Evaluating the free market by comparing it to the alternatives (We don't need more regulations, We don't need more price controls, No Socialism in the courtroom, Hey, White House, leave us all alone)
"This a repost of an EconLog post I did in 2010. What motivated me to repost is something I read in the Wall Street Journal a few minutes ago. It’s James Freeman, “Kudos to the New York Times,” WSJ, October 26, 2026. Freeman writes about an interaction between constitutional law scholar Josh Blackman and Patrick Healy, the NYT’s assistant managing editor for standards and trust. [DRH aside: That title is already revealing. The NYT thinks it needs a special editor for standards and trust? Wow!]
Here’s a quote from Blackman that Healy uses in his piece:
Back in February of this year, I was quoted twice in The New York Times back to back in the span of 24 hours, which is, you know, pretty cool. But I sort of noticed that both of the references were to Josh Blackman as a “conservative” law professor. And I just thought that was strange. So I went through the Westlaw archives and just sort of searched for “liberal” law professors and “conservative” law professors in the New York Times database, and it was far more likely that you’re identifying a conservative than a liberal. And those numbers are stacked because liberals are quoted even more often. So the numbers even have a greater disparity.
The whole NYT piece is worth reading. Healy was fairly accountable, which doesn’t mean that his colleagues will be.
It reminded me of a not so nice interaction I had in 2008 with Ralph Vartabedian of the Los Angeles Times. I wrote about it in 2010. Here it is.
Bryan Caplan’s and David Boaz’s comments on media bias remind me of an incident that happened almost two years ago. Ralph Vartabedian called me to get my take on the members of President-elect Obama’s economic team, particularly Christina Romer and Larry Summers. I answered his questions. At no time did he ask my ideology. Here’s his article. [DRH note: Surprisingly, you can still access it.]
In case you’re in a hurry, I’m posting here the relevant 2 paragraphs:
He also will have to work with some outsized egos and giant intellects on Obama’s economic team: Lawrence H. Summers, chairman-designate of the National Economic Council; Timothy F. Geithner, nominated to be Treasury secretary; and Christina Romer, chosen to lead the Council of Economic Advisors.
The group is generally not of one mind. Major differences exist in how they view regulation, monetary control and fiscal policy. Summers, for example, was among the Clinton administration officials who helped relax federal regulation on Wall Street, recalled David R. Henderson, a conservative economist at the Hoover Institution. Romer has questioned how well fiscal policy works at all, a central tenant of Democratic economic thinking.
So I wrote him the following:
Dear Ralph,
I saw your piece. I’m not a conservative. I notice also that not only did you get my ideology wrong but also that I’m the only economist to whom you ascribed an ideology. What gives, Ralph?
David
He replied:
Dear David,
I thought your comment about Summers and Romer came from a viewpoint of significant concern about what the Obama Administration was going to do, so I used the reference only as an indicator that you are critical of at least Summers. As for the conservative label, I based that on a couple of points…clearly Hoover is known as a conservative organization and I have honestly never known anybody in it who was a liberal. I believe you were on the council of economic advisors under President Reagan, no? You seemed pretty critical of the liberal members of Obama’s team and our data base at the Times indicates you are a registered Republican there in the Monterrey [sic] area. I can give you a call later today.
Ralph
I replied:
Dear Ralph,
Those are all relevant techniques for figuring out my ideology–if I’m dead. Given that I’m alive, another way is to ask me.
Also, couldn’t you use those same techniques to discern the ideology of Blinder and others you cited? And yet you didn’t.
Best,
David
Later that day, he did call me. He said he felt apologetic. I persisted and asked him why he didn’t ascribe an ideology to the other economists quoted, who clearly had ideologies. He explained that I was the only one quoted who was critical of the Obama team.
“Did you hear what you just said?” I asked. “Only those who are critical are given ideologies.”
“Yes, I get it,” he said.
That’s why I didn’t blog on it. I thought maybe he really did get it and I didn’t want to reduce my probability of being interviewed again. Twenty months later he still has not called for another interview. My guess is that by simply confronting him about it, I reduced my probability to close to zero."
"But the political movement to slow down or block the growth of data centers could have adverse consequences for the entire economy. By some estimates, AI-related goods accounted for as much as three-quarters of all global trade growth in the first quarter of 2026 and upward of a third of U.S. economic growth.
Financial risk does not diminish the structural utility of technological advances. Many railroads failed, but the track remained. Ditto for companies in the 1990s that laid fiber-optic cable, which continues to generate value.
If CoreWeave has borrowed too much, creditors and shareholders will bear the consequences. If Microsoft or Meta wants another gigawatt of electricity, they should pay the cost of producing and transmitting it. But neither investors nor consumers benefit when zoning boards, permitting regimes and utility bottlenecks prevent otherwise economically viable projects from being built."
"Measuring real GDP growth requires distinguishing changes in prices from changes in product
quality and composition, yet systematic quality adjustment of price indexes is unavailable for much of
the twentieth century. We construct a new quality-adjusted price index for U.S. house furnishings and
apparel goods using 5.1 million product listings from Sears catalogs, 1900–1990. We use large language
models to extract product information and estimate hedonic price schedules with detailed product
characteristics, allowing us to infer annual changes in the cost of living. The resulting cost-of-living
index implies substantially lower goods inflation than conventional deflators, and consequently implies
much faster real economic growth: between 1900 and 1990, real consumption of house furnishings and
apparel grew by a factor of 114 using our index, compared with a factor of 24 using standard goods
deflators. The gap between our index and canonical ones is largest before World War II and suggests
that productivity growth peaked earlier in the twentieth century than conventional estimates indicate."
"Last year, in Part I in this series, I warned that the United Kingdom was pursuing a “sure-to-fail policy.”
More specifically, I explained that the class-warfare attacks on upper-income taxpayers were going to backfire for the simple reason that entrepreneurs, investors, and business owners could “vote with their feet” by moving to nations with better policy.
We’ll start with some excerpts from a new story in Bloomberg by Benjamin Stupples.
