Assorted U.S. Economy Links (05/06/2026) -- Affordability; Electricity Supply; Shifting Populations; The Warsh Fed; A New Tariff Case; Mamdani's Grocery Store; Global Equity Holdings
1) Douglas Holtz-Eakin analyzed the latest Employment Cost Index report from the BLS. For the first three quarters of 2025, compensation of workers increased a bit faster than inflation, but that reversed in the fourth quarter. The reason — soaring health insurance costs for employers. Expect “affordability” in health care to be a major political issue this fall.
https://www.americanactionforum.org/daily-dish/the-affordability-issue-an-employer-view/
2) Affordability is a key theme for a group of left-liberals in the Democratic Party, among whose chief spokespeople are Ezra Klein and Derek Thompson. They are striving to unify traditional centrist Democrats and the party’s growing progressive wing by navigating between the former’s anti-socialist heritage and the latter’s preference for stronger government intervention in the economy. From the point of view of a classical liberal like Samuel Gregg, there’s still too much “statism” built into “abundance liberalism:”
Tactical and even strategic coalitions across the left-right divide can often be healthy developments. Not only can they sometimes produce positive policy outcomes, but they also remind us that not everything in politics must be reduced to a type of existential conflict. Sometimes such alliances may even help marginalize the political spectrum’s extremes. In our time, these include a woke left that sees no limits to the scope of government intervention in the economy in the name of social justice, as well as an ethno-nationalist right that is more than willing to deploy the state to realize an ever-growing list of economic goals, which frequently overlap with those of the woke left.
Despite these potential positives, I remain skeptical of the prospects for any long-term rapprochement between classical liberals and fiscal conservatives on the one hand, and supply-side progressives on the other. Tactical alliances in the name of realizing particular ambitions should never be off the table. Winning center-left politicians over to the cause of school choice is a good example of what can be achieved. Effecting a deeper and more strategic right-left realignment around an abundance agenda, however, is an entirely different exercise, not least because there is little alignment between the core principles of the abundance left and those of classical liberals and limited government types.
https://lawliberty.org/forum/abundance-liberalisms-statist-heart/
3) In one of his typically thorough and cogent posts on aspects of the economy, Joseph Politano considers the gap between rising electricity demand in the U.S. and the lag in supply expansion, the inevitable result being rising prices for users. Construction of new power generation facilities has, in fact, been quite strong recently, driven mainly by solar, but demand, part of which is AI-driven, has been growing even faster:
The rapid rise in AI-related data center power demand and its subsequent backlash have understandably dominated much of the recent public discourse around electricity investment. The fact that most major tech companies are now deciding to fund their own grid capacity proves just how important power access is to their gamble on AI development and how increasingly politicized energy consumption has become. Yet while AI development is a prime driver of current grid expansion, America was always going to need more power investment to meet this phase of economic growth and was already struggling to meet rising electricity demand well before the AI boom.
American manufacturing’s power consumption is poised to increase as factories built during the 2022-2023 construction surge come online. US EV adoption, while extremely slow compared to peer countries, has increased power demand and is still projected to rise significantly in the near future. Residential demand is gradually increasing as heating, cooking, and other appliances are slowly replaced with electric versions. Prices surged through 2021 and 2022 as those demand impulses hit a more supply-constrained environment. In other words, the costs of America’s electricity gap have only been mounting as power becomes more important to the national economy.
While the US still needs plenty of fossil fuels to keep the power grid running, the long-run growth trajectory increasingly lies in other power sources. Growth in domestic EV, battery, and solar production is high by historical standards, but it is still low compared to many of America’s peer countries, and the US is no longer a manufacturing leader in any of those industries. Having already fallen behind on production, the US risks multiplying the pain if it also falls seriously behind on deployment.
4) A very interesting chart of population shifts within the largest U.S. cities. Note also the substantial increase in Mixed-Race individuals. My casual observation living in Manhattan is that these are young people who are mainly the result of White/Asian unions. Note also that high housing costs are driving Whites and Blacks — probably working-class people — from the city, a result of the failure to remove the many regulatory obstacles to new construction.
