Kathryn: Hello and welcome to Optimist Economy. I’m Kathryn Anne Edwards, economist.
Robin: I’m editor Robin Rauzi.
Kathryn: On this show, we believe the US economy can be better and we talk about how to get there one problem and solution at a time.
Robin: But this week we’re going to talk about 14 problems. We’ll see what we can get to. It’s our first Q&A episode of Season 2. And thank you everybody for sending in all of the questions we got and for replying to my follow-up questions. It takes some time, but it’s really nice to correspond with everybody and see who the listeners are. What I can tell you is that you range from retirees to 20-somethings and you’re writing from literally all over the country.
Kathryn: It’s so affirming. We want to get straight to the questions, so we typically don’t do a lot of front matter, but I do have to give a critical update, which is that I had — I think you could tell from the last few episodes — I’ve been a little bit salty about some of the negative feedback we’ve gotten, and it had been crushing my spirit to a not-good degree. But many of you wrote in and just said, we love this show. It was so affirming to hear from you all, and it was a reminder of why we do this in the first place, which is to connect with fellow optimists. That always runs the risk of interacting with the non-optimists, whoever those people are, but that’s okay — especially on social media. We have you all, and so we’re no longer chippy. Mercury Retrograde be damned. Let’s answer some questions.
Robin: Are you ready?
Kathryn: Ready.
Is a retirement savings crisis brewing?
Robin: This is from Max Dakin in Portland, Maine. “I saw Kathryn quoted in the New York Times in a newsletter about retirement savings. How dire is this situation in your estimation? I’m curious whether inadequate retirement savings has been an issue for a while, or if there’s something generational about it. Has poverty already been rising for seniors, or is it expected to rise and these are early warning signs?”
Kathryn: Great question. Where to start? On the Social Security side, we’re great. We’re going to be great. We’re going to stay great — because it’s Social Security. The private savings side, I’m really, really deeply optimistic here as well. Private pensions were great, but not that many workers had them, and even fewer do now, and I see very little indication that they’ll come back. However, defined contribution plans like a 401(k) — we know how to get those right. You just enroll people automatically and make contributions for them. I don’t mean that employers contribute to retirement; I mean that your employer sets it up so that you are enrolled in a retirement plan and they withdraw some of your paycheck to put money into it. That is how we have successful retirement savings, and for people who are in those plans, they do really well. That doesn’t mean it’s perfect. It doesn’t mean they don’t have other risks, or that they don’t dip into them before they retire. But we do know how to get people to save for retirement. We simply do not offer that to all people, and we make it brokered by your employer. So auto IRAs, automatic IRAs, government IRAs, Trump Savings plans, the Thrift Savings Plan — this has been in the works for 20 years now, to have a government account that is in fact an auto-enrollment plan like a 401(k) that the government sets up. That is coming. I don’t think the situation is dire. I think retirement security is something we’re so close on in terms of policy because we know exactly what to do. There is almost no refutation of the idea that everyone in the US needs an auto-enrolled plan. There is small bickering over how it should be set up, who should set it up, how auto-enrollment works, and whether the government contributes directly for poor people — but there’s almost no question that this is what we need to do. We will get there.
Robin: Ready for the next question?
Kathryn: I’m ready. I’m starting slow, but I feel like I’m going to cook by the end.
Tax credits for first-time home buyers… good idea?
Robin: Question from Amber Edmondson in Tacoma, Washington. “One of the programs out of the Great Recession was a short-lived $8,000 federal tax credit for first-time home buyers. I used it. My spouse used another similar program in the early 2000s. Similar tax credits have been proposed in the last few years too. Would something like this be helpful to first-time home buyers now?”
