In early December 2025, a cascading series of flight cancellations at IndiGo, India’s largest airline, brought one of the world’s fastest-growing aviation markets to a grinding halt, stranding tens of thousands of passengers during the peak of winter travel season. On December 5 alone, over 1,000 flights were canceled nationwide, including all departures from the national capital, New Delhi’s Indira Gandhi International Airport, as the airline struggled to comply with new pilot fatigue regulations it had been given months to prepare for. By mid-December, upwards of 4,500 flights had been axed or delayed, prompting government interventions, regulatory examinations, and frontline outrage.
For US and international readers unfamiliar with Indian skies, the scale of this disruption was unprecedented: a carrier that handles nearly two-thirds of India’s domestic traffic saw its network unravel in a matter of days, leaving packed terminals, long queues, lost luggage, and frustrated travelers in its wake. Such chaos is rare even in the world’s largest aviation markets, where diversified competition and regulatory frameworks tend to contain operational breakdowns before they become systemic — a contrast that highlights deeper tensions between regulation, competition, and resilience in India’s aviation sector.
At the root of the crisis were updated Flight Duty Time Limitation (FDTL) rules issued by India’s aviation regulator, the Directorate General of Civil Aviation (DGCA), to strengthen pilot fatigue safeguards. Among other changes, the new rules increased mandatory weekly rest from 36 to 48 hours, sharply limited night landings per pilot, and tightened duty-hour caps — measures intended to reduce cumulative fatigue and align India with global safety practices.
Research and regulatory studies indicate that fatigue impairs alertness, attention, and decision-making ability, increasing the risk of errors in aviation operations — which is why agencies such as EASA and others require flight time limitations and rest requirements to mitigate fatigue risks for pilots. However, the timing and implementation of these rules collided disastrously with IndiGo’s tightly optimized, lean operational model. The rules took full effect on November 1, 2025, immediately before the winter schedule ramp-up, and the airline’s rosters, crew hiring, and scheduling buffers proved insufficient to absorb the added constraints.
“Given the size, scale and complexity of our operation, it will take some time to return to a full, normal situation,” said IndiGo’s Chief Executive Pieter Elbers in a video message during the crisis, acknowledging both the disruption and the airline’s planning shortfalls. He said the carrier expected cancelations to fall below 1,000 and hoped operations would stabilize between December 10 and 15 before returning to full normalcy by mid-February 2026.
The airline’s reputation for punctuality and efficiency, a hallmark of its rapid ascent as India’s dominant carrier, was severely dented. Over several days, airports nationwide saw terminals overflow with passengers scrambling for information, staff overwhelmed by inquiries, and strike-like levels of cancelations and delays that are more common after major weather events than in well-regulated commercial environments.
Adding to the industry upheaval, the Competition Commission of India (CCI) and the DGCA moved to investigate whether IndiGo’s market dominance had been exploited during the chaos. Regulators sought fare data from leading carriers after reports emerged that ticket prices on alternative airlines surged significantly once IndiGo’s capacity shrank, sparking concerns about exploitative pricing and potential antitrust violations.
It was not only market watchers who were alarmed. An international pilots’ advocacy group, the International Federation of Air Line Pilots’ Associations (IFALPA), publicly warned that India’s temporary exemption of some night-duty rules for IndiGo was concerning because “fatigue clearly affects safety” and said the move was not grounded in scientific evidence. IFALPA’s president, Captain Ron Hay, stressed that regulatory exemptions to core fatigue protections risk undercutting broader safety goals and could exacerbate pilot attrition if working conditions worsen.
The crisis raises an obvious question: How does a safety-driven rule lead to system-wide operational collapse? The answer lies in the interlocking dynamics of regulation and market structure. In many major aviation markets, safety regulation and commercial competition are designed to operate in a complementary, not contradictory, fashion. For example, in the United States, the Airline Deregulation Act of 1978 removed federal control over fares, routes, and market entry yet preserved robust safety oversight. The result has been decades of competitive pressure that encourages airlines to maintain operational buffers and redundancy — not just for profit, but to avoid losing market share to rivals.
In Europe, liberalization in the 1990s enabled the rise of low-cost carriers that expanded capacity and required others to evolve service models. Singapore and the United Arab Emirates, too, have developed highly competitive hubs with minimal micro-management of airline operations beyond safety compliance.
India’s system has been more hybrid: rapid growth and liberal market entry coexisted with a regulator that, in practice, has exercised broad operational influence. The DGCA oversees not only safety certification but also staffing approvals, scheduling compliance, and enforcement of duty rules that directly shape airline operations — a role that can blur lines between safety oversight and commercial intervention.
While the intent behind the FDTL updates was to improve safety, critics argue that too little attention was paid to transition planning, industry capacity, and incentives for airlines to build redundancy. IndiGo had years to prepare for the new norms, yet recruitment lagged and roster reforms were implemented too late and too thinly to meet the demands of India’s busiest travel season. Other carriers, with smaller networks and different staffing strategies, weathered the changes with fewer cancelations. This suggested that operational choices, not just regulation, mattered in how airlines adapted.
The DGCA’s response illustrated this tension. In the face of chaos, authorities temporarily suspended the most restrictive duty limits for IndiGo — including night landing caps — and directed the carrier to adjust its schedules and submit revised planning roadmaps. The civil aviation ministry also instituted a fare cap on competing airlines to prevent opportunistic pricing spikes while IndiGo’s network recovered. An inquiry panel was ordered to examine what went wrong and recommend changes to prevent similar future breakdowns.
To an American or European audience, where regulatory functions are generally more clearly delineated and competition is vigorous across multiple carriers, the Indian episode highlights a set of broader governance challenges: the difficulty of balancing safety regulation with market incentives, the risks of high market concentration, and the need for effective transitional planning when policy changes affect deeply interdependent systems.
First, regulatory changes in safety-critical industries should be introduced with robust transitional frameworks that align industry capacities with compliance timelines. In the United States and the EU, fatigue management standards are phased in over long periods with consultations, transitional staffing analysis, and often incremental enforcement, minimizing sudden shocks to networks.
Second, market structure matters for systemic resilience. Markets dominated by a single carrier — particularly one with more than 60% market share — lack the redundancy that competition naturally creates. When that carrier falters, competitors cannot easily absorb displaced passengers or capacity, and prices can spike, reducing consumer welfare.
Third, coordination between regulators and industry is essential. Safety mandates that lack clear pathways for adaptation can backfire, not because the goal is misguided, but because execution does not account for operational realities. Planning frameworks that integrate regulatory foresight with industry hiring, training, and technology investments reduce the risk of rule implementation triggering wider system breakdowns.
IndiGo’s winter meltdown was not just a corporate planning failure or an administrative misstep; it was a public demonstration of how tightly coupled operational, regulatory, and competitive dynamics can lead to cascading failure when incentives are misaligned and buffers are thin. For Indian travelers, the immediate fallout was stranded families, disrupted plans, and a deep erosion in trust. For policymakers and global aviation observers, it is a case study in the complex trade-offs between safety regulation and system resilience.
Ultimately, resilient aviation markets embrace clear safety oversight and vigorous competition without allowing either to overwhelm the other. The US model of deregulated commercial competition and focused safety supervision, for all its imperfections, offers an example of how incentives and regulatory clarity can coexist. India’s aviation system, and others with similar structural traits, may yet find pathways to balance these dynamics — but the December 2025 upheaval will remain a stark reminder that turbulence often comes not from the skies, but from the regulatory and market architecture beneath them.
California is embedding age verification directly into digital devices. For those of us concerned with personal liberties, this is an emergency. We are creating online infrastructure that could reshape how internet access is controlled nationwide.
Starting January 1, 2027, new iPhones, Android devices, and tablets sold in California will have to classify users by age range during initial setup. The system will automatically share this ‘age signal’ with apps, creating age-classification infrastructure at the operating system level. Lawmakers say this will protect minors online by allowing apps to adjust content and features based on the user’s age.
The legislation, AB 1043, which Gov. Gavin Newsom signed into law in October 2025, requires device manufacturers like Apple and Google to collect the user’s age or date of birth during device setup. The system generates an encrypted ‘signal’ that places the user into one of four age categories. Apps can request this signal and adjust functionality accordingly. California’s Attorney General enforces compliance and can bring civil action against companies that violate the law, with penalties reaching $7,500 per intentional violation.
California has around 40 million residents. Roughly 32.5 million of them use smartphones. If companies fail to comply with this new law, the fines would quickly spiral into the billions of dollars, unaffordable even for large technology companies.
American tech firms already face absurdly large fines under European laws like the Digital Markets Act and the Digital Services Act, where fines seem to be more about revenue-raising than law enforcement. As President Trump has pointed out, the European Union makes more money from fining US tech companies than taxing them.
As aggressive regulations pile up, the financial risk from these fines becomes significant. This creates strong incentives for companies to act with excessive caution, preemptively restricting content and features for adults as well as minors, in an effort to dodge liability.
Compared with federal proposals such as the Kids Online Safety Act (KOSA) or laws already passed in Texas and Utah, California’s approach is arguably less intrusive because it does not require document uploads or biometric verification. But it still creates a permanent age-classification layer built directly into the device, which is a disaster for civil liberties.
More importantly, the law will not protect minors the way it promises. Determined minors can bypass technical restrictions by using VPNs, lying about their age, or using family members’ devices, as has already happened with similar laws in other states and countries. In the United Kingdom, for example, the Online Safety Act led to a 1,400 percent surge in VPN use shortly after implementation.
