Diminishing Returns from the Government’s Drug Negotiation Program

By Alex Brill of AEI. 

"On Tuesday, the Centers for Medicare & Medicaid Services (CMS) announced the next 15 drugs that will be subject to government price negotiations. This is the third round of selections, bringing the total number of drugs subject to the new price-setting program to 40, with 10 drugs selected in the first year and 15 in the second. Starting next year, the number of new drugs selected annually will increase to 20.

According to CMS, Medicare expenditures for the 15 newly selected products total $27 billion from November 2024 through October 2025. This compares to $40.7 billion in sales for last year’s 15 selected drugs (from November 2023 through October 2024) and $60 billion for the 10 drugs selected in the first year (also measured from November 2023 through October 2024). It seems as if the low-hanging fruit has been picked and that each subsequent round of negotiations will likely result in diminishing cost savings.

A supporter of the government’s price-setting power might have hoped that this year would yield more potential savings than last year because, for the first time, Medicare Part B drugs were eligible for selection (only Part D drugs could be selected in the first two rounds). However, despite the inclusion of six Part B drugs among the 15 selected products, aggregate sales for this year’s cohort are still lower than in the previous round.

The drugs selected this year are the top 15 from CMS’s list of 50 potential drugs for selection. Should the 20 drugs announced next year comprise drugs 16-35 on this list, sales will be considerably lower—just $10.2 billion, based on the most recent data. (Of course, the actual drugs selected in 2027 may differ from this, and their sales next year may be higher or lower than last year.)

Admittedly, a retrospective review of a drug’s past sales is an imperfect metric for estimating the potential prospective savings from the government’s price negotiations. A comprehensive analysis would project the future spending of each drug as a baseline from which to then estimate the savings from price setting. Such efforts should also consider the extent to which the government’s intervention is substituting for (and thus negating) the competitive, market-based savings that can be derived from generics and biosimilars.

Just because the savings from this ill-conceived program may be dwindling doesn’t mean the policy is less harmful over time. It still impedes incentives for drug innovation by creating a new uncertainty for drug developers. Moreover, the savings achieved through this policy likely pale in comparison to those achieved by a well-functioning generic and biosimilar market. Patent reforms that establish clearer limits on drug monopolies could reduce uncertainty and deliver more savings."

Administering Colleges: 1960s and Today

Administrative bloat is not the sole domain of government.

By Richard K. Vedder. 

"In clearing out an office with six decades of materials—grade books, journal articles, papers given at scholarly meetings, books, etc.—I discovered evidence showing how much colleges have changed over time, and one reason they have become so expensive. Administrative staff have exploded in size relative to the growth in the number of students, or faculty. From some limited evidence from other schools (I taught as a visiting professor at three other institutions and lectured at many more), I suspect my Ohio University (OU) experience is very similar to what has happened elsewhere.

Enrollment expanded somewhat since the mid-1960s at OU, as did research activity, perhaps justifying a 50 percent increase or even doubling in administrative staff. In 1965, Ohio University had one person whose job was to raise money from private donations, and he also served as the school’s lobbyist at the state capital. Today, I count over 70 persons in OU’s “Advancement” operation, with still others in other areas involved in lobbying or as private contractors. Perusal of OU’s historic archrival, Miami of Ohio’s website, suggests a similarly sized operation.

In 1965, no OU administrator had a “chief of staff” because administrators rarely had more than one or two assistants. Now they are everywhere. OU did not even have a provost in 1965 (one “academic vice president”), but today’s provost has not only a chief of staff, but eight “associate” or “vice” provosts, plus an “executive assistant,” a “director of operations,” and other positions unheard of two generations ago.

In 1965, OU’s College of Business had four persons in the central office—a dean, associate dean (for academic matters and budgets), an assistant dean (student affairs), and one secretary/administrative assistant. Today, it has perhaps double or maybe triple the number of students, but has 56 (!!) staff with the word “director” as part of their job description, some teaching as well.

My OU experience is duplicated across the land. When I checked a few years ago, there were about 2,000 working in the central office of the University of California, as opposed to at one of the 10 or so campuses where students actually learn. No doubt each of those teaching campuses had its own smaller administrative army as well.

Probably the two most harmful areas where excessive administration has proved not only costly but damaging to a vibrant, diverse learning community are student affairs and what morphed, from literally nothing, to “affirmative action” then to “diversity, equity, and inclusion.” These administrators have proven not only costly but often destructive. I once disrupted a disciplinary proceeding against a student who, on his personal website, defended traditional male-female marriages and condemned formal gay unions. A hyper woke administrator wanted to discipline the student who had the audacity to hold such views contrary to the Woke campus consensus (I raised such a big stink, including threatening to seek the intervention of FIRE, that the university backed down). And I attended another disciplinary hearing against a conservative professor led by a gung-ho DEI administrator that made the Spanish Inquisition look tame by comparison, devoid of even a semblance of fairness and due process.

Borrowing from Proust, enough remembrances of times past. What can be done now to reduce costs and misdirection arising from administrative overreach?

In a competitive corporate environment, markets correct for costly mistakes and bloated costs. Profits fall, corporate raiders come, and to survive, companies must make uncomfortable but productive changes. But government subsidies and private philanthropy usually shield universities from having to change their costly ways. However, growing public discontent with academia may be leading to reductions in both private and taxpayer support, and those lower subsidies and falling tuition revenues likely will lead to more university closings and, with that, belated collegiate realization that serious cost reductions are necessary, including slashing massive athletic subsidies, increasing teaching loads, offering new types of degrees (three year bachelor’s?), and, most importantly, slashing administrative personnel that neither teach nor do research.

The forthcoming collegiate closings drama reminds me of 19th century’s Herbert Spencer’s “survival of the fittest” interpretation of Charles Darwin’s theories of biology, and also 20th century’s Joseph Schumpeter’s concept of “creative destruction,” demonstrating how the real threat of failure forces needed innovation among businesses trying to survive pressures in competitive marketplaces.

As I have elaborated at book length elsewhere (Let Colleges Fail: The Power of Creative Destruction in Higher Education), as the threat of actual closure intensifies, colleges will be forced to do the heretofore unthinkable, reducing non-essential staff (primarily administrators, but also nonproductive professors, perhaps weakening tenure protection). They might also have to use their buildings intensively 12 months annually, like the private sector does, with professors teaching more and writing fewer articles that no one reads for the Journal of Last Resort. Maybe colleges will sell their non-academic businesses like dormitories, food, and semi-professional sport operations, putting proceeds into endowments dedicated to lowering the excessive sticker price of attending college. Make universities genuine learning communities again.

University enrollments are lower today than in 2010, and school closings are likely to rise meaningfully. The timing and extent of this phenomenon are uncertain, but the probability of it happening is rising. Two external factors are important as well: the decline in American fertility in this century is leading to smaller numbers of prime-age domestic students, and new AI technology already seems to be reducing the demand for some types of college graduates, as machines, specifically computers, are now replacing college-trained human brainpower. The demand for plumbers and home health care workers is growing relative to that for economists and mathematicians. AI cannot fix a leaky toilet.

All this adds to the pressure for colleges to do more with less. Among other things, it means declaring war on collegiate administrative bloat."

Is school worse for your kids than social media?

By Tyler Cowen.

"For instance: did you know that daily social media use increases the likelihood a child will commit suicide by 12-18%? Or that teenagers are far more likely to visit the ER for psychiatric problems if they have an Instagram account? Or that a child’s amount of social media use, past a certain threshold, correlates exponentially with poorer sleep, lower reported wellbeing, and more severe mental health symptoms?

