Rescind Davis Bacon
The Davis-Bacon Act requires that workers on federally funded construction projects be paid at least the “prevailing wage” for their trade in the local area.
Mike Schmidt, Director of the CHIPS Program Office, has an excellent piece on how Davis-Bacon impacted the CHIPS program. My initial understanding was that it simply required paying construction workers more—an unnecessary transfer from taxpayers to a politically favored group, but not one that would impede efficiency. I was wrong.
Start with the complexity. Davis-Bacon’s prevailing wage isn’t a simple minimum wage: plumbers are not electricians are not fitters, and the required rate varies by locale. The Department of Labor maintains a list of more than 130,000 (!) wage rates to implement it.
That’s complicated enough. But it gets worse. Some firms building fabs used their own employees rather than contractors—and Davis-Bacon applies regardless but it covers only the portion of time an employee spends on “construction” work:
[A]pplying Davis-Bacon to company employees rather than contractors proved to be a big hurdle. Davis-Bacon required tracking every hour each employee spent on covered construction activities — by trade classification, with a different prevailing wage applying to each — and paying a wage differential for that portion of their work as distinct from fab operations work or non-Davis-Bacon construction work. The company also relied heavily on profit-sharing (where a portion of employees’ pay was tied to the firm’s profits) and Davis-Bacon’s guaranteed wage floor was difficult to reconcile with a pay structure that was inherently variable. Moreover, Davis-Bacon has a statutory requirement to pay wages weekly, meaning the company would need to change its payroll systems for a portion of the pay for a portion of its workforce.
Thus, DB required that two salaried employee with equal salaries and profit-sharing plans be paid differentially depending on whether one of them did “construction” work. This created internal strife.
Davis-Bacon was passed in 1931, when a carpenter was a carpenter. How does it apply to building a semiconductor factory?
The construction tasks involved in building and modernizing semiconductor fabs don’t always map cleanly onto DOL’s Davis-Bacon classifications, so applicants must go through a construction plan line-by-line to determine which rate applies to which activity. In traditional Davis-Bacon contexts this is less burdensome because contractors know the system and have processes in place. But semiconductor construction was a novel application, and all of our applicants — and most of their contractors — were navigating Davis-Bacon for the first time.
For large recipients, the administrative cost of this work was real but manageable relative to project scale: they could hire consultants, procure software systems, and build internal compliance capacity….
Perhaps the biggest fiasco involved timing. The government wanted firms to move quickly and encouraged them to break ground before the Act’s rules were finalized. But when Davis-Bacon was added to the Act it required that the firms pay the prevailing wage *retroactively*:
The financial and operational implications of retroactive application were significant. A leading-edge project might have 10,000–12,000 construction workers on site at peak, with a rotating workforce totaling perhaps 30,000 individuals over the project’s life. Working through 300-plus subcontractors across multiple tiers, retroactive application could require identifying wages paid to 20,000 workers who had already cycled off the project, determining what each worker should have been paid under Davis-Bacon, and paying the difference — resulting in hundreds of millions of dollars in additional cost.
The retroactive pay exposes the law’s true nature. Firms and workers had already struck voluntary agreements; the work was done, the wages paid. No one can pretend this has anything to do with incentives. Workers received a pure windfall (“DB Christmas!”) for one reason only: “construction workers” are a politically favored class. Janitors and scientists got nothing extra.
Moreover, a large fraction of the cost wasn’t the higher wages at all—it was compliance. Firms likely spent as much reworking payroll systems and hunting down thousands of former workers in this Byzantine classification system as they spent on the wage premiums themselves. Every dollar transferred to workers may have cost firms—and ultimately taxpayers—two dollars or more. A very leaky bucket indeed.
If the Trump administration is serious about cutting regulatory costs and reviving industrial competitiveness, Davis-Bacon is an obvious target. It delivers little to workers, plenty to lawyers and consultants, and a bill to taxpayers for both. Rescind it.
The Venetian empire and the Mongols (modeling Marco Polo)
In contrast, the Polo brothers who went to Asia, Niccolo the elder and Matteo the elder, amassed wealth both in tangible and intangible assets. It was Marco “the voyager” who benefited most from the family business, both as the heir to substantial portions of the family estate, and as a shrewd and cautious — and perhaps tight-fisted — private investor. His will and inventory of his assets reveal a considerable amount of cash, real estate, and valuables. Marco Polo traveled for business even after he returned to Venice, but not for long. After 1300, although he continued to invest in various enterprises, it appears that Marco stayed in Venice. Perhaps this was due to his advancing age (he turned fifty in 1304), although his energy was most likely taken up by overseeing his interests and local investments, and abo ve all in publicity for his book. He commissioned numerous copies to be distributed to powerful and influential people.