To make matters worse, devices do not belong to one user. Families share tablets. Households share computers. Even smartphones pass between users. A single age classification cannot reflect this reality. Errors are inevitable. Children will continue to access restricted content, one way or another. In some cases, they may be pushed toward less safe and harder-to-supervise digital environments in the darker corners of the internet, thanks to well-intentioned but poorly written laws like AB 1043. Meanwhile, adults may face unnecessary limitations due to incorrect classifications.
Voluntary tools like Apple’s Screen Time and Google’s Family Link already allow parents to supervise their children’s access without mandatory age classification at the device level. Government regulation cannot and should not replace parental oversight. The tools already exist. It is families, not operating systems, which must teach young people how to navigate the internet in a healthy and responsible way.
By mandating age classification at the operating system level, AB 1043 does not replace parental responsibility. It adds a new regulatory layer, with costs and consequences for companies and users. And this infrastructure will not necessarily stay confined to California.
This law could spread beyond California due to the so-called “California effect,” under which rules adopted in the largest technology market in the United States often become national standards. This happened with privacy laws like the California Consumer Privacy Act, which reshaped practices across the country. Companies adopted its requirements nationwide rather than operate separate systems.
California is not fixing a sudden market failure. It is pursuing a policy goal — protecting minors — by embedding age classification into operating systems. In doing so, it transforms age verification from a voluntary feature into a permanent digital infrastructure. Once embedded into the operating system, this infrastructure will be easy to expand and difficult to remove.
The near-collapse of London-based Market Financial Solutions (MFS) highlights structural vulnerabilities embedded in today’s private credit ecosystem. Founded in 2006, MFS specialized in complex, property-backed bridging loans — short-duration financing secured by transitional or hard-to-value real estate assets. At its reported peak, the firm’s loan book reached roughly $3.2 billion. In 2024, it added about $1.7 billion in new institutional funding and expanded or renegotiated roughly $1.4 billion in additional credit lines.
On Monday, a Blackstone private credit fund had to raise its repurchase cap to meet nearly $2 billion in redemptions, highlighting how quickly panic can spread. Major financial institutions were intertwined in the structure: Barclays reportedly had about $800 million in exposure, Apollo’s Atlas SP Partners around $500 million, and Jefferies roughly $130 million.
The firm also had ties to Santander and Wells Fargo. When stress emerged, and parts of MFS entered a UK insolvency process, confidence eroded quickly — underscoring the risks that arise when complex collateral, layered leverage, and short-term funding intersect.
This pattern is not accidental. Private credit expanded rapidly after 2008, when tighter capital rules and supervisory pressure pushed large banks away from asset-based lending, real estate bridge loans, and middle-market financing. Nonbank lenders stepped in to fill the void, often relying on funding lines from the very global banks that had reduced direct exposure to those risks.
When liquidity is abundant and asset values rising, the structure appears efficient and resilient. But when funding tightens or underwriting assumptions prove too optimistic, opacity, maturity mismatches, and embedded leverage can surface quickly. Risk may migrate outside the traditional banking perimeter, but it does not disappear.
When parts of MFS entered a UK insolvency process, court filings cited “serious irregularities,” a significant collateral shortfall, alleged diversion of income streams, and possible double pledging of assets. Authorities have not accused anyone of wrongdoing, and the firm maintained the issue stemmed from a procedural banking dispute. Markets — in particular, credit spreads — are reacting sharply, and lenders have moved to reassess exposures.
As early as October 2025, faint indications of duress were seen in funding markets. It is reminiscent of borrowing at the discount window several months before a handful of regional banks, most notably Silicon Valley Bank, became distressed.
The pattern is no longer theoretical. Thrasio’s bankruptcy (Feb 2024) exposed the fragility of acquisition-heavy, private-credit-funded roll-up models. Tricolor’s funding strains followed (Nov–Dec 2024), then First Brands’ alleged collateral double-pledging surfaced (late Jan 2025). More recently, Blue Owl gated withdrawals from a retail credit vehicle (early Feb 2026), and an Apollo-managed BDC (business development company) cut its payout and marked down assets (mid-Feb 2026). None were systemic events, but together they form a cadence.
The private credit markets are not large in relation to other financial markets — estimated at $2 trillion globally — but contagion is the prevalent concern, especially with markets already spooked about the radically transformative possibilities of artificial intelligence. Credit spreads have widened toward levels seen during prior recession scares. Shares of business development companies — a liquid window into private credit — have been volatile amid redemption pressures and portfolio markdowns. Default rates remain contained. The tension lies not in realized losses but in fragility: when underwriting standards loosen during a boom, even a few surprises can alter perception quickly. As Jamie Dimon has warned, markets tend to rediscover risk in clusters. And while not conclusive, recent spikes in overnight repo usage and in discount window borrowing (primary credit) suggest that liquidity is being tapped more aggressively at the margin — not yet a crisis, but the kind of funding stress tremor that can signal trains beginning to move in the distance.
Overnight repo agreements accepted by the Federal Reserve (USD, 2023 – present)
(Source: Bloomberg Finance, LP)
In this environment, calls for tighter regulation are inevitable. History suggests that losses in nonbank finance will be followed by demands for expanded oversight, framed in the language of consumer protection and systemic stability. Yet regulation in finance has always had a dual character. It can restrain excess; it can also entrench incumbents. Large, highly regulated banks often benefit when compliance burdens rise, as smaller competitors and independent credit funds struggle to absorb new capital, reporting, and governance requirements. Consolidation can follow under the banner of safety.
From a public choice perspective, this dynamic is unsurprising. Regulators operate within political and bureaucratic incentives; rulemaking is shaped by concentrated interests more effectively than by dispersed borrowers. Regulation can as easily serve as a barrier to entry that protects established institutions as a safeguard for the public (consumers). Austrian economics adds a deeper analytical layer: cycles of credit expansion and malinvestment reflect distorted price signals — in particular, prolonged periods of artificially low interest rates and abundant liquidity — not merely supervisory gaps.
An alternative approach would focus less on expanding prescriptive rules and more on restoring the chastising force of market discipline. Funding structures that promise periodic liquidity while holding illiquid loans should carry explicit gating provisions and buffers that investors clearly understand. Collateral transparency could be improved through independent third-party registries — or tokenization — to reduce the scope for double pledging without micromanaging lending decisions.
Federal Reserve Discount Window, primary credit activity (millions of USD, 2025 – present)
(Source: Bloomberg Finance, LP)
Most importantly, losses must remain losses. When investors in private credit funds, BDCs, or warehouse facilities bear the consequences of underwriting errors, pricing adjusts and standards tighten organically. Attempts to soften or socialize those losses, whether through forbearance or implicit guarantees, delay adjustment and encourage the next cycle of excess. Market signals, though painful, are information-rich.
Private credit serves a legitimate economic role. It finances projects and borrowers traditional banks may not serve, which in turn supports development, expansion, and entrepreneurial risk-taking. It should be lost on no one that post-2008 regulatory shifts, including rescuing banks from their own mistakes, paved the way for the rise of private credit. The goal should not be suppression but transparency and aligned risk-sharing rather than regulatory arbitrage. If policymakers respond by expanding complex rulebooks that advantage the largest institutions, they will reduce competition while doing little to prevent future misallocations. A system grounded in transparency, capital at risk, and the discipline of profit and loss offers a more durable path than yet another gormless twist of the regulatory ratchet.
Millions of Americans are channeling the classic Eagles tune Hotel California in their experience with student loan debt: “you can check out any time you like, but you can never leave.”
Two emergent trends encapsulate the inescapable trap of student debt repayment. First, the rate of serious delinquencies on student loans is approaching an all-time high. Second, student loan debts are intentionally made nearly impossible to discharge, even in bankruptcy.
The Federal Reserve’s Quarterly Report on Household Debt and Credit has just been released, and it’s not a pretty picture. Alongside debt on student loans spiking, seriously delinquent (90+ days late) credit cards have reached levels not seen since the financial crisis. About one in eight credit card accounts is now three months behind. This trend has been rising since 2022, and seems to indicate that households were already beginning to fall behind on their debts, setting the stage for serious delinquencies.
Not to be outdone, auto loan serious delinquencies have also been on the rise since the beginning of 2023. Put these factors together, and it seems that the temporary COVID-era relief on student loan repayment didn’t make it any easier for borrowers to pay down their credit cards or car loans. In the meantime, serious delinquencies for mortgages are very low, but this is easily explained. With the ultra-low interest rates that many homeowners have on their mortgages, they stay put longer, overall saleable inventory declines, and home prices remain high despite the relative increase in interest rates since their pandemic-era nadir.
Combine all those factors, higher home and rent prices, greater reliance on credit cards, and increased reliance on longer term car loans (over 20 percent are now of the 84-month variety), and you wind up with a perfect storm to place additional pressure on student loan repayments. The backlash was waiting to be unleashed after a long period of genuine forbearance, along with an administrative shell-game that hid the seriousness of the fragility of the student loan market.
With the passage of the CARES Act in March of 2020, most federal student loan repayment was suspended, with no additional interest paid. Further, collections on defaulted loans were halted. These were supposed to have been temporary measures. Instead, they lasted until October of 2023. And even then, policymakers created a so-called “on-ramp”.
Amazingly, during that timeframe, missed payments were simply not reported. So, by the end of Q4 in 2024, only a paltry 0.7 percent of student loans (both federal and private) were sliding into serious delinquency. A year later, the real state of affairs became evident. The share of student loan balances that moved into serious delinquency shot up to 16.19 percent.
(Source: newyorkfed.org)
Of course, no trend lasts forever nor maintains the same pace, but new serious delinquencies in student loans have surged to levels not seen since the Fed began tracking this category in the early 2000s. With both credit card and car loan serious delinquencies on the rise at the same time, increased bankruptcy filings might be anticipated in the months ahead.
