Argentina Scrapped Its Rent Controls. Now the Market Is Thriving

President Javier Milei’s fiscal ‘shock therapy’ yields lower rents overall, but some people feel squeezed

By Ryan Dubé and Silvina Frydlewsky of The WSJ. Excerpts:

"The Argentine capital is undergoing a rental-market boom. Landlords are rushing to put their properties back on the market, with Buenos Aires rental supplies increasing by over 170%. While rents are still up in nominal terms, many renters are getting better deals than ever, with a 40% decline in the real price of rental properties when adjusted for inflation since last October"

"In Buenos Aires—a city dubbed the Paris of the South for its broad avenues and cafe culture—many apartments long sat empty, with landlords preferring to keep them vacant, or lease them as vacation rentals, rather than comply with the government’s rent law.

In 2022, there were some 200,000 empty properties in Buenos Aires, up 45% from 2018"

"Finding an affordable apartment under the rent-control law was difficult."

"rental prices appear to be stabilizing. Monthly price increases are now at their lowest rate since 2021 as more apartments become available"

"At least for now, the housing market is thriving. Opponents of price controls say Argentina is a cautionary lesson for officials from the U.S. to Europe who have looked to curb surging housing costs with rent controls. 

President Biden recently called for some rent increases to be capped at 5% annually. And Vice President Kamala Harris said that if elected president she “will take on corporate landlords and cap unfair rent increases.”

González Rouco, the economist [at Buenos Aires-based Empiria Consultores], warned against such plans. “With good intentions or a law,” he said, “you can’t modify how markets work. They have their own dynamic.”"

Some Elite Colleges Dodge the Affirmative-Action Ruling

At Duke, Princeton and Yale, Asian enrollment went down after last year’s Supreme Court decision

By Jason L. Riley. Excerpts:

"In Students for Fair Admissions v. Harvard (2023), the Supreme Court held that race-conscious admissions policies violated the Constitution and the Civil Rights Act of 1964. Given that Asian applicants tend to have higher test scores than other groups, the expectation was that their enrollment at top schools would increase once racial double standards were no longer permitted.

That’s what happened at the University of California’s Los Angeles and Berkeley campuses after voters approved a ballot initiative prohibiting race-conscious admissions in 1996. And it’s what happened this year at Harvard, Columbia and the Massachusetts Institute of Technology. But at other elite institutions, Asian enrollment somehow declined."

"Edward Blum, head of Students for Fair Admissions, likewise fears that some selective schools are thumbing their noses at the Harvard ruling and continue to discriminate against Asian applicants. He sent letters last week to three institutions—Duke, Yale and Princeton—where Asian admissions fell in this year’s entering class. Mr. Blum told Duke and Yale that “based on SFFA’s extensive experience, your racial numbers are not possible under true race neutrality.”

In his letter to Princeton, he said that “your racial numbers are not possible without substantially increasing socioeconomic preferences and eliminating legacy preferences,” which go to the offspring of alumni. “Yet you’ve announced no such changes, and you’ve reported no substantial increase in the number of students receiving Pell Grants,” which go to undergraduates from low-income families."

"in 2023 “the gap between average Asian and Black test scores on the SAT was more than 300 points, and . . . nationally, fewer than 2,300 Black students got combined scores of 1400 or above, which is generally considered what a student needs to be admitted to an Ivy Plus school.” Nevertheless, black enrollment at Duke, Yale and Princeton was essentially flat this year, while Asian enrollment dipped by 6% at Duke and Yale and by 2.2% at Princeton. How?"

If Green Energy Is the Future, Bring a Fire Extinguisher

Lithium batteries are supposed to make the world safer. Instead they keep bursting into flames

By Steve Goreham. He is the author of “Green Breakdown: The Coming Renewable Energy Failure.” Excerpts:

"Lithium battery fires are breaking out on highways and in factories, home garages and storage rooms. The rise in these fires is caused by government efforts to force the adoption of “green” energy."

"when they catch fire, they burn with high heat and can even blow up. That’s why airlines prohibit lithium batteries in checked baggage."

