Author: JW Mason

After the Rent Freeze

(This piece was originally published at Phenomenal World, in cooperation with the New York Policy Project.) 

With the failure of Eric Adams’s last-ditch effort to stack the Rent Guidelines Board (RGB), Mayor Zohran Mamdani is now in a position to fulfill his promise to freeze the rent. The nine-member RGB sets maximum rent increases for New York’s million-plus rent-regulated apartments, determining rents for over half of the city’s renters.

The RGB is tasked with balancing the interests of tenants and building owners, considering a wide range of factors including the cost of operating rent-regulated buildings, the cost of living for tenants, and the overall state of the housing market. In practice, they have wide discretion. The RGB delivered a 0 percent increase in regulated rents three times during the De Blasio administration. Most discussion of rent regulation in New York City focuses on the legal intricacies of who, where, and when the RGB guidelines will bite. But this risks losing sight of the bigger-picture questions about the financial terms on which housing is bought, owned, and sold in New York City—terms which may have to fundamentally change to make affordability possible in New York City.

To understand the implications of Mamdani’s rent freeze, we must consider the broader economics of housing in New York. Any discussion of rent regulation has to grapple with the fact that owners of residential buildings pay most of their rent earnings not on maintenance or operations, but to service their debts to their creditors. With the kind of leverage typical for investor-owned residential buildings, any significant slowing of rent growth is likely to see many building owners unable to make their mortgage payments.

The great majority of residential buildings have rental income well above their operating costs, and they could be profitably operated even with rents much lower than today’s. So in principle, there is space for the RGB not just to freeze the rent, but roll back regulated rents by some significant percent. The big obstacle to a mandated rent reduction is not the real costs of providing housing, but the financial commitments inherited from the past. A building underwater on its mortgage is unfortunate for the owner; it can be disastrous for tenants. A plan to freeze regulated rents, or even to limit them to modest increases, needs to be combined with a plan to ensure a quick resolution for apartment buildings in financial distress.

Waiting for a market solution to this dilemma through the bankruptcy courts would be disastrous for tenants, who would bear the brunt of cost savings in the form of decaying living conditions while landlords wait for a better deal. Instead, the city’s plan to freeze or reduce rents must be combined with a quick resolution for apartment buildings in financial distress. This resolution must take account of the major dynamics that shape the rental market in the city—high rent burdens, inadequate investment in previous decades, and the distinct circumstances of landlords controlling old buildings versus developers looking to build new ones. After a rent freeze, true housing affordability will call for a model of alternative, including public, ownership.

The rent-stabilized market

It’s easy enough to predict the argument against freezing the rent—without rent increases, many building owners will face financial distress, leading to deferred maintenance or abandonment. A recent piece in The City describes how property owners have struggled to make mortgage payments and cover operating expenses:

Every month, Langsam Property Services collects dozens of rent checks from two buildings it manages in The Bronx. But that’s not enough to cover the mortgage and operating expenses. So every month, the buildings’ owner sends another check—for at least $30,000, just to meet the mortgage.

The kinds of buildings…where all or almost all of the apartments are rent regulated…face extreme financial distress. Rent increases failed to keep up with costs for most of the last decade, and changes to state law in 2019 made it virtually impossible to renovate vacant units and raise the rents, putting such landlords in a bind…A four-year rent freeze could result in the kind of abandonment that happened in the 1970s.

It’s important to take these concerns seriously. The landlords quoted here are honest when they describe their difficulties paying their mortgages. But we should distinguish between debt service and other costs. Operating and maintenance costs reflect the actual costs of operating a building in the city. Debt service, on the other hand, reflects how much the current owner paid for the building. Combining these two sets of costs is common in discussions of rent regulation. Another recent story, for instance, quotes the executive director of the Association for Neighborhood and Housing Development: “You can’t continue to run a building without paying the mortgage and without paying your insurance.” Insurance is indeed a cost of running a building, but the mortgage is not. At most, it is a cost of owning it.

As we think about the economics of rent regulation, we should keep this distinction clear. Operating and maintenance costs are necessary costs of providing housing; mortgage payments are not. Essentially none of the debt owed by owners of rent-regulated buildings is construction loans, and very little of it is financed capital improvements. The cost of servicing that debt is not part of the cost of providing housing. It rather reflects how much the owner has borrowed against it. The problems faced by owners of rent-regulated apartment buildings look very different in this light.

There is plenty of data on the incomes and expenses of residential buildings in the city, in particular the detailed (though not always complete) records of the New York City Department of Finance (DOF). Research and advocacy organizations like the Furman Center and the Community Service Society regularly put out useful reports based on this. For present purposes, the RGB’s annual Income and Expense Study, based on the DOF data, is enough to give the broad picture.

Figure by Conor Smyth.

 

In buildings with rent stabilized apartments, reports the RGB, rent averaged $1,600 per unit; landlords on average collected another $200 per unit from other income sources—parking, retail space, cell-tower rent, and so on. Maintenance and operating costs, meanwhile, averaged a bit less than $1,200 per unit, including taxes (a bit over $300 per unit) and insurance (almost $100 per unit, and the component that has increased most rapidly in recent years). For the average rent-regulated building, net income is around $600 per unit, about 50 percent above operating costs.

This relationship between costs and income seems fairly stable over time, albeit with some short-term ups and downs. Over the past two years, landlord income has increased by 15 percent, while costs have increased by only 10 percent. But this was in large part making up for the pandemic period, when income increased more slowly than rents. Over the long run, the two have kept pace almost exactly—over the past twenty years, landlords’ incomes have increased at an average annual rate of 3.8 percent, while their costs have increased at 3.7 percent.

These averages mask a great deal of variation across individual buildings. Still, over 70 percent of buildings with rent stabilized units had operating and maintenance costs less than 80 percent of income, and fewer than 10 percent had operating and maintenance costs greater than income. This minority of buildings are a serious concern, and their numbers do seem to have increased somewhat in recent years, but they remain a fraction of rent-regulated buildings.

Yes, if rents on stabilized units were frozen forever, there would come a point when operating costs exceeded income for an increasing share of buildings. But why are building owners facing distress today? The answer in most cases is that they borrowed too much to buy buildings at inflated prices, based on an expectation that rents would rise faster than they actually did.

Landlord economics

The price that an investor will pay for a building, and the size of the mortgage that bank will give them to do so, is a function of the rent that the building is assumed to generate in the future. Lenders will typically accept a debt-service ratio of 1.25, and some will go as low as 1.1, meaning that they will lend as long as the expected rental income net of operating costs is 1.1 to 1.25 times as great as the payments the mortgage requires each month. To say that a building’s net rental income is 1.25 times its debt service costs is the same as saying that 80 percent of rental income after operating costs will go to mortgage payments, if the building performs as expected.

Furthermore, investors in multifamily buildings often refinance in order to extract equity when a building has increased in value. Say a building is valued at $10 million and is currently carrying a mortgage of $7 million, meaning that the owner’s equity is worth $3 million. If a lender would be willing to accept the building as collateral against $8 million of debt, the owner can take out a new mortgage, reducing their equity to $2 million and leaving them with $1 million in cash—which they will presumably put toward acquiring another building.

This sort of “cash-out” refinancing was seen as a troubling aberration when it became popular among homeowners during the 2000s housing boom. But for real-estate investors, it is an established business practice—borrowing against one’s existing properties is the easiest way to finance the acquisition of new ones. From an investor’s point of view, a building carrying a smaller mortgage than what lenders would accept is money left on the table. Careful observers of the housing market believe that this kind of equity extraction may account for the bulk of the debt carried by rental properties in the city.

This means that even buildings that have not changed hands in many years often carry mortgages close to the maximum debt-service ratio that lenders will allow. Research by the University Neighborhood Housing Program based on data from the government-sponsored enterprise Freddie Mac (which purchases a large share of mortgages on New York apartment buildings) finds that residential buildings in the city, on average, pay out about 80 percent of their net operating income as interest payments. This suggests that building owners are normally operating close to maximum leverage. For most buildings in the Freddie Mac sample, interest payments are a larger cost than all operating expenses put together.

Figure by Jacob Udell. Note that it is mostly smaller buildings with loans through Freddie Mac’s Small Balance Loans (SBL) program, so this is different from the universe of all rent-regulated buildings.

Whenever rents rise more slowly than expected when a building was purchased or refinanced, there is a good chance that the owner will be unable to meet their mortgage payments, even if rental income is still comfortably above operating costs—as is the case in the majority of buildings.

Rent growth below buyers’ (and lenders’) expectations is a particular problem with buildings that were bought or refinanced prior to the 2019 reform of the New York State rent laws. These investors hoped to win substantial increases in rents for regulated units or remove them from regulations entirely, using a number of loopholes that allowed landlords to kick out their current tenants and rent out the units at a higher rent. Since the 2019 reform, this is nearly impossible. As a result, many buildings purchased in the 2010s cannot generate income commensurate with what was paid for them.

To be clear, the rent reforms were a major positive step for housing affordability. The expected increases in rental income could only have been realized, in most cases, by evicting current tenants and attracting higher-income ones. But losing the possibility of replacing current tenants with higher-paying ones has left the owners of these buildings in a financial hole.

A future with lower rents?

This overhang of overvalued, overmortgaged buildings is presumably a major reason why there has been so little activity in the market for multifamily buildings in recent years, with the volume of sales less than a third of what it was a decade ago. How then should we think about landlord complaints—many of them genuine — that a rent freeze will leave them unable to service their debts?

First of all, it should be clear that if buildings’ rental income is inadequate given their debt payments, the reason is lower than expected rents—not rent regulation per se. If an Abundance-style program of supply-side reforms delivered enough new construction to substantially bring down rents, building owners like those quoted in The City would face the exact same difficulty. Any slowing of rent growth will create financial distress for building owners who borrowed on the expectation of rising rental income.

There might be steps the city can take to reduce costs for building owners—insurance being the most promising avenue—but the potential savings are limited. Major improvements in housing affordability will entail reducing rental income for existing buildings. At the end of the day, tenants’ housing costs are owners’ incomes; lower gross income for landlords is just the flip side of more affordable rental housing. The housing agenda must then explicitly include a strategy for property owners whose debts cannot be paid in an environment of lower rents.

One might ask, why does the public need to be involved? Perhaps this is an issue to be left to owners and lenders. Either the bank writes down the loan, or else it forecloses, and the building is sold to someone else at a more realistic price. The trouble is what happens during the transition: the foreclosure process can drag on for years, and financially distressed owners are likely to prioritize mortgage payments over maintenance and upkeep, allowing buildings to fall into disrepair at great cost to their tenants and to whomever ends up owning the building. Landlords will stop paying for gas before they give up control of their buildings.

The lower the rent increases allowed by the RGB, the more urgent code enforcement becomes as a complement to housing affordability measures. Otherwise, what landlords give up in rent increases, they will try to claw back in reduced maintenance. At the same time, a successful affordability policy means that many buildings will be worth less than what their owners paid for them. Someone is going to have to bear those losses. It’s important to proactively shape how that happens, rather than wait for the market to work itself out.

One approach would be for the city to work with landlords and creditors to negotiate mortgage write-downs in return for hard commitments to a higher standard of maintenance and improvements. The response to the failure of Signature Bank could be a model. Signature was a major lender for multifamily buildings in New York; a considerable part of its portfolio of loans to owners of rent-regulated apartments ended up in the hands of the Community Preservation Corporation (CPC). CPC agreed to loan modifications in return for clear commitments by landlords to address building and habitability code violations. The city could push other holders of mortgages on underwater buildings to make similar deals.

CPC had the big advantage of already owning the loans. As a third party, the city government might struggle to bring lenders and building owners to the table. Another option, promoted by the mayor’s new Director of the Office to Protect Tenants, Cea Weaver, would be for the city to move aggressively to take ownership of buildings that can’t make their mortgage payments.

There are also a nontrivial number of buildings where operating costs exceed rental income. These are especially common in the Bronx, where past underinvestment may have contributed to today’s costs, and many are already owned by nonprofit Community Development Corporations (CDC). CDCs have a fundamentally different business model than the investors who own most of the city’s rental buildings. They use far less leverage, and, while almost all are rent-regulated, they tend to charge rents below the legal maximum.

The economic challenge here is quite different from that of most buildings in the city. The problem is less financing, and more the very low incomes of families living in these buildings, combined in many cases with underinvestment and neglect by prior owners. The solution here will involve operating subsidies. While the details of this are beyond the scope of this piece, subsidies to building operators are generally to be preferred to subsidies to tenants, which may be captured by landlords in the form of higher rents. (The city’s Multi-Family Water Assistance Program is a good example of a targeted subsidy to affordable housing operators.)

The situation of these genuinely distressed buildings should not be confused with that of the larger group of rental buildings where net income is positive, but insufficient to cover mortgage payments. In these cases, we must avoid two outcomes. The first is weakened rent regulations, which would make tenants pay for landlords’ speculative overborrowing. The second is allowing buildings to remain for an extended period in the hands of owners who will eventually lose them. If the current owner is going to give up the building, that needs to happen as quickly as possible. The threat of forced sale can be helpful to incentivize a quick settlement, even when it is not carried out.

Expanded public ownership is not just a long-term vision; it is an essential part of the solution to an immediate problem. The fundamental issue is that landlords are being squeezed by high debt costs from one side, while they aren’t able to charge higher rents, and they can’t cut costs without sacrificing habitability, which effective code enforcement will prevent. Under these conditions, some building owners will indeed face unsustainable losses. The role of public ownership, in this sense, is to provide an escape valve, a way for owners to exit their position without running the danger of an extended foreclosure process. The pressure on landlord incomes will be a source of great anger and scare stories in the press, but this is also precisely what gives the city leverage to force creditors to write down debt and move toward alternative models of ownership. It is worth pursuing genuine savings that the public can deliver, like pooling insurance.