And:
However, Marco had great difficulty leaving the empire. The Polos required the khan’s consent not only to be given official leave, but above all to have adequate protection. As Marco recounts, despite thee riches they had accumulated, they were not free to leave. By then, the khan had also grown old, and they were concerned that he might die, leaving their fate in the hands of his successor, who may not have granted the necessary permits. Marco’s account reveals that the three Polos had a subservient relationship with the khan, as they were in the khan’s service and depended on him. He continually rejected their pleas to return to Venice, as he “loved them too much” and could not accept the idea that they should leave him.
That is all from the new and noteworthy Venice and the Mongols: The Eurasian Exchange that Transformed the Medieval World, by Nicola di Cosmo and Lorenzo Pubblici.
Are we underestimating youth well-being?
Although there is growing evidence that the subjective wellbeing among the young declined in recent years, the evidence is not consistent across surveys. We examine the relationship between age and various measures of wellbeing and illbeing across three major surveys – the Gallup World Poll (GWP, Global Minds (GM) and the Global Flourishing Survey (GFS). The GWP is conducted via face-to-face and telephone surveys; GM surveys are web-based; and GFS uses both telephone and web-based surveys. We focus on 23 countries appearing in all three surveys. The clearest evidence that wellbeing rises with age and illbeing declines with age comes from the web-based surveys in both GM and GFS. The age profiles look very different when surveys are conducted by telephone: the higher rates of illbeing among the young are far less apparent in these surveys. Because survey mode is not randomly assigned, we cannot be sure differences in age profiles of wellbeing and illbeing are causally affected by survey mode. Selection into survey mode, both across and within country, plus differential non-response by survey across the age range, may be playing a role. However, the evidence indicates very different age patterns in wellbeing and illbeing emerge across different survey modes.
That is from a new NBER working paper by David G. Blanchflower and Alex Bryson.
That was then, this is now
But despite the pitiful state into which the country had descended, the major outside powers, Russian and the Ottoman Empire, did not intervene as they had in 1722-1725. It was partly that they were busy elsewhere, and surely also that the outcome of their previous attempts had not encouraged them to repeat the experiment.
That is from Michael Axworthy’s A History of Iran: Empire of the Mind, a good general introduction to the history of the country.
Tuesday assorted links
1. Where is it dangerous to be a pedestrian in NYC? And city-owned grocery stores for NYC? (NYT)
2. Is Mississippi running out of liquor?
3. Four classic Chinese texts and their relevance.
5. Seb Krier.
6. The penguin-tracking culture that is Kyoto, Japan.
7. The Economist will be using bylines and putting people in front of the camera (NYT).
Moonsteading
Charles Miller, a space entrepreneur and head of the Trump transition team on NASA, has a good piece proposing a Lunar Development Authority:
I propose the development of an international Lunar Development Authority (LDA), chartered and led by the United States, that would serve as a quasi-governmental regulator. The base on the Moon would be managed as a master-planned infrastructure development project, with NASA as the key strategic partner, emphasizing commercial methods and an investor mindset to drive economic viability in both the near and long term. The LDA would prioritize development of lunar resources to lower costs and serve customers, and treat the United States government and the governments of our allies as anchor tenant customers. The LDA would leverage public-private partnerships and cooperation among both governmental and private industry tenants from many countries to finance and develop lunar infrastructure in a commercial manner.
The model is New York’s famous Commissioners’ Plan of 1811, which imposed a simple, legible order on what was then mostly undeveloped land. The plan coordinated future development around a grid with standardized lots and clearly demarcated spaces for public and private infrastructure. Miller proposes a similar sequence for the Moon: first survey, standards, shared infrastructure, and a governing authority; then private tenants, resource extraction, construction, and finance.
The main legal obstacle is the Outer Space Treaty of 1967, which paired a ban on weapons of mass destruction in space with “anti-colonial” restrictions on national appropriation. The OST, however, doesn’t prohibit economic activity per se—the target was national land grabs, not commercial development. The more recent Artemis Accords address this directly:
The ability to extract and utilize resources on the Moon, Mars, and asteroids is critical to support safe and sustainable space exploration and development.
The Artemis Accords reinforce that space resource extraction and utilization can and should be executed in a manner that complies with the Outer Space Treaty and in support of safe and sustainable space activities.
The Homesteading Act granted title rights in return for development. The likely path forward on the moon reverses that sequence, development first, title later. Ownership of extracted resources is already widely accepted, next will come toleration of exclusive operational zones, then long-duration concessions, then transferable development rights around fixed infrastructure.