The exodus of the uber-rich from the UK has become a $160 billion problem. That figure, calculated using data from the Bloomberg Billionaires Index, lays out for the first time the vast amounts of money and assets behind those quitting Britain. It’s the total wealth represented by individuals tracked in the list who have loosened their ties with the UK — or cut them entirely — just in the past two years. …Tax changes targeting the wealthy since Labour came to office in 2024 are taking a growing toll…and near constant speculation that more measures are coming, has dramatically frayed the relationship between the well-heeled elite and the government. …The top 1% of UK earners account for about 27% all income tax revenue, according to government figures. When they leave, they also take their hefty spending power. …Half of the overall group finalized their departures from the UK — to territories spanning Monaco, Switzerland and the United Arab Emirates — in the weeks leading up to Labour bringing in sweeping tax reforms in April 2025.
Here’s a chart from Bloomberg listing the rich people who have escaped.
But that list is incomplete.
Today’s news adds even more evidence. As reported by Maira Butt for the Independent, another wealthy taxpayer has decided that the United Kingdom is no longer a good place to live.
Instead, he has decided that zero-income-tax Monaco is a good place to reside.
A billionaire who formerly topped the Sunday Times Rich list has become the latest wealthy businessman to leave the UK to take up residence in Monaco. David Reuben, 88, is a property tycoon and Newcastle United shareholder, who along with his younger brother Simon Reuben, has a combined estimated net worth of nearly £28bn. …A spokesperson confirmed to the publication that the property tycoon had moved to Monaco but declined to comment further. …Last week, billionaire Manchester United owner Sir Jim Ratcliffe complained that Britain’s billionaires were leaving as the country was “on the slide” and blamed high taxes and high immigration for the decline. The remarks followed the departure of several of the UK’s highest earners… More than 10 per cent of the total wealth identified in the Rich List is controlled by UK citizens who now reside in Monaco, a total of £77bn, according to The Times.
I’ll close with the depressing observation that the out-migration of successful taxpayers began when the so-called Conservative Party was in charge.
"A recent article in The Guardian profiles economist Isabella Weber. She doesn’t seem to like other economists very much, supposedly because we “obsess over ideological purity and are inflexible when searching for solutions.” Weber wants economists to come up with solutions that work even if… I guess, even if they don’t work well in theory? Maybe they will work well in practice?
Anyway, so far as I can tell, the article only gets into details on two concrete solutions to affordability. I’m sure she has more in her book, but let’s see what these are. The first for governments to create “publicly owned entities that can buy and sell grain into its market,” presumably to smooth out fluctuations in grain prices. The second is “the Mexican government’s canasta básica policy, through which retailers voluntarily cap the total price of a basket of two-dozen essential goods.”
Let’s look at the second one, since I think for developed countries like the US, fluctuating grain prices aren’t the primary source of affordability concerns. But perhaps American consumers would like a basket of grocery essentials to be cheaper.
Has this policy in Mexico worked? It was first implemented in 2022, and food inflation has certainly fallen in Mexico since then. But it has also fallen everywhere else in the world — 2022 was peak inflation not just in the US, but in most countries — so we can’t judge the success of the program based on that alone.
Instead, we can look at internationally comparable data on food spending, which comes from the USDA’s Economic Research Service. Our World in Data has a nice chart based on this data, and even though it is now two years out of date (I will provide 2025 data below), the 2023 data makes a case against the success of the “price controls” in Mexico (I put “price controls” in quotes because it is not a true price control, but an attempt to control prices via incentives):
Figure 1
It will probably not surprise you that the US spends much less on food as a percent of total spending than Mexico, given that we are a high-income country. But it is still worth pointing out just how low food spending is in the US. However, this chart still paints Mexico in a very poor light: for countries with about the same income level in the Americas (as measured by consumer expenditures), Mexicans spend much more on food than Argentina, Chile, or Panama.
If we use the 2025 USDA data, and focus on the 10 countries with consumption expenditure closest to Mexico (between about $8,000 and $12,000 of consumption), we see that Mexico is very much on the high end: only Argentina was clearly higher:
Table 1
Finally, we can compare Mexico against itself in this data, looking at food spending going back to 2017:
Figure 2
Food spending actually peaked in 2020, though be cautious of any data from 2020 as the pandemic made data collection difficult. After declining in 2021 and then into 2022 (the policy seems to have been put in place in mid-2022), there haven’t been any further declines. And food spending is still well above pre-pandemic levels (unlike the US, where the 2025 figure of 6.4% is the same as 2017-18).
Ultimately, we would want a more sophisticated analysis than my simple tables and charts here. But it doesn’t appear that Mexico’s 2022 policy really made food much more affordable, either relative to peer countries with similar income levels, or relative to Mexico’s own recent history. And that’s even before we get into any unintended consequences of the “price controls.” Of course, the policy may have made that basic basket of two-dozen items more affordable than it otherwise might be — for that we would need to compare individual item prices to peer countries — but it hasn’t obviously made food overall more affordable in Mexico."
"Asian women have out-earned White men in each of the last 12 quarters over the last three years. In the most recent quarter (2026:Q3), White men earned only 92.6 cents for every $1 earned by Asian women, a GENDER/RACE EARNINGS GAP of 7.4% favoring Asian women."
Abstract:
The Gini index remains the most important measure of economic inequality worldwide, and accurate estimates of this index are essential for effective public policies. Yet, Gini estimates for the same country and year vary considerably across data sources, a problem that remains largely unresolved. The paper reviews the largest global and regional databases providing Gini estimates, surveys the related literature, and constructs a unified dataset of 122,351 Gini observations spanning 222 countries and territories and 158 years, from 1867 to 2024. The analysis of this new dataset shows that income-based Ginis exceed consumption-based ones by 4.7 points on average globally, and by as much as 10 points in some regions, with these gaps widening over time. The gross--net income distinction and the use of alternative equivalence scales together with several other measurement choices add further systematic differences. Based on these findings, the paper provides correction factors that can be used to harmonise Ginis built on different welfare concepts. We further show that overall divergence across databases has grown only modestly since 1960, and mainly through the proliferation of databases rather than through genuine divergence among long-standing sources. Thus, improving on the existing discrepancies across Ginis globally is possible, but ultimately depends on database administrators disclosing full details of Gini construction and on users selecting Ginis built on comparable measures.