It would be a big mistake to simply offer relief to stressed landlords by exempting buildings from the rent laws. That would only pass the costs off to tenants without resolving the structural problem that undergirds the rental housing market—the mismatch between debt loads and affordable rent growth. Even worse, allowing higher rents in response to financial distress would give other landlords hope that if they hold out longer, they will be able to avoid a resolution. Any hint of flexibility on the rent freeze could leave us in the worst of both worlds—a situation where building owners cannot pay their bills, but won’t give up ownership because they are hoping for higher rents in the future. An ironclad commitment to the rent freeze and to stringent code enforcement is essential to bring landlords and creditors to the bargaining table.

Landlords vs. Developers

The city’s leverage in negotiations with private landlords will implicate the broader politics of housing. Building more housing was a central plank of Zohran Mamdani’s platform. For the foreseeable future, that will require private developers and contractors, who control the specialized expertise, labor and resources required. NYCHA, for all its challenges, successfully operates buildings for over half a million New Yorkers. But it doesn’t put up new housing, nor is there yet any non-profit developer equivalent to the CDCs that manage so much of the city’s affordable housing. So if the city is going to gain more affordable housing, it has to offer sufficient returns to the businesses that will put it up.

The case of private landlords is different. The market rent for apartments in New York does not reflect the cost of construction; rather, it is determined by the balance between the demand for housing and an effectively fixed supply. Market rents in much of the city are significantly higher than the cost of maintaining and operating buildings. Unlike the payments to developers and contractors, most payments to landlords are rents in an economic sense.

In a recent post, the conservative journalist Josh Barro describes the emerging Mamdani-DSA housing policy mix as capitalism for developers, communism for landlords. He intends this provocative phrase to express skepticism about the coherence of the program. But it seems to me that, from an economic perspective, this is exactly the combination we want.

From the standpoint of private business, to lay out $10 million to build a new apartment building that you will operate or sell for a profit or to buy a similar existing building for $10 million may be roughly equivalent options. But from a social perspective, these options are completely different—one is creating something valuable for society, the other is trying to divert existing value in your direction.

Can we really split developers and landlords in this way? After all, even if very few buildings are owned by the same entity that developed them, the developer’s profit comes from selling the building. If old buildings generate lower net incomes and sell at lower prices, won’t this discourage new development?

Politically, the alliance between developers and landlords may be difficult to break. But economically, it is absolutely possible to reduce the rents on old buildings without meaningfully reducing the incentive to build new ones. The reason is discount rates.

Housing is distinct from other commodities in its lifespan: the median age of a New York apartment is about eighty years. A building’s major costs—construction and land acquisition—were often incurred decades ago. This means the link between price and production costs is much weaker.

Economists conventionally count interest costs as part of the cost of production. This is reasonable for a business that issues debt to finance inventories or relatively short-lived capital goods. But it is emphatically not the case for housing in an older city like New York, where the vast majority of debt owed by landlords was incurred to finance ownership of a long-existing building rather than the construction of a new one.

Looking at it from the other direction, a typical investor in a new housing development might expect a return of 20 percent; lenders accept an interest rate that might be on the order of 8 to 10 percent. These returns are equivalent to discount rates; to say that a developer requires a return of 20 percent, is equivalent to saying that they put a value of about 80 cents on a dollar of income a year from now. At a discount rate of 8 percent, a dollar fifty years from now has a present value of about 2 cents; at a discount rate of 20 percent, it’s worth one-hundredth of a cent. This means that the rent a building will command decades from now plays essentially no role in the decision of whether it’s worth building today.

No rational investor would pay money to build an apartment that will come into existence decades from now. But the nature of real estate is that ownership today implies ownership into the indefinite future. If you put up a building in order to rent it out next year, the building ten, twenty, one hundred years from now comes along for the ride. Given the age of the city’s housing stock, this means that the rent paid in a typical New York apartment has no relationship to the building’s construction costs; those were paid long ago. To the extent that landlord income exceeds the operating and maintenance costs of the building—and, again, it does on average by a margin of 50 percent—then that rent is also a rent in an economic sense: a payment in excess of the cost of producing something. The fact that these economic rents are not necessarily captured by the current building owner does not change this.

In this sense, buildings are a bit like intellectual property, which also lasts longer than the economic horizon of the businesses that produce it. The economic argument for rent regulation is a bit like the argument for limiting patents and copyrights to a finite period.

For housing in a city like New York, there is no reason to think that the market price provides a useful signal about the balance between value to consumers and cost of production. What, then, is a reasonable rent for older residential buildings? Arguably, it should be limited to operating costs plus a moderate margin. Rent payments above this are simply a transfer from tenants to building owners (and their creditors).

Housing as a public utility

Real estate investors generally expect much of their returns to come from capital gains—an increase in the property’s market value rather than the rental income it generates. Since buildings are normally valued at a multiple of their rental income, this means that owners expect not just high rents relative to operating costs, but steadily rising rents over time. If rent growth shifts onto a more affordable trajectory, owners will see lower returns, even if their buildings continue to generate a positive income for them. Under these conditions, the kinds of private investors who currently own much of New York’s housing stock might prefer to not.

This is not an argument against moving in that direction. But it is a reason for thinking carefully about how the losses will be shared out, and how to ensure that lower returns for investors and creditors do not hinder the ongoing payments that are needed to operate housing—utilities, maintenance, and so on. Public ownership is an essential tool here. So too is tenant organizing, including demands that landlords open their books as a condition of any kind of relief.

On January 1, after Mayor Mamdani was sworn in at the old City Hall subway station, the Washington Post crowed that his midnight inauguration was actually a tribute to private industry, since the city’s first subway system, the IRT, was built by a for-profit company.

It is true that New York’s first subway system, the IRT, was privately owned. But one could read this history in a different way. City government did not take over the subways out of any ideological commitment to public ownership. Most city leaders in the early twentieth century (the IRT-hating John Hylan excepted) were happy to leave the subway in private hands. The problem was that a comprehensive system with affordable fares became incompatible with acceptable returns to private investors. The need to rescue the private system from financial crisis was why the city took over, and the state later established the MTA.

Perhaps decades from now, we will be able to tell a similar story about housing. Today, New York City’s rental market is defined by two colliding forces: tenants’ need for affordable rents, and landlords’ need to repay their creditors. Only public ownership offers an escape from the mounting pressure. If New York moves towards a model of social housing, it will be because public ownership is consistent with stable rents in a way that ownership by private investors fundamentally is not.

Thanks to Michael Kinnucan and Jacob Udell for helpful comments on this piece, and to Conor Smyth for research assistance.

2025 Books, Part 1

Every year, I try to write a post about books that I’ve read in the past year. This time, I found myself writing so much about some of the books, that the post was getting unmanageably large. So I’ve split it in two. This is part one; part two will follow. 

Geoff Eley, Forging Democracy: The History of the Left in Europe, 1850–2000. This book should be required reading for anyone who wants to build on the traditions of radical politics, especially those in conversation with Marxism. If you read this blog, and you haven’t read this book, you should go read it. (You can come back here in a month or whenever when you’re done.)

This is a genuine history of movements, not of parties or political leaders or theorists. It’s striking how many of the quotes are attributed to roles (“a contemporary union leader”, “a Vienna suffragist”) rather than to named individuals. The book’s title is well chosen: The central theme is that the project of socialism is the extension of collective self-government to all of social life, including the organization of production. Socialism, in other words, is simply a continuation of the struggle for political rights. 

The term social democracy — which today suggests an anodyne reformism — meant originally a program to extend democratic principles from the demarcated political sphere to the rest of society, in particular the economy. The party, let’s not forget, that the Bolsheviks and the Mensheviks were factions of, was the Russian social democratic party. This continuity between from the battle for democratic rights — and later against fascism — to socialist politics comes through very clearly here.

This is not just a history of socialist parties, and much of the book — especially in the earliest and the latest, post-1968 sections — is devoted to non-electoral formations. But party politics is central, and for good reason. In many ways it was socialists who invented modern political parties. Electoral politics was originally an arena for competition between personality- and patronage-based fractions of the elite. It was only once socialists and their labor allies invented mass organizations for contesting the ballot that centrist and conservative parties developed in response. There is an important figure-ground reversal here from the Whiggish liberal conventional wisdom in which parliamentary politics is the ground on which socialist politics occupies (usually small) part. 

One thing you will come away from this book with is a sense of how much the terrain of political struggle has shifted over time. It’s like a 500-page working-out of the William Morris line that “men fight and lose the battle, and the thing that they fought for comes about in spite of their defeat, and when it comes turns out not to be what they meant, and other men have to fight for what they meant under another name.” It is tempting, today, to look back on the debates of the past as having had right side and wrong side, and to think that what we learn form them is to take correct position rather than the incorrect one. But what a history like this makes clear is that the right and wrong positions, to the extent we can identify them even in retrospect, were right and wrong with respect to conditions at the time of that debate. What was wrong at one time may very well be right at another — or simply irrelevant.

Which doesn’t mean that we shouldn’t learn from the past, or that there isn’t a great deal to learn from it. 

One lesson that comes through clearly is how much the progress over the past 200 years has been won in a few brief windows. Advances for human freedom and equality are real and, so far, irreversible; but they have been episodic rather than incremental. Besides the period of the French Revolution (outside of the scope of the book), the two great periods of revolutionary change are the decade or so during and following each of the world wars. The basic contours of electoral democracy were only firmly established in the wake of the revolutionary transformations of the First World War; the welfare state, the recognition of women’s humanity and the end of colonial empires in the wake of the Second.  

The thing to remember here is that these changes were not inevitable. They did not just happen. They were the result of titanic struggles from below — struggles which however were often aiming at other goals, which they often failed to achieve. 

A few other throughlines. One is that working-class movements have been led by relatively privileged workers. Unskilled workers are capable of occasional convulsive uprisings, but at the the core of sustained working class institutions have been workers with some degree of autonomy and social power — skilled artisans in the 19th century, machine workers and then educated white-collar white workers in the 20th. Another sustained theme: Utopians are essential to more practical movements. A vision of a radically different world provides the energy required for even incremental improvements. 

Perhaps the most important lesson of the book is that the great left victories have come when radical, disruptive anti-systemic mass movements have worked in concert with parties of government. The same people, the same organizations can never be both; but each requires the other.  To put it another way: The content of elections comes from the possibility of riots and barricades, the value of riots comes from the possibility of state power. The existence of political democracy in any substantive sense is the flip side of the possibility of disruptive challenge from below.

All this is very broad-brush and abstract; most likely you either already agreed with it, or you don’t. If you want nuance, evidence, concrete examples — well then you have to read the book.

Han Kang, Human Acts and We Do Not Part. Thanks to Arjun for introducing me to Kang; these are two of the most powerful novels I’ve read in quite a while. 

The two books have a similar structure:  Each takes a historic atrocity by Korea’s US-backed military governments — the Gwangju uprising of 1980 in Human Acts, the lesser known but even bloodier Jeju massacres of 1948-49 in We Do Not Part — and follows the aftermath down to the present, exploring how people live with its memory. In both there is a certain supernatural aspect to the afterlife of the victims. Both ask how it is possible to live when one knows that one’s government, one’s country, the respectable people in authority, have committed indescribable crimes that have never been accounted for. 

Human Acts begins in the midst of the Gwangju uprising and then moves forward in time, looking at the events from the perspective of various participants — two young men who were killed, a blue-collar worker who was imprisoned and tortured, a journalist, a publisher struggling with military censors, a writer who resembles Han Kang. We Do Not part goes in the other direction, starting with a Kang-like writer (perhaps the same one) in a personal crisis, whose act of kindness for a friend carries her backward to the mass murder of suspected communists at the start of the Korean War. It ends with an indelible image of hope in darkness that is almost, but not quite, extinguished. 

Both are beautiful books; I cannot recommend them too highly. 

Brett Christophers, The Price is Wrong: Why Capitalism Won’t Save the Planet. I originally picked this up with the intention of writing something about it, which I did not end up doing. It was a frustrating read to me — I like the author and am very sympathetic to his broader worldview, and there’s a lot of specific information in this book that is valuable and compelling. But I am unconvinced by the book’s central argument. 

A proper critique of the book deserves far more space, which I still hope to give it at some point. But here’s the short version.

The core of Christophers’ argument is that while the cost of renewable energy is falling rapidly, that does not mean that the private power companies will adopt it. They are motivated by profit, and renewables, despite being cheaper, are not more profitable. So a transition away from fossil-fuel based electricity generation will also require a transition to public ownership, or to a non-capitalist economy more broadly.

I believe down to my bones that moving away from the pursuit of profit as the organizing principle of social life is possible, and necessary, and matters for almost everything. But I don’t think Christophers’ argument gets you there.

There are a couple basic problems with his argument. First, profit is the difference between the sale price of a commodity and its cost of production. So to say anything about differences in profit, across technologies or industries or over time, one needs to analyze the determination of cost and price independent of each other. But Christophers doesn’t do this. He instead frames his analysis in terms of the awkward portmanteau “cost-price.” 

If you wanted to take his analysis seriously, you would focus on the fact that in a competitive market, price tends toward marginal cost. If marginal cost is constant or falls with the level of production, and if fixed costs are substantial, then producers in a competitive market will face losses; such an industry won’t be viable in the long run. This was the situation of railways, for instance, in the late 19th century, which experienced repeated episodes of vicious price wars ending in general bankruptcy.

