Of particular importance is the fact that though efforts to reduce the regulatory burden on nuclear power are showing some signs of success, subsidies to nuclear remain high. I argued that both unnecessary regulations and subsidies to nuclear and other energy technologies should be removed.

Given growing concerns about climate change, the key question for nuclear is whether its societal benefit as a zero-carbon electricity source is worth its large construction costs. If the answer is yes, then the benefits may justify subsidies or other government interventions to support the building of new nuclear power plants. A definitive answer to this question, though, requires knowledge of the actual damages of carbon emissions, which continues to be debated. 

In our 2020 working paper on the economics of nuclear power, Peter Van Doren and I ask an alternative question: What level of carbon damages would justify construction of a nuclear power plant instead of an alternative fossil fuel power plant? With the recent flurry of nuclear activity and legal and regulatory changes, it is worthwhile to revisit our calculations.

To do so, I compare the levelized cost of electricity (LCOE) of a new nuclear power plant and a new natural gas combined cycle (NGCC) plant under different assumptions. The LCOE is an estimate of the lifetime costs of a power plant expressed in cents per unit of electricity produced (kilowatt-hours, kWh). The calculation accounts for the construction costs, construction time, financing, fixed and variable operations and maintenance, and fuel costs.1

The assumptions for nuclear are based on a recent Department of Energy (DOE) report on nuclear power, though my assumptions differ in a few key ways.2 In my last blog, I outlined why the DOE report is overly optimistic, which is reflected in its estimates of future nuclear LCOEs (see Figure 3 on page 4). Most importantly, it commits a common error made by many pro-nuclear projections. It describes the high cost of recent projects, outlines vague ways in which these costs will be reduced in the future, and then simply waves its hands and assumes substantially lower costs. 

The DOE estimates that the most recent US nuclear project (at Vogtle in Georgia) had a construction cost of $15,000 per kilowatt of capacity built ($/​kW) and took 11 years to build. It also provides LCOE estimates if construction cost and time are reduced by around 40 percent, to 8,300 $/​kW and 6 years. The most important factors for nuclear LCOE are construction costs and time (which affects the costs of financing), so such a large assumed reduction has a substantial effect.

The DOE also includes the effect of subsidies, including favorable federal loans and investment tax credits created by the Inflation Reduction Act. My calculations ignore these because: 1) the subsidies don’t change the underlying economics of nuclear power, they simply transfer some of the cost to taxpayers; and 2) as long as these subsidies are motivated entirely by climate change, their value is included as a portion of the carbon tax necessary to equate the cost of nuclear and alternative energy sources that I estimate below (i.e., a subsidy to clean energy is a negative carbon tax).

The LCOE of nuclear, at both the cost level seen at Vogtle and after assuming a 40 percent reduction in construction cost and time, are reported in Table 1.3 Also included are the estimated LCOEs of nuclear’s primary alternative, a natural gas combined cycle plant. While nuclear is dependent on construction costs, the most important variable for NGCC is fuel costs. The LCOE of NGCC is thus evaluated at varying fuel costs based on Energy Information Administration natural gas price projections.4

Table 1 also includes estimated LCOEs for NGCC with 95 percent Carbon Capture and Sequestration (CCS). This spring, the Environmental Protection Agency (EPA) enacted a new rule requiring that new natural gas plants operating more than 40 percent of the time must reduce their emissions by at least 90 percent, with the EPA determining that CCS is the best system for reducing emissions. The rule is likely shortsighted and is facing legal challenges. However, if the rule goes into effect as currently envisioned, NGCC without CCS will likely no longer be possible to build. Thus, I also estimate the LCOE of NGCC with 95 percent CCS based on cost estimates from the National Renewable Energy Lab (NREL).

Overall, the picture is clear. Nuclear at either assumed construction cost and time is expensive. NGCC without CCS is much cheaper, and NGCC with CCS is slightly more expensive but still less than nuclear at any assumed fuel cost. How does this picture change if climate damages are considered?

The social cost of carbon necessary to justify building a nuclear power plant instead of the much cheaper NGCC plants is calculated using NREL estimates of the carbon intensity of the modeled NGCC plants.5 The results, reported in Table 2, make it clear that, at the high-cost level recently seen in the United States, nuclear’s clean energy benefit does not outweigh its large costs. 

For example, for the construction of nuclear at the high assumptions (LCOE of 22.3 cents per kWh) instead of an NGCC with low assumed future natural gas prices (LCOE of 4.1 cents per kWh) to be justified by climate change the estimated damages of carbon emissions would need to be more than $400 per ton.

The estimates of the carbon tax needed to equate the LCOEs of NGCC without CCS and nuclear at the assumed low-cost level are closer and in line with recent federal estimates of the social cost of carbon ($190 per metric ton in 2020 dollars), though the assumptions behind those estimates are up for debate. Of course, whether those construction costs and times are even achievable is also doubtful.

When NGCC with CCS is considered, the required assumed costs of carbon damages are enormous because the modeled natural gas plants are emitting only 5 percent of the carbon emitted by the plant without CCS. Of course, CCS technology is still unproven, so the cost estimates are theoretical (and highly controversial in their own right) and exclude important factors like the transport and storage of the captured carbon emissions. Ironically, prospects for either CCS or nuclear may end up depending on how economically infeasible the other is.

Overall, this analysis highlights two points. First, nuclear will require substantial cost reductions before it is worth investing in, whether its clean energy benefit is considered or not. Second, our current web of subsidies and regulations makes it difficult to evaluate the benefits and costs of various energy sources. The complexity restricts our ability to optimize energy sources considering a range of factors including cost, reliability, and environmental damages. We should stop favoring certain sources through subsidies and punishing others through regulation, and, if necessary, find ways to directly price in unquantified costs and benefits.

Read the Cato-at-Liberty blog post here.

Despite the flurry of attention, nothing suggests that the underlying economics of nuclear have changed. Nuclear remains expensive, and its costs likely outweigh its benefits as a zero-carbon energy source.

A recent Washington Post editorial, drawing heavily from a Department of Energy (DOE) report on pathways to deploying new nuclear power, summarizes the optimistic view of nuclear’s prospects. But to anyone who has paid attention to the United States’ historic and recent experience with nuclear power, the editorial and report are wildly overconfident.

The DOE argues that the US has the potential to deploy around 200 gigawatts (GW) of nuclear power in the next 26 years, tripling the current US capacity of around 100 GW by 2050. Getting there would require a ramp-up of nuclear construction, with the best-case scenario envisioning deployment beginning in 2030 and reaching a “steady state” level of 13 GW deployed per year in 2041.

This is a pace that has never been seen. In China, where the most recent large-scale growth in nuclear capacity has occurred, deployment averaged 3.4 GW per year between 2014 and 2023. According to the DOE report (reprinted here in Figure 1), annual deployment in the United States, which has the largest nuclear fleet in the world, averaged 6 GW per year between 1973 and 1987 and peaked at 10.5 GW in 1974. It has since stalled. In the past 30 years, the United States has commissioned 4.6 GW of nuclear capacity, an average of 0.15 GW per year.

The slowdown in the United States (and similar slowdowns in other Western countries, including France, Canada, and Germany) was the result of cost overruns and construction delays, though the causes have been hotly debated. Peter Van Doren and I conducted an in-depth look in a 2022 working paper and concluded that ineffective construction management and the high level of regulation on nuclear power plants both played an important role. However, there is no conclusive estimate of the relative shares of the cost increase that can be attributed to each factor.

The most recent US nuclear construction projects were designed specifically to deal with the historic drivers of cost increases. Construction on four reactors at two sites (Vogtle in Georgia and V.C. Summer in South Carolina) began in 2013. The projects benefited from a large amount of government subsidies, loan guarantees, and risk insurance to offset cost overruns, and the reactor technology used was the first licensed by a new Nuclear Regulatory Commission process designed to preclude past regulatory impediments.

It was hoped that these and other features would help the projects avoid past pitfalls. They didn’t. The Vogtle reactors finally came online in 2023 and 2024 at more than double initial cost projections (around $32 billion compared to predictions of $12 to $14 billion) and eight years late. Construction at V.C. Summer was canceled in 2017 after $9 billion was sunk into the failed project.

By backing new reactor technologies, Google and Amazon are concluding that their chosen projects will be different. If these projects are successful, they would be incredibly beneficial. But these decisions are not simply private companies taking risks. We should be concerned about the role the government is playing in these decisions.

