Experimental Banking Reveals the Value of Leisure

James BaileyLeave a comment

In 2014 India required banks to offer no-cost accounts. This led hundreds of millions of people to open bank accounts for the first time, and more than doubled the number of Indian women who had a bank account:

This increased households’ collective ability to save and borrow, but didn’t shift decision-making power towards women despite the larger change for them. That is the finding of a paper by Tarana Chauhan, a Brown University postdoc who is currently on the job market. The paper is a well-executed example of a difference-in-difference analysis of observational data- that is, carefully examining data that other people generated to examine events that help establish causality. But the validity of difference-in-difference strategies in separating correlation from causation can always be questioned, and always is in economics seminars.

So Dr. Chauhan, this time with coauthors Berber Kramer, Patrick Ward and Subhransu Pattnaik, followed up by directly running an experiment. They got a company to offer subsidized loans to hundreds of randomly selected Indian farmers, then surveyed the farmers to see if they behaved differently than a control group that didn’t get loans. The loans carried a 14% interest rate, which seems high to Americans but was apparently 10pp lower than the other options available in India. They wanted to know whether farmers would use the loans to improve farm productivity, and whether this would have any differential effects on women.

The first stage of the experiment worked: households took the loans and got more engaged with the financial system.

Some used the money for smartphones:

But for the most part they seem not to have spent the money on farming- they didn’t buy significantly more land, seeds, fertilizer, or farm equipment. They did spend more on “non-farm business equipment” and “large consumer durables”. Despite not producing more food themselves, they reported higher food security. Income stayed flat, but women were able to shift some time away from work and toward leisure:

I find these results surprising given how poor the households receiving the loans are. They earn the equivalent of about $1,000/yr, putting them around the global “extreme poverty” line. At that income level I’d think they would value additional income highly relative to leisure, and yet when they get the loan, work time goes down and leisure time increases. Could it really be the case that they’ve already hit their income target, and are on the backward bending part of the labor supply curve? Some other possibilities are that they don’t expect that investing in farming would increase yields enough to be worthwhile, or that they worry any increased income would be taken away through explicit or implicit taxes. But the households generally seem better off as a result of the loan.

The other surprise- enough of the loans were paid back that the lenders made a profit despite the research pushing the interest rate below-market.

Average Wealth for Younger Generations Continues To Exceed Past Generations

Jeremy Horpedahl1 Comment

Today I am posting an update to the generational wealth chart that I have posted many times in the past. This update brings the data through the 3rd quarter of 2025 for the youngest cohort, which includes both Millennials and a growing part of Gen Z in the data from the Federal Reserve. I am somehow hesitant to post this chart, as it is starting to be data that is less useful as the younger generations age, for two reasons.

The first problem with the data is that the Fed is lumping everyone from ages 18-43 together as one generation. Given that the youngest Millennials were 29 in 2025, we are now including a significant part of Gen Z, which is OK in itself, but it becomes harder to compare with generations that encompass only 16 or 17 years of birth cohorts. Secondly, the data from the Fed’s Distributional Financial Accounts is only benchmarked every three years with the Fed’s more detailed Survey of Consumer Finances. Currently only the 2022 version of the survey is available, which is now probably a bit out of date. Based on past updates, it is entirely possible that it is underestimating wealth for the youngest cohort. But I think we will have much more certainty about this data once the 2025 SCF is available and used as a benchmark for the DFA data.

With all of those caveats aside, here is the updated chart:

As I am currently working on a book manuscript using the Survey of Consumer Finances, I will be very excited to finally have the 2025 data available. Until then, this is probably the best intergenerational comparison we can do, and it continues to look very positive for the youngest cohorts. With an average of almost $146,000 of wealth for the combined Millennial/Gen Z cohort, they are well ahead of where Gen X was even in their late 30s, and ahead of Boomers at around age 37 as well. All of this bodes well for young people, despite frequent expressions of pessimism, but we should hold off judgement until the 2025 data is fully updated.

How to Install Drywall

Scott Buchanan1 Comment

Nearly every interior wall and ceiling in every home in America is covered with sheetrock = drywall = gypsum board. Sheetrock (a brand name for drywall) consists of an interior layer of rigid gypsum (a mineral composed of calcium sulfate dihydrate) plus some additives, with outside layers of strong paper or fiberglass. It normally comes in 4 ft x 8 ft sheets.

