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Ryan Bourne

In Empowering the New American Worker, Chris Edwards summarized what economists have learned about occupational licensing laws. These state‐​imposed barriers to work reduce employment in affected occupations, raise pay for workers who keep their jobs, raise prices for consumers, and tend to reduce job‐​to‐​job mobility across state lines.

These studies typically zoom in on occupations directly hit by licensing laws. But what about those who might have joined these licensed fields if not for these strict regulations? What happens to their employment and earnings prospects as licensure expands?

That’s the topic of a new paper by Samuel Dodini in the Journal of Public Economics. Using sophisticated statistical techniques, he groups occupations based on shared skill requirements. He then develops a measure of how much an occupation in a particular state is exposed to licensing among other jobs requiring similar skills. By examining how this exposure differs across state borders, Dodini sheds light on the impact of occupational licensing on employment and earnings in fields with skills comparable to those that are licensed.

Mirroring the findings of previous research, Dodini’s study verifies that, on average, occupations in states with licensing enjoy an earnings premium of about 8 percent compared to states without such requirements.

However, the more intriguing discovery is this: in states with higher licensing demands, workers in other jobs that require similar skills earn less.

For every 10 percentage point rise in licensing among workers in other occupations with similar skills, average earnings in a given occupation drop by 1.6% to 2.3%. This negative impact is amplified for women, Black Americans, and foreign‐​born Hispanic workers.

Overall, Dodini estimates that for every additional dollar gained from an occupational licensing earnings boost, $2.23 is lost due to these ripple effects across other occupations.

What causes these lower earnings in other occupations? Our initial assumption might be that licensing reduces employment in the licensed occupation, releasing workers with those skills to go into other occupations, so increasing their labor supply and pushing down wages. Yet this effect doesn’t show up in his results. He finds employment levels are lower in occupations more highly exposed to licensing in similarly skilled jobs.

Dodini’s preliminary findings point to two alternative factors. Firstly, occupational licensing might dampen overall industry demand for certain types of workers. Companies might avoid states with complicated licensing requirements or opt to hire fewer individuals in roles that complement the licensed positions. Both of these scenarios would lead to a decreased demand for workers with similar skill sets, consequently driving down their earnings.

Another reason suggested is that when more jobs demand licenses, it might grant companies in similarly skilled fields greater market power. This happens because obtaining licenses for various professions can be costly and time‐​consuming for employees, making it harder for them to switch careers or find new jobs. Additionally, if fewer companies opt to establish themselves in states with stringent licensing laws, workers have fewer alternative employment options.

More research will be required to get to the bottom of these effects. What this clever research suggests, however, is that the costs of occupational licensing spill over to other workers in similarly skilled occupations. Given that more than a fifth of American jobs are now licensed, the impact of occupational licensing is widely experienced.

Walter Olson

Two weeks ago I noted that one principle of fair elections, transparency, can be in tension with another, the secret ballot. The tension plays out in current discussion as to how far election administrators should go in making public the data that underlie election results even when doing so might allow inferences about how individuals voted. 

The controversy involves two different information formats often confused with each other that should be kept straight. Cast vote records are electronic summaries of individual ballots and the choices made on each, which may also carry additional information such as a timestamp of when the vote was received. These records can be of considerable interest to politics buffs. For example, they can reveal how persons who voted for a given candidate voted on other races—something you couldn’t necessarily deduce from conventional aggregated election results.

Ballot images go further: they are literal pictures of filled‐​out ballots, which means they also record stray marks and cross‐​outs, write‐​ins, coffee stains, and anything else that may have found its way onto the paper (you’re not supposed to write in the margins on your ballot, but some voters do, and even sign their names.)

Both kinds of records can hold interest for researchers; for example, they can shed light on unintended consequences of ballot design for voter behavior. They can offer a practical benefit in case of close elections by allowing the side that is behind to check quickly how many ballots are marked ambiguously, which can make the difference in whether it is worth pursuing a recount or challenge.

For all these reasons, to pursue general goals of transparency, and sometimes because they see it as required by public records law, quite a few states and localities have been releasing one or both of these records for some time. There don’t seem to have been any privacy disasters—yet, at least.