But capitalism is, of course, capable of producing railroads; this is because capitalism, despite some of its defenders’ claims, does not in general involve competitive markets. What we can say is that an industry like renewable energy, or railroads, requires a sufficient degree of monopoly power to enable it to recover its fixed costs. This is less of a problem for fossil fuels, where costs of production are a larger part of overall costs.

This problem is exacerbated by the specific way that electricity is priced in many markets, where the price is determined by the marginal producer. This was fine in an era where high-cost facilities would come online only when demand was high, raising profits for the rest of the industry. But when the marginal producer is a solar or wind facility, the price won’t cover fixed costs and the industry will make a loss. Christophers lays this out very well, and there’s no question it’s a real problem. But we should be clear: It’s a problem with how electricity prices are currently regulated. Not with clean energy or capitalism as such.

Second, let’s suppose that price-setting is such that a lower-cost production method will definitely lead to lower profits. Does that mean that profit-seeking capitalists will not adopt that method? Well no. Because there’s a critical distinction here between the individual enterprise, where production techniques are chosen, and the industry as a whole, where prices are set. If I can produce the same commodity at a lower cost than my competitors, then my profits will definitely increase. Perhaps, once the new method is generally adopted, everyone’s profits will be lower. But so what? I’m a capitalist! My own profits, now, are what I care about.

I admit that I am a little surprised that someone writing in the Marxist tradition doesn’t seem to have considered this possibility. This sort of collective-action problem among capitalists is the whole story of the tendency of the rate of profit to fall in Volume III of Capital. And it’s been a central subject of debate for Marxist economists ever since. I don’t necessarily expect Brett Christophers to have a settled view on the validity of the Okishio theorem. But I would kind of hope that he knows this conversation exists. 

This is all very critical; but, to be clear, there’s a great deal in the book that is useful and insightful. The problem is, the conclusion that the concrete material points to is that we need better rules for regulating electricity prices. If you want to get to an argument against organizing production on the basis of profit, you would need to start from somewhere else.

Cixin Liu, The Three Body Problem. There was some mix-up at Christmas last year, where two copies of this were purchased and no one was sure whether they were for me, the 13-year old, or my college-age nephew. I think I was the only one of the three of us who eventually read one.

For all the attention it’s gotten, I thought it was … ok. Or rather, the first two-thirds, which combined a slice of life from the last 50 years of Chinese history with a weird and unsettlingly out-of-focus mystery, was pretty good; and the last third, which rushed to tie up and explain everything, deflated most of what the first part had promised. At the end of the day, real human history and relationships offer much richer alien world than anything might work out about a hypothetical civilization on some other planet.

Michael Lewis, Who Is Government? I sent my post on teachers — which I was very pleased with; you should read it if you have not — to N+1 before putting it up on the blog; they didn’t go for it, but they did ask me to review this book. I read the book, but never wrote the review: I’d kind of got the larger points I wanted to make out of my system with the teachers post, and there wasn’t enough substance in the book to do much with on its own. 

The book, anyway, is edited by Michael Lewis; it’s a collection of admiring essays on federal employees, two by Lewis himself, the half-dozen others by various Atlantic–Harper’s–Washington Post type writers. Lewis’s essays are by a wide margin the best — whatever else you say about him, he really is a master of this type of storytelling. It helps that he chose interestingly offbeat subjects — a mine safety enforcer and an infectious-disease specialist — rather than the standard cop-astronaut-soldier palette of approved public occupations that the rest of the portraits are drawn from. I wouldn’t necessarily recommend buying this book; but if you see a copy in one of those little free library boxes on the street, you should take it out, read the two Lewis pieces, and then donate it to another one. 

John Kay, The Corporation in the 21st Century. As I’ve mentioned, Arjun’s and my next book is on the contradictions of the corporation. (Our working title is Relations of Production.) So I’ve been reading a bit on that, for instance this. This book has a tremendous number of fascinating stories and sharp observations — it’s a goldmine for someone else writing on the corporation — but the whole is perhaps less than the sum of its parts. Still, there are lots of good bits. Here is one passage that I appreciated:

Neither Amazon nor Apple has raised any money from shareholders since their IPO, and neither is ever likely to in the future. Past stockholder investment represents less than .01 per cent of the current value of these businesses. Modern companies are typically cash-generative before they reach a scale at which they become eligible for a listing on a public market. The purpose of the IPO is not to raise capital but to demonstrate to earlier investors and employees that there is value in their shareholdings and to enable some to realise that value. The objective of listing on a stock exchange is not to put money into the business but to make it possible to take money out of the business.

Kay has some interesting ideas about the diminishing importance of capital ownership as such to the organization of production and the generation of profits. But to me, anyway, the book is more interesting for the examples than for the larger argument they’re meant to support.

Katya Hoyer, Beyond the Wall: East Germany, 1949-1990. This is a history of East Germany that strives for a sympathetic perspective without flinching from the facts. Unfortunately, the latter are not very cooperative with the former.

I am probably an ideal reader for this book — you will find few people more willing to dispute the idea that the good guys won the Cold War, or to defend the record of actually existing communism. And Hoyer does a good job complicating the story of East versus West. She emphasizes, for example, that Stalin had no interest in creating a separate German puppet state, and consistently directed Communist leaders there to focus on maintaining their legitimacy in an eventual united Germany; the idea of building a separate socialist state in the East was a local initiative. She notes that expropriation of private businesses in the East was not nearly as immediate or complete as Cold War mythology suggests, with many former owners willingly remaining as managers of their enterprises under state ownership. Not so different from an IPO, when you think about it.

She also makes the interesting and, to me, convincing argument that in the early years, migration to the west was the result of success as much as failure — the East combined an excellent technical education and training system with a very flat distribution of income, creating a large stratum of moderately privileged engineers and skilled workers who saw the opportunity for greater privilege in the West. 

But ultimately, despite the successes (gender equality is another important one) it’s hard to find much positive to say about the East German leadership, and Hoyer’s story ends up being a rather dismal one. Keynes was very far from a Communist, but when he looked at the Soviet Union 100 years ago, he recognized that something new and important and genuinely promising was being attempted — that “beneath the cruelty and stupidity of New Russia some speck of the ideal may lie hid.” It would be much harder to say that about the cruelty and stupidity of the Ulbricht-Honecker regime. 

Alice Munro, The Progress of Love. This is not Munro’s very best work — I would give that to Dear Life, Friend of My Youth, Friendship, Courtship, Loveship, Marriage and perhaps Runaway — but it’s certainly not her worst. And honestly even her worst is good. 

As I noted on last year’s list, while I am generally on the side that says you can and should judge artistic work by the author’s personal conduct, I haven’t been able to give up Munro; I’ve been rereading her work since the revelations about her daughter came out. I dipped into various collections this year but this is the one I reread in full. 

When you read her in that light, it’s striking how many stories there are about neglectful mothers who lose, or almost lose a young daughter, or who could have lost one if not for some miracle. (Very often it’s to drowning — I don’t know what that means.) The self-involved mother and (nearly) drowned child moment is one of a number of situations and characters she keeps coming back to in her stories — rereading, it’s more striking how many of them are variations on a few themes.

This repetition to me is one of the things that’s fascinating about Munro. It’s almost like she’s a scientist— she has some fundamental problem she’s working over, an experiment she keeps rerunning under slightly different conditions to see if the results change. Which points to, I think, the difference between her and Allen, Polanski, etc. — like them she failed as a human being, but unlike theirs her art is conscious of that failure and struggles with it. If Woody Allen could make a movie from the perspective of a brilliant young female writer struggling with the attention of a lecherous older mentor, I might give him another chance.

Philip Stern, Empire, Incorporated: The Corporations That Built British Colonialism.  This is a comprehensive account of the role of corporations in creating the British Empire over the 16th to 19th century. This is a topic I’ve been interested in for a while but don’t have any real background in, and the book really clarified and reshaped my understanding of it. And as a book, it’s exhilarating.  It’s one of those impossibly comprehensive works of history by someone who seems to have read everything, and who has the perfect quote for any topic — the sort of book that makes you think that people in history graduate programs must learn some dark magic for note keeping.

From my point of view, it’s interesting for what it says about the idea that Arjun and I have been working on, as the corporation as a sort of social membrane between the logic of money and markets on the one hand and the socially embedded relationships through which production is actually organized, on the other. From this point of view — which we are hoping to developing in our next book, though I don’t want to put a date on it — the tensions between finance and production, between shareholders and managers, are not a recent historical development. On the contrary, a site of conflict between distinct social logics is just what a corporation is. 

Like several other books on this list, this deserves a long essay (and I had started to write one) but in lieu of that here’s a brief summary of some of the most interesting things I took from it.

First, the early modern corporations we are familiar with emerge out of a much broader and more diverse universe of organizations. This is I suppose obvious, but it tends to get effaced in accounts that are focused on the historical roots of modern corporations, which naturally focus on the lineages that survived. But for every East India Company or Hudson’s Bay Company, there are a dozen other joint stock companies organized around some mix of long distance trade and colonization, which weren’t successful enough to make it into most history books. 

Maybe more interesting is the diversity of institutional forms. Corporations have always combined public authority with private profit, but the exact mix has varied. One important divide in early colonizing corporations was between what one might call a feudal or seigneurial model, which involved the creation of communities with a distinct identity and local relations; versus a mercantile model in which claims were subdivided without any horizontal connections between franchisees. 

From the very beginning, there have been debates about whether corporations should be thought of as an extension of government or a form of private property. An important aspect of this debate was the question of whether corporations were created by public charters or patents, or whether the state was simply recognizing an existing set of relationships, as with the recognition of a marriage; or whether a corporation had no existence independent of the legal act that created it. 

This was linked to a larger question of whether sovereignty — legitimate political authority — was sanitary or dispersed throughout society. Or as Stern puts it: “To someone who imagined civil society as a conglomerate of concentric and intersecting corporate bodies … corporations were alternative and natural sites where people might choose to associate and govern themselves, produced in the first instance not by the state but rather by the people that formed them.”  

A central argument for organizing trade on the basis of the corporation — a delegation of sovereignty, or a recognition of existing organic connections — was, in the early modern period, a deep-seated idea that Europeans, or Christians (the equivalence of these categories is not a recent development) could not, as individuals, make any kind of agreement with non-Europeans. As Stern writes, paraphrasing Grotius, in Europe there was an existing political order that made private contracts possible; but “outside of Christendom,” Europeans could only make contracts unless they could first “bind themselves into a social contract under the protection of corporations.”

Historically, the corporate charter is cognate with both constitutions and patents; like the former, it was the basis of a delineated form of political authority, like the latter it gave exclusive rights to commercial activity in a certain sphere. Historically, there was a great deal of overlap in the  language and legal forms used for each of them. Seeing the patent, the corporation and the constitution as variations on the theme of delegated sovereignty, is one of the more valuable things I got from this book.

Dear Mother: Poems by Laura Tanenbaum

Readers of this blog know I have a book coming out later this spring — Against Money, officially out on May 7. Plenty of money-related content coming between now and then.

But today I’m writing about a different book: Dear Mother, a collection of poems by Laura Tanenbaum, just out from Main Street Rag.

Laura and I have been married for quite a few years now, and known each other for quite a few more. We first met almost exactly 25 years ago, at a grad student party in Northampton Massachusetts. So it’s a funny coincidence that our first books are coming out within a few months of each other.

Laura is doing a reading from her book this Tuesday, January 27, at Lofty Pigeon, a recently-opened bookstore in our south Brooklyn neighborhood. (The resurgence of independent bookstores is one positive development in the contemporary US that I would not have expected a few years ago.)

If you’re in New York and into poetry, you should stop by. Admittedly I am far from unbiased. But I think the poems are very good. Here are a couple of them.

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IN-LAWS

“In five years, I’m going to fall in love with a fish,” the four-year-old declares, over hard-boiled eggs, on a ninety-degree day, to no one in particular. “They will be rainbow-colored with gray and black stripes. I will teach them to walk on their fin so they can come to our house. And I will teach them how to breathe. I will say, ‘It’s easy, fish. Just breathe like you did in water; only, it’s air.’ ”

His brother tells him he might need to compromise. Maybe six months on land, six months in the water, like the high-powered couples do. No, he says, concerned. The fish has to come to him. I’m watching his concern, trying to see which plane of reality he’s accessing, except that I no longer know what I mean by this. I know only that the words “imagination” and “metaphor” are insufficient to the task. And so I take his side. After all, we’ve learned from David Attenborough that evolution has carried countless creatures from the sea to us, not one has reversed course. When you forget how to make gills, they stay forgotten.

All of this may be why, the next day, after the temperatures had plunged thirty degrees overnight and the NYC Parks department and I both failed to adjust—me without a jacket, them, blasting the sprinklers—I was the only one who didn’t rush to pull a child back from the flood. He stomped on every fountainhead, threw himself on the ground. When he came to me, shivering, and the only change of clothes I had was shorts, and I saw the mother who had frantically been calling her Juniper back from the brink shoot me the look reserved for the parents of bad-example children, it took everything I had not to shout, You don’t understand! He’s looking for his fishwife! Wants to learn to live in her world! Learning to be flexible! And aren’t they going to need that what with the world and everything… Because I’m sure that Juniper’s mother would understand. That, like me, she has trouble imagining the future these days. That she would be comforted as I am by the thought of my future self, a crone in a cave, welcoming in any creature still capable of both tenderness and survival, teaching my son to tend to her scales.

