We’re Preparing for the Wrong AI Labor Crisis

Mass unemployment is unlikely. AI will reorganize the white-collar corporate workforce, not destroy it.

By Stephen Lewarne. He is a professor of economics at Franciscan University. Excerpts:

"the notion that the economy faces mass technological unemployment doesn’t fit the evidence"

"the broader market continues to show relatively stable aggregate demand for labor. In March, the unemployment rate stood at 4.3%, close to both the Federal Reserve’s estimate of long-run normal unemployment and Congressional Budget Office projections for the coming decade. Total nonfarm payroll employment increased by 178,000 jobs during the month, while healthcare added 76,000 jobs and averaged roughly 29,000 new jobs a month over the prior year."

"U.S. entry-level job postings have fallen roughly 35% since January 2023, with highly AI-exposed entry-level postings declining more than 40%."

"Employer surveys indicate a substantial shift away from GPA-based screening and toward skills-based hiring. Employers increasingly emphasize demonstrated competencies, project-based experience and practical problem-solving abilities." 

[there is] "a labor-market transition more complicated than conventional automation narratives suggest." 

The Road to AI State Socialism

Bernie Sanders sees Trump industrial policy and decides to raise the government stakes

WSJ editorial. Excerpts:

"Mr. Sanders wants to force companies to hand over half of their equity to the government."

"this would be a government expropriation. It would violate the Fifth Amendment’s prohibition on government taking property without just compensation. To pay this tax, companies would have to issue new shares to the government diluting current shareholders. Or they could buy back half their shares from private investors and hand them to the government."

"One model is China’s state-owned enterprises, which are an albatross on its economy. Political favoritism and government interventions have led to economic inefficiencies. Hence China’s partially state-owned Semiconductor Manufacturing International trails TSMC and Samsung in chip fabrication." 

The Big Bob Packwood Tax Reform

The Oregon senator, who died Saturday at 93, closed loopholes and cut the top rate to 28%

By Arthur Laffer and Stephen Moore. Excerpts:

"the Tax Reform Act of 1986" [led to the] "lowering the highest personal income-tax rate—which had been 70% in 1981—to 28%. The corporate rate was slashed from 46% to 34%. The number of individual tax brackets went from 14 to two (28% and 15%)."

"nearly every Democrat voted for a 28% tax rate. Now many Democrats in Congress want to soak the rich with income tax rates as high as 50%, 60% or 70%"

"The law, on top of the 1981 Reagan tax cuts, made America a magnet for capital from around the globe. It helped launch the greatest period of wealth creation in world history over the succeeding 40 years. The Dow Jones Industrial Average closed at 1,808.35 on Oct. 22, 1986, the day Reagan signed the law. Today it is over 50,000.

Tax revenue exploded with lower tax rates. The share of taxes paid by the wealthy rose as they lost their favorite tax shelters and instead put their money to productive use. Economist Martin Feldstein, who served as chairman of the White House’s Council of Economic Advisers (1982-84), wrote on these pages in 2011 that “actual experience after 1986 showed an enormous rise in taxes paid, particularly by those who experienced the greatest reductions in marginal tax rates.”"

"nearly every other nation followed suit by slashing tax rates" 

When New Housing Pays for Old Infrastructure

Impact fees that shift costs from existing homeowners to new ones has a feel of generational and class theft

By Scott Beyer of The Independent Institute. 

"Across the United States, local governments are confronting a problem that has accumulated for decades: aging infrastructure with massive deferred maintenance. Water lines, sewer plants, roads, schools, and more need modernization and sometimes replacement. In theory, the costs should be shared broadly among those who use the infrastructure. But increasingly, jurisdictions solve these budget shortfalls by charging “impact fees” and other development extractions from new construction. This amounts to an unfair shifting of costs away from existing homeowners to new ones, in a dynamic that smells of generational and class theft.

Impact fees were first conceived as a rational planning tool. If a new subdivision required an additional water main, traffic signal, or elementary school, it made sense for the development creating that growth to fund the incremental expansion on a pro-rata basis. That logic remains sound.

