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Michael F. Cannon

A while back, after several conversations with Ezra Klein that afforded me a window into how his mind works, I made this prediction:

I have sensed this for some time and now I’m ready to predict it: Ezra Klein will die a libertarian. And it won’t be a deathbed conversion, either. Right now, I think he would call himself a progressive, which is fine. He could even keep that label: it better fits someone who’s committed to expanding liberty anyhow.

Arnold Kling expressed doubt. The late, great David Boaz periodically sent me un-libertarian things Klein wrote or said. I kept quiet when I saw Klein inching in a libertarian direction.

This is more than inching:

The thing I’ve changed my mind most on in politics in recent years is how destructive bad regulations can be and how seriously I take it now when I hear that regulations or rules are ill-constructed.

I think I used to have what in my view is a pretty standard liberal response. I was saying, of course, some regulations could be bad, but look at these studies. We made the air a lot cleaner. We do a cost-benefit analysis. There’s always exceptions to the rule, but I sort of assume most of this stuff works.

And now I don’t. I have followed up, and really dug in, on the details of how enough projects have worked or not worked in government — what happened with California high-speed rail, what it takes to modernize digital government — that I am much more skeptical — not of regulation but of a lot of existing regulations.

My belief about how much stupidity and procedural crust can exist now in government in places for very long periods of time, that people are just laboring under. And it’s not gotten to the point that creates a crisis, but it eventually could. Housing being a good example of this.

I’ve really changed the way I approach that. I think that a lot of liberals, and certainly a lot of the politics I came up in, kind of felt like the Right attacks government and so you have to defend it — and you look for ways to defend it. And it’s not where I am now. And I think I found myself more frustrated and then ultimately quite angry at the way the Democratic Party became just the defenders of institutions — and not the reformers of them — in a way that required not really admitting how badly they were working.

The dynamic Klein describes—what Jonathan Rauch in 1994 labeled “demosclerosis”—affects and afflicts the very aspects of the US health sector that Klein and I have debated.

I look forward to seeing his upcoming book address the stupidity and procedural crust that defends the inefficiencies of that economic sector, which I believe Klein would put in the “crisis” column.

Romina Boccia and Ivane Nachkebia

As part of the Cato Institute Report to the Department of Government Efficiency (DOGE), we submitted the following recommendations to address the looming Social Security insolvency and its impact on the federal budget.

Social Security is not a savings system but a pay-as-you-go scheme, where taxes collected from today’s workers fund the benefits of today’s beneficiaries. This makes Social Security susceptible to adverse demographic shifts, as its financial stability relies on a favorable worker-to-beneficiary ratio. In essence, the program operates like a Ponzi scheme: Paying benefits promised to earlier generations depends on new revenues from current and future workers. With an aging population, the worker-to-beneficiary ratio has been decreasing, making Social Security’s finances increasingly unsustainable and placing a growing fiscal burden on workers. According to the Congressional Budget Office (CBO), the payroll tax would need to immediately increase by 4.3 percentage points, from 12.4 percent to 16.7 percent, to cover the program’s long-term funding shortfall. This means an additional $2,600 in annual payroll taxes for a median earner ($61,000 annually), bringing their total payroll tax burden to more than $10,000 each year.

Furthermore, older generations tend to be wealthier than the younger generations paying for their Social Security benefits. This creates a system in which the federal government effectively redistributes hard-earned dollars from poorer workers to wealthier retirees. Notably, high-earning retirees can receive up to $60,000 in Social Security benefits annually, regardless of their other income and assets. Moreover, an excessively expensive Social Security system discourages private savings and offers poor returns for most workers, who would be better off investing their payroll taxes in stocks and bonds through private accounts.

Beyond these issues, Social Security is a significant contributor to the US fiscal imbalance. Old Age and Survivors Insurance (OASI)—the largest federal program—spent more than $1.2 trillion in 2023 but collected only $1.1 trillion in revenues, covering the $130 billion shortfall by relying on new borrowing from redeeming the Treasury IOUs in the so-called Social Security trust fund. These are not real savings. Every dollar that Social Security spends in excess of incoming payroll taxes and taxes on benefits adds to the federal debt. Since 2010, the OASI program has added $1.08 trillion to the federal debt and is projected to add $4.1 trillion more by 2033, when the program runs out of borrowing authority and confronts a 21 percent shortfall.

One cannot make significant headway balancing the federal budget without reforms to Social Security. Those reforms should focus on eliminating its fiscal shortfall and reducing the payroll tax burden on workers by slowing the growth in future benefits and reducing benefits for wealthier retirees.

The federal government should reform Social Security by doing the following:

