Category: Current Affairs
“You see tech and AI everywhere but in the productivity statistics”
How many times have I heard versions of that claim? Erik Brynjolfsson picks up the telephone in the FT:
While initial reports suggested a year of steady labour expansion in the US, the new figures reveal that total payroll growth was revised downward by approximately 403,000 jobs. Crucially, this downward revision occurred while real GDP remained robust, including a 3.7 per cent growth rate in the fourth quarter. This decoupling — maintaining high output with significantly lower labour input — is the hallmark of productivity growth.
My own updated analysis suggests a US productivity increase of roughly 2.7 per cent for 2025. This is a near doubling from the sluggish 1.4 per cent annual average that characterised the past decade.
It is fine to suggest caution in interpreting such statistics, but they hardly push the other way.
Minimum Wages for Gig Workers Can’t Work
In 2017, I analyzed the Uber Tipping Equilibrium:
What is the effect of tipping on the take-home pay of Uber drivers? Economic theory offers a clear answer. Tipping has no effect on take home pay. The supply of Uber driver-hours is very elastic. Drivers can easily work more hours when the payment per ride increases and since every person with a decent car is a potential Uber driver it’s also easy for the number of drivers to expand when payments increase. As a good approximation, we can think of the supply of driver-hours as being perfectly elastic at a fixed market wage. What this means is that take home pay must stay constant even when tipping increases.
…If Uber holds fares constant, the higher net wage (tips plus fares) will attract more drivers but as the number of drivers increases their probability of finding a rider will fall. The drivers will earn more when driving but spend less time driving and more time idling. In other words, tipping will increase the “driving wage,” but reduce paid driving-time until the net hourly wage is pushed back down to the market wage.
A paper by Hall, Horton and Knoepfle showed that’s exactly what happened.
More recently, in 2024, Seattle implemented “PayUp”, a pay package for gig workers like DoorDash workers that required a minimum wage based on the time worked and miles travelled for each offer. Note that this is not a minimum wage for all workers but for one type of worker in a large market. For this reason, we can use the same analysis as with Uber tipping. The supply of workers is very elastic and essentially fixed at the market wage for workers of similar skill. Thus, we would expect a zero effect on net pay.
Here is a recent NBER paper by An, Garin and Kovak looking at the effects of the Seattle law:
We find that the minimum pay law raised delivery pay per task….At the same time, the policy led to a reduction in the number of tasks completed by highly attached incumbent drivers (but not an increase in exit from delivery work), completely offsetting increased pay per task and leading to zero effect on monthly earnings. We find evidence that drivers experienced more unpaid idle time and longer distances driven between tasks…Using a simple model of the labor market for platform delivery drivers, we show that our evidence is consistent with free entry of drivers into the delivery market driving down the task-finding rate until expected earnings return to their pre-reform level.
All of this is a general result of the Happy Meal Fallacy.
India’s AI wedding buffet
Shruti Rajagopalan surveys much of the AI policy debate in India. Excerpt:
If there is a single domain where India’s AI ambitions will succeed or fail, it is energy. And energy in India is not a technology problem. It is a political economy problem, arguably the most intractable one the country faces.
India’s peak electricity demand hit 250 GW in May 2024, up from 143 GW a decade earlier. The IEA forecasts 6.3 percent annual growth through 2027, faster than any major economy. Cooling demand alone could reach 140 GW of peak load by 2030. One number captures the trajectory. For each incremental degree in daily average temperature, peak demand now rises by more than 7 GW. In 2019 the figure was half that. India is getting hotter, richer, and more electricity-hungry simultaneously.
State-controlled distribution companies have accumulated $83.7 billion in debt because energy prices have been politically distorted for decades. Over 50 GW of renewable capacity sits underutilized. About 60 GW is stranded behind inadequate transmission. The shortage is financial and infrastructural, not resource-based. Without reforming distribution pricing, governance, and grid investment ($50 billion estimated by 2035), new renewable capacity will not become reliable electricity. It will become another line item on a DISCOM balance sheet no one wants to read.
India’s electricity reaches consumers through 72 distribution companies, 44 of them state-owned, collectively the most financially distressed utilities in the world. Accumulated losses stood at ₹6.92 trillion ($76.89 billion) as of March 2024, rising every year despite five government bailouts since 2002.