What are the privacy hazards? If you’re one who likes to write and sign little messages on the ballot when you vote, obviously, the release of ballot images may bring both your message and your identity to the attention of strangers. But it’s possible that someone can deduce which ballot is yours even if you don’t do that, and without the visual image. You might be the only one in your small precinct to back a third‐​party candidate or write‐​in. The chances of identification rise if the record carries a timestamp or sequence‐​of‐​ballots‐​received number and someone remembers you voting first thing in the morning.

Administrators might evade these hazards by redacting or combining some data before public release—grouping precincts together, for example. But that comes at a cost in further expense and delay, as well as making the data less useful.

A new law enacted by the Minnesota legislature as part of wide‐​ranging election reform takes a middle course. It classifies ballot images themselves as sensitive individual data not to be released, but it directs that cast vote record (CVR) data be made public unless it falls into certain categories “likely to facilitate associating votes with particular voters, such as showing the order in which the votes were cast,” to quote one report.

One reason the landscape is changing quickly is that election administrators have scrambled to respond to a wave of public records requests for cast votes; election conspiracy buff Mike Lindell has urged his followers to file such requests. Some offices calculate that pre‐​emptively releasing the records to everyone would be easier than coping with the request barrage.

Admittedly, the disclosure is unlikely to satisfy the most ardent #StopTheSteal believers, who may interpret redaction of timestamps, for example, as evidence that the authorities are trying to cover up midnight vote “dumps.” Yet the same data might persuade or reassure others.

Arizona Secretary of State Adrian Fontes, who favors aggressive transparency in a state torn by election bickering, says releasing the full data could force conspiracists to play on a level field with less committed observers who currently lack a way to evaluate claims of occult goings‐​on. If things went well, according to a Washington Monthly account sympathetic to the idea, fanciful claims of ballot mishandling “could also then be checked by other outside groups and individuals with direct access to the same ballot images.”

At a time when a majority of adherents to one political party tell pollsters they don’t accept the other side’s win as legitimate, it’s hard not to be curious about what greater transparency might accomplish.

Marc Joffe

Transit policy analyst Brad Thomas recently ranked US streetcar systems by the number of passengers they carried per hour of service in September 2023. Occupying the bottom spot was the St. Louis Loop Trolley, which transported just 2.1 passengers per hour according to Thomas’ analysis of Federal Transit Administration data.

Looking back at the trolley’s 2022 results, we see that its operating costs per passenger were $153.67, raising the possibility that it would be cheaper for St. Louis to provide the two hourly passengers with a chauffeur‐​driven limousine ride rather than continue operating is 2.2‑mile streetcar line.

St. Louis’ experience should be a cautionary tale for other cities that are considering streetcars, light‐​rail systems, or other rail‐​based transit projects. These systems all require relatively large, fixed investments that often do not pay off when expected ridership fails to pay off.

The St. Louis Loop Trolley was the dream of a local businessman who hoped to restore some of the streetcar service of his youth while reinvigorating a commercial district that had seen better days and where he operated multiple establishments. In 2010, his dream took a large leap toward reality when the federal government awarded $25 million to a special district created to build and operate the streetcar line.

Although the project was estimated to cost $44 million when federal funding was secured, costs escalated to $51 million by the time of project completion. This might have been acceptable had the line achieved its projected ridership of 394,000 passengers per year, but the expected demand failed to materialize.

After numerous construction delays, the trolley opened for passenger service in November 2018. In the first twelve‐​and‐​a‐​half months of operation, ridership totaled a mere 17,292 passengers. Fare revenue and proceeds from a 1 percent tax levied on sales from businesses along the line were insufficient to fund operations, which were suspended at the end of December 2019 (notably this occurred prior to the pandemic, so disappointing demand cannot be attributed to COVID-19 in this case).

Unfortunately, the district was obligated to maintain service as a condition of its grant agreement, and, two years after the line stopped operating, the Federal Transit Administration issued a letter demanding a resumption of service. In the letter, the FTA threatened to claw back its grant funds if trolleys were not running by June 1, 2022.

Local officials turned to another agency, the Bi‐​State Development Commission (BSD), to take over the line and restart service. After securing an extension from the FTA, the commission resumed trolley service on August 4, 2022. It operated just four days per week and shut down again at the end of October for a winter break. The now “fare‐​free” service attracted just 4,367 passengers while operational costs totaled $671,082, yielding the sky‐​high cost per passenger cost reported above.

For the 2023 season, service started again in late April with a total of only 7,181 passengers using the line by the end of September. On August 5, a trolley collided with a car that had run a stoplight causing significant damage. Fortunately, the trolley had no passengers at the time, thus minimizing the chance of injuries.