Historically, the federal government has taken a two-pronged approach to nuclear, imposing a high level of safety regulation while also providing a substantial amount of subsidies. Recently, efforts have focused on reforming the NRC licensing process, especially to allow for more innovative reactor designs. We should applaud any efforts to reduce overly burdensome regulation. But considering that the historic cost problems have also been caused by other factors, these efforts alone will not fix nuclear’s shortcomings.

Meanwhile, the level of subsidies remains high. The Inflation Reduction Act applied new tax credits to nuclear power while last year the DOE spent more than $1.6 billion on various nuclear programs. These policies socialize some of the risk that companies like Google, Amazon, and Microsoft will take on if they elect to follow through on their nuclear agreements. R&D funding, tax credits, favorable loans, and subsidies don’t alter the intrinsic costs of nuclear, they simply transfer a portion of those costs to taxpayers.

Instead, we should remove both government barriers to and support for nuclear (and all energy technologies). If the calculus of nuclear makes sense to Microsoft, Google, and Amazon, they should take on the risk without taxpayers footing part of the bill.

Of course, the potential societal benefit of clean energy muddies the waters somewhat. But Peter Van Doren and I evaluated the economics of nuclear when carbon damages are included and determined that, with current nuclear costs and compared to a natural gas power plant, the benefit of zero-carbon electricity is vastly outweighed by the astronomical costs of construction. It would require a substantial reduction in these costs before nuclear is economical, even when accounting for climate damages.

Read the Cato-at-Liberty blog post here.

Given Austin’s rapid growth and serious traffic congestion, light rail might seem like an obvious solution. But continued rapid population growth is by no means a sure thing. Last year, Austin fell out of the top 10 US cities by population after being surpassed by Jacksonville, Florida. And Travis County, which includes Austin and surrounding areas, saw its first year of net out-migration since 2002. Both the city and county are still growing, but the rise in population could further slow or reverse given Austin’s high housing costs.

But even if Austin’s population flattens, there is still the question of how its 980,000 residents (plus visitors) can move about the city without causing traffic jams. Light rail is not a cost-effective solution to congestion, and there are other things the city could do to obtain some relief more quickly.

The light rail project is on track to get its Full Federal Grant Agreement (FFGA) in 2027. The city could then commence construction with an eye toward finishing the project in 2033. But these dates could well slip.

FTA typically requires a secure source of local funding before signing an FFGA. But the city is now defending a lawsuit filed by seven Austin property owners hoping to strike down the tax voters approved in 2020. Plaintiffs contend that the ballot measure called for a “citywide traffic-easing rapid transit system,” but Austin now plans to lay only a portion of the originally proposed track, violating its promise of a citywide system in the 2020 ballot language. As long as this lawsuit has a chance of succeeding, the federal grant agreement may not be forthcoming.

Once construction starts, there is no guarantee that it will be completed in six years. Indeed, other projects provide cautionary tales. Honolulu took 12 years to build its 10.75-mile Skyline. Maryland started construction of the 16-mile Purple Line in the Washington, DC, suburbs seven years ago and is not expected to start carrying passengers for another three years.

When Austin’s light rail begins operations, its impact on traffic congestion may not be that great. Project sponsors expect 28,500 daily riders by 2040, but past projections by other agencies have sometimes proved to be wildly overoptimistic. In Honolulu, for example, city officials expected 10,000 daily riders on phase one of its Skyline service, but thus far, actual ridership is only about a third of this projection. Rail projects in San Francisco and Southern California have also seen large shortfalls in actual versus expected ridership.

Further many future light rail riders may switch from existing bus service. Cap Metro’s 801 Rapid bus covers much of the route to be served by the light rail project, and many passengers from this bus line could be expected to become light rail passengers. As a result, even if light rail attracted 28,500 passenger trips in 2040, only a portion of those would replace car trips.

On the other hand, light rail will reduce the street network’s capacity through lane and road closures. For example, the city has proposed to close a portion of Guadalupe Street known as “The Drag” to vehicular traffic, diverting cars to Nueces Street. So, after spending $8 billion to slightly reduce car trips on a more constrained road network, the city may see little to no congestion relief.

But there are other things Austin could do to reduce traffic, and these options could be implemented well before 2033 at a far lower cost. First, it could make enhancements to the 801 Rapid and other core bus routes to reduce travel times, such as adding more transit priority lanes, traffic signal coordination, and level boarding (which saves time by removing the need for passengers to walk up and down steps at bus stops). These incremental measures might boost the 801 Rapid’s on-time performance above its current 75 percent level and thereby attract more riders. The city could also continue efforts to improve its CapMetro Bikeshare network by adding more locations and including scooters in the mix. Although shared micromobility is already popular in Austin, it has room to grow, as illustrated by Washington, DC. In the nation’s capital, shared micromobility utilization approaches 18 trips per day per thousand population, almost double Austin’s rate.

Big cities usually have some form of rail transit, and it is understandable that some in Austin would want to add this amenity as the city’s population approaches the million mark. But rail transit made more sense in the early 20th century when more personalized forms of transportation were less developed. As Austin hits its stride in the 21st century, its leaders should think carefully before investing heavily in a legacy form of transportation.

Read the Cato-at-Liberty blog post here.

During his 2016 presidential run, Trump promised to “tax the hell” out of Carrier products for relocating an Indiana plant to Mexico. As president-elect, Trump and vice-president-elect Mike Pence (Indiana’s governor) cajoled Carrier’s parent company, United Technologies, to keep the Indiana plant. The change of heart stemmed from a $7 million gift from Indiana taxpayers and a direct “reminder” from Trump to United Technologies’ CEO that the company benefits from billions of dollars in federal defense contracts.

As president, it was more of the same behavior:

• Trump threatened Harley-Davidson with “taxes like never before” after the company announced plans to move more production overseas due to tariffs imposed by the European Union in retaliation for his tariffs on steel and aluminum imports. 

• After previously criticizing General Motors for building cars in Mexico, Trump threatened the company for announcing plans to stop production at uneconomical facilities in Michigan and Ohio. Following a call to GM’s CEO, he told The Wall Street Journal, “They better damn well open a new plant [in Ohio] quickly.” 

• In response to unflattering coverage of the president by The Washington Post, Trump attacked Amazon because CEO Jeff Bezos owns the newspaper. Calling the US Postal Service rates paid by the company a “scam,” he posted on Twitter that “Amazon must pay real costs (and taxes) now!” The following year, the Department of Defense (DOD) surprisingly awarded a $10 billion cloud-computing contract to Microsoft instead of Amazon, which was the presumptive favorite. The DOD’s decision came after Trump asked the Pentagon to look “very closely” at the contract.

• Trump used the official @POTUS account on Twitter to attack Nordstrom because the department store announced it would no longer carry his daughter Ivanka’s label “due to performance.”

• Following what he deemed an insufficient response to deadly violence at a white nationalist protest in Charlottesville, VA, the chairman and CEO of Merck resigned from the president’s manufacturing council. Trump responded on Twitter that “Ken Frazier of Merck Pharma … will have more time to LOWER RIPOFF DRUG PRICES!” 

• In response to social media companies silencing certain views, Trump stated on Twitter that, “We will strongly regulate, or close them down[.]” 

• Trump’s Department of Justice fought AT&T’s purchase of Time Warner on anti-trust grounds, but a judge ultimately approved the merger. AT&T owned CNN’s parent company, Turner Broadcasting. Claiming that CNN wasn’t fair to him, Trump had told a crowd a month before the election that “AT&T is buying Time Warner, and thus CNN … a deal we will not approve in my administration.”

The bullying continues on the 2024 campaign trail. As I recently discussed, Trump threatened to place a 200 percent tariff on John Deere tractor imports at a Pennsylvania rally because the company had announced plans to move some production to Mexico. He has threatened automakers with similarly massive tariffs should they move any manufacturing operations outside the US, although that’s been a regular threat since his first presidential campaign.

The flip side to a president disfavoring particular companies is favoring particular companies. For example, Scott Lincicome notes the Government Accountability Office found that the Trump administration’s “process for excluding certain goods from the tariffs suffered from political favoritism, untimeliness, and a lack of transparency.” Another study found that companies supporting Republicans, including Trump, were more likely to receive tariff exemptions. Trump also oversaw billions of dollars in taxpayer bailouts for farmers hurt by retaliatory tariffs. 

A common excuse for Trump’s behavior is that he is a businessman and thus just employing his negotiating and deal-making prowess. In 2020, the Chinese company that owns TikTok came under bipartisan pressure to sell it to a US company. Trump stated that a large share of any sale proceeds would have to go to the Treasury, which he called “key money.”