Substantive throughout.
The cocaine problem seems to be getting worse again
Colombian coca cultivation fell dramatically between 2000 and 2015, a period that saw intense U.S.-backed eradication and interdiction efforts. That progress reversed in 2015, when peace talks and legal rulings in Colombia opened enforcement gaps. Coca plantation has since increased to record levels, which coincided with a sharp rise in cocaine-related overdose deaths in the U.S. We estimate how much of that rise can be causally attributed to Colombia’s new coca boom. Leveraging the unforeseen coca supply shock and cross-county differences in pre-shock cocaine exposure, we find that the surge in supply caused an immediate rise in overdose mortality in the U.S. Our analysis estimates on the order of 1,000–1,500 additional U.S. deaths per year in the late 2010s can be attributed to Colombia’s cocaine boom. Implicit annual loss in American statistical life values about $48,000 per hectare of cultivation in Colombia. If left untamed, the current level of coca cultivation (over 230,000 ha in 2022) may impose on the order of $10 billion per year in costs via overdose fatalities.
That is from a new NBER working paper by Xinming Du, Benjamin Hansen, Shan Zhang, and Eric Zou.
My WaPo podcast with Megan McArdle
Here is the link, self-recommending…
Those new service sector jobs
Who needs to be a programmer, be hired to close the doors on Waymo vehicles:
Or see here. And more text from TechCrunch. Via Glenn Mercer, Tom McCarthy, and also Air Genius Gary Leff.
I Regret to Inform You that the FDA is FDAing Again
I had high hopes and low expectations that the FDA under the new administration would be less paternalistic and more open to medical freedom. Instead, what we are getting is paternalism with different preferences. In particular, the FDA now appears to have a bizarre anti-vaccine fixation, particularly of the mRNA variety (disappointing but not surprising given the leadership of RFK Jr.).
The latest is that the FDA has issued a Refusal-to-File (RTF) letter to Moderna for their mRNA influenza vaccine, mRNA-1010. An RTF means the FDA has determined that the application is so deficient it doesn’t even warrant a review. RTF letters are not unheard of, but they’re rare—especially given that Moderna spent hundreds of millions of dollars running Phase 3 trials enrolling over 43,000 participants based on FDA guidance, and is now being told the (apparently) agreed-upon design was inadequate.
Moderna compared the efficacy of their vaccine to a standard flu vaccine widely used in the United States. The FDA’s stated rationale is that the control arm did not reflect the “best-available standard of care.” In plain English, that appears to mean the comparator should have been one of the ACIP-preferred “enhanced” flu vaccines for adults 65+ (e.g., high-dose/adjuvanted) rather than a standard-dose product.
Out of context, that’s not crazy but it’s also not necessarily wise. There is nothing wrong with having multiple drugs and vaccines, some of which are less effective on average than others. We want a medical armamentarium: different platforms, different supply chains, different side-effect profiles, and more options when one product isn’t available or isn’t a good fit. The mRNA vaccines, for example, can be updated faster than standard vaccines, so having an mRNA option available may produce superior real-world effectiveness even if it were less efficacious in a head-to-head trial.
In context, this looks like the regulatory rules of the game are being changed retroactively—a textbook example of regulatory uncertainty destroying option value. STAT News reports that Vinay Prasad personally handled the letter and overrode staff who were prepared to proceed with review. Moderna took the unusual step of publicly releasing Prasad’s letter—companies almost never do this, suggesting they’ve calculated the reputational risk of publicly fighting the FDA is lower than the cost of acquiescing.
Moreover, the comparator issue was discussed—and seemingly settled—beforehand. Moderna says the FDA agreed with the trial design in April 2024, and as recently as August 2025 suggested it would file the application and address comparator issues during the review process.
Finally, Moderna also provided immunogenicity and safety data from a separate Phase 3 study in adults 65+ comparing mRNA-1010 against a licensed high-dose flu vaccine, just as FDA had requested—yet the application was still refused.
What is most disturbing is not the specifics of this case but the arbitrariness and capriciousness of the process. The EU, Canada, and Australia have all accepted Moderna’s application for review. We may soon see an mRNA flu vaccine available across the developed world but not in the United States—not because it failed on safety or efficacy, but because FDA political leadership decided, after the fact, that the comparator choice they inherited was now unacceptable.