At this point, the best option would be for the federal government to release BSD from the obligation to continue service and treat the grant funds as a write‐​off. The 1 percent local sales tax add‐​on could also be eliminated. As the Show Me Institute’s Jakob Puckett has noted, the $51 million spent to build the line represents a “sunk cost”, which should not determine policy decisions going forward.

Meanwhile, other cities can avoid a similar predicament by rejecting streetcar projects altogether. The short segments served by these rail vehicles can be readily served by lower‐​cost buses, which can easily be switched to other routes if demand fails to materialize. And, for all transit projects that require significant up‐​front investment, it is essential to get reality‐​based ridership projections.

Romina Boccia

Members of Congress say they want to be in the driver’s seat on correcting America’s rapidly deteriorating fiscal situation. Recent fiscal commission bills, such as the House Fiscal Commission Act [H.R. 5779] and its companion bill the Senate Fiscal Stability Act [S. 3262], require politicians to make up a majority of commission members and for Congress to vote on a final package. Previous bills, including the Sustainable Budget Act (H.R. 710) would only allow members of Congress to serve on a fiscal commission. There is a real risk that such a politically driven approach will fail (again).

What if members of Congress could have their fiscal commission and taxpayers could secure a fail‐​safe mechanism in the event Congress’s plan went belly up? Enter what I call the “fail‐​safe commission approach.”

Two Commissions Are Better Than One

Instead of relying entirely on one commission to come up with a plan to stabilize the debt, Congress could establish two fiscal commissions, working along parallel tracks, to increase the chances of a working proposal emerging from either or both.

One of the commissions would be a congressional commission, with members of Congress at the helm, guided by a competent staff and perhaps some outside experts. The other commission would be an independent commission, composed entirely of outside experts, guided by competent staff, and including perhaps some former members of Congress (who do not intend to run for re‐​election again, ever).

The two commissions would work in parallel, coming up with their respective proposals for stabilizing the US public debt at no higher than the economic product of the country, or 100 percent of GDP, and ensuring the long‐​term solvency of old‐​age benefit programs: Medicare and Social Security.

Congress Gives it a Go

If the congressional commission succeeds in advancing a proposal that meets these goals, and Congress passes said proposal via expedited procedures in both the House and Senate, the congressional proposal would save the day. We should hope for such an outcome. It would be a relief to see Congress responsibly and sensibly address the growing US fiscal crisis by reforming politically popular and economically unsustainable old‐​age benefit programs, guided by re‐​establishing generational equity and securing a prosperous future for all Americans.

But we shouldn’t put all our eggs in this one basket. We can’t afford it.

A Fail‐​Safe Mechanism

If the congressional committee failed, either in devising a working proposal or in passing it, the independent commission’s proposal could advance through silent approval. This means the independent proposal would become law if the president approved it and Congress did not pass a resolution of disapproval within 45 days.

As such, this fail‐​safe congressional fiscal commission plan would establish both a congressional commission, with expedited voting procedures to smooth the path to adoption, and a BRAC‐​like fiscal commission, modeled after the successful Base Realignment and Closure Commission, composed of independent experts whose proposal would be fast‐​tracked to the president with silent approval by Congress.

This is not an entirely new concept. In a joint Brookings and Committee for a Responsible Federal Budget paper arguing for the creation of a long‐​term budget for entitlements, Stuart Butler and Maya MacGuineas propose what they coin an “inside‐​outside” approach. The “outside” part would establish an independent commission whose recommendations would be the default mechanism to set the long‐​term budget for entitlements. The “inside” part would simultaneously set up a congressional super committee that could override the independent commission’s package and whose proposals would be eligible for an expedited vote.

As described by Butler and Timothy Higashi in a separate Brookings paper:

“In this way, the commission would, in effect, force the issue but the congressional leadership would not in practice concede the details to the commission.”

We Can’t Afford to Fail Again

Washington politicians have long known that current spending policies are unsustainable. Yet they’ve failed to act to avoid a debt crisis that’s now closer than ever. Previous commissions, relying primarily or exclusively on members of Congress to fix the debt, have failed. Even when they’ve succeeded in coming up with a plan, they haven’t been able to pass it in Congress (see Simpson‐​Bowles).