In fact, we don’t have to prognosticate on the future regarding bankruptcy filings. The American Bankruptcy Institute tracks all filing types, and every month of 2025 saw higher numbers of bankruptcies when compared with 2024. Last year saw a 12 percent increase in individual filing, coming in at 533,949 compared to 478,752 in 2024. And even within that window, each month of 2025 saw more bankruptcies than the year before.
If the same trend unfolds for 2026, it’s clear that the surging student loan crisis will have something to do with it. But here’s the problem for these borrowers: unlike many other forms of debt, student loans are the financial equivalent of Hotel California. Once you’re in, you can (almost) never get out.
Those inclined to look deeper can consult US Bankruptcy Code (Section 523(a)(8)) and the special privileges it gives to the student loan industry. In brief, this provision says that “student loans are not dischargeable unless it would impose ‘Undue hardship’ on the debtor.” How does one prove that they’re under undue hardship? In most US Circuit Courts, debtors have to prove to the court that their situation meets the infamous “Brunner Test”.
According to this legal standard, the debtor has to prove that:
Repayment creates a hardship that would prevent a minimal standard of living
The hardship is likely to continue
The borrower has acted in “good faith” to try to repay
It doesn’t take a legal eagle to understand that each of these proof points relies on the subjective decision of a judge. Out of the 13 federal circuit courts, only two (the first and eighth) use what is called the “totality of the circumstances” standard, giving the court much greater latitude to discharge student loan debt. A year after those two courts adopted that standard, nearly every case went in favor of the borrower with some or all of their student loans being wiped away. But those wins were a tiny fraction of the nearly 43 million student loan debtors, who now owe a collective $1.66 trillion.
What may come as a great surprise to some is the age of borrowers falling farthest behind. For student loans (unlike car or credit cards), older borrowers led the surge in new serious delinquencies. More than 21 percent of borrowers over age 50 had their loans go 90+ days late at the end of 2025.
After all, it’s mainly Gen Xers — who could sing every lyric of Hotel California by heart — now discovering that, despite their best efforts, government intervention has made student loans nearly impossible to escape.
What are zoning laws, how do they work, and what are their economic effects?
This explainer is intended to be a guide to the purposes and mechanics of local land-use regulations, including zoning, as well as the economic debates over their effects, especially on the housing market, and how to reform them.
1. What Zoning Is
Zoning is a set of laws that regulate how property owners may use their land, in particular by drawing zones where certain uses are and are not permitted. Most zoning laws are local ordinances adopted by county or municipal governments, but some are state laws adopted by legislatures or executive agencies.
While zoning regulates building, “zoning codes” are different from “building codes.” Building codes are standards for construction meant to address life safety issues, such as fire safety and energy efficiency.
Planners and local governments often treat “zoning” separately from other land-use or development regulations. Regulations affecting the subdivision of land, the layout of site plans, and environmental standards like those having to do with development activities near wetlands or above aquifers are all closely related to zoning. Sometimes these laws are found in zoning ordinances and sometimes in separate ordinances. “Master plans” are typically advisory documents meant to inform zoning changes, but in practice, they often diverge sharply from what zoning ordinances actually allow.
Zoning is a relatively recent phenomenon in the United States. New York City adopted the first comprehensive zoning ordinance in 1916, but cities had implemented piecemeal land-use regulations before this date.[1]
Zoning quickly spread nationwide. Under Secretary of Commerce Herbert Hoover, the federal government adopted a draft “zoning enabling act” in 1924 and promoted its enactment by state legislatures. Most states quickly adopted zoning enabling acts in the 1920s. Excluding the then-territories of Alaska and Hawaii, the last state to adopt a zoning enabling act was Washington (1935).
Before zoning, land use was regulated through private covenants: contracts that limited how landowners could use their property, and that “ran with the land,” meaning they passed to future buyers and renters. Private covenants are still important in the US, but they are now used mainly for two purposes: creating conservation easements that limit development on agricultural land or wilderness, and establishing homeowners’ associations that manage common facilities and regulate development in a single neighborhood.
Why did zoning start in the 1910s and 1920s? One reason may be the rise of the automobile, which allowed workers for the first time to live far from their jobs. As suburban neighborhoods grew, residents sought to keep urban uses at a distance. Zoning was a tool for that separation.
Progressive Era optimism about the ability of experts to use scientific principles to re-engineer daily lives through government also played a role. Within the field of urban planning, the early progressives’ ambitions gave way in the 1940s and 1950s to even grander “high modernist” visions to redesign cities according to abstract principles of beauty and order (Scott 1998). These ideological commitments played a role in the American “urban renewal” projects of the 1950s and 1960s that bulldozed neighborhoods, widened roads, drove highways through the centers of cities, and rezoned land to require large parking lots and front yards.
Some scholars still debate whether racism played a role in the development and spread of zoning. Certainly, some cities tried to use zoning for racial and socioeconomic segregation, even after the Supreme Court struck down explicitly racial zoning in 1917. But there were also prominent black advocates of zoning (Glock 2022). FDR’s Federal Housing Administration (FHA) used redlining — excluding certain neighborhoods from their mortgage guarantee program — to reinforce urban segregation. To this day, many zoning boundaries follow the red lines that the FHA drew suspiciously closely (Rothstein 2017; Trounstine 2020). Urban renewal policies, especially interstate highway construction, damaged urban working-class areas of cities, both predominantly black and ethnic-white (Peterson 2023). Perhaps the most supportable conclusion is that racism sometimes played a role in the purposes to which zoning was put, but the level of racism in society is not a good predictor of the stringency of zoning over time, since especially restrictive forms of zoning first emerged in the 1960s and then spread to fast-growing regions during the period from the 1970s through the 2000s.
In fact, a social trend that tracks better with the rise of especially restrictive zoning is the spread of anti-growth environmental attitudes in the 1960s and 1970s (Fischel 2015). During this era, environmentalism was closely associated with anti-population-growth views, and ultra-low-density zoning seems to have emerged first in places with strong environmental movements. Up to the present day, local Sierra Club chapters have often been key vehicles for anti-housing activism (Elmendorf 2023), despite the fact that low-density zoning in metropolitan areas tends to encourage sprawl.
2. How Zoning Works
The basic role of zoning is to separate potentially annoying or noxious uses from residential neighborhoods. Economist William Fischel calls this “good housekeeping zoning” (Fischel 2015, 325).
Traditional zoning isn’t the only way to regulate nuisances. One former city planner and zoning skeptic notes that, rather than dividing a city into districts with different permitted uses, ordinances could simply specify that obnoxious uses may not locate within a certain distance from an existing home (Gray 2022). Under traditional zoning, a nuisance use can be located close to a home so long as it’s just over the line in a zoning district where that use is allowed.
From early on, zoning went beyond regulating genuine nuisances. The famous Euclid v. Ambler Supreme Court case that upheld the constitutionality of zoning in 1926 was about an ordinance that forbade the building of apartments in one part of the village of Euclid, Ohio. The majority opinion held that restricting apartments was a reasonable use of the government’s police power, since “very often the apartment house is a mere parasite, constructed in order to take advantage of the open spaces and attractive surroundings created by the residential character of the district,” and apartment houses in residential districts “come very near to being nuisances” (272 US 394–95).
Today, almost all zoning ordinances limit residential densities, even in the most densely populated neighborhoods in the country. Setting aside land for detached, single-family housing is also standard. Single-family zoning is virtually unknown outside the US and Canada (Hirt 2014), but limits on residential densities are near universal (Hughes 2025). Limits on densities may, within reason, safeguard the value of residential properties in a neighborhood.
Another application of zoning is to make sure that new development “pays its own way.” If new development requires building roads or expanding schools, zoning regulations can require the development to pay enough in property taxes to cover the marginal cost of providing these services. Requiring that new homes purchase a lot of land with their house, through minimum lot sizes, might be a roundabout way of doing this.
Another, arguably simpler way of ensuring that developments make fiscal sense for the local community is to use narrowly constructed impact fees. Impact fees are payments that property owners have to make in order to build a certain kind of development. These funds can then be used to upgrade infrastructure, hire teachers, or otherwise fulfill the need created by the new development.
Like any other government exaction, impact fees can be — and often have been — abused. They only make sense if they cover the net cost of a development to local property taxpayers. Since development typically raises the value of property substantially, it always pays at least part of its own way. The most credible academic research on this question suggests that multifamily housing and small-lot single-family subdivisions tend to pay their own way fully through their added property tax revenues, at least when it comes to school enrollment impacts (Gallagher 2016; 2019). If that’s true, then it wouldn’t make sense to impose school impact fees on these types of developments.
If a property owner wants to do something that is prohibited under zoning, localities offer processes for various exceptions. It’s impossible for a zoning ordinance and a zoning map to anticipate all possible valuable uses for every specific piece of land for all time. The most typical process is to obtain a “variance,” or a waiver of the zoning regulations in a particular instance.
Alternatively, the map itself can be changed through a rezoning — but this process usually makes sense only for large projects. These processes are at least somewhat discretionary; a property owner is never entitled to a variance or a rezoning.
3. Understanding Your Local Zoning
To see what kinds of regulations your area has, you can look up your local zoning or development ordinances and zoning map. Here’s what to look for.
In larger towns that have the assistance of professional staff in drawing up regulations, ordinances will typically have a table of uses and a table of dimensional regulations. The table of uses will tell you what uses are allowed or prohibited in each district, and the table of dimensional regulations will tell you the minimum and maximum requirements for lots and buildings.