"Dana Goldman is a top-notch health economist and the founding director of the University of Southern California’s Schaeffer Institute for Public Policy and Government Service. On October 22, he published a courageous and eye-opening mea culpa that everyone should read:
In November 2009, I joined 10 other economists in a letter urging Congress to pass a bill that became the Affordable Care Act. I could hardly imagine what would come next.
The ACA promised to expand coverage, and it did. But I signed the letter primarily because the ACA promised to “bend the cost curve” of American health care, which was getting out of control.…
The curve did not bend, and I now wish I hadn’t signed my name to that letter.
Why did Obamacare fail to contain costs?
I, and many of my economist colleagues, didn’t foresee how many of the ACA’s cost-control and financing provisions would be stripped out by Congress, on a bipartisan basis, or watered down over the following decade.
That was true of many health economists. But many saw this coming. We warned the world as loudly as we knew how. In July 2009, I wrote:
… the administration agreed that the new subsidies would start flowing immediately, while the pay cuts would take effect over time. That means the pay cuts may never take effect at all: physicians have been blocking their own scheduled pay cuts for nearly a decade…
All [the industry deals] are contingent on the favored groups getting something they want, and all “savings” could be undone by future lobbying. To paraphrase George Bailey, the industry isn’t selling — the industry is buying.
In December 2009, when the ACA’s authors were drafting the financing provisions that Congress would later strip out, I wrote:
Senate Democrats promise to fund half of their new entitlement with $491 billion of Medicare cuts.…Congress frequently reneges on such promises. Want proof? At the very same time Congress is promising to cut future Medicare spending by $491 billion, it is reneging on a past promise to cut Medicare’s physician payments by $210 billion. Even Medicare’s chief actuary calls the (new) promised cuts “doubtful” and “unrealistic.”
… this legislation would set in motion political forces that would make additional spending inevitable. It would create new constituencies for government spending, hook existing constituencies on even more government spending, and promise implausible cuts in existing subsidies to constituencies that are highly organized and vocal.
In 2011, when I was trying to prevent the spigot from opening, I explained that the dynamic behind these predictions is something economists have known about for some time:
The measure repealing the 1099 mandate may itself increase the deficit slightly. It will reduce federal tax collections by $17 billion, and the offsetting spending cuts are highly questionable. This vote’s real significance, however, is that it shows why ObamaCare’s entitlement spending would survive the political process while its revenue-raising provisions would not.…
When the political process “goes to work” on the rest of ObamaCare’s various provisions, the revenue-raisers will fall because they get the formula wrong, while the entitlement spending will survive because it gets the formula right.…
The 1099 mandate is actually the second ObamaCare revenue-raiser to fall. Worried about the political fallout from private insurers exiting the Medicare program, the Obama administration rather transparently forestalled cuts to Medicare Advantage by granting $1.3 billion of “quality-based” bonuses to mediocre and low-performing MA plans.
This public-choice dynamic is why the Congressional Budget Office, the chief Medicare actuary, and even the International Monetary Fund have discredited the idea that ObamaCare will reduce the deficit. It is one of the principal reasons why, as Thomas Jefferson wrote, “The natural progress of things is for liberty to yield, and government to gain ground.” In other words, the game is rigged in favor of bigger government.
It also explains why the Obama administration is sprinting to implement ObamaCare in spite of a federal court having struck down the law as unconstitutional. As that and similar cases work their way toward the Supreme Court, the White House needs to get some concentrated interest groups hooked on ObamaCare’s subsidies–fast.
If Goldman receives praise for admitting error, it will encourage others to do the same. If he receives scorn, it will have the opposite effect."
"Social Security’s trust fund is nearing insolvency. The latest trustees report projects that the Old-Age and Survivors Insurance Trust Fund will run out in late 2032. If this occurs, benefits paid will be limited to payroll tax revenue, resulting in a roughly 22 percent benefit cut. Some lawmakers have suggested eliminating the payroll tax cap to help close the gap. This would raise revenue, but it would push top marginal tax rates on wages to over 60 percent in some states.
Social Security is financed with a 12.4 percent payroll tax on employee wages and a matching tax on self-employment income. The tax is split evenly between the employee and employer. The payroll tax is “capped,” meaning that it applies only to the first $184,500 in wages and salaries (in 2026).
Several proposals would eliminate or alter the cap. Two proposals would introduce a “donut hole” by applying the payroll tax to earnings above either $250,000 (Social Security Expansion Act) or $400,000 (Social Security 2100 Act). A proposal by Sens. Elizabeth Warren (D-MA) and Bernie Moreno (R-OH) would apply the payroll tax to all earnings.
Eliminating the payroll tax cap would raise the top marginal tax rate on labor earnings. The top marginal tax rate is the combined federal, state, and local tax that a top earner pays on each additional dollar of wage and salary income.
For example, a top earner in Massachusetts faces a top marginal tax rate of 49.5 percent. This includes the top individual income tax rate of 37 percent, the 2.9 percent Medicare payroll tax, the 0.9 percent Additional Medicare Tax, and Massachusetts’s top income tax rate of 9 percent.1 Eliminating the cap would raise the top marginal tax rate in the state by 8.7 percentage points to 58.2 percent.
The top marginal tax rate would depend on where a taxpayer resides. The top marginal tax rate would rise to 63.1 percent in New York City, 63 percent in California, and 59.7 percent in Washington, DC. In states without an income tax, the top rate would rise to 49.4 percent. This would be the highest top marginal tax rate on wages since the Tax Reform Act of 1986.
Lawmakers should proceed with caution.