Interest costs are rising. Treasury will need to refinance about one‐​third of all publicly held debt in the next year, at now far higher rates. The large size of the US public debt, approaching $27 trillion entails higher interest costs as well. Additional borrowing to the tune of $2 trillion in 2023 further adds to the problem, crowding out other private sector investments and pushing up rates further. Americans can no longer afford to wait on Congress to step up to the challenge.

It’s time for a new approach. Pairing a congressional fiscal commission with an independent fiscal commission that’s modeled after BRAC will establish a fail‐​safe approach. It will put additional pressure on Congress to do the right thing and bail us out should lawmakers fail us yet again.

Note: The House Budget Committee is holding a second hearing on the topic of a fiscal commission. The November 29 hearing is titled “Examining the Need for a Fiscal Commission: Reviewing H.R. 710, H.R. 5779, and S. 3262.” A previous hearing was held on October 19 and titled “Sounding the Alarm: Examining the Need for a Fiscal Commission.” I wrote about the latter here.

Vanessa Brown Calder

So‐​called junk fees have become a popular topic this year, and rental housing is a particular area of interest as US markets struggle with affordability challenges. The White House selected rental housing as the focus for fee crackdowns over the summer, and a recent hearing on Competition and Consumer Rights in the Housing Market described junk fees as an affordability issue increasing costs for low‐​income renters, which may prevent them from moving to a new home.

According to the White House, junk fees in rental housing include repeated application fees and convenience fees, like fees to pay rent online or for mail sorting and trash collection, which result in a “serious burden on renters.” Other critics have suggested that fees for internet use or pet rent also qualify as “junk” and argue that these fees “confuse or deceive” consumers and take advantage of market power.

But are these fees meaningful, or are they a distraction from genuine housing issues? To begin with, the economic logic for junk fees also applies to fees in rental housing. For example, rental fees are small compared to the total amount spent on housing by renters. Whereas rental application fees typically cost between $25-$100, the national median rent is over $2,000 monthly. Application fees usually cover the costs of doing a credit or background check for a potential tenant and sometimes the time and labor associated with application processing—in other words, genuine business costs.

Moreover, attempting to control so‐​called junk fees, including rental application fees, late payment fees, pet fees, parking fees, or internet fees, would likely lead total rents to adjust upward. In this case, regulating junk fees would mean consumers are subject to a higher base rent and would be required to subsidize the preferences and behaviors of other tenants even though they intend to pay rent on time, do not have a pet, are not planning to drive or park a car, etc. In this way, eliminating junk fees would reduce tenant choice so tenants cannot opt out of services they do not require. Counterintuitively, regulating junk fees would reduce affordability for some tenants.

If regulating fees wouldn’t lower overall rents, could regulating fees at least improve transparency? Regulation requiring landlords to provide would‐​be tenants with a singular, up‐​front price counterintuitively introduces new opaqueness, as consumers may not have access to information regarding the component parts of their rent. Moreover, in a market economy, there are incentives for businesses and entrepreneurs to provide the transparency that consumers desire. Even the Biden administration’s fact sheet notes that Zillow, Apart​ments​.com, and Afford​able​Hous​ing​.com plan to provide consumers with total, upfront cost information on rental properties.

Although regulating junk fees is unlikely to reduce costs or meaningfully improve transparency, policymakers could improve housing prices more meaningfully by prioritizing other reforms. An influential study from 2003 found that zoning regulations pushed up the cost of apartments by around 50 percent in Manhattan, San Francisco, and San Jose. Notably, zoning frequently limits development to large homes on large lots, with more expensive materials and other features that are best absorbed by owners rather than renters. Zoning largely prohibits building apartments, duplexes, fourplexes, townhomes, and condos that comprise much of the rental market.

Other policies also increase the cost of rent by limiting housing supply or increasing costs, and federal lawmakers could remedy these issues. For instance, transferring just 0.1 percent of federal lands to states could result in almost 3 million new homes, eliminating or substantially reducing the housing “shortage” in fifteen Western states.

Meanwhile, reforming federal trade policy could reduce the cost of housing construction inputs, between 1.4 percent for kitchen cabinets to 22.4 percent for vinyl flooring.

Getting serious about these issues would make the most significant difference for renters. Unfortunately, in the broader scheme of things, so‐​called junk fees are more of a distraction than a solution to affordability problems.