Slow the growth in future benefits. Under the current system, initial benefits are adjusted based on wage growth, which typically outpaces inflation. This causes initial Social Security benefits to rise faster than necessary to maintain purchasing power, providing absolute benefit increases to newer cohorts. Switching to a formula that indexes initial benefits to prices would preserve current benefits and protect their purchasing power while eliminating 85 percent of the program’s long-term funding shortfall.
Modernize and reduce cost-of-living adjustments (COLAs). The Social Security Administration should replace the outdated Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI‑W) with the chained Consumer Price Index for All Urban Consumers (C‑CPI‑U) for calculating COLAs. This index covers a broader share of Americans and factors in the substitution effect, in which consumers opt for cheaper alternatives when the prices of goods rise. The CBO estimates that this adjustment would reduce Social Security spending by $175 billion between 2024 and 2032. Congress should further consider eliminating COLAs for wealthier retirees, as was proposed in the Social Security Reform Act of 2016. This change, in addition to switching to the C‑CPI‑U for all other beneficiaries, would erase 37 percent of the program’s long-term actuarial deficit.
Raise eligibility ages. To better align with longer life expectancies and declining fertility rates, Social Security’s early and full retirement ages should be increased by three years each, to 65 and 70, respectively, and indexed to increases in longevity afterward. This change would enhance intergenerational fairness, distributing the fiscal burdens of an aging population across generations. The CBO has estimated that increasing the full retirement age to 70 while keeping the early retirement age unchanged would reduce Social Security’s costs by $121 billion between 2024 and 2032.
Transition to a flat benefit scheme. Social Security should return to its intended mission of alleviating old-age poverty. By transforming Social Security from an earnings-related scheme intended to replace income into a flat benefit scheme focused on poverty prevention, the government can focus income support on those individuals who need financial help the most while allowing most Americans to save for more of their personal retirement security in ways they deem best. Shifting to a predictable flat benefit based on years worked would return Social Security to its stated goal of preventing senior poverty and should reduce the program’s costs, thereby reducing the payroll tax burden on workers.

Clark Neily

Norbert Michel and Jerome Famularo

In the aftermath of the COVID-19 pandemic, the United States experienced a much higher rate of inflation than at any time during the prior few decades. Like the prices of many goods and services, the cost of housing rose rapidly, with the median home price increasing by almost $100,000. (Figure 1.) Unsurprisingly, many potential homebuyers were—and still are —shocked and upset.

As in years past, many politicians have latched on to the anger surrounding the recent housing market turmoil. During the presidential debate, Vice President Kamala Harris said, “Here’s the thing: we know that we have a shortage of homes and housing. And the cost of housing is too expensive for far too many people.” Before the election, Donald Trump outlined his solutions, and now federal officials want to implement a host of policies, ranging from subsidies to selling federal land.

But is the United States really facing a housing crisis? Or a shortage of homes? And should Americans expect recent federal policy proposals to make housing more affordable?

This Cato at Liberty post is the fifth in a series that examines these questions. (Previous posts are here, here, here, and here.) While the series presents evidence that the United States is not facing a true housing crisis or shortage, nothing in the series suggests that local officials should refrain from relaxing zoning restrictions and other regulations. Elected officials should reduce rules and regulations to make it easier and less costly for people to live. Additionally, federal officials should end the many demand-side policies that place upward pressure on prices nationwide.

Just as important, nothing in the series ignores that many Americans have taken an economic beating these past few years—real wages have fallen, and prices have not reverted to pre-COVID-19 levels. It is no surprise that so many people have been calling for increased government intervention.

As previously mentioned, though, if federal officials answer those calls, it will likely increase Americans’ economic burden. Evidence shows that over the long-term people have overcome the many federal roadblocks that increase the nominal cost of housing, but affordability would be much improved in the absence of those policies.

Fortunately, federal officials have an excellent opportunity to make it easier for Americans to afford housing because the lessons learned from the post-COVID-19 inflationary episode are directly applicable to the housing market. In both cases, federal policies that distort both demand and supply result in harmful outcomes. The housing market is just a microcosm of what can go wrong—and how difficult it can be to fix—when the federal government interferes with markets.

This post examines the origins of the so-called housing shortage figures and why these figures are not indicative of a true housing supply crisis.

In July 2017, a Politico story titled Why Washington Can’t Fix the New Housing Crisis stated:

The crisis is a shortage of houses. Nationally, the inventory of homes for sale has been shrinking for 24 straight months, stoking bidding wars for even the lowliest fixer-uppers. In January, a measure of supply hit its lowest in history, according to the National Association of Realtors.

The National Association of Realtors (NAR) is a trade group for people who earn a living selling homes. Although there is absolutely nothing wrong with the NAR or similar groups advocating for its members, it should not come as a surprise that the NAR would prefer a larger inventory of homes for sale. This measure is not, strictly speaking, a formal measure of supply.

This difference is more than just technical.

First, an optimally performing market would reduce friction between buyers and sellers, shrinking the time a house needs to be listed for sale. This performance minimizes the inventory of homes for sale, so a declining inventory could be a sign that the market is working better for buyers and sellers. Put differently, if the market is working well, the “normal” inventory level should decline. Given the increased use of technology in real estate markets during the last few decades, the lower inventory could indicate market improvements, where the time and effort to find and purchase a home have fallen.

Additionally, the inventory figure says little about the unique factors that drive the supply of housing construction. That is, the inventory available for sale says very little about the factors that contribute directly to the equilibrium supply of housing.

Again, this issue is more than just technical.

Because the inventory figure ignores equilibrium supply conditions, attempts to make up a “shortage” over current levels based on this metric (or similar ones) could further constrain basic supply factors (labor, materials, land, etc.) and drive prices even higher. As became obvious in the wake of the COVID-19 pandemic, these kinds of supply constraints can easily increase the price of a new home. Indeed, these factors can even outweigh the downward pressure that increased construction might place on prices, so much so that home price growth increases despite above-normal construction. Research has also shown that increased supply can ultimately increase prices by improving a neighborhood.

The kinds of metrics that various groups, such as the NAR, use to estimate the “shortage” do not account for these factors.

Running the Numbers

Many groups, including the NAR, argue that the tight inventory of homes for sale—including both newly constructed and previously occupied homes—is a key driver of a housing crisis. They also argue that the U.S. faces “an acute shortage of available housing” after “decades of underbuilding and underinvestment.”

For years, various groups have tried to quantify this so-called shortage, and the estimates vary considerably. For example, for 2024, Freddie Mac, one of the two large housing government-sponsored enterprises (GSEs), estimated a shortage of 3.7 million units. Separately, the National Association of Home Builders (NAHB) estimated a 2024 shortage of 1.5 million units.

