Sooner or later, Elon Musk will become the world’s first trillionaire. If SpaceX goes public at the valuations now being discussed, the event would not merely be another financial milestone. Forbes writes, “SpaceX’s IPO is expected to value Musk’s aerospace firm at $1.75 trillion and raise $75 billion, which would more than double Saudi Aramco’s $29 billion debut in 2019 as the largest-ever IPO.” 

The public reaction will be predictable. Some will see it as proof that capitalism has gone too far. Others will see it as proof that entrepreneurship still works. The relevant question is not whether one man should have so much money. The better question is what kind of society produces builders capable of changing whole industries (cars, rockets, satellites, logistics, and communication), and more importantly, whether we still have the wisdom to learn from them rather than villainize them. 

Elon Musk was born in South Africa, migrating to Canada before ending up in the US. He encapsulates, in one career, the drama of being an entrepreneur in the twenty-first century. He was part of the PayPal team (alongside Peter Thiel, later co-founder of Palantir, and Reid Hoffman, co-founder of LinkedIn) that sold to eBay for $1.5 billion in 2002. Musk’s share was $175.8 million. He was just getting started.

Instead of preserving that fortune, Musk invested it back into uncertainty. He invested heavily in SpaceX ($100 million), Tesla ($70 million), and other flammable projects. The decision to risk his PayPal proceeds on rockets and electric vehicles is the heart of the entrepreneurial story. The entrepreneur does not merely accumulate capital; he reallocates it toward an uncertain future, investing in what others can’t yet see. 

Founded in 2002, SpaceX entered an industry dominated by governments, defense contractors, and the assumption that rockets were too expensive and too complex for a private start-up to disrupt. In fact, SpaceX’s first three Falcon 1 launches failed, and the company came close to running out of money before the fourth launch succeeded in 2008: the first successful private orbital launch. But Musk’s ambition was larger: reusable rockets. SpaceX managed to fight through these failures and on December 22, 2015, did the impossible: its Falcon 9 rocket executed a graceful descent and controlled vertical landing. The money-saving and horizon-expanding potential of reusable rockets was gifted to the world, born from Musk’s old PayPal payout. 

By comparison, NASA’s Apollo program cost the United States taxpayer $25.8 billion between 1960 and 1973, roughly $309 billion in 2025 dollars. Our national achievement was a monument to state capacity, funded by taxpayers. SpaceX points toward a different model: public agencies as customers, private firms as builders, reusable rockets and other previously unthinkable feats of engineering lowering costs and improving outcomes. 

Long curious about electric cars, Musk became the defining investor of Tesla Motors in 2004, after contributing $6.5 of its $7.5 million Series A funding round. He secured a role on the board, and since 2008, Musk has been CEO of the firm. At that time, the idea that an electric car company could challenge the world’s largest automakers looked almost absurd. In 2012, presidential candidate Mitt Romney would still call Tesla a “loser,” and in 2015 former GM vice chairman Bob Lutz warned that the company was facing a “trifecta of doom.” Tesla did face production delays, cash shortages, short sellers, media skepticism, and the basic manufacturing nightmare of building cars at scale. Recalling SpaceX’s public failures, Tesla’s 2019 Cybertruck reveal produced an embarrassing moment when its supposedly durable windows cracked onstage. 

But by the 2020s, Tesla was leading US electric vehicle (EV) sales, while the Model Y became Europe’s favorite all-electric car. Against the odds, the company survived long enough to force major automakers to respond. From Detroit to Berlin, electric vehicles suddenly became a real discussion because Tesla proved that EVs could be desirable, fast, software-driven, and commercially scalable. Entrepreneurship does not merely create a firm; when it succeeds, it changes the decision-making of every incumbent around it. The most innovative firms are disruptors — creative destroyers. The change looks impossible up until the moment it becomes inevitable. 

Once success becomes visible, the years of struggle fall from public view. The near-bankruptcies, the fizzled rockets, the viral embarrassments, and the years of ridicule disappear from memory. What remains is the billionaire. The risk is forgotten, and the fortune seems suddenly to be the only fact anyone sees or cares about.

Here, the politics of resentment and envy enter the story. Once the entrepreneur becomes rich enough, the public conversation often stops asking what he built and starts asking why he has so much — forgetting along the way that humanity’s natural state is poverty. The builder becomes a symbol, and the symbol becomes a villain. The original act of creation is replaced by a moral narrative of extraction, enforced through the power of government. 