"E-bike battery fires are a leading cause of fires in New York City, causing 270 blazes last year and killing 18 people. These have become a serious problem in Australia, Canada and other nations as well."

"the introduction of electric cars led to a massive increase in battery size—and potential destructiveness."

"Alfa Romeo, BMW, Ford, General Motors, Hyundai, Porsche, Tesla and other manufacturers have recalled millions of EVs because of battery-fire problems."

"How are governments responding to the rash of battery fires? They are doubling down, promoting the use of even larger high-density lithium batteries"

"Vice President Kamala Harris in 2022 announced $1 billion in grants for electric school buses. If a diesel bus engine catches fire, the driver can usually put it out with a fire extinguisher. But this isn’t possible with electric buses, which explode when they catch fire."

How Pediatricians Created the Peanut Allergy Epidemic

By recommending that children avoid exposure to peanuts until age 3, doctors inadvertently turned a rare issue into a major health problem

By Marty Makary. Excerpts:

"Lack [Dr. Gideon Lack, a pediatric allergist and immunologist] and his Israeli colleagues titled their paper “Early Consumption of Peanuts in Infancy Is Associated with a Low Prevalence of Peanut Allergy.” However, the 2008 publication was not enough to uproot groupthink. Avoiding peanuts had been the correct answer on medical school tests and board exams, which were written and administered by the American Board of Pediatrics. For nearly a decade after AAP’s peanut avoidance recommendation, neither the National Institute of Allergy and Infectious Diseases (NIAID) nor other institutions would fund a robust study to evaluate whether the policy was helping or hurting children.

Meanwhile, the more that health officials implored parents to follow the recommendation, the worse peanut allergies got. From 2005 to 2014, the number of children going to the emergency department because of peanut allergies tripled in the U.S. By 2019, a report estimated that 1 in every 18 American children had a peanut allergy. Schools continued to ban peanuts, and regulators met to purge peanuts from childhood snacks as EpiPen sales soared. Pharmaceutical companies profited by raising prices: Mylan Pharmaceuticals’s EpiPen now costs $600 in the U.S., compared to $30 in some other countries.

In a second clinical trial, published in the New England Journal of Medicine in 2015, Lack compared one group of infants who were exposed to peanut butter at 4-11 months of age to another group that had no peanut exposure. He found that early exposure resulted in an 86% reduction in peanut allergies by the time the child reached age 5 compared with children who followed the AAP recommendation.

] and his Israeli colleagues titled their paper “Early Consumption of Peanuts in Infancy Is Associated with a Low Prevalence of Peanut Allergy.” However, the 2008 publication was not enough to uproot groupthink. Avoiding peanuts had been the correct answer on medical school tests and board exams, which were written and administered by the American Board of Pediatrics. For nearly a decade after AAP’s peanut avoidance recommendation, neither the National Institute of Allergy and Infectious Diseases (NIAID) nor other institutions would fund a robust study to evaluate whether the policy was helping or hurting children."

"The AAP’s absolutism in 2000 had made the recommendation hard to walk back"

"Even today, the WIC program does not cover peanut butter for infants"

Harris’s Economic Plan Is Bidenomics II

The Vice President lays out 82 pages of more spending, more taxes, more regulation, more government

WSJ editorial. 

"Swing voters say they don’t know enough about Kamala Harris’s economic plans. Voila, her campaign on Wednesday released an 82-page “New Way Forward” document. Did her campaign ask ChatGPT to describe her progressive policies in moderate rhetoric using the verbiage of free-market economists?

“I’m a capitalist,” she declared on Wednesday as she promised to “seek practical solutions to problems.” Yet any inspection of the details shows she‘s offering the same policies as Mr. Biden, only more so. Here’s a cheat-sheet:

***

•Higher taxes to make “corporations and the wealthiest Americans pay their fair share.” Without defining “fair,” she endorses the $5 trillion in tax hikes in Mr. Biden’s budget, including a 25% tax on the unrealized capital gains on top earners. As far as we can tell, she differs from the President only in calling for a 33% top capital gains rate instead of 44.6%. She calls these “commonsense tax reforms,” though they’d be the biggest tax hike in history.