If that was all true for social media— and again, none of it is — you and I both would agree that people under 16 or so should not have access to platforms like Instagram or Snapchat. Imagine allowing your child to enter any system that would make them 12-18% more likely to kill themselves. That would be insane. You wouldn’t let your kid anywhere near that system, and the public would protest until it was eliminated once for all.

Great. So let’s get rid of school.

Yes, there’s the obvious twist — all the data I just listed is true for the effects of school. The modern education system is probably the single biggest threat to the mental health of children. At the very least, the evidence for its negative effects is unambiguous: the same cannot be said for social media…

From 1990-2019, suicide rates among young people have always dropped precipitously during the summers and spiked again in September. Adults show no such trend…

Beyond these clinical statistics, there’s also the simple fact that kids say they find school more stressful than pretty much anything else in their life.

Here is much more from Eli Stark-Elster, interesting throughout."

Rent Money Isn’t Wasted — It Buys Protection from Big Risk

Rent is a premium to avoid risk and preserve mobility. Landlords don’t just collect checks: they absorb the financial volatility of homeownership.

By Joakim Book of AIER. Excerpt:

"From the renter’s perspective, the pesky funds I hand over every month are far from “dead”; they are premiums paid to avoid large, lumpy expenses and risks to my balance sheet. I’m buying options, geographic mobility, freedom from regulatory and tax uncertainty. When the roof leaks or the boiler fails, it is not my bank balances that take a hit. When interest rates rise or property values fall, it is not my equity on the line. 

The landlord is the residual claimant: He takes all the financial risks involved in the arrangement. And while many economic risks remain hidden and invisible to a consumer unless they happen, like an insurance company, the service they provide is valuable. (Nobody would say that car insurance premiums were “wasted” just because you didn’t crash your car.)

Speaking of insurance, the landlord likely has some insurance arrangement that goes well above yours — more expensive, more coverage, more widely ranging.

Next, taxes. Most jurisdictions impose a property tax for the privilege of owning a home. While economists find them efficient (in the sense, “nondistortionary”), most people hate them. Fine, economically speaking, property taxes translate into the rent I’m paying, but a property tax is yet another thing you’d be on the hook for if you owned the home instead of just renting it. 

Last, and this is the biggest one: opportunity cost. If you own your home, you can’t really leave — unless the market, a suitable buyer, five sets of bureaucrats, a few realtors and financing requirements happen to align. I can cancel my lease with a few months’ notice, and I’m out, no questions asked. 

Financial opportunity cost is a real thing as well. You’re stuck paying into a financial product that returns you approximately the low-ish single-digit interest on your mortgage. That’s not a great savings vehicle; I’d much rather keep my surplus funds regularly dollar-cost-averaging into the stock market’s long-run return of 9.7 percent, the fantastic decade the S&P 500 just had (15 percent), gold’s steady 9 percent, or bitcoin’s 25-90 percent (adjust depending on timeframe and repeat-probability going forward). 

For thirty (or fifty) years, you’ve committed yourself to saving in a financial product that returns you only about the interest you’ve already paid on your mortgage, plus whatever few percentage points your house may appreciate going forward. True, you get the ability to cheaply go 7x long on a hard asset, but there’s hidden risk in there: everything from interest-rate sensitivity to housing market collapse. And to be frank, I’d much rather watch my unencumbered bitcoin fall 30 percent in value — which it has done many times in the past, and recovered — than try to fall asleep in my overleveraged house, suddenly underwater because the housing market fell. 

Historically, house price appreciation was quite respectable, depending on the monetary regime and timeframe, somewhere between six and eight percent annually, which reimburses you somewhat for your maintenance troubles. With demographic declines, uncertain economic outlooks, and plenty of threats to real estate’s outsized monetary premium on the horizon, there’s no guarantee you’ll see that sort of return again. Whereas when I’m renting a home, I can invest in whatever I please — and much more easily achieve a decent diversification should I wish to do so. (Most American households’ net wealth is locked up in illiquid housing assets.) 

Importantly, I offload all of these practical and financial troubles to someone else. They are on the financial hook for hijacking their personal balance sheet to a physical domain, nestled between a profit-hungry bank and a rapacious government. They are financially liable for maintenance, for repairs, for keeping the house in working order. 

The upside is that the owner gets to decide what, like, the bathroom redecoration looks like. Maybe build a new porch.

From the consumer’s point of view, landlords exist to absorb risks that households should be wary of carrying themselves. They borrow so I don’t have to; they lever themselves up so I can stay liquid; they hold the legacy asset while I keep the options.

Landlords of the world, I salute you for your service!"

Americans Are the Ones Paying for Tariffs, Study Finds

Research contradicts President Trump’s claim that foreigners are footing the bill, and could weaken his hand in the dispute over Greenland

By Tom Fairless of The WSJ. Excerpts:

"Americans, not foreigners, are bearing almost the entire cost of U.S. tariffs, according to new research [published  by the Kiel Institute for the World Economy]"

"suggests that the impact of tariffs is likely to show up over time in the form of higher U.S. consumer prices."

[other research] "by the Budget Lab at Yale and economists at Harvard Business School, finding that only a small fraction of the tariff costs were being borne by foreign producers."

"foreign exporters absorbed only about 4% of the burden of last year’s U.S. tariff increases by lowering their prices, while American consumers and importers absorbed 96%."

"Indian exporters maintained their prices but reduced the volume of shipments to the U.S. by 18%-24% relative to the European Union, Canada and Australia"

"The $200 billion in additional U.S. tariff revenue last year “was paid almost exclusively by Americans”" 

"only around 20% of the tariffs had fed into higher consumer prices six months after their introduction, with the bulk eaten by U.S. importers and retailers."

The Warmth of Cooperation

By Christopher Freiman. 

"New York City Mayor Zohran Mamdani recently caused something of an uproar when he contrasted the “the frigidity of rugged individualism” with the “warmth of collectivism.” This framing echoes the familiar criticism that capitalism forces people to go it alone as “atomistic individuals.” The thought goes like this: markets do real damage to the social fabric and our relationships because they organize our economic lives around competition and self-interest. Organizing our lives around competition encourages people to see each other as rivals rather than partners. In brief, capitalism pits us against each other, while socialism brings us together. Setting aside the fact that collectivist regimes haven’t exactly been warm to those living under them, this view gets capitalism backward.

Start with a simple observation about your own economic life under capitalism. Think about this week: how many cooperative interactions have you had, and how many competitive ones?

You probably didn’t compete with anyone when you bought coffee at Starbucks this morning. You didn’t enter a zero-sum struggle when you paid your phone bill, purchased groceries and gas, or caught a movie. Instead, you took part in a series of mutually beneficial, voluntary transactions. You gave someone money and they gave you something you wanted more than the money. Everyone walked away better off. In the words of Adam Smith, “It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest.”

Competition, by contrast, rarely pops up in your day-to-day economic life. A business competes with other businesses for customers and you’ve probably competed with others for a job at some point. But you cooperate far more often than you compete. And notice what market competitions really are—they’re competitions to see who’s best at serving others. You might say that they’re competitions to discover the best ways to cooperate and who the best cooperators are (more on this below).

Unsurprisingly, Smith understood the cooperative nature of markets well. He writes that a wool coat 

“is the produce of the joint labour of a great multitude of workmen. The shepherd, the sorter of the wool, the wool-comber or carder, the dyer, the scribbler, the spinner, the weaver, the fuller, the dresser, with many others, must all join their different arts in order to complete even this homely production. How many merchants and carriers, besides, must have been employed in transporting the materials from some of those workmen to others who often live in a very distant part of the country!  How much commerce and navigation in particular, how many ship-builders, sailors, sail-makers, rope-makers, must have been employed in order to bring together the different drugs made use of by the dyer, which often come from the remotest corners of the world!”

