New print edition of Works in Progress
Amazing, here is the site: “The print edition contains everything you can get online, plus a lot more: print-exclusive columns, beautiful art and design, letters from our readers and editors, and visual explainers of technology.”
The weight of research opinion against minimum wage hikes continues to shift
This piece is by DuckKi Cho and is titled “Downward Wage Rigidity and Corporate Investment”:
Firms reduce investment when facing downward wage rigidity, the inability or unwillingness to adjust wages downward. To document this behavior, I exploit staggered state-level changes in minimum wage laws as an exogenous variation in downward wage rigidity. Following a 1-standard-deviation increase in the minimum wage, firms reduce their investment rate (the ratio of capital expenditure to capital stock) by 3.08 percentage points. The negative impact is more acute for firms with a higher fraction of minimum wage workers, stronger employment protections, or higher labor intensity. The investment reductions cannot be explained by labor adjustment under capital-labor complementarities. Rather, I identify the aggravation of debt overhang and increased operating leverage crowding out debt financing as two mechanisms by which downward wage rigidity impedes investment. The findings highlight the unintended consequences of minimum wage policies on corporate investment.
From the Journal of Law and Economics. I fear that for the next thirty years people still will be claiming that Card and Krueger showed that minimum wage hikes do not damage employment. After numerous recent revisions, many of them catalogued here, that is no longer such a plausible belief.
Summary of a new DeepMind paper
Super intriguing idea in this new @GoogleDeepMind paper – shows how to handle the rise of AI agents acting as independent players in the economy.
It says that if left unchecked, these agents will create their own economy that connects directly to the human one, which could bring both benefits and risks.
The authors suggest building a “sandbox economy,” which is a controlled space where agents can trade and coordinate without causing harm to the broader human economy.
A big focus is on permeability, which means how open or closed this sandbox is to the outside world. A fully open system risks crashes and instability spilling into the human economy, while a fully closed system may be safer but less useful.
They propose using auctions where agents fairly bid for resources like data, compute, or tools. Giving all agents equal starting budgets could help balance power and prevent unfair advantages.
For larger goals, they suggest mission economies, where many agents coordinate toward one shared outcome, such as solving a scientific or social problem.
The risks they flag include very fast agent negotiations that humans cannot keep up with, scams or prompt attacks against agents, and powerful groups dominating resources.
To reduce these risks, they call for identity and reputation systems using tools like digital credentials, proof of personhood, zero-knowledge proofs, and real-time audit trails.
The core message is that we should design the rules for these agent markets now, so they grow in a safe and fair way instead of by accident.
That is from Rohan Paul, though the paper is by Nenad Tomasev, et.al. It would be a shame if economists neglected what is perhaps the most important (and interesting) mechanism design problem facing us.
Banks’ Images: Evidence from Advertising Videos
This paper examines how banks strategically develop brand images and how these efforts influence franchise value and the transmission of monetary policy. Analyzing TV advertisements via video embeddings, we measure banks’ images along three dimensions: pricing advantages, service quality, and building trust and emotional connections. Banks with high local market shares highlight service and trust. Banks lacking pricing or service advantages lean on emotional appeals. Banks tailor images to demographics, increasing minority representation in targeted areas. A border discontinuity design helps identify that banks’ images affect deposit growth, spreads, and loan demand, leading banks to respond differently to monetary policy.
That is from a new NBER working paper by
Tuesday assorted links
2. Smartphone bans had no positive effects in a series of English schools. You don’t have to believe it, rather consider it a challenge to come up with better research. In the meantime you should be agnostic, and also think more broadly about how hard it is to get significant treatment effects on adolescents. There is a reason why so many experts in this area are skeptical, or sometimes even scathing, about the Haidt-like arguments. The studies cited at that link are not the most rigorous ones, but they should show you just cannot will your way into the results you might like to find. Most likely smartphone bans in schools have some modest benefits, and still unknown costs.
3. “Trump administration officials on Monday responded to the activist Charlie Kirk’s assassination by threatening to bring the weight of the federal government down on what they alleged was a left-wing network that funds and incites violence, seizing on the killing to make broad and unsubstantiated claims about their political opponents.” NYT link here. One of the worst things the Trump people have threatened to do.
4. Greenland woman fails Danish parenting test and loses her baby (NYT). There was no evidence of pending violence or abuse.