•New and bigger entitlements. She’ll need all those taxes to finance all of her new spending. She wants to revive the Build Back Better plan that failed in the Democratic Senate to support entitlements for child care, preschool, long-term care and paid leave. No costs attached, but figure it in the trillions.

•More transfer payments, including a restoration of the March 2021 Covid bill’s $3,600 child tax credit, a new $6,000 credit for families with newborns, and tripling the earned income tax credit for childless adults. She calls all these “tax cuts,” but they are income redistribution through the tax code and welfare since they go to people who don’t pay taxes.

•More housing subsidies, including an “historic expansion” of the low-income housing tax credit, a “first-ever tax incentive for building affordable homes for first-time homebuyers” and a $40 billion “local innovation fund for housing expansion.”

Such government subsidies would be conditioned on rules that require localities to “cut red tape” and developers to employ “innovative building and construction techniques.” This is a euphemism for putting the feds in control of local zoning and building codes. Will new homes have to come with solar panels as they must in California?

She also proposes a $25,000 grant for first-time homebuyers, which would fuel increased demand and higher prices. Unmentioned but not forgotten is her proposal to use the tax code to impose nationwide rent control, though she expressly threatens to use antitrust action against landlords who “dramatically raise rents.”

•More student loan forgiveness. Her euphemism for this is to “end the unreasonable burden of student loan debt.”

•More government control of healthcare. She’d expand and make permanent the Inflation Reduction Act’s (IRA) sweetened ObamaCare subsidies, which are set to expire in 2025. Millions enrolled in ObamaCare plans pay no premiums owing to the subsidies, which average about $6,000.

ObamaCare plans are tightly regulated, which has reduced choice and competition. She wants to do the same to employer plans in part by imposing a $2,000 cap on their out-of-pocket drug costs. The result will be higher premiums. She also proposes to “accelerate” the IRA’s Medicare drug price controls, which will slow bio-pharmaceutical innovation.

•More industrial policy. She proposes funding small business with “low- or zero-interest loans,” beyond what the Small Business Administration already does. She also wants $100 billion in tax credits for investment in data centers, semiconductors, biotechnology and “sustainable materials” that would “reward” businesses that use union labor and locate plants in “longstanding manufacturing, farming, and energy communities.” That is, where Democrats can pass out favors to businesses and interests that support them.

•Price controls. She will “revitalize competition” by “investigating and prosecuting price-fixing” and passing “the first-ever federal ban on price gouging” for groceries. This means Elizabeth Warren acolytes in her Administration will dictate egg prices in Racine, Wis.

•More union gifts. She promises to “prevent misclassification of employees, and override so-called ‘right-to-work’ laws that prevent workers from freely organizing.” Where’s the media misinformation police? State right-to-work laws give workers a choice of whether to belong to unions. Her labor model is California, which has banned most freelance work.

•More green-energy largesse. She wants to “build on efforts” in the IRA to “lower energy costs” and ensure “that we never again have to rely on foreign oil”—i.e., more subsidies for solar panels and EVs on top of the $1.2 trillion already in the IRA pipeline.

All of this and more adds up to a disguised bid to exceed even Mr. Biden’s historic expansion of government. The feds now control some 24% of GDP, and this would grow the share. If you loved Bidenomics, she’s your candidate."

The Case for Trump’s Tariffs Doesn’t Persuade

They may be emotionally resonant, but they’re at odds with economic theory and mountains of evidence

Letters to The WSJ. 

"In “The Case for Trump’s Tariffs” (op-ed, Sept. 20), John Paulson asks, “Isn’t it better to tax foreign entities for entering the American market than impose new taxes on American families?” His question is emotionally resonant but at odds with economic theory and mountains of evidence.

As every economist can tell you, and as my introductory economics students will learn over the next few weeks, tariffs are “new taxes on American families.” Free trade became “orthodoxy” among economists in response to compelling theory and overwhelming evidence. This time isn’t different: American consumers, not foreign producers, will bear any tariff’s brunt.