Smith goes on, but I’ve got a word limit here—the point is that markets don’t atomize us. On the contrary, they lead strangers all over the world to cooperate.

Think back to the last time you bought a coffee. Starbucks has to coordinate with bean farmers, shipping companies, truck drivers, warehouse workers, roasters, equipment manufacturers, electricians, plumbers, accountants, and baristas. None of these people know you, and yet they manage, every day, to cooperate in ways that reliably get caffeine in your hand at 7:43 a.m. And this isn’t accidental—the prices provided by markets give people the information they need to figure out what others want, and they provide the incentive to give it to them.

There’s no denying that markets involve competition. You can go to the business section of a bookstore and find titles like Business Warfare and The Warfare of Business. But businesses are competing with each other to see who can best serve consumers. Netflix beat Blockbuster by figuring out a better way to give viewers what they wanted: convenience, selection, no late fees, and eventually streaming. In brief, Netflix won because consumers preferred cooperating with Netflix over Blockbuster. 

A similar point applies to competition in the job market. Maybe you don’t merely want to buy coffee from Starbucks, you want to work there, too. But this means you’ll have to compete with other applicants who also want the job. Here again, let’s look at what it takes for an applicant to win this competition. They need to demonstrate that they’ll do the best job of making customers better off—say, by being more punctual, more efficient at making mochas, or more likely to serve drinks with a smile. Market competition is competition to see who can cooperate most effectively with others.

In any case, democratic socialists can’t be opposed to all competition. After all, democracy requires competition, and democratic socialists want democracy in the workplace as well as in politics. If competing for dollars is frigid, it’s hard to see why competing for votes would be any warmer. Market competition enables millions of people with different values, plans, and priorities to work together without agreeing on much of anything by helping them to coordinate many different choices. You and your barista don’t need to agree on the principles of justice to cooperate and make each other better off. Far from being atomizing or frigid, the free market is a system of interdependence that brings strangers together to cooperate for their mutual benefit."

The Return of the Wealth Tax, Evidence Against Them Is Stronger Than Ever

By Adam N. Michel of Cato.

"Wealth taxes promise redistribution but more often deliver high economic costs, administrative complexity, and disappointing revenue. California’s proposal illustrates how these taxes distort investment decisions, magnify fiscal volatility, and tend to evolve from one-time levies into permanent features of strained budgets."

Wealth taxes impose an additional layer of tax on the income generated by the underlying asset. Most wealth consists of productive assets deployed in the economy, such as active businesses and other physical investments. The annual income streams generated by the underlying assets—capital gains, dividends, and interest—are taxed through the normal income tax system.

The existing tax system already charges the wealthiest Americans high tax rates. A Biden administration Treasury study found that the wealthiest 92 Americans faced total state, local, federal, and international income tax rates of 59 percent. Recent research by four prominent liberal economists concludes that US billionaires pay higher tax rates than their counterparts in the Netherlands, Sweden, Norway, and France, and, contrary to the headline claim, the wealthiest taxpayers also pay the highest tax rates among all Americans.

Because wealth taxes are assessed on a stock instead of an annual income flow, expressing the tax rate as an equivalent income tax rate is more informative. Unless the taxpayer is expected to slowly sell off their underlying assets, the tax will be paid from annual income. Table 1 shows the equivalent income tax rate on underlying assets with different rates of return at different wealth tax rates. At the California top wealth tax rate of 5 percent, any asset earning less than a 5 percent annual pre-tax return would face income tax rates above 100 percent before paying other taxes. Bernie Sanders’ 2020 campaign proposal included a top wealth tax rate of 8 percent.

 

Net wealth taxes have been tested in other countries and repealed due to high economic costs and administrative burdens. Peaking at 12 in the 1990s, only four Organisation for Economic Co-operation and Development (OECD) countries still impose broad-based net wealth taxes today: Colombia, Norway, Spain, and Switzerland. The figure below shows the trend of wealth taxes over time.

 

Wealth taxes can impose confiscatory effective tax rates with predictable economic consequences. By directly reducing the after-tax return to saving and investment, they weaken incentives to build businesses, expand productive capacity, and take entrepreneurial risks. Because most large fortunes are not gold bars under the mattress but ownership stakes in operating companies, real estate, and other productive assets, a wealth tax functions as a direct penalty on those investments. That penalty doesn’t remain confined to the wealthy. Capital formation is what drives productivity growth and wage gains, and policies that discourage it ultimately leave everyone worse off. 

Wealth taxes also distort capital allocation. Investors have a strong incentive to shift portfolios toward assets that are harder to value, easier to shelter, or more mobile across borders, rather than toward their most productive use. This encourages tax avoidance rather than genuine economic activity. It can mean less investment in long-term projects, more leverage, and greater reliance on complex financial arrangements to reduce reported net worth.

Wealth taxes are also administratively complex. Valuing a broad range of assets every year is extraordinarily difficult. Unlike easy-to-value publicly traded stocks, most wealth is tied up in closely held businesses, partnerships, real estate, artwork, and other illiquid or unique assets. Annual valuation invites avoidance and disputes, which raises compliance costs for both governments and taxpayers. It took 12 years for the IRS and the Michael Jackson estate to reach a court-mediated agreement on the value of its taxable assets. Going through such a process every year for all taxpayers with assets above or near the tax threshold is administratively impracticable.

Because of persistent administrative difficulties and taxpayers’ behavioral responses, wealth taxes raise comparatively little revenue. Countries that experiment with wealth taxes repeatedly find that taxpayers adjust their behavior or move in large numbers, undermining optimistic revenue forecasts. Before France repealed its net wealth tax in 2018, the government estimated that “some 10,000 people with 35 billion euros worth of assets left in the past 15 years.” 

Spain experienced a similar behavioral response following the 2023 “solidarity tax,” which raised just 40 percent of the projected revenue. Cato’s Chris Edwards summarizes that “European wealth taxes typically raised only about 0.2 percent of GDP in revenues. Given the little revenue raised, it is not surprising that they had ‘little effect on wealth distribution,’ as one study noted.”

California’s proposed 5 percent wealth tax is especially notable because it would layer on top of the most progressive tax system in the OECD. The state already relies on taxpayers making over half a million dollars a year (the highest income 2.5 percent) to pay 49 percent of income tax revenue. They do this by combining high marginal income tax rates and heavy reliance on capital gains taxation, which makes revenues volatile and highly sensitive to the fortunes and domiciling decisions of a small number of taxpayers.

Although framed as a narrow one-time levy on “excessive accumulations of wealth,” the California proposal includes multiple mechanisms that inflate taxable wealth well beyond economic reality. As the Tax Foundation’s Jared Walczak has detailed, the rules systematically overvalue voting control relative to ownership, apply rigid valuation formulas to private businesses, impose severe penalties that discourage good-faith valuation disputes, and include anti-avoidance rules written so broadly that they can tax assets no longer owned or wealth that may never be realized.

The initiative’s own findings make clear that this will not be a one-time tax. The ballot text explains that the wealth tax “would only modestly slow” the growth of billionaires’ fortunes in California. That admission undermines the premise that the tax solves any underlying fiscal or wealth distribution problem. If a tax leaves wealth largely intact, political pressure to repeat, expand, or permanently extend it is inevitable. This is what happened in Spain, when its “exceptional and temporary” wealth tax became permanent. California’s proposal should be understood in this light, not as a one-off correction, but as a test case for permanent wealth confiscation.