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2001: A SLEEP ODYSSEY

When my mother died,
I was six months in.
His body the size of a melon slice;
her body vaporized.

The mothers warn:
Sleep now, sleep deep.
Soon you’ll be in bits,
every hour broken.

Three months to go:
A second child.
Horizon long
as the rocket’s destination.

But no sleep came.
It’s winter now.
Five years have passed.
The melon slice half grown.

When my mother died,
I was six months in.
Tonight we watch the skies.
This time rest rushes forth.

Deeper, rounder,
with padded edges,
a floating bottom.
I sleep through half of 2001.

Just as the mothers warned.
When I woke, it faced me:
that stupid floating baby,
whimpering like a lost doe.

The others wondered why the baby.
Was it back to the apes?
Back to their own losses?
Was it the need to obliterate?

I didn’t wonder.
When my mother died,
I was six months in.
The movie’s future firmly in the past.

I already knew.
Nothing worth living happens in order.
Whether you wake for the ending,
or jolt back, or whether you miss it all.

What Kind of Housing Is Being Built in New York?

Along with Zohran Mamdani’s historic victory in last month’s elections, New York City also approved three housing-related ballot proposal. Together, these will make it somewhat easier to adjust land-use rules to allow for new housing development, by reducing the City Council’s ability to block zoning changes.

I am glad the proposals passed, for reasons similar to those laid out by Michael Kinnucan. While zoning changes are not a sufficient solution to the city’s housing problems, they are helpful — and more important, they are a necessary condition for a bigger program of public investment in housing.

Support for the proposals was shared by many, but far from all, housing and tenant advocates in the city. Debates over the proposals reflected differences on political principle — how big a voice should local as opposed to citywide officials have over land use? — as well as on economic theory — how well does the housing market fit a simple story of supply and demand? But there are also some background factual questions where the answers tend to get assumed rather than directly debated, about what kind of housing gets built in the city right now.

So in this post, I wanted to assemble some factual information about recent housing construction in New York. For convenience — and because that’s how much of the data is organized — I am defining recent as meaning the period since 2010. Some of this is assembled from various reports and publications, but the bulk of it is my own analysis of the New York Housing and Vacancy Survey (HVS).

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The dimension of new housing construction that is probably most visible is how geographically concentrated it is. About one-third of all the new housing built since 2010 is in just four of the city’s 59 community districts, along the East River in Brooklyn and Queens.

You can see this clearly in this map from the Department of City Planning, as the strip of dark blue running from Brooklyn Heights to Astoria. (The dark blue area in Manhattan reflects some major projects on the far west side, including Hudson Yards.) Brooklyn Community District 1, including Williamsburg and Greenpoint, added 30,000 new housing units between 2010 and 2024. Half a dozen miles away at the south tip of Brooklyn, District 10, with a similar population, added only 500.

The concentration of new housing in a few areas reflects a number of factors, including zoning changes under the Bloomberg administration and the disappearance of manufacturing from former centers like Long Island City. This helps explain the association in many people’s minds of new housing development with gentrification and rising rents.

Less immediately visible is how much this newly-built housing costs, and who lives in it. I haven’t seen a report focusing on these questions — though I expect one exists — so I thought I would see what I could say using the Housing and Vacancy Survey.

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For those who aren’t familiar with it, the HVS is a survey conducted every three years ago by the Census on behalf of the New York City Department of Housing Preservation and Development (HPD). Its primary purpose is to help administer the city’s rent regulations, but it’s a useful resource for all kinds of housing research. It’s a decently large sample — about 10,000 observations — but what it makes it especially nice is that it combines administrative data on things like building size, location and rent-regulation status, with survey data on things like occupant characteristics and the unit’s state of repair.

The HVS is a good tool if we want to answer questions like, what is the median household income of people living in housing built since 2010? ($73,500, it turns out — but we’ll come back to that a bit further down.) The most recent HVS was conducted in 2023; to get a reasonable sample for smaller subgroups I combined it with the 2021 survey, with appropriate adjustments to the monetary variables.1

Between 2010 and 2024, NY added just over 300,000 new units of housing, or a bit over 20,000 units a year. This is a respectable level of new building for the city by recent standards — comparable to the 2000s and 1970s, and faster than in the 1980s or 1990s  — but less than in earlier periods of the 20th century. During the 1950s and 1960s, the city added over 30,000 units per year, and in the 1920s, over 70,000. A surprisingly large proportion of these houses are still here. For example, 729,000 housing units were built in the 1920s; according to the HVS, 718,000 of them were still present as of 2023. That housing lasts such a very long time is, to me, one of the central facts that makes it different from most commodities. (The other is that it’s located in a particular place.)

Of the housing units built between 2010 and 2023, about 10 percent are owner-occupied, a bit over 25 percent are unregulated market-rate rentals, and 60 percent are rent-regulated rentals. (There are also a small number of vacant units that are not for rent, and a very small number of new public housing units.)

It might be surprising that there are more rent-stabilized units than market-rate ones, given that rent regulations in New York by default apply only to large buildings built before 1974. There are two reasons for this.

The first reason is that a substantial fraction — 25 to 30 percent — of new housing built in New York in recent years has been subsidized affordable units. “Affordable” in this context is a term of art:  It refers to housing that receives public subsidies, most importantly the federal Low-Income Housing Tax Credit, and in return is limited to renters (or occasionally purchasers) making below a certain income threshold — 80 percent of the area median income or some lower fraction.2 In New York, these subsidized units are also normally rent-stabilized. As the nearby figure from the Furman Center shows, the proportion of affordable-in-the-technical-sense units has fallen off somewhat in recent years, but is still substantial.

It’s important to note that while the figure shows “LIHTC” (Low Income Housing Tax Credit) units and “market rate units,” this is not a straightforward division. While most income-restricted units receive LIHTC subsidies, not all of them do; and units that do not receive operating subsidies or have income restrictions, and are thus counted in the market rate category here, may still be subject to rent regulation. In the rest of this post, I instead focus on rent-regulated versus unregulated units, where there is a sharper line. 3

The second reason for the high proportion of rent-regulated units is that most new housing built outside of Manhattan during this period was eligible for the 421-a property tax exemption.4 This gives long-term exemptions from property taxes — as long as 40 years in some cases — in return for certain conditions, including participation in rent stabilization. As a result of these programs, even though tent stabilization is not compulsory for any housing built since 1974, in practice newer housing in New York are more likely to be rent stabilized than older ones.

I personally agree with critics who argue that these tax exemptions are a wasteful and inefficient way to promote new housing construction. The problem for developers is financing the start of the project — a tax exemption decades from now is essentially worthless to them, while for the city, with its longer horizons, it is still costly. In effect, 421a is paying for housing in a currency that is worth much less to the recipient than to the payor.\efn_note]Put another way, the public sector ought to have, and in practice generally does have, a much lower discount rate than the private sector. This used to be a big part of debates on the economics of climate change. But it’s also relevant to housing. The common thread is the long time periods involved.[/efn_note]  But be that as it may, it has resulted in a very large fraction of new housing being rent-stabilized.

The fact that perhaps a quarter of the new housing produced in New York is income-restricted affordable units — surely the highest proportion in any major US city — does not get much attention in discussions of housing, as far as I can tell. Nor does the fact that the large majority of new housing is rent-stabilized — I wasn’t aware of it myself until quite recently. But both of these seem like important facts.

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Let’s move on to how much these recently-built apartments rent for, the question that got me started writing this post. The median rent for rent-regulated apartment built since 2010 is $1,800, while the median rent for an unregulated (i.e. market-rate) apartment built since 2010 is $3,200.5

To be sure, the comparison of rents in stabilized versus unregulated apartments is a bit tricky, because these are not the same types of apartments. As the figures nearby show, unregulated units are more likely to be in Manhattan, and are somewhat larger on average — studios and one-bedrooms make up 70 percent of recent rent-stabilized units, compared with 60 percent of recent unregulated ones. One thing that surprised me looking at these numbers was how few larger rental units are being built, market-rate or otherwise.

Since 421-a subsidies are not generally available in most of Manhattan, the rent-stabilized units there are mostly subsidized affordable units. So in Manhattan, recently-built market-rate apartments rent for almost twice as much as equal-size stabilized ones. Meanwhile, in Brooklyn regulated units rent for only about one-third more than unregulated ones, and in Queens and the Bronx rents for the two classes of apartments are essentially the same. (Staten Island has hardly any new housing of any kind.)

The distribution of rents by regulation status is shown in the figure below, which is perhaps the main thing you should take from this post.

Here we see that there are more 35,000 rent-regulated apartments built since 2010 that rent for less than $1,000, and barely 5,000 unregulated apartments renting for that little. But while most regulated apartments rent for less than $2,000, more than a quarter rent for over $3,000 and about 10 percent rent for over $4,000. Meanwhile, about 70 percent of unregulated units rent for between $2,000 and $4,000, while a quarter rent for less than $2,000 and 10 percent for more than $5,000.

Again, these differences are in part due to the fact that unregulated apartments are somewhat larger, and considerably more likely to be located in Manhattan, compared with rent-regulated apartments.

For recently-built rental units as a whole, the median rent is $2,000, with one-third renting for less than $1,100 and one-third for more $3,000; 10 percent rent for more than $4,500. This is somewhat higher than rents in older buildings — for the city as a whole the median rent is $1,670.  (If we compare one-bedrooms only, the comparison looks similar.)

There are obviously many more ways one could slice this, but these numbers give a useful benchmark: If we are talking about a newly built market-rate apartment in New York, we should think about an apartment renting for around $3,200. If we want to get a bit more granular, we could think of one-bedroom apartment in Brooklyn renting for $2,200 a month, a 2-bedroom in Brooklyn renting for $3,800, or a one-bedroom in Manhattan renting for $4,700 — these would be typical examples of recently built market-rate apartments. (Though the sample size gets uncomfortably small as we slice the data on more dimensions.)

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A nice thing about the HVS is that it lets us do the same analysis for incomes.

The short answer here is that median household income for residents of recently-built owner-occupied units, median income is $161,000. For rent-regulated apartments, median household income is $54,000; for unregulated apartments, it’s $117,000. For recently-built rental units as a whole, the median household income is $73,000.

As it happens, $73,000 is almost identical to median household income for the city as a whole. The $117,000 median income for residents of recently-built market rate rentals, meanwhile, is close to the 67th percentile for the city as a whole — in other words, two thirds of households have incomes below this, and one third have incomes above it.

The issues with geography and unit size are not as relevant here. 6 But for the half or so of rent-regulated units that are also subsidized and income-restricted, resident incomes will of course be lower. The median income in unregulated apartments is more than twice as high in Manhattan as Brooklyn — $205,000 versus $90,000 — while the median rent in rent-regulated apartments is only about 25 percent higher.

The figures nearby shows the distribution of recently-built regulated rentals, unregulated rentals, and owner-occupied units by household income and by per-capita income, which is arguably more relevant. (Note that the income categories are slightly different for the two figures.)

 

As you can see, the majority of recently-built rent-stabilized units — 78,000 out of 134,000 — are occupied by households with income below $75,000, approximately the city median. About 15,000 of them, however, are occupied by households with incomes above $250,000. The distribution of incomes in unregulated units is flatter — a bit over 10,000 have tenants with incomes under $40,000, and about the same number have tenants with incomes with incomes above $250,000. Incomes are much higher in owner-occupied units. Nearly half — 10,000 out of 22,000 — are occupied by households with incomes above $250,000.

The picture looks a bit different when we turn to per capita incomes. For comparison, the median per-capita household income in New York City is $36,000. The majority (about 55 percent) of rent-regulated new apartments are occupied by households with incomes below this. But only about one-third of unregulated apartments are. Interestingly, when we look at per-capita income, owner-occupied units are no longer so disproportionately likely to be occupied by households with very high incomes. In New York City, evidently, homeowners are much more likely to have larger families.7

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How should one evaluate these numbers? My goal in this post is just to bring some facts into view. I’m not so much trying to make a substantive policy argument, as trying to make the debate more concrete and specific, at least in my own head. In some ways, the best case for this post would be that people would very different views about housing policy could find something in it they could use.

That said, what prompted me to start looking at these numbers were claims, in the runup to the election, that simply making it easier to build will not help with affordability, since private development won’t produce affordable housing, or will only produce luxury housing.

To be clear, these are two different claims. Or to put it another way, affordability in the everyday political sense is different from affordable as a term of art in housing policy.

Housing the is not affordable, in the technical sense, may still be helping with affordability in the broader sense, by offering better housing options for people who are not wealthy. A family of two New York public school teachers might have a combined income of $150,000 or so, putting them outside the income limits for subsidized affordable housing. But they may nonetheless have real problems finding reasonably-priced housing, especially if they have kids; and new construction might improve their situation even if it is not affordable in the technical sense.

What does this data say about these questions?

Perhaps unsurprisingly, the HVS data supports the claim that, in the absence of subsidies, private developers will not build much deeply affordable housing. One way of looking at this: About 20 percent of New York households have incomes below $20,000; but in unsubsidized units built since 2010, only about 6 percent of tenants have incomes below this level.

Another way of looking at it: The median New York household has an income of $73,000; for them not to be rent burdened, by conventional standards (30 percent of income going to rent), they should pay no more than $2,000 per month. But nearly 80 percent of the unregulated apartments (as well as 30 percent of rent-regulated apartments) built since 2010 rent for more than this. And many of the ones renting for less are studios or one-bedrooms, which will not be suitable for many households with incomes near the median.

So, the claim that allowing more private development will not by itself produce much housing affordable to lower-income New Yorkers, seems consistent with the data.