But over time, government agencies have gotten carried away with impact fees and similar policies (such as proffers and special assessments). The whole concept has drifted beyond paying for marginal growth-related costs, and become a piggybank for decades of underinvestment in infrastructure that mainly serves current residents.

Tracking down data is hard, given that fees are fragmented across various schedules, jurisdictions, and project types. But the costs to developers and homebuilders, who pass them onto purchasers, are very real.

One example is in San Diego and surrounding Southern California cities. Cumulative impact fees tied there to schools, transportation, parks, utilities, and affordable housing mandates have in some cases veered into six figures per home before construction even begins. School impact fees alone currently run $5.38 per square foot for residential construction within the city’s Unified School District (which is an odd way to calculate it, since larger homes don’t necessarily produce more school-aged children – often it’s the opposite).

State policies contribute to this dynamic. For example, Proposition 13 limits property tax growth by tying annual assessments to a property’s initial purchase price. This means long-time homeowners benefit from low tax burdens and dramatic home appreciation, while buyers inherit escalating infrastructure costs that get embedded into the price of newly-constructed housing.

A similar controversy emerged in Loudoun County during the suburban boom coming from Washington, D.C. The county extracted proffers from developers in exchange for rezonings, often on a case-by-case basis that had the feel of bribery. These proffers funded road widenings, intersections, schools, parks, libraries, and public safety facilities, adding an estimated $30,000-$50,000 per unit – or in many cases much more.

For context, the median home price in Loudoun County is around $800,000 and the property tax rate is $0.805 per $100 in assessed value. This means that the typical homeowner there is paying around $6,400/year in property taxes, far less than the impact fees that new homeowners pay. It should be noted that these new homeowners, upon moving in, are then required to also pay property taxes, rendering their impact fees a sort of duplicative entry tax.

In Austin and the broader Central Texas region, explosive population growth has strained water and wastewater systems. A Texas A&M study found that the city’s development fees averaged $41,303 per housing unit for infill development, which is 2.5x higher than the Central Texas average.

Such examples abound throughout America. I’ve found that fees are generally highest in areas where NIMBYism is strong; and where new development is viewed as a quality-of-life infringement rather than an economic development benefit. Fees are also frequently used as a redistribution tool, with wealthier districts funding poorer ones.

The common thread in any of these cases is political convenience. Raising taxes broadly on existing residents is unpopular, as is increasing utility bills for all users. But charging developers and future homeowners is easy—the former is a boogeyman that garners no public sympathy, while the latter is an “invincible” constituency that has no organizing ability prior to moving into a locale.

The result is an unequal arrangement in which Gen Z and Millennial households—who account for nearly half of home purchases but have far lower net worth than older generations—are forced to shoulder disproportionate infrastructure burdens.

A better approach would fund infrastructure through direct user fees and broad-based revenue sources that distribute costs among everyone who benefits from the system. Water and sewer infrastructure should be financed primarily through utility rates tied to usage; roads through fuel taxes, tolls, or mileage-based fees; and stormwater systems by charging properties based on their impervious surface or other impacts. There should also be a clearer distinction between capital improvements that expand system capacity and routine maintenance or replacement of existing infrastructure. The latter should be funded primarily by the residents and businesses already served by those systems, not newcomers.

By blurring these categories and treating new development as a convenient source of revenue, many local governments have shifted infrastructure costs from existing users onto future residents, increasing housing costs and creating an inequitable transfer of financial responsibility from one group to another."

To Cut Taxes, You Need to Do So for People Who Pay Taxes

David R Henderson. Excerpts:

"In a June 7 post, Eugene Steuerle writes:

"That calculation gives a middle-income taxpayer receiving a $100 tax cut the same weight as a high-income taxpayer receiving a $30,000 cut."

Henderson replied "Nothing in the sentence says they get the same benefit. How would they when someone paid $100,000 in taxes and someone else paid $100, all before the tax cut?"

The Tax Policy Center had a post titled, “The 2025 Tax Bill Was Not Targeted Toward Low-Income Families.”

"Of course it wasn’t targeted toward low-income families. How could it be, when most low-income families pay little or no federal income tax and, in some cases, actually get a subsidy from the tax system? If you want to cut taxes substantially, you need to cut them for people who are paying substantial taxes."