The phrase “tax the rich” captures this shift perfectly. What began as a fiscal demand has become a cultural signal. When Alexandria Ocasio-Cortez wore a white gown with “Tax the Rich” written across the back to the 2021 Met Gala, the message was not buried in a policy paper or argued in a budget committee. It was displayed as political theater at one of the most elite social events in the country. Vogue described the dress, worth $18,000, as a deliberate political message, written in red across the back of the gown at “fashion’s glitziest night”.

Bernie Sanders has carried the same slogan into formal politics. His recent “Make Billionaires Pay Their Fair Share Act” spends 154 pages describing wealth inequality, suggesting it can be solved with a new wealth tax: “In the case of an applicable taxpayer, there is hereby imposed a tax computed equal to five percent of the net value of assets held by the taxpayer for the calendar year.”

The hypocrisy is striking: 73 out of 100 US senators have a net worth over one million dollars on a base salary of $174,000 (and are seeking a raise while running up deficits). Scapegoating billionaires for society’s problems — or, in many cases, government’s problems — treats wealth itself as suspicious, as if the existence of a billionaire is already evidence of social failure. 

The tragic murder of UnitedHealthcare CEO Brian Thompson in Manhattan showed how dark that atmosphere has become. Criticizing the American healthcare system is reasonable — treating a man’s death as a symbolic victory against an industry is not. In addition, the health system is often treated as proof of private-sector failure, despite the many distorted incentives created by the government’s extensive role in American insurance and healthcare. Over 143.3 million people are enrolled in or heavily subsidized by major federal health insurance programs, while government policies vastly expand healthcare spending and reduce transparency for patients.

New York’s current political tone, unfolding in the wake of that highly publicized, ideological murder, becomes even more troubling. After such a public act of violence, one might expect greater caution from political leaders about turning named wealthy individuals into targets. Instead, Zohran Mamdani’s tax-the-rich campaign has leaned into personalizing attacks on wealth, using Ken Griffin’s Manhattan residence as a prop for a broader fiscal message. Pointing public anger toward one rich man’s home is not serious governance. It is resentment politics dressed up as public finance.

Jeff Bezos’s recent CNBC interview offers a useful contrast. Rather than framing tax policy as a campaign to punish the rich, Bezos argued that the bottom half of American earners should pay no federal income tax at all. For tax year 2023, the bottom 50 percent of taxpayers (those with annual incomes under $53,801) paid 3.3 percent of all federal individual income taxes. By contrast, the share of income taxes paid by the top one percent has increased by almost that much in the past two decades: from 33.2 percent in 2001 to 38.4 percent in 2025.

According to Cato Institute calculations, the US already has the most progressive tax system in the world, “with a relatively low marginal rate of 10 percent for lower-income filers and a top rate of 37 percent for higher incomes.”

The greatest irony is that AOC, Sanders, and Mamdani never had to battle the failures and tribulations of competing in a market. Their failed careers include bartending, teaching, farming, and rapping, but they are now able to wield the power of government. With it, they seek to punish those who have built empires in tech, logistics, and finance. 

Thomas Sowell captured the moral inversion well, “I have never understood,” he wrote, “why it is ‘greed’ to want to keep the money you have earned but not greed to want to take somebody else’s money.”

Walk through almost any beloved old Manhattan neighborhood and you quickly run into a strange fact: much of the city people love would be illegal to build today.

In 2016, The New York Times published an analysis titled “Forty Percent of the Buildings in Manhattan Could Not Be Built Today.” Using data from Quantierra, the article found that, out of Manhattan’s roughly 43,000 buildings, 40 percent — about 17,000 — violate at least one current zoning rule. Many were too tall or covered too much of their lots. Some had too many apartments; others had too many retail stores. In other words, much of Manhattan’s built environment survives only because it was grandfathered in before today’s rules could prohibit it.

The forbidden builds include iconic buildings like the Empire State Building, the Chrysler Building, the original World Trade Center Twin Towers, and scores of landmarks all over the city.

In an important sense, New York City is living in its past. It is hampered from creating a dynamic future, frozen in place by zoning laws that typically force buildings to be squat, “wedding cake” shaped, or simply indistinguishable from neighboring buildings. Under these rules, it would be impossible to build world-famous skyscrapers like the Empire State Building, or Art Deco masterpieces like the Chrysler Building, the Flatiron Building, The Dakota (famous home of John Lennon and Yoko Ono), and scores of others.

What future landmarks will never be built under today’s zoning rules?

Poke around on this interactive map to see how today’s zoning would have quashed buildings on nearly every city block.