First, higher top marginal tax rates reduce the incentive to work. This is because eliminating the cap would reduce the after-tax wage that an individual earns. For example, top earners in Washington, DC, would experience a 17.4 percent reduction in their after-tax wage rate if the cap were eliminated. Using the Congressional Budget Office’s estimate that the labor supply elasticity (or responsiveness) of high-income workers is 0.17 (net of the income effect), this would imply a reduction in hours worked of 3 percent for those facing the top marginal tax rate.
Second, eliminating the cap would exacerbate the incentive for business owners to reclassify their income. Owners of partnerships and S corporations can split their income between profits and wages. The tax code creates an incentive to pay more income out as profits because profits are taxed at a top federal income tax rate of 29.6 percent (37 percent reduced by the 20 percent deduction for pass-through business income) compared to the top federal tax rate on wages of 40.2 percent. Eliminating the cap would widen that gap from 11 percentage points to 19.8 percentage points.
Third, eliminating the cap would reduce revenue from other taxes. Because the employer-side payroll tax is borne by workers in the form of lower W-2 wages, raising it shrinks the base of the income and employee-side payroll tax. The Joint Committee on Taxation estimates that for each dollar raised by the payroll tax, the federal government collects only 86 cents. Furthermore, the reduction in hours worked would mean that total taxable income would fall, offsetting an even larger share of the initial tax increase.
Finally, eliminating the cap would delink taxes from benefits. One of the virtues of the current Social Security system is that benefits and taxes are at least loosely linked. The more an individual works, the more they pay in payroll taxes, but also the more they accrue in future benefits, up to the cap. This limits the work disincentive effect because future benefits partly offset taxes at the margin. Eliminating the cap without expanding benefits would make the tax on earnings above the cap a pure tax, with no offsetting benefit.
Lawmakers are right to be concerned about the future of Social Security. Reform will require changes to both spending and revenue. It matters, however, how those changes are structured. Eliminating the cap on the payroll tax would come with important economic trade-offs.
[1] The top marginal tax rate is calculated on total labor compensation, including the employer-side payroll tax. Assumes Massachusetts’s paid family leave payroll tax remains capped."
By David Galland. He is with The Rational Optimist Society. Excerpts:
"For three years, Courtney Hofmann’s young son Alex suffered pains no one could explain.
He chewed on things to cope with headaches. His gait changed, and he stopped growing. By the time he turned seven, he had been seen by 17 doctors and specialists, including pediatricians, neurologists, orthopedists, ENTs, and even dentists.
Every doctor followed the established protocols, ordering exams to test their latest theories, but ultimately none came up with a helpful diagnosis.
Finally, in desperation, Courtney pasted her son’s medical records into ChatGPT and asked for an opinion.
After engaging in a collaborative exchange about her son’s symptoms, ChatGPT came back with tethered cord syndrome, a rare condition in which the spinal cord is abnormally anchored to the surrounding tissue instead of floating freely. As Alex grew and his spine lengthened normally, the tethered cord was increasingly stretched.
ChatGPT results in hand, Courtney found a neurosurgeon who specialized in the condition. He confirmed the diagnosis, and Alex had the necessary surgery. Today, he’s fine.
And so we find ourselves on the cusp of a new era of medicine and healthcare where, for the price of a modest monthly subscription, a chatbot working from the same records as 17 medical professionals correctly diagnosed a complicated medical problem the experts had all missed.
In this Deep Dive, we’ll look at the astonishing progress AI is enabling across the very foundations of medicine, including disease diagnosis, drug development, and treatment.
As you’ll read, AI is almost certainly the most important development in human health since antibiotics.
And it’s happening right now, as you read this, which means we’ll be the beneficiaries of this healthcare revolution."
The current AI-driven progress in radically improved diagnosis and healthcare is the result of three fairly obvious developments unfolding at the same time:
Data digitization – Though privacy rules and fragmented systems still create roadblocks, today nearly all medical records and associated images have been digitized, creating a pool of trillions of data points available for analysis and, importantly, training AI.
Foundation Models – A single large model can now process text, images, genomes, and waveforms—such as those produced by an ECG—all at once. The latest AI models can read your medical history, review your charts, study your scans, and weigh your genetics, processing every input together in an analysis that happens in the blink of a proverbial eye.
Compute – The AIs powering today’s medical breakthroughs run on a level of computation that would have been prohibitively expensive—and perhaps impossible—just 15 years ago.
Put those three developments together, and you get . . . a near-superhuman diagnostician that can weigh your personal health data against a vast library of peer-reviewed research, massive clinical databases, and archives of medical images tied to known outcomes—and apply all of it in seconds."
"The first randomized controlled trial of AI in cancer screening involved nearly 106,000 women in Sweden. During the trial, radiologists, supported by an AI system called Transpara, detected 29% more breast cancers than using standard practices, with no increase in false positives.
Importantly, those results were produced while cutting screen-reading workload by 44%!"
"An observational study in Germany involving the routine screening of nearly half a million women found that radiologists using AI caught 17.6% more breast cancers than those not using it."
Policymakers across the country are confronting the unfortunate—and predictable—economic results of prohibiting restaurants from paying servers a lower base wage supplemented by tips
"In recent years, one of the predominant policy initiatives of the progressive left has been raising the minimum wage in locales around the country. At the same time, left-leaning politicians have sought the elimination of what's known as the tip credit, which allows employers to pay restaurant servers and other tipped employees a lower hourly base wage that they then bolster with gratuities.
Just a few years into this experiment, however, policymakers are showing signs of an about-face on the tip credit's abolition as they grapple with the unfortunate, and predictable, economic results.
In 2022, Washington, D.C., made news headlines when voters passed Initiative 82. As originally designed, it would have repealed the tip credit and required servers to be paid the District's full statutory minimum wage by 2027. (D.C.'s minimum wage was $16.10 per hour in 2022, but has since risen to $18.40 due to inflation indexation.) Prior to Initiative 82, D.C. servers could be paid a $5.35 tipped wage, so long as they earned enough tips to make up the difference between the lower tipped wage and the higher traditional minimum wage.
