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President of Argentina Javier Milei speaks during CPAC Conference in Maryland. 2024 

In a significant legislative move, Argentine President Javier Milei has successfully passed his omnibus law, known as “Ley Bases.” This marks a crucial milestone in his administration as he transitions into the second phase of his government. Central to this phase is a new monetary regime, which was a major promise of his presidential campaign. Given that dollarization has been taken off the table, at least in the short run, what exactly does this new monetary regime entail?

The government has introduced the concept of “currency competition,” although this term might not fully capture their true intentions. In a genuine currency competition scenario, various currencies compete on equal footing. In the case of Argentina, where the US dollar and the peso would compete with each other, currency competition would necessitate granting the US dollar legal tender status alongside the national currency. This would require a law passed by Congress, ensuring that the US dollar could be used for all transactions, including tax payments and debt cancellation. However, the government’s plan deviates from this ideal. Instead, it looks more like a bi-monetary regime.

In a bi-monetary regime, it is legal to transact in multiple currencies, but only the national currency holds legal tender status. This inherently creates an uneven playing field, and makes it a stretch to label it as genuine currency competition. The recent IMF Staff Report underscores this, indicating that the US dollar will not be granted legal tender status and taxes will continue to be paid in pesos.

While bi-monetary regimes can function in countries with credible institutions like Peru, Chile, Colombia, or Uruguay, Argentina’s volatile economic and political environment poses significant challenges. A congressman who safeguards private bank deposits today might vote for their expropriation tomorrow, undermining any sense of stability and trust in the system. Argentina needs a monetary regime whose survival depends as little as possible on domestic politics.

Milei’s strategy includes freezing the base money supply and prohibiting the central bank from directly financing the Treasury. Additionally, he aims to implement a version of a 100-percent reserve requirement for the banking sector. The ultimate goal of this monetary regime is to facilitate an endogenous and spontaneous dollarization. By freezing the supply of pesos, Milei argues that any increase in the demand for money will have to be met with US dollars, gradually reducing the peso’s market share. This forced currency shift is envisioned as a way to stabilize the economy by aligning it more closely with a stable and globally recognized currency.

However, the sustainability of Milei’s version of currency competition is questionable. While it may hold during his presidential tenure, Argentina’s economic history suggests it is unlikely to be a lasting solution. Arguably, Argentina’s current economic troubles can be traced back to its experience with a non-robust bi-monetary regime in the 1990s, highlighting the need for a more durable and credible monetary framework.

A truly lasting solution requires a regime that can withstand the political changes and economic shocks in the years following Milei’s presidency. Despite its controversial nature, full dollarization remains the monetary regime with the most potential for long-term stability in Argentina. It offers a credible pathway to restore confidence and put the country back on a sustainable economic trajectory. By fully adopting the US dollar, Argentina could anchor its monetary policy to a stable currency, reducing the risks of inflation and currency devaluation that have plagued its economy for decades.

The bi-monetary approach, with its inherent weaknesses, may not provide the stability needed to ensure lasting economic health in Argentina. Despite its challenges, full-scale dollarization offers a more robust solution that could help Argentina achieve the economic stability it desperately needs.

Etched stone on IRS headquarters building in Washington, DC. 2021.

My colleague here at AIER, Dr. Gary Galles, wrote a wonderful piece for the Daily Economy last February describing “a group including about 250 million- and billionaires calling themselves Proud to Pay More (P2PM),” who advocates for raising taxes on millionaires and billionaires — specifically wealth taxes. Gary has already done an excellent job describing the history of wealth taxes, the problems with trying to implement them in the first place, and the history of wealthy individuals advocating for higher taxes on themselves and their ilk. Today, the chorus begins anew, with some wealthy people imploring Congress to get its act together and allow them the opportunity to pay more in taxes than they currently do. 

But this should seem strange. There is a group of people who claim that they want themselves and others like them to pay more in taxes than they currently do. And we have government officials who routinely complain about not having enough money, even if they cannot agree on why they do not have enough money. Surely, Congressional leaders cannot possibly be so fiscally illiterate as to turn down free money, right? 

Fortunately, in the United States at least, everyone, rich and poor alike, has been able to do exactly what P2PM has wanted for the last 181 years. 

In 1843, the Treasury established the “Gifts to the United States” account specifically to “accept gifts, such as bequests, from individuals wishing to express their patriotism to the United States.” In doing so, they allowed anyone and everyone the opportunity to give the government more money than they owed in taxes that year, whenever they see fit and importantly, to whatever extent they see fit. What’s more, it’s remarkably simple to do so and you do so with a bank account, PayPal, debit or credit cards, by check, or money order. 

How much money has been donated in this fashion? It’s tough to say, really. The Treasury’s website is remarkably difficult to parse and only has limited data on this topic. When it comes to Gifts to the United States, it appears that since 2015 (the earliest data available), it amounts to a mere $37,914,241.45. That figure is, as far as I can tell, the total amount of nominal dollars and not in billions or even millions of dollars, as is customary when dealing with government figures. Even more strangely, this dataset includes negative numbers (which I omitted to arrive at the total listed above), which makes very little sense as one cannot “gift” negative dollars. 

In 1961, Congress created the “Gifts to Reduce the Public Debt” account, separate from the Gifts to the United States. Here, the Treasury has data going back to 1996. Again, as far as I can tell, the total amount of nominal dollars contributed to this fund since 1996 is $65,256,616.71.

By contrast, total federal spending for just this current fiscal year is $6.13 trillion, which is over 160,000 times the amount of money given to the Gifts to the United States account in the last decade. Congress has also budgeted for $1.7 trillion of deficit spending for the current fiscal year; over 26,000 times as much money as has been donated to the Gifts to Reduce the Public Debt account over the past 29 years combined. Again, this is just one year of federal spending. 

The simple fact of the matter is that if the 98 P2PM signatories from the US and any other million- or billionaire wants to contribute more money to the US government, they have been free to do so for their entire lives. That these two funds have received so little money tells us one of two things: either they did not know about these funds (in which case, I have but one thing to say: you’re welcome) or, more likely, that these people do not actually want to pay more money in taxes; they simply want to present themselves as if they do. 

