America’s Productivity Pop Has a Startup Backstory

By James Pethokoukis. Excerpt:

"There is, however, a less obviously tech-centric explanation for the recent productivity uptick: a rebound in business formation. After decades of declining dynamism, new-business applications have surged since the pandemic and remain well above pre-2020 levels, according to the new short note “Application Accepted: Business Formation Boom Continues” by John O’Trakoun of the Federal Reserve Bank of Richmond, analyzing US Census Bureau data. Because applications tend to translate into actual firm creation, the recent pickup points to continued startup activity. And importantly, much of that activity is showing up in sectors that have historically added jobs at a faster pace—hinting at a “tailwind for future job creation.” 

Added growth, too. Startups function as the economy’s trial-and-error engine: Most don’t last, but the ones that do introduce new ideas, challenge incumbents, and shift workers and capital toward more productive uses.

The relationship between business dynamism and productivity growth is both well understood and underappreciated, at least by non-economists. In the 2024 Aspen Institute analysis “The Recent Rise in US Labor Productivity,” economist Luke Pardue points to the post-pandemic surge in new-business creation as a likely key driver of recent productivity gain. He also notes that earlier declines in startup activity imposed a measurable drag on productivity—suggesting that the recent rebound could provide a meaningful continuing boost if it proves durable.

And by the way, there may be an AI kicker to this dynamism story in how the technology can help entrepreneurs do their thing. “The surge in new US business formation is being fueled by AI and large language models that are dramatically reducing the cost and complexity of launching a company,” says Torsten Slok, chief economist at investment firm Apollo. “As these firms scale, they will create jobs, underscoring that AI is likely to strengthen, not disrupt, the US labor market.”"

State Affordability Policies Leave a Lot to Be Desired

By Ryan Bourne and Nathan Miller of Cato.

"Affordability has become the defining issue of the 2026 election cycle, and state governments have churned out bills and executive actions aimed at easing the cost of living. Two philosophies have emerged across the proposals. One asks the government to push out-of-pocket prices down; the other asks the government to roll back its own cost-raising policies. Only one can deliver durable results.

The year opened with a wave of State of the State addresses emphasizing affordability concerns. Most proposals layered new government interventions over existing ones. At least nine governors pledged new or expanded childcare programs, from tax credits backed by Rhode Island’s Democratic governor and New Hampshire’s Republican one, to direct subsidies in Virginia and workforce funding in California and Pennsylvania. Energy rebates were also common: Arizona and Kentucky proposed funds to help residents cover utility bills, and Connecticut and Washington promised one-time household credits of $400 and $200, respectively. Illinois’s governor asked for $2 billion for the state’s medical debt forgiveness program.

Other governors went beyond subsidies into price controls. New Jersey’s Mikie Sherrill declared a state of emergency on utility costs and imposed a rate freeze. Pennsylvania extended a price collar on the state’s electricity market, Rhode Island capped health insurance costs, and Massachusetts’s governor demanded utility providers justify every fee on household bills. Indiana’s governor supported a bill requiring utilities to demonstrate affordability before raising profit margins. Lawmakers introduced more than 40 bills across 24 state legislatures in 2026 to ban algorithmic pricing, already outpacing all of 2025. New York’s attorney general would ban the practice across virtually all industries and prohibit electronic price tags in grocery stores. Illinois recently moved to ban junk fees.

These proposals repeat mistakes common at the federal level. Price controls, subsidies, and mandates all aim to ameliorate the reality of high market prices, rather than taking affirmative steps to bring them down sustainably. Rebate checks and rate freezes for utilities don’t make energy more widely available; they merely obscure the mismatch between the quantities supplied and demanded. Worse, they inflict real economic harm. Government-paid rebates diffuse their costs among taxpayers while sending more dollars chasing the same constrained power supply. A rate freeze disincentivizes the new generation, compounding the supply problem.

