Tag: economy

Exit Taxes Won’t Save Failing States

When a state starts floating an exit tax, it is telling you something more important than any campaign slogan: the people running the place know their model is not working. 

They may not say it that way. They will call it fairness, responsibility, or making the wealthy “pay what they owe.” But the meaning is the same. 

If families, entrepreneurs, and investors are leaving, the state can either ask why its policies are pushing them out, or it can try to tax them for escaping. An exit tax chooses punishment over reform. 

I understand why these proposals resonate with some people. If you are watching wealthy residents relocate while governments still face bills for schools, roads, pensions, and other commitments, it is easy to feel like the people with the most mobility are ducking the tab. 

That frustration is real. It deserves a serious answer. But an exit tax is not a serious answer. It is a confession that lawmakers would rather cling to a failing fiscal model than fix the spending, regulation, and tax policies that made people want to leave in the first place. 

That is why the current trend is so revealing.

In California, proposals have centered on taxing billionaire net worth, including wealth that often exists on paper rather than in cash. In New York, the push has extended to a new surcharge on high-value second homes in New York City.

In Washington, lawmakers have already enacted a “millionaires’ tax.” These policies differ in form, but not in spirit. They all send the same message: if government has made your state too expensive, too hostile, or too unpredictable, it may still try to claim part of your future anyway. 

The economics are worse than the politics. Supporters talk as if wealth is a pile of idle cash sitting in a vault, just waiting to be skimmed. It is not. Wealth is usually tied up in businesses, shares, property, and future earnings. 

Taxing net worth or unrealized gains means taxing value that often has not been sold, realized, or converted into cash. That can force asset sales, dilute business ownership, weaken investment, and change behavior long before the tax collector ever gets a check.

 A Hoover Institution analysis of California’s proposal found that once likely migration responses are considered, the measure could leave the state with a negative net present value of about $25 billion. That is the real lesson: politicians score the tax statically, but the economy does not sit still. 

And that is before you get to the broader evidence. The OECD has noted that recurring net wealth taxes have become much less common across advanced economies because they tend to raise less revenue than promised while creating large compliance costs, avoidance incentives, and economic distortions. Countries tried them. Many backed away. 

A recent NBER study on Scandinavian wealth taxation found that higher top wealth-tax rates reduced the number of wealthy taxpayers and that many of those taxpayers were business owners whose departure reduced investment, employment, and value-added. 

That is the part too often ignored in political talking points. When a state drives out a founder, investor, or employer, it is not just losing one tax return. It is losing future jobs, future capital formation, and future opportunity for everybody else too. 

Defenders of exit taxes still fall back on one argument that sounds morally satisfying: these taxpayers benefited from state infrastructure, legal protections, and markets while they lived there, so the state deserves one final cut.

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Electric Bills Could Be 2026 Election Shocker

If all politics is local, as former House Speaker Tip O’Neill said in tying politicians’ fortunes to constituents’ pocketbooks, then a voter’s electricity bill is about as local as an issue can get, landing on kitchen tables every month.

With electricity costs spiking for many of the nation’s 133 million households, this local issue could determine whether Republicans retain control of Congress or Democrats seize one or both chambers in November’s midterm elections.

According to the U.S. Energy Information Administration, average residential electricity rates increased nationwide nearly 13 percent from April 2020 to April 2025. Since President Donald Trump returned to office in January 2025, they’ve increased 6 percent.

Electricity prices are expected to increase, on average nationwide, by another 6 percent in 2026, the administration projects, and as much as 40 percent by 2030, warns economic development finance firm ICF.

The reason is simple: supply and demand. The North American Electric Reliability Corp. projected in its 2026 long-term reliability assessment report that electricity demand will increase in the coming decade by 70 percent more than what was estimated in 2024. Many analyses find that overall demand will increase 25 percent by 2030.

The surge is driven by the development of power-hungry data centers, artificial intelligence computing, advanced manufacturing, and “the electrification of everything,” with the average home featuring up to 21 digital devices – all eating electricity all the time.