In 2018, Freddie Mac estimated a shortage of 2.5 million units. The NAHB estimated a shortage of “about a million units” for 2019, while Up For Growth estimated the 2019 shortage to be 3.8 million units (a figure close to Freddie Mac’s 2020 shortage estimate of 3.8 million). In 2021, the NAHB estimated a shortage of 1.5 million units, while a study for the National Association of Realtors (NAR) estimated the shortage to be between 5.5 million and 6.8 million units. In 2022, the tech-based real estate firm Zillow estimated that “despite a pandemic construction boom, the US housing shortage grew to 4.5 million homes.”

These groups use somewhat different methodologies to produce their estimates, but none of them are designed to estimate an economic shortage. That is, they are typically referring to a market where supply is less than some preferred measure, not a market where the quantity demanded exceeds the quantity supplied at the market price. Put differently, the shortages estimated by the abovementioned groups do not, as the 2024 Economic Report of the President implies, represent market failures.

Again, this difference is more than just technical.

Such metrics, by design, do not refer to a situation where buyers (or renters) cannot buy (or rent) at a given market price. That is, these metrics do not answer the key question of whether housing construction tends to keep up with demand, ensuring that people generally can find a place to live.

There is no doubt that millions of people would prefer to pay less for housing. However, the fact that every person is unable to pay as little as they prefer for the housing that they want is not a market failure. In any market, for any given demand, the only way to ensure such an outcome would be to shift the supply curve so far to the right that the additional supply pushes the market price to effectively zero.

It is just as important to note that these metrics generally do not estimate the role of specific demand factors, such as income growth, interest rates, subsidies, or consumer preferences. Consumers might prefer to live in certain locations, or in certain kinds of homes, with various amenities, but these factors are not measured in these “shortage” metrics. This omission alone is critical because these demand factors could result in higher home price growth even in the face of heightened construction.

Our point here is not that these measures are objectively wrong, and we are not criticizing the models themselves. Nor are we ignoring that some people would be better off if housing costs were lower.

We are, however, pointing out that these models typically do not provide formal estimates of the optimal housing demand and supply in an equilibrium framework. Broadly, these groups have constructed reasonable statistical models to suggest what the supply of new homes should be based on their preferred criteria. However these estimates do not represent an economic shortage, a situation where consumers are willing to pay for a product at the prevailing price but are still unable to find a unit to purchase.

Often, shortages are the result of price ceilings imposed by the government, such as rent control or price caps. Obviously, if the federal government mandated enough increased housing supply to hold housing prices (or rents) below some arbitrarily “affordable” price, many of the same critiques that apply to more straightforward price ceiling policies would apply.

To be sure, we make no judgment about which prices are “affordable” enough to end the kind of “shortage” these metrics estimate. We are merely pointing out that it is very risky to equate these figures to an economic crisis or a market failure that requires government intervention (especially on a nationwide basis).

Enacting expansionary policies based on these “shortage” figures could make housing market conditions worse than today. These kinds of federal policies could, for example, boost demand beyond optimal levels, putting upward pressure on prices by flooding the market with buyers. Alternatively, they could boost supply beyond optimal levels, putting upward pressure on prices by straining resources in the construction industry.

Breaking Down the Models

To demonstrate what these “shortage” models estimate, this post provides a brief overview of the underlying methodologies used by several groups. (This Brookings article by David Wessel also provides a good overview of the various methods.)

While the methods vary, most assume that some kind of buffer stock (or inventory) of homes is needed. Freddie Mac’s model, for instance, includes the existing vacancy rate (the share of homeowner inventory that is vacant/​for sale), and a target vacancy rate. It also includes, among other variables, a target household formation rate.

Freddie Mac’s model sets its target vacancy rate at 13 percent to “ensure that there is a well-functioning housing market, which requires some vacant properties for sale and for rent.” While Freddie Mac is free to set the model’s target vacancy rate at any value it prefers, as Figure 12 shows, the total vacancy rate was below 13 percent from the mid-1960s to the mid-2000s, and again from the mid-2010s until the present. The only time the vacancy rate was at or above 13 percent was during the period leading up to and following the housing crisis and subsequent Great Recession. Given the connection between federal housing policy and this recession, it seems odd to target a vacancy rate from this period.

Separately, the target household figure is based on 5‑year population groups and the target “headship” rate for those groups. (The headship rate is the number of heads of households as a percentage of total households.) Freddie Mac also adjusts the headship rate for factors such as “housing costs, income, and employment,” factors that can affect both household formation and the decision to buy a home.

Thus, while Freddie Mac’s model does not, strictly speaking, measure the demand for housing, it demonstrates how difficult it is to measure housing demand because many of the variables that affect household formation and housing costs are determined simultaneously. If, for example, housing costs are low and income growth is strong, young adults will be more likely to move out of their parents’ homes and form their own households. Yet, at the same time, if young adults are more likely to move and form their own households, their behavior can affect housing costs and opportunities to earn income. 

Setting these statistical problems aside, Freddie Mac’s model estimates how close construction gets to a benchmark based partly on household formation targets. We make no judgment as to what household formation rates should be, and we argue that the federal government should not intervene in housing markets based on anyone’s preferred household formation rates.

People can, for instance, move in and out of their parents’ homes, and parents can move in and out of their children’s homes, for a variety of reasons, including health or economic conditions. Federal housing policy should not “push” people to speed up or slow down the rate at which they form new households.