The Twin Harms of Zoning: Scarcity and Loss of Dynamism

Two main harmful consequences result from zoning laws and their cousin, landmarks laws. (Landmarking in NYC essentially prevents any new construction in vast zones of the city. It is like a form of super-severe zoning. More on it below.)

First Harm: An Artificial Scarcity of Housing

The first harm is that zoning makes housing (and office rents – this analysis applies equally to office buildings) much more expensive by reducing the supply of new housing in the city. In order to preserve access to “light and air” for pedestrians and residents, zoning restricts the size and density of buildings. It does this by limiting heights, square footage, and imposing a variety of other rules, such as requiring empty backyards and street setbacks.

The first comprehensive zoning law in the United States was passed in New York City in 1916. Its purpose was to preserve “light and air” by reducing the size of new buildings. It divided the city into zones, each with a different limit on building size. The law further separated the city into use-zones. Parts of the city could only be used for their designated purpose: residential, commercial, manufacturing, and many more narrowly prescribed uses. Using a building in a zone for a different purpose (say, converting a warehouse or defunct office space into apartments) was expressly forbidden.

As time went by, the power to restrict building sizes and uses became a tool for residents who wanted to preserve their views or who simply didn’t want more neighbors. These concerns expressed themselves in the major 1961 revision to the zoning laws, which effectively “downzoned” much of NYC’s potential density. Before 1961, forecasters had predicted that NYC could eventually reach 20 or 25 million residents. (Note that such populations have already been attained in similar physical space by Tokyo, Jakarta, and Mexico City, among others.)

After 1961, NYC effectively froze in place. The total population of all five boroughs in 1960 was 7.8 million. Today it is 8.5 million, representing an anemic annual growth rate of 0.13 percent. In 66 years, it has barely grown, and zoning (and the resulting cost) is the major reason why. In the prior 60 years, from 1900 to 1960, NYC’s population grew at a much faster rate, more than doubling from 3.4 million people in 1900. (Rent control was also a major factor in thwarting New York City’s growth, as I’ve written before.)

Strict zoning largely locks in place existing uses and densities. It may allow for some growth, but usually in areas (zones) that are already high-density, such as Midtown Manhattan (which is why Billionaire’s Row is located there.) 

Landmarking does the same thing, but it is far more severe. It imposes a near-complete ban on new construction in designated “landmarked” historical zones. Essentially, landmark preservation is a form of severely restrictive zoning; only a very small amount of replacement construction will be permitted, and only where building heights and sizes are strictly at or below neighboring buildings.

Landmarking was enacted in 1965 in response to the demolition of the original Penn Station. Originally intended to protect specific buildings, it has been expanded into vast landmarked zones, where new construction has essentially been foreclosed. Today, 27 percent of Manhattan’s building lots fall within landmark districts, largely off-limits to development. In much of Manhattan, including the Upper West Side, Upper East Side, Greenwich Village, SoHo, and Tribeca, this percentage is much higher. The map below shows Manhattan’s Upper West Side neighborhood. Nearly the entire region is landmarked, and essentially off-limits to new construction. Each colored area shows a different landmark district.

The Story of 19 Jones Street

The story of one building illustrates how zoning curtails new development. The photo below shows 19 Jones Street in the Greenwich Village neighborhood of Manhattan.

19 Jones Street was built in 1910, before NYC’s first zoning law. As the New York Times reports:

Were 19 Jones built today, it would have to be significantly smaller. The number of apartments would fall sharply, to just eight from 24. The building’s total dimensions would be nearly halved, and a story or two would have to be chopped off.

In other words, if built under today’s zoning rules, two-thirds of the existing apartments would be gone. Extrapolate this to the whole city, and it is as if a bomb has destroyed the future growth of the city. Artificial scarcity makes fewer apartments available, making housing unaffordable.

Second Harm: Ossifying the City

The second effect of zoning is that it freezes existing uses of property in a way that stifles creativity and growth. The best examples of this are two once completely illegal neighborhoods that are now beloved by New Yorkers and millions of tourists: SoHo and DUMBO. The only reason these neighborhoods could become something new and wonderful was that artists and others violated the obsolete zoning law that had prohibited the new uses. If the obsolete zoning laws had been rigidly enforced, these neighborhoods would have languished as semi-abandoned wastelands. As it was, zoning stood in the way of the conversion to new uses, making it take decades longer to happen, and at much greater cost.