Figure 1 shows a portion of a table of uses from Nashua, New Hampshire’s zoning ordinance. Like the vast majority of other zoning ordinances in the US, the Nashua ordinance considers a use prohibited unless it is expressly permitted. Some uses are only permitted if they are “accessory” to specific other uses, that is, they are not the main use of the land. Some uses are neither permitted nor prohibited outright, but require a special permit from a land-use board. These special permits are typically offered on a partially discretionary basis, such that a landowner has to prove that the new use will meet pre-established criteria.
As you can see from Figure 1, the commercial uses that happen to be listed here — different kinds of lodging establishments — are not a permitted use in any of the residential districts, but they are in the downtown and business districts, and they are allowed by a special permit in some of the urban residential districts. This kind of separation of uses is typical.
Home businesses, however, are treated as an accessory use. Most zoning ordinances will allow home-based businesses in at least some neighborhoods, but they typically impose restrictions such as maximum square footage or maximum number of employees, to limit the size and impact of these businesses.
The zoning districts in the columns of Figure 1 are plotted on a zoning map. Figure 2 displays a portion of the zoning map for Nashua. There are two types of zoning districts on this map: base districts and overlays. Base districts correspond to the regulations that apply outside an overlay. An overlay district modifies the regulations in the base district in certain respects (but not others). These modifications could make the regulations stricter or less strict.
Finally, Figure 3 shows a portion of Nashua’s table of dimensional regulations. These regulations limit how much you can build. Maximum density regulations limit the number of dwelling units you can build per acre. Minimum lot sizes tell you how much land you must have per house. Minimum setbacks tell you how far back the building must sit relative to lot lines. Maximum setbacks are less common but are gaining in popularity as planners lose interest in the high-modernist ideal of low-slung buildings surrounded by seas of grass and asphalt. Floor area ratios limit how much floor space you can build relative to the size of the lot; they’re an especially complex way to limit building space. Finally, minimum open space percentages, sometimes specified as maximum lot coverages, are in theory justified as a flood-prevention measure, making sure there’s enough space for rainwater to permeate the soil. To use them properly for flood prevention, however, they would need to scale with the size of lots and the flood-proneness of the surrounding area. It might be more efficient sometimes just to pay people to keep some land as open space.
Regulating uses and dimensions aren’t all that zoning ordinances do, but they’re among the most consequential. A nationwide project to map and tabulate key zoning ordinances affecting housing development is underway: the National Zoning Atlas. If you’re lucky enough to have your area covered by this atlas, you can dig into the data and see what types of housing are allowed where. The “snapshots” tool lets you compare jurisdictions by the percentage of land area they make available for certain types of housing.
4. The Consequences of Zoning
Economists pay attention to zoning because zoning makes it harder and more costly to build housing. Zoning is also often the only tool residents possess to limit nearby land uses that may lower their own property values without constituting true nuisances.
Everyone agrees zoning raises the cost of housing, but debate continues over whether it does so primarily by restricting supply, or also by increasing demand. If zoning is a wise tool for regulating nuisances and making neighborhoods more pleasant, it should boost housing demand as well as constrain supply.
Zoning limits housing supply in two ways: raising monetary costs and raising time costs. We have already seen the first of these. Zoning often requires more land to be used to build than a property owner might prefer to buy. Zoning can also raise the monetary cost of building by requiring particular building features, such as parking spaces.
Zoning also raises the time cost of building housing. Getting approvals, especially for special permits or variances, takes time — often an uncertain amount of time.
Zoning raises the cost of housing in a way that more closely resembles a fixed, per-unit tax than a tax that scales with the value of the property (“ad valorem”). Developers have an incentive to develop higher-priced properties, so that the fixed “land use tax” represents a smaller proportion of the ultimate sale price. For this reason, we should be cautious about attributing rising housing costs solely to larger and higher-quality homes. Houses are probably inefficiently large and high-quality, especially in more regulated regions. Lots of Americans want starter homes but are unable to find them, because even a small house is costly to build in a manner consistent with zoning.
Some economists have found that zoning can raise the demand for housing and make neighborhoods nicer to live in, compared to the alternative of completely unregulated land use (Speyrer 1989; Lin 2024; Gyourko and McCulloch 2024).
Quite a few studies have found that stricter zoning makes housing development more costly and less efficient, and may even account for the otherwise hard-to-explain decline in construction productivity in the United States (Siegan 1972; Glaeser et al. 2005; Hsieh and Moretti 2019; Molloy 2020; D’Amico et al. 2024).
One of the most startling examples of this phenomenon comes from Palo Alto, California, home to Stanford University and the headquarters of HP and the former headquarters of Tesla. Even at the very center of the global tech economy, most of the housing in Palo Alto is restricted to low-slung, single-family neighborhoods because of zoning laws. The only part of town where housing is legal to build at significant density is far away from corporate headquarters, next to San Francisco Bay and industrial port facilities. Still, it receives all the major residential construction (Ellickson 2022).
On the one hand, it’s understandable that homeowners in Palo Alto are nervous about allowing big apartment buildings down the block. On the other hand, the economic costs of freezing their neighborhoods in amber are gigantic. In principle, you could make Palo Alto homeowners better off by allowing high-density construction in their neighborhoods and giving them a big chunk of the increase in land value that results.[2] But traditional zoning doesn’t have mechanisms to authorize side payments of this kind.
The national evidence that zoning stringency and housing costs correlate is quite strong. For example, Figure 4 shows that in counties with stricter zoning, the ratio of median home value to median household income is higher.
Now, the causality might go both ways. Places that are nicer to live in or boast faster wage growth will have higher housing demand and therefore higher prices and population growth. That population growth might prompt these places to tighten their zoning regulations, yielding a partly spurious correlation between regulatory stringency and housing costs.
But if that alternative causal channel were the main explanation, it would be surprising to see more strictly regulated areas experiencing slower population growth. That argument depends on zoning being the result of rapid growth, rather than the cause of high costs and slow growth. If more strictly regulated places show high costs and slow growth, that should fortify our conclusion that the high costs are a consequence of strict zoning.
And that’s exactly what we do see. Figure 5 shows the relationship between zoning stringency and net migration rates at the state level. States with stricter zoning are losing people to states with looser zoning. This chart likely understates the negative causal effect of zoning on net migration, since states with historically high migration were more likely to tighten zoning in the first place.
These charts are suggestive and easy to understand, but from economists’ perspective, the only gold-standard evidence of causal effects comes from interventions that are more plausibly random. Careful studies of zoning regulations changes generally find that when regulations are loosened, housing production goes up, and housing costs go down, relative to the counterfactual — but the effect on costs depends on the geographic scale of the change (Cheung et al. 2023; Greenaway-McGrevy 2023; Büchler and Lutz 2024). Localized changes have almost no effect on local housing costs, while a regional change has a substantial effect on regional housing costs.
Zoning should also make commercial and industrial development more difficult and costly. In many cases, however, communities are more willing to allow commercial development than residential, since it shifts some of the property tax burden away from residential owners. This remains an area of future research, and state policymakers have been exploring ways to relax zoning rules for home-based commercial uses, such as childcare.
5. Options for Reform
Policymakers have looked to zoning reform in recent years as a way to bring down housing costs. This is a partial list of reforms that states and cities have been trying.
5.1. Institutional and Process Reforms
Process-level zoning reforms currently being tried include:
Providing a quick appeals process or appeals board for zoning denials to reduce the time cost of development.
Tightening who has standing or may challenge housing-friendly rezonings.
Compensating owners for regulatory takings. Under current jurisprudence, the federal Constitution only requires compensation for regulatory takings that eliminate economically viable uses of land, necessitating state-level reforms.[3][4]
Raising voter turnout by aligning local election calendars to state elections, as a motivated minority of anti-building homeowners have outsized pull in off-cycle elections (Einstein et al. 2020).
Using “shot clocks” to limit the time local boards can delay permit applications.
Allowing builders to use certified third-party inspectors and other private agencies.
Centralizing zoning, allowing state government to define all the possible zoning districts that its local governments can use, allowing local governments to then map these districts as they like. This approach raises the risk that anti-housing groups will focus on state-level influence.
Decentralizing zoning by allowing neighborhoods or even single streets to opt out of local zoning, if they recognize the financial benefit in allowing more housing to be built.
Making covenants more attractive, including authorizing city governments to use their own resources to enforce private covenants (Gray 2022).
5.2. Zoning Preemption
State governments could simply preempt local zoning in some areas, giving landowners defined rights to develop certain kinds of housing.
Build starter homes. In 2025, Texas enacted the first limit on minimum lot sizes in cities, making it easier to build subdivisions of small-lot homes.
Promote “missing middle” reforms. Some states have ended single-family zoning in larger cities or in areas that have access to water and sewer infrastructure, allowing developers to build out the “missing middle” typologies: duplexes, triplexes, and fourplexes.
Reduce parking minimums. Parking minimums are one of the most irrational land-use controls, and more than 100 cities have limited or abolished them.
Legalize accessory dwelling units. Quite a few states have now passed laws giving single-family homeowners the right to build a small apartment or tiny home on their lot.
Legalize manufactured housing. States are increasingly requiring local governments to allow manufactured housing wherever they allow single-family housing.
Legalize single-room occupancies, allowing dorm-like arrangements with shared kitchens or bathrooms, which function as the lowest rung on the housing ladder and may do the most to reduce homelessness.
5.3. Financial Incentives
Many states now offer some financial incentives or technical assistance to local governments that want to reform zoning in a housing-friendly direction. Some states now give additional infrastructure dollars to local governments that permit more housing. New Hampshire’s Housing Champions program is an example. The ROAD to Housing Act that recently passed the US Senate would do the same with some federal funds.
Financial incentives work best when localities must demonstrate a real increase in permitting, not just a legal change, as a condition of continuing to receive the incentive. Localities have innumerable ways to block or discourage projects they don’t want, so actual permitting data reveal a community’s regulatory stance more accurately than the text of its zoning ordinances.