The solution is also simple: The nation’s 2,896 utility companies must increase the electricity their power plants produce with the most abundant, least expensive energy sources. Meanwhile, the nation’s seven major grid operators must add up to 7,500 miles a year to their 240,000-mile network of high-voltage transmission lines while also upgrading up to 100,000 miles of those live wires, through 2035.

But determining what solutions work best and what long-term investments to make is a complex $1 trillion challenge mired in partisan politics and buried in century-old federal, state, and local regulations.

Not only are utilities and regional transmission operators amping up from a standing start after nearly two decades of inertia, but many are scrambling to keep pace with swelling demand while also building out generation and transmission capacities to meet projected need.

The cost of these capital improvements is showing up in customers’ electricity bills, leading to heightened scrutiny of investment decisions and generation choices, as well as spurring debate about how individual communities want to develop, all while meeting a Trump administration mandate to expand rapidly to win the “AI arms race” with China.

The focus and investment is long overdue, said Robert Bryce, a film producer and author of a widely read Substack on the grid and seven books on energy policies, including, “A Question of Power: Electricity and the Wealth of Nations.”

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More Evidence Skilled Labor Is Rising in Value

For years, they told an entire generation that the future belonged to people sitting behind computer screens, pushing paper around in climate-controlled offices, while anyone working with their hands was somehow a failure. Schools pushed college degrees endlessly while trade schools were neglected and industrial jobs were treated as relics of the past. Parents were convinced their kids needed massive student debt just to survive while corporations shipped factories overseas and politicians cheered the destruction of domestic industry as “progress.” Now reality is crashing directly into that fantasy.

The irony is unbelievable. The very AI revolution that many thought would eliminate blue-collar labor is actually creating one of the biggest labor shortages in modern history. Artificial intelligence requires physical infrastructure everywhere. These systems do not magically float in the clouds. They need giant data centers, electrical grids, transformers, cooling systems, steel, copper, pipelines, construction crews, semiconductor plants, and endless maintenance. Somebody actually has to build all of it.

CNBC finally admitted this week what many people are beginning to see with their own eyes. White-collar hiring is slowing while skilled trade hiring is exploding. The office jobs everyone chased for decades are suddenly becoming unstable while electricians, welders, HVAC technicians, elevator mechanics, and industrial workers cannot be hired fast enough.

Utilities are expected to spend roughly $1.1 trillion modernizing America’s electrical grid over the next several years because AI systems are consuming extraordinary amounts of power. Reuters reported the United States may need more than half a million additional workers tied directly to energy infrastructure and transmission projects by 2030. At the same time, nearly half the current skilled labor force is approaching retirement age.

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Causes of Uncontrollable US Public Spending and Debt

Annual US public spending has been in deficit for decades. As a result, total US debt continues to increase year after year with no end in sight. The end may not be in sight but the debt cannot continue to grow forever. We just don’t know when markets will shed the dollar, although the process may already be underway. In this brief essay, I will not point out all the disastrous consequences except that they are disastrous and will happen. Rather, I will point out how we got to this sorry state of affairs when it appears that other nations, such as China and Russia, have done a much better job of controlling public spending.

Gold Standard Takes the Blame

The main, and most obvious, reason that American spending has been in chronic deficit is that it abandoned the gold standard and appears to have no intention of reinstating it. Such is not the case with China and Russia. True, neither country is on the gold standard now, but both have been quietly accumulating gold for many years. Nor has either announced their respective total gold holdings or when and under what circumstances either would be prompted to tie their currencies to gold. Nevertheless, it is clear that both nations have a greater respect for gold than the US and appear to be preparing for its return at least for settling international trade accounts.