The lesson extends beyond California. Chronic spending growth cannot be solved by ever more aggressive taxes on a narrow subset of high-income taxpayers. Wealth taxes are not a solution to budgetary or economic gaps; they are a symptom of a broken fiscal system grasping for short-term revenue while postponing the difficult but necessary work of restraining spending growth." 

Steven Pinker on the disaster of communism

From Twitter.

"I spoke with @LaulPatricia about Marxism:

One is: What’s remarkable is that Marxism has been tried. Now, of course, defenders of Marxism say it hasn’t really been tried anywhere, but certainly the people who implemented it claimed they were implementing Marxism. 

And this is a massive experiment—a global experiment—with a very clear outcome. Namely, the Soviet Union was a disaster. The imposition of communism on Eastern Europe was a disaster. The imposition of communism in Venezuela was a disaster. The imposition of communism in Maoist China was a disaster. Disaster in terms of both poverty and oppression and genocide and stupid wars. So the world has told us what happens under communism, and it’s a sign of how out of touch intellectuals can be that there are still people who defend it despite the entire world giving a very clear-cut answer.

One more is: would you rather live in North Korea or South Korea? Would you rather live in the old East Germany or West Germany? We have an experimental group and a matched control group in terms of culture, language, and geography, and the answer is crystal clear. So this is a sign of, I think, the pathology of intellectual life—that Marxism can persist.

The other is, you did call attention to one of the appeals of Marxism, though, and more generally of heavy, strong influence of government guided by intellectuals, which is that there are certain kinds of reforms that you can state as principles. You can articulate them verbally as propositions—like equality, human rights, democracy—but there’s other kinds of progress that take place in massive distributed networks of millions of people, none of whom implements some policy. But collectively, there is an order, an organization that’s beneficial.

So that can happen organically through, for example, the development of a language. No one designed the English language. It’s just hundreds of millions of English speakers. They coin new words. They forget old words. They try to make themselves clear. And we get the English language and the other 5,000 languages spoken on earth.

Likewise, a market economy is something where knowledge is distributed. You don’t have a central planner deciding how many shoes of size 8 will be needed in a particular city, but rather information is conveyed by prices, which are adjusted according to supply and demand. And you’ve got a distributed network of exchange of information that can result in an emergent benefit.

Now, intellectuals tend to hate that. They like rules of language—of correct grammar. They like top-down economic planning. They like cultural change that satisfies particular ideals described by intellectuals. And so rival sources of organization, like commerce, like culture—traditional culture—tend to be downplayed by intellectuals.

And this can be magnified by the fact that many dictatorships give a privileged role to intellectuals, which may be why, over the course of the 20th century, and probably continuing to the present, there has not been a dictator that has not had fans among intellectuals—including the mullahs and ayatollahs of Iran, but also the communist dictators: Mao and Castro, even Stalin in his day. And every other dictator has had, actually, often fawning praise from Western intellectuals."

Addressing a Few Common Arguments for the Work Opportunity Tax Credit (in practice, it costs taxpayers billions of dollars and doesn’t deliver the results it promises)

By Jack Salmon of Mercatus.

"At the end of last year, the Work Opportunity Tax Credit (WOTC) finally expired, having been renewed 13 times since 1996. Even so, business groups and policymakers have continued to press for its reauthorization, both before and after its expiration.

The WOTC was originally justified as a way to help disadvantaged workers gain a foothold in the labor market, but in practice, it costs taxpayers billions of dollars and doesn’t deliver the results it promises.

The groups of disadvantaged workers that the credit targets typically include recipients of state assistance, veterans, SNAP recipients, formerly incarcerated individuals and those experiencing long-term unemployment.

The program allows employers to claim a credit of up to $2,400 per worker for most targeted groups if the employee works at least 400 hours in the first year. For some groups, such as disabled veterans or the long-term unemployed, the credit can reach as high as $9,600 per hire.

It’s easy to see why, from a high level, some believe the WOTC has an important role to play in helping disadvantaged workers. In practice, it has become yet another narrow corporate tax break that costs taxpayers billions while delivering negligible results. Below I will respond to some of the most common claims about this credit, offering empirically grounded reasons why the credit has repeatedly failed and should not be revived a fourteenth time.

Claim 1: Before WOTC, disadvantaged workers struggled to find stable jobs, and the credit was created to fix that failure.

Even before the creation of the WOTC in 1996, there was a predecessor program with many of the same goals, the Targeted Jobs Tax Credit (TJTC).

Evaluations of TJTC consistently found that it failed for the same reason WOTC fails today. General Accounting Office (GAO) reports from the early 1990s found that the majority of employers using the credit “made no special effort to identify, hire, or retain TJTC-eligible workers. … If employers’ normal employment practices happen to result in the hiring of an eligible worker, they may claim the tax credit even though they have made no specific effort to recruit, hire, or retain workers targeted by the program.”

An audit report published by the Department of Labor in 1994 similarly found that “92 percent of those individuals for whom employers could have claimed a credit would have been hired regardless of the tax subsidy.” The audit report concluded that “the program largely subsidizes the wages of those who are hired irrespective of their eligibility and the availability of a tax credit.”

For these reasons, TJTC was allowed to expire in 1994, but in 1996 it was revived and rebranded as the WOTC. A new name didn’t get rid of the same problems that the TJTC had previously faced, however.

Claim 2: Without the WOTC, businesses won’t hire disadvantaged workers.

The Department of Labor undertook a case study in 1999 that included interviews with 16 firms that used WOTC across five states. The results included the finding that “the tax credits play little or no role in [the 16 employers’] recruitment policies,” suggesting that employers would have hired members of the target groups even if the programs were not available. The report’s authors concluded: “These observations do raise a question about the extent to which the tax credit is serving the purpose for which it is intended — to serve as an economic incentive to encourage employers to hire individuals from specified target groups whom they would not have hired in the absence of the credit.”

Economist Sarah Hamersma used a combination of Wisconsin administrative data and survey data in a 2008 paper that uses panel estimates to determine if WOTC creates incentives that improve employment outcomes for targeted workers. According to her analysis:

Firms do not appear to be using the opportunity to claim tax credits for disadvantaged workers to deliberately increase the hiring of disadvantaged workers. In general, they do not have information about individuals’ status as qualifying (or not) for the tax credits at the time of hire, and even after hiring decisions are made, information about employees who are claimed is kept confidential. As one firm related in the telephone survey: “The information is sent to our corporate office, a third party processes the forms, and the tax credits come back to us like a bonus.” In effect, the firms get “bonuses” for simply putting a form in their hiring packets and sending them off to be processed.

The Inspector General of the Department of Labor has published studies on the effectiveness of WOTC in hiring disadvantaged workers. Focused specifically on veterans with disabilities, a 2012 study implies that only about 13% of WOTC benefits actually lead to new employment, meaning about 87% of benefits accrue to hires that would have occurred in the absence of the credit.

This isn’t a unique finding for WOTC but tends to be a common feature among hiring tax credits broadly speaking. Economist Timothy Bartik reviewed the effect of Michigan’s MEGA tax credit program aimed at hiring or retaining workers, especially in the manufacturing sector. He found the tax credit incentive decisive in only 8% of cases, meaning 92% of credits subsidized jobs that would have existed regardless of whether the credit was offered. Bartik’s earlier work found even larger windfall rates, up to 96%.

The most recent and perhaps most comprehensive analysis of the windfall rate for WOTC comes from a 2025 NBER study. The meticulous analysis of 13 million workers over two decades suggests that the windfall rate is around 97.1%, and the authors could not rule out the statistical possibility that 100% of the hires would have occurred in the absence of the credit.

In sum, the claim that businesses won’t hire disadvantaged workers without the WOTC doesn’t hold up to the empirical evidence. Between 90% and 100% of WOTC claims are for job hires that would have occurred whether or not the credit existed.

