Category: Economics

A Stable Macroeconomy, and the Agglomeration Benefits of Cities, Allow Redundant Labor Markets to Flourish

In my “Innovative Entrepreneurs Replace Despair with Hope” paper (currently undergoing a second round of revision in response to referee requests), I argue that the worst off will benefit if we strengthen a redundant labor market by unbinding innovative entrepreneurs.

Besides unbinding innovative entrepreneurs, two other conditions can strengthen redundant labor markets: a stable macroeconomy and the agglomeration benefits of urban areas.

Many believe that inevitable recessions must periodically undermine the first of these conditions, a stable macroeconomy, and thus threaten an otherwise redundant labor market. But a plausible contrarian view argues that recessions are not inevitable, since they usually are caused by policy mistakes that can be avoided (Furchtgott-Roth 2026; Glynn 2018; Goodspeed 2026; Irwin 2016, 2019a, 2019b; Rudebusch 2016).

For example, Australia achieved 29 years without a recession, allowing a flourishing redundant labor market to attract energetic, smart, young French citizens who could not find jobs in a sclerotic labor market in France (Rubin and Breeden 2015). Australian workers could often move seamlessly between entrepreneurship and jobs (Bradsher 2016). Australian lockdown policies during the Covid-19 pandemic may have contributed to Australia’s first recession in 29 years (Kwai 2020).

In the couple of years before the pandemic, the U.S. economy, though far from a perfect exemplar of a redundant labor market, was strong enough to allow more workers to quit their jobs to seek better jobs (Cutter 2018; Harrison and Morath 2018). The strong economy also allowed more low-skilled workers to find jobs (Ip 2019; Modestino et al. 2016, 2020).

A second condition that contributes to the flourishing of redundant labor markets consists of the agglomeration benefits of urban areas, where firms and workers are both numerous and diverse. The positive effects of this density and diversity are called “agglomeration forces” (Moretti 2013, 124). Unfortunately, these positive forces are weakened by regulations, including zoning and regulations that restrict the construction and development of housing, and thereby limit the extent to which low-skilled workers can move to, and benefit from, redundant labor markets (Herkenhoff et al. 2018; Hsieh and Moretti 2019).

For example, in New York City regulations limit the height of skyscrapers (Glaeser 2011) and require apartments to exceed a minimum size (Bertaud 2018, 11, 47, 231-234, and 258-259). When Alain Bertaud and his wife were young and poor, they were only able to move from Paris to Manhattan because they found a tiny apartment that they could afford. They were delighted because they valued all that Manhattan could offer. But today a Manhattan developer who built such tiny apartments would be violating the law (Bertaud 2019, about an hour into interview).

Some of those who are among the worst off might improve some of their circumstances by moving to one of the few cities (most notably Houston) that have better jobs and do not have zoning laws and other regulations that discourage newcomers (Gray 2022; Siegan 1972). But the increase in hope from a distant job is sometimes countered by the need to commute back to the home community where a spouse, children, or parents have deep roots. When the GM plant closed in Janesville, Wisconsin many of the workers could only find comparable jobs at GM plants hundreds of miles away. Many of them became “GM gypsies” commuting back and forth to Janesville on a weekend, when they could, to see their family (Goldstein 2017, 105). As Amy Goldstein describes them, they persevere less from any hope for a better life, than from a sense of pride, a work ethic.

Here are the sources cited above:

Bertaud, Alain. 2018. Order without Design: How Markets Shape Cities. Cambridge, MA: The MIT Press.

Bertaud, Alain. 2019. Alain Bertaud on Cities, Planning, and Order Without Design. EconTalk, interviewed by Russ Roberts, June 3. https://www.econtalk.org/alain-bertaud-on-cities-planning-and-order-without-design/.

Bradsher, Keith. 2016. Money from the Dust. New York Times (Sept. 25): 1 & 4–5.

Bregman, Rutger. 2017. Utopia for Realists: How We Can Build the Ideal World. New York: Little, Brown and Company.

Cutter, Chip. 2018. For Job Recruiters, These Are Trying Times. Wall Street Journal (Dec. 20): B6.

Furchtgott-Roth, Diana. 2026. The Events That Cause Recessions. Wall Street Journal (Sat., June 6): C7–C8.

Glynn, James. 2018. The Outlook; Keeping an Economic Boom Going. Wall Street Journal (July 16): A2.

Goodspeed, Tyler Beck. Recession: The Real Reasons Economies Shrink and What to Do About It. New York: Basic Venture, 2026.