Personal finance expert Rob Berger explains:

Key money is a dated term used in real estate transactions. It’s money a prospective tenant would pay under the table to a landlord, building manager or even another tenant to secure a lease. Think of a middle school bully demanding another student’s lunch money in exchange for safe passage.

Call it extortion or call it “Art of the Deal,” the fact remains the federal government is not a business. John Adams famously defined a republic as “a government of laws, and not of men.” As I explained years ago, government favors (or disfavors) for specific companies are “not just bad economic policy; they also violate the bedrock American principle of equality under the law.” That our country has failed, and continues to fail, to uphold that principle does not mean that it should be casually waived away when it serves a political preference. 

Now, in our current hyper-polarized political environment, the criticism of either Trump or Harris often invites “whataboutism.” To be clear, I have no horse in the presidential race. The idea for this post sprung from Scott’s recent discussion of the undesirable connection between policy uncertainty and economic uncertainty (the former fuels the latter). He notes, for example, “The Biden administration’s own [Electric Vehicle] subsidies and regulations … have been modified repeatedly, with dramatic and unforeseen effects on the U.S. market.”

When candidate Harris says her administration will make “investments” in the US economy, she often means she wants to use taxpayer money to subsidize commercial interests she favors. She’s also attacking businesses for having the audacity to, well, conduct business. 

From Ryan Bourne in today’s Financial Times:

Yet Democrats stubbornly deflect attention away from macroeconomic policy, even pretending that the federal government can compel companies to lower prices. Indeed, Harris is promising various price controls to reduce living costs. She proposes a federal law to limit how much supermarkets can increase food prices during emergencies. She also advocates for national rent control to cap increases from “corporate landlords” at 5 percent annually, along with government regulations to tackle “junk fees” across various sectors.

While Harris’s rhetoric may not meet the floor Trump has set, she is nonetheless bullying when she proposes to use federal power to “make clear that big corporations can’t unfairly exploit consumers during times of crisis to run up excessive corporate profits on food and groceries.” 

Speaking to a crowd in North Carolina, Harris nonchalantly attributes high food prices to pandemic-induced supply shocks and implies “big food companies” have taken advantage of the situation to make “their highest profits in two decades.” It was government policy, very much including the Biden-Harris administration’s spending spree, that sparked inflation. But “big corporations” make for easy scapegoats. 

So, who is worse? Readers can quibble over that question. Unfortunately, whichever candidate wins, American businesses in the economic arena will have to continue looking up at Caesar to see if they get the thumbs up or thumbs down.

Read the Cato-at-Liberty blog post here.

According to the FTA’s project profile, the Inglewood Transit Connector is expected to handle an average of just 4,300 rides daily, which is well within the capacity of buses. With a projected capital cost of $2.02 billion (50 percent of which will be federally funded), the capital cost per average daily rider works out to almost $470,000—that is several times higher than such other FTA-supported transit projects as New York’s Second Avenue Subway, and Chicago’s Red Line Extension.

Over the course of a year, the Connector will displace a relatively small number of car trips. And a large proportion of these trips would otherwise be completed by electric vehicles, which are far more popular with high-income Californians than drivers elsewhere. As a result, the greenhouse gas emissions savings from the project will be minimal, especially because they will be offset by emissions generated during the construction of 1.6 miles of overhead track.

Even local Representative Maxine Waters (D‑CA) has come out against the project, citing both costs and the threat to local small businesses. In a letter to Transportation Secretary Pete Buttigieg, Waters noted that eminent domain may be needed to displace more than forty businesses along the connector’s route.

Average daily ridership may be low, but on game days, project sponsors hope that thousands will use the connector to get from the Downtown Inglewood Metro Station to SoFi Stadium or the Intuit Dome. This may be a good option for many fans because parking during major events can cost up to $150.

The opportunity to avoid high parking costs could attract more fans to attend games (as well as concerts) and buy more concessions while at the stadium or arena. This means more revenue for the teams and the well-heeled individuals who own them. Former Microsoft CEO Steve Ballmer owns the Intuit Dome and the LA Clippers. Real estate magnate Stan Kroenke owns the Rams and built SoFi Stadium.

While there is no need to begrudge the success of these billionaires, it is not unreasonable to observe that they have the financial means to convey fans to their facilities. The Walt Disney World Monorail System in Florida is illustrative of how private players can provide public transportation when their venues are involved. That system comprises 15 miles of track and serves over 100,000 passengers daily—more than an order of magnitude greater than the forthcoming Inglewood system. If the project were to be privately built, we can be confident that the cost would be lower than the more than $2 billion currently projected.

But assuming the project moves forward, there is one silver lining. The Inglewood Transit Connector would be the first driverless public transit system in the Continental United States that does not directly serve an airport. It could thus provide a precedent for future projects that lower operating costs through automation.

Read the Cato-at-Liberty blog post here.

How Not to Do It

In 2016, a fire originating from a neighboring building seriously damaged 3300 Mission Street, a building that housed 28 single-room occupancy (SRO) hotel units, two stores, and a bar. Although the owner originally planned to fix the building, he sold it to Oak Funds, a local real estate firm the following year. This firm also declared an intention to restore the SRO but never did so. These two owners may have been deterred from fixing the building because they would have been required to offer most of the units to their previous tenants who were covered by the city’s rent control ordinance. The fact that San Francisco obliged the owners to rent out much of the property at below-market prices may have made repairing the building uneconomic, especially given San Francisco’s high construction costs.

Last year Oak Funds sold the still vacant building to affordable housing developer Bernal Heights Housing Corporation (BHHC) for $1 million more than it paid for the property in 2017. Since then, BHHC has been assembling financing to rebuild and expand 3300 Mission, albeit at a high cost to taxpayers.

Under a plan recently approved by San Francisco supervisors, BHHC will spend $41 million (including the already incurred acquisition cost) to produce 35 units: residential units, a community space, and a small retail space. The cost per residential unit works out to be about $1.1 million each, even though all the units will be small studios ranging in size from 267 to 406 square feet.

One reason that the project is so expensive is that San Francisco requires construction workers building the affordable housing projects it funds to be paid so-called prevailing wages determined by the California Department of Labor Relations. This means that construction laborers must receive a salary and benefits package worth $69.41 per hour on weekdays, with large premiums for Saturday and Sunday work.

Although construction costs themselves are high, there are other drivers for the high price of these units. The project budget includes $3.3 million in construction financing costs, $2.6 million in developer fees, $2.2 million in architect fees, and $590,000 in legal fees, so a range of professionals are being well compensated.

BHHC will receive $16.6 million of city funds covering 40 percent of overall project costs. The rest will be privately funded by investors taking advantage of a 9 percent Low Income Housing Tax Credit (LIHTC). This credit allows the investor to exclude 9 percent of project cost annually for each of the ten years after which the building is completed. The credits can also be bought and sold on the secondary market. The Tax Foundation has characterized LIHTC as “an exceptionally complex tax expenditure.”

Occupancy is now expected in late 2026, ten years after the original building became uninhabitable. And the City Attorney has determined that rent-controlled tenants living in the building before the fire will no longer have a right to return.

A More Efficient Option

While government-funded projects typically require on-site construction with laborers receiving prevailing wages, private affordable housing projects can rely on lower-cost prefabricated units. Two miles north of 3300 Mission at 33 Gough Street, nonprofit Dignity Moves created a 70-unit tiny home village. Construction began in January 2022 with occupancy occurring six months later. The cost per unit, including shared amenities, worked out to $32,000.

The homes do not include separate kitchens or bathrooms, but, as Dignity Moves CEO Elizabeth Funk recently told me, sharing dining and washing facilities is not a major issue for most individuals experiencing homelessness. More important to them is having a roof over their heads in a unit that can be locked.

The 33 Gough tiny home village is one of several “interim supportive housing” projects Dignity Moves has completed or is developing in California. These projects provide services such as life coaching and addiction treatment, in addition to the homes themselves. While the lifespan of the tiny homes is likely shorter than permanent supportive housing units, they are less expensive to maintain, insure, and replace.

Some government officials are embracing interim housing, including San Jose Mayor Matt Mahan. His city plans to have about 1,300 interim units available by the end of 2024. The California state legislature has also gotten into the act, recently passing a bill exempting tiny home villages from the California Environmental Quality Act (CEQA) process.

It remains to be seen whether more government involvement in the creation of tiny home villages will slow their completion and increase their costs. Hopefully, tiny homes will not become the schmear on the everything bagels so often baked by California’s public sector.

Read the Cato-at-Liberty blog post here.