The group Up For Growth uses a similar approach to Freddie Mac, but its model includes a target vacancy rate of 5 percent. Additionally, instead of using target households, it uses missing households, a variable that estimates the number of people who, although they are currently living with families or non-relatives, would like to live on their own. (Zillow also uses missing holds.)

Separately, the NAHB relies on a more parsimonious comparison of the difference between the current vacancy rate and “the ‘natural,’ or long-run average” vacancy rate, while the NAR’s study relies on a comparison of the long-term construction trend to current construction. (The NAR study also provides an alternate shortage estimate of 6.8 million units based on the following calculation: Household Formation + Lost Housing Stock – New Completions.) Separately, the NAR’s online “Housing Shortage Tracker” estimates the shortage for major U.S. metro areas by comparing the number of new construction permits issued to “every new job.”

Apart from these groups, a 2022 academic paper by economists Kevin Corinth and Hugo Dante estimates that the United States had a housing shortage of 20.1 million homes in 2021. This figure may seem like an obvious outlier among the various shortage estimates discussed so far, but the methodological approach is also somewhat unique.

Unlike the other measures discussed in this post, Dante and Corinth estimate the quantity of housing that would exist in the absence of certain supply constraints, such as zoning and regulatory restrictions. Thus, their end goal is very different from the groups so far discussed. Interestingly, Dante and Corinth state, “Of course, economists do not typically use the term housing shortage to express the quantity-reducing effects of supply constraints—while prices may be artificially elevated, any buyer can generally purchase a home at the market price. We nonetheless follow popular discourse and abuse economic terminology.”

Terminology abuse aside, their model relies on a concept called land share, the portion of a home’s price that represents the land the home is built on. Using this concept, they report that 20.1 million additional homes would have been built in the absence of zoning and other regulatory constraints. Their key assumption, based on other academic research, is that the land share will fall to “about 20 percent of the value of a home” in a market without supply constraints. As Figure 3 shows, recent estimates for US land share vary considerably, but it appears that the land share was higher than 20 percent from 1931 to 1946, lower than 20 percent until 1971, and consistently higher after 1971.

The authors then rely on estimates (based on other academic research) of the price elasticity of demand for housing to calculate “the equilibrium quantity of housing in each market absent supply constraints.” The authors acknowledge that the metro areas with the least stringent regulations tend to have land shares clustered around 20 percent, and then assume that relaxing regulations would cause the land share in more strictly regulated areas to move toward 20 percent.

Using 2023 land share estimates provided by the American Enterprise Institute, the typical (median) US home price would have to fall 44 percent to reduce the land share to 20 percent. The price decline would be steeper in higher-cost areas. In San Francisco, for example, the price would have to decline almost 60 percent, from $1.4 million to less than $600,000.

We do not dispute that more housing would be built in the absence of strict zoning or regulatory restrictions, and we have consistently argued in these posts that state and local governments should reduce regulations to make it less costly for people to build the homes they want to live in. Nothing in this series implies that more construction cannot be beneficial.

However, federal housing policy should not be geared toward achieving a land share of 20 percent—or any other land share figure—for the nation’s housing markets. The results could be disastrous, much like when President Clinton’s National Partners in Homeownership, a private-public cooperative, set a goal of raising the US homeownership rate from 64 percent to 70 percent by 2000.

To whatever extent they cause lower land shares, it is doubtful that less stringent regulations are the sole cause of low land values or that high regulations are the sole cause of higher land values. The optimal share in certain areas could be higher than 20 percent because land is scarcer, and those areas are in higher demand. And additional construction could cause demand to go even higher.

As we’ve argued in this series, local housing markets experience their own unique dynamics, and there are surely many rules and regulations that could be relaxed to improve local problems. But those decisions are best left to state and local officials who live in those communities, especially because it is so difficult to objectively define a shortage or a surplus. The federal government should not be in the business of deciding the type and number of homes that people can build in their communities.

The next post in this series will be released after New Year’s Day. 

Robert A. Levy

On a fairly regular basis, Americans are warned that the federal government may no longer be able to meet its legal obligations if the debt ceiling isn’t raised. The result: default, with financial chaos to follow. Despite that stark warning, political agreement remains elusive. Liberals will not accept meaningful spending cuts and conservatives will not accept meaningful tax increases. To be sure, our budget problems need to be addressed, but recurring battles over the debt ceiling have not been constructive.

What do legal experts say about default? 

A few imaginative lawyers have argued that we should address the possibility of default, not by spending less or taxing more but by applying the Public Debt Clause in Section 4 of the 14th Amendment. Essentially, they claim the Constitution forbids default and, consequently, a debt ceiling that triggers default is unconstitutional.

The Public Debt Clause states that, “The validity of the public debt of the United States, authorized by law, … shall not be questioned.” That 1868 provision was intended primarily to prevent repudiation of Civil War debts. But the Supreme Court in Perry v. United States (1935) held that the provision covers all federal debt. The constitutional text, said the Court, applies “to the government bonds in question, and to others duly authorized by the Congress.” Still, that leaves this question: What constitutes public debt “duly authorized by the Congress”? 

What constitutes public debt “duly authorized by the Congress”? 

One view is that only issued and outstanding debt has been authorized by law and is thus covered by the 14th Amendment. The counter-argument I subscribe to is that Congress’s appropriation of funds for subsequent expenditure is equivalent to authorizing any debt needed to finance the expenditure. Accordingly, the Public Debt Clause would apply not only to existing debt but also to debt that Congress implicitly authorizes when appropriations are enacted. If Congress wants to question the wisdom of issuing more debt, it can and should do so during the appropriations process rather than by imposing a debt limit.

