Thank you, Vlad [Ivanov], for that introduction. To Jessica Wachter: thank you for your leadership as Director of the Commission’s Division of Economic and Risk Analysis (“DERA”), and for inviting me to deliver these remarks today[1].

To DERA staff, Lehigh University’s Center for Financial Services, and the University of Maryland’s Center for Financial Policy: thank you for organizing this informative event.

It is a pleasure to be here in a room full of economists, whose contributions are so vital to the Commission’s work.

My 10-year-old daughter recently asked me a very basic but important question: what is economics? In the moment, the best response I could muster was that it’s a social science focused on the study of markets.

It was a simple – many of you here might say simplistic – answer, but it seemed to satisfy her curiosity. The question made me reflect about one of the key challenges we face every day here at the Commission: how can we best communicate the value and relevance of our work to the public, in the most user-friendly way possible?

It is a theme that I’ll return to later in my remarks. But I hope that you, too, will reflect on this in the context of your own discussions today and in your future work. In my mind, it is part of the pursuit of excellence that is central to our success.

Let me return to my basic definition of “economics.” Of course, it doesn’t do justice to the wide scope of areas that you, as economists, study or the research you will discuss here today – on market microstructure, corporate finance, financial intermediaries, or asset management.

Economic analysis plays an essential role in the Commission’s work – whether in rulemaking, or in calculating disgorgement or distributions to harmed investors in enforcement actions. Or in any other areas where expertise in economics contributes to fulfilling our mission.

In rulemaking, it serves the essential purpose of providing the public and all market participants with impartial analysis of a new or updated Commission rule, including its costs and benefits.

It allows the Commission to compare a proposed rulemaking against other reasonable alternatives.

It helps us describe the economic baseline as it exists today in the specific space affected by the rule, and how that baseline might change once the rule is implemented.

It provides a framework for understanding how a rulemaking addresses a specific problem or deficiency, and the rule’s impact on affected stakeholders and our capital markets.

During my time here, the Commission has proposed and adopted a range of reforms aimed at strengthening market resiliency and investor protection. These rules depend, in no small part, on high quality economic analysis. That said, there’s always room for improvement in all that we do.

The extensive knowledge and innovative ideas that experts like you bring to the table can benefit the Commission’s approach to economic analysis. So, as you engage in your discussions today, I offer you a few thoughts for your consideration.

First, it is important to bear in mind that the investor base in our capital markets is diverse.

Retail investors are a significant segment of our capital markets – in the neighborhood of 150 million. These investors, who aspire to build wealth for themselves and their families, have varying levels of financial sophistication and investment horizons. They may process market information, or react to transaction costs, in ways that differ significantly from institutional investors.

Younger investors may prefer online trading platforms or robo-advisers. These younger investors may have higher risk tolerances compared to investors in other age groups, who may prefer to interact with our markets in more traditional ways.

Entrepreneurs in underserved or minority communities, or in rural areas, may encounter unique structural barriers when it comes to accessing investment capital.

In short, in the context of their own unique circumstances, all investors behave differently. Economic analysis that builds in and measures these unique differences where possible can be more useful.

Which leads me to my second point. Use of innovative AI, machine learning, and data analytics, with appropriate guardrails, may be worth exploring if it can yield improved and strengthened economic analysis. And provided it does not in any way undermine our statutory mission or the public interest.

Thankfully, DERA’s Office of Data Science is already leading initiatives to develop and support cutting-edge data analytics powered by AI to support multiple functions across the Commission.

A rapidly evolving market landscape offers both challenges and opportunities: the challenge of keeping up, adapting to, and getting ahead of rapid change, but also the opportunity to harness technology and data to strengthen economic analysis and our rulemaking.

A unique challenge we face in economic analysis is quantifying costs and benefits. Generally, costs can be easier to quantify because discrete data from past experience is more readily available. But data on future benefits that might accrue to investors, our capital markets, or the broader economy is more diffuse and harder to come by.

More than three decades ago, my graduate school economics professor, mentor, and thesis adviser, James K. Galbraith, introduced me to the work of Nobel Prize-winning Swedish economist, Gunnar Myrdal. In particular, the principle of circular cumulative causation as applied to the analysis of economic disparities in 1940s Black America.

Myrdal’s work in this area was funded by a prominent American foundation. His main researcher was Ralph Bunche, a scholar and diplomat who was awarded the 1950 Nobel Peace Prize – the first African American Nobel laureate. Their work was so influential that the U.S. Supreme Court cited it in Brown v. Board of Education.

Myrdal’s thinking really captivated me. His framework offered a valuable tool to analyze how factors that exacerbate economic disparities can mutually reinforce each other in a vicious cycle that can persist over time. But the framework applied to the solution, too. Policy changes can interrupt the vicious cycle and turn it into a virtuous one, with beneficial multiplier effects.

There’s a compelling logic to this framework. So, as economists, I ask you to consider this: leveraged with data analytics, and innovative AI tools used responsibly, could this framework enhance the quality of our economic analysis?

I see much potential in it to broaden our thinking in this area.

In an age where data analytics can unlock so many new possibilities, the optimist in me believes it can help us improve modeling and estimating of potential benefits. Benefits such as reducing asymmetric information and competitive barriers, fostering greater investor confidence and financial stability, and reducing unnecessary or excessive risk-taking.

Let me now return to what I raised at the outset: the imperative of clear and understandable communication with the public.

One-year ago this week, I had the special privilege of delivering a commencement address at my alma mater, the Lyndon B. Johnson School of Public Affairs at the University of Texas, Austin.

I urged the graduates to strive for clear and effective communication with the public. As policy professionals, articulating how their work benefits the public is essential for public support of their mission.

As researchers, your work can contribute so much to the effective fulfillment of our mission. But to maximize its impact, a non-technical audience should be able to understand it. I cannot emphasize this enough.

Yes, our work is necessarily technical and complex, but nothing that we do here should be out of reach to the public. If we fail to meet this most basic of tests, we are also failing the public that we have a duty to serve and whose interests we must protect above all others.

To me, this is a vital element in the pursuit of excellence.

We serve the public most effectively when the Commission’s valuable work to protect our markets and investors meets the highest standards of excellence.

I’ll close with a story about why the pursuit of excellence matters so much. It involves soccer, a sport that I follow closely and love.

Pep Guardiola, the Catalan manager of Manchester City Football Club, is probably the greatest football manager of all time. By any measure.

The most coveted achievement in European football is winning the Continental Treble in a single season, a feat that only eight clubs in Europe have achieved. Guardiola is the only manager to have won it twice, with two different clubs. In the last 14 seasons, he has won 11 league titles. And he’s on the verge of leading his team to a fourth consecutive English Premier League title.

A documentary that has been running on one of the streaming services offers a glimpse into Guardiola’s commitment to the pursuit of excellence. His players enter the locker room at half-time, giddy because they’ve scored four goals against their cross-town rivals, Manchester United. But Guardiola tells his players: “4-0. I cannot say it’s bad, but it’s not perfect…You were brilliant, but I push you to be more perfect…”

The lesson I draw from this vignette that applies to our work is that even in our peak moments we must not – and cannot – lose sight of the pursuit of excellence.

Thank you for listening and for joining us here today. Best wishes to all of you in your upcoming discussions.