In 2018, the Trump administration issued its Section 301 report on Chinese trade and investment practices. Though flawed in certain respects, the lengthy report documented a litany of legitimately concerning policies employed by the Chinese government in pursuit of its 21st-century high-tech mercantilist agenda, which burden American commerce and hurt American workers. Based on the report’s findings, the Trump administration imposed a series of heavy tariffs that they claimed would force Beijing to make structural changes to its international trade and investment practices.

Over the last six-plus years, those tariffs have imposed significant costs on Americans as Cato scholars have repeatedly highlighted. Perhaps those costs could be justified if the tariffs had forced a wholesale reorientation of Chinese economic policies.

Instead, Americans have the worst of both worlds: tariffs continue to harm American firms and families while Beijing’s abusive practices continue largely unabated as Ambassador Tai and others—like the US-China Economic and Security Review Commission—acknowledge.

After more than six years of costly failure, the United States needs a different approach. The World Trade Organization’s (WTO) dispute settlement system needs to be reinvigorated, but when operational offers a forum to hold Beijing accountable for violating its WTO commitments as Cato analysis has shown. Likewise, rejoining the Trans-Pacific Partnership can raise commercial standards—and help offset China’s gravitational pull in the Pacific region—by establishing a large trading bloc of countries committed to high-quality, rules-based trade and investment practices.

Ultimately, Washington’s ability to force wholesale changes onto the Chinese economy is limited. Instead, growth should be the north star of US economic policy vis-à-vis China and policymakers should trust the United States’ traditional strengths: a commitment to the rule of law, openness to international trade and immigration, and dedication to dynamic, market-based innovation. 

Read the Cato-at-Liberty blog post here.

Economists and other trade policy analysts understand such aggressive protectionism would be extremely damaging to the economy and broader foreign policy goals, but is Trump correct?

Recently, we released a Cato Institute briefing paper surveying the legal authorities available to the president to unilaterally impose aggressive tariffs. As we explain in the paper, in the early 1930s, Congress began delegating some of its constitutional powers to the president. Indeed, several US laws provide the president with vast discretionary authority to impose trade restrictions, and we argue that neither domestic courts nor the World Trade Organization is likely to check the exercise of such authority.

Ultimately it falls on Congress to claw back at least some of its constitutional authority to set US tariff and trade policy. Over the past several years, members of Congress have introduced legislation to rebalance trade authorities. Last month, for example, Sen. Rand Paul (R‑KY) introduced a bill that would, if enacted, require Congress to approve tariffs proposed by the president under a number of laws. Should Congress fail to act, US trade law will continue to be ripe for abuse by protectionist presidents.

Read the Cato-at-Liberty blog post here.

Under the Food, Drug and Cosmetic Act of 1938 and subsequent amendments, compounding pharmacists do not need FDA approval to make and sell their products to consumers provided they use FDA-approved ingredients from FDA-approved manufacturing facilities. However, the agency prohibits compounding pharmacies from producing a drug that “essentially copies a commercially available drug.” The FDA waives this prohibition during critical shortages of a commercially available product.

When clinical studies demonstrated that GLP‑1 drugs (e.g., semaglutide, tirzepatide), developed to treat diabetes, are effective weight loss drugs that directly act on the brain’s satiety center to reduce food intake (also drink less alcohol and smoke fewer cigarettes) doctors began prescribing them to help reduce the health risks associated with obesity. The FDA approved semaglutide (Wegovy) for chronic weight loss in adults in 2021. Demand for GLP-1s dramatically increased. In late 2022, the FDA officially announced a shortage of tirzepatide, semaglutide, and other GLP-1s, and permitted compounding pharmacies to make essential copies of them. Compounding pharmacies expanded patient’s access to these excellent drugs at much lower prices than they would have paid for commercially manufactured versions.

On October 2, the FDA announced that the supply of tirzepatide had caught up with demand and removed it from its drug shortage list. Other GLP-1s remain on the FDA shortage list. For many people who are benefitting from tirzepatide, this means they will go back to paying more for the commercially available product. The higher prices may cause some people to stop taking the drug altogether. FDA compounding regulations explain why, counterintuitively, consumers will be paying higher prices for GLP-1s as supply improves.

Compounding pharmacies are considering workarounds, such as compounding products with doses or delivery systems that are slightly different from the commercially available drugs.

One way to improve the situation would be for the FDA to remove barriers to compounding pharmacies making products that are essential copies of commercially available products. Drug makers might bring lawsuits against compounding pharmacies for patent infringement, but this would not be an issue with off-patent drugs.

A better approach would be for the FDA to reclassify GLP-1s as over-the-counter drugs, which could drive prices down as producers compete for comparison-shopping customers.

Notwithstanding FDA drug compounding regulations and prescription requirements, there is already a thriving grey market in GLP‑1 drugs. Some of these products contain toxic impurities or are phony knockoffs. If the FDA ends the prescription requirement for GLP-1s, it will deal a blow to the grey market and make it easier and safer for patients to access these important drugs.

Read the Cato-at-Liberty blog post here.

The ships’ price tag is almost difficult to fathom. For perspective, the same shipyard was contracted to build two Aloha class containerships—i.e., almost the exact same vessel (the new ships feature a more advanced LNG propulsion system)—in 2013 for $209 million each. That’s an increase of well over $100 million in nine years (the new vessels were ordered in 2022). 

Further, consider that two LNG-powered containerships were ordered from a South Korean shipyard in 2022 for over $200 million less per ship than the new Aloha class vessels despite having more than double their cargo capacity.

Why the vast price difference? As one Danish maritime publication put it, “It’s not because the ships are built from gold plates instead of steel plates, but the US shipbuilding industry is way, way too expensive because it’s not competitive.”

This lack of competitiveness is a natural outcome of not having to compete. Instead of carving out a specialized niche within the global market, US shipyards almost exclusively operate within a captive domestic market created by the 1920 Jones Act (large Navy and Coast Guard contracts restricted to US shipyards also encourage this domestic orientation). Among its provisions, the law requires that vessels transporting goods within the United States be constructed in domestic shipyards.

In theory, such protectionism ensures the existence of capable shipyards to meet the country’s national security needs. Indeed, Jones Act advocates insist the law helps provide a “modern” and “robust” shipbuilding industrial base.

But these claims are at odds with the facts.

Far from robust, US shipyards’ collective output ranked just 15th globally from 2019–2023.

These numbers make it more difficult for US shipyards to justify the investments needed to stay on the industry’s cutting edge, as such outlays are spread across relatively few vessels. This contributes to a pronounced technological gap with foreign shipyards. Indeed, one member of Congress recently stated that some US shipyards appear unchanged since the 1930s.

The US shipbuilding industry is caught in a vicious cycle. As costs escalate, demand decreases, putting further upward pressure on costs as the economies of scale needed to remain competitive further erode. While US-built ships cost roughly double that of ships constructed abroad as recently as the 1970s, today they can be four or more times the world price.

Their price goes higher still if one accounts for the numerous subsidies provided to the shipbuilding industry. Philly Shipyard, for example, received $438 million in 1997 and another $42 million in 2011 to pay for various upgrades. It also benefits from a $1 per year lease from the quasi-public Philadelphia Shipyard Development Corp, and numerous federal programs meant to promote domestic shipbuilding.

And that’s on top of the Jones Act, itself a significant subsidy to US shipyards.

The icing on this protectionist cake is that the few large commercial ships delivered by domestic shipyards are only superficially “US-built.” While assembled in the United States, these ships heavily rely on imported parts and components. The previous two Aloha class ships (designed by a South Korean firm) feature foreign-built engines, propellers, and other key machinery. Even much of the steel was imported.

According to one Philly Shipyard executive, at least half of the parts and components in a US-built ship are foreign-sourced.

While there’s nothing objectionable about imports, their use shatters any notion that costly Jones Act protectionism frees the United States from relying on foreigners for its shipbuilding needs. 

If meant to ensure a vibrant shipbuilding industry, the Jones Act’s prohibition on foreign-built vessels has clearly come up short. But this failed policy also inflicts myriad harms. High domestic shipping costs—largely due to the inflated cost of buying the actual ship—serve as a de facto tax on intra-US commerce that hurts businesses and consumers. There’s more pollution, congestion, and wear and tear on highways as cargo is diverted to less costly transport modes such as trucking and rail. Foreign trading partners maintain barriers to US exports in retaliation for Jones Act protectionism. 

Not least of all, forcing Americans to pay inflated prices for new ships is also a transparently self-defeating method of encouraging a healthy and capable US merchant marine—ostensibly one of the Jones Act’s chief tasks. 