Now, any economists or abundistas reading this will want to jump up, and point out that even if newly-built housing is not affordable for many New Yorkers, it can still help them. The people who move into the newly built units are going to live somewhere, after all; and if these new ones weren’t available, they would be bidding up the price of the existing housing stock. Turning an old sugar refinery in Williamsburg into luxury apartments may not directly provide affordable housing in Williamsburg, but it takes the pressure off the rental market in other neighborhoods that the trust-fund hipsters might otherwise move to.

Ok, you guys can sit down, you’ve made your point. And it’s a valid one — there is definitely some truth to this. How much truth, and what factors might work in the other direction, is beyond the scope of this post. Here, I’m just trying to get my arms around the difficult-enough question of what rents and incomes look like in the newly-built housing itself.

Returning to the central question of how affordable newly-built housing is, it’s worth recalling that 20-25 percent of new housing is affordable in the sense of being income-restricted and receiving ongoing subsidies, and a majority of new housing opts into rent regulation. So focusing on the unregulated segment may be a bit misleading, especially in the context of the ballot proposals. A more sensible comparison might be between recently-built housing in the aggregate, and older housing. The next couple of figures do that.

Here we see the distribution of rents in newer and older buildings. Note that the vertical scale is share of units in that age group, as opposed to the absolute number of units as in earlier figures.

What we see is that while there are a substantial number of new units with moderate rents, there are many more high-rent units in the newer buildings. About 15 percent of units built since 2010 rent for more than $4,000, compared with just 3 percent of older units.

Of course, new units are different from older units in other ways — location, size and so on. But if we limit the analysis to, say, just one-bedroom apartments, the pattern is basically the same.

If anything, the excess of recent units at the high end is even clearer in this case.

Then again, one could look at the same numbers the other way. 15 percent of new units rent for over $4,000 and 30 percent rent for over $3,000, compared with just 3 and 8 percent, respectively, of older units. But that means that 70 percent of new units rent for under $3,000; and about 40 percent rent for less than $2,000 — which is, again, the threshold for rent burden for the median-income New York household.

So if we look at the housing that is being built in New York now, it is absolutely true that it is disproportionately luxury housing intended for the rich. Although not necessarily for the very rich — Andrew Cuomo’s $8,000-a-month Upper East Side apartment would be in the top 2 percent of rents among recently-built units. But disproportionately is not the same as exclusively. It is not true that recently-built housing is exclusively luxury units for the highest-income New Yorkers.

We can take this question on more directly by looking at household income among tenants in recently-built rental units as opposed to older ones. This is shown below.

Surprisingly, the distribution of incomes across newer and older apartments is much closer than the distribution of rents. High-rent apartments are much more overrepresented among newer apartments than high-income tenants are.

On reflection, this is not surprising. Thanks to rent regulations (and also to smaller landlords who don’t aggressively raise rent for current tenants) many current tenants are paying well below market rent. Remember, rent regulations in New York limit only rent increases. So one might even say, that if the rent regulation system is effective, it will inevitably result in newly-built apartments renting for significantly more than existing ones. And inevitably, many of those older rent-regulated buildings will be occupied by higher-income households.

Note, also, that newly-built apartment have a slightly higher proportion of very low income tenants than older ones do. This reflects the substantial fraction of subsidized affordable units, and is another reason to reject the “only luxury units are being built” claim.

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What do we take from all this?

There are two things that surprised me the most, looking at these numbers. First was the large fraction of rent-regulated units — more than two-thirds of the units built since 2010. I had always thought of rent regulations in New York as applying almost exclusively to older buildings, but in fact, of the all the age categories in the HVS, post-2010 buildings have the highest proportion of regulated rentals.

Second was the preponderance of smaller apartments among recently built housing. 55 percent of the units built since 2010 are studios or one-bedrooms, compared with 38 percent of older units. Units with three bedrooms or more, meanwhile, account for only 10 percent of recently-built units, compared with a full third of older ones.

This second fact leads to the first of my policy takeaways: When we are talking about housing affordability, we need to think about what kind of housing, as well as its cost.

Most goods are fungible: If your family consumes more milk, or gas, or electricity, then you pay more for it, but the price of the next gallon or kilowatt is the same as the last. Buying a gallon of milk is essentially the same as buying two half-gallons. Housing is different: You can’t just rent some extra square feet when your family gets bigger, you need a whole new home. Building more SRO-type units, as some people advocate, would help address affordable housing at the low end; but it wouldn’t do anything to solve the problems of rent-burdened families.

This non-fungibility of housing was eloquently described by Sam Stein in a New York Review of Books piece a few years ago:

Housing will never be as elastic as households. This is not only because construction is complicated in a city as crowded as New York, but also because there is a fundamental difference between people and things. Households change shape over time and can recompose rapidly during an emergency like a pandemic. But despite the work of inventive architects, our housing tends to stay more or less the same. … There is nothing quite as concrete as concrete.

To be clear, the solution is not as simple as simply requiring developers to build more larger units. As this report from the Fiscal Policy Institute points out, this approach could be counterproductive, discouraging new housing construction of all kinds.8 But it is certainly something to consider in the design of subsidies or social housing programs.

My second policy conclusion was touched on a bit earlier: We need to be careful about what we mean by affordable. A lack of housing is an acute problem for the very poor. But many people with higher incomes also struggle with housing costs. The figure below shows the share of households paying over 30 percent of their income in rent — the conventional definition of rent-burdened.

As the figure shows, almost all low-income renters are rent-burdened, while almost no high-income households are. But a surprisingly high fraction of middle-income households are rent-burdened by the conventional standard. If we look at households in the middle third of the income distribution, from approximately $40,000 to $120,000, 45 percent of the renters pay more than 30 percent of their income in rent. (And in New York, the large majority of people in this income range rent.)

When we are talking about affordable housing, we should not just be talking about housing for very low-income people, with the implicit assumption that everyone else is adequately served by the existing housing market. We should be talking about a problem with the private provision of housing in general.

Two more points speak more directly to the ballot proposals. On the one hand, “build more housing” is a valid and important policy goal. Even if there were no gains to affordability, simply having more people living in New York (and other dense cities) is a win for humanity, for all sorts of reasons I do not need to go into here. But as the HVS data shows, new housing is helping with costs as well. A large fraction of the housing being built in recent years has been relatively affordable, and is occupied by households in the lower and middle parts of the income distribution.

A corollary of this: Rent-regulated housing rents for significantly less than market-rate housing, and houses people with significantly lower incomes. We can certainly ask whether our subsidy dollars could be spent more efficiently. I personally think that the long-term tax credits are not the right approach; if we want to trade future tax revenue for present housing production, we would do much better to issue bonds backed by that future revenue, and provide the subsidies up front. But for present purposes, the key point is that these subsidies do produce affordable housing.

On the other hand — my final policy point — the fact that recently-built unregulated apartments rent for so much more than existing apartments, and have such disproportionately higher-income tenants, should make us more skeptical of claims that land-use reform, by itself, will substantially reduce housing costs. It could be that rents in newer apartments are high because not many of them are being built, so that is what the market will bear. But it also could be that rents in newer apartments are so high because that’s what private developers require in order to build them.

There may be some truth to both of these views, of course; but I suspect there is more to the second. In which case, while land-use reforms like the three ballot proposals are desirable and important, they will need to be complemented with public interventions in the financing and development of new housing to have a real impact on affordability.

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One final point, on the politics, and a final picture, not from the HVS data.

I started this post back before the election, before setting it aside for a while. A that point, I was concerned that misperceptions about what kind of housing is currently being built might be fueling opposition to the ballot proposals. People who care about affordable housing might oppose making it easier to develop housing if they thought that the only housing being built in the city was luxury apartments for the rich.

Now that the election is over, we can see who actually did oppose the measures, and who supported them. Below is the map for Proposal 2, with yes votes in green; the other two would look similar.

What do we see? Well, obviously, this looks like the map of the mayoral election. Not exactly — the proposals carried all of Manhattan, while the Upper East Side voted for Cuomo. But by and large, the areas that voted yes on the proposals are the areas that voted for Zohran Mamdani.

I think this tells us something important about the politics of housing. There’s an argument one often hears, that the politics of housing cut across conventional left-right lines — that arguments against new housing is often made on environmental or anti-gentrification grounds, and come from people who are, in other respects, on the left side of the political spectrum.

Now I would not say there is no truth to this idea. It’s probably most true in the Bay Area, but it’s not limited to there. During the fights over the Atlantic Yards development here in Brooklyn, I personally observed houses with both the iconic “In this house…” and “We love brownstone Brooklyn” signs; needless to say, most New Yorkers do not live in brownstones.

But it’s easy to exaggerate the  importance of this combination of views. In the real world, the vast majority of opponents of higher-density housing are not liberals who fly rainbow flags and donate to the Sierra Club; they are conservative homeowners who, not to put too fine a point on it, don’t want Black people moving into their neighborhoods.

Of course there are sincere progressives and socialists who believe that building more housing will only raise rents; and it’s worth trying to persuade them that, in fact, more development, even private development, is an essential part of a broad public program for housing affordability.

But those people are not the main obstacle. The people who are against building more housing are, by and large, the same people who will oppose any program to raise living standards by redistributing income and power and expanding the role of the public sector. It’s the same old lines of left versus right.

UPDATE: I forgot to mention: I adjusted the total number of units built since 2010 in the HVS so it matched the total from the Department of City Planning for units built between 2010 and 2023. But I didn’t see an easy way to do this for subgroups; and while the HVS weights ensure that counts across various categories of buildings match the official totals, the weights are for the whole sample, not for building-age subgroups. So there is going to be some sampling error here — these are not exact counts. I feel reasonably confident that the picture is qualitatively correct, though.

Sri Lanka’s Interest Rate Trap

This piece was coauthored with Arjun Jayadev and Ahilan Kardirgamar. It was first published in Project Syndicate, and republished in The Daily FT in Sri Lanka.

Sri Lanka is currently undergoing its worst economic crisis since Independence. The austerity measures imposed as a part of the ongoing IMF program – following the island nation’s first ever default on its external debt in 2022 – have led to poverty doubling to over 25 percent; according to the World Bank, poverty will not return to pre-crises levels until 2034. The economy is only just beginning to recover from a deep depression – in per capita terms, real GDP levels will not recover to 2018 levels until 2026, if then. A generation is being lost to malnutrition, school dropouts and youth unemployment. A country that a few decades ago was considered a model development state with enviable human development indicators is now being forced to dismantle its social welfare system. 

Yet in the midst of this crisis, Sri Lanka is living with one of the strangest paradoxes in global monetary policy: extraordinarily high interest rates in an economy grappling with deflation. For much of the last three years, the country has had some of the highest real interest rates in the world despite being in  a serious macroeconomic crisis, struggling with debt distress, and facing strong disinflationary forces. 

The Central Bank’s latest Monetary Policy Report (August 2025) acknowledged the depth of disinflation. Headline inflation fell below the target of 5 percent for three consecutive quarters, driven largely by energy and food prices.  Most recent data suggests that inflation moved from negative territory to slightly above zero (still well below its target). And yet, nominal rates are stuck at a punishing 8 percent.

By the conventional logic of monetary policy,  none of this makes sense. 

Economics textbooks describe monetary policy in terms of a “Taylor rule” linking the policy rate to the level of inflation and the output gap, or difference between actual output and an estimate of potential output. When output falls short of potential or inflation is below target, the central bank should choose a lower interest rate; when output is above potential or inflation is above target, the central bank should choose a higher rate. The hard cases are when these signals point in opposite directions.

Sri Lanka today is not a hard case.  Inflation well below target and a depressed real economy are both textbook signals to cut. And Sri Lanka’s inflation is not even trending upward. Meanwhile, the latest version of the Bank’s own monetary policy report shows Sri Lanka further below target now than a year ago. And since 2017, the share of the country’s population that is employed has fallen by a full four points, according to the World Bank – a sure sign of an economy operating below potential. And that is only the tip of the iceberg, where the informal sector accounting for more than sixty percent of the labour force is devastated without affordable credit for production. The choice to maintain current high interest rates under these conditions is impossible to square with any conventional understanding of monetary policy. 

Debt Dynamics and the Case for Cuts

Beyond the macro textbook case, there is a more pragmatic argument for lower rates: debt sustainability. The change in a government’s debt-GDP ratio does depend not just on current expenditure and revenue. It also depends on economic growth and interest on debt accumulated from the past. The larger the debt ratio currently is, the stronger the effect of those factors, relative to current budget choices.

With public debt close to 100 percent of GDP, debt sustainability in Sri Lanka is highly sensitive to interest costs. A few points difference on interest rates can shift the debt trajectory from a stable or falling debt ratio to one that is explosively growing.

The August 2025 report notes that credit to the private sector has expanded by 16 percent year-on-year despite deflation, but government borrowing costs remain elevated. Treasury bill yields, though down somewhat after the May rate cut, still hover at levels far above inflation. Maintaining real rates in the double digits in an economy with falling prices is not “prudence”—it is a form of fiscal self-harm-and a serious missed opportunity for helping a population that has been waterboarded by austerity over the past three years.

Countries in debt crises have long known that the denominator of debt to GDP ratios (nominal GDP) matters as much as the numerator. Consider the case of Greece in the years after the euro crisis. After years of rising debt, the Greek government was forced to turn to brutal austerity and cost-cutting, and managed to reduce its total debt by 15 billion euros – an amount equal to nearly 10 percent of GDP. Yet during this same period, the debt-GDP ratio actually rose by some 30 points, because Greek GDP fell so much faster. The Greek case is extreme, but the point is a general one: austerity in the name of fiscal sustainability can be self-defeating, if it destroys the conditions for economic growth. 