SoHo: Illegally Re-Used, Now Beloved

Today, the SoHo (South of Houston) neighborhood in Manhattan is treated as one of New York’s great urban success stories: cast-iron buildings, lofts, galleries, restaurants, retail, and a streetscape that tourists and New Yorkers both recognize instantly. But SoHo’s revival began with activity that zoning did not permit. Its famous cast-iron buildings had been created and zoned for commercial and industrial uses. As manufacturing began leaving the city after World War II, artists moved into former factory spaces because the spaces were large, cheap, and full of light. But living there was illegal; zoning meant these spaces could only be used for manufacturing. Because of this illegality, early tenants had to hide their presence by blacking out windows so police could not see lights at night.

The illegality came first. The neighborhood’s cultural success came next, only after significant delay. Legalization came only decades after the fact, after the artists and others had already transformed the neighborhood. In 1971, New York created a special path only for “certified artists” to live in joint living-work quarters in SoHo, but even that was a narrow legalization rather than a broad recognition that the neighborhood had evolved beyond its old manufacturing-only logic. Full legalization of SoHo’s residential and retail spaces did not occur until just a few years ago, on December 15, 2021, when the City created the Special SoHo-NoHo Mixed Use District. One of the most famous mixed-use neighborhoods in the world existed for decades under a legal cloud before zoning rules finally legalized what the neighborhood had already become.

DUMBO: Down Under the Manhattan Bridge Overpass

DUMBO tells a similar story in Brooklyn. Today, DUMBO is an urbanist’s dream: historic warehouse buildings, cobblestone streets, tech firms, design companies, galleries, apartments, restaurants, and the gorgeous waterfront Brooklyn Bridge Park. But its transition also began as a mismatch between old land-use rules and new economic reality. The Department of City Planning’s own DUMBO rezoning materials describe the area’s evolution from an industrial hub into a mixed-use neighborhood through adaptive reuse of loft and warehouse buildings, noting that artists illegally began moving into large loft buildings in the late 1970s. Residential occupancy increased through both illegal conversions and costly ad hoc zoning variances.

Again, the market discovered the neighborhood before the zoning code did.

The official story often reverses the causation. We talk as if planners create livable neighborhoods by assigning the correct uses in advance, but as in SoHo and DUMBO, the actual order was different. Entrepreneurs, artists, tenants, small businesses, and property owners discovered new uses for old buildings. They took declining industrial districts and made them valuable again. Then the city slowly and expensively changed its rules after the fact to accommodate and legalize what private action had already produced.

Zoning continues to hold back more valuable new uses today. After COVID-19 shutdowns and with the rise of remote work, the demand for office space has waned, yet many attractive buildings that could be converted to much-needd residential units must languish for years as special zoning exemptions and variances — costly in time and money — are obtained. Other new uses, such as co-living and “ghost kitchens,” are also hampered by current zoning rules.

The Apartments That Never Get Built

The question is not whether some apartments built without zoning would be less desirable, dimmer, less well-ventilated. Of course they would. Would abolishing zoning would reduce the total supply of apartments with light and air, or merely add another category of apartments: sub-optimal, but cheaper and still valuable to people who cannot afford today’s expensive, regulated ideal. The likely answer is the latter. Zoning might preserve sunlight on paper, but at street level, it rations that legally preferred kind of apartment to those rich enough to afford it, preventing the construction of cheaper alternatives for everyone else.

The visible benefit of restrictive zoning is easy to imagine: more light on a particular block, a lower building next door, less change in a familiar neighborhood. The unseen cost is harder to picture because it consists of things that never happen: the cheaper apartments never built, the family never housed, the student priced out, the worker forced into a longer commute, and the young person who decides New York is no longer a place where he or she can afford to start a life.

A zoning rule does not announce, “I just raised your rent.” It simply says the next building must be smaller, less flexible, more expensive… or impossible. The rent increase arrives later, when the restricted supply of new buildings fails to meet demand. That is the lesson of the research by Edward Glaeser, Joseph Gyourko, and Raven Saks on Manhattan housing prices, and of Jason Barr’s work on New York’s “FAR Dome”: much of the city’s inherited density remains legal only because it was grandfathered, while comparable new density is forbidden. The result is higher prices for fewer available apartments. (Note: “FAR” stands for “Floor Area Ratio.” Zoning restricts density by specifying maximum FAR limits in each zone.)

New York’s housing problem is not mysterious. People want to live here. Firms want to hire here. Students, immigrants, families, and young professionals want access to the jobs, schools, culture, and transit that make the city valuable. Zoning prices these newcomers out. Instead of an unaffordable “light-and-air-filled” apartment, they are denied the option to live more cheaply in a less-luxurious apartment in the city center.

New York forces housing through FAR limits, use restrictions, discretionary approvals, historic reviews, parking rules, community opposition, and political bargaining. Supply is never allowed to meet demand. But everyone acts surprised when rents rise.