Genuine supply-side reforms work because they change underlying conditions rather than mask them. Zoning reform and relaxing urban growth boundaries expand the effective supply of land available to housing developers, lowering rents in the long run. Allowing private power plants to sell excess power onto the state grid makes electricity more available to consumers throughout the state. Trimming regulatory burdens, more generally, lowers the cost of doing business and so encourages more production.

In that sense, improving affordability through policy change, at least in aggregate, is necessarily a supply-side project. It means building more homes, producing more energy, and stripping away the regulatory burdens that drive costs up. Some governors are embracing this way of thinking, but their camp is much smaller.

Nebraska’s governor wants to allow large power users to build their own power generators and sell surplus onto the state grid, and Utah’s governor promised to “pull every lever” to expand housing supply.

During the 2026 legislative sessions, zoning reform to expand the supply of housing showed strong momentum, with reform bills passing in at least eight states. Indiana made duplexes and accessory dwelling units legal by right throughout the state, capped parking requirements, and limited impact fees. Washington enacted permitting reform, and Idaho moved to allow manufactured homes in any residential zone. But there’s clearly a lot more that can be done around permitting, urban growth boundaries, and building codes.

In our new Handbook on Affordability, we detail 37 state policies that could help lower living costs across markets as diverse as health care and consumer financial services. Eliminating clinician licensing and freeing clinicians to practice to the full extent of their training would grow the supply of medical professionals, driving down prices. Authorizing privately financed, contract-based electricity systems would end incumbent utilities’ government-granted monopoly and open energy markets to greater price competition. Ending childcare credential mandates and making home-based childcare legal by right would grow the range of childcare options, including more affordable alternatives.

The proposals there have one thing in common: They lower costs by removing government-created barriers rather than layering new mandates on top of them. That is the approach that can really move the needle on prices."

The Housing Crisis Is a Supply Problem

Rising prices make us look for someone to blame, but the broken market has a simple cause: it’s illegal to build enough homes. 

By Christopher Freiman. Excerpts:

"Most notably, institutional investors simply do not account for most home purchases; they account for  between one and two percent of the nation’s single-family housing stock and roughly three percent of single-family rental properties. In most markets, the overwhelming majority of homes are still bought by individuals. Even in dense metropolitan areas where corporate ownership has grown, institutional investors represent no more than three percent of homes in any housing market.

Plus, there are material advantages to renting compared to buying a home. When you rent, you have the flexibility to move for a better job without worrying about selling into a bad market, avoiding the costs of a massive down payment and ongoing repairs. You also don’t have to tie up a lot of wealth in a single asset whose value depends on one neighborhood and one local market."

"Suppose demand for bread suddenly surges. Maybe a city’s population grows quickly, or a new gluten-heavy diet sweeps the nation. Whatever the reason, people are buying more bread than before. As a result, the price of bread rises. In turn, profit-driven bakers realize that there’s a lot of money to be made by baking more. So they produce more bread, pushing its price back down.

Rising prices encourage producers to produce more of a good, eventually making it more affordable. This is well-known. So why aren’t we seeing this play out in the housing market? If lots of people want to live in a particular city — say, because the jobs pay well or the schools are good — housing prices will initially rise. But you’d expect those higher prices to incentivize developers to build more housing, just as higher bread prices incentivize bakers to bake more bread. As more housing is built, the increase in supply should bring prices back down.

The reason why we don’t see developers building more housing in response to higher prices isn’t because they’re not interested in making more money. Rather, it’s because their ability to build is heavily restricted in much of the United States. For instance, large portions of many cities are zoned exclusively for single-family homes. Apartment buildings are prohibited in areas where developers might want to build them. Even when building is permitted, lengthy approval processes can delay projects for years. In San Francisco, it takes an average of 523 days to secure permits for a housing project. In New York, a lawsuit challenging the 2018 Inwood rezoning — intended to allow roughly 1,800 new housing units — held up the first project in the area for approximately three years before it was able to secure final approvals. And height limits, parking requirements, and other regulations can also make construction prohibitively expensive. Recent analysis estimates compliance and fees comprise 24 percent of new home prices.