These figures reveal a simple truth: the US’s current fiscal crisis is not the result of million- and billionaires not paying enough in taxes. 

Donald Trump, Republican candidate for president at CPAC in Maryland. 2024.

I’ve never understood why Donald Trump seems to attract such a level of hatred and vitriol. There is nothing unusual about political candidates being vilified by opponents, but after an election or a term in office, the level of animosity usually subsides, and attacks focus on policy decisions and not as much on personality.

I experienced some hostilities when I was a Republican presidential elector in 2016. It was my fourth time to be an elector from Alabama, so it was out of the ordinary when a few weeks before the electoral college convened, my mailbox started to fill up with cards and letters imploring me to change my vote. My mailbox became so inundated with Trump hate-mail that my postman, Mr. Meriwether, would leave a large box of mail beside my mailbox, only days later to leave a card that I had to go by the post office to retrieve additional boxes.

Most of the letters were the same, some even with the same typo. But they were all mean-spirited and attacked Trump’s character and recited all the damage he would do to the country. The hyperbole was amusing and some letters were laced with various conspiracy theories that defied all logic, as well as rational sentence structure. Though I did save the almost 4,000 letters, I ignored them, except to show them to friends. When I moved offices, I’m sure they were discarded.

If the letters were annoying and inconvenient to retrieve, the phone calls bordered on flat earth society members arguing against the marketing of circular globes in schools. The calls started when we were about 10 days out from the electoral tally. After I fielded a couple and realized what was going on, I stopped answering my phone and let these seminar callers leave a voicemail. Once my voicemail filled up, I never deleted the messages lest I provide an electronic forum for disgruntled Hillary voters to vent their angst.

I did listen to several of the calls and was surprised at their tenor and wild accusations about Donald Trump. One call in particular stood out. It was from a young mother who explained that I had a sacred duty to her children, not to start World War III by doing my duty as an elector. The more she advocated her position about Trump blowing up the world, the faster and more hyperventilated her voice became, until she sobbed hysterically and begged me not to kill her children. Thankfully, the time to record a message was limited and she was cut off before she could take another breath.

There was also a caller who told me that he had retained a law professor who could explain how I could void my commitment to the Republican Party and vote for Hillary. It was, of course a complicated process, but the good professor would explain this path to me. The message reminded me of the public service ads I heard as a child about the dangers of sniffing airplane glue. Apparently, my caller missed the ads and sniffed anyway.

All of this was surreal. Until recently, the electoral college in general and presidential electors in particular were one of those below-the-radar political events that only party loyalists knew about and participated in. In 2016, all electors pledged to Donald Trump were targeted and mildly harassed until the vote was over. While I never felt personally threatened, the whole experience was my introduction to what some have called Trump Derangement Syndrome.

Instead of getting better it has gotten worse. While 2016 was my last time to serve as an elector, the rhetoric has not subsided. If anything, the volume has increased and the character assassinations have become more juvenile and fantastic.

The idea that any one candidate is a threat to democracy is ridiculous, and anyone making such claims was never taught about our Constitution and the checks and balances within our three co-equal branches of government. To believe that any candidate would implement a fascist regime is equally as uninformed as it is impossible. Worse, to compare someone to Hitler or any other autocrat shows not only a lack of civics education but a total failure to understand the depths of depravity Hitler and his ilk possessed. The despots of the last century were murderous thieves and there is no place in our public discourse to use such a comparison for political purposes.

It is one thing to dislike someone’s policies and argue against them in a civil discourse, discussing the merits and consequences of their proposals. But there is no place to demonize and so diminish the character of a candidate that outliers receive the message, whether unintended or not, to physically harm a candidate to prevent a hyped-up disaster they see as existential. In reality, it is merely actionable political rhetoric.

The incidents of this past weekend reminded me of the inflamed rhetoric I experienced almost eight years ago. It was just as silly and misguided then as it is now. Political leaders need to learn the lesson of Henry II to realize that their followers listen and might not distinguish hyperbole from hinted instructional direction. Ridding the World of a Saxon priest might be a cathartic statement said under breath in frustration, but retainers seeking future benefits might take it to heart and commit a deed with profound, but unintended consequences.

Scaffolding against an apartment building undergoing renovation.

The Biden Administration just released a plan to cap rent increases at 5% for apartments owned by anyone who owns 50 or more apartments. The administration claims the policy would cover more than 20 million apartments, or about half of the total number of apartments in the country. New construction and “substantial rehabilitation or renovation” would be exempt. The policy would also expire after two years.

Economists almost unanimously oppose rent control, and for good reason. Capping rents punishes housing providers, making them less likely to build new housing. Exempting new construction doesn’t help much, because housing providers will still have an incentive to skimp on maintenance of the controlled units or convert them to condos for sale. Rents are set by supply and demand in a competitive market. The only desirable way to bring down rents for everyone is to make it cheaper and easier to build new housing, to increase supply.

Studies of rent control show that it hurts not just housing providers, but tenants as well. A study of 1996 New York data in the prestigious Journal of Urban Economics found that rents rose in the uncontrolled sector after rent control was extended, harming those tenants. But even tenants living in rent-controlled buildings were worse off, because they found it difficult to move to apartments that better fit their needs (a more appropriate size, closer to work, etc.). The total welfare losses to tenants per year were two and a half billion dollars in 1996 dollars, or $4.4 billion in today’s dollars. Nationwide, based on multiple studies of existing policies in the U.S., I estimate that the combined losses to tenants and housing providers of a typical rent control policy would be over $50 billion per year. Moreover, this study didn’t even try to estimate the welfare losses caused by poor maintenance of rent-controlled apartments.

Of course, that’s just one study. But the most recent, comprehensive, peer-reviewed survey of all the evidence on rent control concludes that “nearly all studies indicate a negative effect of rent control on mobility.” Additionally, “published studies are almost unanimous…that rent control leads to a deterioration in the quality of those dwellings subject to regulations.” Two-thirds of studies show a negative impact on supply.