The OST may delay ordinary land markets, but it cannot repeal the deeper economic fact that settlement happens only when builders can keep enough of what they create. TANSTAAFL.
The economic value of eliminating cancer
This paper estimates the economic value to the United States of eliminating cancer mortality over a 35-year horizon beginning in 2030, which would eliminate 30.7 million cancer deaths with a total mortality burden of 380 million life-years. We quantify the economic value of this substantial reduction in cancer mortality by incorporating the monetized value of increased longevity. To value the longevity gains in monetary terms, we utilize the valuations used by the U.S. federal government in its cost-benefit evaluations of regulations. Eliminating cancer mortality generates $197 trillion in economic benefits over 35 years, corresponding to approximately $16,282 per American per year, or $41,684 per American household per year. If cancer elimination is viewed as an R&D investment, it yields an enormous internal rate of return, ranging from 570% to 1,024%, based on benchmarked R&D costs. In addition, we perform a sensitivity analysis by varying the elimination durations and the degree of success, using the benchmark case scenario in which cancer mortality is reduced by 80 percent over a 20-year transition. This achieves about 70 percent of the total economic value of full elimination above, corresponding to aggregate benefits of about $134 trillion, or approximately $11,112 per person per year.
That is from a new NBER working paper by
“Dark labor” claims to upset almost everybody
This paper introduces Entangled Time — a novel economic variable representing the simultaneous production-consumption state characterizing human engagement with algorithmic digital interfaces. We develop a formal equilibrium model in which rational agents allocate time to zero-price digital platforms, where their behavioral data constitutes unpriced cognitive labor driving AI capital formation. We demonstrate three principal results. First, under a non-stationary algorithmic resonance state formalized through a Preference Expansion Function, the marginal utility of interface time can be non-decreasing, violating Gossen’s First Law and generating a corner solution (Proposition~1). Second, the firm operating as an algorithmic monopsony facing perfectly inelastic labor supply optimally sets the fiat wage for digital labor equal to zero, substituting monetary compensation with endogenous digital utility (Proposition~2). Third, we define and calibrate Dark GDP — the aggregate value of uncompensated cognitive labor invisible to the System of National Accounts—and show it accounts for a measurable fraction of the secular decline in global labor share (Propositions~7–9). We establish equilibrium existence via Brouwer’s Fixed Point Theorem and propose an empirical identification strategy using privacy-mandate shocks as instruments for data extraction. Three institutional redesigns are proposed: an Algorithmic Monopsony Standard, a Pigouvian Algorithmic Severance Tax, and a Cognitive Depreciation Allowance.
That is all from Nav Vaidhyanathan, who estimates the value of these unpriced services may be in the range of $1.3 trillion. Here is the easier to follow Substack version. Speculative, but worth a ponder.
Incentives matter, Mexican cartel edition
But the cartel’s interests may prove just as important to security as government efforts, according to a dozen local and state officials and security experts.
The CJNG has much to gain from the regional economic boost of a successful tournament in Guadalajara — akin to its administrative headquarters — and much to lose from drawing authorities’ attention.
“The city is safe because those guys put all their money here, and they stand to make even more,” said one state official who was not authorised to speak on the record. “They don’t want a war here.”
Huge profits earned elsewhere from drug trafficking and other activities are laundered in Guadalajara, experts said, helping to power a real estate boom. A rash of shiny new skyscrapers has popped up, some of which sit empty. The leafy city also boasts luxurious open-air shopping malls and lively nightlife.
Here is more from Ciara Nugent at the FT.
That was then, that was then
Fred Anderson has demonstrated how a futuristic novel written in 1763 can help to shed light on British thinking about the long-term consequences of the peace [from the Seven Years’ War]. The anonymously published The Reign of George VI, 1900-1925 presents a scenario far in the future, in the early twentieth century. The book’s counterhistorical narrative suggests that Britain, by granting far too generous a peace in 1763, unintentionally helped France and Russia become leading nineteenth-century world powers. In the early twentieth century, the reign of George VI is thus dominated by Britain’s worldwide struggle to reestablish its position as a global power. The conflict ends with Britain imposing peace in Paris in 1920, after British troops have “liberated” France, with George, the “philosopher king,” hailed as the bringer of freedom. At the time the book was written in 1763, its primary target was clearly the British negotiators in Paris…
That is from the new and interesting book The World in Flames: A Global History of the Seven Years’ War by Marian Füssel.