"When I rooted around on the Tax Policy Center’s web side, I found a post that carried this:

"Consider a household that earns $20,000 and pays $1 in taxes and another that earns $2 million and pays taxes of $500,000. Suppose that legislation is enacted that provides a $1 tax cut for the low-income household and a $100,000 tax cut for the high-income household. The percentage change in tax liability is 100 percent for the low-income household but only 20 percent for the high-income household. In terms of its effect on current household resources, such a tax cut increases the after-tax income of the poor household by only 0.005 percent while increasing after-tax income of the wealthy household by 5 percent."

"Did you get that? Even if the low-income household’s tax liability were cut by 100%, the tax cut would not be tilted toward the low-income household. Why? Because that household’s after-tax income is hardly affected.

The only good thing about this statement from the Tax Policy Center is that they admit that they don’t judge tax cuts by the percentage by which taxes are cut. They implicitly judge them by whether they substantially increase after-tax income, even for people who pay almost no taxes."

Inequality at WSJ

By John H. Cochrane.  

"Andrew Blackman at Wall Street Journal asked several economists for ideas on “what to do about inequality?” As you can imagine, I argued with the question. If there is a question, it is opportunity not inequality.

Don’t kill the golden goose

It’s easy to reduce income inequality: Imprison the billionaires. Burn the evil capitalist businesses that generate their wealth and seduce us with wonders—iPhones, software, electric cars, Amazon, Walmart, miracle drugs, and so on. There, feel better?

Our billionaires kept a fraction of the benefit they generated for us by starting these innovative businesses. Their great wealth remains reinvested in those companies to serve us even better in the future. Just what is the problem?

It is right to worry about people of lesser means. But how does a kid who works at a carwash in Fresno even know how many billionaires there are, or what their net worth is?

We should worry about opportunity. Teachers’ unions destroyed his schools. Construction restrictions make moving to good jobs impossible. Business regulations, taxes, minimum wages and occupational licenses limit his opportunities. Social programs trap him by taking away a dollar of benefits for each dollar of earnings. To provide opportunity, start by getting out of the way.

Many people who worry about inequality hope to improve this kid’s life by taxing the innovators to send him a few more government checks—so long as he stays poor. But there aren’t enough billionaires to make a dent in the government’s ravenous appetite. And what a horrible vision: entrenched misery and idleness, in a stagnant society devoid of innovators, made only a bit better by a dwindling government check and dysfunctional social-service programs.

"Others who decry inequality want taxes to reduce the political power of the wealthy. But that hands even more power to the government. Fairly won inequality does not threaten democracy. Confiscatory taxation does. Don’t kill the golden goose.

*****

Forgive my brevity, there was a severe word count limit on this one. For an older and more comprehensive view, see this essay.

The other contributors were Emanuel Saez: “Tax the billionaires,” (to whom my first sentence is dedicated, with initially more colorful options), Raj Chetty: “Focus on upward mobility” (yes), Heather Boushey “Break monopolies” (Unions, more government spending), and Glenn Hubbard “Retrain workers for an AI-dominated economy” (I like Glenn a lot, but it was only 5 years ago that there was huge enthusiasm for retraining everyone to learn to code.) But you’ll have to go to WSJ for those."

Why Water Prices Are Rising

America’s water crisis is a governance problem, not a scarcity problem

By Julia R. Cartwright of AIER. 

"America is good at solving problems, but less good at recognizing when the “solutions” become the problem. Nowhere is this more evident than on your water bill, which has risen more than 27 percent over the past five years and is increasing at roughly twice the rate of inflation. Politicians and journalists point to aging infrastructure, climate change, and per- and polyfluoroalkyl substances (PFAS) contamination. They are not entirely wrong. What they often omit is how decades of well-intentioned government intervention have systematically weakened the market mechanisms that might otherwise help keep costs in check.

Consider gasoline. Drivers may not like what they pay at the pump, but the price is determined in global markets where no single regulator sets it. The market aggregates information from millions of producers and consumers and generates a price that, whatever its imperfections, reflects underlying conditions of scarcity and demand. Water operates very differently. Its price is shaped by a maze of legal doctrines, regulatory mandates, utility commissions, and interstate compacts accumulated over more than a century. Each layer places additional distance between the resource and the consumer, making prices less transparent and less reflective of underlying realities. 

