Joel Mokyr of Northwestern University provided our best answer to an economic and historical mystery of epic proportions, the early 19th century takeoff in global economic growth. Philippe Aghion, of Collège de France, and Peter Howitt, of Brown University, showed how the processes of innovation and creative destruction unleashed during that time continue to drive economic growth today. In 2025 we find ourselves in multiple ongoing examples of creative destruction. Today’s proliferation of artificial intelligence (AI) technology happened before our economy and society were finished adjusting to other recent revolutions like e-commerce and social media. The work of this year’s Nobel laureates offers a much-needed case for optimism in the wake of technological change.

The great takeoff

Economies grow for many different reasons, but something happened around 200 years ago that changed the rules. Before the early 1800s, economic activity on planet Earth grew very slowly. There were booms and busts, golden ages, and disasters. These events mattered for people of a particular time and place, but only fleetingly. Around 1820, economies in Western Europe began growing rapidly, a new normal that came to characterize the entire world. The result, when we look at global gross domestic product (GDP) over time, is known as the “hockey stick.”

Some caution is in order. Summing up world GDP hides many layers of complexity and unevenness. Even as total GDP keeps increasing year by year, modern booms and busts have been more dramatic and less predictable than ever before. Along with the takeoff of the Industrial Revolution came all of modernity’s problems. And even modern GDP is hard to measure accurately, while estimating historic figures is almost a field unto itself. But none of these common criticisms of the hockey stick take away from the importance of understanding this unique moment in world history.

The geniuses are talking

Mokyr’s combination of history and economic analysis reveals the most compelling explanation of what happened and why. The two centuries leading up to the takeoff in economic growth witnessed an equally dramatic blossoming of science and invention. Western Europe in the 17th and 18th centuries is almost overflowing with hall-of-fame scientists (Newton, Galileo), discoveries (the cell, planetary motion), and inventions (the steam engine, the power loom). We call it The Enlightenment for a reason. These great ideas and inventions surely contributed to economic growth, but Mokyr’s findings are much more profound.

What emerged in Europe and particularly England leading up to the early 19th century takeoff was the ability for many minds and ideas to interact. Mokyr noticed that, unlike great discoveries in earlier times, those in early-modern Europe appeared to build on each other—they were cumulative. One reason for this change was “the Republic of Letters.” All around Europe, the geniuses began corresponding. Through letter-writing, the building of research institutions like the Royal Society, and emerging scientific best practices, great ideas could more easily be shared. Western Europe had now assembled a critical mass of propositional knowledge—the math, science, and other basic understandings of the world needed before one can learn other things.

Mokyr next provides an elegant explanation for the exact time and place where all of this core knowledge made the leap to prescriptive knowledge—how to make and do useful things. Through most of history, craftsmen and artisans—the people who made things—occupied a place in society just above rural peasants. By the turn of the 19th century, Great Britain had bucked this trend, with a growing skilled middle class as well as wealthy and educated entrepreneurs. They were increasingly able to put the knowledge created by the Republic of Letters to productive use. Inventions like the steam engine, power loom, and cotton gin formed the foundation of early factories, kicking off the Industrial Revolution.

In the Enlightenment and Industrial Revolution, Mokyr finds more than just innovation-driven economic growth. A critical mass of knowledge and innovation during this period caused a lasting change in the rules of how economies grow.

Why do economists, who usually look for hard numerical proof of new ideas, find this explanation so compelling?  Mokyr’s story explains why the change embodied in the hockey stick happened when and where it did, first in Britain, then Western Europe and North America, and ultimately spreading worldwide. Ideas work differently than other goods: They are not consumed after being put into use. Hockey-stick growth in poorer parts of the world requires improvements in education, governance, and integration with the world economy, but not recreating the Republic of Letters from scratch. This explains why, at the highest level, we do not appear to switch back to the low-growth rules that applied for most of history. No other explanation of the hockey stick comes close to explaining what we observe. 

More creative destruction

The other two 2025 Nobel winners, Aghion and Howitt, demonstrate that fresh rounds of innovation and creative destruction continue to fuel high rates of modern growth. Unlike Mokyr the historian, Aghion and Howitt work with the mathematical growth models of macroeconomics. This alone is an achievement, one of the best examples of economists fitting innovation into quantitative models. They provide mathematical economics with evidence in its own terms of the importance of innovation to the growth of modern economies.

Aghion and Howitt’s argument elegantly captures many features of economic growth missing from other explanations. Underneath the apparently smooth hockey stick, we find booms, busts, creative destruction, and upheaval few people expect until it happens. Economist Brian Albrecht writes:

“We had almost 8 million jobs created in the last quarter of 2024. Think about that number. Eight million new employment relationships formed in three months. But here’s the kicker: we also had over 7 million jobs destroyed in that same period. Firms constantly enter and exit. Workers move between employers. Products get launched and discontinued. The labor market churns.”

High overall growth rates aside, modern economies often feel at the mercy of unexpected and uncontrollable technological forces. Aghion and Howitt show that these forces are once again the result of ideas and innovations percolating from the bottom up, indeed unpredictable but harnessed to great benefit by free minds and free markets. Albrecht continues:

“In any single sector, you get sudden jumps when breakthroughs happen. Netflix enters and destroys Blockbuster’s profits essentially overnight. The iPhone launches, and BlackBerry’s market share collapses. Creative destruction is violent and discontinuous in a single industry at a single moment.”

Today we have large and diversified economies with many sectors. This allows unpredictable innovation many opportunities to take hold but also hedges against too much destruction at once. Aghion and Howitt explain the paradox between the immaculate hockey stick and the apparent chaos beneath.

“There’s no other way”

In the 21st century the pace of technological change is faster than ever. We are still in the process of learning how to adjust to a world of social media, for example, as we contemplate an AI revolution that might mean even greater change. A common thread in the work of all three Nobel laureates is that the truly meaningful innovations must involve a messy and uncertain process of adjustment. The anti-tech backlash that has gathered force in the last several years should therefore come as no surprise.

We must learn to view innovation and creative destruction with optimism and hope. The problems brought by technological change can seem impossible to solve, especially in the moment, but this is an illusion. They are not problems that one mind can solve, but we now live in a world where many minds and ideas work together without a central plan. Our record navigating the problems created by innovation is far from perfect, but our early fears do not come to fruition. This is born out time and again.

Mokyr, Aghion, and Howitt do not view the problems brought by innovation as inevitable or immune to good government policy. But innovation of the magnitude leading to creative destruction, and ultimately economic growth at the tip of the hockey stick, leads to disruption by its very nature. Our ability to keep prospering depends on a society where people are free to exchange ideas and put the best ones to use. As Mokyr said at the close of an interview after learning of his prize, “[T]here’s no other way.”

The post Nobel Prize winners make powerful case for optimism amid technological change appeared first on Reason Foundation.

To prevent problems from worsening, Congress should reassert its constitutional authority over tariffs and rein in the executive branch as the framers intended.

The good news is that the courts may do this for Congress. As CNBC reported:

A federal appeals court ruled that most of President Donald Trump’s global tariffs are illegal, striking a massive blow to the core of his aggressive trade policy.

The U.S. Court of Appeals for the Federal Circuit held in a 7-4 ruling that the law Trump invoked when he granted his most expansive tariffs — including his “reciprocal” tariffs — does not actually grant him the power to impose those levies.

“The core Congressional power to impose taxes such as tariffs is vested exclusively in the legislative branch by the Constitution,” the court said. “Tariffs are a core Congressional power.”

Thankfully, U.S. markets have shown signs of resilience despite economic instability. But even where pockets of improvement appeared, they felt fragile and reactive. The U.S. Bank Freight Payment Index increased in the second quarter, with shipment volumes climbing 2.4% compared to the first quarter. But that snapped a string of weak quarters rather than signaling a robust recovery. The quarter-to-quarter bounce appears to be a short-term rebalancing, rather than robust demand growth. 

What does this short-term rebalancing look like?

When trade restrictions are threatened or implied, importers accelerate orders to beat potential levies. When those threats recede, ordering often collapses just as quickly. That behavior, known as frontloading, produces a brief surge in bookings and port activity, followed by a sharp slowdown that distorts normal seasonality and makes planning more challenging for carriers and terminal operators.

Recent reporting from Reuters shows that Asia-U.S. sea freight rates swung sharply and booking patterns spiked, only to drop as tariff negotiations and deadlines played out. 

Operationally, frontloading shows up in container bookings and truckload demand. Industry trackers note a big, fast swing: ocean bookings and import flows surge during windows of tariff uncertainty and then fall off as the situation cools, leaving carriers with lumpy schedules and excess capacity on certain lanes.

FreightWaves’ coverage of import bookings highlight that ordering peaks in late June or early July and then declines. This is the pattern one would expect when frontloading replaces steady, demand-led ordering. 

The domestic market is fragmenting. Long-haul truckload demand has cratered in many of the major transcontinental lanes—FreightWaves’ analysis shows long-haul truckload demand down roughly 25% year-over-year as shippers shift more middle-mile volume to intermodal rail or delay moves altogether. This decrease is statistically significant and appears to indicate that shippers are adjusting their behavior in response to policy uncertainty.

That behavior has ripple effects. Carriers and owner-operators respond to lumpy demand by pruning capacity, which in turn makes rates volatile when a temporary surge arrives. With less available capacity, when a surge of demand hits, rates will rise faster than if carriers had not reduced capacity.

At the same time, intermodal rail has gained market share as shippers seek lower transportation costs for long-distance shipments. FreightWaves’ white paper shows exactly this dynamic: Ocean spot rates and bookings can spike, regional truckload markets can tighten or soften rapidly, and intermodal rail often reclaims long-haul work during periods of trucking softness. 

If policymakers want freight to stop reacting to every headline and start reflecting real, demand-driven movement again, clarity and predictability are the obvious place to start. Reasonable steps include committing to clear timelines and narrow scopes for trade measures, communicating tariffs and trade policy intentions well in advance when possible, and coordinating with industry to limit surprise disruptions.

On the industry side, shippers and carriers should accelerate the adoption of adaptive practices already in evidence—dynamic inventory strategies, greater modal agility (allowing volumes to shift to intermodal when appropriate), and investment in near-real-time analytics that reduce reaction lag.

The easiest solution to this problem is for Congress to reassert its authority on trade, though it seems unwilling to do so—so far. Under the U.S. Constitution, Congress has the sole authority to regulate foreign commerce and levy tariffs on imports. The president is not intended to legislate with the stroke of a pen. Trade agreements are meant to be negotiated, with congressional debate, and executed by the executive branch, not written and implemented by the president and the president alone.

To that end, Congress could begin by holding hearings to examine recent executive trade actions, introduce legislation to reaffirm its constitutional role in approving trade agreements, and amend existing statutes—such as the Trade Expansion Act of 1962, Trade Act of 1974, and International Emergency Economic Powers Act of 1977—to limit unilateral executive changes to tariffs and trade terms.

Tariff threats will always be a lever in geopolitics and trade negotiations (despite their poor track record), but when they are wielded without clear implementation plans or predictable timing, they create a costly, avoidable drag on freight markets. Until President Trump’s tariffs are checked by Congress and the courts, and businesses receive a steadier signal, expect the freight markets’ natural rhythms to be punctuated by sudden surges and equally abrupt retreats for the foreseeable future.

The post Trump’s unchecked tariff power is undermining U.S. economy and freight stability appeared first on Reason Foundation.