5. Another unlawful strike on a Venezeulan drug boat. If you thought this kind of interdiction could solve or even significantly alleviate the drugs problem, I could understand the case for it. But it won’t.
6. Yum.
Should we abolish mandatory quarterly corporate reporting?
President Trump has suggested doing that. I have not found a human source as good as GPT5, so I will cite that:
Theory predicts that more frequent reporting can exacerbate managerial short‑termism; some archival evidence finds lower investment when reporting frequency rises. But when countries reduced frequency (UK/EU), the average firm’s investment didn’t materially change—in part because most issuers kept giving quarterly updates anyway…
Will markets just insist on quarterly anyway? That’s what happened in the UK and Austria: after rules allowed semi‑annual reporting, only a small minority actually stopped quarterly updates; those that did often saw lower liquidity and less analyst coverage. So yes—many issuers kept some form of quarterly communication to satisfy investors.
There is much, much more at the link.
“Vote now for the 2025 AEA election”
I have now received this email for the seventh (?) time:
If you have not already done so, I encourage you to take a few moments to cast your vote in the AEA 2025 Election. Paper ballots will not be mailed this year. Voting will be closed at 11:59 pm EDT, September 30, 2025. To access your official ballot and candidate biographical information, please click on the following personalized link…
Janice C. Eberly is the only candidate running for AEA president, and I have no idea what she stands for. (In fairness to the AEA, there is some choice for the vice-presidents, you can pick two out of four). Here is her statement of purpose:
Statement of Purpose: Economics brings powerful tools to understand and analyze issues in social science. To live up to that promise, we need to attract and retain talent, develop data and analytics, and engage students. The AEA mission to advance the field is dynamic and challenging. As economists, we rely on collaborators, students, researchers, and a host of academic, public and private resources. In a changing field, the AEA needs to be correspondingly resilient. We can apply our tools to evaluate our progress and experiment with new initiatives. As president-elect, I would focus particularly on data access and opportunities for young scholars, plus attention to emerging issues. Economics cannot thrive without growing young scholars – who are often the first to experience new challenges. The AEA consistently supports data innovation through its committees and journals and continues to advise public and private data resources.
I do not disagree, but where does she stand on the possibly contentious issues? How about a platform of turning over all AEA intellectual property, including published papers and referee reports, to the major AI companies to aid in the purpose of producing truly great economics AI models? That is what I favor, does she? It would be nice to use elections to settle matters of substance, that is what they are for, right?
Do Markets Believe in Transformative AI?
No:
Economic theory predicts that transformative technologies may influence interest rates by changing growth expectations, increasing uncertainty about growth, or raising concerns about existential risk. Examining US bond yields around major AI model releases in 2023-4, we find economically large and statistically significant movements concentrated at longer maturities. The median and mean yield responses across releases in our sample are negative: long-term Treasury, TIPS, and corporate yields fall and remain lower for weeks. Viewed through the lens of a simple, representative agent consumption-based asset pricing model, these declines correspond to downward revisions in expected consumption growth and/or a reduction in the perceived probability of extreme outcomes such as existential risk or arrival of a post-scarcity economy. By contrast, changes in consumption growth uncertainty do not appear to drive our results.
That is from a new NBER working paper by Isaiah Andrews and Maryam Farboodi.
Monday assorted links
1. Further evidence that more violence comes from the right wing. And in this poll, more Republicans believe in political violence than do Democrats. It is fine to be somewhat skeptical of these results, but I believe it is quite hard to get it running the other way. The Economist discusses some of the data.
2. Context is that which is scarce, and boy is that costly.
3. Different arguments on whether social media are causing polarization. Some evidence for both sides.
4. How people use ChatGPT. And a blog post on that paper.
5. Which states per capita use Claude the most?
What I’ve been reading
1. Mark Gilbert, Italy Reborn: From Fascism to Democracy. How Italy built a democracy after WWII, more or less out of nothing. An optimistic and good book. De Gasperi was a great man, and essential to the building out of a democratic Italy, yet today his name is hardly known.
2. Dave Edmonds, Death in a Shallow Pond: A Philosopher, A Drowning Child, and Strangers in Need. An engaging but also intellectually serious history of some strands of utilitarianism and effective altruism. I was happy to blurb this book, you may recall Edmonds also wrote the excellent biography of Derek Parfit.