When Philly Shipyard’s new containerships are finally delivered, they will no doubt be greeted with much pomp and circumstance. One of them might even be named after a politician with a well-established record of advocating on behalf of the shipping industry. For most Americans, however, these ships represent dysfunctional protectionism for which there is precious little to celebrate. 

Read the Cato-at-Liberty blog post here.

The gross tax gap in 2022 was $696 billion. After late payments and enforcement actions, the net tax gap was $606 billion. Of the gross total, $514 billion stemmed from individual income taxes, $50 billion from corporate income taxes, $127 billion from payroll taxes, and $5 billion from estate taxes.

The chart shows the tax gap was 2.7 percent of GDP in 2022. The gap has been roughly flat over the past decade and down a bit from two decades ago.

All tax systems have tax gaps, and there are pros and cons of using tougher enforcement to reduce the gap. The US tax gap is smaller than the average gap in Europe.

The flip side of the gross tax gap is the “voluntary compliance rate,” which is the tax paid on time divided by the estimated full amount owed. This rate was 85 percent in 2022, which was little changed over the past decade but up from two decades ago.

No one likes tax cheating, but there are civil liberties costs when the government tries to close the gap by heavier regulations and overzealous enforcement. The optimal tax gap is not zero because that would impose huge compliance costs and because the IRS makes errors. 

Furthermore, some of the tax gap is not outright cheating but rather reflects a misunderstanding of the complex code. Unfortunately, both presidential candidates have proposed changes that would complexify the tax code, frazzle taxpayers, and cause more errors. The proposed changes come after the current administration complexified the code with the Inflation Reduction Act.

Congress in 2025 should reject any loopholes proposed by the new administration. Lawmakers should simplify the tax code along the lines suggested by Adam Michel and myself. Simplifying the tax code would reduce cheating, boost growth, and be a win-win for taxpayers and the government.

I discuss IRS funding and the tax gap in congressional testimony here and here.

Read the Cato-at-Liberty blog post here.

FEMA is the lead federal agency for natural disaster response, but the American system of disaster response is not a top-down structure imposed by Washington. Rather, two core principles in disaster response are federalism and mutual aid between states, cities, utilities, and other private entities. In other words, we have a decentralized and horizontal response system.

State, local, and private groups play the main role in disaster response. As the Congressional Research Service noted, “The United States takes a ‘bottom up’ approach to both managing and providing assistance during a disaster.” State and local governments employ 1.3 million people in police and fire departments, for example, and those first responders are spread across the nation.

State governors are crucial. They have wide-ranging responsibilities and powers during disasters, such as the power to order evacuations. The states have standing agreements for mutual aid. For example, search and rescue teams from across the nation come to the aid of disaster-struck areas. Teams from Virginia and Maryland arrived in Florida even before Helene made landfall. Colorado sent helicopters, K9s, and other first responder assets and personnel. Pennsylvania sent emergency management workers and a helicopter rescue team.

The National Guard under state command plays a crucial role during disasters, and more than 6,000 guardsmen have arrived to help in the Southeast. After Hurricane Katrina in 2005, 50,000 guardsmen from virtually every state provided services such as medical care, law enforcement, and debris removal. 

Most of the nation’s critical infrastructure—such as utility infrastructure—is owned by the private sector, not by governments. Electric utilities have standing agreements for mutual aid, and we always see a rapid response of crews from many states aiding disaster areas. Within a day of Helene hitting North Carolina, crews were arriving from utilities in the Northeast. Crews from Kentucky arrived in Florida on Tuesday.

Looking at US history, disasters have always generated large outpourings of aid from individuals, businesses, churches, and charitable groups. The American Red Cross plays a huge role, providing food, water, and temporary shelter after disasters. The media and social media are reporting many private aid efforts in North Carolina and Florida. Elon Musk has “sent more than 10,000 Starlink terminals to North Carolina and other areas impacted by Helene,” and he has teamed with T‑Mobile to provide emergency texting. Walmart and Home Depot are delivering truckloads of food and supplies, and Taylor Swift donated $5 million.

The federal role should be to offer its unique assets and capabilities to disaster-struck areas. The Coast Guard’s search and rescue operations are vital after hurricanes. The US Army is supplying assets to aid the Helene and Milton efforts, and the Air Force is flying search and rescue missions.

FEMA distributes emergency aid to individuals after disasters and has sent water, meals, tarps, and generators to the areas hit by Helene and Milton. This function is important, although it overlaps the activities of the states and private sector. Much of FEMA’s budget goes toward rebuilding after disasters, but the states should handle those costs.

FEMA’s disaster response has been known for bureaucracy that slows the relief efforts of businesses, charities, and individuals. The agency’s blocking of private aid efforts after Katrina was appalling. With Helene, social media posts have criticized FEMA’s efforts, but I don’t know the veracity of these claims.

Presidents usually visit disaster-hit areas to appear to be in charge, and news reports often imply the same. However, the states are actually in the driver’s seat. The bipartisan House report on Katrina in 2006 noted that “many Americans—and perhaps even some state and local officials—falsely viewed FEMA as some sort of national fire and rescue team,” but “FEMA is not a first responder agency.” Instead, FEMA mainly provides funding for relief and rebuilding.

News reports are discussing whether or not FEMA has enough money and employees on the ground in the Southeast. But the important thing is to ensure that FEMA is supporting and not hampering the states, businesses, charitable groups, and individuals in aiding communities after these two awful storms. 

See “The Federal Emergency Management Agency: Floods, Failures, and Federalism” at Downsizing the Federal Government for more on FEMA and natural disasters.

Read the Cato-at-Liberty blog post here.

Sticking with fossil fuels risks worsening countries’ vulnerability to climate change. The Philippines—which plans to use more gas and renewables—is frequently hit by floods and cyclones and suffers the most weather-related losses of any country as a share of gross domestic product, according to reinsurance firm Swiss Re.

That is not surprising about the Philippines because it consists of 7,600 islands with most of the population living near the seacoasts. The population of 116 million has doubled since 1987, and incomes have risen. So even without climate change, the Philippines would be suffering substantially more hurricane damage.

How about the United States—how much hurricane damage stems from climate change versus population and property value rise? Swiss Re published estimates on residential wind-related losses last year. Their charts below look at the change in annual constant-dollar losses between the 1970s and today. The first chart shows the United States, and the second shows Florida.

Since the 1970s, five times more of the increase in US hurricane damage stems from rising population and property values on the seacoasts than from rising hurricane activity (climate change). In Florida, the damage stemming from rising population and property values is seven times more than from rising hurricane activity.

The charts also show Swiss Re estimates of the offsetting reductions in damage since the 1970s stemming from improved building standards (the pink bars).

These estimates seem like good news because the relatively controllable factors (population on the seacoasts and building standards) have a much bigger impact on damage than the relatively uncontrollable factor (hurricane activity).

Regarding policy, we should repeal government programs that encourage Americans to live on vulnerable seacoasts. One program is subsidized flood insurance, which I’ve written about, as has Peter van Doren. There is also the problem that people are encouraged to live near seacoasts because they assume that governments will bail them out after future hurricanes.

Governments also encourage people to live in less-safe places with infrastructure subsidies. The massive damage from Hurricane Katrina in 2005 stemmed partly from huge Army Corps flood control structures that encouraged development in dangerous low-lying areas of New Orleans. Army Corps infrastructure also damaged wetlands near the city that help protect it from hurricanes. Another issue is that governments fund the rebuilding of infrastructure, such as beaches, in vulnerable seacoast areas after hurricanes.

Unfortunately, we can’t stop hurricanes from battering our seacoasts, and we’ve got Hurricane Helene bearing down right now on the Gulf Coast. We can, however, end government subsidies encouraging people to continue crowding into risky seaside locations. 

Read the Cato-at-Liberty blog post here.

Of the myriad issues that have been at play, it is the union’s vehement opposition to any degree of automation that arguably deserves the most scrutiny. A major purpose of a union is to preserve the jobs of its members, so it’s no surprise the ILA opposes the introduction of labor-saving technology. The past is replete with examples of such opposition: weavers vs. power looms, railroad workers vs. automatic coupling systems, miners vs. continuous mining machines, automobile workers vs. automated assembly lines, telephone workers against automated switching systems, postal employees vs. automated mail sorting machines, and on and on. 

There’s another example that is particularly relevant: the ILA’s mid-20th century opposition to containerization. A 1977 New York Times article on an ILA strike that year reported:

Behind the strike that has tied up container cargo in Gulf and East Coast ports is a revolution in transportation that has come to dominate ocean shipping in only 20 years.