The irony is staggering. Moderna is an American company. Its mRNA platform was developed at record speed with billions in U.S. taxpayer support through Operation Warp Speed — the signature public health achievement of the first Trump administration. The same government that funded the creation of this technology is now dismantling it. In August, HHS canceled $500 million in BARDA contracts for mRNA vaccine development and terminated a separate $590 million contract with Moderna for an avian flu vaccine. Several states have introduced legislation to ban mRNA vaccines. Insanity.
The consequences are already visible. In January, Moderna’s CEO announced the company will no longer invest in new Phase 3 vaccine trials for infectious diseases: “You cannot make a return on investment if you don’t have access to the U.S. market.” Vaccines for Epstein-Barr virus, herpes, and shingles have been shelved. That’s what regulatory roulette buys you: a shrinking pipeline of medical innovation.
An administration that promised medical freedom is delivering medical nationalism: fewer options, less innovation, and a clear signal to every company considering pharmaceutical investment that the rules can change after the game is played. And this isn’t a one-product story. mRNA is a general-purpose platform with spillovers across infectious disease and vaccines for cancer; if the U.S. turns mRNA into a political third rail, the investment, talent, and manufacturing will migrate elsewhere. America built this capability, and we’re now choosing to export it—along with the health benefits.
That Was Then/This is Now
Hat tip: Logan Dobson.
My simple model of fertility decline
My core model is both simple and depressing. Fertility rates have declined around the world because birth control technologies became much better and easier to use. And people — women in particular — just do not want that many kids.
I do understand that better birth control happened a long time ago, for instance birth control pills become widely available in the wealthier countries in the 1960s, or sometimes the 1970s. Nonetheless the diffusion of new technologies can be very slow, and for norms to shift it can take generational turnover or even a bit more. Plus “fertility contagion effects” take a long time to work their way fully through the system.
Those long lags may be difficult to swallow, but social science has numerous examples of very long operative mechanisms. (Just think of how long it took potential migrants to exploit open borders, for instance pre-WWI.) Furthermore, fertility rates have indeed been falling for a long time in the wealthier countries.
So a lot of women, once they face the realities of the stress and trying to make ends meet, want only one kid. You end up with a large number of one kid families, some people who never marry/procreate at all, and a modest percentage of families with 2-4 kids. There are also plenty of cases cases where the guy leaves, self-destructs, or never marries, after siring a single child with a woman. That gives you the fertility rates we are seeing, albeit with cultural and economic variation.
Richard Hanania considers why income is not the driving force behind the decline, and why the decline is continuing.
Part of this model is that many women just love having a child. They love “children” so much that a single child fills up their needs and desires.
I see a similar mechanism in my own life. I very much enjoy having Spinoza around the house, but I have zero desire to take in another canine. Whenever I want more “dog attention,” I can assure you that the supply is highly elastic. Similarly, a single kid can take up a lot of your time and affection, again supply is elastic from the side of the kid. Maybe parents learning how much they can enjoy a single kid has been another cultural lag?
Under my preference-driven model, fertility declines are very difficult to reverse. I believe that is also consistent with the evidence to date.
So this is a problem we need to worry about. The asymptote is rather unpleasant, and the path along the way involve less human well-being, possibly less innovation, and maybe some major fiscal crises as well.
As Arnold Kling would say, “Have a nice day.”
Why is Singapore no longer “cool”?
To be clear, I am not blaming Singapore on this one. But it is striking to me how much Americans do not talk about Singapore any more. They are much, much more likely to talk about Europe or England, for instance. I see several reasons for this:
1. Much of the Singapore fascination came from the right-wing, as the country offered (according to some) a right-wing version of what a technocracy could look like. Yet today’s American political right is not very interested in technocracy.
2. Singapore willingly takes in large numbers of immigrants (in percentage terms), and tries to make that recipe work through a careful balancing act. That approach still is popular with segments of the right-wing intelligentsia, but it is hardly on the agenda today. For the time being, it is viewed as something “better not to talk about.” Especially in light of some of the burgeoning anti-Asian sentiment, for instance from Helen Andrews and some others. It is much more common that Americans talk about foreign countries mismanaging their immigration policies, for instance the UK and Sweden.
3. Singaporean government looks and feels a bit like a “deep state.” I consider that terminology misleading as applied to Singapore, but still it makes it harder for many people to praise the place.