EV Arts Patronage Tranche
EV Arts Patronage Tranche
This is a new tranche of ad hoc awards, given out more like prizes, without applications, to writers, creatives, and intellectuals who are not supported by the current system of awards and grants, or who have been failed by such systems.
With advice from Henry Oliver. And a thanks to Patrick Collison for enabling this.
I am pleased to announce that our first winner is Helen DeWitt.
Please do contact me if you are interested in supporting this new effort. Let us debureaucratize the arts and restore justice to worthy creators!
Monday assorted links
Prediction Market Details
The Guardian has an interesting article on prediction markets. There are the usual worries about betting on death, as if insurance markets don’t already exist and about insider trading, which public markets have long dealt with. But there is also interesting material on who decides what happened when resolving bets about events made in language (as opposed to more objectively verified numbers).
On Monday, anonymous user “Harshad” asked in a Discord channel if there was “any chance” that he could still win his bet about whether US forces would enter Iran by the end of April. His money was on “no”.
But Polymarket appeared to be resolving the market to “yes”, after the US conducted an operation to rescue a crew member shot down on a mission over Isfahan over the weekend.
…At the moment, when there is a dispute, markets on Polymarket are settled by an anonymous group of people who hold a crypto token called UMA.
It’s an unusual way to decide what has happened. Some longtime users suggest it opens the platform to corruption. Different individuals hold different amounts of UMA, and therefore have different voting power.
It isn’t known who the largest UMA holders are, or what might affect how they vote. It is entirely possible that the people who finally settle a bet on UMA have large amounts of money staked on it.
There was also this bit about Prediction Hunt (I am an advisor) which is focused on cross-market arbitrage opportunities:
“I love to gamble,” said Joseph Francia.
Now in his early 30s, Francia counted cards in casinos while studying economics at Berkeley, and spent weekends in Reno, Nevada, playing blackjack. He’s not a thrill-seeking “Yolo” (you only live once) gambler, he said: he likes to bet when he has an edge on the house.
At university, he and a friend decided to collect data from a number of offshore sportsbooks, and start placing arbitrage bets: playing on the discrepancies in odds given by different betting sites.
“If the odds on the Lakers are really good on one site, and the odds on the Pacers are really good on another site, you could bet on basically both teams on different sportsbooks and make guaranteed profit,” he said.
That project was a student lark in 2017. But in 2025, he remembered it when he was suddenly laid off from his full-time job, just as prediction markets were taking off.
“I’m a spiritual, religious person,” he said. “The more secular people would say, this opportunity is coincidence. But in my head, I was like, this is a sign of something to some extent. Let me lean into this.”
So Francia started Prediction Hunt, a Discord channel and online community where thousands of people gather to trade tips and ideas for how to make money – and bet smart – on Polymarket. The Guardian spent roughly three weeks in this Discord channel.
There are alerts to track “fade” bets, where you try to follow the smart money: profitable wallets were betting “yes” on the Iranian regime falling by 30 April, for example, while unprofitable wallets were betting “no”.
There are alerts to track potential insiders, so you can copy their bets: one of these appears to have an inside line on interest rate decisions by the US Federal Reserve.
Getting these details right will be important but overall I am pleased that the news now regularly reports prediction market data when reporting stories–this is disciplining news from noise, something I predicted long ago in Entrepreneurial Economics.
My South Africa dialogue with Ann Bernstein
An edited transcript is here.
Self-driving vehicles and the cross-country drive
Following my post on cross-country driving, a reader asked me about this prospect but I suppose I am skeptical.
First, self-driving vehicles make it too easy to read a book or stare at your phone. Driving yourself fixes your attention on what is unfolding before your eyes, and forces you to keep it there. You might be bored for an hour, but you will catch periodic gems by always looking at the road before you and to the side.
Second, at least for a while self-driving vehicles will not be allowed to exceed speed limits. Good luck with that. A lot of America is marked at 25 mph when you can go 36 mph or maybe even 37 mph in a responsible manner.
Third, many of the best moments in cross-country driving come from the unexpected swerve — “hey, that looks interesting!” And half of the time it is not. Will the self-driving vehicle know when you might wish to swerve and pull over?
Fourth, there is something to be said for integrating the rhythms of your body with those of the car. When you drive yourself, you feel the trip in a way the Waymo does not give you. I would stress this point is a negative for most car trips, though perhaps not for a cross-country drive. If you do not enjoy driving through the USA, maybe do not do the cross-country thing at all? Walking through Paris or Istanbul remains a lovely alternative.
Automation and better AI might eventually solve or address some of those problems. But the next available round of self-driving vehicles probably will not.