Matthew Lilley: A bunch of Nobel Prize-winning economists have endorsed California's proposed billionaire wealth tax. I can't oppose them on authority. But I know some academics who can.

He is a lecturer at The Australian National University. This is his This is his Twitter thread.

"Acemoglu (2001) v. Acemoglu (2026)

Colonial Origins: "Protection against expropriation risk is extremely important for long-run prosperity."

Also: "Anyway, here's a 5% levy on the existing property of one narrowly defined group."
It's a one-off. I pinky promise.
 
Apparently the lesson of Colonial Origins was credible property rights are important until the property crosses ten figures.

The coefficient on expropriation risk: enormous.

 

The coef when the taxpayer owns Nvidia stock: Appendix B, Vibes

Diamond (1971) v. Diamond (2026)

Diamond–Mirrlees: Preserve production efficiency. Don't distort productive choices when other tax instruments exist.

Prop 40: tax the assets of people who own lots of productive capital?

Professor Production Efficiency: "Sounds good." 

Banerjee & Duflo (2007) v. Banerjee & Duflo (2026)

The credibility revolution: Stop waving your hands about giant ideological questions. Find something you can identify. Run the experiment. Measure what happened.
 
And therefore, naturally: California should impose a 5% wealth tax.

The causal chain:
1. Randomize remedial tutors in Mumbai and Vadodara.
2. Observe a 0.28σ rise in test scores.
3. ???
4. Tax Jensen Huang's equity.
 
Thousands of economist-hours teaching the profession to decompose huge policy questions into narrow ones with credible identification.

Then the ballot proposition arrives:

"No RCT necessary for this one, lads. Pre vs post comparisons in an AI boom are fine."
 
Krugman (1991) v. Krugman (2026)

New Economic Geography: Firms, workers and capital respond to incentives in deciding where to locate; those choices can shift equilibria.

Location is endogenous. Agglomerations aren't laws of nature.
 
But then for California:

"Yes, location incentives exist. Yes, mobile capital exists. Yes, equilibria can shift. But Silicon Valley will obviously be fine."

Location is endogenous, but apparently not that endogenous.
 
Truly, the most robust result in modern economics is that, as ideology grows large, every theorem acquires a people-who-are-richer-than-me exception.
 
(If you don't like the jokes, don't blame me, blame my co-author GPT. He did all the work)."

The FTC Should Not Dissuade Personalized Pricing

By Mark Jamison of AEI.

"Imagine that you and I buy the same product from the same website at the same time, yet you pay more than I do. The difference is that the seller knows something about each of us. Perhaps your browsing history, shopping behavior, location, or some other factor suggests that you are willing to pay more than I am. Is this fair? More importantly, is it illegal? 

The Federal Trade Commission (FTC) is thinking about this. This issue is whether there is something about personalized pricing—pricing that treats customers as individuals rather than groups—that increases the chances of unfair or deceptive business practices, as the FTC defines them. It has proposed an enforcement policy that would scrutinize businesses that use personalized pricing. 

The concern is understandable but misplaced. Digitization gives businesses far more information about customers than they previously possessed. And machine learning makes it increasingly possible to use that information to estimate what an individual might be willing to pay. But knowing that prices can be personalized tells us little about whether consumers are harmed. 

The standard textbook example of personalized pricing considers a monopolist that knows precisely what each customer is willing to pay and charges accordingly. The monopolist makes higher profits and higher-end consumers lose the surplus they would have received if prices were uniform. This might sound ominous, but it leaves out much of what happens in actual markets. 

Start with competition. A business that knows you are willing to pay $100 for something might like to charge you $100. But another firm notices and, if feasible, might offer it to you for $90, stealing your business. If firms have similar information about you, personalization can intensify competition for your business. 

This isn’t simply conjecture. Prominent research has shown that personalized pricing can benefit consumers when market coverage is high. It also finds something especially relevant for policymakers: Consumers can sometimes be worse off when only some firms are able to personalize prices than when either all or no firms can do so. Other research reaches related conclusions, finding that consumer information can intensify competition as businesses make targeted offers to defend existing customers and attract customers from rivals. 