6. Advantages and Alternatives to Zoning
Many Americans believe that zoning serves useful functions in protecting their quality of life and property values. In established neighborhoods, private covenants are difficult to create, making zoning the primary way to govern land use. Economics helps clarify the tradeoffs of zoning and how it can be reformed to serve its essential functions at lower cost.
For more on the politics and economics of zoning and how to reform it, see my AIER white paper, “Unbundling Zoning.”
References
Bernstein, David E. 1999. “Lochner, Parity, and the Chinese Laundry Cases.” Wm. & Mary L. Rev. 41: 211.
Büchler, Simon, and Elena Lutz. 2024. “Making Housing Affordable? The Local Effects of Relaxing Land-Use Regulation.” Journal of Urban Economics 143: 103689.
Cheung, Ka Shing, Paavo Monkkonen, and Chung Yim Yiu. 2023. “The Heterogeneous Impacts of Widespread Upzoning: Lessons from Auckland, New Zealand.” Urban Studies 61 (5): 943–67.
Coase, R.H. 1960. “The Problem of Social Cost.” Journal of Law and Economics 3 (1): 1–44.
D’Amico, Leonardo, Edward L Glaeser, Joseph Gyourko, William R Kerr, and Giacomo AM Ponzetto. 2024. Why Has Construction Productivity Stagnated? The Role of Land-Use Regulation. No. 33188. National Bureau of Economic Research.
Einstein, Katherine Levine, David M. Glick, and Maxwell Palmer. 2020. Neighborhood Defenders: Participatory Politics and America’s Housing Crisis. Cambridge University Press.
Ellickson, Robert C. 2022. America’s Frozen Neighborhoods: The Abuse of Zoning. Yale University Press.
Elmendorf, Chris. 2023. “How Major Environmental Groups Ended Up on the Wrong Side of California’s Housing Crisis.” Mother Jones, November 17. https://www.motherjones.com/environment/2023/11/green-groups-housing-crisis-ceqa-environmental-density-nimby/.
Fischel, William A. 2015. Zoning Rules!: The Economics of Land Use Regulation. Lincoln Institute of Land Policy.
Gallagher, Ryan M. 2016. “The Fiscal Externality of Multifamily Housing and Its Impact on the Property Tax: Evidence from Cities and Schools, 1980-2010.” Regional Science and Urban Economics 60: 249–59.
Gallagher, Ryan M. 2019. “Restrictive Zoning’s Deleterious Impact on the Local Education Property Tax Base: Evidence from Zoning District Boundaries and Municipal Finances.” National Tax Journal 72: 11–44.
Glaeser, Edward L., Joseph Gyourko, and Raven Saks. 2005. “Why Is Manhattan So Expensive?: Regulation and the Rise in Housing Prices.” Journal of Law and Economics 48 (2): 331–69.
Glock, Judge. 2022. “Two Cheers for Zoning.” American Affairs 6: 36–52.
Gray, M. Nolan. 2022. Arbitrary Lines: How Zoning Broke the American City and How to Fix It. Island.
Greenaway-McGrevy, Ryan. 2023. “Can Zoning Reform Reduce Housing Costs? Evidence from Rents in Auckland.” Working Paper No. 16. Preprint, University of Auckland Economic Policy Centre.
Gyourko, Joseph, and Sean E. McCulloch. 2024. “The Distaste for Housing Density.” NBER Working Paper 33078.
Hirt, Sonia. 2014. Zoned in the USA: The Origins and Implications of American Land-Use Regulation. Cornell University Press.
Hsieh, Chang-Tai, and Enrico Moretti. 2019. “Housing Constraints and Spatial Misallocation.” American Economic Journal: Macroeconomics 11 (2): 1–39.
Hughes, Samuel. 2025. “The Great Downzoning.” Works in Progress, November 24. https://worksinprogress.co/issue/the-great-downzoning.
Lin, Chuanhao. 2024. “Do Households Value Lower Density: Theory, Evidence, and Implications from Washington, DC.” Regional Science and Urban Economics 108: 104023.
Molloy, Raven. 2020. “The Effect of Housing Supply Regulation on Housing Affordability: A Review.” Regional Science and Urban Economics 80 (C): 1–5.
Peterson, Sarah Jo. 2023. “The Myth and the Truth About Interstate Highways.” In Justice and the Interstates: The Racist Truth About Urban Highways, edited by Ryan Reft, Amanda K. Phillips de Lucas, and Rebecca C. Retzlaff. Island.
Power, Garrett. 1983. “Apartheid Baltimore Style: The Residential Segregation Ordinances of 1910-1913.” Maryland Law Review 42 (2): 289–328.
Rothstein, R. 2017. The Color of Law: A Forgotten History of How Our Government Segregated America. Liveright. https://books.google.com/books?id=SdtDDQAAQBAJ.
Scott, James C. 1998. Seeing like a State: How Certain Schemes to Improve the Human Condition Have Failed. Yale University Press.
Siegan, Bernard H. 1972. Land Use Without Zoning. Rowman & Littlefield.
Sorens, Jason. 2018. “The Effects of Housing Supply Restrictions on Partisan Geography.” Political Geography 66 (September): 44–56.
Sorens, Jason. 2021. Residential Land Use Regulations in New Hampshire: Causes and Consequences. Josiah Bartlett Center for Public Policy.
Speyrer, Janet Furman. 1989. “The Effect of Land-Use Restrictions on Market Values of Single-Family Homes in Houston.” Journal of Real Estate Finance and Economics 2 (1): 117–30.
Trounstine, Jessica. 2020. “The Geography of Inequality: How Land Use Regulation Produces Segregation.” American Political Science Review 114: 443–55.
Endnotes
[1] For example, in 1915 San Francisco adopted an ordinance forbidding laundries in certain neighborhoods. Because these laundries were overwhelmingly Chinese-owned, this was a way of trying to keep Chinese workers out of wealthier neighborhoods (Bernstein 1999). Between 1911 and 1917, Baltimore, Louisville, and other cities adopted ordinances forbidding blacks and whites from living in neighborhoods majority occupied by members of the other race, ordinances struck down by the US Supreme Court in Buchanan v. Warley (1917) (Power 1983).
[2] This kind of deal is what economists call a “Coasean bargain” (Coase 1960). It makes no sense for regulations to prohibit people from making m utually beneficial exchanges.
[3] Arizona and Florida have laws requiring local governments to compensate landowners if they take away much of the value of their property through new zoning laws. Oregon had such a law, but it was radically scaled back.
[4] Penn Central Transportation Co. v. New York City, 438 US 104 (1978). 3): 454-466.
On Friday, the Supreme Court issued its 6-3 opinion in the Learning Resources, Inc. v. Trump, and if you’ve spent any time reading or watching the news in the past few days, you’ve probably seen some version of “the Court struck down Trump’s tariffs.”
While true, the analysis also strips out almost everything that matters. Here’s what the decision actually does (and does not) mean:
1) This is not a ruling against tariffs. It’s a ruling against one way of imposing them.
First and foremost, it’s important to understand that the Court very clearly did not say that all Presidentially imposed tariffs are unconstitutional, period. It also did not say anything about the justifications that the President gave for imposing the tariffs: lowering trade deficits or curtailing fentanyl smuggling. What the Court did say is that the International Emergency Economic Powers Act (IEEPA) does not, in and of itself, give the President the authority to impose tariffs. All other tariff powers remain intact. This report from the Congressional Research Service provides a useful overview of each of these powers and their limits.
While these powers could, in theory, replace many of the tariffs that President Trump originally imposed under IEEPA, they cannot replace all of the tariffs, and they each require additional hurdles or have specified limits.
Section 122, which the President has already used, only allows tariffs up to 15 percent to address “balance-of-payment deficits.” Some have time limits, while others require reports, investigations, and consultations with foreign governments.
Importantly, though, none allow the President to impose tariffs because he didn’t like how he was talked to by a fellow head of state.
2) The case turned on seven words
The International Emergency Economic Powers Act of 1977 authorizes the President to “regulate… importation… during a declared national emergency.” The entire case turned on these seven words and whether they included the power to impose tariffs. Six justices of the Court said “no.” Justice Roberts, writing the majority’s opinion, held that tariffs are fundamentally a taxing power, not a foreign affairs power, and that they differed in kind, not just degree, from the trade tools that IEEPA explicitly authorizes.
The Court also pointed out that no President had ever used IEEPA to impose tariffs before. While this is not in and of itself a winning argument (there is, after all, a first time for everything), it is still meaningful. Whenever an administration claims new power from a decades-old statute, the major questions doctrine throws up a red flag.
3) The Major Questions Doctrine is here to stay
This ruling is the latest, and possibly the most consequential, application of the major questions doctrine to date. Briefly, this relatively new doctrine contends that any time “an agency seeks to decide an issue of major national significance, its action must be supported by clear congressional authorization,” (emphasis original).
In their 2001 opinion in Whitman v. American Trucking Associations, Inc., the Court said, “Congress, we have held, does not alter the fundamental details of a regulatory scheme in vague terms or ancillary provisions — it does not, one might say, hide elephants in mouseholes.”
Justice Gorsuch, in a concurring opinion, put this clearly, writing, “the President claims, Congress passed that power on to him in IEEPA, permitting him to impose tariffs on nearly any goods he wishes, in any amount he wishes, based on emergencies he himself has declared. He insists, as well, that his emergency declarations are unreviewable. A ruling for him here, the President acknowledges, would afford future Presidents the same latitude he asserts for himself. So another President might impose tariffs on gas-powered automobiles to respond to climate change. Or, really, on virtually any imports for any emergency any President might perceive. And all of these emergency declarations would be unreviewable. Just ask yourself: What President would willingly give up that kind of power?”