A First Step, Then Repeal

The first step in reform should be simple: stop making it illegal to rebuild the city that already exists. End the 1961 downzoning. If an old building is torn down, it should be legal to replace it with a new building of equal density. New, modern construction should not have to mean fewer apartments, fewer offices, and greater scarcity.

But that first step should not be mistaken for the final goal. The deeper solution is not to make zoning slightly more flexible. The deeper solution is to end zoning completely.

Building densities and uses should be determined by market demand, not political maps and political pull. If people want apartments near transit, ground-floor retail under housing, offices in old industrial buildings, or studios and restaurants in former warehouses, owners should be free to provide them without a rezoning, variance, or years of political negotiation. They should be able to build as of right, without permission.

This does not mean every use must be permitted regardless of harm. The law should and would still prevent real injuries to neighbors: smoke, fumes, toxic discharges, excessive noise, dangerous vibrations, fire hazards, and other nuisances. A chemical plant next to apartments is not the same thing as a coffee shop, bookstore, studio, office, restaurant, or small manufacturer operating peacefully nearby. Zoning is the wrong solution for these problems, which are already covered under tort and nuisance law.

The proper principle is not “planners decide the use.” It is “owners are free unless they harm others.” That principle would have allowed SoHo, DUMBO, and countless other neighborhoods to adapt sooner, legally, and more affordably. Cities are discovery processes. Nobody in 1916 or 1961 could have planned the SoHo of the 1970s, the DUMBO of the 2000s, or the New York economy of today. The knowledge of what a building can become is discovered by owners, tenants, builders, businesses, and residents experimenting with space.

Legalize the Once and Future City

New York should begin by legalizing the city New Yorkers already love. But the ultimate reform is more fundamental: abolish zoning and its political allocation of densities and uses, and rely instead on property rights, market prices, contracts, building safety standards, and nuisance law. Markets are not perfect, but they are far better than zoning boards at discovering where people want to live, what buildings should become, and which uses can productively coexist.

The promise of zoning was light and air, but the cost has been scarcity, rigidity, and exclusion. New York protected theoretical open space while sacrificing real living space. It preserved sunlight on paper while pricing people out in reality. A city is not made livable by forbidding change. It is made livable by allowing people to live there.

One of my earliest memories growing up in Kalamazoo, Michigan, was a visit to the bakery at the A&P grocery store at 5800 Gull Road. It was one of a handful of places my parents could afford to shop at in the midst of the great stagflation of the 1970s. My mother made amazing birthday cakes for us as kids, and I presume she was there for some ideas. I had other things in mind. They gave away free “donut holes” to kids who were presumably well-behaved, leading to my temporarily angelic behavior whenever we went there. 

Little did I know then, A&P was once regarded as a retail behemoth. A monopoly needing to be cut down to size. Their crime? Volume discounts. This allegedly nefarious practice was at the center of anti-chain-store sentiment that reached a fever pitch with the passage of the Robinson-Patman Act in 1936. 

Casting chain-store grocers like A&P as greedy villains during the Great Depression, the populist Texan US Representative Wright Patman rode a wave of sentiment from smaller grocers to take down the nationwide grocer. In response to the Supreme Court striking down FDR’s National Industrial Recovery Act (NIRA), Patman sought to reimpose portions of the NIRA, which would have faced enormous opposition and risked being struck down by the Supreme Court. Instead, he cleverly decided, along with co-sponsor Senator Joseph Robinson of Arkansas, to impose the bill as an amendment to the long-standing Clayton Antitrust Act (1914).

Entitled the Robinson-Patman Antidiscrimination Act, it was popularly known as the “Anti-Chain-Store Act”, but more aptly known as “The Wholesale Grocers’ Protection Act.” Indeed, it was largely written by the wholesalers’ trade association. The bill aimed to protect smaller competitors from the allegedly anti-competitive restraints on trade posed by retail giants like A&P. This was an easy sell to the public at a time when unemployment was at 18 percent, with many small-town retailers closing up shop. 

In order to secure passage, the legislators amended Section 2 of the Clayton Antitrust Act of 1914, with enforcement assigned to the Federal Trade Commission (FTC), a move that helped minimize opposition.. That section was intended to “supplement existing laws against unlawful restraints and monopolies, and for other purposes”. The “other purposes” would eventually be made known, to the detriment of consumers throughout the nation.