Interest payments on the national debt are also climbing. In May, Moody’s downgraded the U.S. credit rating from AAA to Aa1. 

Still, the political will to address the national debt and federal budget deficits does not exist in meaningful numbers on either side of the political aisle. To get a clearer picture of why the national debt matters to taxpayers and future generations, how we got here, who holds this debt, and what would need to be done to rein it in, Reason Foundation built Debtor Nation.

Why the national debt matters

• The national debt is expensive: Debt incurs high interest costs, diverting taxpayer funds from productive uses to pay interest to bondholders.
• Debt burdens economic growth: Interest payments on the national debt consume a rising portion of the national budget and gross domestic product (GDP). This borrowing stifles economic growth by absorbing capital from the private sector, making borrowing more expensive for taxpayers and businesses.
• Debt imposes unfair costs on future generations: Future taxpayers are on the hook to pay for today’s deficits. They must accept either higher taxes, inflation, or reduced government services.
• The debt is becoming unaffordable: The current debt and projected reliance on debt increases the risk of higher borrowing costs, insolvency, and default.

How we got here 

• The annual U.S. debt-to-GDP ratio reached 120% in 2024, exceeding levels last seen immediately following World War II.
• Federal expenditures consistently outpace revenue, driving continued debt growth. Given that federal receipts bounce between 15% and 20% of GDP, spending more than 20% of GDP is simply not sustainable in the long term.
• Federal debt growth transcends party lines, driven by major events and policy decisions across presidential administrations and congresses.

Who holds the federal debt? 

• The federal debt is divided between intragovernmental holdings (primarily the Social Security Trust Fund) and debt held by the public.
• Public debt holders include domestic investors, foreign entities, and the Federal Reserve, which has significantly increased its holdings in recent years.
• Foreign ownership of U.S. debt represents a substantial portion, raising opportunities and potential economic stability risks.

Where does the federal government spend money? 

• Mandatory spending, including Social Security and Medicare, accounts for a significant portion of federal outlays, exceeding 65% of total annual expenditures.
• Interest payments on the national debt have reached historic levels, creating additional budget pressure.
• At $908 billion, defense spending remains the largest discretionary budget item, dwarfing other discretionary spending categories.

Conclusion 

You can view the full Debtor Nation data visualization tool here. The tool includes more insights into our national debt, along with a calculator that shows exactly what changes the federal government would need to make to help us climb out of the situation the national debt has put taxpayers and future generations in. 

The post Debtor Nation 2025 appeared first on Reason Foundation.

The White House did not specify the severity of the tariffs until April 2, when Trump announced his “Liberation Day tariffs.” The president announced rates on some countries, but others would still be subject to a 10% global tariff imposed on all imports.

A full list of the tariffs by country (as originally revealed on Liberation Day) is here.

How were these tariff rates determined? The administration didn’t give its formula for the tariffs, but the math was simple:

Tariff (Percent) = (U.S. Trade Deficit with Country ÷ U.S. Imports from Country) ÷ 2

The Center for Strategic and International Studies used the European Union (EU) and Indonesia as examples.

The EU’s reciprocal tariff rate was 20%. This rate was generated by the formula above: $235.6 billion deficit ÷ $605.8 billion imports = 39%, halved to 20%.

Indonesia’s rate was set similarly: $17.9 billion ÷ $28.1 billion = 64%, halved to 32%.

The tariff rates, as given in April, were predicated on two core beliefs of President Trump. The first is bad economics. The Trump administration noted that imports are subtracted when calculating gross domestic product (GDP), giving them a negative connotation. This reflects a fundamental misunderstanding of what GDP measures—domestic production, with the general accounting identity being expressed as GDP = Consumption + Investment + Government Expenditures + (Exports – Imports). 

Goods produced abroad are, by definition, not domestically produced, but are included in the Consumption, Investment, or Government Expenditure variables because the Bureau of Economic Analysis’s National Income and Product Accounts do not distinguish between domestic and foreign production. Thus, to accurately measure domestic production, Imports need to be subtracted. The upshot is that imports have a neutral effect, not a negative one, on GDP.

The second wrong core economic belief driving the tariffs is Trump’s belief that a trade deficit is a bad thing. Economist Noah Smith described this thought process well:

[B]ecause Trump misunderstands trade deficits in these two ways, he believes that when America runs a trade deficit with a country, that country is ripping us off. He thinks imports are lowering U.S. GDP by forcing us to produce less stuff — essentially, stealing American production. He thus sees trade deficits as a measure of how much is being stolen from America.

Smith describes a trade deficit as “buying stuff with a credit card.” Can trade deficits be bad? Yes, but they can also be good. Smith uses the example of a productive investment as the case for a good trade deficit. If a U.S. company imports a Japanese CNC machine for $100,000, that contributes to the trade deficit. But if that tool is used to make $500,000 worth of car parts, the U.S. has come out ahead.

As with GDP, the White House is fundamentally misinterpreting an accounting identity, in this case, the balance of payments. The balance of payments measures a country’s international transactions in trade, foreign investment, transfers, and changes in the central bank’s foreign currency reserves. The standard GDP equation (GDP = Consumption + Investment + Government Expenditures + (Exports – Imports)) explains how national income is created, but it can also be expressed to show how national income is spent: GDP = Consumption + Government Expenditures + Savings. By equalizing the two, we can arrive at the fundamental balance of payments accounting identity between the Current Account and Capital Account: Exports – Imports = Savings – Investment. 

The upshot is that a Current Account deficit (a “trade deficit” where imports exceed exports) is accompanied by a Capital Account surplus. In essence, when a country imports more than it exports, those additional imports are “paid” by foreign capital flowing into the country. Much of that international capital surplus is accounted for by foreign investment in domestic companies and other private assets. However, the demand for reserve currency by foreign central banks also plays an important role. The U.S. dollar is prized for its stability, which has cemented its status as the world’s primary reserve currency. Foreign central banks buying U.S. dollar reserves are essentially providing the U.S. a free loan, but this foreign demand for dollars increases the Capital Account surplus, which needs to be offset in the Current Account (i.e., increasing net imports). As a result, most expect the United States to run trade deficits for as long as the U.S. dollar remains the principal global reserve currency.

Maligning any import (and its impact on the trade deficit) as only a negative is a massive oversimplification. The rates (originally) put forward by the Trump administration have been paused, walked back, or increased depending on the country—the only part that has remained is the administration’s insistence that tariffs will right the ship, when they seem more likely to sink it.

All this raises a further question: What are the administration’s goals, and how do they justify them? The administration has five claimed uses and goals for tariffs:

• A negotiating tool
• Reshoring production to the U.S.
• Protecting national security
• Raising federal revenue
• Deterring property theft and unfair subsidies

The following sections will evaluate each of these claims.

Tariffs As a Negotiating Tool

President Trump often portrays tariffs as “the art of the deal,” expecting them to coerce trading partners into concessions. In practice, however, traditional allies and rivals have been left baffled. EU diplomats report Washington told them not to expect talks until the United States imposes even higher tariffs. Countries that tried to engage—Britain, Japan, and Israel—found the White House either unresponsive or vague about its demands. As Politico notes, foreign negotiators keep “waiting for a reply” from the Trump administration while being offered no clear agenda.

China initially rebuffed U.S. pressure—when the White House floated talks, Beijing said it was “evaluating” dialogue but warned against “extortion and coercion”, deriding tit-for-tat tariff spikes as a “joke” and retaliating rather than negotiating on intellectual property or subsidy disputes. Eventually, however, both sides agreed to lower rates—U.S. duties on most Chinese imports fell from 145% to 30%, and China’s from 125% to 10%—yet many sectors, notably steel, face disproportionately high levies. Importers point out that relief remains limited by lingering measures such as a 20% ‘fentanyl-related’ tariff and 10% reciprocal tariffs, to name a few.

Likewise, President Trump said his new trade deal with the United Kingdom was a “maxed out deal” and would be the running standard for trade negotiations with other nations. The problem is that even the lowered 10% tariff on imports is substantially higher than the 3% rate in place prior to Trump’s second term.

Reshoring Production to the U.S.

One of President Trump’s repeated claims is that tariffs will spur manufacturing jobs to return to America. In reality, the unpredictable trade environment has done the opposite. Businesses report that the constant threat of new duties has frozen investment plans worldwide. To build new factories, there needs to be an abundance of capital to invest in those projects. And financial markets have reacted badly: for example, the S&P 500 plunged about 4% in the weeks after the “Liberation Day” tariffs on April 2, and 10-year Treasury yields jumped as investors fled U.S. assets. Corporate leaders have been vocal: dozens of firms have pulled or slashed earnings guidance amid the tariff chaos. One CEO admitted it’s become impossible to predict policy, lamenting that “every single prediction has been proved wrong”.

In this climate of uncertainty, long-term capital expenditure has ground to a halt. Yale economists Jeffrey Sonnenfeld and Steven Tian argue that firms simply will not green-light billion-dollar factory projects when trade policy “[is] being enacted in the most uncertainty-inducing way possible.” They observe that “business investment is entirely paralyzed—and will continue to be frozen for the foreseeable future.” Surveys reflect this paralysis: U.S. small-business confidence has plunged sharply, and capital spending plans have stalled. 

Worse still, roughly half of imports to the United States are used in the production and manufacturing of goods in the country, meaning tariffs hurt U.S.-based manufacturers; they do not help them.

In short, rather than encouraging reshoring, the tariffs’ unpredictability has scared off the investors needed to build factories. As one analysis notes, corporations won’t authorize multi-year plant investments when policy whipsaws threaten their returns.

Protecting National Security

The administration justifies its broad metal and tech tariffs on national security grounds, but experts say the evidence is thin. In many cases, economists and defense analysts warn that the blanket tariffs actually undermine security. For instance, Jonathan Hillman of the Council on Foreign Relations argues that without targeted exemptions, the tariffs “are likely to negatively impact the U.S. defense sector, critical infrastructure, and U.S. allies.” 

In other words, blocking imports of steel, aluminum, or semiconductors can raise costs for military suppliers and domestic manufacturers without strengthening them. Hillman concludes flatly that the regime “can backfire without exemptions, harming rather than helping national security.” Beyond that, even if all imports of steel (for example) were blocked, it would take time for any domestic supply to rise to meet demand. 

Worse, there is no sign of any upside in the semiconductor claim. Trump’s team has invoked chip production as a priority sector, yet analysts point out that global chip supply chains cannot simply be reshored by punitive tariffs. China and allies control much of the semiconductor manufacturing ecosystem, and Washington’s measures have only accelerated China’s self-sufficiency drive. In fact, defense industry observers note that the U.S. depended on friendly suppliers even before the trade war; broadly defined “national security” tariffs will do little to change that. In sum, the tariffs have increased industry costs (raising prices by roughly 7% in one model) but have not demonstrably bolstered any specific U.S. military capacity.

Raising Federal Revenue

The claim that tariffs can generate huge federal revenue has also been overstated. In truth, customs duties make up only a tiny slice of the federal budget. For perspective, the U.S. Treasury collected about $5.1 trillion in tax revenue in fiscal 2024 (mainly from income and payroll taxes). In contrast, even very high tariffs would raise only hundreds of billions per year. One independent analysis finds President Trump’s announced tariffs (10–50% across all imports) would generate approximately $330 billion in government revenue annually, while reducing GDP by about 0.8%. That sum is barely 6% of annual tax revenue.