This is what makes the situation so puzzling. Markets are remarkably effective at directing resources to where they are most needed. Hong Kong, Singapore, and Japan are three of the world’s most prosperous economies, yet they share one notable characteristic: a scarcity of natural resources. They possess little oil, coal, or rare earth minerals, and yet they thrive because markets reveal prices, coordinate investment, and allocate resources to their highest-valued uses. Scarcity, it turns out, is not an obstacle markets cannot overcome. It is often the very incentive that drives innovation and efficiency.

Water, by comparison, is an unusually ordinary resource. It is more abundant than oil, easier to treat than rare earth minerals, and across much of the United States, it literally falls from the sky. So why is America facing a slow-motion water crisis while Singapore can recycle wastewater to semiconductor-grade purity? The answer is not geology or climate. It is governance.

Some will argue that water is fundamentally different—a natural monopoly with relatively inelastic demand and pervasive externalities, where actions upstream affect everyone downstream. Those characteristics are real. Yet similar challenges exist in markets for oil, coal, and rare earth minerals, and markets have still found ways to move those resources across oceans to countries that possess little or none of them. To understand America’s water challenges, we must go back to a series of legal and political decisions that began before the Civil War and have compounded ever since. Let’s dive in (pun intended).

The first distortion predates federal regulation entirely. American water law split into two doctrines before the country was even fully defined. In Eastern and Midwestern states, riparian rights gave water access to whoever owned adjacent land; geography, not prices, determined access. In most Western states, prior appropriation, “first in time, first in right,” meant whoever diverted water first held the senior claim, regardless of the proximity of future landowners. Neither doctrine consistently allowed water to flow to its most productive use, as both locked allocation in place by accident of history. This was not a free market distorted by regulation, but one that was never permitted to form. 

On top of that foundation, Congress layered environmental mandates over many years. The Clean Water Act (1972) and the Safe Drinking Water Act (1974) set uniform standards every utility must meet, regardless of local conditions or costs. Each new regulated contaminant means a new compliance cost passed directly to ratepayers with no competitive check. PFAS regulations (2024) alone now add an estimated $1.5 billion annually in system-wide costs.

Meanwhile, most Americans cannot choose their water provider. One pipe, one utility, no exit.

Investor-owned utilities have learned to leverage that captivity through mechanisms that pass capital costs to ratepayers, combining the pricing power of a monopoly with limited cost discipline.

This dynamic, where customers have nowhere else to turn, creates a system ripe for upward price pressure with little accountability. And the Colorado River Compact (1922) illustrates just how deep this dysfunction runs: negotiated by political compromise, it divided water among states by seniority of claim, locking in agriculture’s consumption of 80 percent of the river’s flow simply because those rights are oldest. Meanwhile, cities that would generate far greater economic value per gallon are legally prevented from buying that water at any price. The result is a river stretched to its limits, serving yesterday’s economy by law, while growing urban centers go thirsty by design.

Decades of regulations that distorted water prices also resulted in them being too low in some 

municipalities. These layered laws subsidized the construction of entire cities in places that markets never would have chosen: dry desert cities like Las Vegas, Phoenix, and Tucson. The logic was circular: keep prices low enough that growth looks cheap, and the growth generates political constituencies that demand prices stay low. It is precisely the logic of subsidizing flood insurance for beachfront homes, except the moral hazard here is measured in millions of people and entire metropolitan economies that now require ongoing federal intervention just to stay hydrated. 

The solution is to move water more fully into the market, allowing prices to reflect scarcity and capital to flow toward conservation and innovation. In practice, that means a managed transition in which rates gradually move toward market levels, whether higher or lower. Most importantly, it means eliminating the policies that created the problem: below-cost agricultural water contracts, federal development subsidies that ignore water costs, and interstate compacts that lock 1922 decisions in place indefinitely. It also means stopping policies that make it artificially cheap to build the next Phoenix in the desert.

Your water bill isn’t rising because water has become more expensive. It’s rising because we’ve built a system specifically designed to ensure that price has little to do with it."