The Biden Administration’s justification of the policy doesn’t even make sense on their own terms. They point to growing profits for six publicly traded apartment companies. But the very financial reports they rely on for this data point show that for these companies, average rents increased over the last year only between 1.8 and 3.4%, either at or below the general rate of inflation. Their profits grew mostly through higher interest and asset management income, not higher rents.

Unfortunately, there is a very real risk the policy will be enacted into law after the election. That’s because rent control would be tied to a provision in the tax code allowing accelerated depreciation of residential rental property. Housing providers who don’t cap rents will therefore see a higher tax rate.

Because rent control will become part of the tax code, Democrats will be able to use the budget reconciliation process to enact it into law. That allows them to skirt the filibuster, so long as they have control of both houses of Congress. Now, Democratic economists oppose rent control, and some Democratic lawmakers might too, but with both parties dusting off quack economic policies from the 1930s, this counterproductive measure could pass the next Congress.

Instead of a damaging nationwide rent control law, the Biden Administration should focus on what the federal government can do to increase housing supply. Fortunately, the administration is trying to repurpose federal lands for building housing, but they want to attach lots of regulatory red tape to what kinds of units can be built through this program. Also, outside Nevada, not much federal land is close to where the jobs are. They’re also shoveling more subsidies out the door, but direct subsidies for housing construction are expensive. Only about 10,000 units are expected to be built with the subsidies, a drop in the bucket.

As long as the federal government is handing out money, they could make a bigger impact by helping localities expand water and sewer systems, expanding the area suitable for dense residential development on the edges of where such development already exists. (Sewer expansion also helps the environment!)

Even better, the administration could repeal tariffs on Canadian lumber, encourage states to ease occupational licensing restrictions on construction trades, cut back on demand subsidies that drive up prices, condition transportation funding on local zoning reform, and stop pushing energy code adoption. These measures could have a real impact on housing construction.

Rent control is a terrible idea that belongs in the dustbin of history. Let’s hope Congress gets the memo.

Delegations on the floor of the Republican National Convention in Milwaukee, WI. 2024.

The recently approved Republican platform is dedicated to the forgotten men and women of America. This dedication refers to William Graham Sumner’s “forgotten man” lecture, which defended the interests of forgotten Americans harmed by protectionist trade policies and similar measures. 

Unfortunately, the GOP platform’s trade proposals would inflict massive pain on forgotten Americans.   

It pledges to protect American farmers from unfair trade, but it proposes new broad-based tariffs that would wipe out farmers’ export markets. According to the Department of Agriculture, US tariffs imposed in 2018 led to retaliatory tariffs on exports that cost our farmers more than $27 billion through 2019.  

The GOP platform proposes to rescind “normal” trade treatment for Chinese imports, but this proposal was flawed when Sen. Bernie Sanders (I-VT) proposed it, and it remains flawed today. It would result in a 70 percent tariff on toys supplied by China and a 59 percent tariff on shoes and clothing supplied by China. Princess dolls and underwear do not threaten US national security.  

While it is primarily concerned about China, the platform also calls for the imposition of new baseline tariffs on our friends and allies. These tariffs would increase costs at a time when inflation and the high cost of living are Americans’ top concerns. We should be working more closely with our allies to counter China and strengthen supply chains, not driving them away through a protectionist trade policy.  

The platform promises to rebalance trade, but trade is already balanced. During the first quarter of 2024, Americans sent about $1.7 trillion abroad, and we received $1.7 trillion in foreign payments. Protectionists want to ignore the $500 billion in foreign investment received so far this year, or even worse, they view foreign investment as a cost. Try telling that to the 2.2 million American manufacturing workers who are employed by foreign-based companies and who account for nearly 18 percent of our manufacturing workforce.  

The GOP platform calls for new Buy American restrictions, but this is just warmed-over Bidenomics. The Peterson Institute calculates that Buy American measures cost US taxpayers $94 billion in 2017. Buy American policies also hurt US exporters when foreign countries inevitably retaliate by imposing “Don’t Buy American” requirements of their own.  

The platform pledges to restore American manufacturing, but American manufacturing does not need to be restored. In 2023, real manufacturing output hit an all-time high. Manufacturing output can grow even higher if the government removes import barriers that restrict inputs used by American firms to compete in the global economy.  

The GOP calls for economic self-reliance, but this is a recipe for economic disaster. It makes no sense to restrict American families’ ability to buy infant formula from Europe or to limit investment in manufacturing by investors based in Japan. Self-reliance is the policy of North Korea. It should not be the policy of the United States.  

The platform asserts that tariffs on foreign producers could reduce US taxes, but tariffs are taxes on Americans, not foreigners.  

These planks represent a reversal of the trade policies advocated by Republicans ever since the end of World War II. They are an effort to replace the successful policies of Dwight Eisenhower and Ronald Reagan with the failed policies of Peter Navarro and Robert Lighthizer. For example, the Republican Party’s 1984 platform explicitly reiterated the party’s commitment to a free and open international trading system. That platform was associated with President Reagan winning the highest number of electoral votes in American history. Leaders in both parties should embrace this commitment to free and open trade.  

An empty nurse’s station and deserted hospital corridor.

As high inflation enters its third year and disinflation slowed, the impact of broad price increases are seeping into increasingly far flung areas. They are seen and felt not only in the prices of capital, producer, and consumer goods, and in the prices of securities and commodities, but also in goods and services procured through the government. 

In some, adjustments have been made. The most recent Cost-of-Living Adjustment (COLA) for Social Security benefits was a 3.2-percent increase. That adjustment affects more than 66 million Social Security beneficiaries and around 7.5 million recipients of Supplemental Security Income (SSI), whose increased payments began on December 29, 2023​. Medicare Part D, and particularly the catastrophic coverage phase, also saw a modification through 2022’s so-called Inflation Reduction Act (IRA). Those changes eliminate the 5 percent coinsurance requirement for enrollees in the catastrophic phase starting in 2024, effectively capping out-of-pocket expenses. In 2025 additional changes will kick in, including a $2,000 annual cap on out-of-pocket drug spending and the elimination of the coverage gap phase. The changes are intended to provide more consistent cost-sharing throughout the year, reducing the financial strain on beneficiaries and in particular those with significant prescription drug needs.