[.…]

The revolution—the use of containers —has superseded longshoremen’s arms with the mechanical arms of giant cranes and has replaced teeming waterfronts full of wooden crates and burlap sacks with vast, stark marshaling yards packed with sleek, steel boxes. The boxes, called containers, become instant trailer vans when they are swung off ships and snapped onto truck chassis.

Containerization cost many union dockworkers their jobs. But those losses were dwarfed by the consequent economic benefits realized by countless American consumers, businesses, and workers in other industries.

The most recent World Bank/S&P Global rankings of 405 ports around the world show US port performance continues to underachieve. The US’s top port (Philadelphia) comes in at only 50th. Most are in the middle or ranked toward the bottom. (For more on this and related issues at US ports, see Scott Lincicome here and here.)

The United States lags Europe and Asia in its use of port automation. While the relative lack of automation is just one factor impacting US port performance, it’s certainly an issue. A recent Government Accountability Office (GAO) report compared select US and foreign ports on automation utilization. As the GAO table shows, the ten largest US container ports it reviewed utilize less automation technology compared to the foreign ports examined. One reason the GAO cites is labor agreements that prohibit automation.

Intransigent labor unions aren’t the only reason the US ports are behind. The GAO notes that the foreign ports it reviewed all handle higher cargo volumes than the US ports. Automation technology isn’t cheap, so the higher the volume the likelier a positive return on the investment. Another issue is foreign ports move more containers from one ship to another ship (transshipment), which lends itself to utilizing automation. In both instances, US regulations play a key role. 

As Colin Grabow points out, transshipment is nonexistent in the US because of the protectionist Jones Act. He also explains that the Jones Act and other government regulations inhibit the dredging of US ports for capacity expansion. 

The ILA strike makes it tempting to say the ports should simply be automated and labor taken out of the equation. As it currently stands, however, automation isn’t a panacea. The GAO found that automation can be a mixed bag performance-wise, and as noted, it may not make sense from an investment standpoint. But setting aside government policies that can and do negatively impact automation performance and cost, the key phrase is as it currently stands. Unless overzealous regulators get in the way, future technological advancements will lead to more effective and efficient automation tools for ports to utilize.

That’s what’s maddening about the union’s government-granted ability to gum up the progress works. The longer special interest roadblocks remain in front of automaton adoption, the longer market forces will be held at bay, and thus the longer it will take for the US to realize the benefits of automation a la containerization. As Reason’s Eric Boehm asks, “… if maximizing the number of union jobs at ports was the highest value to society … [w]hy not demand a ban on cranes, forklifts, and tractor-trailers too?” 

In the wake of the strike, the Biden administration and presidential candidate Vice President Harris reflexively sided with the Democratic Party’s union ally. Tellingly, that’s despite the heavy damage a strike could have imposed on the economy just a month away from election day. On the other side, a previous press release from the ILA says that Republican presidential candidate Donald Trump “promised to support the ILA in its opposition to automated terminals in the U.S.”

It remains to be seen what the final agreement on a new labor contract says about the ability to use automation at East and Gulf Coast ports. A crack in the union’s wall that allows for some small degree of automation may be the ceiling. However, if there’s hope to be had from the discourse surrounding the strike, it’s that more Americans will have woken up to the counterproductive role that government-favored special interests play in their lives.

Read the Cato-at-Liberty blog post here.

Why do drug prices vary across countries? An article in the Fall issue of Regulation offers some insight from economists.

The knowledge embodied in pharmaceuticals is a global public good. The incentives are for all countries to avoid the fixed costs of drug development and clinical trials and pay only the marginal costs of producing a drug. The demand for health care increases with income and population, so the worst-case possibility is that the richest and largest country—the US—pays all the fixed costs of drug development, and all other countries free ride and pay only the marginal costs.

The authors gathered data on sales revenue and compared the revenue to estimates of marginal cost to calculate each country’s contribution to the fixed costs of drug development. They conclude that a country’s GDP explains 83 percent of the variation in contributions across countries and the effect of income is greater than proportional. A country with a 100 percent higher GDP contributes 129 percent more to pharmaceutical R&D. 

So, the U.S. does contribute disproportionately to drug development costs. The rest of the world’s contribution is not zero but is less than would be predicted by income and population alone.

The authors conclude: “Our findings indicate prospective gains from international cooperation—from formal or informal international agreements among high-income countries. If other wealthy countries agreed to contribute more to the global public good, they, and the world, would benefit.”

Read the Cato-at-Liberty blog post here.

But central planning has been repeatedly tried and found to be wanting—most famously in the former Soviet Union where Josef Stalin implemented the first five-year plan in 1928. These detailed recipes for top-down economic management sometimes yielded apparent successes (for example, the rapid industrialization of the Soviet economy) but ultimately failed consumers and contributed to the economic weakness and unrest that ended the Soviet state.

As Nobel Laureate Friedrich A. von Hayek convincingly argued, central planning fails because the planners, even if well-intentioned, lack the knowledge necessary to efficiently allocate resources. That information lies within the heads of the millions of individuals participating in the economy and is best elicited through competition and the unfettered use of prices, which communicate consumer preferences.

But California’s political leaders have forgotten Hayek’s lesson. Just as socialist countries do with their five-year plans, California creates housing production goals at the state level and then pushes them down to regional and local governments. This top-down planning process often ignores local conditions and changes that occur during the planning cycle.

Consider the case of the San Francisco Bay Area. In June 2020, the state’s Department of Housing and Community Development (HCD) made its latest Regional Housing Needs Assessment (RHNA) for the nine-county area, instructing the Association of Bay Area Governments to add 441,176 housing units by December 31, 2030.

But the requirements analysis was based on pre-COVID-19 population projections when it was thought that coastal California’s population would continue its slow but steady growth. Instead, many people fled to inland California and to other states in pursuit of more space and a lower cost of living. While the HCD’s RHNA projection was based on an expected Bay Area population of 8.3 million at the end of 2030, state demographers now forecast 650,000 fewer residents at that time.

The HCD’s RHNA assessment also includes assumptions about the proportion of the population living in institutional settings and the number of residents living in each housing unit. Without updates to those assumptions, it is impossible to precisely determine what the Bay Area’s RHNA would be given current population forecasts. Assuming an unchanged institutional housing ratio of about 2 percent and persons per household remaining at 2.68, the Bay Area’s RHNA would fall from 441,176 to just over 203,000, or more than half.

Yet the state government, ABAG, counties, and cities grind along using the now outdated estimate. State authorities are pushing these stale RHNA housing production goals onto the 101 municipalities of the Bay Area and their counterparts elsewhere in the state, sometimes penalizing them for failing to comply.

By contrast, Texas is able to produce housing for a growing population at lower prices and with less homelessness, all without a state-led central housing plan. In 2023, Texas authorized 232,373 new private housing units or more than double the 111,760 approved in California.

One reason that Texas is more successful than California is that it generally permits developers to create new subdivisions in the exurbs of large metropolitan areas. This is anathema to California’s housing planners who want everyone to live near transit. The preferences of these planners run against those of the many young parents who want more space for their kids (as well as themselves) and who are willing to drive to work and other destinations. In California, by contrast, most land is excluded from residential development because it is under government stewardship or zoned for agricultural purposes only.

California progressives should be applauded for adopting a “Yes In My Back Yard” mentality. But now they must be challenged to take the next step: rather than micromanage the housing production process, they should be getting out of the way and allowing home builders and home buyers the flexibility needed to alleviate the state’s housing shortage.

Read the Cato-at-Liberty blog post here.

While government has never been a byword for efficiency, such protectionism makes it even less so.

Although the flaws of BAA protectionism have long been recognized, quantifying its damage is no easy task. That, however, hasn’t stopped a group of economists from taking a crack. In a recent paper, four economists attempted to calculate the law’s cost by constructing a dataset of federal purchases and then comparing the share accounted for by foreign firms to private sector consumption of imports.

Their finding: Buy American requirements have created up to 100,000 jobs at a cost of $111,500-$137,700 jobs. With production and nonsupervisory employees in goods-producing jobs averaging about $65,000 annually in wages, that’s hardly a stellar return on investment.

Even worse, this cost per job is likely to increase. While manufactured items have traditionally been required to have at least 50 percent of their materials of US origin to be considered domestic, that’s set to rise to 75 percent by 2029. The economists project this tightening of restrictions will create a further 41,300 jobs at a cost of $154,000 to $237,800 each.

For perspective, these 141,300 current and future positions (maximum) created by BAA protectionism amount to just 1.1 percent of the country’s nearly 13 million manufacturing jobs. Furthermore, such costly job creation comes amid concerns over a national labor shortage (including by manufacturers).