4. Singapore is a much more democratic country than most outsiders realize, though they do have an extreme form of gerrymandering. Whatever you think of their system, these days it no longer feels transgressive, compared to alternatives being put into practice or at least being discussed. Those alternatives range from more gerrymandering (USA) to various abrogations of democracy (potentially all over). In this regard Singapore, without budging much on its own terms, seems like much more of a mainstream country than before. That means there is less to talk about.
4b. Singapore’s free speech restrictions, whatever you think of them, no longer seem so far outside the box. Trump is suing plenty of people. The UK is sending police to knock on people’s doors for social media posts, and so on. That too makes Singapore more of a “normal country,” for better or worse (I would say worse).
5. The notion of an FDI-driven, MNE-driven growth strategy seems less exciting in an era of major tech advances, most of all AI. Singapore seems further from the frontier than a few years ago. People are wishing to talk about pending changes, not predictability, with predictability being a central feature of many Singaporean service exports.
6. If you want to talk about unusual, well-run small countries, UAE is these days a more novel case to consider, with more new news coming out of it.
Sorry Singapore, we are just not talking about you so much right now! But perhaps, in some significant ways, that is a blessing in disguise. At least temporarily. I wrote this post in part because I realize I have not much blogged about Singapore for some years, and I was trying to figure out why.
Addendum, from Ricardo in the comments:
Bryan Caplan on immigration backlash
Tyler tries to cure my immigration backlash confusion, but not to my satisfaction. The overarching flaw: He equivocates between two different versions of “backlash to immigration.”
Version 1: Letting in more immigrants leads to more resistance to immigration.
Version 2: Letting in more immigrants leads to so much resistance to immigration that the total stock of immigration ultimately ends ups lower than it would have been.
Backlash in the first sense is common, but no reason for immigration advocates to moderate. Backlash in the second sense is a solid reason for immigration advocates to moderate, but Tyler provides little evidence that backlash in this sense is a real phenomenon.
Do read the whole thing, but I feel I am obviously right here. Bryan should read newspapers more! If I did not provide much evidence that backlash is a significant phenomenon, it is because I thought it was pretty obvious. A few points:
1. I (and Bryan all the more so) want more immigration than most voters want. But I recognize that if you strongly deny voters their preferences, they will turn to bad politicians to limit migration. So politics should respect voter preferences to a reasonable degree, even though at the margin people such as myself will prefer more immigration, and also better immigration rules and systems.
2. The anti-immigrant politicians who get elected are very often toxic. And across a wide variety of issues. The backlash costs range far wider than just immigration policies. (I do recognize this does not apply in every case, for instance Meloni in Italy seems OK enough and is not a destructive force. She also has not succeeded in limiting migration, and probably cannot do so without becoming toxic. So maybe that story is not over yet. In any case, consider how many of the other populist right groups have a significant pro-Russia element, Russia being right now probably the most evil country in the world.)
3. If immigration runs “out of control” (as voters perceive it) in your country, there will be anti-immigrant backlash in other countries too. For instance in Japan and Poland. Bryan considers only backlash in the single country of origin. In Japan, for instance, voters just handed their PM a new and powerful mandate, in large part because of the immigration issue. The message was “what is happening in other countries, we do not want that happening here.” The globalization of communications and debate increases the scope and power of the backlash effect considerably.
Most of all, it is simply a mistake to let populist right parties become the dominant force in Europe, and sometimes elsewhere as well. You might think it is not a mistake because we need them to limit migration. Well, that is not my view, but I am arguing it is a mistake to get to that margin to begin with.
In short, we need to limit migration to prevent various democracies from going askew. Nothing in that argument contradicts the usual economic (and other) arguments for a lot of immigration being a good thing. And still it is a good thing to try to sell one’s fellow citizens on the case for more immigration. Nonetheless we are optimizing subject to a constraint, namely voter opinion. Why start off an intertemporal bargaining game by trying to seize as much surplus (immigration) as possible? That to me is obvious, more obvious every day I might add.
A new hypothesis (from my email)
From Anonymous:
Hello Professor Cowen,
I hope all is well with you and that you have navigated the recent weather alright.
I have a thought that I wanted to run by you that related to phones and teen anxiety.
