one, and production gets misallocated. More inflation means more of this scatter. That gives central banks a welfare-based reason to keep inflation low and stable, not just a rule of thumb.
Monetary economics without money
Tabarrok notes that Woodford's model contains no money at all. Woodford showed that monetary economics can be done in a cashless economy, where the central bank works entirely through the interest rate. That is close to how modern central banks actually operate.
The book's title is a tribute. Interest and Prices is the English title of Knut Wicksell's 1898 book, which argued that inflation depends on whether the central bank holds its rate above or below the 5. The natural rate is the interest rate at which the economy is neither overheating nor slumping. Policymakers today often call it r-star, and it cannot be observed directly. Woodford rebuilt Wicksell's idea with modern tools. In Tabarrok's summary, Friedman taught central banks to watch the money supply, and Woodford taught them to watch the gap between their policy rate and the natural rate, and to manage expectations about both. The focus on expectations is why today's central banks put so much effort into signaling where rates are headed.
When an interest-rate rule actually works
Setting an interest rate does not automatically pin down inflation. Woodford worked out the conditions under which it does. If the central bank raises its nominal rate by more than one-for-one with inflation, the model has a single, determinate equilibrium. If it doesn't, expectations of higher inflation can become self-fulfilling.
An illustrative example: inflation rises from 2% to 3%. If the central bank lifts its rate by 1.5 percentage points, the real rate rises, spending cools and inflation is pushed back down. If it lifts the rate by only half a point, the real rate falls. Borrowing becomes cheaper in real terms, demand heats up, and the higher inflation people expected arrives. This requirement is the core of the 6, John Taylor's formula for setting rates. Tabarrok describes Woodford's result as the Taylor rule with microfoundations.
An unexpected side
Tabarrok also points to a less-remembered part of Woodford's work. He was an early developer of the 7. In broad terms, the theory says the price level adjusts so that the real value of government debt matches the surpluses the government is expected to run in the future. Under some policy regimes, that makes the government's budget, rather than the central bank, the thing that determines the price level. Tabarrok calls this an unexpected stance for the leading New Keynesian, since it suggests that whether central bank control works depends partly on fiscal policy cooperating.
What the post leaves open
Tabarrok's tribute doesn't cover the limits of the framework. It doesn't say whether the prize was shared. It doesn't address how well these models handled the 2008 financial crisis, long periods of near-zero rates, or the 2021–23 inflation surge. It also doesn't explain how central banks act on a natural rate they can only estimate. Those are fair questions for any reader judging how much weight to give the "bible" central banks still use.
Remember
Modern central banks steer by interest rates, not money supply; Woodford supplied the theory that justifies this.
In his model, inflation's main harm is scrambled relative prices, because firms reprice at different times.
Rates must rise more than one-for-one with inflation, or inflation expectations can feed on themselves.
Flat tax, written with Alvin Rabushka. Workers pay one rate on wages above a family allowance. Businesses pay that rate on revenue minus wages, purchases from other firms, and investment. Interest, dividends and capital gains aren't taxed again. In effect it's a consumption tax. The US never adopted it, because every deduction had defenders, though it shaped the 1986 tax reform. About thirty countries, starting with Estonia in 1994, adopted flat rates, but mostly without the exemption for saving and investment.
Health spending. With Charles Jones, Hall argued that as people get richer, an extra year of life becomes worth more than extra goods. Spending over 30% of GDP on health by 2050 could be optimal, not a sign of failure.