These numbers are at odds with an idea the Trump administration has floated—replacing the income tax with tariffs.

Figure 1: Income Tax vs. Tariffs

Source: Kailey Leinz and Erik Wasson, “Trump Floats Tariff Hikes to Offset Some Income Tax Cuts,” Bloomberg, 13 June 2024.

As Figure 1 shows, the math doesn’t add up.

The Tax Foundation estimates that a sweeping 15% universal tariff (far larger than any real U.S. tariff schedule—or so we thought) would raise about $2.9 trillion over 10 years, roughly $290 billion per year. 

In short, tariffs cannot meaningfully replace income taxes (not even accounting for payroll or other taxes). Even the administration’s own ambitious scenarios ($6 trillion over a decade) look unrealistic: most models show a multi-trillion-dollar shortfall and serious economic side effects.

Deterring Property Theft and Unfair Subsidies

Finally, there is little evidence that the tariffs have stopped intellectual property (IP) theft or state subsidies. China’s bad actors were the ostensible targets, but Beijing’s behavior has not changed. U.S. officials and analysts note that the World Trade Organization itself has long struggled to discipline China on IP and subsidy issues.

But tariffs were only ever a blunt form of pressure. As one expert puts it, trade negotiators needed a “direct approach” with clear penalties for IP theft, not a scattershot list of tariffs. Unsurprisingly, Chinese firms continue cyber intrusions and patent violations unabated, and Chinese industries still enjoy heavy state support. Instead of doing what the administration wanted, China responded to the Trump tariff onslaught with even higher retaliatory duties (up to 125%) on U.S. exports and promptly signaled it was “done” playing tariff tit-for-tat. 

Meanwhile, its “Made in China 2025” strategy and export controls on rare-earth minerals have only intensified. In practice, the tariff war has left foreign businesses cautious, but China’s tech-transfer policies are largely intact. Indeed, the Office of the United States Trade Representative’s latest reports still list Beijing as a top offender on forced technology transfer and IP theft, underscoring that broad tariffs did not eliminate these issues. 

There is no indication that the new duties have meaningfully deterred Chinese IP piracy or unfair subsidies—they have merely provoked retaliation and further hardened China’s stance.

In the end, the Trump administration’s tariff gambit has proven itself far more reversible than resolute. From abrupt freezes and carve-outs on key industries to retroactive exclusions and industry-specific credits, each promise of “reciprocal” discipline has unraveled under political and economic pressure. That same flexibility, however, leaves the entire edifice of protectionism open to swift repeal—an approach that Congress should consider.

By contrast, decades of free-trade agreements and liberalized markets have delivered enduring benefits: American consumers—particularly middle- and lower-income families—enjoy up to a 29% boost in purchasing power thanks to access to lower-cost imports, while producers and exporters have leveraged global supply chains to expand markets and drive innovation. Moving forward, policymakers would do well to remember that genuine economic security arises not from walls at the port, but from the wealth, resilience, and opportunity that come with free and fair exchange.

The Constitution assigns Congress—rather than the president—the authority to set tariffs and regulate trade, ensuring open debate and accountability. In practice, much of that responsibility has shifted to the executive branch, leading to unpredictable tariff decisions that have unsettled markets and complicated relations with our partners. By restoring its proper role, Congress can repeal the current tariffs and establish clear guidelines for any future measures, bringing greater stability to businesses, confidence to allies, and balance to our system of checks and balances in trade policy.

The post Analyzing the Trump administration’s tariff policies and goals appeared first on Reason Foundation.

Bezos is the founder and executive chairman of Amazon, one of the most active companies in the United States when it comes to seeking economic development subsidies from state and municipal governments. These are the special tax breaks, grants, loans, or other benefits provided by economic development agencies to chosen companies in return for promises of job creation and economic growth.

Bezos knows that the subsidy programs that Amazon participates in are antithetical to his free market principles. He said as much recently on X (formerly Twitter) when he posted:

“We do NOT have free markets today and have not had them for a very long time. In general, corporate subsidies and special interest tax breaks are great examples of where government interferes with free markets,” Bezos wrote on X.

Amazon’s infamous “HQ2” competition to choose a city for its second headquarters was the company’s most high-profile effort to seek out special treatment from governments, but its corporate offices, distribution centers, data centers, film productions, logistics facilities, Whole Foods supermarkets, and other operations in at least 37 states have received some form of government subsidy since 2000, according to data compiled by Good Jobs First.

This is where Jeff Bezos has a decision to make—and an opportunity to make a difference. Amazon is estimated to have received more than $11.6 billion in subsidies from state and local governments since 2000. While that’s a massive amount of money in some respects—it’s enough to fund the entire combined 2024 state budgets of South Dakota and Wyoming, for example, or as much as Americans spent on Halloween last year—it would be a rounding error for Amazon’s $637.95 billion in 2024 revenues.

Less than two percent of one year’s revenue growth spread thinly over two decades is clearly not going to do much to change mission-critical site selection decisions for Amazon, a famously data-driven company.

In fact, during its HQ2 process, Amazon demonstrated just how little subsidies influence its site selection decisions when it passed up billions of dollars more in subsidies from New Jersey and Maryland in favor of sites a few short miles away in New York City and Northern Virginia. Amazon reinforced that lesson when it gave up the New York City subsidies altogether rather than deal with the local and state politics that came along with them. Instead, the company spent more than a billion dollars of its own money to purchase and renovate the former Lord & Taylor flagship store on Manhattan’s Fifth Avenue to house its New York City operations.

Amazon can continue to be one of the most aggressive companies when it comes to the “corporate subsidies and special interest tax breaks” Bezos referenced. This will do little for Amazon’s corporate bottom line while creating political entanglements and giving bureaucrats additional leverage over its operations. Or, it can take the financially insignificant but operationally liberating decision to give up its pursuit of corporate welfare deals across the country, living up to its founder’s principles and setting a standard for others to follow.

Amazon’s renunciation of corporate welfare subsidies would be cheered across the political spectrum by everyone concerned about the toxic combination of big business and big government. It would also be the biggest and most high-profile demonstration of ‘corporate social responsibility’ in modern American history—and would hopefully encourage other companies to follow suit.

Dr. Martin Luther King, Jr. famously observed, “In this country, we all too often have socialism for the rich and rugged free market capitalism for the poor.” One of the world’s richest men has an opportunity to start changing that by living up to his free market principles.

The post Will Amazon choose free markets or corporate welfare? appeared first on Reason Foundation.

Dunn joined the board of trustees of Reason Foundation in 1994 and served as chairman between 2005 and 2013. 

“Bill was a fearless defender of liberty,” said Reason Foundation President David Nott. “He lived by the ‘cowboy ethics’ of courage, integrity, and self-reliance, while tirelessly advancing a vision of a free and just society.”   

Dunn grew up in Kansas, graduating with a Bachelor of Science degree in engineering physics from the University of Kansas in 1960. He earned a Ph.D. in theoretical physics from Northwestern University in 1996 and conducted research and system analysis studies for the Navy, Marine Corps, Coast Guard, and the Department of Defense. He also held research and faculty positions at the University of California and Pomona College in 1965 and 1966. 

In the early 1970s, Dunn saw an opportunity to apply his mathematics skills to the world of finance, developing a sustainable model that examines data to determine and follow major market trends, using sophisticated algorithms that mitigate risk. He founded DUNN Capital Management in 1974, setting industry standards that reflected his deep understanding of market forces, and became a legend among futures traders for his quantitative analysis of market trends. 

In 1994, he established Dunn’s Foundation for the Advancement of Right Thinking to advocate for the classical liberal ideas of individual liberty, free markets, and the rule of law. “The need to limit government growth has never been more urgent,” said Dunn in a 2009 interview. “Until the government abides by the Constitution, our liberty will be at the mercy of politicians and government officials who have proven themselves unable or unwilling to restrain themselves.” The foundation changed its name to The Dunn Foundation in 2016.

Dunn was a supporter of numerous other libertarian organizations, including Cato Institute, Competitive Enterprise Institute, Institute for Humane Studies, Liberty magazine, Institute for Justice, Law Enforcement Against Prohibition, and the Property and Environment Research Center. In 2009, he and his wife, Rebecca, established the Rebecca and William Dunn Chair at Chapman University in honor of the continuing work of Nobel Prize laureate Vernon L. Smith.

Dunn is survived by his wife Rebecca Walter Dunn, who serves as a trustee of Reason Foundation; daughters Liz Dunn, Chris Dunn Valencia, and Virginia Dunn Kerr; and thousands of friends, clients, and admirers who have been inspired by his commitment to libertarian principles and free market policies.

The post In memoriam: Bill Dunn​ appeared first on Reason Foundation.

Plaintiffs – Appellants,

v.

City of New Braunfels, Texas,

Defendant – Appellee.

Introduction and summary of argument

In 2011, the City of New Braunfels passed an ordinance banning short-term rentals (STRs) in large portions of the city. A coalition of STR owners challenged the ban, arguing it violated their property rights under the Fourteenth Amendment and the Texas Constitution.

The city initially moved to dismiss the case without any discovery, claiming STRs were nuisances. The lower court granted the motion, but this Court—after considering party briefing and supporting amicus briefs—reversed, directing the district court to weigh the evidence after discovery.

Discovery revealed the city’s claims were baseless. STRs in New Braunfels are prevalent, and the city has issued no nuisance citations against STR properties. Studies and data contradicted the city’s assertions about property values and neighborhood character. Nevertheless, the district court granted the city’s motion for summary judgment in a cursory opinion that ignored the evidence and this Court’s directive. This appeal thus seeks to restore meaningful judicial scrutiny to property-rights cases.

This controversy highlights two unresolved aspects of the ongoing housing debate—one legal, the other political. First, under the common-law conception of ownership, private proprietors are firmly within their “bundle of rights” to lease realty for as long or as short as they wish. They can only be prohibited from engaging in nuisant or harmful uses. Since at least Cedar Point Nursery v. Hassid (2021), the Supreme Court has clarified that property rights are fundamental and thus subject to at least a heightened degree of judicial scrutiny. 594 U.S. 139, 158 (2021) (“We cannot agree that the right to exclude is an empty formality, subject to modification at the government’s pleasure. On the contrary, it is a ‘fundamental element of the property right’ that cannot be balanced away.”) (cleaned up).

This contrasts with “rational basis review,” which attaches to rules and regulations that do not implicate fundamental rights and are, therefore, permitted for any conceivable police-power purpose. This is certainly the case under Texas law. Zaatari v. City of Austin, 615 S.W.3d 172 (Tex. App.–Austin 2019) (holding city ordinance banning short-term rentals of single-family residences not owner occupied was infringed on fundamental property rights). As amici will discuss, heightened constitutional protection against restrictions, specifically on short-term rentals, is not limited to the property rights of owners but extends to guests’ reciprocal “right to establish a home.” See, e.g., Keen v. City of Manhattan Beach, 292 Cal. Rptr. 3d 366, 370 (Cal. App. 2022) (“It is possible to reside somewhere for a night, a week, or a lifetime”); Wilkinson v. Chiwawa Comms. Ass’n, 327 P.2d 614, 620 (Wash. 2014) (“If a vacation renter uses a home ‘for the purposes of eating, sleeping, and other residential purposes,’ this use is residential, not commercial, no matter how short the rental duration.”).