The specific wording of the Robinson-Patman Act reveals its fundamental economic error. It made it unlawful for “any person engaged in commerce…to be a party to, or assist in, any transaction of sale, or contract to sell, which discriminates to his knowledge against competitors of the purchaser.” In frank language, it became illegal for a wholesaler to offer a bulk discount to larger retailers like A&P. This essentially prohibited suppliers from offering A&P the volume discounts their efficiency and scale had earned, and passed on to their beleaguered consumers. A single offense could land the wholesaler in hot water with the FTC, with potential fines up to $5,000 and up to a year in prison, or both. 

This law wasn’t designed to enhance competition, protect grocers, or serve customers. Rather, its design was to impose a price floor that protected wholesalers from the retailers who had enough market knowledge and a good enough reputation to work with competing wholesalers willing to sell for less. Hence, the more fitting title: The Wholesale Grocers’ Protection Act.

In an ironic twist, the Roosevelt administration — which had created the NIRA and imposed higher retail prices — opposed the bill. They objected on the grounds that it would prohibit the kind of discount pricing by retailers that the Depression-ridden public needed to make ends meet. But Congress had its way on this matter. Historian Marc Levinson observed that the Robinson-Patman Act “had less to do with economics than trying to hold together a society that was fraying badly after six years of the Depression.” It wasn’t about sound economics; it was about populist PR. 

More than seventy years after its passage, the bipartisan Antitrust Modernization Commission (AMC) recommended its repeal. The commission concluded that “the RPA protects competitors over competition and punishes the very price discounting and innovation in distribution methods that the antitrust laws otherwise encourage.” 

Independent grocers from the 1930s weren’t being victimized by A&P. They were losing out to a model that better served customers. The Robinson-Patman Act was designed to prevent discounts before they could be passed on to consumers. Dominic Armentano, writing in 1986, made it even clearer that both the Clayton Antitrust Act, Section 2 and the RPA “explicitly intend to restrict price rivalry in the name of preserving competition. Government antitrust suits against firms that price discriminate almost always result in the defendant firm raising some of its prices to comply with the law.”

This historic record shows that Main Street populism has unintended consequences. By limiting competition in defense of the so-called “mom and pop” stores, the RPA delivered higher prices that hurt the lowest-income households throughout the US at the height of the Great Depression. What was sold to the public as a fight for the little man was in reality a tax on consumers to subsidize local merchants.

Although the act saw minimal enforcement by the FTC or the Department of Justice throughout its history, it reared its ugly head under the Biden administration in 2024. In December of that year, the FTC filed suit against Southern Glazer’s Wine & Spirits, the nation’s largest wine and spirits distributor. The agency alleged that it was offering that most heinous of crimes: bulk discounts to large retailers. A similar suit was then filed against the PepsiCo. While the PepsiCo suit has been summarily dismissed, the litigation against Southern Glazer continues. The current FTC Chair, Andrew Ferguson, wrote a clarion dissent against the Biden administration’s use of the RPA and while litigation continues, this bodes well for Southern Glazer. If the FTC prevails, however, the pain will immediately be felt by consumers who are the beneficiaries of their discounts.

While my childhood visits to A&P are now distant memories, the feeling of middle-class families needing to stretch their dollars in an inflationary environment is as fresh as those donuts I enjoyed as a kid. With the Consumer Price Index (CPI) for food at home up 31.8 percent since 2020, grocery store discounts are what’s holding some households together. The time is long past for retiring the Robinson-Patman Act. As Alden Abbott has eloquently put it, “repeal remains the first-best response to a law long criticized as ‘corporate welfare at consumers’ expense.’”

When Britain voted to leave the European Union (EU) on June 23, 2016, there were dire predictions for its economy. Prime Minister David Cameron and Chancellor George Osborne cited a Treasury analysis forecasting that “a vote to leave will push our economy into a recession that would knock 3.6 percent off GDP and, over two years, put hundreds of thousands of people out of work right across the country, compared to the forecast for continued growth if we vote to remain in the EU.”

This doomsday scenario did not come to pass. Britain’s economy stubbornly refused to collapse after the referendum, and when it did, it did so for the same reason every other economy did: COVID-19.

If we compare the British economy’s performance pre- and post-Brexit with that of its peers in the G7, it is hard to see the prophesied economic meltdown.

Figure 1 (see below) shows the percentage point change in per capita GDP growth — the measure that really matters for economic welfare — among the G7 in the pre- and post-Brexit periods. We see that Britain’s per capita GDP growth was 3.2 percentage points higher in the period after Brexit — 2016 to 2025 — than in the period before — 2007 to 2016 — a better performance than in two other G7 countries, Canada and Germany, and on a par with a third, Japan; hardly an economic catastrophe.