For millennia gold, and occasionally silver, were considered to be true money. Nations did go off the gold standard in time of war, but most quickly returned to a gold standard after the end of exceptionally high military spending. All nations, except the US, went off the gold standard in World War I, but eventually returned. The British returned to a gold standard in the 1920’s, but the monetary authorities made a glaring mistake. The British had increased the money supply by approximately double during the war, which made it almost impossible to return at the pre-war pound-to-gold ratio, but they did it anyway. This caused a severe recession in Great Britain as it required a drop in prices of 50 percent.

Labor contracts could not be honored and strikes ensued. Gold flowed out of the country, which Fed Chairman Benjamin Strong tried to ameliorate by inflating the dollar surreptitiously. This was but one factor that caused the US stock market crash and led to a sharp recession. Instead of ceasing monetary intervention and allowing business and prices to adjust, as was the policy of President Harding after WWI, first Hoover and then Roosevelt tried to cartelize the economy via price controls. The Great Depression followed. The gold standard took the blame for this debacle instead of Hoover/Roosevelt. In fact, it is a very common myth that Roosevelt’s New Deal saved America. Such is economic ignorance perpetuated.

Corrupting the People through Welfare

Secondly, in a gradual process, government became responsible for the people’s welfare, displacing the family and local friendly societies. The first large program was Social Security, truly the camel’s nose under the tent. Roosevelt sold the program to the citizens and to Congress using different rationales. To the public he claimed that the program was no different than a private annuity. The government took the people’s forced contributions, deposited them into earmarked accounts, and then distributed them plus interest to taxpayers upon reaching a certain age. Of course, the US Constitution enumerates no power to Congress to run a forced annuity program. So Congress and Roosevelt sold the program as merely a spending program, one of many. Social Security was never intended to replace the individual as primarily responsible for his own retirement income. It was sold as a supplement. Yet today 22 million Americans retire with no income stream except Social Security. This represents almost 40 percent of retirees. Obviously, the concept of moral hazard is unknown to government.

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China Off-Balance-Sheet Debt Exceeds GDP of Most Nations

For decades, there have been claims that China had the fastest-growing economy, and that it would eventually overtake the U.S. as the world’s largest economy. However, the fastest-growing economies are always developing economies because mature economies do not have as much room to grow.

In other words, a country with a per-capita GDP of $80 per month, as China had in the year 2000, has far more room for rapid expansion than a country like the United States, where the figure now stands at around $7,000 per month.

There is also the concept of low-hanging fruit. When a country has no highways or rail infrastructure, building highways and railways causes GDP to skyrocket. But once all major cities are connected, building additional highways and rail lines has only a marginal impact on economic growth.

A case in point is China’s famous high-speed rail system. Once highways and conventional railways already existed in China, converting to high-speed rail represented a massive economic investment and a large accumulation of debt, while the resulting increase in GDP was relatively minimal. For one thing, high-speed rail cannot be used to carry freight.

While China is still building high-speed rail lines, linking small communities with other small communities, the world is moving toward a remote-work model, making the movement of people a smaller contributor to GDP. Moving freight, however, remains critically important. Despite having a population less than one-quarter the size of China’s, the United States operates approximately 220,000 kilometers of total rail, about 33 percent more than China’s 162,000 kilometers, the vast majority of which is dedicated to freight.

Along with this development boom in China came debt. Because of the centrally planned economy, the central government was able to order local governments to invest and develop by creating debt. That debt was financed largely through real-estate sales, as the Chinese government controls actual land ownership rather than simple lease arrangements, which is what individual “homeowners” in China actually possess.

In order to keep this debt from detracting from the appearance of investment and economic performance, large portions of the debt were kept off the balance sheet.

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Japanese Are Feeling the Economy Collapse in Real-Time

Japan spent decades trying to convince the world that endless debt, money printing, and zero interest rates could continue indefinitely without consequences. Now ordinary Japanese citizens are beginning to feel the pressure directly as inflation rises, wages fail to keep pace, and living standards steadily deteriorate underneath the surface.