Second, America’s housing sector has been in turmoil for decades now—at least as early as the mid-2000s. Despite widespread awareness and justified concern for the ever-dwindling supply of available units, innovative solutions—including short-term rentals alongside accessory-dwelling units and rowhouse developments—remain relatively few and far between.

Short-term rentals are acute targets of powerful NIMBY (“not in my backyard”) pushback and the longtime failure of proponents to organize a coherent political and policy response. As one among several correctives, amici strongly believe that caselaw on the topic of increasing access to housing should begin integrating a growing research literature demonstrating the economic, social, and cultural benefits of these alternatives that far outweigh the exaggerated externalities.

Full Brief: ‘Marfil v. City of New Braunfels’

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Texas House Bill 24 would strengthen property rights and improve housing affordability.

Exclusionary zoning partitions land by use to avoid incompatible uses next to each other. Some of that is certainly necessary to prevent all manner of clashes and harmful spillovers between neighboring properties. However, zoning also does far more than that. It often serves as the primary tool of local planners who want to substitute their vision of how land should be used for the vision of the property owners and suborn individual property rights to achieve their own plans. 

This doesn’t just rip away property rights. It worsens housing affordability by restricting supply and hampering workforce mobility, making it harder for people to relocate for better jobs and better housing, which stifles innovation and adaptability. It even affects environmental sustainability by pushing housing further from city centers, leading to more sprawl, car dependence, and pollution. If we want a thriving economy that truly supports people from all walks of life, we need to rethink zoning policies that limit new business growth and affordable housing options and restrict who gets access to opportunity.

A better approach would be to establish clearer property rights and limit the scope of local government intervention in routine housing decisions. HB 24 takes important steps in that direction.

The bill would limit the ability of neighbors and NIMBY (not in my backyard) activist groups to file protests against zoning changes initiated by a property owner or when local governments choose to make zoning rules less restrictive. It would not prevent protests, still allowing them when a proposed change creates major opposition. However, it would prevent small but active groups from stopping changes. This would allow property owners to exercise their property rights without arbitrary protest from a handful of people. It would also do the same for local governments who want to deregulate land use a bit to encourage housing growth and affordability.

The bill would also allow individuals or organizations to take civil action against local governments that do not enact requested less restrictive zoning changes and are not effectively protested. This would avoid the all-too-common “death by inaction” for zoning reforms that strengthen property rights. 

At the same time, HB 24 would not affect deed-restricted or homeowner association restrictions on land use. Those restrictions are agreed upon in the contract when buying properties and are effectively part of the property rights arrangements owners choose to buy. They provide an option for those who want to avoid neighbors changing how they use their property rather than calling for local governments to use zoning to do so. 

HB 24 would improve property rights in Texas and allow for greater housing supply and affordability without taking away any power of local governments to prevent incompatible uses or of homeowners to choose restricted communities if they want those types of restrictions. 

The post Texas House Bill 24 would strengthen property rights, improve housing affordability appeared first on Reason Foundation.

Housing vouchers have long been a crucial support for low-income families, helping to close the gap between rental costs and what families can afford. However, vouchers alone cannot fix the problem if there aren’t enough homes to use them. To tackle the housing crisis, policymakers must address supply shortages and affordability through a dual approach that prioritizes expanding housing supply and improving the effectiveness of vouchers.

The housing affordability crisis has grown more urgent, with rents growing higher and climbing faster than general inflation over the past few years. Homeownership feels increasingly out of reach for millions, as the median price of an existing home was over $400,000 in November 2024, according to the National Association of Realtors.

Meanwhile, renters are bearing the brunt of this housing squeeze, with nearly half spending over 30% of their income on rent and a quarter dedicating over 50%. These rising costs are directly tied to supply shortages, as limited availability drives up rent and sale prices. Addressing this imbalance requires significant investment in housing development, especially in high-demand areas.

But investment alone can only go so far. State and local regulations and policies greatly diminish housing supply. For example, restrictive zoning laws, such as single-family zoning and limits on mixed-use development, prevent the construction of more diverse and affordable housing options. Houston is a great example of how a city can increase housing supply without overcomplicating the process. Unlike cities bogged down by single-use zoning and large lot requirements, Houston has taken a different approach that encourages smaller, higher-density housing. In 1998, the city reduced its minimum lot size from 5,000 square feet to just 1,400 square feet within its I-610 Inner Loop, later expanding this policy citywide. This small but meaningful change has made a big impact.

Between 2005 and 2018, Houston added nearly 75,000 new housing units within the Inner Loop alone. That’s double the number of new units built in San Francisco and Oakland combined during the same period, even though those cities have about the same land area. Houston’s reform allowed developers to replace single-family homes with up to three smaller detached houses or town homes, leading to the construction of 28,000 small-lot infill units—over a third of all new housing in the area.

What’s even more impressive is how these policies have helped keep housing affordable. Despite decades of rapid growth, Houston’s median home price is still below the national median, and rents are about half what they are in Los Angeles. It’s proof that light-touch density reforms can help cities grow while keeping costs down.

But this isn’t about building massive apartment complexes everywhere; it’s about making small, smart changes that add housing where they’re needed most. Historically, cities like New York in the 1920s and post-World War II suburban developments kept housing affordable by building at scale. Back then, permitting processes were simpler, and zoning accommodated growth instead of obstructing it. Today, fear of change and neighborhood resistance have slowed housing production to a crawl, particularly in areas where demand is highest. By 2023, per capita permitting rates were less than half of what they were in 1973, leaving supply woefully short of demand. Light touch reforms to permitting are key to encouraging much-needed housing supply.

Equally important is facilitating voucher use. The effectiveness of vouchers is often undermined by landlord reluctance to participate in the program. Many landlords cite administrative burdens, slow payment processing, and concerns about tenant reliability as reasons for opting out of accepting housing vouchers. This has created significant challenges for families trying to secure housing, especially in areas with tight rental markets or a shortage of moderately priced options. In some instances, landlords only accept vouchers for properties in less desirable locations, which restricts families’ access to safe and high-opportunity neighborhoods.

One solution for policymakers is local protections against voucher discrimination, like those implemented in Newark and Washington, D.C. In Newark, laws focused on source-of-income discrimination have reduced refusal rates to 31%, while in Washington, D.C., similar protections have brought refusal rates down to just 15%. DC has also adopted innovative policies, such as neighborhood-specific payment standards and higher “fair market rents,” which incentivize landlords in high-demand areas to participate in the program. These examples demonstrate how targeted legislation can significantly improve voucher acceptance and expand opportunities for families to live in safer neighborhoods with better resources and opportunities.

Nevertheless, these efforts are ineffective without a broader availability of affordable housing units to meet the demand. The scale of unmet needs is staggering: only one in four eligible households receives rental assistance, leaving millions of families without help. In 2021 alone, over 8.5 million very low-income households paid more than half their income on rent or lived in inadequate housing. These figures highlight that the housing crisis is not just about supply—it’s also deeply tied to affordability. Despite their benefits, vouchers often fall short of meeting rising rents, as adjustments to voucher amounts frequently lag behind housing market increases. In regions without sufficient housing supply, families with vouchers face steep competition for units, further limiting their ability to find stable housing.

Regional disparities compound this mismatch between voucher availability and housing supply. While metropolitan areas like Washington, D.C., and Newark have adopted policies like Small Area Fair Market Rents (SAFMRs) to align voucher values with local markets, many regions lag behind. In these areas, voucher holders typically face limited options, which reinforces existing inequities and restricts access to high-opportunity neighborhoods. To make vouchers more effective, policymakers must take deliberate action.

Rather than expanding subsidies in a system constrained by restrictive housing policies, efforts should focus on addressing the root causes of housing shortages. Expanding vouchers without increasing housing supply risks inflating costs and wasting taxpayer dollars on a system that is already under strain. Policymakers must instead tie efforts to improve vouchers directly to efforts that reduce supply restrictions, working toward a housing system where subsidies are more effective and ultimately less necessary.

Addressing the housing supply shortage is critical. Without enough units, families with vouchers will continue to struggle to find housing, and landlords retain significant power to discriminate. Increasing housing availability would reduce this power, making voucher programs more effective. Policymakers should enhance outreach programs for landlords to minimize administrative burdens and encourage participation, making voucher programs more accessible and appealing to property owners. Additionally, they should adopt measures prohibiting discrimination against voucher holders and invest in supportive services like housing navigation, tenant education, and community-based resources to help families maintain stable housing.

By simultaneously reducing supply restrictions and improving voucher programs, we can make housing subsidies more effective while reducing the overall need for them. A housing market that works for everyone not only lifts low-income families but also strengthens communities, reduces economic inequality, and fosters long-term stability for renters and homeowners alike. Achieving this vision will require bold reforms, significant investment in housing development, and thoughtful integration of subsidies—showing that innovation and compassion can go hand in hand.

The post From shortage to stability: Why vouchers need housing supply to work appeared first on Reason Foundation.

Florida law defines price gouging as an “unconscionable” price hike during a declared state of emergency and for what it deems essential goods, including food, water, gasoline and transportation. 

Florida Attorney General Ashely Moody’s office says it investigates every price gouging claim, most of which come through a dedicated hotline “activated” in the run-up to each storm where consumers provide tips. Businesses can be slapped with a misdemeanor and fines of up to $1,000 per act and $25,000 daily.

The idea of charging high prices to desperate consumers evokes anger in many, but most economists warn against price controls even in the face of potentially large hikes after a disaster. While not unanimous, economists’ prevailing view is that government price controls create new problems while trying to solve what is really no problem at all. Shortages of essential items, such as gasoline, are made worse, not to mention longer, by reducing sellers’ incentives to rush the product to affected areas.

In an October National Public Radio report, NPR chief economics correspondent Scott Horsley noted, “Both Florida and North Carolina have laws on the books that prohibit price gouging during times of emergency. But, you know, it can be tricky to draw the line between illegal price gouging and just the normal forces of supply and demand.” 

Most economists would respond that they are one and the same. The supply and demand curves indelibly associated with economics explain this intuition quite elegantly, making the example of price gouging after a hurricane a mainstay of economics textbooks. Higher prices increase incentives to supply goods and end the shortage faster.

However, economists remain frustrated that their broad agreement often fails to impact politics or popular opinion. Florida and more than 30 other states have laws against price gouging. And, the recent hurricanes made the term a useful attack for any price increases politicians want to position themselves against.

We often spend so much time debating the idea of price gouging that we forget to ask what the fuss is about. States no doubt receive tips revealing some amount of consumer exploitation and other unsavory business practices. Considering how much we hear from politicians and media about the practice during emergencies and their recoveries, we hear little about the hundreds of misdemeanor investigations after storms have passed. The few specifics on consumer complaints we hear don’t look like the textbook case we debate.  

In the wake of Helene, media outlets reviewed limited samples of the complaints from Floridians, most from the areas hardest hit by storm-surge flooding. It turns out most of the gouging complaints related to fuel and occurred before the disaster rather than after. Maybe there were complaints of gas stations selling at high prices, but the state has reported none. Instead, complaints focused on gas stations being out of fuel — up to 75% of gas stations in these areas were sold out of gasoline before Milton hit.

Examples of actual allegations included a seller only leaving his premium pump on before storms and another of a 10-cent price increase. As a whole, consumer complaints appear more the product of chaos, frustration and, most importantly, many gas stations in storm areas being sold out of fuel.