Claim 3: The WOTC provides workers with stable jobs and good pay. Without the credit, workers would instead be more likely to rely on public assistance or turn to crime.

For at least two decades, economists have been exploring whether the WOTC improves long-term labor market outcomes for targeted workers. Using propensity score matching estimations, economist Sarah Hamersma of Syracuse University found that WOTC led to no measurable effect over the long term.

While Hamersma found small improvements in employment after two quarters, when she extended the analysis to four and six quarters, WOTC had no impact. She also found that less than 10% of eligible workers get certified for WOTC. When estimating the effect of WOTC on workers’ tenure in a given position, Hamersma found it to be near zero and statistically insignificant.

Using a similar approach, Hamersma and economist Carolyn Heinrich examined how temporary help agencies use WOTC. The authors do not find evidence that WOTC certification brings about improvements in worker job outcomes, earnings, or labor market attachment.

For worker tenure specifically, they find that workers are employed for just 26 weeks on average if hired by temporary help service firms and 40 weeks if hired by end-user firms. This finding is hardly a strong signal of a job subsidy that provides stable jobs and long-term labor market attachment.

Similarly, the 2025 NBER research paper compiled summary statistics from more than 426,000 WOTC certifications and found an average job tenure of about 10 months. Using administrative micro-data on all WOTC applications in Wisconsin between 2005 and 2020, the study found that certified WOTC hires had jobs lasting longer than 9 months only 23% of the time.

The average starting wage of WOTC-certified workers was just $9 an hour. Among successful certifications who were SNAP beneficiaries, the median quarterly earnings were about $1,800, or less than $140 a week.

The authors of this 2025 study also construct measures of social assistance and indicators of criminal activity to determine whether WOTC reduces welfare dependence or criminal conviction. WOTC is found to have null effects on both outcomes, suggesting that these wage subsidies are unlikely to generate any savings for the government.

Claim 4: Small businesses depend on WOTC and will struggle to hire workers without it.

Despite WOTC’s populist branding, the vast majority of benefits accrue to large corporations, not small businesses or mom-and-pop employers.

A report by the U.S. General Accounting Office analyzed data from agencies in California and Texas on the number of WOTC-certified employees hired by each employer. The report found that just 3% of participating firms accounted for 83% of all WOTC certifications, and that the top 5% of firms (measured by gross receipts) claimed two-thirds of all WOTC dollars.

Hiring credits like the WOTC are less about encouraging new employment and more about subsidizing companies that have the administrative savvy to claim the credits.

That pattern persists today: NBER research found that among WOTC certifications in Wisconsin, 52% were hired by temporary hiring staff agencies, 24% were hired by publicly traded firms with a median market cap of over $30 billion, and 16% were large fast-food franchises.

The same research found that half of all WOTC subsidies in Wisconsin went to just 48 firms, even though they only accounted for 9% of hires. The authors note: “Our results imply that hiring subsidies through WOTC operate as a pure transfer to firms” and “that these transfers are heavily concentrated.” What’s more, even when the program made it easier and more salient to claim the credit, there was no increase in hiring, employment or earnings.

The claim that small businesses will struggle to hire without the WOTC is inconsistent with the empirical findings that hiring does not respond to WOTC eligibility, expansions, or reductions in application costs. Firms hire the same workers regardless of the subsidy, and more than 90% of subsidized hires would have occurred anyway. The program functions as a transfer to a small set of large firms, not as hiring support for marginal employers.

Claim 5: WOTC is an important subsidy for hiring veterans.

Supporters often defend the Work Opportunity Tax Credit by invoking veterans. Senator Cassidy (R-La.), for example, argues that WOTC must be extended because “veterans and military spouses deserve every opportunity to build stable, rewarding careers.” That sentiment is laudable, but it does not describe what WOTC does.

First, veterans are a small share of certified WOTC workers. Even in recent years, veterans account for only 6-7% of WOTC certifications, compared with roughly 70% for SNAP recipients. In earlier years, the veteran share was closer to 1–2%. Whatever WOTC is, empirically, it is not primarily a veterans’ policy.

Second, and more importantly, the best evidence shows that WOTC does not meaningfully affect hiring outcomes at all, regardless of targeted group type. Employers hire the same workers with or without the credit, and most of the certified hires are for low-paid jobs with short tenures.

Even studies focused specifically on veterans find similar windfall rates: A 2012 Department of Labor Inspector General report concluded that roughly 87% of WOTC benefits subsidized veteran hires that would have occurred anyway.

The institutional reasons WOTC fails—lack of screening, legal risk concerns and siloed HR processes—apply equally to veterans.

Conclusion

Across every claim used to justify its renewal—hiring, job quality, small business support and veteran employment—the Work Opportunity Tax Credit consistently fails empirical scrutiny. Decades of evidence show that it does not change hiring behavior, does not improve worker outcomes and overwhelmingly subsidizes jobs that would have existed anyway. Reauthorizing WOTC yet again would not be a bold commitment to disadvantaged workers or veterans. It would be an admission that policymakers prefer symbolic tax credits to policies that actually work."

Democrats’ Nonprofit Problem

A vast, monied network of activist groups keeps the public inflamed.

By Barton Swaim. Excerpts:

"The Democrats’ nonprofit problem began more or less in 2010, when a cap-and-trade bill died in the Senate. Wealthy foundations and donor-class ideologues, animated by fears of global catastrophe, decided they couldn’t achieve their goals by democratic persuasion and had to create an army of nonprofit groups to wage legal and political war on the imagined enablers of climate change.

The money soon flowed to other areas, as money does. Particularly since the pandemic and the George Floyd riots in 2020, the progressive donor class has spread its largess to advocacy and activist organizations pushing social justice, immigrant rights, Palestinian statehood, LGBTQ rights, indigenous people’s rights and—as ever—climate sustainability. MacKenzie Scott, ex-wife of Jeff Bezos, has given $26 billion since 2019. Other billionaires with left-leaning proclivities—Michael Bloomberg, Pierre Omidyar, George Soros, Tom Steyer—have pumped enormous sums into progressive nonprofits."

"the anti-ICE protests in Minneapolis aren’t primarily, or maybe at all, the spontaneous uprisings of an outraged citizenry. Gov. Tim Walz . . . urged viewers to record ICE operations on their phones."

"Ordinary people don’t do that. Nor do they park their cars to obstruct law-enforcement operations or gather outside hotels in the wee hours to chant and bang drums because those hotels rented rooms to ICE agents. Activists do these things."

"The campus protests since 2023 were similarly orchestrated by a latticework of “anti-Zionist” organizations, many larded with money from left-wing foundations: Open Society, Kaphan, Tides and others."

Why the Supreme Court Tariff Case Is Such a Big Deal

President Trump’s weekend spree shows how unlimited his claim of power is.

WSJ editorial. Excerpts:

"he has claimed is his power in an “emergency” under the International Emergency Economic Powers Act. But what emergency? Greenland isn’t under threat of invasion, and Denmark has said the U.S. can have more or less free run of the island for defense purposes."

"how open-ended Mr. Trump’s claim of tariff emergency authority is."

"he can use tariffs essentially whenever he wants for whatever reason he wants. Congress gave him no such expansive power under IEEPA or any other statute.'

"'the taxing power is Congress’s under the Constitution unless expressly delegated to the President."

American Studies Can’t Stand Its Subject

Eighty percent of articles in the field’s leading journal were negative, while not one was positive

By Richard D. Kahlenberg and Lief Lin. Mr. Kahlenberg is director of the American Identity Project and Mr. Lin is a policy research fellow at the Progressive Policy Institute. Excerpts:

"almost 100 articles we examined from over a three-year period in American Quarterly, the flagship journal of the American Studies Association. Published by Johns Hopkins University, it’s widely considered the country’s premier journal of American studies."