On the other hand, Medicare payments to physicians do not, and have not, been adjusted for inflation. Over the last decade, in fact, the American Medical Association estimates that rates have been cut by ten percent. The reimbursement rates for Medicare are set by the Centers for Medicare & Medicaid Services (CMS) and are updated annually through various fee schedules, primarily the Medicare Physician Fee Schedule (MPFS). In recent years, updates have been minimal and have not kept pace with the rising costs of providing medical care, which has in turn led to financial pressure on healthcare providers. While Medicare Part D changes reduce out-of-pocket drug costs for patients, they do not affect the reimbursement rates doctors receive for their services. Since 2001, physician payments have fallen 30 percent behind the rate of inflation. The difference highlights a broader issue in healthcare policy, where measures to ease financial burdens on patients are not always extended to healthcare providers.

There are several reasons why Medicare payments to physicians are not automatically adjusted for inflation. Budget constraints play a significant role; Medicare costs comprise a substantial portion of the federal budget, and automatic inflation adjustments could significantly increase their budgets. Congress and policymakers often prioritize controlling healthcare spending to manage the overall federal budget and reduce deficits. That physicians represent a far smaller voting bloc than the 19.4 percent (65.7 million) of Americans who are Medicare recipients is undoubtedly a major contributing factor.

The Omnibus Budget Reconciliation Act (OBRA) of 1989 required that Medicare spending not increase overall fiscal spending. That is to say, adjustments to payments, methods, or policy changes are required to be accompanied by finding savings or outright reductions within the program, ensuring its neutrality. For this reason, nominal reimbursement rates have fallen virtually every year. A history of attempts to wrangle government expenditures while contending with rapidly changing technology, demographic shifts, and in the case of healthcare rising longevity is beyond the scope of this article, but offered here. It brings to mind Ludwig von Mises’ many critiques of interventionism, but particularly those which arise of its cumulative effects: each tinkering and tweak leads to unintended consequences, which over time leads to new unintended consequences, further interventions, and on it goes.

In 2023, the CMS approved a 3.37 percent reduction in Medicare physician payments for 2024, which took effect on January 1. This was later reversed in part, as described in this blog post from March 7, 2024.

Last Sunday, Congress released the text of a minibus package, which will likely be signed into law by tomorrow. While the bill’s primary purpose is to keep the government open, it also includes healthcare extenders through the end of the calendar year, as well as several notable healthcare policies … The minibus includes a 1.68 percent reduction to the 3.37 percent cut to the Medicare Physician Fee Schedule (MPFS) conversion factor (CF) that physicians and other clinicians are currently facing. The 3.37 percent CF cut went into effect on January 1, 2024, and this provision would effectively reduce that cut to 1.69 percent for the rest of the calendar year (3.37 percent – 1.68 percent). It will be in effect as of March 9, 2024, and will not impact payments for services delivered between January 1 and March 8, 2024. In other words, the fix is NOT retroactive, but will apply prospectively.

Changes to Medicare reimbursement rates are determined through legislative processes. The reimbursement rates are influenced by various political and economic factors, and automatic adjustments for inflation have not been a priority. Historically, the Sustainable Growth Rate (SGR) formula was used to control spending by tying updates to physicians’ fees to the rate of US economic growth. This, however, has at times led to scheduled cuts in physician payments, which Congress has almost as frequently postponed through temporary “doc fix” measures. The SGR was replaced by the Medicare Access and CHIP Reauthorization Act (MACRA) in 2015, but automatic inflation adjustments were not included in the new system. 

Current policy trends favor value-based payment models over traditional fee-for-service models, with the former aiming to reward quality and efficiency over a sheer volume of services. The emphasis on value-based care has also shifted focus away from across-the-board fee adjustments. Any implementation of automatic inflation adjustments would require consensus among lawmakers, which is likely to be especially contentious today in the face of record debt and deficits, in addition to divergent spending priorities and a widening gulf on views of the proper role of government where healthcare is concerned.

While physicians and other health professionals are at times written off with the same dismissal that “the rich” are broadly, the accelerating insufficiency of Medicare to keep pace with inflation directly and critically impacts medical care in the United States. Financial pressures resulting from stagnant or falling real Medicare reimbursement rates have effects on physicians, patients, and the entire healthcare system.

Declining reimbursement rates, on top of losses in purchasing power, result in reduced access to care, as some physicians have limited the number of Medicare patients they accept or have stopped accepting new Medicare patients altogether. Regardless of the basis upon which medical practices reduce the percentage of Medicare patients among their patient base, the ultimate result is less care for those most likely to be in the Medicare system: senior citizens and individuals with disabilities. Physicians in smaller practices, or practicing in higher cost-of-living areas (big cities in particular) are likely to compensate for the growing gap between expenditures and reimbursements by capping staff compensation, reducing headcount, delaying or forgoing new equipment/technological investment, and minimizing (or eliminating) office space. In some cases, doctors have wrestled with reimbursement rates lagging behind inflationary pressures by increasing their patient volume, opting instead for shorter appointments, longer hours, increased stress, and burnout.

Medicare is an entitlement program, in many ways exemplifying government intrusion into what historically has been a more market-oriented sector. Established in 1965, Medicare is now deeply integrated into the fabric of the medical profession, the insurance industry, the broader healthcare sector, and the lives of U.S. citizens. While the rationale for gradually reducing Medicare funding may seem logical — it seems less so when considered alongside expanded military spending and gifts to foreign governments — the considerable inflation since 2021 poses new risks.