Gray, M. Nolan. 2022. Arbitrary Lines: How Zoning Broke the American City and How to Fix It. Washington, D.C.: Island Press.

Harrison, David, and Eric Morath. 2018. Economy Spurs Job Hopping. Wall Street Journal (July 5): A1-A2.

Herkenhoff, Kyle F., Lee E. Ohanian, and Edward C. Prescott. 2018. Tarnishing the Golden and Empire States: Land-Use Restrictions and the U.S. Economic Slowdown. Journal of Monetary Economics 93 (Jan.): 89-109.

Hsieh, Chang-Tai, and Enrico Moretti. 2019. Housing Constraints and Spatial Misallocation. American Economic Journal: Macroeconomics 11, no. 2 (April): 1-39.

Ip, Greg. 2019. Capital Account; Long Expansion Lifts Low-Skilled Workers Too. Wall Street Journal (July 11): A2.

Irwin, Neil. 2016. Expansion Is Old, Not at Death’s Door. New York Times (Oct. 28): B1 & B2.

Irwin, Neil. 2019a. An Economic Boom That Might Be Changing the Rules. New York Times (May 4): A13.

Irwin, Neil. 2019b. What America Can Learn from Australia’s Economic Miracle. New York Times, SundayBusiness Section (April 7): 1 & 6.

Kwai, Isabella. 2020. Covid-19 Knocks Australia into First Recession in Decades. New York Times (Sept. 3): B4.

Modestino, Alicia Sasser, Daniel Shoag, and Joshua Ballance. 2016. Downskilling: Changes in Employer Skill Requirements over the Business Cycle. Labour Economics 41 (Aug.): 333-47.

Modestino, Alicia Sasser, Daniel Shoag, and Joshua Ballance. 2020. Upskilling: Do Employers Demand Greater Skill When Workers Are Plentiful? Review of Economics and Statistics 102, no. 4 (Oct.): 793-805.

Moretti, Enrico. 2013. The New Geography of Jobs. pb ed. New York: Houghton Mifflin Harcourt Publishing Co.

Rubin, Alissa J., and Aurelien Breeden. 2015. Song for French Charity Strikes Discordant Note. New York Times (March 4): A6.

Rudebusch, Glenn D. 2016. Will the Economic Recovery Die of Old Age? FRBSF Economic Letter, # 2016-03 (Feb. 4): 1-4.

Siegan, Bernard. 1972. Land Use Without Zoning. Lexington, MA: Lexington Books.

An earlier draft of my “Innovative Entrepreneurs Replace Despair with Hope” paper can be found at:

Diamond, Arthur M., Innovative Entrepreneurs Replace Despair with Hope (March 13, 2026). Available at SSRN: https://ssrn.com/abstract=6412238 or http://dx.doi.org/10.2139/ssrn.6412238

Innovative New Goods Can Radically Improve Lives

In my Openness book I argue that the kind of economic growth that matters most is not the greater accumulation of old goods like shoes, but the creation of innovative new goods. The story quoted below gives a case-in-point, documenting how driverless cars radically improve the lives of blind passengers.

(p. A20) Mr. Brunt, 28, was born with a rare eye disorder. He can’t drive himself, and had never experienced the feeling of being alone in a car — until Waymo’s self-driving vehicles started navigating San Francisco’s hilly streets two years ago.

Now Mr. Brunt will occasionally make the hourlong journey across the bay from his home in Solano County, Calif., just to ride in one. “It’s that feeling of independence and actually having the control,” he said. “Being able to play whatever music you want, feeling like you’re in your own car.”

. . .

Claire Stanley, who is legally blind and uses a guide dog, said she had also had to “battle” for Uber and Lyft drivers to pick her up at home in Washington, D.C. When she travels to a city with autonomous ride shares, she and her dog, a yellow Labrador named Tulane, jump into them without a struggle.

“When you don’t have a driver, there’s no driver to say no,” she said.

. . .

On a drizzly day last month, Mr. Brunt was heading to the de Young Museum in Golden Gate Park. He had some trouble finding his Waymo’s precise location, so he pressed a button on the app to play a melody from the car and followed the noise.

He hopped into the passenger seat, and his Spotify account immediately connected to the car’s stereo system, blasting his electronic music.

As the steering wheel began to turn, moving the car onto the road, Mr. Brunt, ready to enjoy the ride, leaned his seat back and fiddled with the temperature until it was set to 70 degrees.