For the first time in generations, Japanese households are experiencing sustained cost-of-living stress while confidence in economic stability weakens sharply. Recent polling showed more than 80% of Japanese households now believe prices are rising faster than their incomes, while consumer confidence remains near recessionary levels despite years of government stimulus and intervention. Food inflation, utility costs, transportation expenses, and housing-related costs have all risen materially as the yen weakened dramatically against the dollar over recent years.

The psychological impact inside Japan is enormous because the country spent decades living through deflationary conditions where prices remained relatively stable. Japanese consumers became accustomed to stagnant prices and low borrowing costs. Once inflation finally arrived, the shock to household budgets was immediate.

Rice prices alone surged more than 20% year-over-year at one stage while basic food staples, imported goods, fuel, and electricity all moved sharply higher. Japan imports enormous quantities of energy and raw materials, which means yen weakness translates directly into higher consumer prices across much of the economy.

This is exactly what I warned would eventually happen once central banks lose control of sovereign debt cycles.

Japan now carries government debt exceeding 260% of GDP, the highest among major industrial economies. For years the Bank of Japan artificially suppressed interest rates and monetized government debt through massive bond purchases. The BOJ effectively became trapped because allowing rates to normalize aggressively would destabilize the government’s own financing structure.

Now Japan faces the consequences of that trap.

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Exploiting Veterans To Advance An Unaffordable Housing Agenda

One of the side effects of our misguided monetary policy in recent decades is the spike in home ‘values’.  Housing is one of the most common inflation hedges this side of gold.  It gives investors a relatively safe place to park their resources, and put them to work. 

But it’s not just big institutional investors who act as landlords.  Almost 9 in 10 such homes are owned by those who can count their entire portfolio on one hand. 

So while federal lawmakers bemoan the ‘affordability’ crisis that they arguably created, state and local lawmakers are left to deal with it.  Too often though, they make things worse.

Last week the San Antonio City Council banned landlords who own five or more rental homes from declining to rent to veterans for the express reason that they use a federal housing voucher as partial payment. 

This is another example of government showing insufficient understanding, much less respect for, the supply side of the economic equation.  This tendency has even penetrated our cultural lexicon.

When my financial literacy class discussed “unearned” income recently, returns from rentals was included with investments in stocks, bonds and the like.  I felt the need to clarify the term. 

Speaking from experience, landlords are ‘on’ 24/7, dealing the tenant concerns, neighborhood/HoA issues, etc.  Plus, when tenants move out, the clock starts ticking. 

The condition of the property must be assessed, cleanup is needed, and repairs might be necessary.  Then there’s marketing, sifting through prospective new tenants, and signing an agreement.

If I got that knocked-out in 4-6 weeks, I was content.  Considering I had a full-time job, was raising four daughters, and teaching at night, I considered that timeframe a win.  That is not “unearned.” 

Insert government meddling, and you introduce a new, unique headache into the process. 

When I started renting, my realtor brought up the possibility of accepting section 8 vouchers.  “It’s a steady income,” he said.  I declined, but not because I’m uncharitable.  Once when a tenant’s husband left, I lowered her rent for the remainder of the lease.

I declined section 8 because I didn’t want to deal with potential bureaucratic hassle, like the inspection headaches laid out by a local landlord.  Sidewalk problems that are the “city’s responsibility.”  Repairs to floors devoid of any actual problems.

I just wanted to convert the house I used to live in into a rental that could eventually help pay for my daughters’ college.  Landlords like the author on the other hand, are trying to help others in the community of lesser means, people who could use a hand-up. 

Aren’t citizens like her the same ones whose virtues are extolled by politicians, aiding citizens that those pols claim to care for?  This issue presents one of the clearest contrasts between the private sector and the public sector.

On the one hand, you have people serving a market demand, in this case with altruistic intentions, and with their own resources. 

On the other hand, you have politicians who promise ‘affordable’ housing on the campaign trail, put citizens on the hook for a staggering amount of debt that their property taxes finance, and then kneecap those who are already doing the work. 