This is the risk that Sri Lanka is currently running.  High rates in a deflationary economy are the worst of both worlds: they raise interest payments while suppressing growth. By contrast, lower rates would both reduce financing costs directly and support growth.

Inflation Comes from Abroad, Not from Home

So what does the central bank think it is doing? The monetary policy report is striking in its near-exclusive focus on “price stability,” as if Sri Lanka were the United States or the Eurozone. Yet around 40 percent of Sri Lanka’s consumer basket is food, with a large additional share being energy. These prices depend more on global conditions and supply shocks than domestic demand. Raising or lowering policy rates will have little effect here. For a small open economy like Sri Lanka, inflation targeting in the textbook sense is often an imported delusion.

A more realistic goal for the central bank in a small open economy is external balance. Appropriate monetary policy can help stabilize the balance of payments, and avoid destabilizing swings in capital flows. But if the Bank’s true concern is the external sector, its public statements do a poor job communicating this. 

More importantly, the case for high rates looks equally questionable from this point of view. The central bank projects a current account surplus in 2025, meaning the country is accumulating rather than losing foreign exchange. This is a continuation of large positive balances in 2023 and 2024, thanks to strong remittances and rising tourism receipts. Gross official foreign exchange reserves climbed to over USD 6 billion in the first half of the year, despite debt service outflows. After a large devaluation in early 2022, the rupee has been stable recently, with no sign of reluctance by foreign investors to hold Sri Lankan assets.

In short: there is no evidence for an external financing crisis that could justify the Bank’s punishingly high domestic interest rates. To the contrary, the surplus liquidity in money markets reported by the Central Bank suggests that external conditions are ripe for further easing.

Misplaced Caution

The Monetary Policy Report cites “uncertainty around global demand” as a reason for caution. But this makes no sense: What matters for monetary policy is the level of rates, not the change in them. An interest rate of 8 percent is no less discouraging for investment just because rates were even higher a year ago.  The central bank is like a driver on an open highway who insists that they need to drive well below the speed limit now, because if there is bad traffic ahead, they will want to speed up. 

Sri Lanka’s monetary policy is clearly aimed less at economic conditions on the ground than at  pleasing external actors — the IMF, World Bank and its other creditors. The high interest rates and increasing foreign reserves signal a willingness to place the interest of foreign creditors ahead of the country’s own people and businesses. But if super-tight money triggers a renewed crisis and another default – as is possible – it won’t even end up helping the creditors. . 

A Policy for Recovery, Not Austerity

There is little evidence that high rates are serving their stated purpose of stabilizing inflation (missing on the downside is as bad as missing on the upside) or protecting the external balance. They are, however, choking domestic recovery and worsening the government’s already fragile finances.

It is not too late for a change in direction. After several years of flat or falling output, Sri Lanka’s economy grew 4.8 percent in the first quarter of 2025, with rebounds in industry and services.  To be sure, this is to some extent just a bounce back from the depressed conditions over the last few years. But it suggests that with appropriate policy, renewed growth is possible. Monetary restraint risks instead prolonging the crisis.

Conclusion

Sri Lanka needs a monetary policy for recovery, not austerity. With inflation below target, external accounts stable, and growth still tentative, holding rates at 8 percent is indefensible. The Central Bank should cut immediately,  while keeping an eye on capital flight – which, unlike inflation, is a genuine danger from cutting too fast. Doing so would not only support economic revival but also improve the country’s fiscal trajectory—helping Sri Lanka climb out of its debt trap, rather than prolonging it. 

History is clear: countries escape debt traps through growth, not through endless austerity. Sri Lanka cannot grow if credit is starved and government finances are bled by high interest bills. This is a critical moment to think about a pivot.

 

A Note on Stall Speed

After publishing the previous post, I received the following email from Christoffer Stjernlöf, which I thought was worth sharing:

I enjoyed your latest article on the September Jobs Report – these statistics come with interesting connections and assumptions which I lack the training to realise, so it’s always nice to have someone knowledgeable comment on them at a deeper level than what’s typically found in mainstream media.

I especially found the stalling analogy apt, and it’s probably more appropriate than you think! You wrote:

An airplane has a stall speed: if it slows down a bit, it flies a bit slower, but if it slows down too much then it stops flying entirely and falls to the ground.

The stall speed needn’t be the speed at which the plane drops out of the sky – it could simply mean the beginning of an entire flight regime called the stalled regime.

In the normal, cruise regime, the wing produces lift, and if the wing is tilted upwards it produces more lift by virtue of meeting the air more aggressively. This means if the plane slows down (and the wings cut through less air per unit of time), the wings need to be tilted up to compensate and maintain level flight.

What happens in the stalled regime is not that the wing stops generating lift altogether, but that further increases in wing angle start decreasing (!) the amount of lift produced! So if a pilot finds themselves in this regime, and want to increase lift, they need to angle the wing downwards rather than upwards – contrary to normal expectations.

The reason I bring this up is that it mirrors the feedback loops of the economy – on the good side of a threshold, the natural feedback loops keep things somewhat stable, but on the bad side of the threshold, the natural feedback loops instead conspire to make things worse.

The reason we think of the plane falling out of the sky in the stalled regime is that it no longer has positive stability in that regime, so perturbations tend to worsen the condition until the wing indeed no longer produces enough lift to keep the plane in the sky.

For more details, the words to search for are “back side of the power curve”, “region of reversed command” or this excellent text: https://www.av8n.com/how/htm/vdamp.html#sec-stall-intro

The linked text is indeed fascinating.

In his “Politics and the English Language,” George Orwell warns against drawing from “the huge dump of worn-out metaphors,” which are used without regard for the object they notionally describe. Language, to be sure, is full of fossilized metaphors, which are now just words. It’s the dying metaphors that Orwell wants us to avoid. If a term still conveys a comparison to a physical object or concrete situation, one should have the real object or situation in mind, and be sure that the thought being expressed really applies to it. It’s good advice, which I strive to follow.

Here we have the opposite, or the contrapositive, of Orwell’s dying metaphor. What makes for a living and vigorous metaphor is that more careful attention to the physical thing, will give us a deeper understanding of the idea to which it is being compared.

The transition from a domain of stabilizing negative feedback to destabilizing positive feedback (or from dampened to amplified disturbances) is exactly what Leijonhufvud had in mind with the idea of a corridor of stability. Thinking more precisely about what an airplane stall entails, as Stjernlöf suggests, captures this better than a vague idea that the plane just stops flying.

Or in a slightly different vein:

Paul Krugman used to write a lot about how when interest rates are at the lower bound (synecdoche for an economy facing binding demand constraints), normal economic theory gets turned upside down: prudence is folly and virtue is vice. It’s interesting to learn that the idea of an economy having a “stall speed” is, if the metaphor is taken seriously, a description of exactly a situation where moving the levers has the opposite of the usual effect.

At Groundwork: Lessons from the September Jobs Report

(This was originally posted on the website of the Groundwork Collaborative, where I am a senior fellow. I’m hoping to be doing these more regularly in the future, so if there’s anything that would make them more useful or interesting, please let me know.)

 

The September Jobs Report: Evidence of Past Success, and of Dangers Ahead

After a gap caused by the government shutdown, employment numbers are back, albeit a month delayed. The Bureau of Labor Statistics conducted its September surveys as usual, though the October surveys were not. This will have longer-term repercussions for U.S. economic data, but for now we can focus on what the September data tell us about the state of the labor market and the economy. The data highlight three key economic facts about the current moment: The post-pandemic fiscal response succeeded in spurring a rapid recovery, the stalling labor market is exacerbating inequality, and perhaps most urgently, a recession looks increasingly likely on the horizon.

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U.S. employment data is a complicated beast, assembled from three main data sources.

Employment and unemployment rates, along with various personal characteristics, come from the household survey, conducted by the BLS each month of a large sample of US households. The overall population, along with distribution across basic demographic categories of age, sex, and race, comes from the US census. Census numbers are updated at the start of each year and use projected population increases for the periods in between. Finally, total employment numbers, and their distribution across industries, come from the establishment survey, conducted across a sample of U.S. employers. Because of the immense range of sizes of US businesses and the unpredictable rates at which new businesses are born and existing ones die, contacting a representative sample of businesses is more difficult for businesses than households — the source of the large revisions employment numbers are often subject to.

These three sets of numbers combine to provide the indicators in each month’s Employment Situation report. But because they come from different sources, they are not always consistent with each other.

The big puzzle in the September data is the combination of steady growth in total employment and the continued rise in unemployment. Based on the establishment survey, employment rose by 119,000 between August and September; over the past year, employment is up by 1.3 million, or 0.8%. Yet the household survey shows that the unemployment rate increased by 0.1% in the past month; over the past year the unemployment rate is up by 0.3%, while the labor force participation rate is down by a similar amount. Between rising unemployment and falling labor force participation, there has been a fall in the employment-population ratio of 0.4%, from 60.1% a year ago to 59.7% today.

The only way that all these numbers can be correct is if the working-age population grew by 1.5%. Yet the census estimates used by the BLS show an increase in the working age population of just 1% over the past year And since the census makes its population projections at the start of each year; this 1% growth does not reflect the immigration crackdowns this year; so actual growth in the working-age population was probably slower, possibly much slower. One recent paper from the Dallas Federal Reserve Bank estimates that true growth of the working-age population over the past year might be just 0.25%.It is mathematically impossible for employment to grow by 0.8%, the employment-population ratio to fall by 0.4%, and the working-age population to grow by just 1% (let along 0.25%). All of these numbers cannot be correct. Either actual population growth was faster than we think; or employment growth was slower; or the employment rate is lower (and the unemployment rate higher) than the official numbers say.In my view, the household survey is the most reliable piece of the puzzle; I would be very surprised if the unemployment or laborforce participation rates get significantly revised. The most likely possibility, in my opinion, is that subsequent revisions will show that employment growth was significantly slower than what the current numbers suggest. It’s not impossible that, despite everything, immigration-driven labor force growth has remained strong. But it is more probable that job growth will be revised down.

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Turning to the substance of the report, there are three big stories we should keep in mind as we look at the September numbers.

The first big story is that the economic response to the pandemic really worked. Indeed, there is a good case that it was the most successful example of countercyclical policy in US history.

In early 2020, the US experienced the sharpest fall in employment and economic activity in our history. There was good reason to fear that the immediate supply-side disruptions of the pandemic would lead to a collapse in demand, as businesses without sales shut down and laid-off workers stopped spending. But instead, just three years later, the employment rate for people of prime working age (25-54) was higher than it was just before the pandemic and not far short of its all-time high in early 2000.

As the figure nearby shows, this rapid recovery is in marked contrast to other recent recessions, where prime-age employment rates remained below their pre-recession peak for many years into the recovery — as long as 12 years, in the case of 2007.

Source: BLS, Groundwork Collaborative analysis

Some people might say that this reflects the difference in the nature of the shock — that the pandemic was inherently a more short-lived interruption to economic activity than the financial disruptions that triggered earlier recessions. But this misses the way that falls in demand can perpetuate themselves, even once the initial source is removed. Businesses that close down in a crisis do not immediately re-open once the crisis is resolved. When people lose jobs, their reduced income and spending will lead to lower demand elsewhere in the economy; this will depress output and employment regardless of the reasons for the initial job loss.These effects of demand are now well-known to economists under the label hysteresis — today, it is widely agreed that even temporary demand shortfalls can lead to persistent falls in economic activity that greatly outlast the initial shock.There were good reasons to think, in 2020, that this was the path the economy was headed down. Businesses that closed during the pandemic would struggle to reopen; people who lost their jobs, even temporarily, would have to cut back on spending, reducing demand even in sectors of the economy not affected by the pandemic itself. And this would be compounded by a wave of foreclosures and debt defaults; even if the recession didn’t start with a financial crisis, it might have developed into one.

The reason this did not happen was because of the scale of the response from the federal government. For the first time in US history, the government fully replaced the income lost in an economic crisis. So there were no knock-on effects to demand and no permanent scarring to the labor market. That — and not the nature of the shock — is the most important reason why the recovery from the pandemic looked so different from earlier business-cycle recoveries.

This enormous policy success has been crowded out in people’s memory by the subsequent inflation. So it’s worth stressing that this is why the Biden administration was right to make a big stimulus measure its first priority on coming into office.

As you can see in the figure, while there was a strong recovery in the second half of 2020, employment growth was much slower in early 2021. It is easy to imagine, in retrospect, that employment rates might have plateaued somewhere well short of their pre-pandemic levels. Indeed, this is what forecasters at places like the Congressional Budget Office were predicting at the time. In February of 2021, they projected that it would take more than twice as long for total employment to reach pre-pandemic levels as it did in reality. And they were projecting an overall employment population ratio for mid-2025 of 57.5% — more than two full points below September’s actual ratio. The fact that rapid employment growth resumed a few months after the passage of the American Rescue Plan isn’t proof of a connection. But it is certainly suggestive.

Apart from a few months in 2024, today’s prime-age employment rate of 80.7% has been exceeded in only one earlier period, from late 1997 to early 2001. So while there are certainly reasons for concern in the most recent job report — which I will get into in the next two items — the most important thing we should remember is that this historically high employment rate was not inevitable or solely the result of anonymous economic forces. It is the fruit of good policy choices made a few years ago.

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The second big story reinforced by recent jobs numbers is that labor market conditions matter for inequality. We can see this today in the much larger rise in unemployment among Black workers.