3. Arundhati Roy, Mother Mary Comes to Me. Well-written, but at some point I started wondering why I should care. OK, Mama was a pain in the ass, but then what? You had to take care of her when she was old. I guess I prefer whaling tales?
4. Chuck Klosterman, Football. An excellent and highly conceptual book about America’s favorite sport. Could this be the best book on (American) football ever?
5. Jordana Pomeroy, Daring: The Life and Art of Elisabeth Vigée Le Brun. Both a book and a picture book rolled into one. This new release is a very good introduction to her life, her art, and her role as semi-official court painter for Marie de Antoinette. She remains an underrated artist.
6. Michael Lentz, Schattenfroh. About one thousand pages, it is receiving buzz as a new novel to master, some are calling it “the new Solenoid” (not a positive for everyone, I do understand). I have tried parts in English and parts in German, but still I do not get it. Does it have a plot? Any humor? For purposes of norming, I am a big fan of James Joyce’s Ulysses. I will try it again, however. At least the author was not complacent.
Stop blaming them
That is the title of my latest Free Press piece, and it is more political than I usually get:
One of the most dangerous collectivist arguments in the wake of Kirk’s murder is to blame the “trans community.” Some have reported that Robinson lived with a transgender romantic partner. Regardless of whether this proves to be true, there is no good evidence that trans individuals are especially likely to commit murder (try asking Grok). There is also no evidence that this particular trans individual contributed to the murder plot; rather, reports indicate the person in question is cooperating with the authorities.
If there is generalized evidence for anything, it is that trans individuals are likely to be the victims of violent attacks.
And yet, Elon Musk is approvingly reposting the following: “It’s time for a complete and total ban on cross-sex hormones. They cannot change your sex. They turn men with perverse fetishes into deranged bioweapons, and women trying to escape sexual trauma into androgynous osteoporotic goblins. These people need to spend a long time in an asylum—some of them, indefinitely.”
Constitutional rights, anyone? The right for peaceful individuals to avoid involuntary incarceration? How about basic toleration? Musk is an individualist in many other contexts, but it appears not this one. As a strategy matter, why go out of your way to make left-wing charges against the right seem plausible?
There is much more at the link.
Sunday assorted links
2. “A separate tally by the Anti-Defamation League, an advocacy group, shows that 76% of extremist-related murders over the past decade were committed by those on the right. Such tallies, however, depend on how extremism is defined and how ideology is assigned.” Link here.
3. “Two Cornell students face no charges after skinning a bear in a communal kitchen in the Ganędagǫ”
5. Stick fight.
6. Arvo Part at 90.
7. Florida may not end up getting rid of all vaccine mandates?
*The Sound of Music*
For the 60th anniversary of its release, the movie is now playing in some cinemas on a large screen. See it if you can. For a while it was the highest-grossing movie ever, and it is not hard to see why. It has spectacular visuals, music, and casting, but most of all there is a remarkable sense of life to it all. Julie Andrews dominates every scene she is in (p.s. I say the Baroness was a Nazi, or at least anti-anti-Nazi). It is also a fascinating glimpse of both life and aesthetics circa 1965. Seeing it is one of the very best things I have done in recent times.
Polarization, purpose and profit
Or a theory of how Silicon Valley once was? Or maybe still is? I am not sure!
We present a model in which firms compete for workers who value nonpecuniary job attributes, such as purpose, sustainability, political stances, or working conditions. Firms adopt production technologies that enable them to offer jobs with varying levels of these desirable attributes. Firms’ profits are higher when they cater to workers with extreme preferences. In a competitive assignment equilibrium, firms become polarized and not only reflect but also amplify the polarized preferences of the general population. More polarized sectors exhibit higher profits, lower average wages, and a reduced labor share of value added. Sustainable investing amplifies firm polarization.
That is from a recent paper by Daniel Ferreira and Radoslawaa Nikolowa. Via the excellent Kevin Lewis.
Intertemporal substitution
Across several Central American nations money transfers have jumped 20 percent.
The reason, officials, migrants and analysts say, is that people afraid of being deported are trying to get as much money out of the country as possible, while they still can.
The money transfers, called remittances, are a critical lifeline for many countries and families around the world, especially in Central America and the Caribbean. There, the funds sometimes make up a huge chunk of a nation’s economy — as much as a quarter of a country’s gross domestic product, as in Honduras and Nicaragua.
Here is more from James Wagner at the NYT.