In early October, Florida Attorney General Ashley Moody reported a “rapid response team” investigating 160 consumer complaints. In late October, the office’s website remained emblazoned with a red banner reading, “STATE OF EMERGENCY IN EFFECT. REPORT POSSIBLE PRICE GOUGING.” 

There is no evidence that the resources put into hotlines and investigations during the most serious of emergencies ensnare anything more than angry consumers looking for sellers with any stock. In effect, the current system is taking in mostly reports of too little price gouging, leading to shortages, than too much of it. 

So, while politicians love to talk about price gouging to rile up voters, there is scant evidence of anything like price gouging, even in Florida after severe hurricanes. One of us was here in Sarasota through both Helene and Milton and did not witness any gouging — places that ran out of things charged normal prices once they got resupplied. 

The government waste and media overhype might be cause for amusement were they not occupying significant resources and far more than their share of public attention when everything and everyone is stretched to the limit. One struggles to find benefits from state anti-price gouging laws like Florida’s other than false badges of honor sought by those enforcing the law.

A version of this column first appeared in the Sarasota Observer.

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Although zoning is often framed today as a tool for protecting communities from harmful industrial encroachment, its early origins were rooted more in maintaining social order, property values, and segregation by class and race. Early zoning laws, such as New York City’s 1916 Zoning Resolution, were designed primarily to control building heights and separate commercial activities from residential areas. While zoning laws later began to incorporate health and environmental considerations by separating residential areas from factories, highways, and waste sites, their initial intent was largely focused on economic and social control, with a significant impact on who had access to desirable neighborhoods. However, these regulations have evolved, shaping not only the physical landscape of cities but also reinforcing social and economic divides. Understanding the tradeoffs of modern zoning requires an examination of both its protective benefits and its role in perpetuating inequality and limiting opportunities for many, particularly low-income and marginalized communities.

In the early 20^th century, racial zoning explicitly separated Black and white communities. Even after the Supreme Court ruled in Buchanan v. Warley (1917) that racial zoning was unconstitutional, many municipalities implemented facially neutral laws like single-family zoning that effectively excluded lower-income families from wealthier areas. These laws ensured that certain neighborhoods remained exclusive by setting prohibitive standards for the type and density of housing allowed. As a result, communities that were once segregated by race were now segregated by income, limiting access to better schools, jobs, and public services for lower-income and minority residents.

While the explicit racial component of zoning has faded, its legacy lives on in the way zoning laws still disproportionately impact racial minorities and low-income communities. Exclusionary zoning—especially single-family zoning—restricts the types of homes that can be built, like multi-family housing or affordable apartment complexes, which limits the housing supply and drives up costs. This doesn’t just worsen the housing crisis and keep people from moving into high-opportunity neighborhoods; it also holds back the broader economy. Exclusionary zoning hampers workforce mobility, making it harder for people to relocate for better jobs, which stifles innovation and adaptability. It even affects environmental sustainability by pushing housing further from city centers, leading to more sprawl, car dependence, and pollution. If we want a thriving economy that truly supports people from all walks of life, we need to rethink zoning policies that limit affordable housing options and restrict who gets access to opportunity.

Exclusionary zoning also raises important constitutional concerns. The takings clause of the Fifth Amendment states that when the government takes private property for public use, it must provide just compensation. However, the courts have not generally interpreted it this way. In the 1926 case Village of Euclid v. Ambler Realty Co., the Supreme Court ruled that zoning is a valid use of government power, meaning most zoning laws are not considered a “‘taking‘” under the Fifth Amendment. This decision effectively shielded exclusionary zoning from constitutional challenges related to property rights and compensation. Some legal scholars argue that exclusionary zoning, by severely limiting how property owners can use their land, constitutes a form of regulatory taking. These restrictions not only reduce property values but also infringe on the right to use and enjoy property, a fundamental principle of property law that dates back to the founding of the United States. Property owners are often left without compensation for the reduced value and restricted use of their land due to zoning regulations, raising questions about the constitutionality of such laws.

The Supreme Court’s ruling in Euclid, which upheld zoning as a valid exercise of police power, allowed municipalities to continue using zoning laws to regulate land use. However, the ruling has faced increasing scrutiny for enabling local governments to impose regulations that exclude low-income and minority families from certain neighborhoods. Critics argue that Euclid not only empowered local governments to classify land by its use but also entrenched socioeconomic divides by making housing unaffordable in desirable areas.

The economic implications of exclusionary zoning are vast. Economists Gilles Duranton and Diego Puga found that eliminating zoning restrictions in major urban areas could increase the U.S.’s GDP by nearly 8%, largely by allowing people to move to areas where they would be more productive. Zoning restrictions limit mobility, preventing individuals from accessing better jobs and educational opportunities. Zoning laws that limit the density and type of housing in a given area can also drive up housing prices, effectively pricing out many lower-income families from accessing affordable housing.

Although public meetings play a central role in determining zoning policies and housing development decisions, they aren’t always effective in addressing the broader needs of communities. These meetings often allow outside actors, business stakeholders, and activists with specific agendas to dominate the conversation, excluding the very communities most affected by zoning restrictions. In practice, these meetings are typically attended by well-established homeowners and residents with vested interests in maintaining the status quo, which can exacerbate inequalities, especially among communities of color. For instance, a study in Boston revealed that 95% of participants at public meetings were white, despite the city’s diverse population, and a majority of comments opposed new housing developments—reflecting the interests of those who may wish to keep lower-income and minority families out of their neighborhoods. Opposition often stems from those living near proposed projects, amplifying “Not In My Backyard” sentiments that hinder inclusive development and sometimes delay project approvals even when official recommendations are positive. 

A better approach would be to establish clearer property rights and limit the scope of local government intervention in routine housing decisions. By defining what types of property developments are allowed “by right,” we could reduce the number of minor projects subjected to these meetings, reserving public hearings only for proposals that significantly impact neighboring properties. While public meetings may be intended as a democratic tool, they often disadvantage renters, low-income individuals, and people of color, as they’re held at inconvenient times and lack accommodations for those with transportation or childcare needs. By default, zoning policies become shaped by a narrow subset of the population, perpetuating a cycle where more privileged groups influence decisions that disproportionately harm marginalized communities.

Beyond limiting access to housing, zoning laws have also contributed to environmental injustices. Low-income communities and neighborhoods of color are often targeted as sites for hazardous waste facilities, landfills, and other polluting industries. Zoning laws regulating industrial and residential uses have historically placed these harmful developments in poorer areas, while wealthier communities are largely shielded from these hazards. This has led to higher rates of pollution and health problems in low-income areas, perpetuating environmental racism and contributing to long-term health disparities.

While zoning was originally intended to protect communities from industrial encroachment, its unequal application has created toxic environments in some neighborhoods while safeguarding others. For example, in Cancer Alley, Louisiana, petrochemical plants were established in predominantly Black communities, exploiting these areas due to perceived lower political resistance. Over time, lower property values in such areas have attracted more low-income residents, including other marginalized groups, further embedding these communities within high-risk, polluted environments. The combined impact of living near such facilities, with limited access to healthcare and services, has only deepened the disparities faced by these communities.

The modern complexity of zoning lies in its dual role: on one hand, it protects communities from harmful industrial encroachment, but on the other, it limits access to affordable housing and perpetuates segregation. This creates a challenging dilemma for urban planners and policymakers. How do we balance the need to protect communities while ensuring equitable access to housing and opportunity?

The constitutional implications of exclusionary zoning should not be ignored. By restricting property owners‘’ ability to develop their land and denying affordable housing to those who need it most, zoning laws may infringe upon property rights protected by the Fifth Amendment’s takings clause. At the same time, reforming zoning laws too hastily could leave communities vulnerable to unchecked development and environmental degradation.

The solution lies in reforming zoning laws to strike a balance between protecting communities from harmful developments and ensuring that all residents—regardless of income—have access to affordable housing and opportunity. This might involve loosening zoning restrictions in wealthier areas to allow for more multi-family and affordable housing, ensuring that enough housing is built in desirable areas so that costs stay low, and even making it possible for low-income residents to live farther from industrial zones. Allowing more density in many, though not all, parts of town, including clusters of rental apartments in suburban neighborhoods, could further increase affordable options while still preserving the character of different areas.

The challenge for policymakers and urban planners is finding the right balance: protecting communities’ health and safety while also making space for economic growth and housing opportunities that work for everyone, no matter their income or background. Housing supply must meet demand, and zoning must avoid uses that could disrupt communities. Public meetings are a key part of this, but they need to be structured so that a handful of activists don’t speak louder than the larger community.

This means that planners and local officials have to be mindful of the people who don’t show up to these meetings—often those who are low-income, renters, or people of color, who feel the impact of restrictive zoning the most. We need a clear system of property rights that lays out what can be done “by right” without needing a public meeting, so those meetings can be reserved for projects that really impact the neighborhood.

It’s time for urban planners, policymakers, and community organizations to step up and create a fair and practical zoning system. Instead of sticking with outdated, restrictive policies, we need to make changes that reflect the real needs of all our communities. Only then can we start building neighborhoods where everyone has a fair shot at opportunity and stability and where zoning isn’t a barrier to growth but a tool for a more inclusive future.

The post Dividing Lines: Understanding the tradeoffs in modern zoning and its impact on communities appeared first on Reason Foundation.

While some progress has been made, medium-density housing is still far outpaced by traditional single-family homes. Currently, 75% of residential land in U.S. cities is zoned exclusively for single-family detached homes. Zoning restrictions are a substantial barrier to housing development, both in terms of the quantity and the type of homes that can be built. Relaxing zoning is one way to expand the supply of housing voluntarily and effectively. However, this policy change faces substantial opposition from homeowners. 

Homeowners who oppose density increases in their neighborhoods typically have two concerns: the potential for multi-family development to adversely affect their property values and the potential for it to alter the structural and design character of their neighborhoods. While understandable, both reasons are insufficient to justify the current zoning regime, which restricts property rights and the supply of housing. 

One problem is that those who use local government to restrict dense development in their neighborhoods on the grounds of a potential decline in the market value of their home are conflating their property rights with entitlement to value. Property rights do not and cannot extend to maintaining a specific price of a home. Markets and all the actors that participate in them determine home prices. Under the most common understanding of property rights, neighbors should not be able to dictate what an owner does with their property unless it poses a tangible and demonstrable invasion of their parcel. The use of local zoning restrictions to enforce a certain value is a misuse of government power. Organized homeowners who treat homes as investments rather than depreciable consumption goods vote in favor of policies that maintain the value of their investment under the assumption that multifamily development entering their community will diminish it. This pattern is outlined in “The Homevoter Hypothesis” by William A Fischel and empirically backed up in the following research. 

The motivations of homeowners are clear and rational. However, they do not justify exclusionary zoning over most of the country’s residential land. One alternative to lobbying local government could be the use of deeds and private covenants, as is commonly done in Houston, Texas. These legal tools are a much more voluntary and individualized approach to residential land use regulation. Without these, many current exclusionary zoning laws are based on a faulty understanding of property rights. They are further based on the unsupported fear that the addition of multifamily housing automatically decreases their property values. 

Despite common perceptions, research has consistently shown that multifamily developments do not necessarily decrease property values and can even increase them. The Joint Center for Housing Studies compiled a review of the existing literature in 2007. It concluded that while there are anecdotal cases where property values have declined upon entry of a multifamily residence, “in general, neither multifamily rental housing, nor low-income housing, causes neighboring property values to decline.” More recent research from 2020 has arrived at the same conclusion.