Kathryn: Unclear, leaning toward no. It’s certainly a popular policy. I think Biden had proposed a $15,000 first-time home buyer tax credit. I think Harris proposed something like $25,000. The reason why people want this is because the biggest barrier to buying a house is the down payment. Being able to afford a regular monthly payment for your living expenses is something that everyone knows how to do once they start renting. It doesn’t mean it’s easy, but if you’ve rented for a long time, you can afford a monthly payment. The down payment is by far the biggest barrier, and it’s a barrier that a lot of people get help with from their family — part of the down payment comes from a family member. So this almost seems like a way to make it a little bit fairer and help everybody with the down payment, since it moves people into housing and we think that’s good. The argument against it is that it will raise home prices. Even though it’s targeted to first-time home buyers — here’s $8,000, here’s $10,000, $20,000, $50,000 for you — it just makes housing more expensive. So it’s really just a subsidy for existing homeowners, because it’s giving their equity a boost. The reason it was popular during the Great Recession was because home prices had collapsed and there was a total freeze of the home purchasing market. The thought was: we need people to buy houses. If it has an upward effect on prices, all the better, because we need to get prices back up and people are underwater on their mortgages. For the most part, people who studied the policy found that there was an effect on prices — somewhat muted — and there was an effect on purchasing — also somewhat muted. So it didn’t grease the wheels as much as it could have or possibly should have, but it did help and it didn’t hurt too much. The worry now is that it would just add fuel to the fire of home prices that are already going up, so it’s not an appropriate policy given how high home prices are.
Robin: There’s an interesting program here in Los Angeles for low-income home buyers. It’s done on a lottery basis — I don’t really know how many people get it — but they will give you up to 20%, up to $100,000, for a down payment on a house. Then you pay it back when you sell the house, and they also get a share of the appreciation. So let’s say you buy a $500,000 house and you get $100,000 — if the house appreciated 20% by the time you sold it, you would give 20% of the appreciation back into the program.
Kathryn: Tax credits, if they’re obvious and they’re big and people know they have them, will jack up the price of certain houses — especially starter homes. This is a classic starter home; I’m going to make it $8,000 more expensive. So I think other ways to get money to people would be preferred, ones that aren’t so obvious for pricing purposes. I am glad that it helps people into houses. It was good at the time. Should we have another collapse in home prices, this would probably be something we’d pursue.
What if tax breaks for capital gains only applied to new investments?
Robin: Bob Martin in Oak Park, Illinois: “As I understand it, the reason for the tax breaks on capital gains is to encourage investment to generate growth, which can benefit the economy as a whole. But the great bulk of securities that are bought and sold are not new investments, but deals between investors, which wouldn’t seem to provide the same kind of benefit. If the tax break for long-term capital gains was restricted to new investment only, what kind of outcomes would you expect?”
Kathryn: All right, so capital gains. This is a safe space. What is a capital gain? You have income that you earn from selling your labor. You also make money from selling stuff that you own, and that is referred to as a capital gain. It’s any money you make on assets that appreciate — stocks, bonds, houses, other property, big valuable assets, artwork, jewelry, collections. The easiest example might be selling a car, except cars rarely appreciate in value. If I bought a new car for $25,000 and 10 years later sold it for $10,000, even though I made money from the sale, I didn’t have an appreciated asset because I sold the car for less than what I bought it for. That’s not true for a lot of things like stocks or houses — they appreciate in value, and so when you sell them, you’re supposed to pay taxes on it. Capital gains tax has so many exclusions. There’s a small business stock exclusion. Some government bonds are excluded. Your primary residence is excluded up to a cap if you’ve lived there two of the last five years. And we’ve now added inherited investments to this exclusion through something called the step-up basis that changes the way the asset is valued so that you’re not taxed on it.
For you housing people out there, I find it incredible that all of the irritation leveled toward the boomers about holding onto houses never manifests as “we need to get rid of the step-up basis.” So: it’s 1980, I buy a house for $50,000. Forty-six years later, in 2026, that house is worth a million dollars. The lowest tax burden I face for that house leaving my hands is dying with it. If I sell it now, I’ll have to pay capital gains on whatever is above the capital gains cap for primary residence, which is $500,000 for a married couple. If I give it to one of my kids, they’ll have to pay taxes on it. But if I hold onto it until I die, that value resets with my kid’s inheritance through the step-up basis. So if my kid inherits a house worth a million dollars and sells it, they only pay taxes on the capital gains that have accrued since my death — not the $950,000 of appreciation that I had through my lifetime. It is such a massive incentive not to sell your house but to die in it. And it works for any type of appreciation — stocks, bonds, art, whatever. It’s a tax treatment of inheritance that greatly favors holding onto assets, including the primary home. For you housing people who want more movement in the housing market, you need to be attacking the step-up basis with all of your might.