If one pillar of textbook macroeconomics that has had to be revised in recent years is the idea that demand conditions have no lasting effects on the economy, a second is that labor market conditions only matter for the overall pace of wage growth. The distribution of wages across individuals, in this older view, depends on their “human capital” and other individual characteristics.

But what’s become very clear is that the state of the labor market matters more for some workers than for others. For people whose employment is protected by long-term contracts and credentials, or who are the sort of people that employers prefer — college-educated white men in their prime working years — employment outcomes may be relatively insensitive to the state of the labor market. But for workers in more contingent, precarious employment arrangements, or from groups less favored by employers — Black workers, young people looking for their first jobs, those without college degrees — their prospects depend much more on the balance of power in the labor market. When you are last hired, first fired, your situation depends very strongly on how much hiring and firing is currently going on.

Arguably this has always been true. But it’s become more widely recognized among economists and policymakers in recent years. Not long before the pandemic, for example, Fed Chair Jerome Powell acknowledged the role of weak demand — due in part to poor monetary-policy choices — in exacerbating inequality. This is something previous chairs had disavowed responsibility for.

During the immediate recovery from the pandemic, these distributional effects were positive, as a strong labor market disproportionately benefited those most likely to be left out. In 2021 and 2022, wages at the bottom of the distribution rose substantially faster than those higher up. Similarly, in the strong labor market of the late 2010s, the Black-white gap in unemployment rates fell to historically low levels. In the even stronger labor market of the post-pandemic recovery, it fell even more — in 2023, the gap between the Black unemployment rate and the overall rate briefly fell below 1.5%, the smallest gap on record. (See the figure nearby.)

But over the past year, as the labor market has softened, wage growth at the bottom has begun to lag the growth in wages higher up. And the unemployment rate among Black Americans has risen much faster than among other groups. Over the year ending in September, according to the most recent BLS numbers, the unemployment rate for Black workers is up 1.8 points, compared with a rise of just 0.1 points for white workers.

When Black unemployment started rising sharply compared with the overall rate over the summer, there was the possibility it was a statistical blip. But September’s report confirms that this is a real trend. This is deeply concerning in itself. But it’s also a reminder that keeping up demand and tight labor markets are not just important from a macroeconomic perspective; they are also powerful tools for social justice along other dimensions. And conversely, of course, weak labor markets exacerbate other forms of inequality — as we are seeing now.

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The third big story in recent jobs reports is that a recession looks increasingly likely.

In recent years, discussions of recession have often focused on the Sahm Rule, a rule of thumb based on a comparison of the past three months’ average unemployment rate with the lowest three-month average from the previous twelve months. The rule that Claudia Sahm proposed — originally as a trigger for enhanced unemployment benefits, rather than as a forecasting tool per se — was a threshold of 0.5, i.e. an average unemployment rate over the past three months at least half a point higher than the lowest rate in the past year. In recent decades, this has inevitably signaled a recession.

As the figure nearby shows, this threshold was briefly reached in mid-2024, without any official recession. The indicator has since receded back toward zero — not because the unemployment rate has come down, but because the big rise in unemployment came in 2023, and has now moved beyond the rule’s window. Since then, measured unemployment has been fairly stable.

It is worth thinking about why a rule like this might work in the first place. The critical fact about the world highlighted by the Sahm rule is that moderate increases in unemployment are, historically, almost always followed by much larger increases. This is not something that just happens to be true. It reflects a basic fact about how the economy works: Income creates spending, and spending creates incomes. This positive feedback loop is what powers growth — when businesses undertake new investment projects, that spending circulates through the economy, creating additional income and spending that, in the aggregate, justifies the investment spending.But this process can also work in reverse. A fall in spending leads to a fall in incomes, which leads to a further fall in spending. The difference between these two feedbacks is the reason our economy experiences distinct periods of expansion and recession, rather than a smooth range of different growth rates.There are metaphors that are widely used in talking about business cycles that capture the idea of tipping points or phase transitions. An airplane has a stall speed: if it slows down a bit, it flies a bit slower, but if it slows down too much then it stops flying entirely and falls to the ground. A car trying to go up an icy hill needs to build up a enough speed to make it to the top; if it goes faster than this, it will arrive at the top going faster, but if it goes slower, it will slip back down and won’t make it to the top at all.

The idea that a certain level of growth in demand is required to prevent a sharp fall in demand is a familiar one in practical economic discussions, even if it’s not always stated clearly. It’s implicit in the idea of business cycles and recessions as distinct phenomena in their own right, as opposed to just labels of convenience for unusually large random shocks. There are many reasons why this sort of “stall speed” might exist, but two of the most important are the “accelerator” mechanism linking investment and demand, and the limited financial buffers possessed by most households.

We needn’t go into the details of these stories in this post; the key point for present purposes is that there are good reasons why a small fall in employment or expenditure is likely to reverse itself, but a large enough fall will snowball into an even bigger one. This is why the Sahm rule is not just a historical accident, but captures an important business-cycle regularity.

The unemployment rate is our most timely indicator of the overall level of economic activity. A large rise in unemployment is not just a negative outcome in itself; it indicates a fall in spending and activity that will have further effects. Over the past two years unemployment has risen by almost a full point — too slowly to trigger the Sahm rule, but a large enough rise that, based on historical experience, we would expect to be near the recession tipping point. At the least, it suggests a situation in which any new negative shock — an abrupt slowdown in data-center investment, for instance — could send the economy out of what the great Keynesian economist Axel Leijonhufvud described as the “corridor of stability,” and into a recessionary spiral.

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One final point: There is no reason to think that this data is distorted or politically biased.

Attacks on professional norms are a hallmark of the Trump approach to governance. But while the administration can certainly interfere with timely collection and publication of data, and while, even in the best of times, there are serious challenges to constructing meaningful summaries of all the myriad forms of economic activity, there is no reason to think there is political interference in the employment data. More than that: I would say there is strong reason to believe that there isn’t. Given the deep commitment to the civil servants at the BLS and other national statistical agencies, if there were any pressure on them to change the numbers, we would certainly hear about it.

Talking about Zohran

As you certainly know, Zohran Mamdani was elected mayor of New York last Tuesday. Indeed, if your life is like mine, you may feel you’ve been hearing about little else. The other day, as I was biking my younger kid to school, a young guy pulled up next to us with one of those portable speakers that some people like to use to blast music while biking. Except he wasn’t blasting music, but some kind of news commentary show discussing how Mamdani won. Truly, you can’t get away from it.

For my part, in the past couple weeks I’ve been on three different panels and done four interviews on the Mamdani policy agenda. Two of the panels were not recorded, but I thought I’d share the other one and three of the interviews. (The fourth doesn’t seem to have aired yet.) Perhaps you still are looking for Mamdani content, perhaps especially if it’s focused on the challenges of running the city than the election itself. And presumably if you are reading this you have some interest in my point of view. You could listen to them, I suppose, while you’re cooking, or exercising, or in your car, or from a portable speaker on your bike, or gathered your family around the computer with mugs of warm cider — however you prefer to consume your audiovisual content.

The first one, from October 14, is a roundtable organized by Dissent, with me, the indefatigable tenant organizer and housing advocate Cea Weaver, and City Councilmember Chi Ossé, another rising star of the New York left. This was a great conversation, with, though you can’t see it in the video, an enthusiastic and mostly quite young audience — very different from the crowd you used to expect at a Dissent event. 

Also from mid-October, is a podcast interview with the Swedish researcher Max Jerneck (there’s a brief introduction in Swedish, which you can skip unless you happen to speak it.). It’s a long conversation, which covers a lot of ground: the first 50 minutes are on Zohran, then there’s 10 or 15 minutes on Trumpism, and the last 20 minutes or so are about Against Money. This was a nice combination from my point of view, since it was an opportunity to try to link the arguments in the book, which are mostly at a fairly abstract level, with more immediate political questions. There’s also a YouTube version, if you want to see me gesticulating; if I’d known he was posting the video, I would have cleaned up my home office first. The YouTube version also lets you see this funny picture Max pulled from the Nobel Prize Committee’s writeup of this year’s winners, which makes “household savings” literally the driving motor of growth — a nice example of the conceptual framework that the book is trying to help free us from. 

Post-election, here is an interview with Sasha Linden Cohen on the show Background Briefing. Among other things, we talk about the politics and economics of free (and fast!) buses. Perhaps the key point to make there is that this is a more common policy than you might think. For example, here (via Doug Henwood) is an ad in the Financial Times from the government of Luxembourg, touting their free transit system. 

It’s worth emphasizing here, also, that one of Zohran’s accomplishments in the legislature was creating a pilot program with one free bus line in each borough. So far, this has been quite successful, with ridership on the free lines up by about a third compared with other lines, and no sign that they are cannibalizing service from other parts of the system. If one votes for a pilot program — as large majorities in both houses of the legislature did here — it is presumably because adopting the idea generally seems at least plausible.

A second post-election interview was with Brian Edwards-Tiekert on UpFront on KPFA, where I am a somewhat regular guest. (I come on about 33 minutes in.) On this one, we talk more about the campaign itself — both the organization of it, and the campaign as a cultural phenomenon. We also talk quite a bit about his housing program (which is also the focus of the Dissent roundtable), and about what kind of cooperation can be expected from state government.

One point I made here, which I think has been underappreciated through this whole campaign, is how much national Democratic like Schumer and Jeffries are not  typical of New York’s Democratic officials. Even in the primary, Zohran Mamdani got more endorsements from the City Council than Cuomo did. By the general election, almost every important city and state elected Democrat was with him. (His final pre-election rally, where the state’s top three officials served as the warm-up act for Bernie Sanders and AOC, drove this home.) This does not mean that there won’t be serious resistance to his agenda — especially insofar as it involves raising taxes on the rich — but I think it’s a mistake to imagine an ideologically coherent “establishment” opposing him. I think a lot of Democrats right now, including many self-identified centrists, are not at all sure what they should be doing in this moment, and would be happy to get behind a Zohran-type program if it looks like a winner. Chuck Schumer may see his number one job as “to keep the left pro-Israel,” but Kathy Hochul assuredly does not.

Finally, here’s an unexpected interview from Election Day. While I was out with the kids on one last get-out-the-vote canvass, we were stopped by someone doing video interviews for her YouTube channel (because of course we were, this is 2025). I wasn’t prepared to do much with this platform, but the kids really rose to the occasion.

Actual Intelligence

I wanted to put down some thoughts on Large Language Models (LLMs), or so-called artificial intelligence. I apologize that this post is not going to include any links or quotes or data. It’s just an effort to work something out in my own head – something that I don’t feel – tho it’s very likely I’ve overlooked it – has been spelled out in the discussion anywhere else.

It’s a point that is, on one level, obvious, but one that I feel does not get sufficiently foregrounded: LLMs are, as the name says, language models. Given a corpus of text, they create a set of probabilities such that, for any given input, you can calculate the probability that, following a certain input, a certain word should come next. They are, in other words, tools for transforming material that people have put up on the internet.

On one level, again, everyone knows this. It’s what critics mean when they call these programs“stochastic parrots.” It’s what the companies that make them are thinking about when they talk about the problem of training data. But I don’t think we think about it enough when we think about what these things actually are.

We’ve been primed by generations of science fiction stories to imagine machines that think, think well or poorly, helpfully or malevolently. But maybe we would have a better understanding of LLMs — of what they do well as well as what they do poorly or not at all – if we thought of them not as thinking machines but as windows: windows onto the thinking that people have already done.

There is no thinking going on when you enter a query into ChatGPT, in the sense of an abstract model of the world that can be manipulated and then expressed in words. With the LLM, the words are all there are. The reason an LLM can answer a factual question is because someone has posted text on that specific question. The reason they make nice pictures is because there are an immense number of pictures on the web, with descriptive text attached. The reason they are such good coding buddies is because people have posted immense numbers of code snippets (and also because code is so nicely grammatical.)

If you’re impressed that an LLM can give you a stat block for your DnD campaign (one genuinely positive use case I’ve seen) or answers to your economics homework or text for a form letter, what you should really be impressed by is that so many people have posted versions of exactly that over the past 30 years.

People talk about the software and the chips. And sure, it does need a whole lot of chips. But the real secret is that people have posted this immense amount of useful text on the web, for free. That’s where the magic comes from.

OK, they didn’t post it all for free – a lot of it was produced for money. But none of the text that LLMs draw on was produced for sale to LLMs. All of it is free from their point of view. What they are drawing on is the positive externalities of people communicating with each other, for their own reasons, on the web. What LLMs are doing, fundamentally, is reaping the benefits of a vast spontaneous, directly social, decommodified decentralized production of use values.

When we look at the useful stuff that LLMs give us, we should not think, how cool this technology is. We should think, what an amazing range of useful work people are willing to share online, freely, without any monetary compensation. The machine is the least interesting part. It’s just summarizing it for us.

What makes LLMs work as a business is precisely that all this text is decommodified, as far as they’re concerned, it’s free. As they themselves say, they’d have to shut down if they had to pay for their training data. Yet all that data is the product of human labor. This cutting edge of capitalism – the biggest part of new business investment – rests on a substrate of communism.

People who criticize OpenAI and the rest of these companies for not adhering to copyrights are completely correct about their hypocrisy, and about the inconsistent application of the law. But they mostly get the correct resolution backward, in my opinion. Where we want to get to is a world where information is free for everyone, not one where OpenAI and company also respect the gates. You might ask: why does that follow? To which I would say: LLMs themselves demonstrate the value of making content, in the broadest sense, universally available for free.