In a case study observing Little Rock, Arkansas, and employing a difference-in-difference analysis, researchers found that “most forms of multifamily housing have either no effect or a positive effect on sales prices for single-family homes within 2,000 feet of a new multifamily housing development.” Of course, with large additions to supply nationally, home values should be expected to decline–alleviation of the housing affordability crisis is the goal of expanding supply. However, research has repeatedly suggested that the presence of multifamily development does not in itself decimate property values on the neighborhood level.

This basis for rejecting denser development based on a fear of declining property values is not only dubious in principle but also unsupported by existing literature. Property values, however, are only part of the concern of homeowners; community character is another. Homeowners buy into neighborhoods with the expectation of a specific lifestyle and an architecturally consistent design. Missing middle policies balance the desire to maintain the suburban character of neighborhoods by increasing density marginally. This usually means allowing duplexes, triplexes, and fourplexes in places where only single-family detached homes were allowed before (though specifics vary by state and locality). Numerous other less common developments are also covered by the umbrella of missing middle housing.

Recently, medium-density development, defined here as developments with between two and four units, has been modestly climbing, likely due in part to the enactment of zoning reforms (see Figure 1). A comparison of recent missing middle policies in California, Oregon, and Florida highlights successes and remaining challenges in passing missing middle policies to remedy the existing housing shortage.  

California Senate Bill 9

On September 16, 2021, Governor Gavin Newsom signed Senate Bill 9 into law, effectively ending exclusive single-family zoning in California. This law, also known as the Housing Opportunity and More Efficiency (HOME) Act, preempts local governments and automatically grants homeowners and developers the right to either split their lot into between two and four separate lots or develop additional structures with a minimum of 800 feet in floor area on one lot (which can be either attached or detached). Note that this does not require developers to build more units on each lot; single-family home construction is still allowed, and many buyers prefer it. But now, state law does not allow local governments to ban developers from putting more units on a lot if they desire. The HOME Act is a missing middle housing policy in the pure sense—modest density increases that allow for middle-income housing.

Existing property owners are also now allowed to add units to their property, adding a second unit or rebuilding as a duplex, for example. These additional structures still must comply with all other regulations and impact fees and maintain “neighborhood scale” (floor-to-area ratio (FAR), height restrictions, aesthetic considerations, etc.) Instead of requiring an application for special permission, owners may now expressly split their lot, transform their home into a duplex, or add an accessory dwelling unit (ADU) onto their property. California was already passing a string of ADU-friendly legislation, and S.B. 9 only furthered the commitment to supporting ADU policy. These additional units can provide valuable streams of income to homeowners or provide the opportunity for family members to live near them. The HOME Act removes a roadblock to a practical way to add housing supply through the voluntary projects of homeowners. 

The most vocal opposition to S.B. 9 has come from city governments over the preemption of their zoning authority. First, cities were concerned that just allowing the option found in S.B. 9 did not guarantee additional housing. The California League of Cities executive director and CEO, Carolyn Coleman, said the following when urging Governor Newsom to veto the bill: 

We’re disappointed that the Legislature passed Senate Bill 9 and urge Governor Newsom to veto this flawed legislation. SB 9 would undermine the ability of local governments to responsibly plan for the type of housing that communities need, while usurping local democracy and the input of local residents. 

These complaints beg two questions. The first is how much democracy and majority rule are desirable when making decisions about property rights. Democratic decision-making is useful for certain policies, but its place in determining whether or not an individual can build a duplex on their own land (if they are not creating a tangible invasion onto the property of another) is much more dubious. The HOME Act would be a reinstatement of property rights that should have been respected all along. 

The second is whether localities are inherently more capable of planning what kind of housing is necessary for communities than the homeowners and developers who directly bear the cost of additions. Both existing community members and developers are free to build middle-density development under this law. Presumably, they would not invest in unprofitable projects that would not benefit consumers because of the loss of their investment. Individuals, whether homeowners or developers, who take on projects have every reason to perform the necessary market research and, with housing prices consistently high, have an incentive to develop additional housing units. With the ongoing housing shortage and consequent affordability crisis, communities need more housing, and the market is signaling to developers that they would benefit from providing it. 

While understandably disgruntled with the overriding of their authority and planning considerations, cities should not overlook the ability of homeowners and developers to make wise decisions about the housing additions their communities would benefit from, especially because of the stakes they hold in their decisions. 

The League of Cities is correct: Senate Bill 9 does not guarantee additions to the housing supply. It does not require any duplexes or ADUs to be constructed; it only gives developers and homeowners the option to choose. However, considering the severity of the housing crisis and consequent profit incentives for homeowners, it is reasonable to expect they will respond accordingly, and they have (see Figure 2). 

Data on ADU permitting from the California Department of Housing and Community Development suggest homeowners immediately exercised their right to modify their property. After the passing of this legislation, California experienced the largest single-year increase in ADU construction in its history, with 4,827 more permits issued in 2021 than in 2020, and the trend has continued—though not at such a staggering pace. While data on single-unit to duplex expansion are not available, evidence from ADUs alone suggests homeowners are not only willing but do, in fact, add to the supply of housing when given the opportunity. 

California’s S.B. 9 is an example of a modest and incremental housing policy that has helped add to the supply of housing. Though not without opposition, its focus on homeowner choice, option expansion, and extreme cost-effectiveness makes it an important policy for other states to consider emulating. 

Oregon House Bill 2001

Oregon’s 2019 missing middle housing policy, House Bill 2001, is very similar to California’s Senate Bill 9 in the way it approaches density increases incrementally. Oregon’s state government created a tiered system that allows developers and homeowners even more choices, depending on local populations. 

By mid-2021, this law required that duplexes be automatically permitted in areas zoned for detached single-family homes in cities with between 1,000 and 25,000 residents. By mid-2022, cities with populations above 25,000 were required to allow not only duplexes but triplexes, fourplexes, cottage clusters, and townhomes as well. Towns with under 1,000 residents are exempt from any zoning alteration requirement. 

Despite the seemingly modest proposals of his bill, it had opponents from multiple angles. Some opponents say that developers will take advantage of this loosening of zoning not to build affordable housing but to build more expensive duplexes. Whether this is the case is yet to be clear, but even expanding the supply of high-end development increases housing supply and overall affordability. Further, multiple affordable housing coalitions supported the bill. Before this legislation, developers could not build anything but single-family homes on these plots—whether affordable or otherwise. H.B. 2001 gives more options for developers to fill a missing space in the housing market with medium-density housing. 

Further, members of local government councils are concerned about the trampling of their authority to determine the best housing measures for their communities. Local government officials say they would prefer to be funded for planning projects rather than have their zoning authority undermined. However, these are the same localities that put the original barriers to denser housing in place. H.B. 2001 allows for private market solutions to the housing shortage, focused on voluntary additions made by developers and homeowners alike. 

Medium-density housing has been on the rise in Oregon since the early 2010s (see Figure 3). The passing of H.B. 2001 has made it easier for individuals to construct these types of housing. Further, it considers the varying needs of cities of different sizes by creating a ladder of density increases. When passing state-wide legislation, policymakers may benefit from considering a tiered system to increase political feasibility while enforcing the property rights of developers and homeowners. 

Florida Senate Bill 102

Florida Senate Bill 328, otherwise known as the Live Local Act 2023 (LLA), takes a radically different approach to missing middle housing than the two previous two laws discussed. This law is the revised and updated version of Senate Bill 102 (the original “Live Local Act”), which passed in 2023. In both versions, this law is much less incremental than both Senate Bill 9 in California and House Bill 2001 in Oregon. Due to Florida’s substantial housing shortage across the low-middle range of the income spectrum, this law aggressively incentivizes additions to supply via additions to “workforce housing.” 

LLA allows developers to override local use restrictions if they are building affordable housing. Specifically, it allows for residential development on plots zoned for commercial, mixed-use, or industrial use as long as 40% of units are rental units that will be affordable for 30 years. One of the primary intentions of this bill is to allow working individuals to live closer to their place of employment – something that many current zoning laws make very difficult.

Affordable in the context of the bill is defined as not charging individuals who make up to 120% of area median income (AMI) more than 30% of their monthly income for rent. This AMI threshold is a key indicator of alliance with missing middle principles, requiring that additional housing is designed for middle-income earners. Unlike California’s HOME Act and Oregon’s H.B. 2001, which both only hint at the type of development they incentivize by universally allowing plexes and ADUs, LLA enforces a strict affordability threshold, without which developers will not gain a zoning bypass. 

While originally allowing substantial bypassing of local height restrictions, the amended version of LLA allows localities more say in height restriction if the proposed developments are near single-family home neighborhoods. 

Further, LLA offers property tax exemptions to developers willing to substantially add to the supply of affordable housing. Instead of targeting modest density increases, this exemption applies to massive multifamily developments. It is sometimes referred to as the Multifamily Middle Market Property Tax Exemption. If more than 70 units in a development are designated as affordable, there are two categories of tax exemption that developers can qualify for. To developments with units affordable to those making between 80% and 120% AMI, a 75% exemption is granted. If they are all affordable to those making less than 80% AMI, a full exemption is granted. 

These are not the only provisions included in LLA, though they are most pertinent to the discussion of missing middle housing policy. 

Officials in localities have, predictably, protested this bill. In addition to contesting the override of their authority, some have argued that this bill adds the wrong kind of development. By not only allowing but incentivizing affordable housing, they worry that the LLA will encourage residential development instead of the industrial and commercial development their specific area needs. As discussed in California’s case, it is not always immediately obvious that developers will engage in unnecessary projects, considering their need to make a return on their venture.

However, LLA’s substantial tax exemptions make incentive distortion a more realistic possibility. Officials of some smaller cities were further worried about detractions from their tax base brought up by the large tax exemptions awarded to large developments. These are reasonable concerns. The LLA strays from the missing middle playbook by going beyond simply allowing voluntary additions and explicitly incentivizing large projects inconsistent with the character of many residential neighborhoods. This deviation has made it a target of substantial protest. 

While LLA directly addresses affordable housing, it lacks many of the typical characteristics of a missing middle policy. The income threshold prioritizes middle-to-low-income earners, but LLA lacks the homeownership element and the marginal nature of the density increases. Because the bill is so new, whether it will be successful in substantially adding to the supply of affordable housing is yet to be seen. However, it offers an alternative perspective and approach to missing middle housing. 

S.B. 9 in California, H.B. 2001 in Oregon, and S.B. 328 in Florida are a few examples of recent and successful state-wide missing middle housing policies. They are far from the only ones. Experience in a number of communities shows that simply allowing duplexes can have large impacts on housing supply and affordability. The marginal density increases offered by typical missing middle policy simultaneously refocus property rights, maintain the general character of neighborhoods, and add to the supply of housing voluntarily. While not perfect in every case, missing middle policy broadly is a promising step toward expanding the housing supply.  

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Rent control, including variations such as rent stabilization, is a government-imposed price control (usually a limit) on what private properties may charge for rent. Seven states currently have rent control laws, and 20 states introduced bills related to rent control in 2024.