There is no general rule that personalized pricing harms consumers or is problematic in any other way. It might benefit firms, but it can also increase competition, bring additional consumers into the market, and improve the matching of products with customers. 

There is another issue that deserves more attention. Many of the analyses assume that the products in question already exist. But we know that when incumbents profit, rivals innovate. The same information that lets a business personalize prices can help it personalize products. This is already happening in e-commerce, entertainment, travel, and education. As the costs of customization decline, both prices and products become increasingly personalized. Regulations that make personalization less profitable will lower incentives to innovate. 

The FTC’s proposal recognizes that personalized pricing is not unlawful in itself. But it states that when consumers reasonably expect prices not to vary with personal data, businesses using personalized pricing should disclose the personalization, its basis, and the types of data used. Failure to do so, the FTC says, is likely to constitute an unfair or deceptive practice. That puts a lot of weight on “reasonable expectations” and the presumed value of disclosing trade secrets. 

People certainly care about fairness. But perceptions of fairness differ among people and change with experience. Americans do not even agree about whether our economic system itself is fair. Trying to turn such perceptions into a policy encourages arbitrary enforcement. 

Besides, consumers already have ways of responding to situations they consider unfair. Richard Thaler’s work on transaction utility shows that people care about more than just prices. They care about the nature of the deal and respond accordingly. Businesses that violate customers’ senses of fairness lose business. 

None of this means businesses should be free to deceive customers. The FTC should pursue violators based on current legal standards, applying them equally regardless of whether prices are uniform, personalized, or something in between. Research gives us little reason to believe that principles should change as knowledge increases." 

Workers who move to firms with higher well-being scores take more sickness absences, without changing healthcare usage

By Riccardo Di Francesco, Peter Hull & Seetha Menon.

"We study how firms’ orientation toward employee well-being shapes the health of their workers. Because this orientation is not directly observable, we measure it from the language Danish firms use in their public disclosures, applying language models to construct a firm-level well-being salience score. We link this score to population-wide administrative registers of health and sickness absence over 2013–2022, and exploit workers’ mobility between firms to estimate how workers respond to a change in the salience of their employer. We find an asymmetry: workers who move to higher-salience firms take substantially more sickness absence, while their use of health care does not change. Because worsening health would raise both, the absence response suggests a behavioral change rather than deteriorating health. Broadly, our results show that firms shape not only worker health but how workers act on it, and that the language of routine corporate disclosure can reveal economically meaningful features of the workplace that administrative data leave unrecorded."  

So if you make it easier to take time off workers will do that even if they don't need it. This could happen if we had national health care. 

The Tragedy of Nikole Hannah-Jones (and the problems with public education)

By Alex Tabarrok.

"Nikole Hannah-Jones famously sent her child to a predominantly black/lower-income public school in New York City. Now her child says she shouldn’t have been used as political fodder.

The essay makes for hard reading and I acknowledge NHJ’s courage in writing about her mistakes and the cost to her child. The piece is raw and true when talking about her personal choices, but the larger story in which NHJ embeds her personal history is mostly false. The problem isn’t funding. The failures she documents are failures of management and accountability, not lack of resources. NYC spends upwards of $40k per pupil on average, the highest of any large district in the country. Moreover, schools in NYC with lower-income students get more than the average. PS 307, where NHJ initially sent her child, is currently funded at just over 52k per student, far above the national average.

Nationally, there haven’t been big gaps in funding within states by race or income for decades. NHJ has reckoned with her failing her own child but she has not yet reckoned with the failure of her entire educational philosophy.