If the widening maw between the expenses of medical practice and Medicare compensation persists or worsens, more physicians are likely to transition to concierge or direct primary care models in which patients pay a retainer for more personalized care. Such a transition would reduce the number of physicians available to the general Medicare population on top of the cost-cutting measures which have already taken place, further denigrating the quality of care provided: fewer available appointments and shorter visits in particular. And if the cost crunch continues, smaller practices are likely to merge with larger healthcare systems or be acquired by hospital networks to achieve economies of scale. A falling number of independent practices reduces competition, lowering the efficiency, accessibility, and quality of healthcare. Over time, those effects will impact not just Medicare beneficiaries, but all consumers of US healthcare services, which are increasingly inundated with an aging Baby Boomer generation.

Inflation was not caused by Vladimir Putin, gas station owners, corporate profits, or ocean shipping firms. Neither was it “9 percent” when the Biden administration took office, “zero percent” in July 2022, or higher everywhere else in the world two Octobers back. The cause of inflation is found in massively expansionary monetary policy operations during the pandemic — a period of time during which incredible demands were made of healthcare professionals at all levels — and aggravated by massive fiscal spending. While in the case of Medicare reimbursement there seems for once to be a reluctance to add to Federal spending, the broader implications of lagging recompense on the healthcare system and the well-being of those who depend on Medicare should be more closely examined.

Given the US healthcare system’s substantial distance from market forces, chances are slim for reform in the near-term. It is nevertheless critical that even in their bloated, interventionist form, government-dominated systems implement incentives that correlate compensation and performance with the provision of quality, adequate healthcare. And at the very least, they should not intensify the financial duress by failing to account for spiraling prices. This can and should be done while simultaneously addressing Washington DC’s large and growing fiscal and monetary mismanagement, which began long before the first utterance of COVID-19.”

Aerial view of south Florida suburban residential housing.

As the housing affordability crisis drags on, politicians and pundits are increasingly blaming investors for the rise in prices and dearth of supply. This misdiagnosis, though, threatens to exacerbate the crisis while ignoring the root causes: federal mortgage subsidies, interest rate manipulation, central bank MBS purchases, rising construction costs, and local land-use restrictions.  

Home prices are indeed more unaffordable than at any other time in our nation’s recorded economic history, even without taking skyrocketing interest rates into consideration. The rapid expansion of today’s historic housing bubble happened to coincide with a surge in investor activity.  

According to John Burns Research & Consulting, the percentage of home sales to landlords with 1,000+ properties jumped from under 1 percent in the years leading up to the pandemic to nearly 2.5 percent by mid-2022. Quarterly investor home purchases surged from roughly 150,000 to more than 250,000 during this time. However, attributing the runup in prices to investor activity is a gross misdiagnosis of the underlying causation.  

What actually sparked the most expensive and second most frenzied housing market in history? The answer: Ultra-low interest rates (bottoming out at 2.65 percent in January 2021) artificially engineered by the Federal Reserve combined with its gusher of capital to the real estate sector. The Fed nearly doubled its portfolio of mortgage-backed securities (MBSs). The central bank essentially printed $1.3 trillion in new dollars, directly injecting this into the real estate market. 

 This massive increase in MBS holdings is the equivalent to $300,000 mortgages on 4.3 million homes—a stunning number equal to the entire existing home sales market in some years. The rate reductions and MBS purchases certainly jolted the pandemic housing market. Existing home sales soared from barely 4 million annually in May 2020 to 6.5 million by October 2020—the most active market since the prior housing bubble 14 years prior.  

The rise in investor purchases was an effect of these Federal Reserve policies rather than a leading cause of the price surge. To be sure, investors joined individual families in the frenzied buying spree of near-zero interest rates. (By the way, small “mom and pop” investors — those with fewer than 10 properties — account for more than 4 in 5 investor home purchases).  

The uptick in investment activity was a predictable result of these easy money policies. But it was not a leading cause of the housing price surge. Even at the peak of this frenzy, institutional investors accounted for less than 3 percent of the overall purchase market. Freddie Mac reports that even as the large corporate buyer share of the purchase market increased, the overall investor share of the purchase market budged only slightly from 26.7 percent to 27.6 percent.  

In the wake of the interest rate hikes, institutional investors significantly curtailed acquisitions. An analysis by John Burns Research and Consulting showed a stunning 90 percent fewer homes during the first two months of 2023 compared to 2022. The single-family purchase market share for large landlords has since cratered to 0.4 percent —the longer-run average — after rocketing to 2.5 percent during the heart of the cheap money frenzy. CoreLogic also reports that large investors dramatically curtailed their share of purchases last year.  

For investors owning more than 1,000 properties, their share plunged from 17 percent in the summer of 2022 to roughly half that amount a year later. Redfin reports a record 49 percent decline for investor housing purchases in Q1 of 2023 on the heels of a 46 percent decline the prior quarter. This slump continued throughout the entirety of last year. As of Q1 2024, investor purchases are below levels experienced seven years ago. As it turns out, rising interest rates impact the ability of investors to deploy capital profitably, just as this environment makes it difficult for families to acquire a home.  

In addition, focusing solely on investor purchases doesn’t tell the real story. Some investors sell homes while others are buying. For several years, investors have been net sellers — resulting in their ownership share of single-family homes declining even as their share of current year purchases increased. The investor-owned share of the single-family housing market shrank by 1.4 percent over the past decade.  

Going back even further, data from the past 50 years show no indication of investor-owned housing adversely impacting homeownership. Rental housing units today account for a smaller share of the market than half a century ago. During this span, the number of owner-occupied increased 95 percent, eclipsing the 82 percent increase of rental housing units. The Urban Institute estimates the number of homes owned by institutions at about 574,000 — fewer than 1 on 200 of the 145 million housing units in the U.S. In other words, entities other than “institutional investors” own 99.6 percent of the housing. 

Alarmist reporters and legislators continue to assign blame to institutional investors while conveniently ignoring these facts. The bottom line is that institutional SFR ownership is not measurably impacting local home price dynamics to the upside. Government mortgage subsidies and the Federal Reserve’s multi-trillion-dollar injection into the mortgage market remain the primary culprits. But addressing this is far more difficult to tackle politically due to vested interests than simply misplacing the blame on investors.  