In short, the root of the problem isn’t primarily increased demand for housing, though demand pressure is present. Rather, the problem is government-imposed restrictions that make it difficult, if not impossible, to adequately increase supply in response. Consequently, prices rise and stay high. Even if every institutional investor disappeared tomorrow, the housing shortage would remain."

"the solution is clear enough: make it easier to build more housing. Government officials should relax zoning restrictions that prohibit high-density housing and simplify approval processes that can delay projects for years. If these reforms were to happen, the same basic mechanism that works to reduce prices in countless other markets will work in housing as well." 

Rescind Davis Bacon

Alex Tabarrok. 

"The Davis-Bacon Act requires that workers on federally funded construction projects be paid at least the “prevailing wage” for their trade in the local area.

Mike Schmidt, Director of the CHIPS Program Office, has an excellent piece on how Davis-Bacon impacted the CHIPS program. My initial understanding was that it simply required paying construction workers more—an unnecessary transfer from taxpayers to a politically favored group, but not one that would impede efficiency. I was wrong.

Start with the complexity. Davis-Bacon’s prevailing wage isn’t a simple minimum wage: plumbers are not electricians are not fitters, and the required rate varies by locale. The Department of Labor maintains a list of more than 130,000 (!) wage rates to implement it.

That’s complicated enough. But it gets worse. Some firms building fabs used their own employees rather than contractors—and Davis-Bacon applies regardless but it covers only the portion of time an employee spends on “construction” work:

[A]pplying Davis-Bacon to company employees rather than contractors proved to be a big hurdle. Davis-Bacon required tracking every hour each employee spent on covered construction activities — by trade classification, with a different prevailing wage applying to each — and paying a wage differential for that portion of their work as distinct from fab operations work or non-Davis-Bacon construction work. The company also relied heavily on profit-sharing (where a portion of employees’ pay was tied to the firm’s profits) and Davis-Bacon’s guaranteed wage floor was difficult to reconcile with a pay structure that was inherently variable. Moreover, Davis-Bacon has a statutory requirement to pay wages weekly, meaning the company would need to change its payroll systems for a portion of the pay for a portion of its workforce.

Thus, DB required that two salaried employee with equal salaries and profit-sharing plans be paid differentially depending on whether one of them did “construction” work. This created internal strife.

Davis-Bacon was passed in 1931, when a carpenter was a carpenter. How does it apply to building a semiconductor factory?

The construction tasks involved in building and modernizing semiconductor fabs don’t always map cleanly onto DOL’s Davis-Bacon classifications, so applicants must go through a construction plan line-by-line to determine which rate applies to which activity. In traditional Davis-Bacon contexts this is less burdensome because contractors know the system and have processes in place. But semiconductor construction was a novel application, and all of our applicants — and most of their contractors — were navigating Davis-Bacon for the first time.

For large recipients, the administrative cost of this work was real but manageable relative to project scale: they could hire consultants, procure software systems, and build internal compliance capacity….

Perhaps the biggest fiasco involved timing. The government wanted firms to move quickly and encouraged them to break ground before the Act’s rules were finalized. But when Davis-Bacon was added to the Act it required that the firms pay the prevailing wage *retroactively*:

The financial and operational implications of retroactive application were significant. A leading-edge project might have 10,000–12,000 construction workers on site at peak, with a rotating workforce totaling perhaps 30,000 individuals over the project’s life. Working through 300-plus subcontractors across multiple tiers, retroactive application could require identifying wages paid to 20,000 workers who had already cycled off the project, determining what each worker should have been paid under Davis-Bacon, and paying the difference — resulting in hundreds of millions of dollars in additional cost.

The retroactive pay exposes the law’s true nature. Firms and workers had already struck voluntary agreements; the work was done, the wages paid. No one can pretend this has anything to do with incentives. Workers received a pure windfall (“DB Christmas!”) for one reason only: “construction workers” are a politically favored class. Janitors and scientists got nothing extra.