It is for this reason, the Court’s majority held, that Congress must clearly give the power to the President. The President cannot simply assert that he has Article I powers.
4) The Dissent Deserves a Fair Hearing
Justice Kavanaugh, writing in dissent, accepts the validity of the major questions doctrine, but questions whether it applies in this particular case. He cites Justice Gorsuch’s four “telling clues” from West Virginia v. EPA (which can be found on pages 746–748) and argues on pages 35–44 of the Court’s opinion that at least three of them do not apply.
For example, he argues that in 1976, Congress and the Court understood that the phrase “adjust the imports” found in Section 232 of the Trade Expansion Act allowed the use of fees to do so despite this word not appearing in the Act. Since IEEPA was passed one year later in 1977, Justice Kavanaugh argues that the phrase “regulate… imports” also authorizes the imposition of fees, of which tariffs are but one option. Indeed, as he writes, “Any citizens or Members of Congress in 1977 who somehow thought that the ‘regulate… importation’ language in IEEPA excluded tariffs would have had their heads in the sand.”
The majority had responses to this, primarily pointing out the difference in the scale of what President Trump was doing versus what Presidents Ford or Nixon had done. Likewise, reasonable people can debate whether tariffs are a “tax” or a “fee” (hint: they’re a tax) and the semantic/legal differences therein. But as Kavanaugh points out, this is in direct opposition to the Court’s previous stance that the major questions doctrine is not a “magic words” test, whereby the Court is essentially requiring that Congress use very specific words to allow very specific actions by agencies, including the President.
5) Refunds Are a Possibility
In addition to the above, Justice Kavanaugh is also the only Justice to bring up the issue of refunds in the Court’s ruling, and he does so only four times. He notes that “The United States may be required to refund billions of dollars to importers who paid the IEEPA tariffs, even though some importers may have already passed on costs to consumers or others,” and that “Refunds of billions of dollars would have significant consequences for the US Treasury.” In a sense, he’s saying that American importers write the tariff check but pass on at least some of the tariff burden to American consumers in the form of higher prices. If the refund process happens, the refunds will all go to the American importers, not the end consumers. This process, as he acknowledges, will be “a mess.”
Indeed, we’re already seeing tariff refund cases submitted. FedEx has filed with the US Court of International Trade, and there are reasons to believe that they will not be alone. Will companies seeking refunds all be required to file individual lawsuits, and if so, in which court? Or will they be allowed to file a class-action lawsuit?
6) This Is Exactly What Checks and Balances Look Like
The easy, attention-grabbing headline that this is a win for free traders or a setback for economic nationalists is tempting, but misleading. The more important insight from this, whether you agree with the majority or the dissent, is that this is exactly how the system is supposed to work.
The White House pushed the boundaries of a statute beyond what its text and history would allow. Private parties challenged that action in court. The judicial branch reviewed it and overturned the White House.
Justice Gorsuch, on page 46, summarizes it nicely: “For those who think it important for the Nation to impose more tariffs, I understand that today’s decision will be disappointing. All I can offer them is that most major decisions affecting the rights and responsibilities of the American people (including the duty to pay taxes and tariffs) are funneled through the legislative process for a reason… In all, the legislative process helps ensure each of us has a stake in the laws that govern us and in the Nation’s future. For some today, the weight of those virtues is apparent. For others, it may not seem so obvious. But if history is any guide, the tables will turn and the day will come when those disappointed by today’s result will appreciate the legislative process for the bulwark of liberty it is.”
The question before the Court was never “are tariffs good or bad?” The question was whether one person should be allowed to impose or alter tariffs against any nation at any time and for any reason he alone determines is an “emergency,” with no Congressional approval or judicial review. And the answer to that question, for now at least, is “no.”
That said, let’s not confuse this legal victory for an economic one. The President has already implemented new tariffs under Section 122, has promised that other countries won’t be celebrating for long, and has assured his supporters that he will “Keep Calm and Tariff On.” This Administration was not surprised last May when the International Trade Court ruled against it, and has long promised that they have alternative plans ready to go if needed.
Still, this ruling is a victory for dispersed power, constitutional limits, and legislative accountability. And we should celebrate it as such.
Every few years, the century bond returns — not exactly with a bang, but with a new, shiny calculation involved.
As reported by the FT and Bloomberg last month, Google’s parent company has been busy tapping the bond market for everything from 3-year to 50-year bonds in several major markets (US, Switzerland, UK). Now it’s trying for the ultimate prize: a century bond.
Century bonds are exactly what they sound like: a bond, often issued by a government or a long-lived institution like a university, that runs for a hundred years, often at interest rates somewhat above prevailing market rates or reference rates. For the issuer, they make a ton of sense, generationally and actuarially: They receive funds for investments right now, lock in financing costs for a long time, and face no financing rollover risk.
It’s more of a puzzle why buyers show up for these issuances, especially since the market participants have very recent examples of being seriously burned. As a bondholder of extremely long-dated bonds, you’re always living in financial terror, waiting for rates to rise and inflict multiplied damage on the market value of your investment. Since bond prices move inversely with interest rates, the effects are more pronounced the further into the future — the longer-dated — the bond is. The loss of market value on a hundred-year bond when interest rates increase is far greater than on a ten- or two-year bond. When it does, this “dangers of duration,” as FT journalist Robin Wigglesworth has called it, completely undermines your finances for decades on end.
The last two times century bonds popped out of academic obscurity, they got a well-deserved bad rap. In the 1990s, several large companies tried them — and locked in steep and expensive rates in the five-percent region while interest rates kept falling toward zero for decades. In the late 2010s, with ZIRP dominating the world’s financial markets and trillions of mostly government debt traded at negative yield, we started seeing new players dusting off this old idea, since money now was just so cheap to be had: Universities like UPenn, Virginia, Oxford, and Rutgers took in funds for a hundred years in the two to four percent range. Then the opportunistic governments (including Ireland, Belgium, Mexico, Argentina) also successfully placed century bonds at eye-poppingly low rates. The most extreme participant was Austria, whose perfectly timed century bonds — of 2.1 percent in 2017, and then 0.85 percent and even zero percent right on the cusp of the ‘rona inflation — saved its taxpayers a fortune.
Logic alone dictates that if you sell debt due in 2120 for zero percent or 0.85 percent a year, and then CPI (and thus your incomes and tax revenues) rise to upward of 10 percent for a few years, you’re doing great. Indeed, bond math logic made that exercise even more painful, with some of these placements trading at cents on the euro a few years after issuance, vaporizing bondholders’ money.
Enter Big Tech: The AI Investment Needs Meet Underwater Pension Systems
With Alphabet/Google’s placements in November, and now its Swiss franc and sterling placements, it’s the first time a big tech company has dared to come back to this perilous market since the 1990s.
What’s so odd about this hunger for long duration is that in the 2010s and during the pre-inflation pandemic years, at least bond investors collectively were starved for yield, ready to do anything to eke out a few extra basis points of return. In 2026, there are still positive yields to be had. The mystery, then, is not why Google issued but why investors rushed in.
The $20-billion USD placement finalized at treasury yields+95 bps, while the GBP bond of £5.5, about $7.5 billion, placed at 120 basis points above gilts; the £1 billion century bond was ten times oversubscribed, according to Reuters, and carries a coupon of 6.125 percent until 2126. With the fairly recent history of century bond investors burning obscene amounts of money on mistaken duration bets, the question remains: Why were these long-maturity debt placements massively oversubscribed, at rate spreads of only about a hundred basis points above safe assets?
Three candidate explanations.
First, defined-benefit pension funds are extremely hungry for long-dated debt. Reinsurers and life insurance providers, too. They have long-dated liabilities that rise and fall in (net present) value with interest rates; owning equally long-dated assets compensates somewhat for that. “Strong demand from UK pension funds and insurers has made the sterling market a go-to venue for issuers seeking longer-dated funding,” reported Tasos Vossos for Bloomberg.
Second, the large embedded rate-leverage is kind of capital efficient. Bond funds don’t buy individual issuances in isolation, but compose a portfolio with a combined desired outcome, constantly micromanaging exposure and duration vis-à-vis a benchmark index. Remarked Marcus Ashworth in an opinion piece,
Buyers of these types of security are looking to dynamically balance the risk of an entire portfolio rather than caring about annual coupon weights. Ultra-long debt allows portfolio managers to barbell their duration needs by buying more 10-year liquid debt rather than illiquid 20- to 50-year maturities.
Which is, perversely, why riding that zero-percent Austrian century bond all the way to the basement between 2020 and 2025 could have been beneficial to certain bond portfolios that paired it with other investments. When rates fall, these bonds soar, letting market participants ride the convexity game in a broad macro rate (and now also FX) game. Under functional monetary regimes with price predictability, long-dated debt is both efficient and common — think about the perpetual British Consol, the financial instrument that made the British Empire.
Plus, there’s a ton of capital-intensive bond market efficiency involved in going way out on maturity. Explains quant researcher Navnor Bawa discussing the news on his Substack:
A one percent decline in long-term rates generates approximately 40-50 percent capital appreciation on century bonds versus 15-20 percent on 30-year debt — making it the most capital-efficient duration exposure available for institutions positioning for lower long-term rates.
Third, this time is different and bond investors have inflation fatigue. Many might just believe that what happened during the pandemic was a once-in-a-generation one-off event and that central bankers will do better going forward. If inflation settles back near its more usual two to three percent, or indeed rates fall back toward zero in an easy/easier monetary policy regime, locking in long real duration today at slightly higher rates might look clever rather than reckless.