The lesson we should be taking from LLMs is the immense social value there is in having all kinds of material – all kinds of products of human intellectual labor – freely available online. They should be reminding us of the early utopian promise of the web.

But now we must turn this around. The other side, of course – of course! – is that the companies making LLMs are not doing so with the goal of more easily sharing the material that people have made freely available on the web. They are doing so with the goal of enclosing it, of converting the products of free human activity into commodities.

The problem we have to deal with is that these companies are selling access to the freely shared products of human social activity, as the product of their own particular capitals. (And also that they are encouraging people to use it for dumb or pointless or socially destructive purposes.)

Worse: The project of enclosing and commodifying the world of online communication destroys what made it valuable in the first place. It’s the opposite of the tragedy of the commons – as if the villagers’ animals grazing on the green were what fertilized it and made it valuable in the first place. This case, where joint use of common resources maintains rather than degrades them, is, I suspect, the more usual one in traditional farming and pastoral communities. In any case, it certainly applies to the information commons – private appropriation is incompatible with collective activity that maintains them. Can’t expect people to keep posting on Reddit if all they hear back is AI slop.

Still , I think it’s important – especially for those of us who are deeply skeptical of “AI” as a business – to not lose sight of the genuinely positive and transformative aspect of this technology: the window it gives onto the possibilities of free, decommodified cooperative production.

The great debate going forward is not about this specific technology. (Though it is, to be clear, about its enormous energy demands. The real question is the about the conditions under which people will continue to be able to share the products of intellectual work with each other on the web. The issue is not what “AI” will or will not do. The issue is how we can take advantage for the tremendous opportunities for sharing the products of actual human intelligence, which were opened up by the internet, but have been increasingly closed off by its commercial overlords.

Some Thoughts on the Labor Market

Last week, I did a couple of interviews with Brian Edwards-Tiekert of KPFA: one about what the latest BLS employment data is telling us, and one about the Fed’s decision to lower interest rates by a quarter point – in part in response to that data. Having given this some thought for the interviews, I thought it might be worth putting something down in a blog post.

I should stress: I am not a labor economist, or an expert on labor-market data. If I add any value here, it’s from applying a more systematic Keynesian perspective. I also know there are people who read my posts but don’t read more specialized economics content, who would appreciate a discussion of recent employment data. If people find this post useful, perhaps I’ll do more like it in the future. Note that many of the figures here come from Brian Dew’s excellent chartbook.

The headline numbers were relatively weak employment growth, and a downward revision to employment numbers from earlier this year. Employment was up a bit less than 1.5 million over the year ending in August, by the establishment survey. This is not just slower than the post-pandemic recovery, but well below the consistent two million jobs per year that were being added prior to the pandemic. The headline in the Financial Times was typical: “US companies put brakes on hiring after Donald Trump’s tariffs hit.”

The article begins:

The American industries most exposed to trade turmoil have slammed the brakes on hiring and in many cases begun to lay off workers, causing growth in the US labour market to grind to a halt.

It’s worth pausing over this sentence for a moment, to call attention to something that should be obvious, but is not always foregrounded: Hiring decisions are made by employers.

Businesses choose a level of output based on current or anticipated demand for their products. They then choose a level of employment based on how many workers they need to produce that output. The “labor market” is not a textbook market, in which the quantity sold depends on both supply and demand.9 The quantity of employment depends solely on demand. Where labor market conditions matter is for wages and working conditions, though this is better thought of in terms of bargaining power than labor supply.

The point here is that if we are trying to explain why the employment numbers are what they are, we need to think about demand for current output, and perhaps business expectations about future demand. Labor supply explains nothing about why employment is growing so slowly today, or why it was growing more rapidly last year. At the same time, it is true that the working-age population is now growing more slowly than it was a year or two ago. 2024 now appears to have had the greatest number of immigrants, in absolute numbers, in US history.10 Much lower immigration this year, along with the secular fall in natural growth, means the working-age population is probably growing quite a bit slower now; but because of the way the BLS constructs its population estimates, this will not show up in the official data until next January. Again, slower population growth has no direct effect on actual employment, which depends strictly on demand the side. But it does mean that slower employment growth implies a tighter labor market than it otherwise would. I’ll come back to this point later on.

Screenshot 2025-09-23 at 2.19.19 PM.png
In 2022-24, a surge in immigration offset the very small natural increase in the US population. When 2025 numbers become available, we will likely see that surge reversed. Source: Brian Dew.

The fist question that the KPFA interviewer asked me was about the revisions to the earlier 2025 employment numbers, which reduced job growth for the 12 months ending this past March by 911,000 — in absolute terms, the largest revision since the data has been collected in its modern form. I did not have a definitive answer to this one. What I do think, as I said on the show, is that first, US economic data, despite all of DOGE’s efforts to date, remains probably the best in the world, and the revisions are an integral part of maintaining its quality; and second, that there is plenty of other evidence we can look at that shows a clear picture of a weakening labor market, so there is no need to try to read something into the revisions. 

The one thing to add to that is that the revisions refer to the establishment data. BLS data comes from two fundamental sources — a survey of households that is used to produce statistics on people’s employment status, and a survey of businesses that is used to produce statistics on total employment and its distribution across industries. Since both of these are surveys, they need to be combined with some independent measure of the size of the relevant population to turn shares into numbers. The same survey results combined with different estimates of the overall population, will result in changes in the absolute numbers of people employed. But will not affect the share of individual demographic groups employed or unemployed, or the distribution of employment across different types of employers. Guy Berger has a thorough discussion of these issues on his blog. I’ve reproduced one of his figures below.

The blue lines show employment growth – solid as originally reported, dashed after the September 2025 revisions. (The dotted line is Guy Berger’s estimate of future revisions.) Source: Guy Berger.

For the establishment survey, the independent measure of the population size comes from Quarterly Census of Employment & Wages (QCEW), which generates counts of establishments and employees based on payments into the unemployment insurance systems which almost all private employers must participate in.

While the establishment survey does a good job capturing changes in the number of workers at a given establishment (along with changes in pay, hours, and so on), it cannot, by its nature, tell us anything about changes in the total number of establishments. That’s where the benchmark from the QCEW is needed, which — given the lags in collecting and assembling the data — comes some months after the initial BLS data is released. What this means is that revisions are likely to reflect changes in the numbers of establishments — births and deaths — rather than anything related to employment at individual businesses. The big downward revision for the first half of the year means that either more businesses closed than the BLS model had assumed, or fewer new businesses opened (or both). It’s hard for me to see how this could have any direct connection with the immigration crackdown.

In any case, we have plenty of better evidence that the labor market is weakening. Despite the stable headline unemployment rate over the past year, it is clear that the bargaining position of workers relative to employers is substantially worse than it was a year or two ago. 

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A central fact about the post-covid economy was the extremely tight labor market, which was very favorable to lower-wage and less privileged workers. Overshadowed by inflation, the very favorable conditions for workers aren’t a central part of our narrative of the economy during those years. (They also don’t fit a neat political narrative, since the strong post-covid labor market under Biden was in some ways a continuation of a strong pre-covid labor market under Trump I.) They mainly show up in the negative form of employers’ complaints. 

But what looks like a labor shortage from one side looks like an abundance of jobs from the other. As Arin Dube and his coauthors pointed out in an important paper, the three years after 2020 reversed a full quarter of the rise in wage inequality of the previous four decades. 

Yet this period was hardly perceived as an economic success story. The obvious reason is inflation: while wages did rise faster than prices at the bottom of the distribution, most of the compression described by Dube and his colleagues took the form of wages higher up the scale falling in real terms.

Another explanation, which I argued for here, is that while those at the bottom of the distribution did well in terms of wages, they experienced a major loss of non-wage income (and economic security more broadly) as the pandemic welfare state was withdrawn. (Stephen Semler recently added some new evidence supporting this view here.) 

Wage growth by wage quintile, over the previous year; this includes only people who were employed on both dates. Source: Federal Reserve Bank of Atlanta.

Another way to reconcile the big relative gains for those lower down the distribution, with the very negative perceptions of the economy: The combination of tight labor markets and rising prices was good specifically for people who sell their labor on a free market. It was bad for people who enjoy the protections of professional credentials, unions, public employment or other sources of stable employment conditions: In this case, protection from the short-term vagaries of the labor market was a negative. It’s worth noting in this context that almost all the outsized wage gains of the post-pandemic period went to people who switched jobs; it’s easier to jump ship for a better offer if you are a janitor or roofer or cashier, than if you are a teacher or lawyer.

Wage growth by wage over the previous year, for people who switched jobs during the year and for people who stayed at the same job; this includes only people who were employed on both dates. Source: Federal Reserve Bank of Atlanta.

Add to that the wave of tech layoffs in 2023 (as companies realized they’d over extrapolated from the pandemic shift to online activity) and you have a period in which the labor market was much worse for the sort of people whose voices are loudest in the public conversation than for those without big megaphones.

Total employment and employment in Information (publishing, internet services, data processing, telecommunications, data process and related industries), 2020-2025.

In any case, that period is over now. The great compression of wage income ended in late 2023; over the past two years, low-wage workers have lost ground relative to other wage-earners.  The great reshuffling has ended too: Quits, new hires and job openings are all back down to pre-pandemic levels. This is still a reasonably strong labor market, but it is not a historically tight one, as it was a couple of years ago. There was a period when Jerome Powell would mention, at every press conference, the need to “rebalance” a labor market that was tilted too far in favor of workers, and against employers. He’s not using that language now, and with good reason.

Quits, in particular, are a strong indicator of workers’ bargaining power. On the one hand, people’s willingness to leave their current job is a vote of confidence in their ability to find another one (or reflects the fact that they already have); on the other hand, the threat of quitting is the main practical leverage that most workers have over their boss. The historically high rate of quits over 2021-2023 was an important sign of a labor market unusually friendly to workers; its subsequent decline suggests one that no longer is.

Source: Brian Dew.

One way of thinking about the balance of bargaining power in the labor market is the Beveridge curve, which compares the share of jobs vacant with the share of workers unemployed. William Beveridge, who came up with this measure, considered a one to one ratio — shown as dotted line in the figure — a normal, appropriate balance, but there’s nothing sacred about that.

The figure nearby shows this metric for the US for the past 25 years. Points in the upper left correspond to a tight labor market — few unemployed workers and lots of unfilled positions, meaning workers have relatively more leverage. Points in the lower right are the opposite — lots of unemployed workers and few unfilled jobs, so that prospective employers can pick and choose and workers have to take what they can get. Points higher up on the right correspond to what’s known as structural unemployment — lots of people want to work, and there are businesses that want to hire, but for some reason they can’t connect with each other.

The US Beveridge Curve, 2020-2025. Points in the upper left correspond to a strong labor market, points in the lower right to a weak one.

The pandemic, not surprisingly, was, by this metric, the outstanding recent period of structural unemployment. (There was also a persistent shift in the structural direction after the financial crisis, suggesting a lasting post-crisis mismatch between jobs and workers in addition to weak demand.) 2022, on the other hand, is way up in the upper left of the figure. With two openings for every unemployed person it was, arguably, the best time to be looking for a job in our lifetimes.

But job openings have been drifting down steadily, and unemployment has been creeping up. A couple of months ago, openings per unemployed person fell below one. There are questions about how reliable the vacancy measure is, especially when comparing over widely-separated periods; but by this metric, it’s a worse market for jobseekers not just than the exceptional recovery from the pandemic,  but than the last couple pre-pandemic years as well.

Source: Brian Dew.

It’s worth noting, as Powell did in his most recent press conference, that the balance in the labor market reflects both weaker demand for labor, and a shrinking (or at least more slowly growing) pool of available workers. The “curious balance” (in Powell’s words) between these two trends is why unemployment has held steady despite what now seems to have been a very sharp fall in employment growth over the past year. Weak employment growth leads to less slack in the labor market if the potential workforce is also growing more slowly. 

The figures here are the revised ones. Source: Brian Dew.

Does this mean that anti-immigrant policies are working, at least as far as the labor market is concerned? No, it does not.

For a given level of demand, a smaller laborforce does mean a more favorable market for workers. But the condition “for a given level of demand” is key. If immigration is sharply down from 2024 levels, that means fewer people available for jobs. But it also means less spending. Immigrants are a source of demand as well as labor supply, a basic fact that is often forgotten in discussions of the economics of immigration. So while lower immigration may help explain why unemployment has held steady despite much slower hiring, that does not mean that unemployment would be higher in a world where 2024 levels of immigration had continued. In that hypothetical world, businesses would be selling more and hiring would be stronger.

One thing we can say for sure: There is no reason to think that the immigration crackdown has disproportionately benefits native-born workers. There has not been a surge in employment among the US born, despite some claims to the contrary from the administration. In an excellent post, Jed Kolko walks through the data on this, and explains the source of the confusion. The problem is similar to the one we discussed earlier around the revisions to the establishment survey. The BLS surveys households, but updates the total population only once a year, based on the census; in between it uses projections from the previous census. So if fewer people answering BLS questionnaires say they were born abroad — either because there really are fewer immigrants, or because immigrants are more wary of speaking to government officials — then, mechanically, the BLS must assume a greater native-born population. (Since, against he total population numbers are fixed until the next census update.) As Kolko convincingly shows, this statistical artifact explains the entire apparent surge in native employment.

An easy way to confirm this is to look at the employment-population ratio for native-born respondents. (These sorts of ratios are not affected by the population rebasing.) And if we do, we see that the employment-population ratios for US-born workers are lower, not higher, than they were a year ago.

Whatever is going on in the labor market, “native workers are benefiting from reduced competition from immigrants” isn’t it.