Moreover, a large fraction of the cost wasn’t the higher wages at all—it was compliance. Firms likely spent as much reworking payroll systems and hunting down thousands of former workers in this Byzantine classification system as they spent on the wage premiums themselves. Every dollar transferred to workers may have cost firms—and ultimately taxpayers—two dollars or more. A very leaky bucket indeed.

If the Trump administration is serious about cutting regulatory costs and reviving industrial competitiveness, Davis-Bacon is an obvious target. It delivers little to workers, plenty to lawyers and consultants, and a bill to taxpayers for both. Rescind it."

The False Promise of Gleneagles

Misguided Priorities at the Heart of the New Push for African Development

By Marian L. Tupy of Cato. 

"Executive Summary 

"In response to persisting poverty in Africa, representatives from the world’s eight leading industrialized nations—Germany, Canada, the United States, France, Italy, Japan, the United Kingdom, and Russia—met in Glen- eagles, Scotland, in 2005 and agreed on a three-pronged approach to help Africa. They would increase foreign aid to the continent, reduce Africa’s debt, and open their markets to African exports. Unfortunately, aid has harmed rather than helped Africa. It has failed to stimulate growth or reform, and encouraged waste and corruption. For example, aid has financed 40 percent of military spending in Africa. Similarly, debt relief has failed to prevent African countries from falling into debt again. Trade liberalization has the greatest potential to help Africa emerge from poverty. Yet that is where the least amount of progress has been made. Negotiations on trade liberalization have ground to a halt, and the threat of protectionism looms large as the current global economic slow- down worsens. The Gleneagles Summit, for all its good intentions, gave rise to unrealistic expectations. The heavy emphasis on aid and debt relief made Western actions appear to be chiefly responsible for poverty alleviation in Africa. In reality, the main obstacles to economic growth in Africa rest with Africa’s policies and institutions, such as onerous business regulations and weak protection of property rights. Africa remains the poorest and least economically free region on earth. The West should do all it can to help Africa integrate with the rest of the world. It should eliminate remaining restrictions on African exports and end Western farm subsidies. Africans, however, will have to make most of the changes needed to tackle African poverty."

Rent Control: Do Economists Agree?

By Blair Jenkins. From Econ Journal Watch in 2009.

"Abstract 

Rent control is usually introduced to economics students as a price ceiling and an unambiguous source of inefficiency. Early rent controls mirrored price ceilings, but by the late 20th century the majority of controls had developed into complex systems. This paper organizes the judgments of economists regarding the impact of rent controls in the American context. Research is limited to jour- nal articles listed by the american economic association’s electronic bibliogra- phy, econlit, under the subject search “Rent control” performed February 18th, 2008. Articles must also meet the following criteria: the article focuses on rent control policies; data come from U.S. cities; and at least one author must be an economist. An economist is defined as any individual who holds a degree in the field of economics. I focus on the articles generated by the search in EconLit, but also include articles not in the EconLit search, but referenced by articles that are. i have been scrupulous to include any such once-removed articles that go against the main tendency of the literature, and hence assure the reader that my efforts have not accommodated a “picking and choosing” bias on my part. I find that the preponderance of the literature points toward the conclusion that rent con- trol introduces inefficiencies in housing markets. Moreover, the literature on the whole does not sustain any plausible redemption in terms of redistribution. The literature on the whole may be fairly said to show that rent control is bad, yet as of 2001, about 140 jurisdictions persist in some form of the intervention."

New England Considers the Nuclear Option

The region’s governors acknowledge the limits of ‘renewable’ energy

By Andrew Fowler. He is a communications specialist at the Yankee Institute. Excerpts:

"meeting the region’s energy needs with nuclear power would cost roughly $415 billion, about half the cost of a renewable-heavy system, while reducing emissions by 92% by 2050"

"France generates about 70% of its electricity from nuclear power, maintaining low emissions while exporting energy to neighboring nations. By contrast, European systems that rely heavily on intermittent renewables have faced higher costs and reliability challenges."