Today, the GoodFellows assess the risks posed to California’s economy by a proposed new wealth tax. Steven Davis and Raghuram Rajan unpack recent US interventions in bond markets and Fed Chair Kevin Warsh’s latest speech, and Matthew Pottinger and Liza Tobin argue that, once again, China is swooping in to steal US innovations when its AI firms distill closed US models to fuel the development of their own.
Wealth Taxes
Is the progressive dream of wealth taxes soon to become a fiscal and economic nightmare? Voters are poised to consider Proposition 40 and a one-time 5% tax on the holdings of the Golden State’s billionaire class. Senior Fellow Joshua D. Rauh joins GoodFellows to discuss his research on the likely impacts of the proposed measure.
The Big Idea: Should California voters approve Prop 40 in November, Rauh and his team say, the fiscal consequences for the state are not pretty. Watch here.
In this week’s Grumpy Economist Weekly Rant, John Cochrane examines a proposed permanent 5% federal tax on billionaires’ wealth. While supporters argue that the tax would raise trillions of dollars in revenue, Cochrane points out that these projections treat investment and behavior as fixed, leaving unanswered how the tax would affect risk-taking, business formation, and future economic growth. Billionaire wealth is not held primarily as cash; much of it remains invested in companies. Cochrane argues that redirecting those resources toward government spending would shift capital from investment to consumption, leaving fewer resources for new businesses, productivity gains, wage growth, and job creation. He also warns that a wealth tax would encourage costly avoidance strategies and reorganize businesses around reducing tax liability rather than generating value. Watch his rant here.
The Economy
On the latest episode of Economics, Applied, Senior Fellow Raghuram Rajan, former Reserve Bank of India governor, joins Senior Fellow and Director of Research Steven J. Davis at the Jackson Hole Symposium to offer his take on Fed Chair Kevin Warsh’s speech there and Treasury Secretary Scott Bessent’s recent intervention in bond markets.
The Big Idea: Rajan explains why attempts to push down long-term yields can distort important market signals, and why rising debt-servicing costs could ultimately force policymakers to pay greater attention to addressing persistent government deficits. Watch or listen here.
Reforming K–12 Education
Ian Rowe, founder of Vertex Partnership Academies and a senior fellow at the American Enterprise Institute, examines Thomas Sowell’s challenge to conventional wisdom on issues at the cross-section of race and education. Demonstrating Sowell’s firm belief that academic standards should not conform to low expectations around race, Rowe cites Sowell’s “Patterns of Black Excellence,” in which he examines how black students at Washington, DC’s Dunbar High School achieved educational excellence despite the indignities and inadequacies imposed by legal segregation. As Rowe notes from Sowell’s research, Dunbar sent a higher percentage of its graduates to college than any white public high school in the city and repeatedly equaled or exceeded national norms on standardized tests. Watch Rowe speak here.
Freedom Frequency
The celebrated, late-in-life correspondence between John Adams and Thomas Jefferson overflows not just with insight but with the shared understanding that political differences and rivalries can be transcended, writes Distinguished Policy Fellow Peter M. Robinson. The two giants of the American Revolution had been estranged for more than a decade when Adams sent Jefferson a note—and the two former presidents not only rekindled their mutual esteem but composed political wisdom that still speaks to polarized Americans today. Their letters embodied conservative (Adams) and progressive (Jefferson) strains of thought, Robinson notes, while converging on such subjects as the “enigma” of whether good government would lead to a citizenry corrupted by prosperity. Robinson writes: “If Adams worried about the effects of prosperity in his day, how much more worried should we be now, as AI promises prosperity at levels Adams could never have imagined?” Read more here.
Confronting and Competing with China
In The Free Press, Distinguished Visiting Fellow Matthew Pottinger and Liza Tobin of Garnaut Global and senior fellow at the Jamestown Foundation argue that with AI models, Beijing is following a pattern recognizable to anyone who has dealt with the IP theft, import bans, domestic subsidies, and other measures the People’s Republic of China has engaged in previously in industries such as solar panels, phones, and even apparel. “The party-state steals IP, subsidizes domestic producers, blocks foreign competitors from its own market, and then floods global markets until their overseas competition drowns,” they write. Through “distillation,” Chinese open-weight models can absorb the abilities and knowledge of US models that cost billions to train, without China having to spend similar amounts. They authors argue that the Commerce Department should “restrict such models from American cloud platforms” if they are found to have distilled US models in the course of their development. Read more here. (Subscription required)
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