Not surprisingly, the paper’s authors found “scant evidence of the use of Buy American rules as an effective industrial policy.”

And the Buy American Act isn’t the only law with domestic content requirements on the books. 

The Buy America Act—included as part of the Surface Transportation Act of 1978 and since expanded by the Build America, Buy America Act passed in 2021—requires that federally funded infrastructure projects use domestically produced iron, steel, manufactured products, and construction materials. The Berry and Kissell Amendments, meanwhile, require the Departments of Defense and Homeland Security to purchase certain items that are entirely domestic in origin.

Given their similarity to the BAA, there’s good reason to think these laws produce similarly meager results in exchange for outsized costs—many of which aren’t easy to capture.

Buy America requirements, for example, can lead to delays on infrastructure projects (with attendant impacts on cost) as time is spent finding materials with sufficient domestic content or jumping through various hoops to obtain a waiver of the law. The Berry Amendment, meanwhile, restricts servicemembers’ selection in finding comfortable running shoes—how does one calculate the cost of uncomfortable footwear?

Yet another cost of such protectionism is its role in undermining international support for a free and open trading system. If the United States won’t follow the path of free trade, why should others? When Americans embrace protectionism, they shouldn’t be surprised when their trading partners follow suit (indeed, some BAA supporters advocated the measure’s 1933 adoption to counter a cotemporaneous “Buy British” campaign).

Economic theory holds that wealth and prosperity are maximized by allowing goods and services to be purchased from their most efficient producers. By preventing such free exchange, the Buy American Act and related laws unnecessarily inflate costs for little gain. In other words, this latest study about the BAA’s costs only confirms economic common sense: forcing the country to pay more for products is an act of self-impoverishment.

The Buy American Act’s over ninety-year existence has provided ample time to study and demonstrate the counterproductive effects of such protectionism. Policymakers looking to advance the country’s fiscal health, good governance, and sound trade policy would be well advised to incorporate the long-overdue demise of the BAA—as well as related laws—into their agenda.

Read the Cato-at-Liberty blog post here.

Ohio’s latest subsidies to US chipmaker Intel may unfortunately provide us with yet another example.

As Scott Lincicome explained in a recent op-ed, Intel was just awarded the largest federal subsidy package under the 2022 CHIPS and Science Act (up to $44.5 billion in grants, loans, and tax credits), even though the company faces financial and strategic headwinds that have been building for decades. Key to Intel’s federal subsidy award was its promised construction of a huge chip facility in New Albany, Ohio, which has received further financial support from state and local governments, including:

1. A $1.941 billion subsidy from Ohio’s state government. These include $600 million in grants and $650 million in tax incentives over thirty years. This is the largest incentive package in Ohio’s history and represents almost seven percent of the state’s general fund revenue in 2022–2023.

2. A 100 percent property tax abatement over thirty years from the New Albany local government. 

As is often the case, Intel’s Ohio plans were announced to much fanfare in Washington, DC, and Ohio, even though the subsidies’ expected returns were immediately suspect. Intel promised, for example, that the New Albany project would generate 3,000 Intel jobs, 7,000 construction jobs, and “tens of thousands of additional jobs with suppliers and partners.” This would mean, however, that – even under the rosiest of projections – governments were paying at least $1.94 million for each job directly created by the New Albany facilities. And this assumes, of course, that Intel’s plans fully materialize.

There are already reasons to doubt that they will. As of 2023, Intel only employed 69 people in Ohio, and the firm has delayed the opening of its first New Albany plant from 2025 to 2026, with full operations supposedly starting in 2027. The company is also contemplating scaling back the scope of its factory investments in Ohio and elsewhere. Since many of the state and local subsidies to Intel can’t be clawed back, Ohio taxpayers could end up with an even worse deal than the bad one their elected officials signed them up for in the first place.

Some officials are expressing anxieties about Intel’s future in New Albany and in the process are demonstrating some of the corporate incentives’ political realities. For example, Licking County Commissioner Tim Bubb admitted that he and his fellow government officials were “overly optimistic” and didn’t do their due diligence when offering Intel all this taxpayer money. They simply “knew the name Intel.” Today, meanwhile, Bubb shows the political and practical difficulty of unwinding subsidy packages once offered: “We’re somewhat at their mercy. They own the site.” And he now admits that delays to the construction “could have somewhat of a cooling effect on the land speculation market” caused by the subsidies, thus adding to the possible economic pain in the area should Intel’s promises not pan out.

As we explain in our paper, these and other “unseen” costs are difficult to quantify and usually ignored, but they help to explain why so many economists warn against state and local business subsidies. Time and time again, the incentives’ direct and indirect costs are substantial, and there is little evidence that they generate broader economic spillovers—economic growth, job creation, increasing productivity, etc.—that might justify such an expense. The measures thus persist not for economic reasons but political ones, namely because politicians find them irresistible. Our paper suggests some guardrails to temper these political incentives and to help state and local legislators pursue pro-growth policies that don’t rely on costly corporate handouts like the ones Ohio and Licking County gave to Intel.

That deal might not be fixable, but perhaps its lessons and our reforms can help to prevent future ones like it.

Read the Cato-at-Liberty blog post here.

But whatever the rationale or history here, this bill not only will restrict Australians’ free speech and access to different online services, but its influence may spread and threaten American speech as well.

Let’s first look at how the bill defines misinformation and disinformation, a challenge for any bill or organization in this field. The bill defines misinformation as content that is

• “reasonably verifiable as false, misleading, or deceptive;” and

• “is likely to cause or contribute to serious harm.”

The definition also carves out some space for satire and parody, professional news content, and “reasonable” dissemination of content for “academic, artistic, scientific, or religious” reasons. Disinformation uses the same definition and adds that there must be grounds to suspect that the content was shared with the intent to deceive others or otherwise involves inauthentic behavior.

There is enough to unpack in these definitions alone to fill multiple blogs, but I’ll focus on three points:

1. What is verifiably misleading? There are claims that are objectively true or false because we can verify through evidence and logic that is available for anyone to interrogate. But how does one objectively verify that something is misleading? Misleading content involves leaving out certain context, cherry-picking data, predicting potential future outcomes based on a limited amount of evidence, intermingling opinion and fact, etc. Misleadingness, then, is all about the various ways we debate and discuss issues, often based on incomplete information, opinion, and determining how to weigh various factors and arguments against one another. In other words, what is or is not considered misleading is often highly subjective.

   For example, some view CNN as hard-hitting and fair journalism, while others believe it to be highly biased and misleading. The same is true for Fox News, the Washington Post, the New York Post, Joe Rogan, the Daily Wire, the Young Turks, and every other expressive organization. But these opinions are often based on subjective assessments of how well these organizations interrogate the evidence, highlight alternative viewpoints, and provide the correct context and framing to their discussion of current events.

   For the government to claim that misinformation based on subjective misleadingness can be objectively verified is a fundamental contradiction. What the government is actually asserting here is that its view of what is misleading is correct, guaranteeing significant bias in how misinformation will be policed.

2. What is harm? The government says that it is limiting its regulation of misinformation to only the most harmful content. But the list of harms is pretty expansive. Some of the most abusable areas include any harm to the “efficacy of preventative health measures,” “vilification” of group of people (i.e., hate speech), and harm to the Australian economy or public confidence in the markets. Importantly, the bill only requires that the speech in question “contribute” to harm. It doesn’t need to actually cause that harm.

   So, it’s not hard to imagine many types of political and social discussions that could contribute to these categories of harm. For example, even a relatively careful claim about the potential weakness of a newly developed vaccine could contribute to vaccine hesitancy that harms the efficacy of preventive health measures. Or citing criminal statistics about different groups of people could be accurate but viewed by some as out of context and contributing to the vilification of a group. Again, the current government’s view of what is harmful is all that will matter, inserting yet more bias into this process.

3. How do we determine intent without full information or due process? Like many other definitions of disinformation, the bill differentiates disinformation from misinformation by its intent to deceive. While this is common, it elides a difficulty in how to figure out the intent of online speech without full information. Indeed, the bill doesn’t require a high level of proof but only that there be “grounds to suspect” the deceptive intent. This makes it incredibly easy to define content as disinformation.

   For example, the widely cited counter-disinformation dashboard Hamilton 68 claimed that Russian bots were spreading large amounts of disinformation on Twitter. However, Twitter itself was able to determine that the users accused of being Russian bots were mostly just average right-leaning or populist users. This definition weaponizes these sorts of sensational and false claims of disinformation, forcing tech companies to address the purported disinformation or otherwise rebut it for fear of being penalized for noncompliance.