"We found that 80% of articles published between 2022 and 2024 were critical of America, 20% were neutral, and none were positive. Of the 96 articles we examined, our research identified 77 as critical, focused on American racism, imperialism, classism, sexism, xenophobia, homophobia and transphobia. Some articles went to absurd lengths to identify sins. One essay posited that thermodynamics—the science dealing with the relationship between energy, heat, work and temperature—is “an abstract settler-capitalist theory that influenced the plunder of Indigenous lands and lives.”" 

"we couldn’t find a single positive article over a three-year period. There were none on American ingenuity. Readers wouldn’t come to understand why as of 2020 the U.S., representing about 4% of the world’s population, won 42% of the individual Nobel Prizes since the awards’ creation in 1901. Or why the U.S. was the first country to land a man on the moon. There wasn’t a single article about America’s vanquishing Nazi Germany in World War II or the Soviet Union in the Cold War. There was no discussion of why the U.S. is rated as the most desirable destination for immigrants across the world."

"the complete lack of gratitude on the part of scholars who write for the leading journal of American studies and benefit every day from the country’s commitment to liberty."

"we contacted University of Texas at Austin historian Steven Mintz, who has analyzed the field of American studies. He told us: “A field that once asked, ‘What is America?’—exploring its myths, music, monuments, and contradictions—now too often narrows its focus to a different question: ‘Whom has America silenced, failed, or harmed?’”" 

By focusing on phonics, Mississippi's public schools rocketed from 49th place in the nation to ninth

See The ‘Mississippi Marathon’ Is Teaching Kids to Read by Rahm Emanuel. Excerpts:

"The Magnolia State’s reading scores haven’t only bucked the national trend—they’ve been rising for years. Mississippi once ranked 49th in fourth-grade reading. It’s now ninth. Yet the average fourth-grader in Mississippi today outperforms the average fourth-grade Californian. Half of black fourth-graders read at grade level in Mississippi, while barely more than a quarter do in the Golden State."

"What is Mississippi’s secret?" 

"It’s actually very simple and—given that Louisiana, Tennessee and Alabama have pursued similar paths—replicable. Mississippi chose to spend less time on topics that dominate Washington’s education agenda and instead maintained a focus on what happens inside the classroom. It focused on the fundamentals."

"It abandoned the hokum that convinced educators that they could teach kids to read through pictures and context clues rather than decoding words. The state restored phonics-based systems that rigorous scientific studies have shown to work."

"the Magnolia State constructed a system to train teachers so that they are effective at teaching students to read."

"It also imposed systems of accountability to ensure that administrators, teachers and students alike meet their marks."

"As Principal Morris [Felica Morris of F.B. Woodley Elementary School] made clear to me, we can’t make progress without measuring it. For all the complaints in my party about “teaching to the test,” Ms. Morris argued that, without accountability, we can’t drive results." 

If the media really cared about climate change, it would start telling the truth about it

See Trump the Climate Nonentity by Holman W. Jenkins. Excerpts:

"Even very large events, such as Covid or the collapse of Soviet industry, at most leave a noticeable indent only on the varying annual rate of emissions increase, not overall atmospheric CO2."

"The largest human CO2 event in history, the emergence of China as an industrial power, on an emissions graph appears only as a continuation of an uninterrupted upward trend since the Industrial Revolution."

"Last April came a small but telling explosion in the climate community. On behalf of the prestigious Council on Foreign Relations, a former John Kerry climate aide, Varun Sivaram, inaugurated a program dedicated to “climate realism.”"

"It conceded many long-obvious points: U.S. emissions have become too small a share of the global total to affect the climate outcome. With or without U.S. leadership, countries aren’t going to abandon a resource from which they’re profiting. The internationally agreed targets for restricting future warming are wholly chimerical." 

Florida’s Insurance Reform Lesson for New York

DeSantis’s success, with auto insurers slashing premiums, could be a model for Hochul

WSJ editorial. Excerpts:

"premiums are falling in states that have eased burdensome insurance rules and taken steps to curb excessive litigation and fraud."

[Florida] "enacted a package of legal reforms in 2022 and 2023 that cracked down on unscrupulous medical providers who work with plaintiff attorneys to bilk insurers. In 2021 Florida insurers faced claims of $7.8 billion in damages, versus $2.4 billion in the other 49 states combined."

"several auto insurers have filed for premium reductions"

"State Farm has slashed premiums by 20% in total since 2024. Progressive said last fall it would refund policyholders $1 billion."

"the state’s [New York] no-fault rules, which let individuals claim damages for injuries and vehicle damage from their insurer regardless of who’s to blame for an accident. Get this—a shooter can claim damages from his insurer if he gets into an accident while fleeing from a crime." 

"Injuries are often faked or exaggerated. Unethical doctors bill insurers for expensive and unnecessary treatments." 

A special income tax on high earners in France last year raised only a fraction of what the government had hoped for

By Dan Mitchell. 

"Which leads me to share this report from the U.K.-based Financial Times. Written by Leila Abboud, it has what I’m calling the world’s least surprising headline.

Here are some excerpts.

A special income tax on high earners in France last year raised only a fraction of what the government had hoped for…and proceeds this year are again expected to be lower than budgeted. The French finance ministry said that a so-called “differential contribution” applying to those earning more than €250,000 a year raised only €400mn for the 2025 tax year instead of the €1.9bn it initially projected. …For 2026, the tax is expected to raise €650mn, €1bn less than planned, the ministry said, creating a budgetary hole… The shortfall from the extra income tax on high earners…also shows the challenges of crafting taxes on the rich that work. Wealthy people often turn to “optimisation” or avoidance techniques to reduce their exposure, such as moving assets or keeping them in holding companies. In the 1980s, about half of OECD countries had some form of wealth tax, while only a handful now do so, and they raise modest revenue for state coffers.

What’s happening in France could be called “Revenge of the Laffer Curve.” Greedy politicians can target the rich, but such initiatives always backfire.

What bothers me most is that tax increases backfire by hindering growth.

In this case, the class-warfare tax backfired by collecting only a fraction of the revenue politicians wanted. As the French would say, “Quelle surprise.”

Except anyone who understands economics knows it is not a surprise."

The Tyranny of the Complainers II

By Alex Tabarrok.

"The Los Angeles City Council recently voted to increase the fee to file an objection to new housing. The fee for an “aggrieved person” to file an objection to development is currently $178 and will rise to $229. Good news, right? But here’s the rest of the story: it costs the city about $22,000 to investigate and process each objection. This means objections are subsidized by roughly $21,800 per case—a subsidy rate of nearly 99%.

Meanwhile, on the other side of the equation:

While fees will remain relatively low for housing project opponents, developers will have to pay $22,453 to appeal projects that previously had been denied.

In other words, objecting to new housing is massively subsidized, while appeals to build new housing are charged at full cost—more than 100 times higher than aggrieved complainer fees. This appears to violate the department’s own guidelines, which state:

When a service or activity benefits the public at large, there is generally little to no recommended fee amount. Conversely, when a service or activity wholly benefits an individual or entity, the cost recovery is generally closer or equal to 100 percent.

Expanding housing supply benefits the public at large, while objections typically serve narrow private interests. Thus, by the department’s own logic, it’s the developers who should be given low fees not the complainers.

Addendum: See also my previous post The Tyranny of the Complainers."

Free trade did not reduce American industrial production

By Donald J. Boudreaux.