Yes, it’s unusual for the Constitution to expand executive powers by implication. But the spending power is itself implicit—appearing nowhere in the Constitution. Yet no one questions that the spending power can be inferred from other authorizations, e.g., Congress’s power to “lay and collect Taxes.” After all, the power to raise money is self-evidently for the purpose of spending the money. 

Similarly, but in reverse, the authority to spend implies the authority to generate the funds to be spent. Consequently, any new debt that’s required to fund approved spending is “authorized by law,” even if the added borrowing were to violate an existing debt ceiling. Under those circumstances, the president would be bound to do whatever is necessary to “take Care that the [Public Debt Clause] be faithfully executed,” as mandated by Article II, Section 3 of the Constitution. 

Further, the “later-in-time” rule helps explain the difference between existing and authorized debt. To illustrate: If existing debt is currently at its limit, say $X, and Congress subsequently approves an appropriation, that appropriation—because it’s later-in-time—implicitly authorizes the debt to exceed $X. But conversely, if an appropriation of $X is initially approved and the debt ceiling is subsequently set below the level that would allow $X of additional borrowing, that sequence would not authorize the issuance of new debt to finance the appropriation. The Treasury would have to find an alternative source of funds.

Bottom line: Is the debt ceiling constitutional and effective? 

Here are my conclusions, tempered by an awareness that legal authorities across the ideological spectrum have varied views: First, duly enacted appropriations are a means by which public debt can be “authorized by law.” Second, default on public debt plainly casts doubt on the debt’s “validity” and would, therefore, be unconstitutional under the Public Debt Clause. Third, if Congress refuses to raise the debt ceiling, and no other sources are available to pay for a new appropriation, the president would be justified in treating the appropriation as an implicit authorization to raise the ceiling. In other words, he could disregard the current statutory borrowing limit.

The debt ceiling has not been effective in attaining its presumed objective, i.e., restraining government spending. Moreover, most economists and legal scholars agree that nothing good has come from repeated attempts to use the debt ceiling as leverage. The constitutional implications, the effect on capital markets, and the status of the dollar as the world’s reserve currency should convince the administration and Congress that they, not the courts, must restore fiscal sanity.

If the goal is financial discipline, the debt ceiling is not a viable substitute for rigorous scrutiny of appropriations. Americans would be better off by repealing the debt ceiling and avoiding the periodic hand-wringing over breaching a performative number.

Tad DeHaven

Greenfield investment occurs when a foreign company establishes (or expands) a business in the US. Most foreign direct investment (FDI) in the US are acquisitions. However, the “US affiliates of foreign multinationals spend hundreds of billions of dollars per year in the United States on research and development and capital expenditures, with the biggest shares going to manufacturing.” In short, we should welcome it. 

According to a new report from Global Trade Alert, however, neither the Trump tariff-driven approach to attracting greenfield investment to the US nor the subsidy-driven approach preferred by the Biden administration bore results beyond an initial “sugar high.” 

Job creation, a stated aim of the presidents’ policies, trended south under both administrations. 

The report also looks at the degree to which import tariffs motivated foreign investment into US manufacturing (“tariff-jumping”). Only two of the eight manufacturing sectors show that imports may have been replaced with more foreign investment, which “cast doubt on the effectiveness of both Trump (sticks) and Biden (carrots-and-sticks) approaches to reviving US manufacturing in part by repatriating production from abroad.” 

Circling back to FDI via acquisitions, Japanese Nippon Steel’s proposal to acquire US Steel for $14.9 billion, which would come with $2.7 billion in badly needed investment in American steel facilities, has been on the ropes thanks to opposition from the Biden administration. President-elect Trump is also opposed to the deal. The opposition from the presidents comes despite reports that 90 percent of US Steel employees favor the deal. 

Scott Lincicome has a detailed breakdown of the Nippon-US Steel matter. The main takeaway is that the Biden administration and Trump want the public to believe their opposition is based on national security concerns and “protecting workers.” The truth is they’ve both chosen to support union bosses at the expense of said workers and the economy in general. 

Tariffs and taxpayer subsidies did not make the American economy the world’s most successful. Instead, the US’s success stems from cultural, economic, and institutional strengths that foster innovation and entrepreneurship. Sure, we could (and need to) do better by improving our relatively favorable regulatory environment and getting our fiscal house in order. But nationalist trade and industrial policies are counterproductive—as is stopping allies from investing here to placate union leaders. 

Colleen Hroncich

Second and third graders designing affordable housing that a family now lives in? That sounds too impressive to be true, but that’s what can happen when children are in the right educational environment, like Limestone Community School in Lawrence, Kansas, which opened in 2021.

Madeline Herrera founded Limestone after years of frustration as a public school teacher. “I either have to stop teaching or open my own school,” she recalls telling her husband. “I really did try to stay and problem-solve it, but I saw the system isn’t able to pivot—it’s not designed for that.”

Despite her students really progressing with the project-based learning she used in her classroom, the district wanted her to stop. “They wanted me to conform to the district goals, and the district goals seemed to be more about compliance,” she recalls. “I was doing what I thought would be a district goal because the students were learning so much. But they were asking me, ‘Can you stop teaching that way? Or, if you want to use project-based learning, we’re going to need you to fill out this paperwork four months in advance for each unit.’” That directive left no room for spontaneity or teachable moments.

She’d had enough and decided it was time to put her ideas into action. “One thing that always frustrated me was there’s so much research out there about education, but so little actually trickles down into the classroom. It seems like there are some truths about how we are as people that we could be using to influence our curriculum and our schedule,” she says. 