The argument I’ve heard against the capital gains tax in the United States is that it’s a double tax. So I earn $100 in income. I pay $15 in federal income taxes. What do I do with the $85 that’s left? If I spend it, I pay a sales tax. If I save it, I’m going to pay either a dividend tax or the capital gains tax. The idea is that if I make money from saving, I have to pay taxes on it again — the so-called double tax. This was really popular during the Bush administration in the early 2000s, this notion that we are taxing savers.
Robin: It sounds like conservative branding.
Kathryn: Right. They put it as “you’re taxing savings” —
Robin: But you’re not paying taxes on the money you saved. You’re paying taxes on the income generated by the money you saved. Like “death tax” — they always have a good way to put it.
Kathryn: That is the conservative argument: you reduce the incentive for savings because you’re taxing the gains from savings. It doesn’t carry much water with me because I think the people who make investments and who would have high enough income to pay capital gains taxes are not on the fence about whether to invest. This is just about taxing appreciation on asset investments, and we’ve lowered that tax rate — and we’ve lowered through things like the step-up basis the amount that’s actually taxed. We can change it.
Explain the $1,700 tax credit scholarship program in OBBA?
Robin: Sarah Macrorie in Eugene, Oregon asks: “Can you explain the federal $1,700 tax credit scholarship program, which was part of the One Big Beautiful Act? How weird is it to make something like this a tax credit instead of a deduction like all other donations?”
Kathryn: This is a disaster waiting to happen, and we can see it unfolding in real time. I’m going to mainly punt on this question, but the $1,700 tax credit created in the One Big Beautiful Bill for school spending says: if you give up to $1,700 to a “scholarship-granting organization,” or SGO, you can reduce your tax bill by $1,700. It’s a one-for-one reduction in your taxes. Those SGOs in turn can redistribute the money as tuition or other qualified school expenses. This was a voucher program on steroids — an attempt to push a voucher program through the federal tax code. Most of their efforts to do it have been cut back, but it is still an attempt at a federal voucher program. States now can opt into it, but the reason I’m punting is because we don’t know what this will look like yet. They put it into the bill, but it doesn’t have a lot of meat on the bone. The Department of the Treasury needs to write guidance on exactly how this will work, and they haven’t come up with the rules for it yet. The person I follow on this is Jon Valant at the Brown Chalkboard Center at Brookings. He very much dislikes this program and follows it really closely, and he has really lovely blog posts explaining it — so I’m waiting to see what he says about the treasury rules. I think it’s probably going to be a disaster. His worry is just how much fraud there is going to be in this program. Most new aspects of the tax code — kind of like the Trump accounts for kids — have really, really low takeup in the first couple of years. So I think the bright light here is that it’s so obscure and so complicated that we don’t have rules yet. They’ve already missed one tax season for this being viable. By the time we get to another one, there’s time to kill this thing before it really gets off the ground — which, I heard through the grapevine, is what Democrats are waiting to do.
Are institutional investors wrecking the housing market?
Robin: Robert Middlekauff of Chicago. “Outside the housing supply issues, I also hear lots of debate about whether institutional investors are causing problems in the housing market. People, including the president, seem to feel strongly that they do. What are your thoughts?”
Kathryn: Short answer: we have no idea. The evidence is just not good in either direction — that institutional investors are doing good or bad. So an institutional investor — lots of definitions, but typically something like they own a thousand homes in at least three housing markets. Institutional investors are in all parts of the housing market, but the part that seems to get people angry is institutional investors that buy single-family homes and convert them into rentals. How big are they really? It depends. They’re very concentrated in specific markets. The biggest three are Atlanta, Jacksonville, and Charlotte. People dislike them because they think they push up home prices and squeeze out first-time home buyers. Very hard to tell in either direction, because home prices tend to rise in markets with rising jobs and population — which is what Atlanta, Jacksonville, and Charlotte are. They’re very hot markets for employment and people. So you can’t say that institutional investors are pushing up their home prices.