Now is the time for Congress to address the crux of the problem: wind down taxpayer-guaranteed and subsidized mortgages, and eliminate the power of the Federal Reserve to purchase mortgage-backed securities. Attempts by state legislators to restrict the capacity of investors to purchase homes ultimately risks forcing many families to choose between apartment living or record-high mortgage costs.  

Blaming real estate investors for the resulting misery may score political points. But demagoguery does nothing to alleviate it. 

A woman sweeps the sidewalk in front of a closed small family business in Cairo, Illinois. 2020.

I don’t quite buy the facile explanation that the Republican Party has become the party of disaffected blue-collar workers, while the Democratic Party has become the party of college-educated elites. To be sure, there are fascinating tectonic shifts in the American political landscape, and today’s parties are not the parties of 40 years ago. As the shifts settle, the parties are redefining themselves, and the country is increasingly divided. But I would not assert, as journalist Batya Ungar-Sargon does in her recent book, Second Class, that “the truth is that we have one party in this country that represents corporations and the Chamber of Commerce and another that represents the educated, credentialed elite and the dependent poor, and no party willing to assume a working class agenda.” The financial industry routinely gives more to the Democratic Party; that one fact puts an end to such simplistic thinking. Likewise, the dependent poor are, if anything, harmed by government policies. So it’s not that simple. But Ungar-Sargon concludes, with that sweeping and satisfying assertion, a book that is laden with clichés and sloppy reasoning. 

The main argument in the book is contained in its subtitle: “How the elites betrayed America’s working men and women.” America’s working class has been left behind by structural changes in the economy, and is barely scraping by, betrayed by policies deliberately designed to concentrate wealth at the top. Among the bogeymen pilloried by Ungar-Sargon, we count: the drop in US manufacturing; the rise in the service industry; “shipping” of jobs overseas; mass immigration, especially illegal; the two-income trap; increasingly expensive college as a gatekeeper to socioeconomic mobility; the demise of unions; the new trend of college-educated men and women inter-marrying; the ballooning price of real estate; benefits cliffs; and zoning. 

America does have a real problem. But it’s hard to discern that problem, its causes, or its solutions, in the tangled mess of facile sophistry and sloppy methodology that is this book.

Ungar-Sargon is a journalist, and engages in the kind of journalistic fluff that fills pages. It may grab the attention of half-awake readers, skimming Newsweek on their morning commute, but it doesn’t have a place in what purports to be a serious book. One of the workers Ungar-Sargon interviews is, we learn, “forty-six, handsome, and lean with a permanent squint, a stylish flair, and a sonorous, gravelly voice.” He has “the benevolent raffishness of a pirate.” For lunch, he packs “butternut squash and lentil soup in a thermos, kippers, an energy bar, a flask of cold-brewed coffee heated on the stove, and three bottles of water.” Ungar-Sargon’s methodology has promise: instead of merely looking at statistics that mask human stories, she interviews “members of the American working class who are fighting tooth and nail to survive.” It isn’t clear just how many interviewees there are, or how their stories really fit into the statistics she presents. Ungar-Sargon is evidently unaware of the methodology of analytic narratives (see, the work of Robert Bates, Avner Greif et al., who carefully combine narratives with the rigor of rational choice theory). She tends to use individual stories, out of context, as representative. At one point, she even says of real research by sociologists and economists: “I was surprised when my own research did not find such a neat picture.”

Ungar-Sargon demonstrates a deep misunderstanding of basic economic theory. Throughout the book, she seems to praise policies that have long ago been debunked as laden with unintended consequences. I say she seems to do so, because sometimes it’s not quite clear if she’s editorializing through her interviewees. She appears to love unions – which have a long track record of being as good for the few insiders as they are awful to the many outsiders. Minimum wages are helpful to the workers who garner them, but damaging to those who are excluded, often permanently, from the labor market as a result. Ungar-Sargon rightly recognizes welfare cliffs as problematic (many workers often lose net income from increased wages, as they lose their welfare benefits past a certain threshold), but she would tinker with an inherently flawed system, rather than ditching it entirely in favor of civil society. Tariffs and migratory restrictions may indeed protect some domestic workers, but at great expense to others, along with deadweight losses, zombie industries, and higher prices for all.

Finally, the US does not have the socioeconomic mobility it could have. But the country is not as static as Ungar-Sargon paints it: over the past 50 years, the share of national income earned by the lowest four quartiles has fallen slightly (by .7 percent to 2.6 percent) – but national income has tripled. This means that the bottom 80 percent now earn a slightly smaller piece of a significantly larger pie. The increased income – from innovation, trade, immigration, globalization – hides another key phenomenon: the drop in the consumption gap. The late great economist Steve Horwitz explained that “poor Americans today live better, by…measures [of consumption] than did their middle-class counterparts in the 1970s.” Ungar-Sargon flippantly swats away the fact of lower prices. She also comes dangerously close to Marxist doctrine when she refers to static classes, a “caste system” and class consciousness (apparently, educated Americans are “incapable of imagining themselves facing the desperation [faced by immigrants]).” 

Ungar-Sargon is sloppy and unqualified to write a serious book on economics. This doesn’t mean, of course, that there isn’t a problem. Unfortunately, the errors of omission in this book are as damning as the errors of commission just listed. There has indeed been concentration of wealth in the US over the past 50 years. And it is indeed harder to get by and achieve stability, especially for those in the lower quintiles of income. Prices have fallen significantly on consumer goods over the past 50 years (Horwitz estimated that a basic bundle of household appliances cost the average worker 885.6 hours of work in 1959, versus 170.4 hours of work in 2013 – and this does not include innovation and rises in quality). But three key sectors are glaring exceptions to this rule: healthcare, housing, and education. Ungar-Sargon discusses the importance of these, but lacks the economic acumen to recognize that these three sectors are also among the most regulated and subsidized, hence the higher prices. She also sidesteps the disastrous drop in quality of high school education – a result of union power and federal meddling, which means that a high school degree often no longer offers the skills to make a good living, as it did 50 years ago. Subsidies to higher education have pushed up prices and driven down quality. Regulations have increased over the past 50 years (in 1970, the Federal Register contained about 20,000 pages; today, it’s close to 90,000). And those regulations are typically regressive. Ungar-Sargon, in her economic ignorance, longs for more regulation, to protect workers – without knowing that it is the lowest earners who will suffer most from them. Civil society (private charities, family, fraternal organizations) have been crowded out by government welfare programs that are laden with Public Choice problems and unintended consequences – but Ungar-Sargon barely mentions civil society, focusing instead on more visible government programs, and hoping to rearrange the deck chairs on a sinking Titanic.