Madeline dove into research to design Limestone’s schedule, curriculum, and philosophy. She found the most productive time of day tends to be around 10 a.m. to 2 p.m., which felt right to her. While parents can drop off as early as 7:30 a.m., the actual school day doesn’t start until 9:30 a.m. Research showing the benefits of deep, uninterrupted play also resonated with her, so the kids have plenty of time for free play—often during the 3–4 hours they spend outside each day.

Her instincts told her the academic day didn’t need to be as long as it was in public schools. There was research that backed her up on that. Plus, talking to homeschool parents and hearing how they were able to complete traditional academics is a much shorter time lined up with what she was seeing elsewhere. “It was interesting to recognize I had to unlearn these things. It makes me so nervous not to teach reading for 2 ½ hours a day because that’s what I had been doing. I didn’t like it. I didn’t like planning for it. The kids lost interest, obviously. And so it was really freeing to take a step away from that,” says Madeline.

The flow of the school day draws on inspiration from Nordic schools. Madeline talked to an educator who taught in the US before moving to Finland and teaching there. He encouraged her to structure learning in 30-minute blocks at the elementary level, interspersing recess or breaks that use a different part of the brain. So Limestone starts with reading for 30 minutes, then a 30-minute recess, then 30 minutes of math, and then moves into project-based learning.

Despite being such a young school, there are amazing things happening at Limestone. A couple of years ago, the first- and second-grade class began talking about affordable housing, which was a growing issue in the community. “Well, just build more homes,” was the solution they offered, Madeline recalls. The teacher explained that it’s more complicated than that, and the kids wanted to learn more.

The project continued into the following year. “We partnered with an architecture firm and they sent five architects out every single week for months and they taught the kids how to design homes,” says Madeline. By the end of the school year, the students—who were in second and third grades by then—had worked with the architects to complete their designs. A local affordable housing coalition donated two plots of land to be used for the students’ designs. “One of the homes is completed and the family moved in in October, and ground is being broken in the spring on the second home,” Madeline adds.

While the housing project is particularly impressive, the idea of community service is woven throughout Limestone. The kindergarten class had a unit on community, and the teacher took them on walking field trips to meet members of their local community. They toured the fire station and talked to firefighters. They met with nearby master gardeners. Every time, the teacher would use the field trips to start discussions on how people contribute to their communities.

The kindergartners decided they also wanted to contribute by creating a mural at a bus stop up the road. “We contacted the Transportation Department and they loved the idea. And then we had some artists in town that came in and helped the kids design it and somebody donated the materials,” Madeline says. “And it’s just really neat to see that the kids understand that they’re community members now—instead of being like, yes, that’s a great idea. We’ll save it for when you turn 18.”

One aspect of her new educational environment that Madeline really appreciates is the collaboration with parents and students. “Before, when a parent would say, ‘Hey, I don’t really like this part of the curriculum or whatever,’ you’re just like, well, that’s what it is. Now, we start with conversations with the parents,” she says. For example, “With adding on 7th and 8th grade, we’ve been in conversation with parents the entire time. ‘What are you hoping that’s going to look like?’ ‘Here are things that we’re thinking—how does that sound to you?’ It’s very collaborative, which is really exciting. And it’s collaborative with the students, too, because they’re the ones that are going to be living it.”

Most Limestone students previously attended public schools that didn’t serve them well. “That’s been a really interesting thing. I think I was pretty ignorant about how many kids had gone through educational trauma,” says Madeline. It sometimes takes students some time to realize that Limestone isn’t as rigid as their former schools. Because reading and math classes are at the same time for everyone, kids can easily attend the class that meets their needs instead of one based solely on their age. Madeline says a side effect of this has been the kids don’t see some as smart and some as dumb—because everyone is moving around, not just a select few.

Teachers are also happy to have more freedom and flexibility. Madeline says one of her new teachers was so disappointed with her experience going through education school because everything was aimed so heavily at public school as if that’s the right way instead of as one option. Working at Limestone’s summer camps opened the teacher’s eyes, and she realized it made more sense than what she learned in her education program. She thinks education schools should focus more on the true nature of learning and the true nature of child development.

Happier students, parents, and teachers. Active community involvement. Real-world application of what they’re learning. By pairing research and understanding of how kids learn with community outreach, Limestone Community School is putting kids on the path to a bright future.

Robert A. Levy

The incoming administration seems poised to exercise an array of controversial executive powers. Here are some of the legal considerations.

Can the president impose tariffs without congressional approval?

Recent laws give the president substantial authority on tariffs to protect industries harmed by global trade, but blanket tariffs on all foreign goods might not withstand challenge. That’s especially true for tariffs imposed on Mexico and Canada, which are part of a free-trade pact negotiated in 2020 by Trump himself.

Aside from legal concerns: Tariffs are typically paid by the importer. Assuming no increase in the money supply, their inflationary impact will depend on two main factors: (1) The extent to which the tariff is passed along to customers, workers, and suppliers, or absorbed by shareholders. (2) The price elasticity of demand, which will determine whether any price increase will be offset by diminished sales or by other price reductions.

Can the president make recess appointments without Senate approval?

Normally, high-level presidential appointments require Senate approval. But the Constitution allows temporary appointments for vacancies that arise when the Senate isn’t in session. Those appointments must be confirmed by the Senate by the end of the following session of Congress—i.e., within a maximum of two years—or they expire. The Constitution also requires both houses to approve any recess exceeding three days. But if the two houses disagree as to the “time of adjournment,” the president “may adjourn them to such time as he shall think proper.” The courts haven’t decided if a unilateral recess by only one chamber constitutes disagreement as to the time of adjournment. Nor have the courts decided if “such time” refers to the beginning or the end of the adjournment, or if the president can adjourn only sessions that he has convened on “extraordinary Occasions,” as provided in Article I, section 3.