The role of ideology in blinding NHJ is dramatic. NHJ’s daughter earns high grades in her math classes but she fails standardized tests. Most parents, especially conservatives, know what that means. The classes are a lie. But NHJ is blinded by ideology and assumes it’s the standardized tests that are biased. It’s only when her daughter demands to go to a better school that she and her daughter confront the truth:

Najya knew very little algebra and had huge gaps in many of the building blocks of math that she should have learned in elementary school, like mastery of long division and fractions.

The confrontation is almost disastrous:

My child’s confidence wilted like an unwatered plant. She started to develop an almost debilitating anxiety around taking tests. She became sullen at school and began to act out. For the first time ever, I got messages from teachers about Najya’s behavior.

Fortunately, Najya battles back and recovers but much more could be said here about the costs of social promotion, DEI and mismatch on the so-called beneficiaries.

Ironically, NHJ invokes the heroic history of Black Americans integrating schools to justify keeping her own child in a segregated one. Painful.

NHJ thought that she and her husband–politically connected, astute people who were not afraid to speak up–could do well for their daughter and the other kids in the school. But in the end she has written a great piece on why voice fails–even a powerful voice–in the absence of the threat of exit. Hannah-Jones could have saved herself some grief and her child a poor education by reading my post The tragedy of Jonathan Kozol.

It’s been said that Ayn Rand’s heroes don’t exist, but her villains do. Case in point. Hannah-Jones says that she and her husband “felt an obligation to make educational decisions based on the collective good.” But she wasn’t just sacrificing herself for her ideology; she was sacrificing her child, who had no choice in the matter. “I don’t think she’s deserving of more than other kids,” she said in 2017. Nearly a decade later, Najya reminded her that in the abstract your child may not deserve more than other children, but she is nevertheless entitled to expect more from you. “Sometimes I wish instead of always thinking about other kids, you would have thought about me.” You don’t have to be a Randian to think that your child should not be sacrificed to the collective good, but it doesn’t hurt."

College campuses need to be liberated from their administrators

Higher ed is being strangled by absurd and costly rules. What message is that sending to students?

By Barry Lam. He is a philosophy professor at UC Riverside. Excerpt:

"The promise of digital infrastructure is to be able to do bureaucratic tasks more cheaply and efficiently. In principle, just like spending on administrative staff should make the essential functions of administration less burdensome, spending on software should make spending on administrative staff less essential.

But in higher education the opposite has happened. Millions and millions of dollars are being spent on digital infrastructure and the hiring of administrative staff who must oversee and mitigate problems caused by the digital infrastructure itself.

The University of California system promised that $170 million in spending on a single digital infrastructure project would cut administrative bloat by $753 million over its lifetime. Instead, the project took seven years and ballooned to $942 million in cost — and the finished project was so poorly designed and difficult to use that an entirely new IT unit had to be created just to keep the software functional. The savings on staffing were zero."

The Shaky Evidence That Flock Cameras Reduce Crime Rates

Flock has been promoting a recent study of its cameras' impacts on car theft. But the paper didn't demonstrate a causal effect.

By Autumn Billings of Reason. 

"Do Flock cameras actually reduce crime? A new analysis by the Institute for Justice casts doubt on Flock Safety's claims that its automatic license plate readers (ALPRs) significantly reduce car theft and increase clearance rates. 

Flock Safety has been promoting a working paper that examines whether the company's controversial and hotly debated cameras improve outcomes for motor vehicle theft. To test the effects of Flock's surveillance network, the study uses data from 216 agencies that began using Flock in the period from 2017 to 2023, and 3,108 agencies that did not. The authors then evaluated the cameras' effects on monthly motor vehicle thefts, arrest rates for motor vehicle theft, and the recovery time of stolen cars following ALPR deployment.

The study's findings include an 11 percent drop in motor vehicle theft, a 15.9 percent increase in motor vehicle theft arrests, and a reduction of 0.28 days in the median recovery time for some stolen cars. The authors concluded that "fixed ALPR deployment is associated with lower theft and higher [arrests], alongside a modest reduction in recovery lag among recorded recoveries."