Overall, the US is suffering from cronyism, or political capitalism. Under this system, political activity is increasingly rewarded over economic activity, as businesses and politicians increase favors. Total government spending (federal, with state and local) has increased from about 30 percent of GDP in 1970 to 40 percent today; if we add 10 percent of GDP spent on regulatory compliance, this means about half of the US economy is controlled by governments rather than markets, by bureaucrats rather than entrepreneurs. It is no coincidence that three of the five richest counties in the US (and nine of the top 20) are located in the Washington, DC area – an area with little native industry, beyond spewing regulatory externalities. There is plenty of self-serving political capture by the elites. Alas, much of this destructive activity takes place under the cover of helping others, in a classic Baptists and Bootleggers story. With the notable exception of axing zoning regulations (which harm the poorest of Americans), Ungar-Sargon falls for this classic trap. This mediocre book is an ignorant plea for policies that would hurt the most vulnerable Americans.

Frédéric Bastiat famously warned against economic sophisms, the facile myths around free trade and economic policy. He explained “the entire difference between a bad and a good economist…: a bad one relies on the visible effect while the good one takes account both of the effect one can see and of those one must foresee.” Alas, Ungar-Sargon is not even a bad economist. She would do well to read the basics; “The Broken Window” and “Trade Restrictions” would be good places to start.

Shockingly, for someone who engages in such sloppy research and jumps to such counter-productive conclusions, Ungar-Sargon does have a doctorate – a PhD in English from Berkeley, with a dissertation on “Coercive Pleasures: The Force and Form of the Novel 1719-1740.” The abstract begins as follows:

Coercive Pleasures argues that the early novel in Britain mobilizes scenarios of rape, colonization, cannibalism, and infection, in order to model a phenomenology of reading in which the pleasures of submission to the work of fiction — figured as analogous to these other coercions — reveals the reader’s autonomy as itself a fiction. This is a project about the novel but also about the way in which literary forms mediate political models of subjectivity. Literary histories of the novel tend to relate its “rise” to the emergence of a liberal subject whose truth resides in her interior, autonomous and private self. I propose instead that privacy and autonomy are the price rather than the payoff of fiction. With its depiction of invasive and coercive content such as rape, colonialism, cannibalism, and infection, and its self-conscious deployment of forms that coerce absorbed reading, the novel reveals the reader’s consent to read to be part of a structure that infracts both readers’ and characters’ autonomy, producing a particularly modern pleasure.

The economist Murray Rothbard had a stern warning for journalists and others who dive unprepared into economics: “It is no crime to be ignorant of economics, which is, after all, a specialized discipline and one that most people consider to be a ‘dismal science.’ But it is totally irresponsible to have a loud and vociferous opinion on economic subjects while remaining in this state of ignorance.” 

It is especially irresponsible when ignorant but superficially appealing proposals would lead to more poverty and despair.

Futuristic library in Stuttgart, Germany. 2016.

As the economic historians Joel Mokyr, Chris Vickers, and Nicolas L. Ziebarth put it in the Journal of Economic Perspectives in 2015, Google might be the world’s greatest research assistant, but it will never be the world’s greatest researcher. Ditto AI tools like ChatGPT: Research is valuable in terms of human wants, interests, and consciousness, and rapidly advancing and rapidly diffusing tools for doing that research have implications I don’t think we fully understand yet. I’m especially excited about how the global conversation changes as more and more people come online and add their voices. I happen to like Western civilization tremendously, but I look forward to what our great-grandchildren will know as the best that has been thought, written, and created in the West mixes more thoroughly with the best that has been thought, written, and created in the rest of the world.

Consider what Google has done in its ongoing effort to index the world’s information. Search engines and now AI tools will answer almost any question quickly for anyone with an internet connection. You don’t need access to the world’s greatest libraries because Google is putting the contents of those libraries online. Even when you can’t get the full text of a copyrighted title, there is usually enough in the preview to get the gist of it or find the specific quote or page number you’re looking for. And if you can’t find it in Google Books, you can probably find it on Amazon and get what you want by clicking “look inside.”

Google has also allowed anyone to stay on the research cutting edge. Search Google Scholar for a few key terms, and you’ll find just about anything that has been written on it. You can peruse the relevant scholars’ works and citation patterns. A lot of the finished versions of things will be behind paywalls; however, for disciplines with strong working paper cultures, like economics and political science, where it isn’t too much of a stretch to say that something is old news by the time it appears in print, you can almost always find a free version of the paper you’re looking for on SSRN or a similar site. They may not be identical to the word, but they’ll have everything you need to know.

New tools can improve academic writing, most of which is atrocious. Even experts hate to hack their way through a tangled jungle of jargon and passive voice to find the insight. Tools like Grammarly give everyone basic editorial assistance and can help us explain our ideas more clearly and concisely. I didn’t realize just how much I needed to improve my style before I started using Grammarly Pro. The Great Conversation would benefit mightily if more of us bit the bullet and bought the pro version, which, if I remember correctly, averages out to about fifty cents per day.

Companies like Google, Microsoft, Apple, Amazon, and OpenAI have made it so that anyone with an internet connection can access cutting-edge ideas, data, analytical tools, and the received wisdom of the ages at the click of a button. For this, they have earned many billions of dollars but also the sneering contempt of an academy and intelligentsia that hates nothing so much as success and no one as much as pretentious rabble who confuse their Google search with our academic credentials, accolades, and authority. I remain an optimist, though. Tools like search engines and now AI have laid the groundwork for revolutionary changes in the Great Conversation. Every new connection adds a new voice to the conversation. It gives the person with that voice access to research resources and a knowledge base that would have been unthinkable at the world’s greatest universities even a few short decades ago. As the kids say, I’m here for it.