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Ethanol: Not The Energy Transition We’re Looking For

With current events stirring up global energy prices, corn ethanol is again being dressed up as if it is a domestic energy source and agent of energy security. The truth is that corn ethanol is an energy sump, and that it takes more fossil fuel energy to make a gallon of corn ethanol than a gallon of gasoline. It is time to face this unpleasant truth and the other perverse outcomes achieved by twenty years of misguided policy.

In 2005 and 2007, Congress passed the Energy Policy and Energy Independence and Security Acts that together created the Renewable Fuel Standard (RFS) program. RFS had three stated objectives: to improve U.S. energy security, to reduce greenhouse gas (GHG) emissions, and to support rural economies and agricultural development. Instead, RFS has increased motor fuel prices, increased food prices, put millions of carbon-sequestering acres of land into intensive cultivation, increased GHG emissions and air pollution, and increased water consumption and pollution. As to energy security, the gallons of U.S. gasoline displaced by federal ethanol blending mandates are being exported to Mexico and other nations. The great success of RFS has been the hand of government transferring wealth from motorists to big ag corporations. It’s past time to stop the economic and chemical absurdity of forcing food to be fuel.

The government wanted biofuels bad, and it got them bad. Under Corn Belt lobbying pressure, Congress cynically waived the need for RFS to achieve actual GHG reductions for all existing corn ethanol biorefineries, plus all that could be built by the end of 2010. The bulk of the corn ethanol produced over the past 20 years and still today comes from these waivered plants. The EPA’s specious 2010 prediction that corn ethanol would achieve a 21% GHG reduction by 2022 was immediately challenged by the National Research Council for not properly counting land-use change and not realistically treating food competition and water use. This panel of experts from the National Academy of Sciences even questioned the viability of the entire concept of reducing GHG with biofuels. The most rigorous and honest estimate by a third party in testimony before Congress used the EPA’s own methodology to show that adding corn ethanol to gasoline has increased GHG emissions by 28% over the pure gasoline baseline with no trajectory to ever recover.

As to energy security, the goal was noble, but the method was irrational. Corn ethanol is critically dependent upon fossil fuels at every stage of production—tractor and truck fuel, fertilizer and pesticides, biorefinery energy and chemicals. Biofuels in general are just a way to put a green fig leaf on petroleum by inefficiently re-routing it through a farm field. While corn ethanol production has plateaued at 15-16 billion gallons for the past 10 years—not coincidentally matching the federal subsidy limit—domestic crude oil production has skyrocketed due to technological innovations that have opened up vast new geological formations to economic production. Despite a raft of federal policies and actions as negative for petroleum as they have been favorable for biofuels, the USA is once again energy self-sufficient and the world’s largest producer of crude oil and natural gas. In 2024, the USA exported 100 billion gallons of refined petroleum. Other countries are burning U.S. gasoline in their cars and producing the same CO2 emissions as if Americans were allowed to use it. The energy security objective for RFS is moot, and it was never achievable with fossil-fuel dependent corn ethanol.

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Was Fed Chair Warsh Chosen For A Controlled Demolition?

Supposed monetary hawk Kevin Warsh, who was officially sworn in as the 17th Fed Chair earlier this week, will now face the dilemma of staying true to his hawkish roots or caving to his unabashed high-rate hating President. That is, of course, unless there’s a deeper plan at play…

Last night, Cornell professor Dave Collum hosted Michael Lebowitz and Stephanie Pomboy for a deep dived into ‘How F***ed Markets Are’ where Dave posited the theory that Warsh man be a demolition man for a managed crash.

Collum and co. also talked about the insane disconnect between the economy and financial markets… and why Pomboy has increasingly abandoned financial assets altogether in favor of gold and hard assets.

Dave’s Fed truther theory and other highlights from last night below:

Retail Retards

Collum warned that modern markets have become completely detached from traditional valuation discipline… but that reality will eventually set in.