Some people really like them because they buy houses and on average will spend $20,000 to $40,000 repairing and renovating them. The thought around an institutional investor is that they’re basically making money, assuming their housing market will continue to grow. The cost and risk they face is that they buy a lemon — so they’re going to buy a hundred houses, and a lot of them will need $10,000 or $20,000 worth of work and one’s going to need $200,000. They spread the risk of high renovation costs through their properties and then turn them into rentals.
Are they bad? The evidence is truly mixed because it’s really hard to tease out cause and effect. I’ve read from liberal organizations like the Urban Institute that the evidence is not overwhelming and doesn’t go in one direction. What they said was: what you really need is to make it easier for individual buyers to take on renovation loans. Because you apply for a loan to purchase a house, but you need to apply for a separate loan to remodel or renovate, and that second loan has a really high denial rate. We’ve got an older housing stock. We’ve got people like the boomers who have been in their houses for a long time. Houses that need a lot of work are harder to sell person-to-person if they need structural repair. The house that we bought in Houston — we bought it from a developer. The person who had lived in the home for a long time, when she died, her children tried to sell it and couldn’t find a buyer because the inspection revealed it needed $30,000 worth of foundation repair. Getting a foundation repair loan while buying it — they just were not able to sell it person-to-person. So they sold it to someone who would pay for that, which was a developer flipper, and then we bought it with the foundation work already done. That’s something that can be fixed through changing how things are financed, without necessarily making as much space for institutional investors. Even libertarians — I couldn’t get anything from the Cato Institute that said their presence is uniquely bad or good.
Robin: I’m always surprised the numbers are so small. And they’re concentrated in high-growth areas, in part because people want to rent houses — they’re moving into a place, they don’t want to live in an apartment. Maybe they’ve got kids, maybe they’ve got a dog. There is a market for that. There was a lot of resentment in Southern California after the Great Recession that they snapped up a ton of houses in largely Black and Latino neighborhoods all at once. Overall, the numbers that I see are like 3% or less.
Kathryn: Super small. And there is some agreement that they helped stabilize the housing market during the foreclosure crisis because they did buy so many homes. The foreclosure crisis was higher in Black and Latino neighborhoods, and yeah, it definitely doesn’t look good. But I haven’t seen, if they were really, really insidious, I think we would have seen something by now that would have looked more telling than we have.
What quick policy moves could reverse worsening inequality?
Robin: Anna Kerkhoff of Montreal, Canada says: “You’ve said in various ways that Trump’s policies in essence will be wiped from history as time passes. However, they are exacerbating existing economic inequality. What type of policy home runs are going to be needed to rebalance?”
Kathryn: Okay, so the last hour of our show will be focusing on this question. Let me clarify. I think his policies will be erased because he’s not building anything and will make no meaningful contribution to the US economy. That doesn’t mean I don’t think he will do harm. And even the accounts — they’re not his idea, and they’ll rename them. I think he is doing harm, actively doing harm, but I don’t think that harm will define what America looks like in the future.
Things we can do quickly: we can pass a set of labor regulations that require paid sick days, paid vacation days, and greatly raise the minimum wage, while increasing the enforcement budget for the Wage and Hour Division. The big thing behind that is we need to update labor law, but the small thing we can do — improvements we know we need to make — we can make them right away. None of that costs the federal government money, but give the federal government money to do more wage and hour enforcement.
Another thing that would actually be really quick to set up: paid family and medical leave, a universal paid family and medical leave program, and a retirement savings program. So sick leave, vacation, minimum wage — you could do that tomorrow. Setting up a universal paid family and medical leave program and a universal retirement contributory account — like the Trump Savings plans that he proposed — I think that could take about a year.
Other things we can do right now: we can pass some investments in children that don’t have complicated delivery mechanisms — specifically, free school lunch. We can restart the 2021 Universal Cash Benefit that kids had, and we could make every kid in America eligible for Medicaid through their 19th birthday tomorrow.
Mid- to long-term: lurking behind those really fast investments in children on things like school lunch is setting up a universal childcare, after-school, and summer education program. I proposed this for the Roosevelt Institute and called it a universal childhood development system that has basically an integrated curriculum around health, wellbeing, and development from zero to 18. I think that would take one year to start and maybe three years to roll out.