Interior of the Supreme Court of the United States. 2018.

Moore v. United States was supposed to be the “wealth tax” case because the question the Supreme Court was supposed to answer was whether income must be “realized” before it can be taxed. That is not, however, the question the Court answered. Or, at least, not clearly.  The Court dodged the question even as it hinted at an answer.   

The tax at issue in Moore was the Mandatory Repatriation Tax (MRT), part of the Tax Cuts and Jobs Act of 2017, which is a “one-time pass-through tax” on American shareholders of foreign corporations. Americans were taxed on their share of the corporation’s income, regardless of whether they received (“realized” in tax speak) any income themselves. The Moores, for example, found themselves on the hook for their share of the income earned by an Indian company even though they never realized a penny from their investment. 

They paid the bill, but then sued arguing that the tax was not a tax on their income, but a direct tax on their shares of stock, which violates the Constitution’s requirement that direct taxes be “apportioned among the several States.”  

It is undisputed that the Moores never received income, so the question whether the government could tax their unrealized gains — a common device in what are often called “wealth taxes” — seemed to be teed up. But Justice Brett Kavanaugh, who wrote the majority opinion, avoided it.  

There was income here, he said. The Indian company realized income, so this is an income tax, not a direct tax subject to apportionment. The only question, then, is whether Congress has the power to “attribute an entity’s realized and undistributed income to the entity’s shareholders or partners, and then tax the shareholders or partners on their portions of that income.”   

Kavanaugh frames the case this way for two reasons. First, he seems unwilling to give a green light to wealth-tax proposals, which would tax either unrealized gains or the value of property. Although he twice expressly denies that the case is about those taxes, he peppers the opinion with legal rules that would undermine them. He reminds his readers that “income requires realization” and that taxes on net worth “might be considered a tax on property, not income.”   

But — and this is the second reason why Kavanaugh frames the case this way — he worries that handing the Moores a victory would “deprive the US Government and the American people of trillions in lost tax revenue” and “require Congress to either drastically cut critical national programs or significantly increase taxes on the remaining sources available to it.”  

This is what Justice Clarence Thomas, in dissent, rightly calls the “consequentialist heart” of Kavanaugh’s opinion.  

In Kavanaugh’s view, there is no way to separate the MRT from other pass-through tax arrangements. Thus, to strike down that tax would be to strike down pass-through arrangements on partnerships, S Corporations, and similar entities. So, he must justify Congress’s power of attribution.  

To do so, Kavanaugh points to four cases that, in his view, establish a “longstanding” attribution rule. One case held that Congress may tax a de facto corporation on its own income even if, under state law, it is called a “partnership.” Another held that the Due Process Clause does not prevent the government from taxing the “distributive share” of each partner in a partnership when one partner tries to hide his income by assigning to another. A third case held, as a matter of statutory interpretation, that there was a “distributive share” of partnership income even though distribution was impossible under state law. And the fourth held that when a sole shareholder of a company uses the company as his personal tax-free bank account to avoid taxes, the government may pierce the corporate form and tax him.  

If these cases seem like thin reeds on which to build a heretofore unknown “attribution rule,” that’s because they are. Thomas in his dissent and Justice Amy Coney Barrett in her concurrence conclude that these cases only really stand for the proposition that Congress can attribute income to people trying to avoid tax liability through various corporate forms. The cases are so far afield from Kavanaugh’s attribution rule that it is hard to take seriously his use of them. In truth, though, it doesn’t seem like Kavanaugh expects the reader to do so. Kavanaugh appears much more concerned about the parade of horribles that the Moore’s case presents to him.  

But Thomas disagrees with Kavanaugh’s claim that the MRT can’t be distinguished from other pass-through entities. Barrett holds out that possibility, too, but concludes that she needs more information before she can reach that conclusion for sure (thus, she concurs rather than dissents, despite her opposition to almost everything Kavanaugh says).  

Partnerships, for example, “have no separate existence from their partners.” Likewise, the pass-through taxation of S corporations “is merely an extension of the pass-through taxation of partnerships.” And finally, Subpart F corporations include “some minimal requires to ensure that taxable ‘income’ belongs to the shareholder in some way.”  By contrast, the MRT “abandons that effort entirely.”  

Yet the majority did not see it that way and, afraid that the federal government will find itself suddenly trillions of dollars short of tax revenue, scrambled to avoid that risk without greenlighting taxes on unrealized gains and on net worth.  

The question remaining is: will it work? Will the majority’s liberally sprinkled anti-wealth-tax dicta deter Elizabeth Warren or Bernie Sanders from enacting such a tax if they are able? Thomas doesn’t think so: “if the Court is not willing to uphold limitations on the taxing power in expensive cases, cheap dicta will make no difference.”  

He may be right, but if past is prologue, another consequentialist decision by Kavanaugh suggests that he’ll likely come around in the end to block wealth taxes. When in 2020, the Centers for Disease Control and Prevention imposed an unlawful eviction moratorium on the nation, Kavanaugh cast the decisive vote to leave the moratorium intact for some time even though he agreed that it was unlawful because “the CDC plans to end [it] in only a few weeks” and “those few weeks will allow for a more orderly distribution of the congressionally appropriated rental-assistance funds.”   

The CDC saw Kavanaugh’s vote for upholding the program, ignored his text saying that it was unlawful, and — to nobody’s surprise but Kavanaugh’s — renewed the program. When the moratorium came before the Supreme Court a second time, Kavanaugh did what he should have done the first time around and voted to strike it down.  

As with the eviction moratorium, so likely with a wealth tax. Kavanaugh’s dicta probably won’t deter anyone, but once proponents power ahead, Kavanaugh will presumably vote to power it down. Adding his vote to Barrett’s (who was joined by Justice Samuel Alito) and to Thomas’s (who was joined by Justice Neil Gorsuch), that makes five.  And at the Supreme Court, five is the magic number.