How rent control harms housing

• Reduced housing supply and upkeep: In San Francisco, rent control led to a 15% reduction in the number of available rental units between 1979 and 1994 as landlords converted properties to condos or sold them​. Nationwide, 61% of housing providers have deferred or expect to defer maintenance and improvements due to rent control limiting revenue to cover rising repair and upkeep costs.
• Suppressed property value and investment: In Cambridge, Massachusetts, deregulated property values increased by 45% after rent control was lifted. After deregulation, properties in Cambridge that neighbored rent-controlled homes saw a 25% rise in value. In New York City, rent-controlled buildings dropped in value by 34% between 2019 and 2023, while non-controlled units increased in value by 23% during the same period.
• Reduced mobility and diversity: In San Francisco, tenant mobility fell by 19%, with empty-nesters staying in larger units, pushing young families out of the city. In New York City, long-term tenants benefit from low rents, but newcomers face skyrocketing prices in uncontrolled units.

Policy alternatives

• Housing vouchers: Housing vouchers could provide rent subsidies for low-income individuals in the private market. Removing price limits and simplifying the inspection and eviction processes would enhance accessibility, enabling tenants to secure stable housing while allowing landlords flexibility.
• Less restrictive zoning and building regulations: Zoning and building regulations raise development costs, limiting the construction of affordable rental units. Reducing these regulatory barriers and simplifying approval processes will encourage new construction and increase housing supply.

Full backgrounder: Rent control implications and policy alternatives

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Daron Acemoglu, Simon Johnson, and James A. Robinson received the 2024 Nobel Memorial Prize in Economic Sciences for finding ways to bridge this gap. In making the award on Monday, October 14, 2024, the Royal Swedish Academy of Sciences explained that “Societies with a poor rule of law and institutions that exploit the population do not generate growth or change for the better. The laureates’ research helps us understand why.”

The three frequent coauthors provided empirical results demonstrating the crucial roles of institutions, such as protecting property rights and equality under the law, in underpinning a prosperous economy. In one prominent paper, “The Colonial Origins of Comparative Development: An Empirical Investigation,” they observed that some nations had different colonization practices than others. Former colonies that once faced “extractive” practices, those that only sought to extract resources for the benefit of the colonizer, often failed to develop the institutions necessary to produce a pro-growth environment. 

In a subsequent paper, the three authors found more evidence of the link between development and colonial legacy in what first may seem like a puzzle. All else being equal, European nations that were more prosperous in 1500 were less likely to be prosperous in 1900. The authors argue that colonizing countries with more prosperous economies in 1500 continued subjecting their colonies to extractive institutions, while laggards in 1500, like England, had more incentive to change and adopted a more liberal set of institutions.

These results provide evidence that institutions like the rule of law, property rights, and limited government are the best ways to improve the lives of ordinary people. Extractive regimes exist for the benefit of the elite, who already have an entrenched position in the economy. More liberal regimes, with strong rule of law and property rights, give ordinary people the incentive to innovate and produce goods and services that create wealth, not merely transfer wealth from elite to elite.

Predictions, debates, and post-prize reactions have become a beloved Nobel-season ritual for economists. Acemoglu, Johnson, and Robinson are well-known in the world of economics and often beyond. Many considered their winning the prize only a matter of time.

Free market-oriented economists’ reactions to recent winners have varied. Many who are critical of the Federal Reserve and mainstream policy toward money and banking emphasized their differences with the 2022 winners, Ben Bernanke, Douglas Diamond, and Philip Dybvig. Claudia Goldin, the 2023 winner who has spent a career analyzing women’s role in the workforce, was met with wide celebration and acclaim.

Reactions from free-market economists to this year’s prize have been more mixed. In The Wall Street Journal, David R. Henderson of the Hoover Institution writes, “It’s good to see a Nobel Prize awarded to economists who understand the importance of private property and the rule of law.”

Brian Albrecht, chief economist at the free market International Center for Law and Economics, emphasized the 2024 Nobelists’ importance in modern institutional research, writing:

“Despite the debates and critiques surrounding AJR’s work, their contributions to the field of economics are undeniably significant. They pioneered new approaches to studying the long-term impacts of institutions on economic development, bringing sophisticated empirical methods and game theoretic models to bear on fundamental questions of political economy.”

However, while Acemoglu, Johnson, and Robinson have emphasized free-market principles, they often align more with a technocratic progressive approach. They are equally, if not more, concerned with active state intervention. Most recently, Acemoglu and Johnson’s 2023 book on artificial intelligence, “Power and Progress,” gave many market-oriented economists considerable pause.

Acemoglu, Johnson, and Robinson, more than anyone else, have brought the modern economist’s toolkit to bear on the long tradition of political economy. While many disagree with some of their results and conclusions, their professional success, capped with the Nobel prize, has done much to fuel the debate over institutions and economic prosperity in recent decades.

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California Proposition 32 would amend the state’s existing minimum wage statute by increasing the minimum hourly compensation that an employer can legally pay to an employee. In 2016, California lawmakers passed Senate Bill 3, which increased the minimum wage statewide on an incremental annual basis from $10.50 per hour until it reached $15. These incremental increases were accelerated for businesses that had more than 25 employees so that these businesses would face a minimum wage of $15 an hour by January 2022, while those with fewer employees would not face a $15 minimum wage until January 2023. Thereafter, the existing minimum wage for all businesses would increase annually at the rate of inflation. As a result, California’s minimum wage for 2024 is $16 an hour. 

Prop. 32 would effectively continue the annual increases that resulted from Senate Bill 3 through 2026. Businesses with more than 25 employees would face an $18 minimum wage by January 2025 and smaller businesses would do so by January 2026. Thereafter, the minimum wage would continue to be adjusted upward each year at the rate of inflation. 

Fiscal Impact 

Legislative analysts attempted to assess the prospective fiscal impact on state and local governments of Prop. 32 and concluded it would result in an “unclear change in annual state and local tax revenues, likely between a loss of a couple billion dollars and a gain of a few hundred million dollars.” It would also result in an “increase in annual state and local government costs likely between half a billion dollars and a few billion dollars.” 

Proponents’ Arguments 

Joe Sanberg, an anti-poverty activist and entrepreneur from Los Angeles, filed the initiative and has bankrolled Working Hero Action for the Living Wage Act, a political action committee campaigning to advance Prop. 32. He told the Sacramento Bee:

The time is now [to raise the minimum wage], because the pandemic has heightened the people’s understanding of the realities so many Californians face. Cost of living is rising faster and faster…but wages haven’t increased commensurately.

Sandberg also indicated he believes the minimum should be closer to $24 per hour, but that he doesn’t believe voters would support such an aggressive hike. “This is an issue that speaks to people’s every day lives,” he said, “It’s easy to explain and easy to understand and I expect we’re going to win.” 

Opponents’ Arguments 

Jot Condie, president of the California Restaurant Association, and Jennifer Barrera, president of the California Chamber of Commerce, wrote the official arguments against Prop. 32 in the California ballot guide. They argue that Prop. 32 would worsen the state budget deficit as depressed corporate earnings negatively affect income tax revenues, would increase prices for consumers as higher labor costs are built into the price of goods, would hurt small businesses with lower margins or geographical diversity, and would result in fewer available jobs. 

Discussion 

Standard economic theory indicates that as the price of anything increases, the quantity demanded will decrease. In terms of labor, this means that prospective employers will seek to employ fewer workers as the price they must pay for those workers rises.  

In theory, wages are primarily a function of productivity and so minimum wage laws tend to most strongly affect the labor market for workers with limited skills or experience, such as those seeking entry-level jobs. Empirical evidence confirms this is true. The Federal Bureau of Labor Statistics publishes data about the characteristics of minimum wage workers every year. Its latest release, summarizing data from 2023, shows that 3% of employed teenagers are minimum-wage earners while only 1% of workers over the age of 25 are minimum-wage earners. Workers without a high school diploma are also twice as likely to be minimum-wage earners. Similarly, part-time workers are twice as likely as full-time workers to be minimum-wage earners. Although these federal data assess the characteristics of workers earning the federal minimum wage, which is lower than many states require, it demonstrates that the effect of minimum wage laws is concentrated at the entry-level. To the extent minimum wage laws reduce employer demand for labor, relatively unskilled or inexperienced workers are more likely than skilled and experienced workers to experience unemployment. 

There are two main caveats to this reasoning. First, if almost all entry-level workers are being paid more than the minimum wage, then a minimum wage law will not affect employment levels. For instance, in 2016 when California’s minimum wage was still $10.50 per hour the average California worker in a food preparation or serving-related position earned $13.59 per hour and the average sales clerk made $20.91 per hour, according to federal data. Although these occupations are commonly entry-level and associated with minimum wage laws, the proposed minimum wage in Measure 1 is unlikely to strongly affect market outcomes. 

Second, the relationship between the minimum wage and employment offerings may be affected by the cost or availability of different production techniques. For example, if machinery like a computerized sales kiosk is available at a lower cost than a minimum wage worker, businesses are more likely to substitute machinery for human workers, which would result in fewer job offerings. By contrast, if labor cannot be easily substituted for machinery, then employers may be compelled to retain human workers and offset the additional wage cost through some combination of higher prices charged to consumers or reduced corporate earnings. As economists at the Federal Reserve Bank of St. Louis concluded in 2021: “A higher minimum wage can also result in employers using automation to replace more expensive human labor.” 

The evidence on how minimum wages affect workers is clear: 

• Some workers get a pay increase.  

• Many teenage and young adult workers see their jobs cut. Despite the individual studies supporters will point to showing no job cuts, there are vastly more studies that find job reductions from minimum wage hikes. 

• Many more workers see their hours cut.  

• Other workers have benefits cut, especially healthcare. 

For certain industries, California already enforces a higher minimum wage than what is proposed in Prop. 32. In late 2023, California lawmakers approved Assembly Bill 1228, which increases the minimum wage for fast food workers to $20 per hour. Around the same time, lawmakers also approved Senate Bills 159 and 525, which together increased the minimum wage for health care workers to between $18 and $23 per hour depending on what type of facility they work in. Prop. 32 would therefore not affect employees in these industries. However, early anecdotal evidence reveals that fast food prices have increased and job openings have decreased in response to the minimum wage hike. Federal data show that average hourly earnings for California fast food workers were $16.91 before the hike, which means the new wage floor is about 18% higher than the market-clearing rate. 

Despite evidence showing that minimum wage laws tend to reduce employment opportunities for entry-level workers or result in higher consumer prices that negate the purchasing power of nominally higher wages, minimum wage laws have been popular at the ballot box. Between 1996 and 2022, 28 ballot initiatives appeared across the country proposing higher minimum wages, and 26 of those were approved by voters. Nevada and Nebraska were the most recent states to raise minimum wages through ballot initiatives in 2022. As of 2024, Washington State has the highest minimum wage at $16.28 per hour while California comes in second at $16.00 per hour. 

The post California Proposition 32 would increase the minimum wage appeared first on Reason Foundation.

Alaska Ballot Measure 1 addresses three issues simultaneously. First, it would raise Alaska’s minimum wage from $11.73 to $13 per hour beginning July 2025, $14 per hour beginning July 2026, and $15 per hour beginning July 2027. Thereafter, Alaska’s minimum wage would continue to be adjusted upward in accordance with the rate of inflation, as it is under existing law. Second, the initiative requires any Alaska employer with fewer than 15 employees to award 40 hours of paid sick leave to each employee on an annualized basis. Employers with 15 or more employees would be required to award all employees 56 hours of paid sick leave on an annualized basis. Third, the initiative would forbid any employer from taking adverse action against an employee who refuses to listen to the employer’s opinion on religious or political matters as part of a meeting or other forms of communication. 

