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
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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.
On February 11, the Congressional Budget Office (CBO) published its annual Budget and Economic Outlook report, covering 2026 to 2036. Among the projections, the report found that Social Security’s Old-Age and Survivors Insurance will be unable to pay full benefits in 2032 (a year earlier than projected in last year’s report). This is due to the higher projected cost-of-living adjustments and lower projected revenues. To put that in perspective, Social Security will be unable to pay full benefits before the program turns 100.
Social Security is in desperate need of reform, but doing so is easier said than done. Perhaps the worst cultural consequence of Social Security is that this unsustainable program is pitting generations of Americans against one another. The young support benefit cuts while the old support higher payroll taxes. Successful reform means balancing the interests between these generational divides to prevent political backlashes, which may jeopardize future reforms.
What Social Security Is and Is Not
In 2007, AIER published “What You Need to Know About Social Security.” This Economic Education Bulletin outlines Social Security’s history, some myths and realities about the program, as well as options for reform and what individuals planning for retirement could do in the meantime. Many of the bulletin’s lessons are still applicable.
Chief among them is the nature of the program. Social Security is not a system of individual retirement accounts. Nor is it a defined benefit pension program. It is a pay-as-you-go structure, where payroll taxes collected from working Americans go to fund benefit payments for the elderly. Despite being sold to Americans as an earned benefit, the true nature of the program is much closer to a Ponzi scheme than many care to admit.
This means that the program relies upon working Americans to pay into the system outnumbering retirees. That number has dwindled, and it currently sits at 2.7 workers per Social Security recipient, an unsustainable ratio. Minor adjustments are not a feasible solution. The program needs structural reform.
Possible Reforms
Properly reforming Social Security requires a structural transition to a system based on ownership, savings, and investment. Universal Savings Accounts (USAs) can help anchor the transition if they are paired with policies that address the generational divide over the program.
One such proposal made by the AIER Bulletin, as well as others, is a transition to a flat benefit. While this would drastically improve the program’s solvency, it risks immense political backlash. Current retirees and those near-retirement are planning on specific levels of benefits. Changing those overnight will likely result in voters 50 and over (one of the largest and fastest-growing voting blocs) punishing politicians who supported reforms by supporting challengers in primary and general elections. Furthermore, that punishment at the polls will make incumbents reluctant to offer other reforms in the future.
To mitigate this political risk, policymakers can consider cohort differentiation. This would mean that current retirees and near-retirees receive all accrued benefits, financed transparently through general revenues, while the youngest cohorts transition out of the traditional program entirely and have access to USAs, which provide them with control over their finances and the portability to take those savings with them regardless of career or location changes.
Additionally, Social Security’s Old Age Insurance could be separate from Disability Insurance and Survivors’ Insurance. The combined OASDI framework encourages benefit creep, especially as old-age insurance costs increase. Stand-alone programs can help prevent the re-expansion of the old-age system through cross-subsidization.
The AIER Bulletin also notes that, while total privatization of retirement savings would be ideal, offering a smaller, flat benefit could encourage people to save more. Furthermore, the bulletin recommends encouraging saving through tax policies that incentivize savings over consumption (such as a decrease in reliance on income taxes). Additionally, policymakers can make it easier for Americans to save by replacing the myriad savings vehicles in the tax code with a broader universal savings account system without restrictions on how that money is used.
There is also the possibility of devolving the program to state governments and having states manage these funds like defined benefit pensions. This would enable benefits to be connected to earnings. One such drawback, however, is state management of defined benefit pension plans is mixed at best. A defined benefit system at the federal level may exacerbate the knowledge and incentive problems that occur at the state level.
Finally, long-term success will be determined by the institutional constraints in place. These include hard cohort cutoffs and a supermajority requirement for benefit expansions. Without such constraints, we will likely see a reversion to what we have now, with the same empty promises that the system would be fully self-funded, only to saddle Americans with massive tax obligations.