Normal houses have a framework of mainly 2×4 or larger wood lumber. Each wall has vertical 2×4 studs, spaced every 16”. Sheetrock is trimmed to size, and nailed or (these days) screwed into the studs.

That is the theory, anyway.

I have never done this stuff at large scale before, other than clumsily patching occasional small dings in a wall. A little while ago, I got to experience the process, hands-on. I was part of a team that helped someone whose basement had flooded. We cut out the lower ~4 ft of drywall, and replaced it with fresh drywall.

First, how to you cut drywall? A long, straight cut is accomplished by drawing a straight line and cutting along it, all the way through one layer of the facing paper. Then you hang the drywall sheet on the edge of a table, and crack the interior gypsum layer. Then you cut the other side of the paper. The end result of such a cut is like this:

Typically, you install drywall on the ceiling first. Then the top 4 ft of the walls, then the bottom 4 ft of the walls. You butt the pieces close to each other. For the lowest piece of drywall, you insert a curved metal wedge under it, and step on the wedge with your foot to lift that drywall piece to butt its top edge up against the upper piece. If you look carefully near the middle of the following photo, you can see the red wedge I used to jack up that small lower piece of drywall. It’s OK to leave a gap between the floor and the lower edge of the bottom drywall, since that gap will be covered by baseboard.

This was in a bathroom. I cut the lower green pieces with a little hand power saw, and screwed them into the studs, using the green and black driver visible on the stand in the left foreground.

The next two photos are before and after of a bedroom wall, again showing the bottom course of sheetrock we installed.

Filling in Cracks and Holes

As you can see, at this stage, there are like ¼” cracks between the installed sheets of sheetrock, and the mounting screw holes are visible. These imperfections are filled in with goo called joint compound, or “mud.” The mud is applied with a “knife” like this:

Cracks are covered with paper or fiberglass tape, with mud smeared over the tape. Typically, three layers of mud are needed to achieve perfect, smooth coverage. Each layer must dry hard before applying the next layer. Each layer may be sanded lightly as needed.

 A key technique is to tilt the knife so the mud is maybe 1/16” thick over the tape or over a screw, but taper the mud to zero thickness on the wall away from the tape or screw. This feathering is essential; if your mud layer ends with appreciable thickness instead of feathering, you have to do a lot of sanding to get a smooth blending into the plain drywall at that edge. Pro tip: carefully stir more water into the joint compound as needed to keep it wet and flowing, especially for overnight storage. This video from Vancouver Carpenter displays mudding technique.

That is mainly it. For perspective and confidence building, it is helpful to work with an expert, as I was able to do.

The theory of the firm remains unfinished

mdmakowskyLeave a comment

Why do firms exist? Transaction costs. Specialization. Returns to scale. Risk pooling. Reputation. Institutional capital. Is that everything? Probably not.

It wasn’t that long ago we were talking about the prevalence of zero marginal productivity employees within firms. Perhaps we should add low (zero?) marginal productivity employers to our list of considerations.

Graduate students rejoice, there remains more work to be done.

What is an AI Skill?

Zachary BartschLeave a comment

If you’ve been on LinkedIn recently, then you may have seen the chatter about teaching your artificial intelligence to have various skills. I saw one post by a guy who claimed to have created several skills, each representing a tech billionaire.

At first, I thought “I am behind the 8-ball. What is this new thing?”. Obviously I know what the word “skill” is and how people use it, but I had not encountered its use in the context of AI having it. What does it mean for an AI to have a skill? I somewhat dreaded the the work of learning the new skill of teaching my AI skills.

Then I had lunch with a computer scientist and I learned that skills are nothing new.

Continue reading →

Does Broadband Bring Jobs?

James BaileyLeave a comment

No, according to a new paper from the University of Georgia’s Michael Kotrous.

Many people expected it to, partly by thinking about the jobs that could benefit from faster internet, and partly by looking at the experience of Chattanooga, Tennessee. Chattanooga was the first major city to get gigabit-speed broadband, and they did see a huge improvement in the labor market right afterwards:

But as the graph shows, the introduction of broadband there coincides with the end of the nationwide Great Recession. Was the boom in jobs after 2009 because of the broadband, or would it have happened anyway as party of the recovery from recession? A synthetic control strategy shows that Chattanooga’s recovery was pretty typical for cities like it, so the broadband angle probably didn’t do much:

This might seem like a historical curiosity about one city, but the federal government is currently trying to spend $42 billion to expand broadband to more places, partly motivated by the idea of bringing jobs. I thought the Broadband Equity Access and Deployment Program‘s big problem is how slow it is- Congress created with the Infrastructure Investment and Jobs Act of 2021, but money didn’t start getting sent out until late 2025, and it could be many more years before it leads to any useable broadband. Even then it now seems unlikely to bring jobs, though there could be other benefits.