But the data aren't actually that clear, according to a new analysis from the Institute for Justice (IJ), a libertarian law firm and home of the Plate Privacy Project. 

IJ Senior Researcher Analyst Matthew West found that motor vehicle thefts and arrest rates in those jurisdictions were already trending in the favored direction months before Flock's cameras were ever in use. Unsurprisingly, many of the places that chose to deploy ALPR systems did so when experiencing high levels of vehicle theft, and engaged in crime-fighting initiatives beyond partnering with Flock. Because the study doesn't compare places on similar trajectories, it is unclear how much credit the cameras, as opposed to those other initiatives, deserve for causing motor vehicle thefts to fall and arrests to rise. 

"Because there were already differences in arrests and thefts trends before ALPR deployment, we don't know if the differences in ALPR deployment were caused by ALPR deployment," West explained in a statement. 

West goes on to point out that the authors were able to obtain an 11 percent drop in motor vehicle theft only "when the data are weighted in favor of agencies that had a bigger problem to begin with." By contrast, if "the data are instead averaged across all agencies (or weighted by population), the study finds no statistically significant change" in the number of thefts.

The study's data have other complications that the authors did not fully account for. One is the COVID-19 pandemic lockdowns, which impacted both the level of crime and the number of people driving across the country. Another is the viral "Kia Challenge" on social media, which led to increased Kia and Hyundai thefts. Such "events may have contributed to motor vehicle theft rising and falling at different times in different places," writes West, further complicating whether ALPR cameras did, in fact, cause favorable changes in the data. 

hese criticisms don't necessarily mean the study's results are wrong, but they do show that the full picture hasn't been explored.

Flock has been using the working paper's results to defend its cameras against an ongoing national backlash. But as much as the company may wish otherwise, the scrutiny of ALPR surveillance technology is far from over."

A 5 Percent Wealth Tax Would Destroy a Lot More Than It Raises

 By Jack Salmon. Excerpts:

"the billions of dollars in wealth held by the almost 1,000 billionaires in the U.S. isn’t cash that is being hoarded under a mattress waiting to be taxed. For instance, Elon Musk’s roughly $900 billion fortune is mostly stock held in SpaceX and Tesla."

"Musk’s personal fortune represents only about one-third of the combined value of the companies he has founded."

"The remaining two-thirds is represented by factories, equipment, intellectual property, business assets, and claims held by other shareholders, including pension funds, mutual funds, and ordinary Americans who own shares directly or indirectly. The companies also employ tens of thousands of workers whose wages support household incomes and consumption.

For other billionaires, the share of wealth kept for themselves versus the share granted as value created for wider society is even larger than that of Musk. Mark Zuckerberg’s personal fortune represents about 13 percent of the market value of Meta. The other 87 percent is owned by shareholders, ordinary investors, or represented as data centers, servers, other productive assets, and nearly 79,000 employees.

 

In other words, the wealth of billionaires is a small share of the trillions of dollars in private wealth that they have created for millions of ordinary American’s. The free enterprise system rewards this kind of entrepreneurial activity and innovative behavior that in turn promotes productivity and growth. Removing these rewards by confiscating their personal assets and handing them over to the state would instead punish such activity.

A 5 percent wealth tax is a 99 percent income tax

The second thing to recognize is that the proposed 5 percent tax on wealth is a much larger tax on the returns of investments.

But we also have to account for the invisible tax that we all pay—inflation. Once inflation is factored in, market returns drop to 5.48 percent. At that level, the wealth tax is a 91 percent tax on investment returns. If we also assume that capital gains taxes are applied to dividends, then the after-tax return drops to just 5.05 percent. In this case, the wealth tax is effectively a 99 percent tax on investment income.

A 99 percent tax on investment income will have a significant impact on the incentives of investors. One of the incentives that will undoubtedly change is that people will take less risks. Low risk investments have lower rewards, and this will be felt by everyone, not just the billionaires that the policy targets.

Slower capital formation, weaker productivity, lower wages and fewer opportunities for workers and businesses affect all workers and consumers, not just wealthy ones.