Fiscal Impact 

Legislative staff has not provided a fiscal analysis for Measure 1. However, minimum wage increases and the mandatory awarding of paid leave time can affect state and local governments in a few ways. First, corporate income tax revenues may decline in proportion to reduced corporate earnings associated with higher labor costs. Second, state and local governments may bear additional direct compensation expenses for their own hourly or part-time staff. Third, state and local governments may experience some relief in public assistance expenditure to the extent that higher wages cause individuals to no longer qualify for assistance programs. 

Proponents’ Arguments 

Measure 1 is supported by a political action committee called Better Jobs for Alaska. On its website, Better Jobs For Alaska argues that wages have not kept up with the cost of living and that working parents who don’t get sick days must choose between sending a sick child to school or missing a day’s pay. The organization also claims “[c]orporations can force workers to attend closed-door meetings about the bosses’ beliefs about religion, politics, or the economy, and they can fire workers who disagree. The Economic Policy Institute also argues in favor of the initiative:

Increasing Alaska’s minimum wage would strengthen the economic security of working people in the state. The wage benefits that the increase will bring are much needed for low-wage working people who face living expenses far in excess of the current minimum wage.

Alaska AFL-CIO President Joelle Hall told the Alaska Beacon that a higher minimum wage has positive ramifications for non-minimum-wage earners. She pointed out that collective bargaining agreements sometimes reference the state’s minimum wage. For instance, unionized school bus drivers are entitled, through their collective bargaining agreement, to a starting wage that is twice the rate of the minimum wage. So, employees with these contractual provisions will automatically receive higher wages if the minimum wage is increased. 

Opponents’ Arguments 

Greg Sarber, a board member of Alaska Gold Communications, authored a commentary in opposition to Measure 1. He argues that when California increased the minimum wage for fast food workers to $20 hourly in April 2024, more than 10,000 low-wage workers lost their jobs as their employers pivoted toward less costly alternatives like computerized sales kiosks. He also argues that many entry-level jobs in Alaska already pay more than $15 per hour. Meanwhile, businesses that pay less than this amount often do so because they face limited demand for their products. So, they may be unable to recoup higher labor costs by raising prices and may just close their doors instead.  

Discussion 

Standard economic theory indicates that as the price of anything increases, the quantity demanded will decrease. In terms of labor, this means that prospective employers will seek to employ fewer workers as the price they must pay for those workers rises.  

In theory, wages are primarily a function of productivity, and minimum wage laws tend to most strongly affect the labor market for workers with limited skills or experience, such as those seeking entry-level jobs. Empirical evidence confirms this is true. The Federal Bureau of Labor Statistics publishes data about the characteristics of minimum wage workers every year. Its latest release, summarizing data from 2023, shows that 3% of employed teenagers are minimum-wage earners while only 1% of workers over the age of 25 are minimum-wage earners. Workers without a high school diploma are also twice as likely to be minimum-wage earners. Similarly, part-time workers are twice as likely as full-time workers to be minimum-wage earners. Although this federal data assesses the characteristics of workers earning the federal minimum wage, which is lower than many states require, it demonstrates that the effect of minimum wage laws is concentrated at the entry-level. To the extent minimum wage laws reduce employer demand for labor, relatively unskilled or inexperienced workers are more likely than skilled and experienced workers to experience unemployment. 

There are two main caveats to this reasoning. First, if almost all entry-level workers are being paid more than the minimum wage, then a minimum wage law will not affect employment levels. For instance, the average hourly wage for a worker in food preparation workers was $17.48 per hour in 2023 while for retail salespersons it was $17.47, according to federal data. Although these occupations are commonly entry-level and associated with minimum wage laws, the proposed minimum wage that would be implemented with the passage of Measure 1 is unlikely to strongly affect market outcomes. 

Second, the relationship between the minimum wage and employment offerings may be affected by the cost or availability of different production techniques. For example, if machinery like a computerized sales kiosk is available at a lower cost than a minimum wage worker, businesses are more likely to substitute machinery for human workers, which would result in fewer job offerings. By contrast, if labor cannot be easily substituted for machinery, then employers may be compelled to retain human workers and offset the additional wage cost through some combination of higher prices charged to consumers or reduced corporate earnings. As economists at the Federal Reserve Bank of St. Louis concluded in 2021: “A higher minimum wage can also result in employers using automation to replace more expensive human labor.” 

The evidence on how minimum wages affect workers is clear: 

• Some workers get a pay increase.  

• Many teenage and young adult workers see their jobs cut. Despite the individual studies supporters will point to showing no job cuts, there are vastly more studies that find job reductions from minimum wage hikes. 

• Many more workers see their hours cut.  

• Other workers have benefits cut, especially healthcare. 

Despite evidence showing that minimum wage laws tend to reduce employment opportunities for entry-level workers or result in higher consumer prices that negate the purchasing power of nominally higher wages, minimum wage laws have been popular at the ballot box. Between 1996 and 2022, 28 ballot initiatives appeared across the country proposing higher minimum wages, and 26 of those were approved by voters. Nevada and Nebraska were the most recent states to raise minimum wages through ballot iniatives in 2022. As of 2024, Washington State has the highest minimum wage at $16.28 per hour while Alaska, at $11.73 per hour, is near the national median, ranking 24^th among the states. 

Although organizers claim that wages have not kept up the with cost of living, the existing minimum wage is indexed to inflation so that it grows each year in proportion to living expenses. 

The language in Measure 1 includes a requirement to award sick leave to all employees. This fringe benefit is an additional form of employee compensation and carries a financial cost that would push the implied minimum wage higher than what is stated. Employees would be awarded one hour of paid sick leave for each 30 hours worked, which implies an additional compensation value of $0.50 on an hourly basis. Employees in large firms would be permitted to use up to 56 hours of sick leave per year while employees in small firms could use only 40. While this caveat may be intended to shield small businesses from some of the measure’s economic impacts, it’s not clear why a worker would need more sick time simply because they work in a business with 15 or more employees. 

Finally, Measure 1 forbids employers from penalizing any employee who refuses to listen to the employer’s views on religion or politics. However, Title VII of the federal Civil Rights Act already protects employees from religious discrimination and the federal Equal Employment Opportunity Commission plainly states on its website, “An employee cannot be forced to participate (or not participate) in a religious activity as a condition of employment.” So, at least part of this provision is already covered by federal law. 

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California, Florida, and Georgia voters will decide on housing ballot issues ranging from homestead tax exemptions to rent control. 

California Proposition 33: Prohibit State Limitations on Local Rent Control Initiative

Florida Amendment 5: Annual Inflation Adjustment for Homestead Property Tax Exemption Value Amendment

Georgia Amendment 1: Local Option Homestead Property Tax Exemption Amendment

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Construction built through 3D printing uses a printer to stack thin layers of concrete, creating the skeleton of a home. This technology is derived from a process known as “contour crafting.” This process makes building intricate and curved shapes easier than traditional construction due to the maneuverability of the robotic arm which lays the concrete and the ability to give precise instructions. In addition to complex form construction, 3DCP has noticeable cost and time-saving benefits. One advantage is the reduction in labor. 

Aside from the people needed to program the printer and to install finishes like plumbing and wiring, the printer does the bulk of the homebuilding. The resulting reduction in labor costs alone makes 3D printing an attractive option for developers.

A 2018 study by British and Malaysian engineers compared the cost of building a traditional home in the United Kingdom to that of a comparable 3D-printed home. Not accounting for the initial investment in a printer, these researchers estimated a 30% reduction in building costs per home.

Further, 3D printing as a construction method has substantial time-saving benefits. COBOD International is a company specializing in the use of 3D printing technology in construction. Evidence from COBOD suggests that 3D-printed homes can be built up to 20 times faster than traditional homes —critical at a time when a nationwide housing shortage has kept prices high. 

While the cost- and time-reducing capabilities of 3D-printed construction are clear, there are questions about incorporating the technology into residential construction broadly. A 2018 study from California Polytechnic State University suggests that the size limitations of 3D construction and lack of aesthetic appeal will prove primary barriers to the broad acceptance of this new technology. Substantial progress has already been made on both fronts. 

At the time of the study, most 3D-printed homes ranged between 600 and 900 square feet. The study attributes this size limitation to the cost of a printer large enough to construct more sizable structures and the consequent unaffordability of the homes produced. Understandably, the size constraint at the time of the study did not align with the needs of would-be homeowners in the United States, making 3D printing an undesirable construction tool for housing development.

Further, this study cites the exclusively concrete design and lack of customization options as potentially aesthetically off-putting to homebuyers. Innovative startups working on 3D construction have already put their efforts towards the development of better-looking and larger homes.

ICON, a 3D construction firm, in partnership with Lennar, is currently in the process of building a community, Wolf Ranch, of 100 3D-printed homes in Georgetown, Texas. As of July, 95 out of the 100 planned homes have been finished, and many have been sold and occupied. Once completed, this will be the largest community of 3D-printed houses in the world. 

Counter to preliminary size concerns, these homes range between 1,850 and 3,000 square feet and have between three and four bedrooms–in line with the average size of an American home. ICON built Wolf Ranch using their original 3D printer, but they have since unveiled a new 3D printer that can construct two-story buildings up to 27 feet tall. Rapid advancements in printing capabilities have dispelled concerns about the size of homes. 

The promise of affordability, however, has yet to fully manifest. Wolf Ranch homes have been sold for between $475,000 and $599,000. These prices are near the median home price in the Austin area. While not necessarily an overnight solution to bringing down housing prices, 3D-printed home construction is nevertheless a useful tool to bring timely and cost-effective additions to the supply of housing. Given that the housing affordability crisis is largely shortage-driven, further use of 3DCP will be necessary to fully realize its cost-saving potential–especially if traditional home dimensions and aesthetics are to be maintained. 

Other developers have adopted 3D printing on a smaller scale–both in terms of quantity and the size of the houses themselves. Mighty Buildings in California, for example, has specialized in smaller homes that include accessory dwelling units (ADUs) and are nearly carbon-neutral. Currently, only 8% of 3D-printed homes in the United States are designed as ADUs, though the growing acceptance of ADUs in local zoning is likely to expand this use. 

While acknowledging the lucrative nature of 3D-printed construction, the National Association of Homebuilders (NAHB) warns that there may be legal barriers to implementing this new technology: 

 “… [A]nyone interested in residential 3D printed construction should have the expectation that they will face heightened scrutiny from building and code officials, and will likely need to draft new contracts in order to capture the relationship nuances.” 

One potential setback is the inconsistency of local building codes regarding 3D printing. An attempt to unify standards was incorporated into the International Residential Code, the comprehensive set of standards compiled by the International Code Council to regulate development. It is now up to municipalities to either adopt these recommendations or institute their own. Either way, legal clarity is a crucial step in incentivizing the use of 3DCP. 

Further, because the technology is new and has ample room for error in the software, hardware, and printing elements, potential legal disputes could arise when mistakes are made involving parties not typically part of construction disputes. Construction contracts and liability rules must evolve to consider the responsibility of software companies and technology providers. A similar process is going on with liability in automated vehicles as part and parcel of these technological changes. 

As affordable housing advocates and policymakers examine solutions to the current housing crisis, lowering barriers to the use of technological advancements should not be overlooked. Three-dimensional printing presents a cost- and time-effective alternative to traditional construction methods that can be used in conventional single-family home construction and ADUs. Now, the role of government should be to remove barriers and set clear standards. 

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