“That feeling of independence is amazing,” he said. “It’s something I never thought I would have growing up.”

For the full story see:

Sonia A. Rao and Rachel Bujalski. “Blind Waymo Users Revel in the Joy of Riding Alone.” The New York Times (Mon., May 25, 2026): A20.

(Note: ellipses added.)

(Note: the online version of the story has the date May 24, 2026, and has the title “Blind Waymo Riders Savor the Solitude of Independence.”)

My Openness book, mentioned in my opening comments, is:

Diamond, Arthur M., Jr. Openness to Creative Destruction: Sustaining Innovative Dynamism. New York: Oxford University Press, 2019.

Entrepreneurial Apple Finds Uses for “Defective” Chips “That Might Otherwise Be Thrown Out”

I am currently revising my “Innovative Entrepreneurs Replace Despair with Hope” paper in which I argue that if we unbind entrepreneurs from regulations they will be free to find new uses for labor that is currently unemployed or underemployed. In the paper I present as proof-of-concept, examples where entrepreneurs found uses for the previously useless, such as the startup that uses milkweed floss as insulation in parkas. I just ran across another example, in the passages quoted below, in which Apple has found uses for defective processor chips that previously would have been thrown out.

(p. A1) Apple, long revered for its premium-priced products, has managed to develop a booming business selling cheaper devices when most gadget makers are being hammered by rising costs.

One of its secrets: using chips with slight defects that might otherwise be thrown out.

The strategy is apparent in the technical minutiae of the newly released $599 MacBook Neo, which early data suggest is a hit with customers.

The chip powering the Neo is Apple’s A18 Pro, the same chip first used inside the iPhone 16 Pro two years ago, but with one key difference. The Neo version of the chip has a “5-core” graphics processor, one less than the version inside the 2024 iPhones, indicating that Apple was able to save some of the A18 Pro chips with a defective core for future use.

Defective cores can be disabled, leaving a chip that still functions perfectly well to power different, often cheaper devices—in this case an entry-level laptop instead of a top-of-the-line iPhone.

. . .

(p. A5) “If you can take the stuff that doesn’t meet highest level specs and still use it, you can save money, scrap and time,” says Tim Culpan, a supply-chain analyst who has written about Apple’s Neo chip orders. “Also you can reach a lot more customers you might not otherwise be able to sell to.”

Apple has used its flexibility with its own silicon to develop lower-priced iPhones and computers, many of which have sold well. The Neo is so popular that Apple is running low on leftover chips and has been forced to order new ones, according to people familiar with its supply chain.

. . .

Using chips in the Neo that might otherwise be tossed is one way Apple was able to deliver its first entry-level laptop.

For the full story, see:

Rolfe Winkler and Yang Jie. “Imperfect Chips Power Apple Products, Profits.” The Wall Street Journal (Tues., May 19, 2026): A1 & A5.

(Note: ellipses added.)

(Note: the online version of the story has the date May 17, 2026, and has the title “Apple Is Making Hit Products and High Profits From Imperfect Chips.”)

A working draft of the paper I refer to in my opening comments is:

Diamond, Arthur M., “Innovative Entrepreneurs Replace Despair with Hope” (March 13, 2026). Available at SSRN: https://ssrn.com/abstract=6412238 or http://dx.doi.org/10.2139/ssrn.6412238

Entrepreneurial Innovation Celebrated on Good Morning America!

Sunday morning, June 6, I was shocked to be impressed by a replay of a June 3 report on ABC’s Good Morning America, celebrating entrepreneurial perseverance and optimism. It appears that electric planes will receive regulatory approval to start operations in early fall. Maybe Trump’s deregulation push is allowing faster innovation; innovation that is starting to payoff?

The GMA report is:

“On board the 1st electric plane” https://goodmorningamerica.com/video/133545986 via @GMA

Chicago City Council Ends Increases in Restaurant Worker Minimum Wage

The members of the Chicago city council Democrat “machine” might have ended their support for minimum wage increases because they had enrolled en masse in price theory classes at the University of Chicago. But they did not–they likely still are not able to distinguish a supply curve from a demand curve. But apparently a sufficient number of them are able to open their eyes and admit their mistake when their constituents suffer the negative job consequences of an increasing minimum wage.

(p. A15) Chicago’s distressed dining scene—recently described as “on the brink of collapse”—was bolstered by good news last week, as the City Council voted to halt future increases in the minimum wage for servers and bartenders.