There are other concerning elements to these definitions (e.g., how the government intends to define and police inauthentic behavior in a way that is better than companies already try to do or if the exception for professional news media from being considered misinformation is favoring certain elite speech over the speech of online activists or independent journalists), but that’s for a different blog. It’s also worth noting that the government at least tried to learn some lessons from the highly problematic first version of this bill, such as by removing a provision that would have protected government speech from being considered misinformation while the oppositions’ speech could be targeted as misinformation. But the bill’s broad definitions of misinformation and disinformation remain highly problematic and are likely going to be enforced in a biased manner depending on the party in charge of the government.

Indeed, going beyond just the definitions, the way the bill intends to police misinformation and disinformation should also give Australians pause. In the name of stopping harm, it grants broad powers to the Australian Communications and Media Authority to regulate how various tech companies moderate what is true, false, misleading, or harmful online. The bill applies well beyond just social media to companies of all sizes that provide search engines, connective media services, content aggregation, and media sharing services—though not internet service, text, or direct message providers. This list is still incredibly broad, ranging from video games to Google search and from Facebook to porn sites.

These companies will be required to create or uphold certain codes to combat misinformation, which in theory they have some control over. These codes should address how to moderate content, including

• removal of content via human reviewer or artificial intelligence (AI) tools;

• stopping ads or monetization of misinformation;

• allowing users to report misinformation;

• transparency into the source of a political ad;

• supporting fact-checking; and

• providing users with authoritative information.

Many tech companies already have some set of policies and practices in this area, but they may vary significantly. For example, Meta uses third-party fact-checkers while X uses Community Notes. Reddit provides the users of its many subreddits with upvotes and downvotes. More decentralized systems like Bluesky or Nostr may have few centralized tools but give users control over how they source their newsfeeds. Similarly, search engines, video game platforms, and other companies covered by this law may vary significantly in the tools and policies they have.

Under this bill, though, the government has the authority to step in and enforce its own misinformation standards if it feels the companies aren’t doing enough. And, of course, failure to sufficiently implement these regulations can cost a company up to 5 percent of its annual turnover. So, companies don’t really have flexibility but must moderate enough misinformation to satisfy the government. This could change as governments, politics, and current events change, leaving companies with little surety that they have ever done enough. Since different ways or systems of addressing misinformation can be deemed insufficient by the government, ultimately companies may be limited to providing those tools that are government-approved. For example, if the government doesn’t like Community Notes, it could effectively demand X adopt the government’s preferred solution, perhaps a fact-checking regime like Meta’s, even though some Australian fact-checkers have been embroiled in a row over bias. Given the regulatory sword hanging over their heads, one can expect social media companies to over-moderate, favor the government’s view of misinformation, and be limited in what misinformation tools they can provide to Australians.

Together with other regulatory requirements around risk management, transparency, and beyond, the bill not only will inject government bias into the moderation of misinformation, but it will also put companies in a no-win position. Companies can try to comply with these rules but only do so in Australia. This means an increasingly fragmented set of company policies and procedures to manage Australia’s regulations while also handling the growing number of similar laws set in other jurisdictions, such as the EU’s Digital Services Act. Alternatively, companies could take a least common denominator approach, changing their policies and procedures to more uniformly comply with many of the laws being passed around the world. This approach is simpler, but it means that Americans using the services of mostly American tech companies are effectively subject to misinformation rules set by foreign governments, a phenomenon known as the Brussels effect. Finally, these companies could just exit or limit their presence in the market if it becomes too costly to comply. We can see this in how Facebook and Instagram in Canada simply don’t allow links to news articles anymore after Canada forced Meta to pay for each time a user linked to a media article. Video-sharing site Rumble left and X is now being blocked in Brazil, and X is also under pressure in the EU. Apple and Meta aren’t rolling out some AI products in the EU due to onerous regulations.

The proposed misinformation bill will harm Australians’ speech, and its precedent may spread to other nations looking to restrict speech in the name of stopping misinformation. Together with growing regulatory pressure around the world, such policies may increasingly impact Americans’ speech as well. We need a broad coalition of civil society to rise to face the challenge of government speech suppression, pointing out the harms such government actions are having on societies worldwide. More than that, the US government must also be more active and vocal in defense of free expression, not merely standing up for the principle but also for the sake of American speech and companies.

Read the Cato-at-Liberty blog post here.

In light of the increasingly contentious nature of the US-China relationship, it is worth examining Americans’ views about economic ties between the two countries. Fortunately, recent Cato Institute polling data (full survey crosstabs (XLS)) covers this very topic. Here are the China-specific results:

• 55 percent of survey respondents agree that “The US trading with China helps increase global stability and peace” versus 45 percent who disagree. Specifically, 11 percent strongly agree and 45 percent somewhat agree; 29 percent somewhat disagree and 16 percent strongly disagree.

• Digging into the crosstabs, it is clear there is a strong partisan split on this question. Sixty-eight percent of Democrats and those who lean Democratic agree that the US-China trading relationship helps increase global stability and peace versus 45 percent of Republicans and those leaning Republican. 45 percent of independents also agreed with the statement.

• The next China-related question asked respondents whether China generally practices fair or unfair trade with the United States. Fifteen percent of those surveyed said China practices mostly fair trade with the US versus 59 percent who believe China practices mostly unfair trade. Another 25 percent said they didn’t know.

  

• Unlike the previous China question about global stability and peace, there isn’t much of a partisan split on this issue. Twenty percent of Democrats/​those leaning Democratic, 10 percent of independents, and 13 percent of Republicans/​those leaning Republican believe China practices largely fair trade with the United States. In comparison, 52 percent of Democrats/​those leaning Democratic, 53 percent of independents, and 71 percent of Republicans/​those leaning Republican believe China practices mostly unfair trade.

  

• Cato asked respondents, “based on what you know, approximately what percent of goods imported into the United States come from China?” It turns out the overwhelming majority vastly overestimated China’s share of US goods imports: 5 percent of respondents said less than 5 percent; 13 percent said 15 percent (the correct answer); 31 percent said 25 percent; 28 percent said 50 percent, 18 percent said 75 percent and 4 percent said 95 percent. There’s not much of a partisan split on this question.

  

The last question is straightforward enough—and the respondents’ overestimates are understandable given US policymakers’ overwhelming focus on China when discussing matters of international economic policy—but the first two are more nuanced, so let’s dig in.

First, there is a large body of scholarly work about whether economic integration tends to reduce conflict and helps facilitate peace and stability between trading partners. This idea can be traced at least as far back as Montesquieu who wrote in the 1700s that peace is the “natural effect of trade.” This belief has been a pillar of U.S. international economic policy—and foreign policy more broadly–since the leadership of Secretary of State Cordell Hull in the 1930s and especially in the aftermath of World War II.

While I’m inclined to think the American public’s instincts are correct and trade does tend to promote peace, it’s also clearly not a panacea given prominent counterexamples (including World War I and Russia’s 2022 invasion of Ukraine). That said, policymakers pushing for a hard decoupling with China risk a greater likelihood of conflict.

On the issue of abusive Chinese trading practices, public skepticism is well-founded. The issue, however, is complicated. Although it’s true Beijing engages in numerous troublesome international economic practices that hurt American firms (which my Cato colleague Scott Lincicome and I documented in a paper last year), a lot of US-China trade is fairly conducted. That said, even though policymakers have (largely) diagnosed the problems correctly, their “solutions” have done little to alter Beijing’s behavior while imposing substantial costs on American citizens. A course change is desperately needed.

The US and China trade a lot with one another, but, ultimately, two-way trade (imports and exports) with China is just 11 percent of all US trade. As Lincicome recently noted, “contrary to so much of the protectionist spin you read these days … the vast majority of US trade (goods and services; imports and exports) involves countries other than China.” Indeed, too often China is invoked as a pretext for old-fashioned protectionism against other countries. Yet the American public largely supports more trade with the rest of the world (55 percent of poll respondents had a positive opinion of international trade compared to 12 percent unfavorable), particularly allied countries.

More broadly, Cato’s poll results demonstrate that Americans generally do not worry too much about international trade and globalization. A mere 1 percent of respondents said that international trade was in the top three most important issues facing them (perhaps surprising given the rhetoric from Donald Trump’s presidential campaign, which has focused heavily on across-the-board protectionism).

Yet Cato’s polling shows that aggressive protectionism is not popular with the American public, especially if it comes with higher prices and other tangible costs (spoilers: it does). Politicians hoping to appeal to Americans on the issue of international trade should focus their efforts on boosting trade ties with friendly nations not pushing unpopular protectionism.

Read the Cato-at-Liberty blog post here.