D.C.'s Initiative 82 was just the beginning. One Fair Wage, a progressive group that lobbies against subminimum wages, quarterbacked an all-out push to eliminate the tip credit in jurisdictions across America. Chicago became the second prominent city to follow suit. States like New York, Connecticut, and Illinois also quickly saw legislation introduced to eliminate the tip credit at a statewide level. (Apart from this recent wave, a small handful of American states—including California, Oregon, and Alaska—have long operated without a tip credit).
But just when it seemed like momentum against the tip credit had reached its apex, progressive politicians started to see the writing on the wall. In the aftermath of the tip credit's repeal, D.C. saw a close to 5 percent decline in full-service restaurant jobs. Tipped worker earnings also dropped by just under $12 million—likely a result, at least in part, of restaurants reducing hours for staff in the face of higher labor costs. At the same time, many D.C. restaurants began implementing service fees or so-called auto-gratuity policies that added mandatory 10-20 percent charges onto customers' bills.
Mugged by this economic reality, D.C. Mayor Muriel Bowser called for the full repeal of Initiative 82. Ultimately, the D.C. Council settled for a partial repeal in 2025, maintaining at least some semblance of a tipped wage that sits below the traditional minimum wage into the years ahead (although the tipped wage eventually rises to 75 percent of the traditional wage by 2034). This was a familiar story: The council had previously repealed Initiative 77, a near-identical attempt to abolish the tipped wage that voters passed in 2018.
After Chicago moved to eliminate the tip credit, the Illinois Restaurant Association found that 89 percent of Windy City restaurants raised menu prices; another 79 percent responded by reducing worker hours. Again bowing to economic reality, the progressive Chicago City Council voted to freeze the tip credit's planned elimination, only to see the effort vetoed by Mayor Brandon Johnson. Eventually, a compromise was brokered to at least pause the tip credit at its current level for two years—which punts the issue until after Johnson stands for election again, allowing a potential successor to endorse a more lasting reversal.
In Michigan, a 2024 state supreme court ruling set the tip credit on the path toward elimination by 2030. But state lawmakers intervened last year, deciding to maintain a 50 percent tip credit in perpetuity after 2031. Notably, Michigan is currently governed by a Democratic trifecta in the governorship and both houses of the Legislature. The tip credit's revival garnered key support from Republican lawmakers to pass in a bipartisan fashion, before being signed into law by Democratic Gov. Gretchen Whitmer.
While progressive efforts to eliminate the tip credit may be motivated by an earnest desire to ensure waiters are paid more, the math isn't that simple. Requiring a server to be paid a $16 traditional minimum wage—up from a $5 tipped wage—might appear to raise their pay on paper. But this fails to consider several important factors.
Under our "No Taxes on Tips" new normal, raising the minimum wage for servers could lead to a partial reduction in tips, which under certain scenarios can result in less take-home pay for waiters once the taxman takes his cut. If more server earnings come in the form of "auto-gratuity" policies—which are treated as taxed wages under the law—then the tax repercussions may grow even grimmer.
But more broadly, these laws attempt to subvert basic economics. As of 2025, Bureau of Labor Statistics data show that D.C. restaurants shed over 1,600 jobs in aftermath of Initiative 82; meanwhile, between 2022 and 2025, restaurant job growth in the District declined by more than 8 percent. This is just one example. The fallout is the inevitable result of restaurants responding to labor costs that suddenly skyrocket, forcing establishments to cut worker hours and sometimes transition to quick-service models that require less hourly staff. And that's to say nothing of the diners who bear the cost with higher prices and new service fees.
"We're watching a beloved bar back, a beloved busser, a dishwasher have their jobs taken away," D.C. restaurant worker Valerie Graham toldReason in 2024. "Not because our owner-operator is an evil billionaire but because they're an independent business owner who had to make some business decisions and there's a callousness with which our industry is talked about."
To be sure, the tip credit has only survived in modified and reduced form in D.C., Chicago, and Michigan—and in the case of Chicago, the about-face is only temporary. But the partial reversals show the tip credit's elimination is not a foregone conclusion. Economic reality continues to rear its head."
"Based on charts like the one at right (below), Paul Krugman and many others are arguing that:
Massive spending on data centers is crowding out investment in everything else in the economy.
Not so fast. Can you see one immediate problem? How is $51b in data center construction spending crowding out $120b in everything else!
Indeed, crowding out in the standard loanable funds model is generically less than 1 to 1–that is, $51b of additional spending will crowd out less than $51b of other investment spending. The standard analysis is that increased investment demand/borrowing increases interest rates–the higher interest rate reduces investment demand elsewhere (that’s the crowding out) but the higher interest rate also increases savings so investment elsewhere falls by less than the increase in tech investment. Here’s the classic graph from our textbook, Modern Principles. In the graph, we explain crowding out in terms of government borrowing but formally the diagram is the same with tech borrowing substituting for government borrowing:
Although the diagram is formally identical with private borrowing or government borrowing the term crowding-out is usually reserved for the latter. Private borrowing faces the market test so “crowding out” in that context simply means funds flowing from lower value to higher valued uses–it’s a benefit. Government borrowing doesn’t face the same market test and so we need to remind people that it comes at a cost. Let’s put this point aside, however.
Krugman doesn’t point out the problem with Rattner’s graph but he does substitute with a graph of his own (shown below) which compares all “tech” investment with all other investment as a share of GDP. On the surface that seems to at least get the ratios in more plausible alignment but there are a few problems. First, the numbers are on a different order of magnitude. Rattner has annual datacenter investment rising to $51b (annual rate) over a more than two year period. Krugman has tech spending rising to ~$539b over a similar period–so far more than datacenters or AI as conventionally considered is being counted. That’s fine–but Krugman is relying here on datacenter discontent while actually discussing something different. But there is another problem.
