Category: Economics
The Industrial Revolution in the United States: 1790-1870
This chapter explores the distinctive trajectory of American industrialization up to 1870, emphasizing how the United States adapted and transformed British technologies to suit its unique economic and resource conditions. Rather than a straightforward transfer of innovations, the chapter argues that American industrial development was shaped by path-dependent processes and historical contingencies—such as the Embargo Act of 1807 and government sponsorship of firearms production—that enabled the emergence of a domestic innovation ecosystem. The chapter offers fresh insights into how high-pressure steam engines, vertically integrated textile mills, and precision manufacturing techniques evolved in response to labor scarcity, capital constraints, and abundant natural resources. A particularly novel contribution is the detailed analysis of how American manufacturers substituted mechanization and organizational innovation for skilled labor, leading to the development of technologies that were not only distinct from their British counterparts but also foundational for the Second Industrial Revolution. The chapter also highlights the democratization of invention, showing how economic incentives and institutional support fostered widespread innovation among ordinary citizens. By integrating technological, economic, and institutional perspectives, this chapter provides a compelling explanation for why the United States developed a robust manufacturing sector despite seemingly unfavorable initial conditions.
That is from a recent NBER working paper by Joshua L. Rosenbloom.
The United States is Starved for Talent, Re-Upped
I wrote this post in 2020. Time to re-up (no indent);
The US offers a limited number of H1-B visas annually, these are temporary 3-6 year visas that allow firms to hire high-skill workers. In many years, the demand exceeds the supply which is capped at 85,000 and in these years USCIS randomly selects which visas to approve. The random selection is key to a new NBER paper by Dimmock, Huang and Weisbenner (published here). What’s the effect on a firm of getting lucky and wining the lottery?
We find that a firm’s win rate in the H-1B visa lottery is strongly related to the firm’s outcomes over the following three years. Relative to ex ante similar firms that also applied for H-1B visas, firms with higher win rates in the lottery are more likely to receive additional external funding and have an IPO or be acquired. Firms with higher win rates also become more likely to secure funding from high-reputation VCs, and receive more patents and more patent citations. Overall, the results show that access to skilled foreign workers has a strong positive effect on firm-level measures of success.
Overall, getting (approximately) one extra high-skilled worker causes a 23% increase in the probability of a successful IPO within five years (a 1.5 percentage point increase in the baseline probability of 6.6%). That’s a huge effect. Remember, these startups have access to a labor pool of 160 million workers. For most firms, the next best worker can’t be appreciably different than the first-best worker. But for the 2000 or so tech-startups the authors examine, the difference between the world’s best and the US best is huge. Put differently on some margins the US is starved for talent.
Of course, if we play our cards right the world’s best can be the US best.
Does China push out African growth?
We study the relationship between international trade and development in a model where countries differ in their capability, goods differ in their complexity, and capability growth is a function of a country’s pattern of specialization. Theoretically, we show that it is possible for international trade to increase capability growth in all countries and, in turn, to push all countries up the development ladder. This occurs if (i) shifting employment towards more complex sectors raises capability growth and if (ii) foreign competition is tougher in less complex sectors for all countries. Empirically, we provide causal evidence consistent with (i) using the entry of countries into the World Trade Organization as an instrumental variable for other countries’ patterns of specialization. The opposite of (ii), however, holds in the data. Through the lens of our model, these two empirical observations imply dynamic welfare losses from trade that are pervasive, albeit small for the median country. The same economic forces also suggest that the emergence of China has held back capability growth for a number of African countries who are pushed away from their most-complex sectors, which China exports, and into their least-complex sectors, which China imports.
That is by David Atkin, Arnaud Costinot, and Masao Fukui, in a recent issue of Review of Economic Studies.
Does automation reduce stigma?
By removing human cashiers, self-checkout registers may alter feelings of embarrassment experienced by customers. Using high-frequency scanner data from supermarkets in the Washington, D.C. area with staggered adoption of self-checkout, we conduct event study analyses on consumer purchasing behavior. On the extensive margin, we find positive but noisy effects of self-checkout adoption on sales of some stigmatized items. On the intensive margin, we show that stigmatized items are much more likely to be purchased at self-checkout than at cashier registers, especially condoms and pregnancy tests. We estimate that customers are willing to pay 8.5 cents in additional time cost for the privacy of purchasing stigmatized items at self-checkout.
Here is the full paper by Rebecca Cardinali., et.al. Via the excellent Kevin Lewis.
I even draw distinctions across automated models. For instance, if I have “a stupid question,” I am more likely to ask Grok, since I would rather GPT maintain a higher opinion of what I do and do not know.
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.”
Celebrate Vishvakarma: A Holiday for Machines, Robots, and AI
Most holidays celebrate people, gods or military victories. Today is India’s Vishvakarma Puja, a celebration of machines. In India on this day, workers clean and honor their equipment and engineers pay tribute to Vishvakarma, the god of architecture, engineering and manufacturing.
Call it a celebration of Solow and a reminder that capital, not just labor, drives growth.
Capital today isn’t just looms and tractors—it’s robots, software, and AI. These are the new force multipliers, the machines that extend not only our muscles but our minds. To celebrate Vishvakarma is to celebrate tools, tool makers and the capital that makes us productive.
We have Labor Day for workers and Earth Day for nature. Viskvakarma Day is for the machines. So today don’t thank Mother Earth, thank the machines, reflect on their power and productivity and be grateful for all that they make possible. Capital is the true source of abundance.
Vishvakarma Day should be our national holiday for abundance and progress.
Hat tip: Nimai Mehta.
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
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.
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.
AI Agents for Economic Research
The objective of this paper is to demystify AI agents – autonomous LLM-based systems that plan, use tools, and execute multi-step research tasks – and to provide hands-on instructions for economists to build their own, even if they do not have programming expertise. As AI has evolved from simple chatbots to reasoning models and now to autonomous agents, the main focus of this paper is to make these powerful tools accessible to all researchers. Through working examples and step-by-step code, it shows how economists can create agents that autonomously conduct literature reviews across myriads of sources, write and debug econometric code, fetch and analyze economic data, and coordinate complex research workflows. The paper demonstrates that by “vibe coding” (programming through natural language) and building on modern agentic frameworks like LangGraph, any economist can build sophisticated research assistants and other autonomous tools in minutes. By providing complete, working implementations alongside conceptual frameworks, this guide demonstrates how to employ AI agents in every stage of the research process, from initial investigation to final analysis.