You have cited a variety of studies that say that phones and social media do not cause anxiety. As you may recall, I have taught junior high and high school for almost 30 years. I did see a big spike in anxiety for my students, especially females, around the years 2010-2017/18ish. I used to think “phones,” but now I’m not sure. The anxiety spike has declined. My last ‘anxious’ class of seniors are now seniors in college. Students today are on the phones as much as those in the past.
Here is my theory: Students started to feel more anxious around 2010 because they could sense the coming seismic cultural and political shifts coming, of which phones were a harbinger or carrier. They were mostly not conscious of this, and couldn’t express it, but they were trying to cope.
Now, they have coped. My current seniors have unusual political ideas but are mostly optimistic. I contrast them to a centrist friend of mine who does some DC work and constantly thinks the sky is falling.
Now, adults are more anxious, not students. Adults are starting to see these seismic shifts and they are trying to cope. Perhaps they are projecting their own anxiety onto their kids, and are behind the times with the cause. Phones may have helped drive anxiety 10 years ago, but maybe not anymore. Students have coped and adjusted to a new equilibrium.
It is also possible that phones serve as a good/useful “myth” (I mean this in a positive sense) for the shifts we are seeing and the anxiety many feel . We need something tangible to hold our thoughts on the shifts in culture, and we have chosen phones. Thus, the clash over phones today might be between those who think in mythic/symbolic ways, and those who think in more scientific ways. Both are right in their own perspective. The new cultural and political shifts over the last 10-15 years would naturally bring on anxiety. Phones are not the cause of the shift, but a good symbol of it.
How much is childlessness the fertility problem?
The average decline in fertility among these recent cohorts relative to the cohorts preceding them by 20 years was 0.25 births. Of this decline, 0.09 births, or 37 percent of the gap, is statistically accounted for by increased childlessness in the later cohort. The remaining 0.16 births, or 63 percent of the gap, is accounted for by declines in fertility among the parous.
A similar analysis can be used to decompose differences across districts in India, where the difference to be decomposed is across districts for women born in the same set of years, with two groups of districts defined by having the lowest and highest cohort fertility rates. Unsurprisingly, given panel B of Figure 5, almost all of this difference—94 percent—is accounted for by the difference in fertility among the parous. Differing patterns of childlessness account for only 6 percent of the gap between high-fertility and low-fertility districts.
That is from a new and useful JEP survey article by Michael Geruso and Dean Spears. The main concern of the authors is whether we can ever expect a fertility rebound.
The polity that is Bolivia?
Bolivia’s new president is planning major reforms to unleash a mining and oil exploration boom, burying nearly 20 years of socialism in the Andean nation with a new policy — “capitalism for all”.
Rodrigo Paz, a pragmatic centrist former senator, said his team was working on a package of laws to boost foreign investment in natural resources that would be presented to congress for approval “in the coming days or months”.
“We need a new oil and gas law,” Paz told the Financial Times in an interview while attending an economic forum in Panama.
“Bolivia should go for 50-50 [risk-sharing with foreign investors]. I give you the space. You come in with technology and investment . . . I think it’s the basis for business in future.”
Bolivia has a fifth of the world’s reserves of lithium, according to the US Geological Survey, but with its state-owned company YLB lacking technical expertise and investment, it has struggled for years to produce commercial quantities of the battery metal and exports are currently dominated by neighbouring Chile.
Bolivia also has big reserves of silver, tin and antimony. Paz said the Bolivian people, who have a history of protesting against mining, would support fresh investment if they were shown they would benefit financially. He compared his country to its neighbours: “Peru last year had mining revenues of around $50bn. Chile had revenues with state and private companies of $65bn. And we . . . had just $6bn,” he said.
Here is more from Michael Stott at the FT. We will see, as they say. I am cautiously hopeful.
Argentina dollar facts of the day
From greenbacks stuffed into children’s teddy bears to fortunes tucked away in the ceiling, Argentines have more than $250 billion in dollars stashed at home, along with offshore accounts and safe-deposit boxes—some six times the reserves of the central bank.
But two years into Milei’s government, Argentines are easing their grip on their precious dollars.
Dollars held in the country’s banks by private-sector investors hit a record at the end of last year of nearly $37 billion, up 160% since Milei took office in December 2023, according to central-bank data.
Here is more from the WSJ.