Next: we could do really quick things to our tax system. Reverse the One Big Beautiful Bill, reverse a lot of the Tax Cuts and Jobs Act. Immediately end the step-up basis. Restore rates for capital gains, corporate tax, pass-through. You could do all those things for the next tax year.
Social Security — we could fix that tomorrow. We could have fixed Social Security’s finances 15 years ago, but we could still do it tomorrow. And then lingering behind fixing Social Security is implementing a new unemployment insurance system, which I think would take reasonably six months to start and three years to fully roll out.
And then the biggest hurdle, the one that will take some years: health reform. I say biggest hurdle because we’re not half-assing it this time. Props to Obama — they accomplished so much and changed the conversation about health in the United States, but they made everybody really unhappy with health in its own way. And that’s great, because we need to change our health performance system. I think it will legitimately take five years to transition to a new universal health plan. The biggest pain point will come from the tax subsidy for employer-sponsored healthcare. Eliminating that would make the private provision of healthcare through your employer no longer financially feasible for most employers or people, and it would move everybody off employer-provided healthcare. I imagine that would seriously bankrupt private health insurance companies. And I mean, I am a cutthroat capitalist at my core, and I’m like: if they can’t survive without the trillions of dollars they’ve gotten from the federal government, then why do we have them? Why are they private if they need the federal government’s support on almost every level to be sustainable? Sounds like they’re not a good private company. If a government is spending so much money to prop up private health insurance, why does it need to be private? I don’t think we’re getting much from having private insurance anymore, except making middle-class people feel good that they’re not on public health insurance. And I think they’ll get over it if we give them about five years. So those are things we can do tomorrow, things we can pass the day after tomorrow for one to three years in the future, and then we put our eyes on the prize: let’s reform the US healthcare system.
Will meaningful reform arrive before Millennials retire?
Robin: Rebecca of New York City: “As an elder millennial, I graduated into the recession and was uninsured but got a job with insurance right after the ACA passed. I paid off my student loans just months before Biden started forgiving them. Do you think we’ll have significant economic reform before millennials retire? Because based on my previous experience, I assume the United States will pass UBI or increase Social Security payouts the day I die.”
Kathryn: Girl, you are seen. I’m with you. Yes. I think two things are going to force Congress’s hand: one political, one demographic. The politics are: Trump is destroying so much and causing so much economic harm that you can’t just say, oh, let’s just revert to how we were before. He has created so many new problems with some of his policies that now we have to go back and fix them. And the fixing — well, we need to do something new. So I think there’s going to be a lot of policy urgency created by repairing the damage that we are all living through in real time right now. That’s the political part.
The demographics: we are running out of people and we need them. Americans are not having the number of children they want because they can’t afford them. A lot of European countries have beaten us to this moment because they’ve never had the same levels of immigration that we have. Many family policies passed in European countries were passed with the realization: oh my God, we’re running out of children. And it’s not as if the French are better at feminism — that’s a conservative country that was running out of people. There is an impetus to action that comes from the economic exigencies of demographic realities. We need people, Americans can’t afford children, and we’re going to have to start making some changes about labor supply pretty soon. At the nexus of all of those things are childcare, health insurance, labor regulations and minimum wage, better policy around work from home, better labor law enforcement — all in service of getting more workers. So I think a lot of these big, capital-L liberal policies are going to coast on the big-D demographics.
Is a hotel tax the right way to fund a stadium?
Robin: David King of San Antonio, Texas: “I’d like to hear your opinion about the economic wisdom of a city financing a sports stadium through a hotel tax. Are there better things a city should do with a hotel occupancy tax, or is the stadium the perfect jobs program for San Antonio? I guess this is up for debate in San Antonio right now.”
Kathryn: So a lot of times I have economic answers for you all and I don’t here — because I detest this policy. I don’t like paying for stadiums for very non-profitable leagues. But here we go: I will be in support of states and cities building stadiums with a 50% gender split. So you can’t build a men’s stadium until you spend the exact same amount of money building a women’s stadium, and you have to catch up with all investment since the first female professional sports league was incorporated. You’ve got almost 30 years. The WNBA was established in 1996. So you have 30 years of stadium investment to catch up on for women — and then you can build another stadium for men. Failing that, don’t build stadiums with public dollars at all.