"In “Trump Credits ‘Mister Tariff’ for the Country’s Strength. Economists Beg to Differ” (January 14), long-time protectionist Jeff Ferry is quoted as saying that “the aim of the tariffs is to rebuild U.S. production.” The implication is that American industrial production declined as trade became freer. This implication, however, is mistaken.

Helped by U.S.-led post-war efforts to open global markets, American industrial production rose steadily, during non-recessionary times, from the end of WWII until the first Trump administration. This production hit its all-time high in September 2018, just as the first of Trump’s tariffs were kicking in – tariffs largely maintained by Biden. Industrial production was then 18% higher than it was in December 2001, the month China joined the World Trade Organization, 60% higher than it was in 1993, the year before NAFTA took effect, 154% higher than in 1975, the year when America last ran an annual trade surplus, and 650% higher than in 1947, the year before the first round of tariff cuts under the General Agreement on Tariffs and Trade.

But since mid-2018, U.S. industrial production has largely flatlined, being today 2.2% below that all-time high.

Informed individuals who wish to spur U.S. industrial production reject protectionism."

Preventing climate change versus adapting to it: History shows that societies can adapt to changing climate conditions

By Kenneth P. Green of The Fraser Institute.

Adapting to Climate Change around the World

• This study explores what climate adaptation might look like in modern societies, based on measures taken in the past to adapt to projected climate changes, including higher temperatures, shifting precipitation patterns, and more frequent extreme weather events such as floods.
• The study examines the history of adaptation to flooding in the Delta Works of the Netherlands; the reduction of flood risk in the rivers of Europe; the success of the Thames Barrier of London; and the barriers protecting the canals and city of Venice.
• The study also examines the history of adaptation to extremes of heat by reviewing two very different examples of extreme heat management, in Ahmedabad, India, and the United States.
• The Netherlands Delta Works, the Thames Barrier, the canal control system of Venice, and river controls in Europe show that changes to these ecologic systems, even fairly rapid ones, can be successfully controlled by societies at the local-to-regional level using conventional engineering technologies and government warning and notification systems.
• Similarly, the effects of extreme heat in Ahmedabad, India, and in the United States are being controlled with currently available engineering and social organization rather than distant global greenhouse-gas emission reductions.
• The United States took a somewhat higher-energy, more technological approach—the wider spread of HVAC technology—while Ahmedabad relied more on passive environmental cooling systems and institutional changes such as public heat notifications and response systems.
• The two distinct approaches show the broad applicability of adaptation in managing climate risks.

Are Institutions Buying Up Single-Family Homes?

Institutional investors own less than one percent of single-family homes, and their impact on prices is modest. New evidence suggests their presence may reduce rents.

By Jason Sorens of AIER. Excerpts:

"Institutional investors, defined as those owning 100 or more homes in their portfolios, own less than one percent of the single-family housing stock nationally and only about three percent of single-family homes for rent. Their purchasing activities have declined since 2022, but even at the peak the largest (1000+ homes) investors accounted for under three percent of single-family house purchases nationally. Institutional investors matter more in some markets than in others, but in no metro area do companies with 100+ home portfolios own more than five percent of the single-family stock."

"Places with more large institutional investor ownership of single-family homes saw larger price declines over the most recently available 12-month period"

"Institutional investors help make the housing market more liquid and less cyclical. They upgrade the quality of the housing stock, typically at lower cost than smaller renovation outfits. They make desirable neighborhoods accessible for households that could not afford to buy in those neighborhoods. Increasingly, they are directly increasing housing supply."

"Most institutional investors tend to focus on particular neighborhoods or cities to reduce the per-unit costs of property management."

"Mortgage underwriting standards tightened dramatically after the Great Recession, making it difficult for younger Americans and those with a lot of income from “side gigs” and self-employment to qualify. As a result, homeownership rates declined. By making more single-family homes available to renters, buy-to-rent institutional investors have helped families that could not afford to buy or qualify for a mortgage to move into desirable neighborhoods."

"The most recent and careful paper on the subject finds that large institutional investors slightly raise house purchase prices and reduce rents. The effect on prices is truly tiny: for every percentage point of the total single-family housing stock owned by large institutional investors, house prices go up 1.7 percent. Since these investors own less than one percent of the single-family housing stock nationally, counterfactually eliminating all large investor ownership of single-family housing would decrease national house prices by less than 1.7 percent."

"for every percentage point of the single-family rental stock that institutional investors own, rents fall 0.7 percent. Since institutional investors own about three percent of the national single-family rental stock, the total effect on rents is around negative two percent. While small investors substitute to some extent for large investors, the Coven paper still finds that large investors increase the total supply of single-family rental homes by 0.5 for every home that they purchase."

"Typically, large investors renovate homes before renting them out. Invitation Homes reported spending about $39,000 per purchased home on renovations in 2021. Large investors may have a comparative advantage in buying and renovating homes because they have full-time teams working in specific regions according to established procedures and buying materials in bulk. Thus, large institutional investors increase the average quality of the US housing stock."

"Increasingly, large institutional investors expand total housing supply directly, through build-to-rent developments. In the Q2 2024 last year, build-to-rent (BTR) developments were 7.2 percent of all single-family house starts. BTR isn’t useful for getting renter households access to desirable neighborhoods, but it is especially useful for increasing overall housing supply, decreasing both sale prices and rents because the rental and for-sale markets are connected. When BTR drives down rents through new supply on the market, that encourages some households to rent rather than buy and reduces for-sale prices for buyers of the remaining homes on the market. BTR has been especially desirable in unfreezing a housing market challenged by mortgage lock-in."

"In the past year, housing prices have declined the most in markets where large institutional investors are concentrated. If we look at the largest 15 metro areas in the country, house prices have grown 0.5 percent in the markets with under one percent institutional ownership and fallen 3.6 percent in the markets with between one and three percent institutional ownership. In the only market with over three percent ownership (Atlanta), prices have fallen 2.9 percent."

Medicaid Fraud in New York

By Chris Edwards of Cato. 

"Medicaid waste is huge. Officially, the federal-state health program loses 6 percent of benefits to errors and fraud a year, or $37 billion in 2025. But some analysts argue that the waste is much larger because the official figures exclude certain types of improper payments.

Medicaid theft seems straightforward to execute. No brilliant scheme is required, as the Minnesota scandals illustrate. You submit fake paperwork to the state Medicaid agency for services not provided, and the government drops money in your bank account. Scams often last for years before authorities finally investigate.

Recently, seven individuals in Brooklyn were found guilty of stealing $68 million from New York’s Medicaid program. The theft began in October 2017 and continued until July 2024. State administrators were paying a lot of money for a long time to three fake health care businesses before law enforcement finally caught up.

Zakia Khan and Ahsan Ijaz owned and operated two social adult day cares (SADCs)—Happy Family Social Adult Day Care and Family Social Adult Day Care—as well as Responsible Care Staffing, which was a consumer directed personal assistance program (CDPAP). These entities billed New York Medicaid, and the two ringleaders paid people to recruit fake patients with bribes to pretend to receive services from the scam health care companies.

Why did it take seven years to bust this racket? Did state administrators ever inspect the facilities, call customers to check if services were actually delivered, or interview the business owners, Khan and Ijaz? After all, they were getting about $10 million a year of taxpayer money.

New York Post reporters recently visited 13 SADCs in New York City and “found little evidence of any medical support being offered or administered.” Apparently, the program’s rules are loose, government administrators don’t seem to audit much, and facilities appear to offer free lunch and games to able-bodied individuals. More ping pong tables than wheelchairs.