Jeffrey A. Singer

New Zealand’s newly‐​elected center‐​right government announced yesterday that it intends to scrap a planned phase‐​in of tobacco prohibition that would ban sales of tobacco products to people born after 2009. The plan would have also cut the number of retailers permitted to legally sell tobacco by 90 percent and ordered tobacco makers to reduce the nicotine content of cigarettes they may sell. Anyone versed in the economics of prohibition would have predicted that each of those three measures would help fuel a vibrant black market with its corresponding violent crime and corruption.

This is good news for New Zealanders, where less than 14 percent of persons over age 15 smoked tobacco in 2020. They will avoid yet another state encroachment on their personal liberty along with tax increases to fund government spending on enforcing tobacco prohibition and fighting tobacco smugglers.

UK Prime Minister Rishi Sunak should take notice. Last month, his government announced plans to clone New Zealand’s tobacco prohibition plan. Announcing his plan at Britain’s Conservative Party Conference, Sunak said, “A 14‐​year‐​old today will never legally be sold a cigarette.”

Sunak’s announcement came as both a surprise and a disappointment to tobacco harm reduction advocates, given the UK’s heretofore reasonable approach to reducing tobacco smoking. While nicotine is the addictive component of tobacco smoke, it is a relatively harmless stimulant, not very different from caffeine, as Scotland’s NHS Informs has stated. The other components of tobacco smoke are what produce harm to health.

The UK’s Royal Society of Public Health claims nicotine is “no more harmful to health than caffeine.” Public Health England has claimed that “vaping” with nicotine e‑cigarettes is “95 percent less harmful than tobacco smoking.” The Royal College of Physicians has issued the following statement:

[T]he available evidence to date indicates that e‑cigarettes are being used almost exclusively as safer alternatives to smoked tobacco, by confirmed smokers who are trying to reduce harm to themselves or others from smoking, or to quit smoking completely.
There is a need for regulation to reduce direct and indirect adverse effects of e‑cigarette use, but this regulation should not be allowed significantly to inhibit the development and use of harm‐​reduction products by smokers.
However, in the interests of public health it is important to promote the use of e‑cigarettes, NRT [nicotine replacement therapy] and other non‐​tobacco nicotine products as widely as possible as a substitute for smoking in the UK.

So far, Brookline, Massachusetts is the only jurisdiction in the United States to have enacted a tobacco ban. Brookline bans the sale of tobacco to anyone born after the year 2000. It doesn’t take an entrepreneurial genius to figure out ways to make money legally selling cigarettes to adults from the other side of the Brookline town line.

Earlier this year, California lawmakers considered making the Golden State the first in the nation to enact New Zealand’s tobacco prohibition model into law. A bill to that effect failed to advance during this year’s legislative session. Interestingly, California’s major anti‐​smoking and anti‐​vaping groups chose not to lobby for the bill. A Cal Matters report quoted Autumn Ogden‐​Smith, director of California state legislation for the American Cancer Society Action Network, saying, “This is not the time to tackle this. We’re trying to do the clean‐​up on the flavored tobacco ban. We’re having enforcement issues.”

As I wrote here, banning menthol tobacco creates its own set of harmful unintended consequences.

New Zealand’s recent about‐​face on tobacco prohibition will hopefully put to rest similar efforts in California and other states. Let’s hope it will also cause Sunak and his Conservative Party to reconsider their plans. The UK had the right approach to reducing tobacco smoking until now: opting for evidence‐​based tobacco harm reduction instead of prohibition.

Paul Matzko

The Wall Street Journal ran another article about the decline of the local newspaper in what has become its own, depressing sub‐​genre. It hits all the usual beats: an opening story of a failing local paper that illustrates broader industry struggles — in particular, the rise of “ghost newsrooms” that employ no professional journalists — and which prevent local news from holding governments and companies to account.

This is all true and sadly familiar. But tucked away towards the back of the piece is a fascinating, embedded story‐​within‐​the‐​story. If that buried story were foregrounded, it would provide a less routine — and much more hopeful — account of the state of the news industry. It’s about a phenomenon that I call the “new news,” and which is replacing the legacy local news industry.

Deep into the article, we are introduced to Vince Tweddell, a native of Henderson, Kentucky (population 29,781), who earlier this year started his own hyper‐​local news website covering topics from the opioid crisis (“All 14 overdose deaths through Sept. caused by fentanyl”) to renewable energy (“Standing on the edge of the future: Solar comes to Henderson County”). There is enough demand for what the Hendersonian publishes — daily articles on the website, a free monthly print edition, and an upcoming subscription newsletter — that this former adjunct community college writing professor has been able to quit his teaching job and focus on the news outlet full‐​time.