This paper’s author Michael Kotrous is currently on the economics job market. As his former professor and coauthor, I recommend hiring him if your school gets the chance.

Gasoline Prices Have Increased at Record Rates, but Remain At About Average Levels of Affordability

Jeremy Horpedahl1 Comment

In the (so far) short military engagement with Iran, crude oil and gasoline prices have jumped significantly. The three-week change in gasoline prices at the pump for US consumers was 27 percent, the largest three-week increase consumers in the US have ever seen (with data back through the 1990s). The four-week increase is also a record.

Despite this sharp increase, gasoline prices remain near the long-run average in terms of affordability: it takes about 7 minutes of work at the average wage to purchase a gallon of gasoline. To be sure, this is a big jump of where it had been earlier in 2026, at about 5 minutes of labor. Nonetheless, gasoline is still (for now!) more affordable than it was, relative to wages, for almost all of 2022 and 2023.

A Bull Case for Tech Stocks

Scott BuchananLeave a comment

Negative headlines tend to get more attention than bland positive titles. We have seen a lot of angst in the past few months over the massive capex spend by big tech companies, with questions over whether there will be adequate returns on these investments.

There was a genuine untethered bubble in tech stocks circa 1997-2000. Companies with no earnings and no moats were given billion-dollar valuations, on the strength of a business plan sketched on a cocktail napkin. After the brutal bursting of that bubble, tech stocks repriced and then steadily strengthened for the next 25 years.

Nevertheless, it seems there is always some negative narrative to be found regarding tech stock valuations and prospects. Seeking Alpha author Beth Kindig writes that investors who were spooked by all those bubble warnings lost out big time:

Investors have been hearing “tech bubble” warnings for more than a decade — but instead of collapsing, the Nasdaq‑100 has gained 550%. If we look back ten years ago to 2015, headlines such as “Sell everything! 2016 will be a cataclysmic year” confronted investors with calls for an imminent recession. The bears made repeated claims that a “tech bubble” was about to burst with some of the world’s most prominent venture capitalists drawing parallels to the dot-com era.

What followed tells a very different story, with not only the Nasdaq-100 up 550% over a 10-year period but also high-flying stocks like Shopify returning as much as 5200% and Nvidia returning 22,000% over the same period.

It’s true that capturing those gains does not come easy. Investors had to hold through five drawdowns that were greater than 20%, including two declines greater than 30%, while tuning out a constant stream of bearish commentary – often from reputable sources – proclaiming the long-awaited tech bubble has finally “popped.” Despite these strong convictions, the long-term trend remained intact.

She presented this graphic which illustrates many of the negative headlines over the past decade:

While she acknowledges that traditional cloud computing applications are slowing in growth rates, and there will be general market price volatility, she contends that AI is still in an acceleration phase:

The dot-com era was defined by oversupply and fragile fundamentals; today’s AI buildout is being led by the world’s strongest operators, backed by real revenues and profits, and constrained by hard limits in compute, memory, networking, and power.

The more important question isn’t whether we’ll see a pullback — it’s where we are in the cycle. AI is still transitioning from the training phase into the inference phase, where monetization will accelerate and the “capex with no revenue” narrative will begin to fade. In other words, the loudest bubble debates are arriving before the most important revenue engine fully turns on.

Those of us who are long tech stocks hope she is correct.

The Heartwarming Sincerity of Gravity Falls

Joy BuchananLeave a comment

I learned about the children’s cartoon Gravity Falls this year from my kids.  

Bluey is wonderful for kids and adults, but it does feel like a baby show since the younger dog Bingo is 4. If you are getting out of the baby stage with kids, Gravity Falls is great next step with 12-year-old twins. The jokes are funny, especially for American parents today who would have grown up with the cultural references.

Gravity Falls has emotional depth. These days the young folks are in “situationships” trying not to catch feelings (I hear). In Gravity Falls, everyone catches feelings so hard. It’s tragically beautiful like Anna Karenina.  You can watch it on Disney+ and YouTube.