Is there a better thing that San Antonio could do with its hotel occupancy tax? Yes — it can go to rental assistance, housing assistance, childcare, helping new businesses that run childcare centers. It can do all kinds of things. Or get rid of the hotel occupancy tax and not spend it on a stadium, and just make it a really cheap place to come visit.
Can I move the needle on labor policy from inside the system?
Robin: Nathan, who works for a state labor agency — we’re going to not say where that is. He says: “I work for a state labor agency and wonder how I can affect positive economic policy as a progressive, pro-labor economic optimist in a deeply conservative state. I do research and advocate for better data, but the actual policy levers I have at my disposal are minor. I help set definitions for demand occupations and I work on credential advocacy. Any ideas on what a person in my situation can do to move toward a more equitable labor market that actually works for workers?”
Kathryn: You can’t make your job progressive if it’s not progressive. I can empathize with how thwarted you could feel sometimes, that you don’t have more power at your disposal to do good for the workers in your state. You can execute the labor policy in your state, but that doesn’t always mean you’re doing as much for workers as you want. I would say: if you are a state employee, at the very least you are embodying the progressive ideal that there are good, effective people who do public service. One of the things you hear so much when we propose policy that is bold and aggressive — hey, let’s have universal childcare; hey, let’s make the minimum wage this much — is that we’re told we can’t do it. Not just that we’re not allowed to do it, but we can’t do it because we’d never be able to implement it. That’s too complicated. That’s too big. That requires too much. You can do anything with good people. Truly, you could execute on almost any economic policy. That doesn’t mean the policy is good, it doesn’t mean the policy will work perfectly, it doesn’t mean the policy won’t have problems. But the idea that we can’t do it is fundamentally saying that we don’t have the people to execute on a vision. And so doing your job and doing it well means that they’re wrong — because there’s someone like you who is able to execute on a vision. Maybe that vision hasn’t arrived in your state, but stay ready so you don’t have to get ready.
Why has the responsibility and risk for employment shifted onto workers?
Robin: Emily, writing from Kentucky, says she’s been reading “Lower Ed” by Tressie McMillan Cottom, and one idea that has really stayed with her is how much of the responsibility and risk for employment has shifted onto workers. “We pay for our own education, our certifications, and continual re-skilling just to stay employable. It made me wonder, how did we arrive at a system where workers carry so much of the risk, and what would it take for that balance to shift back?”
Kathryn: Starting in the 1970s, there was a real move toward this you’re-on-your-own, free-market philosophy. Corporations don’t need to pay as much. They don’t have as much responsibility. They just need to be profitable and reward money to their shareholders. A lot of people point to the influence of Milton Friedman, and they’ve had 50 years of runway to show us what they’ll do when we don’t make them do much. I think it’s a really valuable lesson to have in hand, that the answer is not going to come from corporations doing the right thing. 
And if they’re motivated by profit and that’s what they have to do — fine. Make it easy for them. You’re not offering health insurance anymore. You’re not offering retirement anymore. We need to get those off of your books. We will regulate your labor provisions, and that’s it. And then we will tax you for the things that you don’t want to provide voluntarily. You had 50 years to show us that you weren’t going to provide it voluntarily. 
You don’t want to pay an extra payroll tax? We could have a corporate tax rate with a special 1% tax on corporations to pay for retraining. They would fight and scream and say that they can’t do it. But 50 years later, they’ve never invested so little in their own workers’ skill development. Fine — you don’t want to pay for it, we will tax you and we will have someone else do it. 
So for me, there is a real devolution to be mourned here. We used to have different-looking institutions in our economy and different-looking actors, and they’re gone. I’m not going to pretend like the people we have today look like that. They have a single-minded goal. Fine — take everything else off their books, tax them to provide for ourselves, and let’s do it through the government where it’s fair. And people like Nathan are there ready to carry the mantle forward.
Is fixing the care economy easier than we think?
Robin: Erin from Minnesota: “The gigantic care economy that is so essential is also so strained — I’m thinking childcare, elder care, professional, domestic, and unpaid. What would it look like to recenter our economy on caregiving and care services?”