But Tweddell’s story falls below the metaphorical fold, as is the author’s note that there are “several other” promising news startups like it, including some with a habit of scooping legacy news outlets on breaking news.

Yet the takeaway at the top of the article is this:

In some places—including Henderson—startups have sprouted to cover the issues that no longer appear in the local paper’s pages, but not to a degree large enough to offset the decline of established news publications, the study said.

That’s it. Don’t get too hopeful, folks. Some places. Some startups. But “not to a degree large enough.” Honestly, not sure why we even bothered to mention them. After all, the study said so. Wait, really??

Turns out, if you read the study — by the ‘State of Local News” project out of Northwestern University — that’s a misrepresentation.

Now, you need to understand something about this project. For years it’s been tracking the closure of legacy local news outlets. It’s always made for grim reading, which had utility for legacy news outlets as they argued for various government bailouts.

But the project only just started publishing data on new news startups *this* year! And it turns out that when you look at gains and don’t just fixate on losses, this is what you get:

There are about 550 digital‐​only local news sites, many of which launched in the past decade, but they are mostly clustered in metro areas. In the past five years, the number of local digital startups has roughly equaled the number that shuttered.

In other words, we may have reached the nadir of the collapse of the traditional local news industry and are now replacing legacy newsrooms with new news startups at roughly a one‐​to‐​one ratio.

Even better, the new news outlets appear to be organized on a more sustainable footing with privately‐​sourced financing. Frequently, they’re run by former traditional journalists who find they can make a better income from their startups than they ever did working for legacy news outlets.

The startups are also independently owned at a higher rate than the shuffling newspaper conglomerates that are often run by hedge funds, which acquire legacy outlets, strip them down for parts, and leave behind “ghost newsrooms” reduced to begging for public subsidies rather than innovating to meet actual consumer demand. It’s zombie conglomerates running ghost newspapers.

Although, as the report notes, the new news revolution isn’t equally distributed. The startups are disproportionately clustered around larger towns and major metropolitan areas. And while that is a problem, it’s likely a temporary one. Think of the geographic distribution pattern of any product rollout, chain store expansion, or cultural innovation. They start from the population centers and radiate outward. Indeed, this was true for the early history of American newspapers, which began as reports on the comings and goings of merchants in harbor towns.

As I wrote in 2021, we should expect the pattern of new news startups to continue to percolate downward. It already has. It began a decade ago with journalists defecting from national outlets to start specialized publications reaching industry‐​specific audiences. It then expanded a few years ago to region‐​specific startups covering stories from mid‐​major cities like Charlotte, North Carolina that have hundreds of thousands of residents.

Now it’s arriving in county seat‐​type communities with tens of thousands of residents, like Vince Tweddell’s startup in Henderson, Kentucky. And soon we should expect similar startups — even operated on a part‐​time basis by those with deep, local knowledge — to sprout up in every town with at least a few thousand residents.

So the story‐​within‐​the‐​story is that a more sustainable, innovative, and often superior quality “new news” media is on the horizon. If you have an interest in improving local news coverage — watering the local news “deserts,” if you will — there hasn’t been a better time to invest in local news media startups in a generation. There will be growing pains; the geographic coverage will be unequal at first. But journalists no longer need to remain stuck in a 2010s doom‐​and‐​gloom mindset about the state of local news.

Crossposted from the author’s newsletter. Click through and subscribe for more posts from the intersection of history, policy, and mass media.

Scott Lincicome

Today we’ve published three new essays for Cato’s Defending Globalization project:

Trade Buys Goods, Services, and Time, by Gabriella Beaumont‐​Smith, explains that trade not only provides consumers with lower prices and expanded variety, but it also gives people the autonomy to specialize in activities they’re good at and frees up their time to invest in other activities.

Fast Fashion, Global Trade, and Sustainable Abundance, by Joy Buchanan, discusses the myriad economic and social benefits of clothing abundance, much of which is owed to globalization, and the future of more sustainable global fashion.

Technology and Innovation, Not Just Policy, Help Drive Globalization, by Colin Grabow, shows that globalization isn’t simply the choice of government officials but the realized aspiration of untold numbers of people whose work has steadily shrunk the world, expanded markets and brought us closer together.