. . .

In the first year after the mayor’s minimum wage hike, new restaurant and tavern licenses—a key indicator of industry health—dropped by more than 8%. The Illinois Restaurant Association reported that nearly 500 restaurants closed in the first half of 2025, and 70% of the restaurants that responded to the association’s poll reported cutting staff or reducing employee hours since the wage hike took effect.

. . . Alderwoman Samantha Nugent, who introduced a proposal to stop further increases in the wage, said her constituents were suffering from the mayor’s good intentions: “I’ve had several restaurants close down,” she said. “I’ve heard from servers, when the tip credit changed in Chicago, their hours were cut.”

For the full commentary, see:

Michael Saltsman. “Chicago’s Minimum-Wage Retreat.” The Wall Street Journal (Mon., March 23, 2026): A15.

(Note: ellipses added.)

(Note: the online version of the commentary has the date March 22, 2026, and has the same title as the print title.)

To Preserve the Status Quo the Wealthy Elite Gives the Poor “Little Gifts” from Their “Largess”

What Barton Swaim (quoted below) says was true of the “predemocratic, precapitalist European noble” is today usually true of an allegedly progressive and allegedly empathetic member of the wealthy elite who pities the poor and gives them “little gifts from his largess” mostly as a form of virtue signaling; but who then also usually supports government regulations that preserve his own wealth and elite status by blocking the poor from themselves becoming wealthy.

(p. A11) The socialist outlook—. . .—may inspire struggle in the immediate present, but the practical goal is tranquility, . . . : an attitude not so different from that of a predemocratic, precapitalist European noble hoping to keep his subjects more or less content with little gifts from his largess.

For the full interview/essay see:

Barton Swaim. “What’s the Matter With Scotland?” The Wall Street Journal (Sat., Dec. 6, 2025): A11.

(Note: ellipses added.)

(Note: the online version of the interview/essay has the date December 5, 2025, and has the same title as the print version.)

Technology Was Democratized When Standardization of Parts Enabled Simplification of Manufacture and Maintenance

There’s a lot to like about Steward Brand. His Whole Earth Catalog was quirky unpretentious fun. His How Buildings Learn, has a wonderful chapter on the ramshackle, unnamed, disrespected building on the MIT campus where quirky innovators were given space to create. His essay on Xerox Parc explained how the technology being developed there could liberate individual creativity. When Steve Jobs at Stanford delivered what is widely believed to be the best commencement address in history, he ended by quoting Stewart Brand’s final message in the 1974 Whole Earth Catalog: “Stay hungry, stay foolish.”

In the review quoted below, highlights that the simplification of production enabled by standardization of parts promoted the democratization of technology maintenance (and we might add, helped to democratize innovation too). Major simplification goes against the Theory of the Adjacent Possible which claims that technology develops toward greater and greater complexity.

(p. C7) Read front to back, “Maintenance” tells a coherent story of civilizational progress. Prior to the Industrial Revolution, most machines were one-off creations, built by artisans to their own quirky specifications. But the technological age increasingly demanded standardization. Weapons led the way. If a cannonball jammed in an imprecisely bored barrel, the cannon might explode, killing its crew. On the other hand, if the parts of a flintlock rifle were interchangeable, a soldier could repair his weapon without the need for a gunsmith.

The manufacturing techniques that enabled this kind of precision gradually spread to other technologies. The same tools developed to bore cannon barrels were then used to improve steam engines. But standardization had its enemies, Mr. Brand notes, especially among gunsmiths and other artisans. During the French Revolution, the sansculottes rebelled against the new industrial techniques. “Craft was extolled; uniformity was deplored,” Mr. Brand writes. France’s technical progress was set back 50 years.

A century later, the early automobile industry faced a similar split. The original Rolls-Royce Silver Ghost, Mr. Brand writes, “was manufactured as a bespoke, unique vehicle, meticulously crafted by a dedicated team.” Henry Ford’s Model T, by contrast, was a crude but ingeniously simple machine. Ford made sure each part was manufactured to unvarying specifications, “perfect enough” that it could be installed by a moderately skilled worker on a moving assembly line. No fine-tuning needed.

Ford’s embrace of standardization allowed his Model T to be built quickly and inexpensively. But standardization had another, paradoxical effect: It allowed nonexperts to repair their own vehicles and other equipment. A farmer who owned a Model T didn’t need a forge or metal lathe to fix his engine; he could simply order a replacement part—or cannibalize one from a wrecked car in a junkyard.