We already have a wealth tax of sorts

As Stanford economist John Cochrane recently pointed out on his Substack, the U.S. already taxes wealth in certain circumstances. For example, the estate tax applies to the assets of the deceased when it is passed onto an heir.

Importantly, I should point out that a tax on the transfer of property is very different to a tax recurring tax on property ownership. The Supreme Court has also made a strong distinction between these types of taxes too, as it considers the estate tax an indirect excise tax on the transfer of property.

As Cochrane points out, the estate tax attracts a significant amount of perfectly legal avoidance. Although the tax applies at a much lower threshold than the proposed wealth tax, at $13.99 million, the Treasury estimates, that combined with gift tax receipts, the estate tax raised $29 billion in revenue in FY2025, or less than 0.1 percent of GDP.

Even a study published by supporters of a wealth tax found that the estate tax collects just 300-to-400ths of a percent annually of the Forbes 400 wealth.

The revenue gain is about $200 billion a year

So how much revenue do proponents of a wealth tax suggest it would raise if implemented in the U.S.?

French economists Emmanuel Saez and Gabriel Zucman estimate that a 5 percent wealth tax will raise $4.4 trillion over 10 years. To get this figure, they assume a tax evasion rate of 10 percent. This implies an elasticity of taxable wealth around -2. This assumption is significantly out-of-whack with the bulk of economic literature.

Evidence of savings effects based on Norwegian micro data estimate elasticities of taxable wealth around -7 under a comprehensive tax base. Similarly, evidence from Switzerland using cantonal variation finds that a one-percentage-point reduction in the wealth-tax rate increased reported taxable wealth by at least 43 percent after six years.

One 2021 journal article used rich administrative data from Colombia and a government-designed program for voluntary disclosures of hidden wealth to estimate the behavioral effects of wealth tax. The authors found that two-fifths (40%) of the wealthiest 0.01 percent evade taxes, with these evaders concealing one-third of their wealth offshore.

Using Danish administrative data, Jakobsen et al. find that reductions in the wealth tax increased taxable wealth by 31 percent among the very wealthy over eight years. Their estimates incorporate saving, portfolio and asset-composition responses, legal avoidance, and possible evasion of self-reported assets. The net-of-tax rate elasticity is therefore estimated at around -11.

With these estimates in mind, budget scoring organizations often use more realistic elasticity estimates that are more aligned with the economic literature. For example, the Tax Foundation models wealth tax proposals using a semi-elasticity assumption of -8, while Penn Wharton applies semi-elasticities of evasion and avoidance around -9.

If we replace the elasticity assumptions of Saez and Zucman with a more realistic semi-elasticity of around -8, then the revenue raised by the tax drops from $4.4 trillion to $3.3 trillion over 10 years. This isn’t an outlier assumption. In fact, Sanders and Warren used a 33% avoidance assumption in their 2020 wealth tax campaigns.

Factoring in baseline avoidance in the existing tax system and stronger behavioral responses, tax scholar Kyle Pomerleau applies an elasticity of -13. This results in a 10-year revenue yield of $2.3 trillion, or roughly half the Saez-Zucman figure. This amounts to a little over $200 billion a year in additional revenues, or about 10 percent of current deficits.

A high price for the U.S. economy

A 5 percent wealth tax isn’t just a tax on billionaires, it is a tax on investment, a tax on risk-taking, a tax on capital accumulation that drives productivity, higher wages, and job growth. The people who ultimately bear those costs would include workers, consumers, retirees, and the millions of ordinary Americans whose savings are invested in the companies billionaires helped build.

Wealth is not cash sitting idle in a bank account. It is the factories, companies, technologies, and investments that generate future income for millions of people. Taxing wealth at punitive rates may satisfy a desire to punish the rich, but it risks shrinking the very economic base from which future prosperity will come.

Let’s not tax away our productivity, innovation, and growth for the sake of political symbolism."