We’ve also published the video recording of the launch event for the project, in which former US Trade Representative Robert B. Zoellick spoke on the current state and the future of globalization.

This content joins nineteen other essays and other multimedia features on the main Defending Globalization project page.

Make sure to check it all out and stay tuned for future releases.

Thomas A. Firey

US antitrust officials have been busy of late. They’re awaiting a ruling in a major case against Google, in the midst of a suit against Amazon, looking to circumvent a court ruling allowing Microsoft’s acquisition of game maker Activision Blizzard, and probing Adobe’s acquisition of cloud‐​based designer Figma and the merger of grocers Kroger and Albertsons. They’re also side‐​eyeing ExxonMobil’s deal for Pioneer Natural Resources and Cisco’s bid for cybersecurity firm Splunk.

Yet, despite this full plate, these officials are launching another probe into a serious threat to the US economy: Big Sandwich.

Last week, The Hill reported that the Federal Trade Commission is examining the Subway sandwich chain’s acquisition by private equity firm Roark Capital. Roark already holds sandwich makers Jimmy John’s, McAlister’s Deli, and Schlotzky’s, as well as Arby’s.

Consumers may think the deal could allow Roark to bring the latter chains’ quality to Subway, which has had its problems. But the FTC apparently fears Roark would gain market power over hoagies, grinders, and subs.

(At this point, I want to note this is not The Onion.)

The Subway investigation is just the latest step in a dramatic recent shift in US antitrust policy. For decades, regulators eyed such dealings with one over‐​arching question in mind: Will it benefit or harm consumers? Historical evidence shows this “consumer welfare standard” has delivered considerable benefits to Americans.

But in the last few years, there has been a push for antitrust to broaden its scope and consider “bigness,” in and of itself, economically dangerous regardless of its effect on consumers—a viewpoint termed “Neo‐​Brandeisianism.” Prominent politicians of both major political parties have embraced this view, and it has been operationalized by Biden administration appointees Lina Kahn at the FTC and Jonathan Kanter at the Department of Justice’s Antitrust Division.

Problem is, when neo‐​Brandeisians try to explain what those dangers are, their predictions don’t jibe with reality. My colleague Peter Van Doren describes some of the academic research on Neo‐​Brandeisians’ bad predictions here.

In the next issue of Regulation, University of Missouri law professor Thom Lambert and law clerk Tate Cooper look at some of the dangers of Neo‐​Brandeisianism; I’ll post a link to it here as soon as it’s available. Until then, enjoy this backpage essay by Regulation contributing editor Ike Brannon, who tongue‐​in‐​cheek predicted 18 months ago that neo‐​Brandeisians would attack a (hypothetical) merger of Ponderosa and Bonanza restaurants for creating a dangerous Big TV‐​Themed‐​Steak monopoly. Ike got the specific restaurant sector wrong, but his hyperbolic humor has proven to be prescient.

Adam N. Michel

OpenAI released Chat GPT‑3 a year ago this month. The subsequent diffusion of ever more sophisticated artificial intelligence (AI) computer models drives near‐​daily innovations (and corporate intrigue), such as breakthroughs in biomedical research and improvements to autonomous transportation systems.

Techno‐​optimists believe these AI models are poised to revolutionize work and leisure. However, many of the same optimists, like Sam Altman, CEO of OpenAI, fear that AI’s transformations could “break capitalism” through a “shift of leverage from labor to capital,” and undermine the role of traditional work in our economy. Such worry has led the likes of Bill Gates to suggest new taxes on the income earned by AI or robots to slow the economic transition and fund new income‐​transfer programs.

Contrary to that narrative, empirical evidence does not support the worker displacement theory. New taxes on capital will make achieving the positive gains promised by AI or any other future innovation less likely. If the revenue is used to fund new income‐​support programs, it could also undermine labor supply.

Workers Are Not Losing a Competition with Capital

Historically, economic and technological changes have stoked fears of widespread worker displacement. Yet, time and again, these fears have not fully materialized. From the Luddite movement’s opposition to mechanized looms during the Industrial Revolution to the anticipated job losses following the personal computer’s introduction, these fears have consistently proven unfounded. Instead, each innovation has ultimately improved workers’ wages and conditions.