This might all work out great for the issuers, and bondholders will celebrate their contribution to the AI revolution… for a few years until we have the next bout of runaway inflation prints. Most likely, the investors in these oversubscribed bonds are setting themselves up for financial troubles, by the sudden jolt of interest rates jumping higher or the slow, gradual erosion of fiat purchasing power.
The spread over sovereign credit says something about the balance sheet strength and the optimism surrounding AI-related big tech investments, certainly with behemoths like Google. Funding operations at these rates show either incredible creditworthiness — with Google and the current wave of AI optimism, at least believable — or devastating mispricing.
Investors got the memo about AI capacity building needs, loud and clear. With collective bond market amnesia, that was about the only meaningful bit they took away.
While framed as a book about economic development theory and the history of colonialism, William Easterly’s latest tome is actually something grander and more ambitious: a deeply researched 300-year chronicle of political and moral theory in the Western world. The questions that colonizers, settlers, natives, and revolutionaries wrestle with in Easterly’s 448-page history aren’t just about plantations and trading posts – they’re the most important questions we have about morality and justice. They’re particularly timely in an era when classical liberal values are under greater challenge than at any time since the Cold War.
We begin in the eighteenth century with a grounding in the work of Adam Smith, a justly legendary intellectual figure getting even more attention than usual this year because his most famous work, The Wealth of Nations, is celebrating its 250th anniversary alongside the United States. Smith is, for Easterly, a kind of godfather of the liberal tradition of individual rights that the rest of the figures in the book are measured against. Smith stood for trade as a civilized and civilizing force and emphasized the need for voluntary, mutually beneficial relationships. He was not in favor of the takeover of the rest of the world (or just “the Rest” in Easterly’s styling) by white men in the supposedly enlightened West.
The first section contrasts Smith with the French aristocrat Nicolas de Condorcet, who — despite his modern reputation as a champion of free trade and individual rights — endorsed what Easterly calls the Development Right of Conquest. Under this view, a civilized nation or race may rule another’s land if it claims it can put it to a higher and more productive use.
This might mean ruling a newly discovered tribe to advance its development toward a higher civilization. If the tribe resisted — as was often the case — the more “developed” people could kill or displace the “savages” and seize the land themselves. Either way, the supposedly superior group — typically Western European — decided which path was best for both.
This is the great divide that defined the next few centuries of global territorial expansion and settlement. European thinkers who believed in peaceful coexistence and voluntary trade relations were the inheritors of Smith, and those who believed their superior wisdom entitled them to plan the moral and economic advance of foreign peoples were the intellectual descendants of Condorcet. Easterly, a professor of economics at New York University, emphasizes many times how lopsided this family tree was on the latter’s side.
Both sides, of course, believed they were in the right. Few, if any, colonizers – no matter how rapacious in action – admit to plundering new lands and people solely for their own benefit. Even those who were literal enslavers of their fellow man created elaborate theories about how they were actually acting in the interests of the non-white people they encountered.
The essential difference that Easterly emphasizes is that some were willing to let others decide their own interests, while most overrode foreign preferences with cultural chauvinism and civilizational theory. The classical liberals in his account were hardly “woke” by modern standards, but they replaced the question “Are these non-European people worthy of self-government?” with the more searching one: “Are we fit to rule them by force?”
The advance of liberal ideas was fitful and slow. Just like the progress toward representative democracy and constitutional government within Europe itself, the recognition that non-white people might want and be entitled to the same rights as their white counterparts faced many disappointing setbacks. Easterly does a great job, however, of setting the scene for the greatest victory of them all – the abolition of slavery in the modern world. First, peacefully, in the British Empire under the political leadership of men like William Wilberforce, and then, amid catastrophic bloodshed, in the United States.
Many histories of the world after 1865 have treated the end of slavery (in most countries, at least) as the beginning of a new enlightened age. Whatever came later in the various colonial empires, however imperfect, was certainly vastly superior to an era in which kidnapping and intergenerational forced labor were a major commercial enterprise.
While the line between enslavement and mere colonial paternalism might seem bright and obvious, Easterly doesn’t let the triumph of slavery ending in the nineteenth century get the West off the hook for continuing oppression and injustice around the world. The policies of Caribbean sugar planters before emancipation had more in common with, for example, twentieth-century colonial administrators in sub-Saharan Africa than most historians care to admit. Underlying both is the same, only marginally reformed, assumption that white skin and technological advancement entitle one to treat other races as children and supplicants for their supposed long-term benefit. In the post-slavery colonies, even when plans for advancement were undertaken for ostensibly beneficial purposes, the opinions of the people supposedly benefiting were neither solicited nor heeded.
Violent Saviors tries to remedy some of that historic injustice in telling their story, but also in citing some of the rare first-person sources that were recorded from those subjected to “civilization” via musket barrels and bayonets. Many students of US history will be familiar with some of the figures Easterly quotes at length, like the formerly enslaved abolitionist who became one of the most famous people in nineteenth-century America, Frederick Douglass. Far fewer will have read anything about Mohegan Indian and Christian convert Samson Occam (1723–1792), once a student at the missionary school that eventually became Dartmouth College, or the British ex-slave Quobna Ottobah Cugoano (1757–1791), who was at first an advocate for, and later an opponent of, a quixotic eighteenth-century plan to re-settle the free black residents of London in a kind of proto-Liberia colony in Sierra Leone.
The author also gets a historian’s revenge on multiple generations of supposedly well-intentioned military, political, religious, and philanthropic leaders whose high status contrasted embarrassingly with their inability to successfully implement any of their grand plans for the advancement of the “dusky races.”
Easterly has famously written at length about the contradictions and failures of modern economic development policy in books like The White Man’s Burden and The Tyranny of Experts. He now reaches back multiple centuries to deliver withering takedowns of figures ranging from French aristocrats Pierre Samuel du Pont de Nemours (1739–1817) and Pierre-Paul Lemercier de La Rivière (1719–1801) to Treaty of Versailles architect Woodrow Wilson (1856–1924) and Lyndon B. Johnson–era National Security Advisor Walt Whitman Rostow (1916–2003).
He offers a more inspiring, if much shorter, list of theorists and experts who pointed the way in the right direction. Beginning with Adam Smith (1723–1790), we also encounter (mostly) good actors like the anti-slavery Anglican Bishop William Warburton (1698–1779) and Swiss political theorist Benjamin Constant (1767–1830). Easterly devotes significant attention to better-known writers such as John Stuart Mill (1806–1873) and Isaiah Berlin (1909–1997), while also crediting the beloved figures of twentieth-century free-market economics: Ludwig von Mises, Friedrich Hayek, and Milton and Rose Friedman, among others.
In recent years, the so-called neoliberal view of economics and the rules-based international order has been significantly challenged by a resurgence of populist economic thought emphasizing national solidarity — as defined by a handful of executive policymakers — over the equality of all individuals and positive-sum economic exchange.
President Donald Trump’s use of tariff authority — for purposes ranging from explicit industrial protectionism to the attempted conquest of Greenland — has dramatically set back decades of post–World War II progress in free trade. Violent Saviors, with its inspiring narrative of mercantilist authoritarianism giving way to a world where equality and cooperation are the norm, reminds us why so many fought so hard for these ideals in the first place.
While framed as a book about economic development theory and the history of colonialism, William Easterly’s latest tome is actually something grander and more ambitious: a deeply researched 300-year chronicle of political and moral theory in the Western world. The questions that colonizers, settlers, natives, and revolutionaries wrestle with in Easterly’s 448-page history aren’t just about plantations and trading posts – they’re the most important questions we have about morality and justice. They’re particularly timely in an era when classical liberal values are under greater challenge than at any time since the Cold War.
We begin in the eighteenth century with a grounding in the work of Adam Smith, a justly legendary intellectual figure getting even more attention than usual this year because his most famous work, The Wealth of Nations, is celebrating its 250th anniversary alongside the United States. Smith is, for Easterly, a kind of godfather of the liberal tradition of individual rights that the rest of the figures in the book are measured against. Smith stood for trade as a civilized and civilizing force and emphasized the need for voluntary, mutually beneficial relationships. He was not in favor of the takeover of the rest of the world (or just “the Rest” in Easterly’s styling) by white men in the supposedly enlightened West.
The first section contrasts Smith with the French aristocrat Nicolas de Condorcet, who — despite his modern reputation as a champion of free trade and individual rights — endorsed what Easterly calls the Development Right of Conquest. Under this view, a civilized nation or race may rule another’s land if it claims it can put it to a higher and more productive use.
This might mean ruling a newly discovered tribe to advance its development toward a higher civilization. If the tribe resisted — as was often the case — the more “developed” people could kill or displace the “savages” and seize the land themselves. Either way, the supposedly superior group — typically Western European — decided which path was best for both.
This is the great divide that defined the next few centuries of global territorial expansion and settlement. European thinkers who believed in peaceful coexistence and voluntary trade relations were the inheritors of Smith, and those who believed their superior wisdom entitled them to plan the moral and economic advance of foreign peoples were the intellectual descendants of Condorcet. Easterly, a professor of economics at New York University, emphasizes many times how lopsided this family tree was on the latter’s side.
Both sides, of course, believed they were in the right. Few, if any, colonizers – no matter how rapacious in action – admit to plundering new lands and people solely for their own benefit. Even those who were literal enslavers of their fellow man created elaborate theories about how they were actually acting in the interests of the non-white people they encountered.
The essential difference that Easterly emphasizes is that some were willing to let others decide their own interests, while most overrode foreign preferences with cultural chauvinism and civilizational theory. The classical liberals in his account were hardly “woke” by modern standards, but they replaced the question “Are these non-European people worthy of self-government?” with the more searching one: “Are we fit to rule them by force?”