Figure 1: Percentage point change in real per capita GDP growth, 2007 to 2016/2016 to 2025 (Annual levels, Calendar and seasonally adjusted, US dollars per person, PPP converted, 2020)

Even so, some researchers argue that there was a significant economic hit from Brexit. Economists Nicholas Bloom, Philip Bunn, Paul Mizen, Pawel Smietanka, and Gregory Thwaites with the National Bureau of Economic Research (NBER) recently estimated that by 2025, Brexit had reduced UK GDP by six and eight percent, relative to 2016. 

There are reasons to doubt this.

First, the NBER paper, like others, does not compare Britain’s post-Brexit economic performance to the post-Brexit performance of these other countries but to the post-Brexit performance of a constructed “doppelgänger,” which, as economist Julian Jessop notes, is rather puzzlingly assembled. The eight countries it is built from include neither France nor Germany, but does include two Baltic states and the United States. It is hard to see the rationale for these choices.   

Second, it ascribes all of Britain’s underperformance relative to the doppelgänger to Brexit. Yet the G7 member with the steepest fall in both per capita and total GDP growth pre- and post-Brexit is Germany, which remained in the EU. Much of its dismal economic performance in recent years can be ascribed to its “green energy” policies, but if we must account for factors besides EU membership when assessing Germany’s underperformance, why do we not do so for Britain?

Under the post-Brexit Conservatives and Labour since 2024, the British economy has been strangled with ever-higher taxes and regulatory burdens, which would have hampered its growth even if the country had voted to remain in the EU. This must be accounted for when assessing the economic impact of Brexit.

These methodological problems perhaps account for the striking results. If the British economy really had grown by another seven percent, it would have climbed from the 4th fastest growing G7 economy in the period 2007 to 2016 to third fastest in the period 2016 to 2025, which is certainly possible. But, as Figure 2 shows, the performance posited by the NBER economists implies that, if Britain had remained in the EU, its GDP growth in the ten years after 2016 would have been 9.0 percentage points higher than in the ten years before 2016. This would be an improvement better than all but two other G7 countries: Italy, whose economy, from 2016 to 2025, was recovering from a collapse in GDP of 6.7 percent between 2007 and 2016, and the United States, which is the G7’s leader in terms of GDP growth.

Figure 2: Percentage point change in real GDP growth rate from 2007/2016 to 2016/2025 (Growth rate, period on period, Chain linked volume, Calendar and seasonally adjusted)

Is this likely? Was the British economy really poised for such a robust performance in 2016? Those who recall the jeremiads about the economic damage wrought by the Cameron government’s “austerity” will be surprised.

Why did Brexit fail to live down to the economic warnings? 

First, the EU is an economic laggard. As Figure 3 shows, since 2011, the EU’s economy has grown by 20.6 percent while the US economy — the second biggest destination for British exports after the EU in 2016 — grew by 39.9 percent, nearly double the rate.

Figure 3: Real GDP growth (Growth rate, period on period, Chain linked volume, Calendar and seasonally adjusted)

Second, Britain’s economy was one of the least reliant on its EU colleagues. As Figure 4 shows, in 2015, just 42.3 percent of British exports went to the EU, a share lower than in each of the 27 other members. This is partly because, as Luis Garicano, a former member of the European Parliament, noted recently, the “Single Market” is largely a myth. 

“The IMF puts the hidden cost of trading goods inside the EU at the equivalent of a 45 percent tariff,” he writes. This is especially so for services where “the figure climbs to 110 percent, higher than Trump’s ‘Liberation Day’ tariffs on Chinese imports.” This is a particular issue for Britain, where, as Figure 5 shows, services accounted for a greater share of exports in 2015 than in 22 of the 27 other EU countries.

Figure 4: Share of exports to other EU Members, 2015

Figure 5: Services as a share of total exports, 2015

A decade on, these facts are little changed, and hopes that Britain’s economy can be boosted by closer ties with — or even rejoining — the EU are doomed to disappointment. As with other “exits,” whether the British economy flourishes will largely depend on what happens in Britain. And if you wrote in 2016 that “we doubt that Britain’s long-term economic outlook hinges on [EU membership],” you might be feeling rather vindicated.

But perhaps this is missing the point. For most, Brexit was never really about economics at all. That was merely a proxy for the debate people wanted to have but were afraid to openly; the more elemental one of identity. In the decade since Brexit, they have become less afraid.

The Social Security Trustees’ annual report delivered another warning last week: the program’s finances have deteriorated further, insolvency is approaching sooner, and demographic changes are mostly to blame.