5) With Kevin Warsh about to become Fed chair, monetary economists are returning to foundational discussions of monetary regimes and policies. Scott Sumner was interviewed in a recent Reason magazine session on whether the Fed should be abolished, a position taken by many libertarians who believe that government control of money is just another form of central planning. Scott, who views himself as a “pragmatic libertarian,” answered “No” and, in this post, explains his approach to monetary issues:
In my view, the most useful way to evaluate monetary policy under a fiat money system is to focus on the specific nominal aggregate being targeted. Because the Fed’s dual mandate can be best achieved with stable nominal GDP growth, I look at NGDP (and especially market forecasts of future NGDP) as the most useful indicator of the stance of monetary policy. In this framework, above target growth in NGDP is an expansionary policy and below target growth in NGDP is a contractionary policy. During certain time periods, alternative measures such as total labor compensation can represent an even more useful policy indicator.
This approach does not work when there is a commodity money standard and the government’s ability to target NGDP is limited. In The Midas Paradox, I used changes in the government’s gold reserve ratio as an indicator of monetary policy during the 1920s and 1930s. For 1933-34, I used changes in the price of gold as a policy indicator.
Libertarians occasionally object that NGDP targeting is “central planning”. It isn’t, it is money planning. The 19th century gold standard was also money planning—a government set price of gold.
6) Does Warsh’s arrival presage a major regime change? Pierpaolo Benigno examines Warsh’s views on some key issues, including 1) The “two tools” idea, meaning interest rate adjustment in relation to quantitative easing (QE) and the size of the Fed’s balance sheet, and 2) The relation between fiscal and monetary policy:
What to conclude? Warsh’s framework implies a Fed that is leaner, more tightly anchored to price stability, and less interdependent with fiscal policy. In theory, it is a coherent regime shift. Whether it can be delivered in practice - and under the inevitable stress tests of markets, politics, and shocks - is the real question.
7) Having lost the “reciprocal” tariffs case in SCOTUS, the administration has imposed tariffs based on the “balance-of-payments” (BOP) justification in Section 122 of the 1974 Trade Act, which are now before the Court of International Trade. If the Court strikes them down, as most observers expect, the government will appeal and we’ll be off to the races again. The problem is that the Act was written at a time when the U.S. was still operating in a “fixed-exchange-rate” world. Today, there is no such thing as a BOP problem as described in the legislation:
The facts are not in dispute that the United States has both a large US trade deficit ($1.2 trillion for goods) and a large current account deficit (roughly $1.0 trillion –$1.2 trillion annually). The Trump administration, citing its most senior economists, argue that these deficits allow this statute to be used as authority for imposing tariffs currently. The plaintiffs counter that these deficits are not a balance of payments problem, as foreigners are willing to buy US Treasuries in adequate amounts to offset the current account deficit. The signs of a problem are missing: The exchange rate has not plummeted. Foreign persons and institutions still purchase US debt instruments. The judges understood that the accounts always therefore come close to balancing, because the inflows and outflows are nearly equal as a bookkeeping matter. Does that mean that a problem cannot exist?
8) Of all of NY Mayor Mamdani’s harmful economic proposals, the dumbest — although not the worst; that honor belongs to his proposed housing policies — is the opening of city-owned grocery stores. Jimmy Alfonso Licon, using Hayek’s analysis of the “knowledge problem,” shows why such stores can only survive with taxpayer subsidies and have excessive construction costs. I find it particularly amusing that Mamdani plans to open the first of them a short distance from Manhattan’s lowest-cost grocery outlet, the Costco warehouse.
https://thedailyeconomy.org/article/the-knowledge-problem-dooms-municipal-grocery-stores-every-time/
9) When it comes to equity holdings, the U.S. is in a league of its own, with U.S. residents and institutions owning more than half of global equities. As Paul Kedrosky notes, stock ownership is heavily concentrated in upper-income households and is increasingly important politically. Potential market effects, as we have seen repeatedly since Trump returned to office, are a major constraint on political choices.
https://paulkedrosky.com/chart-of-the-day-the-u-s-leads-the-world-in-stock-ownership/