The Senate has also held pro forma sessions, which are called to order but no business is conducted, to block the president from making recess appointments. In 2012, during one of those pro-forma sessions, President Obama appointed three people to the National Labor Relations Board. But the Supreme Court, in NLRB v. Canning (2014), invalidated the appointments. Justice Breyer (9–0) wrote that Congress itself determines when it’s in session. More specifically, he held that: (1) a ten-day minimum break is necessary to declare a recess, and (2) pro-forma sessions are not recesses because Congress retains the capacity to conduct business. He added, however, that when there’s a legitimate recess the president can fill vacancies that arise both during and before the recess—even though the Constitution refers only to vacancies arising during the break.

(Justice Scalia concurred, joined by Roberts, Alito, and Thomas; but Scalia wrote that recesses should be limited to inter-session, not intra-session, breaks; and, he stated, only those vacancies arising during the break could be filled.)

Of course, presidents can begin their terms on January 20 before cabinet nominees are confirmed. But the proper fix is for the president to make temporary appointments, not try to bypass confirmations by declaring a Senate recess. That’s why Congress enacted the Federal Vacancies Reform Act in 1998. It provides for interim appointees, who can serve up to 300 days. Persons serving as acting officials cannot be the ultimate nominee, but they can be the first assistant, another already-confirmed person, or a senior employee meeting certain criteria.

Can the president remove agency heads before their term expires?

The Constitution covers the appointment of agency heads, but not removal. Until 1935, the president could fire his subordinates freely. But in Humphreys Executor v. United States, the court held that the Federal Trade Commission didn’t exercise “executive” power; so, if the president wanted to remove an FTC commissioner, he could do so “for cause” only. In Morrison v. Olson (1988), the court held that “for cause” removal restrictions for the independent counsel did not violate the separation-of-powers principle because it did not increase the power of one branch at the expense of another. Accordingly, said the Court, the president wouldn’t be blocked from carrying out his constitutional obligation to ensure that the laws are faithfully executed. (Justice Scalia disagreed, arguing that criminal prosecution by the independent counsel is a “purely executive” function.)

But in 2020, Seila Law v. Consumer Financial Protection Bureau, Chief Justice Roberts (5–4) held that removal only “for cause” (such as inefficiency, neglect, or malfeasance) would violate separation-of-powers because the CFPB was headed by a single director who exercised substantial executive power. Roberts concluded that Congress may not restrict the president’s removal authority except: (1) when removing an inferior officer—e.g., the independent counsel—who has limited duties and no policymaking or administrative authority; or (2) when the agency is headed by a multimember body balanced along partisan lines, appointed to staggered terms, and performing mainly “quasi-legislative” and “quasi-judicial functions.”

Can the president impound congressionally appropriated funds?

President-elect Trump has suggested that he would resurrect impoundment as a means to control federal spending. But the Impoundment Control Act (1974) provides that the rescission of expenditures must be approved by both chambers within 45 days. Notably, however, Congress is not required to vote on a rescission and has ignored most presidential requests. Still, all recent presidents (Reagan forward) have supported impoundment, as did many politicians across the ideological spectrum (including John McCain, John Kerry, Al Gore, and former Speaker Paul Ryan), as well as Elon Musk, Vivek Ramaswamy, and Russ Voight (Trump’s pick to head the Office of Management and Budget).

The Supreme Court hasn’t ruled on the ICA’s constitutionality. But in Train v. New York (1975), the court  said that President Nixon could not refuse to fund an environmental project after Congress overrode his veto. Under Trump, if he attempts impoundment, the issue will likely be re-litigated. If so, I would expect the court to weigh the Appropriations Clause, which sets a ceiling but not a floor on federal spending, against separation-of-powers concerns and the president’s duty to faithfully execute the laws.

What are the limitations on the president’s pardon power?

Here are the guidelines: (1) The president can pardon federal criminal acts—not state crimes or civil liability. (2) A pardon cannot protect against future crimes—only past actions. (3) The pardon power extends to all “Offenses against the United States”—without distinguishing between those prosecuted and those not prosecuted.

There are at least two open questions: (1) Can the president pardon himself? Probably not, but the issue is unsettled. (2) With respect to preemptive pardons—i.e., those granted for crimes that may have been committed but have not been charged—must the pardon specify the conduct and the time period? Hunter Biden’s pardon, for example, did specify the period but contained only a vague description of what may have been the crimes. Ditto for Nixon’s pardon, which applied to “all offenses against the United States which he… committed or may have committed or taken part in during the period from January 20, 1969 through August 9, 1974.” A Supreme Court pronouncement on the requisite degree of specificity seems necessary and appropriate.

Matthew Cavedon

In a December 18 amicus brief to the Supreme Court regarding Cunningham v. Baltimore County, the Cato Institute argued that a lower court was wrong to apply qualified immunity protection to a police officer because it could find no prior decision involving nearly identical facts. In this case, the police officer fired his rifle through the wall of a kitchen where he knew a five-year-old child was present but not visible, striking the child twice, because—in the officer’s own words—he was “hot and frustrated.”

On August 1, 2016, two Baltimore County police officers arrived at the apartment of Korryn Gaines to serve misdemeanor arrest warrants for her failure to appear in court for alleged traffic violations and an assault charge. The officers knocked on the door and announced their presence. No one opened the door. Hearing people moving inside, the officers kicked down the door and entered the apartment to find Gaines sitting on the floor with a shotgun in her lap. The officers immediately exited the residence and called for backup, leaving Gaines inside with her five-year-old son, Kodi. Around this time, the officers learned that Gaines was struggling with mental illness and was not taking her prescribed medication.