Prof. Art Carden

Samford University

Birmingham, Ala.

Mr. Paulson’s defense of former President Donald Trump’s protectionism is seriously flawed. As documented by economist Michael Strain and others, wages haven’t “stagnated” since 2000. Real average hourly earnings of production and nonsupervisory workers are today 25% higher than in 2000. Nor has the merchandise trade deficit “been devastating for U.S. industry.” American industrial capacity is at an all-time high and 17% greater than in 2000, while industrial production is 1% shy of its historical peak in September 2018.

One reason the merchandise trade deficit hasn’t devastated U.S. industry is that nearly 80% of American gross domestic product is produced in the service sector. It’s unsurprising Americans import more merchandise than we export—and export more services than we import. Further, more than half of our imports are intermediate goods used by U.S.-based producers. American industry is helped, not harmed, by this net inflow of goods from abroad.

Finally, Mr. Paulson errs by describing tariffs as taxes on foreigners. Tariffs protect domestic producers only insofar as they raise prices that consumers pay for imports. In other words, U.S. tariffs are taxes paid by Americans who purchase either imports or domestically produced outputs, the prices of which are artificially raised by tariffs.

Veronique de Rugy

Mercatus Center, George Mason U.

Arlington, Va.

Mr. Paulson joins the chorus propagating the debunked belief that the “smart use of tariffs” will “restore American manufacturing.” Nothing could be further from the truth. But don’t take my word for it—ask Donald Trump’s own Council of Economic Advisers from when he was president.

In its 2019 report, signed by Mr. Trump, the council details that the tariffs he enacted failed to achieve any beneficial changes in other countries’ trade policies. Quite the opposite: “Canada, China, the EU, Mexico, Russia, and Turkey imposed retaliatory tariffs.” That same year, the Federal Reserve released its own report on Mr. Trump’s tariffs. The result: “U.S. manufacturing industries more exposed to tariff increases experience relative reductions in employment.” This comports with more recent research, which finds that “the costs of US tariffs continue to be almost entirely borne by US firms and consumers” and U.S. tariffs imposed on China are accompanied by “an overall welfare loss of 0.12 percent of GDP.”

Tariffs are a rotten deal for America and its people. We need fewer barriers to trade, not new ones.

David Hebert

American Inst. for Economic Research"

Wealth Inequality Is a Result of Prosperity

By Jason Sorens AEIR.

"Over the past couple of decades, calls to do something about economic inequality have grown louder. The narrative holds that income and wealth inequality are skyrocketing, and the government must use higher tax rates on the wealthy to bring them down. In particular, the Biden-Harris proposal to tax unrealized capital gains seems motivated in part by the desire to reduce the wealth of the wealthy.

Is US wealth inequality really growing? I’ve seen this chart from the Federal Reserve shared around.

It shows that the shares of wealth owned by the top 0.1 percent and by the top 1 percent have grown over time, while the share of wealth owned by the top 10 percent has remained fairly steady, and the share of wealth owned by the bottom 90 percent has fallen slightly since 1989.

So wealth inequality does seem to be growing. But let’s also note that wealth is growing for the bottom 50 percent too, not just the top.

I took the Fed’s wealth data and adjusted them for inflation. You can see here that all wealth groups have more than doubled their wealth in real terms since 1989. The pie is growing — a lot — and so it’s not clear we should even care that inequality is going up, so long as everyone is benefiting.

But even though economic inequality is not a bad thing in and of itself, I wouldn’t blame someone for looking at the first chart and thinking it might be a symptom of something that has gone wrong in the American political economy. So what’s behind this rise in wealth inequality, and is it real in the first place?

I dove into the literature on wealth inequality, and what I found was that this remains an emerging area of research, in part because the data have some problems. How you value illiquid forms of wealth like ownership of private businesses ends up being an important problem. And it’s an important problem because ownership of private businesses and corporations is concentrated in the top 10 percent, and that source of wealth has driven the entire trend in inequality.