Neoclassical economists attribute economic output to the combination of capital, labor, and technological innovations. Capital and labor’s contribution to output is described by an elasticity or, more colloquially, each component can be thought of as earning a share of national income. If, over time, capital became more important for economic output, capital’s share of income would increase. Figure 1 uses data from the US Bureau of Economic Analysis to show that the labor share of net income (net of taxes and depreciation) is within its historical range, fluctuating above and below the average of 69 percent.

Labor’s share increased slowly from 1930 through 1970 and remained above 69 percent through 2005, as it declined slightly before returning to the century‐​long average. In 2022, the labor share was 68 percent, and in the second quarter of 2023, labor’s share of net income increased to 70 percent.

In the neoclassical model, there is a limit to how much additional work or investment can be induced by policy. In the medium term, the number of workers and machines is finite. Thus, long‐​run growth is primarily driven by technological progress, which combines with labor and capital to increase productivity and allow the same workers to work more efficiently with new and better tools (capital).

Technological progress flows from new ideas employed by entrepreneurs that allow people to use existing resources more efficiently. Capital and labor are complements and substitutes. Thus, in theory, productivity‐​increasing technologies could increase either worker or the capital contribution to income. These new technologies have always replaced some jobs but, in the process, created entirely new industries and increased demand for labor. Empirical evidence of labor shares across countries demonstrates that technological progress has not altered the power dynamics between labor and capital—as reflected in the relatively stable labor share of income in Figure 1.

Other research also consistently finds that pay and productivity (correctly measured) have increased at almost identical rates for many decades. Less complex measures similarly confirm that despite significant technological disruptions, it is easier to find a job today than five decades ago, as measured by a low unemployment rate and corroborated by more recent data on job openings.

What if AI is more than just a tool that increases productivity? What if general artificial intelligence (AGI)—something that has not been fully realized—could replace the role of the entrepreneur, actively coming up with new ideas that increase productivity? Even in this science fiction world, new ideas must combine with labor and capital to produce income. Historically, new ideas have not radically shifted the labor‐​capital dynamic, regardless of where they come from.

In the face of an unknown future, it is tempting to claim that “this time is different.” That AI’s productivity increases will permanently shift productive processes away from workers, replacing them forever with machines and software. This could be true. But the long history of economic progress shows that the benefits of more efficient use of capital are broadly shared by workers.

Don’t Tax the Future

The premise that workers lose from dynamic, technological progress is historically wrong. The policy solutions to the perceived technological disruption will also undermine the promised benefits of the AI revolution (and the next innovation not yet conceived). The most common policy proposals have been regulatory restrictions, but higher taxes on the income earned by investments in AI could be just as harmful.

Higher taxes on capital income can come in many forms—taxes on capital gains, corporate income, wealth—but they all function similarly; they tax the productive deployment of resources. Capital, such as tools, machines, or computers, are owned by people who delay consumption to save and earn a return on their investment. The return on investment is made up of a payment for waiting to consume and a payment for successful risk‐​taking, such as investing in an unproven AI algorithm.

If there is no return to saving, people will immediately consume more of their income. Thus, higher taxes on capital income negatively affect both of these margins—taxes result in less available capital and less willingness to take risks. The diminished incentive to take risks also extends to highly skilled workers who are often compensated with stock options—claims on the firm’s future returns.

Both theoretical and empirical economic literature confirm that capital taxes are some of the most economically costly ways to raise government revenue, resulting in fewer startups, less venture capital funding, fewer new patents (a measure of innovation), and slower economic growth. If policymakers increased taxes on income earned from personal computers in the workplace or spellcheck algorithms for fear of lost jobs, there would have been less innovation in personal computing. 

Technologists working to deploy their new ideas are often the very people most worried about how the innovation will disrupt markets and cause economic dislocations. Innovation can cause short‐​term disruptions, but the resulting economic progress provides the resources to create new jobs that result in higher living standards and increased well‐​being. Even in a worst‐​case world in which this time is different, taxing the returns to capital still depresses investment, which ultimately undermines future growth. 

Slowing or stopping economic progress with higher taxes or new regulations does not protect against future disruptions. Economic stagnation is also disruptive. Pay raises and career advancement are easier in a growing, dynamic economy where employers compete to hire and train new talent. Higher taxes on capital income rob future generations of the necessary resources to improve their lives.

By understanding AI as a complement to human labor rather than only a threat, policymakers can avoid counterproductive taxes or other policies that risk stifling the innovation that historically has proven to enhance, not diminish, the lives of people at every income level.