Kathryn: The most important thing to stress is just how feasible it is to do better by care in our economy. It seems like a really big problem — being able to have a paid, respected care economy that’s formalized and recognized and dignified seems like a lot. But I don’t think we’re that far away. In every care situation, break it down into: one, how is the care delivered, and two, how is the care paid for? So the policy question is twofold: do we need to build a delivery system, amend it, change it, formalize it? And how do we compensate within that delivery system?
Childcare is an example where we have a delivery system — we have a distributed, mixed delivery method for childcare. It’s in people’s homes, it’s in family-based centers, it’s in offsite centers, and it’s currently paid for in a priced market. So we should take that delivery system, build on it, and end the market, paying via federal reimbursement for care as opposed to payments out of parents’ pockets. That doesn’t require tearing down every childcare center we have and building a new one in its place. It’s just a tinkering of the payment methods so that it moves to a reimbursement model.
Elder care is the hardest one because we don’t necessarily have a large delivery system — either in private or informal settings — nor do we have a good payment structure set up. The state of Washington has set up an elder care long-term care insurance program that is in the early years of its rollout, and it’s very successful. It includes money for long-term care — in-house and in a facility — as well as payment for family members who are providing care.
So I don’t think we need to recenter our economy around care or even greatly alter it. Not because care isn’t important, but because it doesn’t require a fundamental change to our economy to make care universal, available, high quality, and paid. We’re so close. We don’t have to dramatically remake everything that’s come before to do right by people who need care or provide care. I think it’ll benefit our economy. I don’t think it’ll disrupt our economy.
Can we prevent price gouging by companies?
Robin: Connor Jobes of New York City: “What do you make of the fact that US companies were able to absorb so much of the cost of tariffs for nearly a year without hiking prices? Is there a natural profit that companies should be making and how do we police businesses from price gouging?”
Kathryn: Two things to stress. One, tariffs were much lower in practice than how they were announced. If you just read press releases or had a casual following of the news around tariff announcements, you would think tariffs went up to like 45%, 30% on every country. At the peak, the estimated effective tariff rate was around 17%. But people shift their supply and their consumption, so that while on paper it was closer to 17%, given what people were actually consuming, it was probably closer to 15% — which is not low. It’s the highest it’s been in almost a hundred years. But it’s not 40%. So it wasn’t as high as they probably said.
Second: prices did go up. There are some things that kept prices low. One was a lot of initial hoarding and prep around the tariffs coming — people increased imports while there was no import tax yet, building up inventories beforehand. Then prices on tariffed goods went up in some cases 11%. They didn’t go up the full measure. But there was an increase in prices, and goods that had higher tariffs did see higher price increases. Not a hundred percent of our goods and services are affected by tariffs, so we wouldn’t have expected a one-to-one effect on overall prices. It’s nuanced.
What the past four years of the 2022 inflation spike and then the 2025 tariffs have taught us in a very visceral way is that a lot of companies are price setters. His question was: how do we police businesses from price gouging?
Robin: More competition?
Kathryn: Yeah. They need some competition. If they’re charging too much for something, they have too much market power — so you either need to break them up, tax them more, or a combination of both while you allow for more competition. You can have some policing, but I think there’s something to be said for utilizing market power for good. We had a listener who wrote in the executive order that things have to come in pre-sized packages so you know exactly how much you’re going to get. Or, for consumer protection purposes, if you change any aspect of your product — the weight, the amount inside, or any component — you have to put a sticker on it that says this now has 15% less. This bag has less chips in it than it did six months ago. People won’t buy it. It’s not affecting the market — it’s just saying that people in the market need to be more informed about what’s going on. Those companies would absolutely change their behavior. I’m more of a: let’s harness market power, let’s have lots of competition, and let’s have lots of disclosure. Consumers can be savvy when they have information at their disposal.
Do rent caps work?
Robin: From Aron: “I listened to your episode about the wealth gap as the true causation of the housing affordability crisis. What are your thoughts about rent caps? A lot of progressive candidates talk about them.”