The French revolutionaries feared industrialization would depersonalize society by marginalizing skilled artisans. Mr. Brand shows that, instead, standardization democratized access to technology. With a few tools and a little gumption, anyone could learn to maintain and repair the machinery of daily life.

For the full review see:

James B. Meigs. “Fixing the Future.” The Wall Street Journal (Sat., Dec. 6, 2025): C7.

(Note: the online version of the review has the date December 5, 2025, and has the title “‘Maintenance: Of Everything, Part One’: Making the Future.”)

The book under review is:

Brand, Stewart. Maintenance of Everything: Part One. South San Francisco, CA: Stripe Press, 2026.

An earlier Brand book that I praised in my opening comments is:

Brand, Stewart. How Buildings Learn: What Happens after They’re Built. New York: Viking Adult, 1994.

Minimum Wage Advocates Forget That When the Price of Labor Rises, the Quantity Demanded Falls

George Stigler and many others point out that no law in economics is as certain as the Law of Demand: if the price rises, the quantity demanded falls. That applies to goods and labor too. In principles classes I would illustrate the law in several ways, including applying it to the effects of increasing the minimum wage. Much of the empirical work on minimum wages has been done by David Neumark. In December 2025 he posted a revision of his co-authored paper “Minimum Wages and Race Disparities.” Below is the paper abstract:

We provide a comprehensive analysis of the effects of minimum wages on blacks, and on the relative impacts on blacks vs. whites. We study not only teenagers – the focus of much of the minimum wage-employment literature – but also broader low-skill groups. We find evidence that job loss effects from higher minimum wages are more evident for blacks – and more so for black men. In contrast, they are not very detectable for whites. Moreover, the effects of minimum wages are often large enough to generate adverse effects on earnings (and relative earnings) of blacks. Given strong residential segregation by race in the United States, the race difference in the effects of minimum wages implies that the adverse impacts fall on areas with a high black population share. We also find evidence that minimum wage effects are more adverse in black areas, regardless of individual race, which accentuates the concentration of the adverse effects of minimum wages in areas where blacks are a very high share of the population.

Neumark’s co-authored paper is:

Neumark, David, and Jyotsana Kala. “Minimum Wages and Race Disparities.” National Bureau of Economic Research Working Paper #33167, Dec. 2025.

We Do Not See the Benefits That Regulations Block

We owe to Henry Hazlitt the insight that we do not see what wonders would be, if the government was less active. We see the bridge that the government builds with our tax money. But we do not see the refrigerators, televisions and vacations that the taxpayers would have had if they had not been taxed to build the bridge. The same insight applies to government regulation.

The CEO of Oura, an increasingly popular ring that collects health data, has penned a brief op-ed, telling us a couple of features that Oura would now have if they were regulated less:

With a reformed regulatory structure, Oura customers could already be benefiting from a range of advanced features, including screening for high blood pressure. Hypertension is one of the most significant risk factors for heart disease and stroke, while high blood pressure in pregnancy can signal pre-eclampsia, a complication that endangers mother and baby. Another primed capability, sleep-apnea detection, would give users an early-warning tool for a condition that often goes undiagnosed and can lead to serious complications.

The CEO of Oura’s op-ed is:

Tom Hale. “With Less Regulation, Your Oura Ring Could Do More.” The Wall Street Journal (Sat., December 20, 2025): A11.

(Note: the online version of the op-ed has the date Dec. 19, 2025, and has the same title as the print version.)

Henry Hazlitt’s great little book, mentioned in my comments, is:

Hazlitt, Henry. Economics in One Lesson. Irvington-on-Hudson, NY: The Foundation for Economic Education, Inc., 1952.

New Hampshire Unbinds Electric Entrepreneurs

The energy sector of the economy is both heavily regulated and much in need of innovation and expansion. Unfortunately the heavy regulation often blocks the innovation and expansion. Travis Fisher and Glen Lyons describe New Hampshire’s solution–a new law that greatly reduces regulations for electricity suppliers who do not connect to the broad “public” grid. Unbinding energy entrepreneurs should bring more innovation and greater competition–more electricity at lower prices.

Fisher and Lyons’s commentary is:

Travis Fisher and Glen Lyons. “New Hampshire Sparks a Revolution in Electricity Supply.” The Wall Street Journal (Sat., Sept. 27, 2025): A11.

(Note: the online version of the commentary has the date September 26, 2025, and has the same title as the print version.)