The advance of liberal ideas was fitful and slow. Just like the progress toward representative democracy and constitutional government within Europe itself, the recognition that non-white people might want and be entitled to the same rights as their white counterparts faced many disappointing setbacks. Easterly does a great job, however, of setting the scene for the greatest victory of them all – the abolition of slavery in the modern world. First, peacefully, in the British Empire under the political leadership of men like William Wilberforce, and then, amid catastrophic bloodshed, in the United States.
Many histories of the world after 1865 have treated the end of slavery (in most countries, at least) as the beginning of a new enlightened age. Whatever came later in the various colonial empires, however imperfect, was certainly vastly superior to an era in which kidnapping and intergenerational forced labor were a major commercial enterprise.
While the line between enslavement and mere colonial paternalism might seem bright and obvious, Easterly doesn’t let the triumph of slavery ending in the nineteenth century get the West off the hook for continuing oppression and injustice around the world. The policies of Caribbean sugar planters before emancipation had more in common with, for example, twentieth-century colonial administrators in sub-Saharan Africa than most historians care to admit. Underlying both is the same, only marginally reformed, assumption that white skin and technological advancement entitle one to treat other races as children and supplicants for their supposed long-term benefit. In the post-slavery colonies, even when plans for advancement were undertaken for ostensibly beneficial purposes, the opinions of the people supposedly benefiting were neither solicited nor heeded.
Violent Saviors tries to remedy some of that historic injustice in telling their story, but also in citing some of the rare first-person sources that were recorded from those subjected to “civilization” via musket barrels and bayonets. Many students of US history will be familiar with some of the figures Easterly quotes at length, like the formerly enslaved abolitionist who became one of the most famous people in nineteenth-century America, Frederick Douglass. Far fewer will have read anything about Mohegan Indian and Christian convert Samson Occam (1723–1792), once a student at the missionary school that eventually became Dartmouth College, or the British ex-slave Quobna Ottobah Cugoano (1757–1791), who was at first an advocate for, and later an opponent of, a quixotic eighteenth-century plan to re-settle the free black residents of London in a kind of proto-Liberia colony in Sierra Leone.
The author also gets a historian’s revenge on multiple generations of supposedly well-intentioned military, political, religious, and philanthropic leaders whose high status contrasted embarrassingly with their inability to successfully implement any of their grand plans for the advancement of the “dusky races.”
Easterly has famously written at length about the contradictions and failures of modern economic development policy in books like The White Man’s Burden and The Tyranny of Experts. He now reaches back multiple centuries to deliver withering takedowns of figures ranging from French aristocrats Pierre Samuel du Pont de Nemours (1739–1817) and Pierre-Paul Lemercier de La Rivière (1719–1801) to Treaty of Versailles architect Woodrow Wilson (1856–1924) and Lyndon B. Johnson–era National Security Advisor Walt Whitman Rostow (1916–2003).
He offers a more inspiring, if much shorter, list of theorists and experts who pointed the way in the right direction. Beginning with Adam Smith (1723–1790), we also encounter (mostly) good actors like the anti-slavery Anglican Bishop William Warburton (1698–1779) and Swiss political theorist Benjamin Constant (1767–1830). Easterly devotes significant attention to better-known writers such as John Stuart Mill (1806–1873) and Isaiah Berlin (1909–1997), while also crediting the beloved figures of twentieth-century free-market economics: Ludwig von Mises, Friedrich Hayek, and Milton and Rose Friedman, among others.
In recent years, the so-called neoliberal view of economics and the rules-based international order has been significantly challenged by a resurgence of populist economic thought emphasizing national solidarity — as defined by a handful of executive policymakers — over the equality of all individuals and positive-sum economic exchange.
President Donald Trump’s use of tariff authority — for purposes ranging from explicit industrial protectionism to the attempted conquest of Greenland — has dramatically set back decades of post–World War II progress in free trade. Violent Saviors, with its inspiring narrative of mercantilist authoritarianism giving way to a world where equality and cooperation are the norm, reminds us why so many fought so hard for these ideals in the first place.
On July 8, 2024, a guest essay by Stephen Smith on elevator policy was published in The New York Times. Though this may seem like a rather dry topic at first glance, Smith’s essay quickly dispelled that notion. The piece immediately went viral and has sparked a considerable amount of commentary from across the political spectrum.
In the essay, Smith summarized the findings of a lengthy report on elevators that he had authored in May of that year for a think tank, the Center for Building in North America, which he founded in 2022. Prompted by a personal struggle with a lack of elevator access, Smith conducted a comprehensive review of the global elevator industry with the goal of answering a very specific question: Why are there so few elevators in North America compared to the rest of the world?
“Despite being the birthplace of the modern passenger elevator, the United States has fallen far behind its peers,” he writes in the report.
While the US has more than 1.03 million elevators — one of the highest totals in the world — it has fewer elevators per capita than any other high-income country for which data can be found, and Canada’s position on a per capita basis is similar.
“…Part of this absence is due to the dominance of freestanding single-family houses in North America,” Smith acknowledges, “but even apartments in the United States are less likely to have elevators than those in much of Europe and Asia.” He points out, for example, that while New York City and Switzerland have similar populations, and a greater percentage of New Yorkers than Swiss live in apartment buildings, New York only has half the number of passenger elevators.
“No matter how you slice the numbers,” he says, “America has fallen behind on elevators.”
Smith’s findings all pointed to cost as the major factor. In Canada and the US, he says, new elevator installations cost at least three times as much as in Western Europe — roughly $150,000 compared to $50,000. What is driving this cost differential? Smith spends the majority of the report outlining three main culprits: mandatory minimum cabin sizes, labor issues with elevator installers, and technical codes and standards, which are harmonized for practically the whole world except the US and Canada.
He writes:
The North American approach is one of extremes. American and Canadian elevators have the largest cabins, the strongest doors, the most redundant communication systems, the best paid workers, and the most diversity of codes on the one hand. And in exchange, Americans and Canadians have the highest prices, the most limited access, the most uncompetitive market for parts, and the most restricted labor markets.
‘One of the Most Powerful Construction Unions in North America’
Smith’s comments on the labor point have attracted particular attention, because the inefficiencies are so glaring. As he wrote in The New York Times:
Architects have dreamed of modular construction for decades, where entire rooms are built in factories and then shipped on flatbed trucks to sites, for lower costs and greater precision. But we can’t even put elevators together in factories in America, because the elevator union’s contract forbids even basic forms of preassembly and prefabrication that have become standard in elevators in the rest of the world. The union and manufacturers bicker over which holes can be drilled in a factory and which must be drilled (or redrilled) on site. Manufacturers even let elevator and escalator mechanics take some components apart and put them back together on site to preserve work for union members, since it’s easier than making separate, less-assembled versions just for the US.
National Review economics editor Dominic Pino has noted, along with City Journal contributor Connor Harris, that this is a textbook example of what’s known as featherbedding, a practice in labor relations where unions obtain “make work” rules so that more union workers can be employed.
The main elevator union in Canada and the US is the International Union of Elevator Constructors (IUEC), which Smith points out is “one of the most powerful construction unions in North America.” A 2011 comment from its General President, Dana Brigham, is revealing.
“We can’t afford to sit back and see our trade dumbed down through factory prefabrication and preassembly to a point where all our members will have to do on the job is simply uncrate the elevator, set it, and plug it in,” Brigham said. Responding to this quote, Pino quips: “Heaven forbid elevators be easy to install.”
It’s no wonder that featherbedding has a bad reputation. As Leonard Read observed in 1960, these practices are “as obviously absurd to the layman as they are disgusting to the economist.”
In modern jargon, the economist’s disgust is often expressed by characterizing these practices as a kind of rent-seeking. Indeed, Alec Stapp, co-founder of the Institute for Progress, recently cited the elevator union rules that Smith uncovered as a good example of this concept.
The notion of rent-seeking comes from the public choice school of economics, specifically the work of economists Gordon Tullock and Anne Krueger. Developed in the ‘60s and ‘70s, rent-seeking refers to any practice where you are trying to increase your wealth by changing the rules of the game, as compared to profit-seeking, which is trying to increase your wealth by being more productive.
Common examples of rent-seeking include lobbying for tariffs or subsidies — or, in this case, union featherbedding. Profit-seeking, on the other hand, would include activities such as research and development aimed at creating new products to sell to customers.
The word “rent” in this context refers to the old economic definition of rent, which is about the excess returns yielded by a factor of production, and not the colloquial definition of a payment made for the use of property.
Elevators Are Just the Tip of the Iceberg
The other two factors that Smith discusses — minimum cabin sizes and technical codes and standards — are a classic case of government regulations making things considerably more expensive than they need to be (and regulation, particularly licensing, no doubt contributes to the labor issues as well).
Now, if the mandated wastefulness that we find in the elevator industry were unique, it would still be cause for alarm, but the absurd truth is that regulations like this are everywhere.
“When most people go through their daily lives, they don’t think about the ways in which government regulations are making their lives more difficult,” writes economist Scott Sumner, reflecting on Smith’s elevator story. “In almost every case I come across with systematic inefficiency, the root cause is counterproductive regulations.”
It feels like every few months, a story like this comes along that grips the public’s attention. Calls for reform are heard, a public outcry fills the airwaves, maybe legislation is introduced. But it rarely occurs to people that these stories form a pattern. As such, we’ve fallen into this routine where our news feeds periodically become dominated with the latest absurd regulation story, and then at best we play whack-a-mole with legislation designed to address the Current Thing.
Perhaps, if we can focus on the bigger picture, we should consider trying a different approach. Maybe there will come a point where we realize that news-driven piecemeal deregulation isn’t particularly effective, and more fundamental changes, such as blanket limits on government intervention in the economy, must be considered.