 

 

 

These numbers aren’t adjusted for inflation, but they show just how important ownership of businesses and corporate equities is to the wealth of the top 10 percent compared to everyone else. The bottom 90 percent get their wealth mostly from real estate, pension plans, and consumer durable goods. Publicly traded corporate equities are easy to value, but how do you value private businesses that have never been sold? At best you can “guesstimate” what they are worth, and even these numbers are likely to be wrong. After all, the success of many private businesses depends crucially on the unique expertise and talent of their owners. If they were sold, they wouldn’t be as valuable, because that expertise would be gone.

The other point to notice about this source of wealth is how risky it is, compared to real estate in a primary home and pension plans. Having your wealth in a private business or even a publicly traded business is the opposite of diversification. And this is what researchers have found. This widely cited paper finds that “business income is much riskier than labor income.” Another finds that high-income households are “far more exposed to aggregate fluctuations” than low-income households. Yet another investigation finds that “[i]diosyncratic rates of return are crucial to explain social mobility, in particular by speeding up downward mobility.” In other words, rich people often don’t stay rich, because the type of capital they own often suffers negative returns.

That’s the theme of last year’s book The Missing Billionaires, which finds that “if the wealthiest families had spent a reasonable fraction of their wealth, paid taxes, invested in the stock market, and passed their wealth down to the next generation, there would be tens of thousands of billionaire heirs…today.” The middle class in America enjoys the ability to earn labor income, save some of it, and invest it in low-fee, diversified index funds that earn relatively low-risk passive returns. But billionaires often can’t do that, or haven’t. Their wealth overwhelmingly depends on their active management of a single enterprise — they put all their eggs in one basket. That’s why billionaire wealth rarely passes down for more than three generations.

Thinking about the problem of volatile returns further, we should realize that people who suffer a volatile rate of return — entrepreneurs — are going to demand a higher average rate of return to compensate for that risk. To put the point a different way, if we forced entrepreneurs to have the same average income as workers, no one would become an entrepreneur — it wouldn’t be worth the risk. If volatility goes up, so must capital incomes.

This review essay finds that the wealth-income correlation has declined over time. In other words, people with higher (lifetime) incomes are now less likely to have higher wealth than they once did. Perhaps the volatility of entrepreneurial returns has gone up, which means that entrepreneurs would enjoy higher incomes even as they are less likely to be able to build long-term wealth.

Another reason for rising wealth inequality is the aging of America. Older people are wealthier than younger people, and there are more older people now. This chart shows wealth held by different age groups over time.

These figures are not inflation-adjusted, but they show just how much wealth skews toward the old, and how the proportion of wealth held by the old has increased as the ranks of the old have grown and the ranks of the young have shrunk. One way to think about these figures is that many people who have little wealth now will eventually have a lot of wealth. If we want to talk about wealth (or income) inequality, we need to adjust wealth and income figures for the life cycle. Economist Jeremy Horpedahl has been following generational wealth trends, and he finds that millennials and Gen Z have more wealth at their age now than previous generations did at the same age.

A final cause of wealth inequality is differential access to financial information and investment opportunities. One study finds that “30-40 percent of retirement wealth inequality is accounted for by financial knowledge.” Wealthy investors are also allowed to invest in private equity, which earns higher (but more volatile) returns than the broader stock market. The Securities and Exchange Commission bans non-wealthy people from investing in private equity on the assumption that they are not financially sophisticated.

In short, wealth inequality is largely a result of general prosperity. Wealth has risen across the generations and across the economic spectrum, but it has risen most for those at the top, possibly in part because wealthier people have better financial knowledge and, because of regulations, better access to investment opportunities. The aging of Americans has also increased income and wealth inequality. Finally, wealth inequality might be overstated to begin with because the type of wealth owned by the wealthy is specialized and therefore more volatile. Let’s by all means grow the financial knowledge of all Americans and increase their opportunities to access high-return investment opportunities. But there’s little evidence the American economic system is fundamentally “rigged” against those without wealth."