Krugman’s graph is in terms of shares of GDP and as one share is going up, another is going down which is meant to be suggestive of crowding out–except GDP is increasing. Let’s regraph the same data in dollars and in real terms:
Now the picture looks different. From 2023 Q2 to 2026 Q2, real tech investment rose about 46%, while other real investment rose about 3%. Other investment has weakened since its 2024 peak, but it remains above its starting level. This does not rule out crowding out: other investment might have grown faster without the tech boom. But we have now gone from charts suggesting that crowding out was absolute to arguing that it was relative to GDP and relative to a counter-factual which cannot be identified with these graphs.
So what is really going on? Real interest rates are up since the pandemic but most of the increase happened before the AI investment boom. The average 10-year TIPS yield rose from −1.00% in late 2021 to 1.49% in late 2022. In comparison, the increase in rates over the Rattner/Krugman chart-periods are only .5 and 0.68 percentage points respectively, relatively small potatoes to hang a crowding out story.
Moreover, current real rates are ~2-3%, in line with historical averages and hardly prohibitive. If there are good projects they can be funded.
Why did real rates rise if not datacenter borrowing? There are many possible explanations: recovery from unusually low rates during the pandemic, Federal borrowing, maybe even a quite different tech story in which greater expectations of future wealth are reducing savings today (like the reputed AI workers who have taken up smoking because they expect a future cure for lung cancer). But note that real rates are up across advanced economies, not just here, even though most of the AI spending is here–this further weakens the case for crowding out of US investment, as the world saving base is much larger than the US base.
Bottom line is that I think a more plausible story is that two things are happening at once: tariffs, uncertainty, and other forces including the fading of Biden-era CHIPS and IRA subsidies have weakened investment outside AI-tech. The AI boom in contrast has supported overall investment. In other words, rather than datacenters and AI investment “crowding out” other investment, my interpretation is that AI investment is a bright spot in what would otherwise be a more negative economy."
"Over 30 people die per day in drunk driving crashes, according to national estimates.
One mechanism for reducing these deaths might be restrictions on the kind of business that can sell alcohol. Researchers studied such laws in Texas, where
cities can use local option elections to decide whether to permit particular types of alcohol sales [e.g, at on-premise locations like restaurants versus off-premise locations like liquor stores].
The findings suggest that
[l]egalizing alcohol sales increased retail access but did not measurably change traffic crashes in Texas cities, suggesting that the consequences of alcohol liberalization depend on where alcohol is purchased and consumed.
This expanded access was location-dependent:
The findings are consistent with a possible shift toward off-premises purchases but do not establish that increased retail purchases replaced purchases at bars and restaurants. … Because the Texas elections mainly expanded off-premises retail access, they may have increased convenience without increasing the form of alcohol consumption most closely associated with impaired driving.
All in all, the
findings challenge the assumption that making alcohol easier to purchase necessarily increases drunk driving."
"The New Right is taking a victory lap. Treasury Secretary Scott Bessent says that manufacturing is “roaring back at its fastest pace in years.” He followed that up, calling this a “manufacturing renaissance.” And when the August payroll data showed factories adding jobs, the White House called the report “explosive” and proof that the tariff agenda is working. Checkmate, economists.
Not quite. An honest comparison of 2025 and 2026 reveals the economists were right.
In 2025, the US ran what can only be described as the largest, most aggressive tariff experiment in nearly a century. The average effective tariff rate peaked at 22.4 percent in April, which was the highest since 1909. By comparison, that figure was about 2.4 percent in 2024. But the worst part of 2025 was not the increase in the tariff rate; it was the chaotic manner in which trade policy shifted. Rates could be announced one week, doubled the next, paused a few days later, and then reinstated at an altogether new number months later. They could be imposed due to trace amounts of fentanyl crossing a border, other countries not buying enough of our products, or because President Trump didn’t like a person’s tone during a phone call. Americans were told that tariffs were going to apply to countries with which the US ran trade deficits in order to reduce those deficits. But then tariffs were imposed on the UK and Australia, with both of which the US runs trade surpluses.
Unfortunately, this wasn’t even the beginning of the uncertainty. Americans were told by Commerce Secretary Howard Lutnick that tariffs were “here to stay,” but later that same week, President Trump himself said that he was ready to negotiate with affected countries. In another instance, President Trump said that tariffs would be deployed to create jobs, but then Lutnick said that the jobs brought back would be automated.
“The army of millions and millions of human beings screwing in little screws to make iPhones — that kind of thing will come back to the America,” Lutnick said, “it’s going to be automated, and great Americans, the tradecraft of America, is going to fix them, is going to work on them.”
Likewise, Americans were told that tariffs would bring in trillions of dollars in revenue. But at oral argument before the Supreme Court, Solicitor General John Sauer said, “these are regulatory tariffs. They are not revenue-raising tariffs. The fact that they raise revenue is only incidental. The tariffs would be most effective, so to speak, if no person ever paid them. They achieve their goals and so forth.” Here, Sauer is pointing out that if a tariff is generating revenue, then it is not blocking imports and, by extension, not leading to domestic consumers shifting to buying domestically made products. Thus, the goal, according to Sauer, was to not raise revenues at all.
Others associated with the Trump administration saw things differently.
In a lengthy post on X and in The Wall Street Journal, Stephen Miran — formerly the chair of the Council of Economic Advisers and Federal Reserve board member — wrote that “it would have interfered with the legal case if I had said that tariffs were good for revenue and tax purposes, even if that’s not actually the reason we gave in law for the tariffs.” In other words, the tariffs were about revenue, except they weren’t, but really they were.
In 2025, Scott Bessent described tariffs as a “gun [that] will always be loaded and on the table, but rarely discharged.” The reality is that in 2025, there was no clear explanation of why the US was using tariffs, nor was there any clear indication of what the tariffs were ultimately trying to accomplish.
The combination of high tariffs with uncertain start dates and unclear goals proved disastrous for firms looking to make long-term investments. As a result, the manufacturing sector shrank. The ISM’s Manufacturing PMI fell into contraction and stayed there for ten months. Factory payrolls fell for eleven straight months, resulting in a loss of about 92,000 manufacturing jobs. Economists had predicted these outcomes and warned that the tariff agenda would produce them.