That’s only part of the story.

Social Security contains two automatic benefit expansions. First, initial benefits rise with wages, meaning each new generation receives higher inflation-adjusted benefits than the last. Second, retirement ages have not kept pace with increases in longevity, allowing retirees to collect those larger benefits for more years. Together, these policies consistently increase lifetime benefits.

Two workers with equivalent earnings histories and payroll tax contributions can receive very different benefits simply because one retired later. The graphic below illustrates how workers’ initial benefit amounts have grown over 25 years due to wage growth indexing, compared with inflation.

It is one thing to maintain a constant standard of living in retirement while people live longer. It is another to simultaneously increase the number of years benefits are paid and the generosity of those benefits. But that is effectively what Social Security has done for decades.

John Cogan and Daniel Heil, writing in 2023, examine a counterfactual scenario in which Congress adopted price indexing of initial benefits (i.e., holding initial benefits constant in inflation-adjusted terms) instead of wage indexing. They find that such an approach would have generated consistent cash-flow surpluses from the mid-1980s onward, thereby avoiding the deficits that emerged after 2010 and are now depleting trust fund reserves.

Contrary to the common narrative, Social Security’s looming insolvency is not merely the product of bad demographic luck. It is also the predictable consequence of policy choices that automatically increase both benefit levels and benefit duration.

Changing to price indexing, beginning in 2032, when the program runs out of IOUs, would close 74 percent of the program’s long-term funding gap and lead to a surplus after 2078.

The good news is that Congress could eliminate most of Social Security’s long-term financing gap without cutting anyone’s benefit and without reducing the purchasing power of benefits. Legislators just need to get comfortable with slowing the growth of benefits.

Wage indexing of initial benefits also helps explain why economic growth alone cannot rescue Social Security. Economic growth means more revenue, but it also means larger benefit promises, as both payroll taxes and new benefits would grow with wage gains.

Ever-rising benefits might have looked affordable when Social Security was supported by a large and growing workforce. In 1950, there were roughly 16 covered workers for every beneficiary. Today there are about three (see chart below). Yet the program still operates as if every generation will be larger than the one before it — even as the population pyramid steadily inverts.

Many advanced economies faced similar demographic pressures decades ago. Aging populations, lower fertility rates, and rising pension costs forced governments to rethink retirement policy globally.

Most did not simply raise taxes to preserve existing promises. Doing so undermines the very economic growth that enables younger workers to support an aging society. Instead, they modernized their retirement systems, slowing the growth of benefits and adopting automatic adjustment policies.

Based on analysis in my book with Ivane Nachkebia, Reimagining Social Security, successful retirement systems are designed to adapt automatically to changing economic and demographic realities, rather than relying on political action in the face of a financing crisis.

Perhaps the best example is automatically increasing eligibility ages with improvements in longevity.

When Social Security was created in 1935, life expectancy was far lower than it is today. Life expectancy at age 65 has increased by more than six years for men and more than seven years for women. Yet the program’s full retirement age has risen by only two years, from 65 to 67. Seniors can now expect to spend nearly two decades collecting benefits.

Sweden now links retirement ages to life expectancy, and roughly one-quarter of OECD countries have adopted similar mechanisms. Such policies recognize that as people live longer, retirement systems cannot indefinitely increase both monthly benefits and years in retirement without imposing growing burdens on workers.

The increasingly favored alternative in Washington is to rely primarily on higher taxes, especially raising or eliminating the payroll tax cap ($184,500 in 2026). This is the threshold above which higher earners no longer face Social Security’s 12.4 percent burden, which also caps their ultimate benefits.

It’s a popular proposal, easily summed up as: make someone else pay. But it’s often oversold.

Even eliminating the cap would close only about half of the program’s long-term financing gap while massively increasing marginal tax rates for highly productive professionals. Affected wage earners would include physicians, surgeons, pilots, and small-business owners, potentially accelerating early retirements and worsening labor shortages in key industries.

Before asking Americans to pay more, Congress should consider whether a benefit formula that automatically increases benefits from one generation to the next still makes sense in a country where retirees are on average wealthier than the younger households whose payroll taxes finance their benefits.

The lesson from this year’s Trustees report is not merely that Social Security is running short of money. It is that the program automatically promises larger benefits to successive generations and pays those benefits for increasingly longer retirements, even as the number of workers supporting each beneficiary shrinks.

That is not simply a demographic challenge. It is a policy choice.

And until Congress confronts that mismatch, younger generations will be asked to pay ever more to sustain an untenable status quo that much of the developed world has already left behind.