Institutional Reform — or Generational Reckoning
Social Security reform is no longer a choice; it is the only way to avoid a very unfortunate future. Ignoring that reality will mean higher taxes on working Americans and benefit cuts to retirees. Enacting sustainable policy solutions can help avoid disaster without leaving Americans, young and old, destitute. The best hedge against the failures of the status quo, however, is to take control of one’s plans for the future instead of expecting the government to manage the future for us.
What US industry is the most subsidized and regulated by the federal government? If you answered nuclear power, you are correct.
As a result, the 70-year “Atoms for Peace” program represents the most expensive failure (malinvestment) in US business with a history of uncompleted projects and massive cost overruns, as well as future decommissioning liabilities.
Still, President Trump is all-in with nuclear, setting a goal of ten new reactors in construction by 2030 and a quadrupling of total US capacity by 2050. Biden was bullish too, and George W. Bush had his turn at a “nuclear renaissance.” Each failed, but in the nuclear space, hope springs eternal.
Commercial fission began in the 1950s amid government and scientific fanfare. The promise was virtually limitless, emission-free, affordable electricity compared to coal-fired generation. But the technology was experimental and encumbered by a fear of radioactive contamination. Electric utilities and municipalities resisted. It would take open-ended (federal) research and development, insurance subsidies, and free enriched uranium, and rate-base returns under state regulation, to birth nuclear power.
Scale economies and learning-by-doing were expected by vendors General Electric, Westinghouse, and others. Their turnkey projects guaranteeing cost and delivery, which produced a “bandwagon effect” of new orders in the 1960s, backfired. Almost half of the plant cost had to be absorbed by vendor stockholders. Cost-plus contracts would ensue with captive ratepayers in tow.
In the 1970s, cost overruns, completion delays, and cancellations marked the end of the nuclear boom. With the Three Mile Island accident in 1979, a regulatory ratchet accelerated. “Federal regulations used to take up two volumes on our shelves,” one participant told Congress. “We now have 20 volumes to explain how to use the first two volumes.” Legalistic, overly prescriptive, retroactive rules now came from adversarial hearings and “the way of the institutions of government.”
At the same time, turbine engines fueled by oil and natural gas took off. Cogeneration and combined cycle plants set a new competitive standard for nuclear, not only coal. Such technology used far fewer parts and was much more serviceable than a fission plant.
Today, 94 active reactors produce dependable power to reinforce a grid weakened by intermittent wind and solar. With high up-front capital expense sunk, marginal-cost economics supports their continued operation. But for new capacity, large necessary government subsidies confirm an enduring reality: nuclear fission is the most complicated, fraught, expensive way to boil water to produce steam to drive electrical turbines.
Hyperbole abounds about new reactor design. Small Modular Reactors (SMRs) are newsworthy, but is a turnkey project being offered to ensure timeliness and performance? Or does the fine print of the contracts offer the buyer “outs”? This question should be asked of those promising to buy or develop gigawatts of new nuclear capacity in the next decade.
What now for nuclear policy to enable affordability and reliability? In a nutshell, the twin evils of overregulation and oversubsidization should give way to a real free market. The Nuclear Regulatory Commission should yield its civilian responsibilities to the best practices established by the Institute for Nuclear Power Operations, an industry collaborative created after Three Mile Island. Federal insurance via the Price-Anderson Act of 1957 (extended seven times to date) should be replaced by private insurance per each “safe” reactor.
Federal grants, loans, and tax preferences for nuclear should end. Antitrust constraints on industry collaboration should cease, and waste storage and decommissioning should be the responsibility of owners.
Nuclear fission today is an essential component of a reliable electric grid. But economics and incentives matter, and U.S. taxpayers and ratepayers should not bear the costs of an uncompetitive technology. Neutral government is best for all competing energy sources, after all, in contrast to the energy designs of both Republicans and Democrats.
Read more from this author:Nuclear Power: A Free Market Approach