Kathryn: I’m torn on this one. The economic argument, as is often the case, is simple and cruel: if you mess with the market price, you distort the market. Which means if you put a cap on every time you start a new rental agreement, you’ll have fewer units. You’ll push up the price of units that aren’t under the cap. You’ll have massive rent increases between tenants. You’ll disincentivize maintenance of units. You’ll disincentivize renting units at all. I think all of those things are true. That said, I don’t think that’s the whole story. Landlords get a ton of help. They get to operate their rental property as a business so they can write off all expenses. They get to claim depreciation — and they’re claiming expenses and depreciation on a property that is almost always increasing in value.
Robin: I would say the value on rental properties goes up with its rents. So rent caps actually hurt the value of a property by limiting the amount of income it can generate.
Kathryn: There are anti-gouging laws that some localities have put into effect where you can raise rent every year but you have to stay under a cap.
Robin: That’s kind of actually how rent control functions here in Los Angeles.
Kathryn: I can’t think of a single policy in which a nominal fixed amount is ever appropriate. We should always be adjusting for the change in prices and wages over time. What that cap is and what those exceptions are would have to depend on the locality and what the housing stock looks like. You could imagine in certain places you don’t have that many landlords and the housing stock is single-family homes, where you’ve got one person renting out their former primary residence — and that’s most of the rental units in a certain town — versus a really dense area like Washington DC, where it’s people’s basements or multi-unit houses. You could design it really thoughtfully, using the data you have on the amount of expenses and depreciation that landlords claim to inform what rent caps could look like, or what rental growth caps could look like.
If states roll out good policies, does the federal government need to do it too?
Robin: MJ See in my home state of Ohio says: “You mentioned that some states have big government programs like healthcare, childcare, free school lunch, and paid sick leave. If states can do this, which might satisfy states’ rights conservatives, why should the federal government do it?”
Kathryn: I think there are a few arguments you could make here. There’s certainly an ethical argument that if you think of states as being a testing ground for policy, once you find a policy that’s beneficial, it’s on some level unethical to withhold it from other citizens. We know that free school lunch helps kids’ health and their educational and academic performance because they’re not hungry at school. So is that something we should withhold for children because their state hasn’t gotten around to it or isn’t inclined to help children in their state? They’re still Americans. What sets the lowest bar for American children — what we know to be best, or what we allow to be worst?
There’s a very clear economic argument for federal policy because states are not equally rich. They don’t have the same property tax base, the same income tax base, or the same sales tax base. These big government programs in certain states are not coming from the poorest states, by a long shot. To say: once a state can afford it, those people get childcare — but in poor states, they can’t afford it, so they don’t get it. The tax base in Mississippi is not large enough to afford everything in your question. Is that just too bad, so sad, and the federal government isn’t going to help you? We know something works, but economically you can’t afford it — so now you’re punished for being poor by having less investment. I don’t really like setting states up on a timer where they always have fewer resources.
There’s also a political argument here, which is that you can’t talk about states’ rights in the United States without talking about Black people. If you want Black people in the South to have something, then you need to go federal. Policies that withhold investment also withhold it from white people in those states, to be clear — but there’s a mortality study in the US looking at the intersection of three border counties on Lake Erie, comparing mortality in one county that’s in New York, one in Pennsylvania, and one in Ohio. Because of state policy, the mortality rate of that same cluster of people is very different. Ohio doesn’t have a good Medicaid program; it doesn’t have good supports for very poor people; it doesn’t have the same cigarette taxes and seatbelt laws. It’s a low-regulation, low-investment state environment. New York, in contrast, has a really good Medicaid program, spends a lot of money on it, and has tons of public health interventions. The study compared how many years of life living in Ohio shaved off compared to living in New York — even if it’s 20 miles away.
Is it right that Ohio is allowed to drive its citizens to an early grave through terrible policy when 20 miles up I-90 they would be doing better? So many researchers have covered what we learned from the Medicaid gap and the Medicaid expansion. What we learned is that states were willing to let a lot of people die by withholding health insurance from their members because they didn’t believe in a government policy. When is that okay? I don’t think the bar for what Americans get should be a spiteful state government that doesn’t like a federal policy and therefore opts its citizens out of it even to their own detriment. If we know good policy helps people, why do we let some governor who wants to run for president deliberately harm the people in his state with all the evidence in hand that he is doing so? That’s a states’ rights argument. So no federal policy when we know it works, when states have proven it works. Now let’s give it to everybody.
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