“It’s my assertion that probably greater than 50% of the investors in the world don’t understand what valuation means… Everything’s a Bitcoin price now.”

Standard valuation metrics have compounded roughly 4% annually for 45 years and are now firmly in “the nosebleed section,” yet “nobody cares,” per Collum.

Classic warning indicators are now near historic extremes. Lebowitz noted that “CAPE is near its all-time high. It’s above the 1929 level and just short of the dot-com level.” He argued the bigger danger may actually be hiding in supposedly “safe” stocks like Walmart and Costco.

Pomboy has opted out of the mania altogether. How? Real assets.

“Markets can go on longer than you can remain solvent betting against it…. I finally just sort of resigned myself to buying gold… At the end of the day I have been outperforming those markets by only gold.”

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Musical Chairs

Yesterday, Trump spoke with Xi in Beijing. While markets kept a watchful eye on any headlines about the war in Iran, palates were left dry as only tepid announcements dripped out, such as that China “offered help” on Iran and “pledged not to send weapons.” What they did not manage to evade was a conversation about Taiwan. During the two and a half hour conversation with Trump, Xi underscored that US intervention in Taiwan could trigger a “highly dangerous situation.” While Rubio underscored that the topic of American arms sales to Taiwan wasn’t a major focus of discussion, it likely will be when Congress’ approved USD 14bn arms sale to Taiwan lands on Trump’s desk, and again when Xi visits the White House in September.

While the US and China are stalled in the geopolitical arena, the financial scene seems to be bearing fruit. Treasury secretary Scott Bessent announced that conversations around the creation of a “Board of Investment” were underway, and that tariffs would be reduced or removed for products that the US doesn’t plan on reshoring, like fireworks. China also agreed to buy 200 “big” Boeing planes, according to Trump, which would mark the first significant Chinese purchase of Boeing jets since the last time Trump went to Beijing in 2017. China also hinted that they may intend to buy more US energy to compensate for flows disrupted by the war.

Though Iran didn’t appear to produce much in the way of headlines, the Strait is still closed, and Brent crude oil is still trading above $100/bbl at $106/bbl at the time of writing. According to Reuters, the IRGC announced that some 30 vessels have crossed the Strait since Wednesday (with Tehran’s permission), and transit is being permitted for “some” Chinese vessels.

US Treasury yields closed higher after hotter-than-expected trade price data for April printed, with import prices up 1.9% m/m and export prices up 3.3% m/m. These were the fastest monthly price index increases since early 2022 for both. However, the import price index, excluding petroleum, registered more modest gains of only 0.7% which, while hotter than the expected print of 0.5%, is cooler than levels seen as recently as January and February of this year. USD was the best performing G10 currency yesterday on a one day view. Yesterday afternoon saw a surge in yields across the board, absent a clear driver in sparse news flow, as the 2 year closed 3bp higher, above 4.00%.

Warsh was recently voted in as Fed Chair by the US Senate, but this creates a game of grown up musical chairs for the Board of Governors. There can only be seven Governors on the FOMC, and with Powell not giving his seat up just yet, if no one steps down, we have eight. However, Stephen Miran has announced that he would be stepping down as Governor and has submitted his resignation, effective upon Warsh being sworn in. Miran also assured that while he believes it’s important that the Fed only have one chair, Powell could help Warsh through the transition.

Bloomberg’s Anna Wong hit Powell with an uncomfortable reality check: “if Powell’s Fed had been more active in getting its own house in order following a massive miss on inflation, outsiders would have had less motive and opportunity to attack.” Powell’s Fed was criticized for its slow response to the inflationary pressures which led to “the Great Inflation.” Wong summarizes that “[Powell’s] limited push for accountability, such as a thorough review of Fed’s forecasting framework, opened the door to the nomination of a more aggressive outside like Warsh, who has vowed to ‘break some heads’ at the Fed. The moral of story: Get your own house in order or someone will do it for you.”

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