2026, by comparison, has brought the exact opposite: tariff relief. In February, the Supreme Court struck down the IEEPA tariffs. The White House immediately replaced these with a 10 percent tariff under Section 122. At the same time, the White House announced Section 301 investigations were beginning. While the findings of those investigations were almost certainly predetermined, they resulted in tariff rates of between 10 and 12.5 percent, which were (again) still lower than those in 2025. In other words, tariff rates in the US fell in 2026 compared to 2025.
But the remarkable thing about 2026 is how stable tariff policy has been compared to 2025. If anything, the uncertainty surrounding 2026 is characterized more by which tariffs the president is going to reduce, not impose. When beef prices rose, President Trump lowered tariffs to help ease the burden on households. When the price of steel, aluminum, and copper threatened domestic industry, the president lowered tariffs to “more effectively address national security threats, spur investment in American agriculture, housing, and manufacturing, and facilitate US production of related products.” Certain provisions of the Big Beautiful Bill, such as full expensing even for construction, took effect. Where 2025 can only be described as “raising taxes,” 2026 is a paragon of lowering taxes.
And what happens when taxes, especially those that affect manufacturing formation and expansion, are lowered? Manufacturing expands. And that is exactly what has happened in 2026. The ISM’s Manufacturing PMI crossed into expansion in January and has stayed there for eight months. Factory payrolls, which bottomed out in December 2025, have grown by 58,000 jobs. What’s more, the manufacturing job growth is concentrated in the very industries that are less exposed to tariffs.
None of this should surprise anyone who has sat through an economics course. A tariff is a tax. It makes Americans poorer by forcing us to pay more for less. Given the composition of US imports, tariffs land disproportionately on two groups: low-income households and manufacturers, since roughly half of all US imports are either raw materials or intermediate inputs used in American production. Tariffs make those goods more expensive. Take steel as an example. US steel prices have increased dramatically as tariffs have priced out foreign suppliers. As a result, manufacturing (which uses steel) becomes more expensive, too. It doesn’t take an economist to understand that when the cost of production rises, production slows down.
The manufacturing renaissance that is happening right now is not because we imposed tariffs on the rest of the world. It’s because we lowered tariffs and made it easier for American workers to get access to the materials they need to produce.
That the New Right would rush to claim this moment as a victory was not hard to foresee. Last December in The Wall Street Journal, I wrote that “When tariffs don’t deliver the promised renaissance, administration officials push back the timeline. First it was weeks, then months. Now, we need ‘the right timeline’ and must not grade policy ‘on a news cycle.’” I argued that they were “buying time until the economy improves despite tariffs, at which point the administration will claim victory.”
This is exactly what is happening. The timeline was stretched from weeks, to months, to “don’t grade us on a news cycle.” The economy, and specifically the manufacturing sector, improved the moment the tariffs were lowered. The officials who spent a year explaining away the damages their policies were causing are now taking bows after mitigating the harms of their own policies.
So let’s just be clear. Manufacturing shrank when tariffs were high and erratic. Manufacturing rebounded when tariffs fell and became more stable. Far from being tariff-induced, the “manufacturing renaissance” is what happens when you lower taxes on steel, chips, and components. None of this takes a crystal ball. Ironically, all of this matches exactly what the standard economic textbooks — the very textbooks that the New Right insists are wrong and in desperate need of updating — have been saying all along. All that the administration has done is dig a hole and then partially fill it back in.
If we want to see manufacturing continue to rebound, we need to be cutting tariffs even further and making sure that they are stable and predictable."
Taxes versus the Necessities of Life: The Canadian Consumer Tax Index, 2026 Edition
The Canadian Consumer Tax Index tracks the total tax bill of the average Canadian family from 1961 to 2025. Including all types of taxes, that bill has increased by 2,928% since 1961.
Taxes have grown much more rapidly than any other single expenditure for the average Canadian family: expenditures on shelter increased by 2,349%, food by 952%, and clothing by 526% from 1961 to 2025.
The 2,928% increase in the tax bill has also greatly outpaced the increase in the Consumer Price Index (946%), which measures the average price that consumers pay for food, shelter, clothing, transportation, health and personal care, education, and other items.
The average Canadian family now spends more of its income on taxes (41.9%) than it does on basic necessities such as food, shelter, and clothing combined (36.0%). By comparison, 33.5% of the average family’s income went to pay taxes in 1961 while 56.5% went to basic necessities.
In 2025, the average Canadian family earned an income of $121,111 and paid total taxes equaling $50,721 (41.9%). In 1961, the average family had an income of $5,000 and paid a total tax bill of $1,675 (33.5%).
"After Dario Amodei, CEO of the AI company Anthropic, penned an open letter calling for AI regulation,Rahm Emanuel took to X. “I’ve served in two White Houses and in Congressional leadership,” the former Chicago mayor wrote, “and I can tell you when the last time a CEO or an industry at large asked to be regulated: never.”
Emanuel’s statement reflects the commonly held progressive myth that conniving Robber Barons do everything they can to impede the state’s noble effort to regulate them, but nothing could be further from the truth.
Business leaders have long lobbied to have their own industries regulated. In fact, an entire body of historical scholarship is devoted to that phenomenon. Historians such as Gabriel Kolko, Robert Wiebe, and James Weinstein spent their careers detailing how Big Business allied with progressive reformers and politicians to construct the federal regulatory apparatus.
What does Big Business have to gain from regulation? More than anything else, to suppress economic competition and avoid cutting prices.
“Competition was unacceptable to many key business and financial interests,” Kolko wrote in hislandmark history of the Progressive Era. “As new competition sprang up, and as economic power was diffused throughout an expanding nation, it became apparent to many important businessmen that only the national government could rationalize the economy.”