The Post reports that the “number of SADC centers has jumped from 40 in 2013 to almost 400 today, popping up in storefronts, apartments, and basements across the five boroughs.” Meanwhile, in New York, even “Governor Hochul has called CDPAP a racket … citing TikTok ads which reportedly attempt to recruit individuals at $37 an hour to care for their own relatives who may not actually need care.” 

Laxity in rules and enforcement helps explain why New York State spends two and a half times more on Medicaid than Florida, even though the latter has a larger population.

state, and local spending on Medicaid in New York State soared from $55 billion in 2013 to $116 billion by 2025, with federal taxpayers currently picking up 60 percent of the costs. How can we cut Medicaid fraud? Congress should block-grant the program and slash the federal payment share."

Why has Minnesota’s per capita income growth lagged that of the United States since 2014?

By John Phelan. Excerpts:

"Back in November, I noted that since 2014, Gross Domestic Product (GDP) per capita growth in Minnesota has ranked 38th out of 50 states." 

"Minnesota’s rate of real per capita GDP growth has lagged that of the United States generally (highlighted in black) in every year but one since 2014. Only Wisconsin has lagged the nation for more years."

"As a result of this persistently below average growth, the economic “premium” Minnesotans used to enjoy for living in the state in terms of a level of per capita GDP significantly above the national level, has almost disappeared." 

"In 2004 this premium stood at $4,973 per Minnesotan and was still $4,658 in 2014. Since then, however, it has fallen dramatically to just $239 per Minnesotan in 2024."

"Using a technique known as “growth accounting,” we broke down the growth rate of per capita GDP into its components; the per capita growth rate in human capital, physical capital, and Total Factor Productivity (TFP)."

"across each of the sources of real per capita GDP growth, Minnesota performed worse than the United States generally. Our state saw no growth in its per capita stock of human capital over this period while, for the country at large, it grew at an average annual rate of 0.2% annually. Minnesota’s per capita stock of physical capital grew at an average annual rate of 0.4%, but this was below that of the United States generally of 0.7%. And, again, while TFP in Minnesota increased at an average rate of 0.7% annually, across the United States it increased by 1.0%.

Of course, this only begs further questions: Why was the per capita growth rate of human capital, physical capital, and TFP slower than that of the United States generally? To investigate these questions, over the coming weeks we will delve deeper into the data behind these figures."

STATE CAPACITY AND ECONOMIC GROWTH: CAUTIONARY TALES FROM HISTORY

By Sheilagh Ogilvie.

"Abstract 

This paper uses economic history to probe the relationship between state capacity and economic growth during the Great and Little Divergences (c.1500–c.1850). It identifies flaws in the dominant measure of state capacity, fiscal capacity, and advocates instead analysing state expenditures. It investigates five key activities on which states historically spent resources: waging war; providing law and administration; building infrastructure; pursuing industrial policy; and fostering a national culture. The lesson of history, it concludes, is not to build a capacious state. Rather, we need a state that uses its capacity to help (or at least not hinder) market activity."

The image below has an excerpt that was posted on Twitter by Douglas Irwin: 

 

Irwin also says "See also @antonhowes excellent discussion of Tudor industrial policy & trade wars....

Age of Invention: Tudor Trade War The true effects of Henry VII's "industrial policy" 

"Bizarrely, Henry VII’s control of export licences and trade bans are often described as a case of early home-biased industrial policy — an idea most recently popularised by the bestselling economics author Ha-Joon Chang.17 Henry’s policies have been presented as a purposeful stimulus to England’s export of cloth, allowing English industry to rise up through protectionism before it later “kicked away the ladder” for other countries by imposing trade rules free of tariffs and import bans. But Chang based his information almost entirely on a 1720s writer, Daniel Defoe, who was seeking precedents to justify protectionism in his own time, and who got some crucial details utterly garbled."

"The reality then was that Henry’s trade ban did more to hinder the English economy than help it — which is also very clearly borne out by the data on cloth exports. It was only when he stopped declaring on-and-off trade bans with the Low Countries that England’s cloth exports finally gained a secure basis for growth. With trade allowed to grow for the next fifty years, this time with relatively few further interruptions, the weight of English cloth exports more than doubled, and increased by even more in terms of value. It was not by imposing embargoes, but by refraining from them, that England’s main manufacturing industry finally had the chance to expand."

How to Shrink Credit for the Poor

Like Bernie Sanders and AOC, Trump wants to fix prices on credit cards.

WSJ editorial. Excerpts:

"Credit-card rates are set by markets. They are based largely on the Federal Reserve’s benchmark interest rate and borrower risk. Restricting rates will limit access to credit for lower-income Americans. That’s what price controls do: They limit supply."

"The average annual percentage rate (APR) rose to 24.9% from 19.3% between 2021 and 2024 as the Fed raised interest rates to control inflation. The average APR has since ticked down to about 23.8% after the Fed cut rates last year."

"Rates on credit cards are higher than on auto and home loans because they aren’t secured by property."

"Those with lower credit scores are charged higher rates to compensate for their greater risk of default. Rising delinquencies have contributed to higher rates. About 12.4% of credit-card balances were severely delinquent in last year’s third quarter, about the same as in the 2008-09 recession."

"Capping rates at 10% would inevitably force issuers to slash rewards and curtail credit. The latter is what happened after Democrats in 2009 restricted the kind of fees that credit cards could charge and when they could raise rates. A paper by the Philadelphia Fed concluded the 2009 law “likely had an adverse effect on non-prime borrowers.”"

"Studies have also found that lenders restricted credit in states like Arkansas and Illinois after they capped interest rates."

[people then] "may turn to payday loans that charge even higher rates." 

Youngkin’s Strong Virginia Legacy

The GOP Governor leaves behind a healthy fisc and fast-growing state economy

WSJ editorial. Excerpts:

[Virginia has] "a revenue surplus likely north of $2 billion. The commonwealth has had four consecutive years of surpluses, collectively totaling $9.7 billion."

"a separate $4.7 billion rainy-day fund"

"Between fiscal years 2019 and 2024, Virginia rose to third from 14th among states with a AAA credit rating"

"Many states used the cash [federal pandemic largesse] to expand government, and when the Covid cash ran out, they raised taxes."

"Between the fourth quarter of 2021 and the first quarter of 2025, Virginia ranked 16th of the 50 states in economic growth"

"Virginia has generally outperformed neighboring Maryland"

"Since January 2022, nonfarm payroll employment has increased by 264,000, creating a broader tax base. Year-to-date growth in withholding taxes as of October was 8.6% because of wage growth." 

To Save Public Education, Look to Mississippi

The state, once a laggard, now leads the nation by many measures thanks to a back-to-basics approach

By Jason L. Riley. Excerpts:

"Yet Mississippi, which spends less per student than almost every other state, is outperforming other states with far larger education budgets."

"Adjusted for state demographics, Mississippi ranks first nationally in fourth-grade reading and math, and at or near the top in eighth grade, according to an Urban Institute analysis. Among black students, it ranks third nationally in reading, and its low-income students outperform all other states.

How did the Magnolia State pull it off? “It did not do so by relying on some of the most common proposals held up as solutions in education, like reducing class sizes, or dramatically boosting student funding,” according to the [NY] Times. “Rather, the state pushed through a vast list of other changes from the top down, including changing the way reading is taught, in an approach known as the science of reading, but also embracing contentious school accountability policies other states have backed away from.”

While other states “have gone in the opposite direction, backing off accountability and lowering proficiency standards, sometimes in the name of equity,” Mississippi raised its academic standards, held back third-graders who lacked proficiency in reading, and sent literacy and math coaches to help teachers in low-performing schools. Notably, the Times reports that Mississippi “was able to muscle through some changes, in part, because it has weak teachers’ unions, which have traditionally resisted accountability linked to standardized testing.”"