More than 30 armed officers and counter-snipers surrounded the apartment, taking up positions in and around the building. They held their positions for six hours in the sweltering heat, which was made more oppressive by the police’s decision to cut power to Gaines’s apartment.

Around the six-hour-and-forty-five-minute mark, Gaines walked into the kitchen to make her son a sandwich. She brought Kodi with her, along with her gun, which she did not point at anyone. It was at this point that Corporal Ruby, who could only see Gaines’s braided hair and the barrel of her weapon, took a headshot through the drywall of the kitchen. Ruby knew that Kodi was present, though not visible, and further admitted to knowing it was possible that the bullet could strike him.

The bullet struck Gaines in the back before ricocheting off the refrigerator and hitting Kodi in the cheek. Ruby then proceeded to enter the apartment where he shot Gaines three more times, killing her. He also stuck Kodi again, this time in the elbow.

These injuries forced Kodi to undergo multiple surgeries to remove the bullet fragments from his face and repair his elbow. After the incident, a witness testified that Corporal Ruby justified his conduct because he was “hot and frustrated.”

Kodi was an innocent and unarmed bystander with the constitutional right to be free from arbitrary state action. The officer’s conscience-shocking misconduct violated Kodi’s rights. Kodi’s father, Corey Cunningham, sued Baltimore County for violating his son’s rights and obtained a favorable jury verdict of more than $30 million.

On appeal, though, the Maryland Supreme Court reversed, holding that the officer was entitled to qualified immunity. It held that the officer lacked “sufficiently clear” guidance from prior cases that the shooting would violate Kodi’s rights. Kodi’s father is now appealing to the US Supreme Court.

Cato’s amicus brief argues that in cases of obvious rights violations—like the unjustified shooting of a child due to an officer’s personal frustration—no case law is necessary to “clearly establish the law.” This “obviousness” principle ensures that officers do not escape accountability simply because their conduct—in the words of then-Judge Gorsuch—“is so flagrantly unlawful that few dare its attempt.”

The court should not tolerate the continued over-application of qualified immunity but should instead vindicate the rights of Kodi and other Americans harmed by flagrant governmental misconduct.

Michael F. Cannon

California Governor Gavin Newsom (D) is demonstrating one of the pitfalls of putting the government in charge of public health.

Public health officials are monitoring the spread of H5N1 avian influenza among animals and even a few humans. Reports indicate the virus has appeared in animals in 16 states, including at more than 600 dairies in California. There have been 61 human cases. Most have been mild disease. There has been one severe case.

It appears that federal Centers for Disease Control officials are doing what they should be doing right now. They are monitoring the situation and providing non-alarmist judgments (“the immediate risk to the public’s health from H5N1 bird flu…remains low”) and recommendations (don’t lick dead birds).

One cannot say the same of Newsom, who is sending the public confusing signals. On the one hand, he says, “the risk to the public remains low.” At the exact same time, he also says,

I find that conditions of extreme peril to the safety of persons and property exist due to Bird Flu…

I, GAVIN NEWSOM…HEREBY DECLARE A STATE OF EMERGENCY…

All residents are to obey the direction of emergency officials…in order to protect their safety…

I FURTHER DIRECT…that widespread publicity and notice be given of this proclamation.

So sayeth The Great and Powerful Oz. The last time I checked, “the risk is low” means the exact opposite of “emergency.” So which is it?

The reason for the contradictory messages is power. Newsom can claim additional, unilateral powers to spend additional taxpayer dollars, to command California officials and residents to take action, and even to suspend certain government regulations. To wield these powers, he must first declare California to be in a “state of emergency.” 

On the surface, it makes sense to give government agencies additional funding and flexibility during public health emergencies. The late, great Californian Shirley Svorny and I hailed states’ suspension of clinician-licensing regulations during Covid-19, for example.

But it’s not hard to see the moral hazard problem. When legislatures authorize governors to release more spending and give more orders during emergencies, governors will have incentives to jump the gun and declare situations to be emergencies when they otherwise would not. When you subsidize emergencies, you get more “emergencies.” 

That appears to be happening here. Newsom wants to protect people from bird flu. He probably also wants the favorable press that would come from people seeing him taking steps to contain bird flu. Then there’s also the possibility that Newsom wants something from someone who wants Newsom to do more to contain bird flu. So, instead of requesting that the legislature give him additional powers to address what he acknowledges is a non-emergency, Newsom declares a state of emergency.

Crying wolf is not harmless. Even libertarians believe some government public health activities are defensible. But for those actions to be defensible, they must be effective. For them to be effective, the public must trust government public health officials. When government officials cry wolf, they give the public additional good reason to ignore them on those rare occasions when the public really shouldn’t. 

Ironically, even though the CDC is behaving better than the governor, Newsom is inadvertently making the case for leaving public health decisions to state rather than federal officials. Whatever harm Newsom does to public trust in government will affect only his state. Indeed, under a federalist system, his mistakes can help other states by showing them how to improve their public health strategies. 

Were Newsom and current CDC officials to switch places, his errors would affect all 50 states and frustrate the process of experimentation and learning. The prospect that either public health alarmists or anti-vaxxers could end up making policy for the entire nation is a powerful argument for not letting the federal government make public health policy at all. (I don’t know about you, but I’m starting to lose my faith in the political system’s ability to filter those candidates.) It is at least a powerful argument for severely restricting the federal government’s powers in this area.