Railroads were the first major industry to face widespread regulation, and the champions of the movement were railroad tycoons who had grown weary of the competitive pressure to cut prices. One railroad presidentendorsed the proposed Interstate Commerce Commissionas the solution to “the prevailing contagion of depression and loss, from the effects of ruinous rates, which were uncontrollable from a lack of adequate protection of railroad interests.” Attempts to cartelize the railroads under the leadership of J. P. Morgan predictably failed owing to the strong incentives to offer discounts to shippers in the hope of generating enough traffic to cover the high fixed costs of building track networks.
Business leaders in other sectors adopted the same strategy for suppressing competition. The public-school narrative of American history teaches that Upton Sinclair’sThe Jungle, an entirely fabricated account of Chicago’s meat-packing industry, triggered the onset of economic regulation. In reality, twenty years beforeThe Junglewas published, the so-called Beef Trust was already lobbying for inspection laws to protect them from European competition.
The corporatist state reached its apex during the New Deal, when President Franklin Roosevelt invited executives from the nation’s largest companies to Washington to draft their own protectionist regulations under the ultimately unconstitutional National Industrial Recovery Act. Mammoth corporations were in a better position to absorb regulatory costs than their competitors, and price controls made it impossible for smaller operations to undercut them.In one instance, the National Recovery Administration even jailed a businessman for charging customers five centslessthan his industrial code allowed.
Today, large companies are reluctant to explicitly acknowledge their desire to suppress competition when they lobby for regulations, but the playbook is essentially unchanged. WhenApple publicly endorsedCalifornia State Senator Scott Wiener’s bill to require California businesses to disclose their greenhouse gas emissions, the company insisted that “fighting climate change” was one of its top priorities. Apple boasted that it had already been measuring and reporting its climate emissions, implicitly acknowledging that its business model would be unaffected by the burdens the new rule imposes on its smaller competitors.
The nascent AI industry is already enormously competitive, and rivalry has contributed to rapid advancements in the quality and availability of the technology. Dario Amodei’s plea for regulation sounds the alarm about “cyberattacks,” “bioterrorism” and “serious economic disruption,” but underlying all of those concerns is a fear of market competition. “A race to the bottom, spurred by commercial incentives,” he writes, “can make these risks more acute.”
More likely, he fears that Anthropic cannot win a marketplace contest that rewards quality and affordability. Like so many business leaders before him, Amodei views the regulatory state not as the protector of consumers, but as the guardian of his own self-serving corporate interests."
"Next week, Sen. Bill Cassidy (R-LA) will convene a roundtable to discuss adjustments to the 2020 No Surprises Act, which has come under increased criticism for shifting costs away from patients while driving up overall costs without addressing the underlying problem.
The theoretical market failure
The No Surprises Act was meant to address a legitimate health care problem based on fundamental economic principles. While the claim that healthcare is incompatible with a free market and needs to be managed by government is a vast overstatement, that doesn’t mean certain interactions don’t suffer from true market failures. They’re just much rarer and narrower than critics argue.
For a market to function well, participants need information and agency over their decisions. Both can fail when decisions must be made instantaneously by third parties. This principal-agent problem has been deeply studied in economics and is relevant to government actors. These problems occur when a third party makes a decision on behalf of someone whose interests or preferences differ from its own. Economists try to develop ways to avoid that issue.
How it relates to health care
This is one of the primary complications in emergency health care. The principal, the person who needs care, may be incapacitated or unable to choose their own provider. Moreover, the insurance-based health care system means the principal has ceded much of their decision-making power. But in the case of hospitals and healthcare, the situation is even more complicated. Hospitals also use third-party providers, such as anesthesiologists. The hospitals are therefore acting as an agent for the insurance company and the patient, without the incentives to choose providers based on quality and costs that are aligned with the preferences of the insurance company or the patient.
Prior to the No Surprises Act, if a hospital chose an anesthesiologist that was not covered by the patient’s insurance, the patient could be stuck with an enormous bill for a provider they had never agreed to.
As the problem grew larger, Congress decided to fix the issue and passed the No Surprises Act at the end of 2020. The No Surprises Act effectively transferred the financial onus away from the patient, but instead of transferring it to the hospital, which was ultimately the decisionmaker, the bill created a process in which an arbiter would choose between the practitioner (the anesthetist) and the insurance company. Both would submit their view of what the payment should be, and the arbiter would choose one or the other.
To give the legislators some credit, I don’t think anyone could have predicted the eventual way this process would fail. They assumed that arbiters would choose each side’s offer about half of the time, giving both sides incentives to make reasonable bids. Basically, the legislators assumed the arbiters would be absolutely objective and fair.
Consequently, the costs of out-of-network health care boomed. The system has not yet reached an equilibrium, but when the new system settles, providers will be much better off, and patients will not only still be paying for the original size of the Surprise Bills via their premium, but they’ll be paying higher prices for these services and they’ll be paying for more of them, too. All that money will come from the insured."
More specifically, I explained that the class-warfare attacks on upper-income taxpayers were going to backfire for the simple reason that entrepreneurs, investors, and business owners could “vote with their feet” by moving to nations with better policy.
…Tax changes targeting the wealthy since Labour came to office in 2024 are taking a growing toll…and near constant speculation that more measures are coming, has dramatically frayed the relationship between the well-heeled elite and the government. …The top 1% of UK earners account for about 27% all income tax revenue, according to government figures. When they leave, they also take their hefty spending power. …Half of the overall group finalized their departures from the UK — to territories spanning Monaco, Switzerland and the United Arab Emirates — in the weeks leading up to Labour bringing in sweeping tax reforms in April 2025.
…A spokesperson confirmed to the publication that the property tycoon had moved to Monaco but declined to comment further. …Last week, billionaire Manchester United owner Sir Jim Ratcliffe complained that Britain’s billionaires were leaving as the country was “on the slide” and blamed high taxes and high immigration for the decline. The remarks followed the departure of several of the UK’s highest earners… More than 10 per cent of the total wealth identified in the Rich List is controlled by UK citizens who now reside in Monaco, a total of £77bn, according to The Times.
